Q3 2024 TransAlta Corp Earnings Call
Sherry: Good morning, my name is Sherry and I will be your conference operator today. At this time, I would like to welcome everyone to transfer to Corporation 3rd Quarter, 2024 Results Conference Call. All lines have been placed on a mute to prevent any background noise.
Speaker Change: Today's call is being webcast and I invite those listening on the phone lines to view the supporting slides that are also posted on our website.
Speaker Change: A replay of the call will be available later today and the transcript will be posted to our website. Shortly thereafter.
Speaker Change: All of the information provided during this conference call is subject to the forward looking statement qualification set out here on slide two detailed.
Speaker Change: Detailed further in our MD&A and incorporated in full for the purposes of today's call all amounts referenced during our call today are in Canadian dollars unless otherwise noted.
And then not knowing that I forgot the terminology used including adjusted EBITDA and free cash flow are also reconciled in the MD&A for your reference.
Speaker Change: On today's call John and Joe will provide an overview of Transalta quarterly results. After these remarks, we will open the call for questions and with that let me turn the call over to John.
John: Thank you Kara good morning, everyone and thank you for joining our third quarter 2024 conference call as.
John: As part of our commitment towards reconciliation I want to begin by acknowledging the trends out of head office, where we are today is located in the traditional territories of the people. The treaty seven which include the Blackfoot Confederacy, comprising the cyclical peak honey and the kind of first nations the <unk> and the first nation Emma stone.
John: Dakota, including the Janicki bear Paw and good Stoney <unk> first nations. The city of Calgary is also home to <unk> nation of Alberta districts, five and six.
Speaker Change: Transalta delivered another quarter of excellent financial and operating results, we had strong performance across our generating fleet as well as from our energy marketing segment.
John: Our third quarter results illustrate the value of our proactive hedging strategy and the active management of our Alberta merchant portfolio.
John: During the quarter, we delivered adjusted EBITDA of $325 million free cash flow of $140 million or <unk> 47 per share and average fleet availability 94, 5% demonstrating our strong operational capabilities.
Speaker Change: And our strong balance sheet continues to provide us with flexibility.
Speaker Change: With over $1 8 billion in available liquidity, including approximately $400 million in cash we are well positioned to execute on our capital allocation priorities, which includes completing our enhanced share repurchase program for 2024 and funding the closing of the Heartland generation acquisition.
Speaker Change: I'd now like to update you on a number of our strategic initiatives this quarter.
Speaker Change: First with respect to the Heartland generation acquisition, we remain actively and constructively engage with the competition Bureau in our effort to obtain competition Act approval.
Speaker Change: We have made good progress on this front and now have greater optimism regarding our pathway to completing the transaction.
Speaker Change: We have also constructively engage with the seller to ensure that the transaction continues to meet our value expectations I am hopeful that we will be able to update everyone on the status of the transaction shortly.
Speaker Change: Next we continue to advance the significant contracting and development opportunities, we see at our legacy thermal sites in both Washington State and Alberta.
Speaker Change: And finally, given the weakness and expected market conditions, we see for the next year or so we have decided to temporarily mothballing Sundance unit six effective April one 2025, which enables us to preserve the unit and site for future opportunities.
Speaker Change: Yeah.
Speaker Change: Moving to our legacy energy campuses and as we noted during our last call. The Centralia site has multiple opportunities that we're currently assessing and we are in active discussions with several potential counter parties to determine how to best meet their energy needs from the site.
Speaker Change: This could include both the repurposing of existing assets and the potential for new facilities, which would serve to enhance the reliability of the grid in Washington State and support the energy transition in meaningful ways.
Speaker Change: If successful we will have the ability to extend the operating life of the Centralia site as well as build out other opportunities, including potentially wind solar batteries pump storage and next generation technologies.
Speaker Change: Critically important infrastructure, including steel in the ground transmission is available at site with significantly reduced redevelopment costs and timelines for permitting and would provide us with an advantage and speed to delivering power supply, we expect to be able to share a more detailed development plans for centralia during the first half of 2025.
Speaker Change: Yeah.
Speaker Change: We're also progressing multiple opportunities at our legacy thermal sites in Alberta, We're actively marketing these sites and believe that they hold significant value and provide unique advantages to customers.
