Q4 2023 TransAlta Corp Earnings Call

Operator: Good morning. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation's fourth quarter and full year 2023 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 the star and then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star followed by the number 2.

Good morning, My name is <unk> and I will be your conference operator today.

At this time I would like to welcome everyone to John's Alcoa Corporation fourth quarter and full year 2023 results conference call.

Your lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the star followed by then and Victor Thank you.

Ms. Valentini: St. Ms. Valentini, you may begin your conference. Thank you, Ina. Good morning, everyone, and welcome to TransAlta's fourth quarter and full year 2023 conference call. With me today are John Kouzenioris, President and Chief Executive Officer, Todd Stack, EVP Finance and Chief Financial Officer, and Kerry O'Reilly-Wilkes, EVP Growth and Energy Marketing. Today's call is being webcast, and I invite those listening on the phone lines to view supporting slides that are posted on our website. A replay of the call will be available later today, and the transcript will also be posted shortly thereafter.

Mr. <unk> you may begin your conference.

Thank you Ana good morning, everyone and welcome to Transalta fourth quarter and full year 2023 conference call.

Me today are John <unk>, President and Chief Executive Officer.

That GBP finance, and Chief Financial Officer, and Kerry O'reilly.

Key growth and energy marketing.

Today's call is being webcast and I invite those listening on the phone lines to view earnings slides that are posted on our website.

Replay of the call will be available later today and the transcript will also be posted shortly thereafter.

Ms. Valentini: All the information provided during this conference call is subject to the forward-looking statement qualifications set out here on slide 2, detailed further in our MD&A, and incorporated in full for the purposes of today's call. All announcements referenced during the call are in Canadian currency unless otherwise noted. The non-IFRS terminology used, including adjusted EBITDA, funds from operations, and free cash flow, are reconciled in the MD&A for your reference.

All of the information provided during this conference call is subject to the forward looking statement qualification set out on slide two detailed further 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 noted.

The non high for us terminology used including adjusted EBITDA funds from operations and free cash flow are reconciled in the MD&A for your reference.

Ms. Valentini: On today's call, John and Todd will provide an overview of the annual and quarterly results. After these remarks, we will open the call for questions. With that, let me turn the call over to John. Thank you, Kiara.

On today's call, John and Todd will provide an overview of the annual and quarterly results. After these remarks, we will open the call for questions.

With that let me turn the call over to John.

Thank you Kara good morning, everyone and thank you for joining our fourth quarter and full year results call for 2023.

John Mould: Good morning, everyone, and thank you for joining our fourth quarter and full year results call for 2023. As part of our commitment to reconciliation, I want to begin by acknowledging that TransAlta's head office, where we are today, is located in the traditional territories of the peoples of Treaty 7, which includes the Blackfoot Confederacy, comprising the Siksika, the Pekani, and the Kainai First Nations, the Tsutina First Nation, and the Stony Nakoda, including the Chi The City of Calgary is also home to Métis Nation of Alberta Districts 5 and 6.

As part of our commitment towards reconciliation I want to begin by acknowledging the Trans Altus head office, where we are today is located on the traditional territories of the people the treaty.

Include the black to keep receipts, comprising 60 call it the Connie and the client actor stations, such a keener first nation and the Stoning Dakota, including the <unk> first Paul and good Stony first nations. The city of Calgary is also Hello to the <unk> nation of Alberta District, five and six.

Yes.

John Mould: It was another exceptional year of performance for TransAlta, in which we increased our key financial guidance and targets twice. We generated free cash flow of $890 million, or $3.22 per share, from record revenues of $3.4 billion. We had a revenue of $1.63 billion, in line with our record results from last year, and record net earnings to shareholders of $644 million, a $640 million increase from 2020. We benefited from high power prices, particularly during periods of market tightness, and the exceptional efforts of our optimization, energy marketing, and operations team. Our integrated and diversified fleet continued to show its value by generating excellent results for the third year in a row. We achieved fleet availability of 88.8% across our facilities, which, when adjusted for Cantil's extended outage, actually resulted in an underlying performance of 92.8%. I'm pleased to also share that 2023 was a record year for safety performance. We operated without any lost time injuries across our global operations and delivered a total recordable injury frequency rate of 0.3, an outstanding result that improved upon our previous best outcome ever of 0.39 last year.

It was another exceptional year of performance for Transalta in which we increased our key financial guidance and targets twice, we generated free cash flow of $890 million or $3 22 per share from record revenues of $3 4 billion yes.

We had adjusted EBITDA of $1 63 billion in line with our record results from last year and record net earnings to shareholders of $644 million is $640 million increase from 2022.

We benefited from strong power prices, particularly during periods of market tightness and the exceptional efforts of our optimization energy marketing and operations teams.

Our integrated and diversified fleet continued to show its value by generating excellent results for the third year.

We achieved fleet availability of 88, 8% across our facilities, which when adjusted for the canceled extended outage actually resulted in an underlying performance of 92, 8%.

I'm pleased to also share the 2023 was a record year for safety performance.

We operated without any lost time injuries across our global operations and delivered a total recordable injury frequency rate of 0.3 and outstanding result did improved upon our previous best outcome ever at 0.39 last year.

John Mould: During the year, and more recently in the fourth quarter, we delivered on a number of key priorities and strategic initiatives. First, our growth team advanced 678 megawatts of construction product. We completed construction and reached commercial operation of our Garden Plain Wind Facility in Alberta and the Northern Goldfields Combined Solar and Battery Storage Facility in Australia, representing an addition of 178 megawatts of renewable storage. As for our remaining projects, we expect the 200-megawatt Horizon Hill and 300-megawatt White Rock Wind Facilities, along with the Mount Keith Transmission Expansion, to achieve commercial operation in March 2024. A portion of the White Rock Wind Facility breached COD earlier this year.

During the year and more recently in the fourth quarter, we delivered on a number of key priorities and strategic initiatives.

First our growth team advanced 678 megawatts of construction projects.

We completed construction and reached commercial operation of our Garden Plains wind facility in Alberta, and the northern Goldfields combined solar and battery storage facilities in Australia, representing an addition of 178 megawatts of renewable Stuart.

As for our remaining projects, we expect the 200 megawatt Hill and 300 megawatt White rock wind facilities, along with the mouth Keith transmission expansion to achieve commercial operation in March 2024.

A portion of the White rock wind facilities reached earlier this year.

John Mould: Together, these facilities, along with the fully rehabilitated Kent Hills facility, will contribute over $175 million in adjusted EBITDA annually. Additionally, we advanced two key strategic initiatives with the acquisition of TransAlta Renewables and Heartland Generation. The acquisition of TransAlta Renewables represented an important milestone for our company. It allowed us to simplify and unify our corporate and capital structure and add a net economic interest in 1.2 gigawatts of high-quality generating capacity to our. The combination enables us to enhance execution with a simplified and unified strategy, which positions us well for future success. We have also entered into an agreement to acquire Heartland Generation, which has approximately 1.8 gigawatts of contracted and peaking generation in Alberta and British Columbia.

Together these facilities along with the fully rehabilitated Kent Hills facility will contribute over 175 million in adjusted EBITDA annually.

Second we advanced two key strategic initiatives with the acquisition of Transalta renewables and Heartland generation.

The acquisition of Transalta renewables represented an important milestone for our company.

It allow us to simplify and unify our corporate and capital structure and add a net economic interest in one two gigawatts of high quality generating capacity to our fleet.

The combination enables us to enhance execution with a simplified and unified strategy, which positions us well for future success.

We also entered into an agreement to acquire Heartland generation, which has approximately one eight gigawatts of contracted and peaking generation in Alberta and British Columbia.

John Mould: The regulatory approval process for the transaction is currently underway, and once approved, Heartland will add flexible and complementary assets to our Alberta portfolio, further diversifying our generation capabilities in that market. Third, we continue to advance our customer relationship. In the fourth quarter, we entered into a joint development agreement with Hancock Prospecting to define, develop, and operate clean energy solutions in Australia.

The regulatory approval process for the transaction is currently underway and once approved heartland will add flexible and complementary assets to our Alberta portfolio further diversifying our generation capabilities in that market.