Speaker Change: Our legacy sites around Waldman Lake in Alberta have close to one three gigawatts of operating capacity at Sundance unit, six and keep those units two and three the Sundance and keep fill sites are within 20 kilometers of each other and only 80 kilometers from Edmonton we.
Speaker Change: We have a further one six gigawatts of vital infrastructure at Sundance and keep hills and over 40000 acres of land available to meet customer needs. The sites have water rights fiber optic cable access close by and grid interconnection on location.
Speaker Change: Retired units and spare site capacity at both sites provide us with the potential for significant expansion, including Repowering in the future.
Speaker Change: Our merchant renewables portfolio and the province also enables us to bundle Rex to lower customer carbon intensity, and our marketing optimization and regulatory experience differentiates us from other options.
Speaker Change: We often hear that Alberta is geographic location makes it less desirable for data centers from a latency perspective, we don't believe this to be the case as you can see from the map on the slide our analysis shows that Alberta is well located for both AI trading and AI inferencing applications. When you consider that most would require.
Speaker Change: Latency of 75 milliseconds or better.
Speaker Change: Latency would not therefore be an issue for many customers. If they were to be located on one of our sites and we're in discussions with multiple hyperscale or who are potentially interested in our Alberta energy campuses. We're also progressing several initiatives to ensure our sites are turnkey ready for data centers we.
Speaker Change: We believe we are uniquely positioned to respond to the growing need of data center customers for timely affordable reliable and clean power.
Speaker Change: However, while we see great potential in our Alberta thermal sites given the more immediate fundamentals of the market in 2025, we have taken the prudent financial decision to temporarily masked by our Sundance six while reserving it for future economic opportunities with current oversupply conditions the decision differ significant sustaining capital.
Speaker Change: <unk> and enables us to consolidate our cost structure and operations.
Speaker Change: We'll maintain the flexibility to return Sundance six to service when market fundamentals improve and support. The addition of the units generation.
Speaker Change: We will continue to operate the unit through to the end of the first quarter of 2025, and the mothball period will commence April one 2025.
Speaker Change: Our Alberta portfolio is fully capable of managing our hedging strategy, while Sundance six is mothballed and in the meantime, we will continue to evaluate the Sundance site for Datacenters and reliability contracts actively assessing opportunities. While this site is not in operation.
Speaker Change: Switching to our 2020 for outlook, our financial performance in the year to date makes us confident that we will deliver the year towards the upper end of our adjusted EBITDA and free cash flow ranges notwithstanding the larger planned outages that we have in the fourth quarter that will impact our free cash flow.
Speaker Change: <unk> will now provide more details on the quarter.
Speaker Change: Thank you John and good morning, everyone.
Speaker Change: We are very pleased with our third quarter operational performance and financial results, which were led by our Alberta portfolio in the energy marketing segment the.
Speaker Change: The Alberta portfolio was able to outperform expectations, while we continue to face a challenging merchant pricing environment.
Speaker Change: The Hydro segment produced adjusted EBITDA of $89 million broadly in line with our expectations given the lower realized <unk> spot prices.
Speaker Change: The decline quarter over quarter was partially mitigated from greater volume I think its a resurfaces due to increased demand by the ISO as well as the ability to capture better than average premiums that were in line with average spot energy prices.
Speaker Change: We're also able to sell additional environmental attributes to offset the power price declines at the margin fleet.
Speaker Change: The wind and solar segment delivered adjusted EBITDA of $44 million, a 19% increase compared to the same period last year, primarily due to the addition of the Oklahoma wind assets together with the new PTC transfer deals and a return to service Kent Hills.
Speaker Change: The gas segment, which had improved availability of 96, 3% delivered adjusted EBITDA of $139 million during the quarter.
Speaker Change: The reduced contribution year over year was driven by overall lower production, resulting from higher economic dispatch an excess supply conditions in Alberta, while the decline in realized prices in Alberta portfolio was partly mitigated from our favorable hedge premiums and position.
Speaker Change: The energy transition segment delivered $34 million of adjusted EBITDA, which increased year over year due to lower purchase power costs, which were driven by lower mid C pricing on repurchases of power and more production from higher economic dispatch and finally, our energy marketing segment delivered exceptional performance with adjusted EBITDA of $54 million an increase.