Third we continue to advance our customer relationships in the fourth quarter, we entered into a joint development agreement with Hancock prospecting to define develop and operate clean energy solutions in Australia.

John Mould: And finally, starting in April, our shareholders will receive a 9% increase in their common share dividend, representing our fifth consecutive annual increase. We also returned $87 million to our shareholders in 2023 to share. With another quarter of strong cash flow, we continue to maintain a strong balance sheet with over $1.7 billion in liquidity and are well positioned to deliver on our priorities. It's my view that the repositioning of our company and our strong free cash flow results over the past few years and our expectations for 2024 are not being reflected appropriately in the current trading price of our company. As a result, we announced an enhanced common share repurchase program for 2024 of up to $150 million as part of our ongoing normal course issuer bid.

Finally, starting in April our shareholders will receive a 9% increase to their common share dividend, representing our fifth consecutive annual increase we also returned to $87 million to our shareholders in 2023 through share repurchases with another quarter of strong cash flow, we continue to maintain a strong balance sheet.

With the $1 7 billion in liquidity and are well positioned to deliver on our priorities.

It's my view that the repositioning of our company and our strong free cash flow results over the past few years and our expectations for 2024 are not being reflected appropriately in the current trading price of our common shares as a result, we announced an enhanced common share repurchase program for 2024 of up to 150.

Through our ongoing normal course issuer bid folks.

John Mould: With an expected free cash flow of approximately $1.70 per share for 2024, we're trading at an implied free cash flow yield of about 20%, which allows share repurchases to deliver great value to our shareholders. This, together with our increased common share dividend of 24 cents per share, represents a return of up to approximately 40% of the midpoint of our 2024 free cash flow guidance to our shareholders. Given the current environment, we believe this course of action is an appropriate and balanced use of our capital while still allowing us to pursue growth opportunities with appropriate returns and maintain our balance sheet strength and resilience. Over the longer term, we see significant opportunities for the company as the world increasingly electrifies to meet its growth and climate change goals.

With expected free cash flow of approximately $1 70 per share for 2024, we're trading at an implied free cash flow yield of about 20%, which allows share repurchases to deliver great value to our shareholders.

This together with our increased common share dividend of <unk> 24 per share represents a return of up to approximately 40% of the midpoint of our 2020 for free cash flow guidance to our shareholders given.

Given the current environment. We believe this course of action as an appropriate and balanced use of our capital while still permitting us to pursue growth opportunities with appropriate returns and maintain our balance sheet strength and resilience.

Over the longer term, we see significant opportunities for the company as the world increasingly electrifies to meet its growth and climate change goals.

John Mould: We continue to view investments in contracted clean energy assets as being in the best interests of the company and have articulated our clean electricity growth plan for 2028. As you know, the company is targeting to add up to 1.75 gigawatts of new capacity to its fleet by investing approximately $3.5 billion to develop, construct, or acquire new assets through to the end of 2028, and expand our development pipeline to 10 gigawatts in the same period, all with a focus on customer-centered renewables storage. We're also focused on the selective expansion of flexible generation and reliability assets where our operating and optimization expertise can add value. As we execute our plan to 2028, we expect that approximately 70% of our adjusted EBITDA will come to be sourced from clean generation as we increase the size of renewables in Earthly, significantly higher than the approximately 40% that we have today. And as we make the shift, TransAlta will be greener, more contracted, and more diverse.

We continue to view investments in contracted clean energy assets as being in the best interest of the company and I have articulated our clean electricity growth plan to 2028.

As you know the company is targeting to add up to 175 gigawatts of new capacity to the Companys fleet by investing approximately $3 5 billion to develop construct or acquire new assets through to the end of 2028 and expand our development pipeline.

10, Gigawatts in the same period, all with a focus on customer centered renewables storage.

We're also focused on the selective expansion of flexible generation and reliability assets, where our operating and optimization expertise can add value.

As we execute our plan to 2028, we expect that approximately 70% of our adjusted EBITDA will come to be sourced from clean generation as we increased the size of renewables in our fleet significantly higher than the approximately 40% that we have today and as we make the shift transalta will be greener more contract.

And more diversified.

John Mould: In the meantime, we continue to progress a number of projects towards final investment, including projects not currently shown as being in the advanced stage. We have been disciplined in advancing these projects, focused on ensuring that they're appropriately de-risked and construction-ready, with appropriate risk-adjusted returns given the environment in which we have found ourselves. Long-term shareholder value creation will ultimately drive our capital allocation. If returns are insufficient, we'll continue to enhance value through dividends and share repurchases and by enhancing the strength of our balance sheet. We're positioned to succeed over the balance of the decade and beyond, with considerable optionality in our generating base and growth pipeline, coupled with our balance sheet strength and strong financial. In 2023, we expanded our development pipeline by 1.35 gigawatts, or approximately 30%, with prospective projects in all three of our core markets.

In the meantime, we continue to progress a number of projects towards final investment decision, including projects not currently shown as being an advanced stage.

We have been disciplined in advancing these projects focused on ensuring that they are appropriately derisked and construction ready with appropriate risk adjusted returns given the environment in which we have found ourselves.

Long term shareholder value creation will ultimately drive our capital allocation decisions. If returns are insufficient will continue to enhance value through dividends and share repurchases and by enhancing the strength of our balance sheet we're positioned.

To succeed over the balance of the decade and beyond with considerable optionality and are generating base and growth pipeline, coupled with our balance sheet strength and strong financial outlook.

In 2023, we expanded our development pipeline by 1.35, gigawatts or approximately 30% with prospective projects in all three of our core markets and with the advancement in our growth pipeline in the fourth quarter <unk> exceeded our original five gigawatt development pipeline target two years in advance.

John Mould: And with the advancement in our growth pipeline in the fourth quarter, we've exceeded our original five gigawatt development pipeline target two years in advance. Finally, our commitment to decarbonization remains unchanged, and the addition of the Heartland portfolio will continue to be aligned with our longer-term emissions reductions commitment given Heartland's considerable transition effort. We continue to remain committed to our decarbonization targets and will achieve a 100% mix of renewables and low-emission natural gas by 2025 and net zero by 2045. I'll now pass it over to Todd to go through our segment. Thank you, John, and good morning, everyone.

Finally, our commitment to Decarbonize nation remains unchanged and the addition of the Heartland portfolio will continue to be aligned with our longer term ambitions reductions commitment given heartlands considerable transition efforts we continue.

We remain committed to our decarbonization targets and we will achieve a 100% mix of renewables and low emitting natural gas by 2025, and net zero by 2040 box I'll now pass it over to Todd to go through our segment results.

Thank you John and good morning, everyone.

Todd Stack: I'll start my comments with a discussion on our Alberta portfolio and how it performed over the full year and fourth quarter of 2023. For the full year, we continued to realize high average merchant power prices for energy and ancillary services across the merchant fleet in Alberta, and we were able to optimize our capacity across all fuel types in our portfolio. The spot price for the year averaged $134 per megawatt hour, which was below the average price of $162 for 2022.

I'll start my comments with a discussion on our Alberta portfolio and how it performed over the full year and fourth quarter of 2023.

For the full year, we continued to realize high average merchant power pricing for energy and ancillary services across the merchant fleet in Alberta, and we were able to optimize our capacity across all fuel types in our portfolio.

The spot price for the year averaged $134 per megawatt hour, which was below the average price of $162 for 2022.

Todd Stack: Our hydro fleet in Alberta continued to outperform spot prices with an average realized price of $175 per megawatt hour, an exceptional 31% premium above spot price. Our gas fleet in Alberta also outperformed and exceeded our expectations, operating with strong availability and capturing peak pricing throughout the year of $162 per megawatt hour, which was 22% above the spot price. In the year, the gas fleet in Alberta also benefited from higher production levels during peak pricing, as well as higher power price hedges, which partially offset the impact of lower Alberta spot prices and increased carbon compliance costs. Our Merchant Wind Fleet realized an average price of $73 per megawatt hour, which was in line with our expectations. Our full year's results were impacted by warm weather during the fourth quarter of 2023, which impacted overall demand in the province and resulted in lower power prices than we were expecting relative to our revised guidance range. Weather conditions for the fourth quarter were very mild compared to the fourth quarter of 2022, which had periods of extreme cold weather.

Our hydro fleet in Alberta continued to outperform spot prices with an average realized price of $175 per megawatt hour and exceptional 31% premium above spot price.

Our gas fleet in Alberta also.

Outperformed and exceeded our expectations operating with strong availability and capturing peak pricing throughout the year of $162 per megawatt hour, which was 22% above the spot price.

In the year the gasoline <unk>, Alberta also benefited from higher production levels during peak pricing as well as higher power price hedges, which partially offset the impact of lower Alberta spot pricing and increased carbon compliance costs.

Our merchant wind fleet realized an average price of $73 per megawatt hour, which was in line with our expectations.

Our full year's results were impacted by warm weather during the fourth quarter of 2023, which impacted overall demand in the province and resulted in lower power prices that we were expecting relative to our revised guidance ranges.

Weather conditions for the fourth quarter were very mild compared to the fourth quarter of 2022, which had periods of extreme cold weather in the fourth quarter of 2023 spot rates averaged $82 per megawatt hour, which was significantly below last year's fourth quarter price of $214.

Todd Stack: In the fourth quarter of 2023, the spot price averaged $82 per megawatt hour, which was significantly below last year's fourth quarter price of $214. Our hedging program was able to partially mitigate the impact of lower power prices experienced in the fourth quarter. We had hedges on both our gas and hydro fleets with hedged volumes for the quarter of 1,700 gigawatt hours at an average price of $92 per megawatt hour. Looking forward to 2024, we have approximately 8,100 gigawatt hours of Alberta gas generation hedged at an average price of $85 per megawatt hour, and roughly 72% of our required natural gas volumes are hedged at an average price of $2.76 per GJ. Looking at our full-year corporate results, we had another exceptional year, which was led by our hydro, gas, and energy transition segments.

Our hedging program was able to partially mitigate the impact of lower power prices experienced in the fourth quarter.

We had hedges on both our gas and hydro fleets with hedged volumes for the quarter of 1700 gigawatt hours at an average price of $92 per megawatt hour.

Looking forward to 2024, we have approximately 8100 gigawatt hours of bumper to gas generation hedged at an average price of $85 per megawatt hour and roughly 72% of our required natural gas volumes are hedged at an average price of $2.76 per T. J.

Looking at our full year corporate results, we had another exceptional year, which was led by our hydro gas and energy transition segments.

Todd Stack: The gas segment delivered adjusted EBITDA of $801 million, a 27% increase over 2022. Strong performance was driven by higher realized prices from our hedging activities, lower natural gas commodity costs, and higher production. Adjusted EBITDA at Hydro delivered an exceptional contribution of $459 million. The modest decline compared to 2022 results was due to lower ancillary services volume, lower realized prices, and lower than average water resources.

The gas segment delivered adjusted EBITDA of $801 million or 27% increase over 2022 strong performance was driven by higher realized prices from our hedging activities lower natural gas commodity costs and higher production.

Adjusted EBITDA at Hydro delivered an exceptional contribution of $459 million the.

The modest decline compared to 2022 results was due to lower ancillary services volume lower realized prices and lower than average water resources. These results were partially offset by realized gains from hedging and sales of environmental attributes.

Todd Stack: These results were partially offset by realized gains from hedging and sales of environmental activities. The energy transition segment delivered $122 million of adjusted EBITDA, an increase of 42% year-over-year. Strong performance was driven by higher production, due to higher availability at our Centralia facility, and higher merchant sales volumes, partially offset by lower market prices. The wind and solar segment delivered EBITDA of $257 million, a decrease of 17% year-over-year

The energy transition segment delivered $122 million of adjusted EBITDA, an increase of 42% year over year.

<unk> performance was driven by higher production due to higher availability at our Centralia facility and higher merchant sales volumes, partially offset by lower market prices.

The wind and solar segment delivered EBITDA of $257 million a.

A decrease of 17% year over year motor.

Todd Stack: Lower results were due to lower emission credit sales, lower power prices in Alberta, and lower wind resources across the operating fleet, partially offset by the addition of our new app. And finally, our energy marketing segment delivered adjusted EBIT of $109 million, a decrease of $74 million, primarily due to lower realized settled trades during the year in comparison to the prior year. Energy marketing results were at the top end of our revised full-year guidance provided in the second quarter of 2023. As John mentioned, overall, we delivered another strong year with $1.63 billion of adjusted EBITDA, consistent with our results in 2022. I'll shift now to our fourth quarter results. In the period, we generated $289 million of adjusted EBITDA and $121 million of pre-cash flow.

Lower results were due to lower emission credit sales lower power pricing in Alberta, and lower wind resource across the operating fleet, partially offset by the addition of our new assets.

And finally, our energy marketing segment delivered adjusted EBITDA of $109 million, a decrease of $74 million, primarily due to lower realized several trades during the year in comparison to the prior year.

Energy marketing results were at the top end of our revised full year guidance provided in the second quarter of 2023.

As John mentioned overall, we delivered another strong year with $1 six 3 billion of adjusted EBITDA consistent with our results from 2022.

I'll shift now to our fourth quarter results.

In the period, we generated $289 million of adjusted EBITDA and $121 million of free cash flow gives.

Todd Stack: Given the above-average weather conditions in Q4 that contributed to lower than expected power prices in Alberta, our financial results for the fourth quarter were below our expectations for the period and below our 2022 results. Let me remind you that our Q4 2022 results were extraordinary and driven by extreme weather and record power prices. As a result, year-over-year performance across all of our merchant assets was impacted by lower Alberta power prices.

Given the above average weather conditions in Q4 that contributed to lower than expected power prices in Alberta, our financial results for the fourth quarter were below our expectations for the period and below our 2022 results.

Let me remind you that our Q4 2022 results were extraordinary and driven by extreme weather and record power prices as a result year over year performance across all of our merchant assets was impacted by lower Alberta power prices.

Todd Stack: In addition to power price impacts on both energy and ancillary services, the hydro segment was further affected by a longer-than-planned outage at our Braswell facility, and the wind and solar segment experienced lower wind resources in eastern Canada and the U.S. Our gas fleet led performance in the quarter with EBITDA of $141 million and was supported by our highly hedged position going into the quarter. The energy transition segment outperformed expectations, exceeding 2022's EBITDA by 37%, primarily due to higher production that resulted from lower unplanned outages at the Centralia facility. Energy marketing adjusted EBITDA decreased by $49 million, or 40% compared to 2022, primarily due to lower realized settled trades during the fourth quarter in comparison to the prior period.

In addition to power price impacts in both energy and ancillary services. The Hydro segment was further affected by a longer than planned outage at our <unk> facility and the wind and solar segment experienced lower wind resource in Eastern Canada, and the U S.

Our gas fleet led performance in the quarter with EBITDA of $141 million and was supported by our highly hedged position going into the quarter.

The energy transition segment outperformed expectations exceeding 2020, twos EBITDA by 37%, primarily due to higher production that resulted from lower unplanned outages at our Centralia facility.

Energy marketing adjusted EBITDA decreased by $49 million or 40% compared to 2022, primarily due to lower realized several trades during the fourth quarter in comparison to the prior period.

Todd Stack: As is the nature of this segment, trades are realized and are EBITDA results when they settle, with a portion of trades executed in 2023 settling and being realized over time in 2024 and 2025. Overall, 2023 was a strong year, delivering free cash flow of 890 million dollars, well within our revised guidance range of 850 to 950 million. In 2023, our hydro assets generated $460 million of adjusted EBITDA, and we continue to see strength in the first quarter of 2024. Energy production and ancillary service volumes remain largely consistent on an annual basis.

As is the nature of this segment trains are realized in our EBITDA results when they settle with a portion of <unk> executed in 2023, settling and being realized over time in 2024 and 2025.

Overall 2023 was a strong year delivering free cash flow of $890 million, while it was under our revised guidance range of $850 to $950 million.