Speaker Change: A $41 million year over year due to the positive positive market volatility across North American power and natural gas markets and higher realized several trades in the third quarter.
Speaker Change: Corporate costs increased year over year, primarily due to increased spending for planning and designing of our ERP upgrade program and initiatives to support our strategic growth.
Speaker Change: Overall, the third quarter was excellent delivering free cash flow of $140 million or <unk> 47 per share year to date, we've achieved $521 million or $1 72 per share of free cash flow setting up the company well to reach the top end of our guidance as John noted earlier.
Speaker Change: Turning to the Alberta portfolio, the third quarter spot price averaged $55 per megawatt hour, which was significantly lower than the average price of $152 per megawatt hour for the same period in 2023.
Speaker Change: Decline year over year was primarily due to incremental generation from the addition of new gas wind and source supply as well as lower natural gas prices.
Speaker Change: Weather conditions for the third quarter were also milder compared to the third quarter of 2023, which had more periods of extremely hot weather and constrained supply.
Speaker Change: We continue to proactively deploy hedging strategies to enhance our portfolio margins and mitigate the impact of lower merchant power prices in the third quarter, we had hedge volumes of 2000, and 365 gigawatt hours at an average price of $85 per megawatt hour, which compared favorably to an average spot power price of $55 per megawatt hour.
Speaker Change: We also continued to enhance our margins through our optimization activities as we capture further margins by fulfilling many of our higher priced hedges with purchase power during lower priced hours when power prices were below our variable cost of production.
Speaker Change: This strategy led to an overall $90 per megawatt hour realized merchant power price in Alberta portfolio by continuing to employ this strategy, we were able to effectively optimize variable cost of our production capacity.
Speaker Change: Okay.
Speaker Change: By optimizing our fleet and fulfilling our hedges with purchase power, we're able to respond to higher demand from the ISO and deliver additional ancillary service volumes across the Alberta fleet.
Speaker Change: This quarter, our realized price for ancillary services settled at prices equal to the average quarterly spot energy price of $55 per megawatt hour.
Speaker Change: Historically this has averaged around 50% of the average spot power price.
Speaker Change: The Alberta grid continues to need additional Enzo services for reliability in our hydro fleet is optimized to support this market.
Speaker Change: During lower demand and pricing periods, we focused on maximizing our reservoirs in order to be optimized for peak demand and for the winter season.
Speaker Change: Our hydro fleet has performed exceptionally well through the first nine months of the year and continues to demonstrate its value in different market environments.
Speaker Change: Looking at the fourth quarter, we have approximately 2400 gigawatt hours of our Alberta portfolio generation hedged at an average price of $82 per megawatt hour, which continues to be above the current forward curve.
Speaker Change: For 2025, and 2026, our teammates hedge production at an average price of approximately $76 per megawatt hour also above current forward pricing levels for both years ill now pass it back to John to discuss our balance of year priorities. Thanks, Joel we remain committed to returning value to our shareholders and have been active in advancing our share buyback.
Graham: Graham through the first three quarters of the year as of September 30th we've returned $114 million to our shareholders through share repurchases or approximately 75% of our 2024 target, resulting in a reduction of almost 12 million common shares and remain committed to completing the $150 million share repurchase program by <unk>.
Speaker Change: Right.
Speaker Change: As I look at our strategic priorities for 2024, we are focused on the following key goals first improving our leading and lagging safety performance indicators, while achieving strong fleet availability.
Speaker Change: Achieving EBITDA and free cash flow consistent with the top end of our 2024 guidance ranges.
Speaker Change: Third executing our enhanced common share purchase program for 2020 for fourth closing the Heartland generation transaction and integrating the assets into our fleet.
Speaker Change: And finally, advancing our ESG program.
Speaker Change: We continue to be prudent and disciplined in our growth plan and our team will be focused on meeting the needs and expectations of both our customers and our shareholders. We're seeing considerable opportunities to support the energy transition in our core jurisdictions, particularly at our legacy thermal sites, where we are actively pursuing redevelopment and re contracting.
Speaker Change: <unk> to serve a growing customer base.