In 2023, our hydro assets generated $460 million of adjusted EBITDA, and we continue to see strength in the first quarter of 2024.

Energy production and ancillary service volumes remained largely consistent on an annual basis. This provides a long term predictability on our Florida cash flows that is unique to this asset class.

Our water resource and energy production in 2023 was below 2022, we remain confident in the fleet's ability to realize its long term average production levels.

Todd Stack: This provides long-term predictability and a floor to cash flows that is unique to this asset class. While water resource and energy production in 2023 will be below 2022, we remain confident in the fleet's ability to realize its long-term average production level. Realized pricing in hydro continues to be strong, with a premium on spot electricity prices averaging roughly 26% over the last three years, and ancillary services earning an average of 50% of spot prices.

Realized pricing and hydro continues to be strong with a premium on spot electricity prices, averaging roughly 26% over the last three years and with ancillary services, earning an average of 50% of spot prices.

Looking forward, we expect the segment to continue to receive a premium to spot pricing.

I'd like to remind every one of our 2024 guidance that we announced in Q4 last year.

Looking at 2024, we continue to expect that our results will be impacted by the evolution of the Alberta merchant market and the completion and integration of the Heartland generation acquisition for.

Todd Stack: Looking forward, we expect the segment to continue to receive a premium to spot prices. I'd like to remind everyone of our 2024 guidance that we announced in Q4 last year. Looking at 2024, we continue to expect that our results will be impacted by the evolution of the Alberta Merchant Market and the completion and integration of the Heartland Generation Acquisition. For 2024, we expect adjusted EBITDA to be in the range of $1.15 billion to $1.3 billion and free cash flow to be in the range of $450 million to $600 million, or $1.46 to $1.94 per share. As we've noted, a number of factors are impacting our expected results for 2024. First, we expect Alberta merchant power prices to decline to a range of $75 to $95 per megawatt hour.

For 2024, we expect adjusted EBITDA to be in the range of 1.15 billion to $1 3 billion and free cash flow to be in the range of $450 million to $600 million or $1 46 to $1 94 per share.

As we've noted a number of factors are impacting our expected results for 2024 first we expect Alberta merchant power prices to decline to a range of 75% to $95 per megawatt hour. This outlook is based on our fundamental market forecast, which includes the impact of significant new gas fired supply additions.

Second we are coming into the year with a relatively high hedge position hedges have been executed both financially and through our commercial and industrial business.

Third our outlook includes the incremental adjusted EBITDA contributions for the year for potentials Garden Plain White Rock Horizon Hill, Northern Goldfield solar and the mouth Keith transmission project.

Todd Stack: This outlook is based on our fundamental market forecast, which includes the impact of significant new gas-fired supply additions. Second, we are coming into the year with a relatively high hedge. Hedges have been executed both financially and through our commercial and industrial business.

And finally, we expect continuing solid performance from the energy marketing segment with the midpoint gross margin expectation of $120 million.

Over the past three years, we've deployed a significant amount of capital towards our growth program. Since 2021, we've allocated over $1 6 billion to our clean electricity growth plan with a larger portion of our growth program being funded through our free cash flow as.

Todd Stack: Third, our outlook includes the incremental adjusted EBIDTA contributions for the year from Kent Hills, Gardens Lane, White Rock, Horizon Hill, Northern Goldfield Solar, and the Mount Keith Transmission Project. And finally, we expect continuing solid performance from the energy marketing segment with a midpoint gross margin expectation of $120 million. Over the past three years, we've deployed a significant amount of capital towards our growth program. Since 2021, we've allocated over 1.6 billion dollars to our clean electricity growth plan, with a larger portion of our growth program being funded through our free cash. As John mentioned earlier, we are nearing the end of this construction phase, and while we will pursue our growth plan further, we will not grow simply for the sake of growth in order to be targeted. Long-term shareholder value will drive our capital allocation decisions, and as John noted, we consider our common shares to be significantly undervalued at the current level.

As John mentioned earlier, we are nearing the end of this construction phase and while we will pursue our growth plan further we will not grow simply for the sake of growth in order to be targets.

Long term shareholder value will drive our capital allocation decisions and as John noted, we consider our common shares to be significantly undervalued at current levels.

Accordingly, we are adopting an enhanced common share repurchase program for 2024 of up to $150 million, which is roughly double our historic purchase levels.

We believe these repurchases will add value for our shareholders over the long term.

At the mid point of our guidance for 2024, we expect to generate $525 million free cash flow, which provides us continued flexibility and the ability to take a balanced approach to capital allocation.

We are well positioned to return capital to our shareholders, while prudently pursuing growth opportunities and maintaining our balance sheet strength.

With that I'll turn the call back over to John.

So as I look at our strategic priorities for 2024, we're focused on progressing following key goals first improving leading and lagging safety performance, while achieving strong fleet availability of 93, 1% progressing.

Todd Stack: Accordingly, we're adopting an enhanced common share repurchase program for 2024 of up to $150 million, which is roughly double our historic purchase level. We believe these repurchases will add value for our shareholders over the long term. At the midpoint of our guidance for 2024, we expect to generate $525 million in pre-cash flow, which provides continued flexibility and the ability to take a balanced approach to capital allocation. We are well positioned to return capital to our shareholders while prudently pursuing growth opportunities and maintaining our balance sheet strength. And with that, I'll turn the call back over to John. Thanks, Todd.

Progressing the equivalent of 400 megawatts of additional clean energy projects across Canada, the United States and Australia.

Achieving C O D on the White rock wind Horizon Hill wind and Mount Keith transmission projects next month.

<unk> the expansion of our development pipeline by adding 500 megawatts of development sites with a focus on renewables and storage closing and integrating heartland generation, achieving EBITDA and free cash flow within our guidance ranges proceeding with an enhanced common share repurchase program for 2024 of up to 150.

For our ongoing normal course, issuer bid program and advancing our ESG program.

I'd like to close by highlighting what I think makes transalta highly attractive investment and a great value opportunity first our cash flows are strong and underpinned by our high quality and growing diversified portfolio are.

John Mould: As I look at our strategic priorities for 2024, we're focused on progressing the following key goals. First, improving leading and lagging safety performance while achieving strong fleet availability of 93.1%; progressing the equivalent of 400 megawatts of additional clean energy projects across Canada, the United States, and Australia; and achieving COD on the White Rock Wind, Horizon Hill Wind, and Mount Keith Transmission Projects next month.

Our business is driven by our unique reliable and perpetual hydro portfolio of contracted wind and solar portfolio and our efficient gas portfolio all of which are complemented by our world class asset optimization and energy marketing capabilities both the.

<unk> of Transalta renewables and Heartland generation will further diversify and increase the contracted most of our cash flows while heartland speaking assets will complement our Alberta strategy.

John Mould: Continuing the expansion of our development pipeline by adding 1500 megawatts of development sites with a focus on renewables and storage. Closing and integrating heartland generation, achieving EBITDA and free cash flow within our guidance ranges, proceeding with an enhanced common share repurchase program for 2024 of up to $150 million through our ongoing normal course issuer bid program, and advancing our ESG, I'd like to close by highlighting what I think makes TransAlta a highly attractive investment and a great value-up. First, our cash flows are strong and underpinned by a high quality and growing diversified portfolio. Our business is driven by our unique, reliable, and perpetual hydro portfolio, our contracted wind and solar portfolio, and our efficient gas portfolio, all of which are complemented by our world-class asset optimization and energy marketing capability.

We're clean electricity leader with a focus on tangible greenhouse gas emissions reductions we remain on track to achieve our ambitious cotwo emissions reduction target of 75% by 2026 from 2015 levels and we also remain committed to net zero by 2045, we remind everyone that.

The Heartland acquisition will not affect either of these commitments.

Third as noted earlier, we have a diversified and growing development pipeline and a talented development team focused on realizing its value with appropriate returns.

Fourth our company has a sound financial Foundation.

Our balance sheet is strong and we have ample liquidity to return cash flow to our shareholders through share repurchases closed the heartland acquisition and also pursue and deliver our clean electricity growth plan.

Finally, we have our people our people are our greatest asset and I want to thank all our employees and contractors for the outstanding work they have done to deliver another record year for Transalta.

John Mould: Both the acquisitions of TransAlta Renewables and Heartland Generation will further diversify and increase the contractiveness of our cashflow, while Heartland's peaking assets will complement our Alberta strategy. Second, we're a clean electricity leader with a focus on tangible greenhouse gas emissions reduction. We remain on track to achieve our ambitious CO2 emissions production target of 75% by 2026 from 2015 levels, and we also remain committed to net zero by 2045. We remind everyone that the Harland acquisition will not affect either of you.

You and I will turn the call back over to Kia.

Thank you John.

Would you please open the call to questions from the analysts.

Okay.

Thank you ladies and gentlemen, we will now begin the question and answer session.

Did you have a question. Please press the star followed by one on your telephone keypad.

You wish to cancel your request please press the star followed waited too.

If you're using a speaker phone please lift the handset before pressing any Keith one moment. Please.

John Mould: Third, as noted earlier, we have a diversified and growing development pipeline and a talented development team focused on realizing its value with an appropriate return. Fourth, our company has a sound financial foundation, our balance sheet is strong, and we have ample liquidity to return cash flow to our shareholders through share repurchases, close the hard line acquisition, and also pursue and deliver our clean electricity growth. Finally, we have our people.

First question.

Your first question comes from the line of Mike <unk> from CIBC capital markets. Please go ahead.

Thanks, Good morning, a couple questions on the share repurchases. Maybe just first is excuse me just a function of the share price or what are the considerations went into this sort of evolved messaging.

Which seems to prioritize buybacks relative to what we communicated at Investor day in November.

Yes.

Yes, Mark.

Operator: Our people are our greatest asset, and I want to thank all our employees and contractors for the outstanding work they have done to deliver another record year for TransAlta. Thank you, and I'll turn the call back over to Kiara. Thank you, John. Ena, would you please open the call for questions from the audience? Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number on your telephone keypad. Should you wish to cancel your request, please press the star followed by the number on your telephone keypad. If you are using a speakerphone, please lift the handset before pressing.

Good morning, and thanks for the question.

It is look we review our capital allocation.

Approached constantly we look at kind of the timing of having the growth coming into the company and the needs of the balance sheet as we allocated in the and the capital allocation framework that we've adopted but when we kind of looked at where our trading price has gotten to at a level that was built.

Below $10 that.

Certainly became.

A catalyst for us focusing on allocating more capital to doing share buybacks supporting the price, which is clearly important to us and <unk>.

Operator: One moment, please, for your first question. Your first question comes from the line of Mark Jarvee from CIBC Capital Markets. Please go ahead. Thanks. Good morning, everyone.

Importantly in a context of at least from our own perspective, seeing it being so undervalued in the marketplace.

Maybe I'll just add that over the last five years, we have pretty consistently bought back our shares.

Somewhere between 50 and $90 million of arch of shares in 2023, our average purchase price was around that $11. So we have been active in the market. We can do we've said that previously that would be opportunistic on it when we don't like where are we don't think the share price is trading at a reasonable price.

Mark Jarvee: A couple questions on the share repurchases. Maybe just first, is it exclusively a function of the share price? Or what other considerations went into this sort of devolved messaging, which seems to, you know, prioritize buybacks relative to what you communicated yesterday in November? Yeah, Mark, good morning, and thanks for the question.

And where the stocks trading today, clearly we set the signal out there.

John Mould: It is, look, we review our capital allocation approach constantly. We look at the timing of having the growth coming into the company and the needs of the balance sheet as we allocate it in the capital allocation framework that we've adopted. But when we kind of looked at where our trading price had gotten to, at a level that was, you know, below $10, that certainly became a catalyst for us focusing on allocating more capital to doing share buybacks, supporting the price, which is clearly important to us and important in a context of, at least from our own perspective, seeing it being so undervalued in the marketplace. Maybe I would just add that, you know, over the last In 2023, you know, our average purchase price was around $11.

Understood and so then if the share price at a rally in the back of this or drifts higher like is there a level, where you sort of turn it off where.

Is the message to the market that likely you'll be somewhere closer to $150 million allocation. This year.

I mean, we basically came out and kind of signaled to the market that where we stand today. We're looking at essentially I think Todd you mentioned it in your presentation doubling.

The amount of share buybacks that we would normally do I think the to Todd's point the average price that we did share buybacks and last year. It was just a little bit over $11, a share and given where we're trading today.

That kind of allocation of capital seems to be a <unk>.

Reasonable amount when we look at it being kind of carry through over the course of the year.

John Mould: So we have been active in the market. We've said previously that we'd be opportunistic on it when we don't like where we don't think the share price is trading at a reasonable price. And where the stock's trading today, clearly, you know, we've sent the signal out there.

Considering the time.

Loan growth John.

But just just where we're looking at our growth program for 2023 were coming to the end of a construction phase.

We're looking at a number of other projects to move forward in 2024, but I think the the capital requirements in 2024 would be relatively light for those new projects.

John Mould: And so then, you know, if the share price is rallying on the back of this or just higher, like, is there a level where you sort of turn it off? Or, you know, should the message to the market be that you'll likely be somewhere close to the $150 million allocation this year? I mean, we basically came out and kind of signaled to the market that where we stand today, we're looking at essentially, I think, Todd, you mentioned it in your presentation, doubling the amount of share buybacks that we would normally do. I think, to Todd's point, the average price that we did share buybacks at last year was just a little bit over eleven dollars a share.

And then just coming to that.

Todd in terms of the $2 5 billion you outlined at Investor Day now you wanted to you sort of an enhanced buyback here.

How do you pay for everything.

Is it just a function of timing updated using them with financing options on the growth platform how do you.

Sort of Dovetailing this enhanced buyback activity at least in the short term.

We'll still sort of trying to deliver on $3 5 billion Capex plans.

John Mould: And given where we're trading today, that kind of allocation of capital seems to be a reasonable amount when we look at it being kind of carried through over the course of the year. I think the other consideration was the time spent on growth. Just where we're looking at our growth program for 2023, we're coming to the end of a construction phase, you know, we're looking at a number of other projects to move forward in 2024, but I think the capital requirements in 2024 would be relatively light for those new projects. And then just coming to that point, Todd, in terms of the $3.5 billion you outlined on investor day, now you want to do sort of an enhanced buyback here. How do you pay for everything?

Yeah, I would just say that that your comment there around timing. It is it is.

Somewhat timing aspect of capital usage, which in 2024 as we move into 2025, we'll again reevaluate the balance between between growth and share buybacks, but but I would say mark.

Our clean electricity growth plan is the five year plan in terms of executing the actual growth. The company has considerable cash flow generation capability over the course of that time period and as we showed I think folks in our investor day that that we're very confident in our ability to actually fund.

Todd Stack: Is it just a function of timing, updated use in terms of financing options on the growth platform? How do you, you know, sort of dovetail with this enhanced buyback activity, at least in the short term, while still sort of trying to deliver on the $3.5 billion CapEx? Yeah, I would just say that your comment there around timing is somewhat a timing aspect of capital uses within 2024. As we move into 2025, we'll again reevaluate the balance between growth and share buybacks. But I would say, Mark, you know, our Clean Electricity Growth Plan is a five-year plan in terms of, you know, executing the actual growth. The company has a considerable cash flow generation capability over the course of that time period.

The growth, we're more focused on making sure we get the right projects and the right returns to be honest more then.

Worried about the cash flow that we're generating to be able to meet the need certainly over the next.

Period of time, so so I think we feel good in our ability to take a balanced approach here.

Okay I'll leave it there for now thanks for the time.

Thanks, very much mark.

Thank you and your next question comes from the line of Maurice Choy from RBC capital markets. Your line is open.

Thanks, and good morning, maybe sticking with the share buybacks.

Bigger picture I know, John you mentioned that DCF per share is roughly $1 70.

But as you look at the outer years sure Alberta power prices can change so in your opinion.