Speaker Change: I'd like to close by highlighting what I think makes trends alt, a highly attractive investment and a great value opportunity first our cash flows are strong and resilient and underpinned by a growing high quality and increasingly contracted and diversified portfolio.
Speaker Change: 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 a world class asset optimization and energy marketing capability.
Speaker Change: Second we are clean electricity leader with a focus on tangible greenhouse gas emissions reductions and we remain on track to achieve our ambitious cotwo emissions reductions targets.
Speaker Change: Third we have a tremendous resource in our legacy thermal sites, which our teams are actively working to redevelop and re purpose to meet the evolving needs of our customers and markets.
Speaker Change: We have a diversified development pipeline and a talented development team focused on securing appropriate returns as it works to advance our clean electricity growth plan ambitions and fifth our customer our company has a sound financial foundation, our balance sheet is strong and we have ample liquidity to return cash flow to our shareholders.
Speaker Change: Through share repurchases closed the heartland acquisition and pursue and deliver growth when returns meet our thresholds. Finally, we have our people our people are our greatest asset and I want to thank all of our employees and contractors for the outstanding work they have done to deliver our excellent results during the quarter and set the company up for a strong finish to 2000.
Speaker Change: 24, Thank you I will turn the call back over to Keira.
Keira: Thank you John.
Keira: <unk> would you please open the call for questions.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Jay: Jay Your question Press Star one again, one moment, while we compile the Q&A roster.
Speaker Change: And our first question will come from the line of.
Speaker Change: Mark Jarvi with CIBC Your line is open.
Mark Jarvi: Hi, good morning, everyone.
Mark Jarvi: And as John So talking about <unk>.
Mark Jarvi: And thermal side.
Mark Jarvi: Is your view that you would be able to host data centers IR site are most A&P serving.
Speaker Change: Data center is at a different location, so just turning to greater behind the meter Colocation perspective, Youre looking at right now.
Speaker Change: Yeah. Good morning, Mark our primary focus right now is actually more oriented I would say towards co location. They get the kind of discussions that we've been having would be given the facilities, we have given the location.
Speaker Change: That were in given the land that we have the ability to provide water at site everything from temperature to the.
Speaker Change: The availability of workforce has us thinking about the ability of kind of building out a campus that is approximate there and as we look at.
Speaker Change: Developing the work around that one of the things that our team is doing and blades actually on the call here and could add some color to think of it sort of in a phased approach where we could deal with customers with sort of what we currently have work too in the interim.
Speaker Change: Derisk, what we're thinking of permitting we're thinking of the physical facilities and the way that we.
Speaker Change: Could develop the immediate area to be able to make it an even more attractive site for people and then more about on a longer term basis think about.
Speaker Change: How we would potentially add or or create even more efficient I would say generation that site to be able to meet their needs from a longer term perspective.
Speaker Change: Any color on that or I mean, I think thats I think thats correct Jon.
Speaker Change: And maybe just a follow up that we've seen other firm filed with the Asa for interconnection of data center load. We haven't seen any of your say that just given the size of the potential lowering is more manageable when.
Speaker Change: We need backup power you guys conserve with your existing sites or in unit.
Speaker Change: And then I guess additionally, what's the sort of conversation around emissions profile.
Speaker Change: Given where your coal and gas conversion units are today on an interesting profile.
Speaker Change: It's all in for that if there is a requirement around emission profile just upon installation with some of your renewables Aon.
Speaker Change: Yes.
Speaker Change: Let me, let me see if I can answer all the questions look we.
Speaker Change: Filing to kind of get an interconnection set up is actually a difficult thing to do and we see what's been set up to sort of prospectively serve data centers.
Speaker Change: In the province, and it's fine that folks have done that frankly, that's not a critical path item from our own perspective, what we are really focused on is more advancing the conversations and making sure that we're developing the site. So it's just easier for people to make that decision. So are the utilities. There how are we doing from a fiber optic perspective can we.
Speaker Change: Get the building set up what are they going to look like it's those you know what are the development permits that we need to be able to move things forward. So it's more about that than kind of putting in an interconnection.
Speaker Change: Request, we've got a lot as you know from you know given the legacy sites that we have there transmission access there so that's smart.
Speaker Change: Not really I would say a gating item I would say Blaine in terms of the way that we're looking at it.