John Mould: And as we showed, I think, folks, on our investor day, that we're very confident in our ability to actually fund the growth. We're more focused on making sure we get the right projects and the right returns, to be honest, more than, you know, worried about the cash flow that we're generating to be able to meet the needs, certainly over the next period of time. So I think we feel good in our ability to take a balanced approach. Okay, I'll leave it there for now. Thanks for your time. Thank you very much.

That's the logic of buybacks hold true, even when youre using a projections for DCF per share beyond 2024.

Does it sound to have such a program for <unk>.

Just one year, but.

For years to come.

Yes.

I would say.

Absolutely.

We've been positioning our portfolio, adding and contracted assets building up our C&I business.

We're not giving long term projections here on free cash flow, but at $10 a share I still see purchases.

Operator: Thank you. And your next question comes from the line of Maurice Choi from RBC Capital Markets. Your line is open. Thanks, and good morning. Perhaps we will stick with the share buybacks. Let me take a picture.

Creatives to the shareholders.

I would agree with.

But Todd Murray said good morning by the way in terms of his response fit.

Operator: I know, John, you mentioned ACF per share is roughly $1.70. But as you look at all the years, I'm not sure where power prices can go. So in your opinion.

It certainly is something that we would be looking at.

Over time and as Todd pointed out we have traditionally done in that $50 million to $80 million range I think Todd over the course of the last number of years, we've bought back almost 30 million shares I think is the actual numbers. So it is not.

Operator: Does the logic of buybacks hold true, even when you're using a projection for, you know, DCF per share beyond 2024? Is it sound to have such a program for, you know, not just one year but for years to come? Look, I would say it's absolutely.

It's certainly a greater focus we're doubling up kind of the <unk>.

Expectations of what we're going to be deploying in terms of share buybacks, but.

John Mould: We've been positioning our portfolio, adding contracted assets, and building up our C&I business. We're not giving long-term projections here on free cash flow, but at $10 a share, I still see purchases being accretive to the shareholders. Yeah, I would agree with Todd Maurice, and good morning, by the way, in terms of his response. It certainly is something that we would be looking at over time. And as Todd pointed out, we've traditionally done in that $50 million to $80 million range. I think, Todd, over the course of the last number of years, we've bought back almost 30 million shares. I think that's the actual number.

Right now I think there's a great opportunity for us to do that.

Maybe just a follow up on that your free cash flow guidance of $1 47 to $1 96.

Which by the way I'd like to focus on per share metrics here.

Can you confirm that there's no buybacks in there.

Given your comments, Todd just now and about where the shares are trading any buybacks are immediately accretive to this to this guidance.

This is the last half of that question, but the first half you are correct. We have not included in the denominator of change it's share count did that in that free cash flow forecast. So to answer the second part of your question because I think I did hear and parties.

John Mould: It's certainly a greater focus. We're doubling up on the expectations of what we're going to be deploying in terms of share buybacks. But right now, I think there's a great opportunity for us to do that. And just to follow up on that, your free cash flow guidance of $1.47 to $1.96, which, by the way, I like to focus on per share metrics here. Can you confirm that there are no buybacks in there? And given your comments, Todd, just now, about where the shares are trading, are any buybacks immediately credited to this guidance? I missed the last half of that question, but the first half: you are correct, we have not included in the denominator a change in share count in that pre-cash flow forecast.

Sure.

It would be accretive correct to took a number to the free cash flow per share number which is something that we're focused on clearly at the organization.

Great. Thank you and maybe it's the finished shelf John.

John You mentioned that you will continue to view investments in.

<unk> contracted clean energy assets as being the best interest of the company and Todd I think you also mentioned that you won't grow for growth's sake.

If you look at the projects that make up your clean electricity growth plans.

It paints a picture as to what the average free cash flow yield this and broadly speaking and in the very near term.

Todd Stack: So to answer the second part of your question, because I think I did hear it Maurice, it would be an accretive correction to the number, to the pre-cash flow per share number, which is something that we're focused on clearly as an organization. Great, thank you. And maybe just to finish off, John, you mentioned that you continue to view investment in contracted clean energy assets as being the best interest of the company. And Todd, I think he also mentioned that you won't grow for growth's sake.

What projects are at the higher end of that free cash flow range.

At <unk>, we tend to look at it as a portfolio so.

There would be <unk>.

<unk> that we would be developing that would have.

Turns that would be lower on a sliding scale, we've talked to people about this.

When we look at it from the from the context of the returns on a risk adjusted basis Sofia.

John Mould: As you look at the projects that make up your clean electricity growth plan, can you paint a picture as to what the average free cash flow yield is and, broadly speaking, you know, in the very near term? What projects are at the higher end of that cash flow year, year range? It, you know, Maurice, we tend to look at it as a portfolio. So, you know, there would be projects that we would be developing that would have, you know, returns that would be lower on the sliding scale. We've talked to people about this when we look at it from the context of returns on a risk-adjusted basis. So, if you have a, you know, a renewable energy project in Australia, for example, where we get a full return on capital during the contracted period, it, you know, having a high single-digit return for a project like that may make sense.

Our renewables project in Australia for example, we get a full return off and on capital during the contracted.

Curious if.

Having a high single digit returns for a project like that.

May make sense, if youre looking at a project for example, like water charger, which would be a merchant battery project, where we're relying on our optimization team here in Alberta to.

Extract value from that facility through the skill set that they have and we'd be looking at considerably higher returns well into the double digit returns for a project like that and then depending on the risk profile of the project and our ability to derisk. It.

As we go forward everything from the supply chain to the contracting approach that we're taking for the development it would lie in.

John Mould: If you're looking at a project, for example, like a water charger, which would be a merchant battery project, where we're relying on our optimization team here in Alberta to extract value from that facility through the skill set that they have, we'd be looking at considerably higher returns, well into the double digits for a project like that. And then, depending on the risk profile of the project and our ability to de-risk it as we go forward, everything from the supply chain to the, you know, the contracting approach that we're taking for the development would lie in between. So it isn't a good idea.

In between so it isn't.

It isn't a bright line.

Singular kind of approach that's being done it isn't sort of a point number that's being done we tend to look at on a project by project basis, what are the attributes of the project and what is the skill set that we can bring to it from a value proposition going forward. So it really it really does vary.

I guess, it's fair to say that any dollar that goes into core projects that dollar will compete with $1 to share buybacks.

Anyway your share price is trading.

I am sorry, you broke up there Bruce that I couldn't quite catch that Todd new growth program, I'm, just saying that with sharp.

It's part of it is part of the mix Maurice when we look at the allocation of capital.

John Mould: It isn't a bright line, singular kind of approach that's being done. It isn't sort of a point number that's being done. We tend to look at, on a project-by-project basis, what are the attributes of the project and what is the skill set that we can bring to it from a value proposition going forward. So it really does vary. I guess it's fair to say that any dollar that goes into growth projects will compete with the dollar in the share buyback and pending leadership by the treaty. I'm sorry, you broke out there, Maurice, and I couldn't quite catch that.

Great. Thank you.

And once again, if you would like to ask a question. Thank you press the star followed by the number one on your telephone keypad.

Your next question comes from the line of John Mould from TD Cowen Your line is open.

Thanks, Good morning, everybody.

Maybe just.

See you in the development theme I'm just wondering if you can give a little more color on what Youre seeing is the greatest gating factor right now for for finalizing development projects is it financing cost.

Operator: New growth program. I'm just saying that. It is part of the mix, Maurice, when we look at the allocation of capital. Great, thank you. And once again, if you would like to ask a question, simply press the star followed by the number 1 on your telephone keypad.

Equipment.

Specific challenges.

Connect.

And.

Second part just on Alberta, specifically.

Are you finding the renewable development.

From your perspective anyways in Alberta, and I'm thinking about your within your company just to be clear is at all constrained until you get clear.

Operator: Your next question comes from the line of John Mould from TD Cowen. Your line is open. Thanks. Good morning, everybody.

Clarity on whatever power market changes might be getting announced next month or in the months ahead.

Yes, good morning, John.

John Mould: Um, maybe just continuing the development theme. I'm just wondering if you can give a little more color on what you're seeing is the greatest gating factor right now for finalizing development projects. Is it financing costs?

You kind of answered the first part of your question I think by reference to the to the second part of the question.

As you might recall, when we talked about kind of our growth pipeline and where it is we went through a period, where the projects that we had were had a bit more of a U S flavor with a little bit of Australia thrown it right now in terms of the relative readiness of projects to go forward they have a bit more of an Alberta and Australia.

John Mould: equipment, and project-specific challenges like InterConnect. And, you know, second part, just on Alberta specifically, are you finding that renewable development, from your perspective, anyways, in Alberta, and I'm speaking about within your company, just to be clear, is it all constrained until you get it? Clarity on whatever power market changes might be getting announced next month or in the month. Yeah, good morning, John. You kind of answered the first part of your question, I think, by reference to the second part of your question. As you might recall, when we talked about kind of our growth pipeline and where it is, we went through a period where the projects that we had had a bit more of a US flavor with a little bit of Australia thrown in.

Flavor going forward. So when we're looking at them from a gating perspective, we've done a ton of work.

In terms of Derisking, the projects and getting them to a place where we're increasingly comfortable with both the costs and even the revenue side of where we could go through but I think having a bit more certainty from market evolution perspective going forward.

Something that certainly is important to us it's important to the to our board and we're close to getting some of that.

John Mould: Right now, in terms of the relative readiness of projects to go forward, they have a bit more of an Alberta and Australia flavor. So when we're looking at them from a gating perspective, you know, we've done a ton of work in terms of de-risking the projects and getting them to a place where, you know, we're increasingly comfortable with both the costs and even the revenue side of where we could go. But I think having a bit more certainty from a market evolution perspective going forward is something that is certainly important to us. It's important to our board and, you know, we're close to getting some of that certainty or clarity from an Alberta market perspective over the course of the next probably 45 days or so as we begin to get some responses and direction on, you know, the renewables pause and what's going to come out of that and kind of the pathways from a market evolution perspective, in many respects, which create opportunities for us as an organization, given some of the gaps So I'd say those are probably the critical pieces and then just touch on Australia briefly, and I'll see if Kerry wants to add anything as well. She's on the call today.

Certainty or clarity from from an Alberta market perspective over the course of the next probably 45 days or so as as we begin to get.

Some responses and direction on the renewables pause and whats kind of come out of that and kind of the pathways from a market evolution perspective in.

In many respects, which create opportunities for us as an organization given some of the gaps that are in the market. So I'd say those are probably the critical pieces and then just touching on Australia briefly and I'll see if Terry wants to add anything as well she's on the call today.

In many respects.

Tied to the timing and the process that our customers have as they go through their own process and when they look at their capital needs and the evolution of the markets that are in that part of the world. We work with them, but we very much are tied to their investment decisions. As we go forward. Carrie I don't know is there anything else to add to that or the only thing I would add is just to underscore.

Before the impact of regulatory uncertainty would have read in our release that we monetized 83% of the Ptc's relating till hallman here when you look at that.

Linda Ezergailis: You know, we're, in many respects, tied to the timing and the process that our customers have as they go through their own processes. And when they look at their capital needs and the evolution of the markets that are in that part of the world, we work with them, but we are very much tied to their investment decisions as we go forward. Kerry, I don't know, is there anything else to add to that, or not?

The discussion document that was released last Friday, the itc's hasn't been fully enacted it really does impact our ability to attract investment to our Canadian jurisdictions as well as to Alberta.

I think I'd, probably choose that is my number one challenge that we're faced with right now.

Linda Ezergailis: The only thing I would add is just to underscore the impact of regulatory uncertainty. You would have read in our release that we monetized 83% of the PTCs relating to Oklahoma. And when we look at, you know, the CER, the discussion document that was released last Friday, the ITCs haven't been fully enacted. It really does impact our ability to attract investment to our Canadian jurisdictions, as well as to Alberta. So I think I'd probably choose that as my number one challenge that we're faced with right now. I mean, stability is really critical to making sort of the long-term bets that we make when we make investments. John. So that's probably driver number one over some of the other items that you itemized in your question.

Stability is really.

Critical right to making sort of the long term bets that we make when we make investments drive. So that's that's probably driver number one over some of the other items that you itemized in your question.

Okay.

Thats all are all fair points on on stability and.

Maybe touching on something related.

Just on the carbon credit front.

It looks like you did increase sales of carbon credits from your hydro.

Our portfolio in the fourth quarter can you maybe just provide us an update on how you're thinking about.

The carbon credit portfolio more broadly and the pace at which you're thinking about monetizing that.

Sure.

I can start and then Todd and Gary can jump in.

As well look it's quite a valuable asset that we have in the organization and it and it grows so we've got a pretty capable team that manage that very very actively over time and the kind of decisions that we make around it as you know does it make sense to take it in year does it make sense to kind of defer it for a year we are.

Linda Ezergailis: Okay, no, that's all fair points on stability, and you may be touching on something related just on the carbon credit front. It looks like you did increase sales of carbon credits from your hydro portfolio in the fourth quarter. Can you maybe just provide us an update on how you're thinking about your carbon credit portfolio more broadly and, you know, the piece at which you're thinking about monetizing? Sure, and I can start, and then Todd and Kerry can jump in as well.

Are seeing carpet pricing, increasing we are seeing the value of their credits over time increase even though.

The discount as against the face value if I can call it that sometimes increases over time.

John Mould: Look, it's quite a valuable asset that we have in the organization, and it grows. So we've got a pretty capable team that manages it very, very actively over time. And the kind of decisions that we make around it are, you know, does it make sense to take it in-year? Does it make sense to kind of defer it for a year?

They are increasing and then the trick is at which point because of the proliferation of.

Renewables does the value begin to wane, if I can put it that way from a carbon credit perspective. So it's the calculus of trying to frankly monetize or extract the greatest amount of value that we can from the portfolio of credits that we have will also looking at sheltering the carbon obligations that the company has as it goes forward.

John Mould: We are seeing carbon pricing increasing. We are seeing the value of the credits over time increase, even though the discount as against the face value, if I can call it that, sometimes increases over time, they are increasing. And then the trick is, at which point, because of the proliferation of renewables, does the value begin to wane, if I can put it that way from a carbon credit perspective? So it's a calculus of trying to, you know, frankly, monetize or extract the greatest amount of value that we can from the portfolio of credits that we have.

And whether we can actually use some of those credits the shaped products for customers that meet their needs going forward. So it's.

It isn't an easy answer, but but at least in the near term.

When I think of the next year or next two years, there is significant value in kind of.

Picking the right timing so to speak in terms of whether when we monetize I don't know Todd or carry weather things at my current expectation is we would look to start with.

John Mould: We're also looking at securing the carbon obligations that the company has as it goes forward and whether we can actually use some of those credits to shape products for customers that meet their needs going forward. So, it isn't an easy answer, but at least in the near term, you know, when I think of the next year, the next two years, there is significant value in kind of, picking the right timing, so to speak, in terms of when we monetize. I don't know, Todd or Kerry, whether you're saying that or not.

Seeing our inventory volumes of those emission credits over the next three to five years I totally agree.

And the only thing I would add is back more to your holistic future carbon credit question. What we saw in the last Friday's discussion document with the introduction by federal government is saying that they're not hard and fast in terms of emissions after introducing an ability going forward to use to offset some credits against your emissions. So.

I would say in that Frank.

<unk> will continue to be attractive.

Todd Stack: My current expectation is we will look to start reducing our inventory volumes of those emission credits over the next three to five years. I totally agree. And the only thing I would add is that more to your holistic future of carbon credit question, what we saw in the last Friday's discussion document was the introduction by the federal government of saying that they're not hard and fast in terms of emissions, that they're introducing an ability going forward to use offsets and credits against your emissions. So I would say, on that front, carbon credits will continue to be attractive in the short term. Okay, thanks. That's very helpful. And then maybe I'll just slide the last one in on Heartlink.

In the short and mid term.

Okay. Thanks, that's helpful and then maybe able to slide one last one in on on Heartlands.

Provide any updates on the transaction timing and how the qualification process is expected to unfold.

Yes.

Happy to.

So we had three major approvals that we required from a regulatory perspective. The first one was from the British Columbia Utilities Commission, we've actually secured that approval. The second one is from the FERC in the.

United States and we're awaiting that I would say imminently as we go forward. The final one the most significant one would be.

John Mould: Can you just provide any updates on the transaction timing and how the competition process is expected to unfold? Yes, I'm happy to. So we had three major approvals that we required from a regulatory perspective. The first one was from the British Columbia Utilities Commission. We've actually secured that approval. The second one is from the FERC in the United States, and we're awaiting that, I would say, imminently as we go forward. The final one, and the most significant one, would be the review that's being undertaken by the Competition Bureau.

The review that's being undertaken by the competition.

Bureau, we are progressing with that we've got great engagement I would say with the Bureau, our team engages with them regulatory and giving the kind of information they need to be able to properly assess sort of the competitive impacts.

Of the proposed merger and real time, given the evolution that we're expecting to see in the marketplace in the province of Alberta, So from a timing perspective, we.

John Mould: We are progressing with that. We've had great engagement, I would say, with the Bureau. Our team engages with them regulatoryly and gives them the kind of information they need to be able to properly assess sort of the competitive impacts of the proposed merger in real time, given the evolution that we're expecting to see in the marketplace in the province of Alberta. So, from a timing perspective, we remain sort of optimistic that we'll be able to get through that process in an appropriate way and be in a position to close the transaction kind of in the latter That would be about where we are right now, John. Okay, great. Those are my questions. I'll get back in the queue.

We remain sort of optimistic that we'll be able to get through that process in an appropriate way and be in a position to close the transaction kind of in the latter part of the first half of the year.

That would be about where we are right now John.

Okay, Great. Those are my questions I'll get back in the queue. Thank you.

Thank you Andy.

<unk> comes from the line of Patrick Kenny from National Bank Financial Your line is open.

Thank you and good morning, maybe.

Maybe just sticking with the regulatory frontier and specifically the Alberta government potentially creating this generator of last resort entity.

Operator: Thank you, and your next question comes from the line of Patrick Kenny from National Bank Financial. Your line is open. Thank you. Good morning.

How are you guys thinking about.

Protecting the economics for your Alberta portfolio.

Patrick Kenny: Maybe just sticking with the regulatory front here and specifically the Alberta government, you know, potentially creating this generator of last resort entity. How are you guys thinking about, you know, protecting the economy? for your Alberta portfolio, including the Heartland Generation assets here, which... You know, I know you see a lot of value in the peaking capacity there. Just wondering how we should be thinking about, you know, the risk of a new government-based participant in the market. Good morning, Patrick. You know, look.

The Heartland generation.

Assets here, which.

I know you see a lot of value in the.

City, there I'm just wondering how we should be thinking about that.

The risk of a new government based participant in the market.

Good morning, Patrick.

Look.

When we think of the government.

Potentially stepped stepping in to create.

A company that would either require or create generation to ensure the reliability of the grid I think that is very much.

John Mould: When we think of the government potentially stepping in to create, you know, a company that would either require or create generation to ensure the reliability of the grid, I think that is a very much an in extremis, I would say, kind of scenario, a scenario in which there is a genuine concern over the reliability of the marketplace. So it's not, you know, I would say when we look at our investment decisions, and when we look at sort of the optimization of our fleet going forward, it doesn't, it doesn't candidly feature, you know, in our assessment, kind of in the near term, when we look at things going forward. I think there is a genuine concern on the part of the government of Alberta that, you know, if the CER is enacted And, you know, we saw the consequences that could arise just last month when we had temperatures that were approaching, you know, minus 40, and we were on the edge in terms of maintaining the reliability of the grid.

And in Extremis, I would say kind of scenario a scenario in which.

There is a genuine concern over the reliability.

The market place so it's not.

I would say when we look at our investment decisions and when you look at sort of the optimization of our fleet going forward. It doesn't it doesn't candidly feature.

In our assessment kind of in the near term when we look at things going forward I think there is a genuine concern on the part of the government of Alberta that if the CER.

He is enacted in a way and is maintained in a way that.

Results in the reliability of the grid in Alberta being challenged then kind of see themselves as having a obligation to ensure that the grid is reliable and we saw the consequences that could arise just last month. When we had temperatures that were approaching minus 40, and we were on the edge in terms of maintaining the <unk>.

Liability that grid, so it's really.

John Mould: So it's really... A last-ditch, at least our view, would be that it's really that last-ditch insurance policy kind of approach in the thinking of the government, at least based on our discussions with them. Okay, thanks for that. And you touched on the CER, John.

A last ditch at least our view would be that its really that last ditch insurance policy kind of approach and the thinking of the government at.

At least based on our discussions with understatement.

Okay. Thanks for that and you touched on the CER John.

John Mould: Maybe just delving into that a little bit more and thinking about this, you know, potential shift towards emissions limits versus..., you know, intensity performance standards. Curious your thoughts on how these changes might impact your outlook for optimizing generation or overall margins for your fleet going forward as well. Yeah, so as you know, the federal government came up with kind of a thought paper really on the CER. We're obviously responding to and engaging with them as they go through the process. I think a cautionary thought piece for them; I don't know that folks should be viewing it as kind of tangible accepted proposals from the federal government in terms of where they would evolve the CER. So I think there's still an open question as to how they would proceed.

Maybe just delving into that a little bit more in thinking about this potential shift towards.

Emissions limit versus.

Intensity performance standards.

Curious your thoughts on how these changes might impact your outlook for <unk>.

Optimizing generation or overall margins for your fleet going forward as well.

Yes.

So as you noticed.

The federal government came up with kind of a thought paper really on on the CER.

We're obviously responding and engaging with them as they go through the process I think.

It.

Our caution episodic piece.

Piece for them I don't know that that folks should be viewing it as kind of tangible.

Accepted proposals from the federal government in terms of where they would evolve the CER. So I think there is still an open question as housing would proceed but I would say in respect to what we've seen.

John Mould: But I would say in respect of what we've seen, directionally, I think it's positive for where we are. I think, you know, one, the emergency provisions that they had before were unworkable. They're much, much better now in terms of letting the province take on whatever generation it needs in a circumstance when there is an emergency and they need to ensure reliability. I think in terms of unabated gas, and to your point, you know, moving a specific performance factor more to an envelope of emissions is the way I think of it.

Directionally I think it's positive for for where we are I think.

One the emergency provisions that they had before I think we are unworkable, there <unk> much better now.

Now in terms of letting the province.

Touch on whatever generation it needs in a circumstance, where there is an emergency and they need to ensure reliability I think in terms of unabated gas and to your point moving specific performance factor more of an envelope of emissions is the way I think of it. It's also positive, but I think our view at.

John Mould: It's also positive, and I think our view, at least based on the work that we did today, would suggest that it provides more room, certainly for peakers to be able to run to ensure again the reliability of the system. Going forward, so directionally, I would say helpful in terms of where we are, certainly in the context of the Harlem generation transaction and our broader fleet. But Patrick, the temple will be in the details, right? In terms of where we are, and we still have a lingering concern that, although The signal flexibility is helpful, but we may actually need a bit more to ensure that the grid remains reliable in the province of Alberta than what they're proposing.

At least based on the work that we've done to date would suggest that it provides more room.

Certainly for <unk> to.

To be able to run to ensure again the reliability of the system.

Going forward, so directionally I would say helpful. In terms of where we are certainly in the context of the heartland generation transaction and our broader fleet, but Patrick.

We will be in the details right in terms of where we are and we still have a lingering concern that although.

The signaled flexibility is helpful. We may actually need a bit more to ensure that the grid remains robust reliable in the province of Alberta them, what they're proposing.

John Mould: Okay, that's great, John. I appreciate your comments. Thank you. Okay, well, thank you everyone. That concludes our call for today. If you have any further questions, please don't hesitate to reach out to TransAlta Investor Relations. Thank you, and have a great day.

Okay, that's great John I appreciate your comments.

Thank you.

Okay, well. Thank you everyone that concludes our call for today. If you have any further questions don't hesitate to reach out to the.

Transalta Investor Relations team.

And have a great day, thank you Carl.

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