Speaker Change: So that would be the first thing in terms of emissions profile I would say right now.
Speaker Change: It's a very interesting topic I would say the number one priority is.
Speaker Change: He's probably speed to access to power.
Speaker Change: Costs are important and then latency is obviously important I would say you know what our discussions are right now emissions profiles would be playing I would say kind of a medium to lower <unk>.
Speaker Change: Order of priority at least at present I think over time youll see that that become a priority once I think access and supply ends up being built out but right now number one is sort of how quickly can we get.
Speaker Change: Something done can you get us the reliability that we need.
Speaker Change: Is latency setup well so so that's that's pretty much a reflection of where we think <unk> mentioned in Europe remarks that are our portfolio and bundled with Rex Mark of our existing portfolio also provides an attractive alternative to <unk>.
Speaker Change: Solving that emission profile challenge for certain customer classes, and then just a follow up on what Blaine, just said and thats kind of unique for us given our.
Speaker Change: Wind fleet in Alberta.
Speaker Change: A chunk of which is merchant and also our hydro fleet. So we do have the ability to provide them.
Speaker Change: And a last question for me what do you think will come first clarity on what happened at Centralia or what happened on one of your site.
Speaker Change: Isn't that Alberta.
Speaker Change: All I'm.
Speaker Change: I'm kind of smiling, because it's a bit of an internal rates you are.
Speaker Change: You are you.
Speaker Change: Sounds like.
Speaker Change: Sometimes.
Speaker Change: In the office look there are both advancing and I would say.
Speaker Change: Playing kind of comparable timelines I think.
Speaker Change: We would probably have a I would say our discussions are probably a little bit more advanced in Centralia, then they then they would be.
Speaker Change: Alberta thermal you know from a timing perspective, and the need is is acute in terms of what we can provide from a reliability perspective down in the Pacific northwest So that would probably have a bit of a slight edge in timing I would say, but we continue to work.
Speaker Change: To work both.
Speaker Change: At the same time contemporary in Israel.
Speaker Change: Okay. Thanks for the time today.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Benjamin Pham with BMO. Your line is open.
Speaker Change: Mr. <unk> are you on mute your line is open.
Speaker Change: Hi, good morning.
Speaker Change: Sundance six can you walk through the various puts and takes of the mothball and I know you mentioned.
Benjamin Pham: Some consolidation of course and maybe the.
Speaker Change: Power prices will respond directly positively route are mothballed units, but you are losing.
Speaker Change: The EBITDA contribution from <unk> I'm, just wondering if you or Youre up ahead on that are you neutral or a different scenario.
Speaker Change: Yes, good morning, Ben on Sundance six.
Speaker Change: Look we have been.
Speaker Change: <unk>.
Speaker Change: We continuously look at the fleet and we continue to look at the optimization of our fleet.
Speaker Change: And we look at that in the context of our confidence in the Heartland transaction and how that might adjust the portfolio of the company as we go forward specifically.
Speaker Change: <unk> as we see kind of power prices.
Speaker Change: In 2025, and 2026, which is something that we predicted predicted in terms of the dip going down and we look at the capacity factors that we anticipate from our generation both from K two K three and <unk> six we were pretty comfortable that the right decision for us in the context of all of that.
Speaker Change: From an EBITDA and value maximization perspective was to mothball sunsets and have both Kate three NK to running at higher capacity factors that would have otherwise have been the case, if we had all of the three units.
Speaker Change: We're running we're also pretty comfortable from a hedge position that we have in 2025 and 2026 I think it's about 5500 gigawatt hours of our hedges, which translates to about 800 megawatts.
Speaker Change: Per hour of a hedge position that kind of those mid $70 kind of levels, we're comfortable with that you'll see that 2025, and frankly, even 2026 or a bit of a repeat strategically of what we've tactically tried to do in 2024, plus we've got our hydro fleet and.
Speaker Change: And like I said, the potential around heartland to be able to have the length that we need to be able to manage through all of that process. The other thing I would say is that Sundance six was coming up to a pretty significant turnaround. So there would be significant capital sustaining capital expenditures that we would need to put into the unit to make sure.
Speaker Change: That we extended it so that it would be fully operational.
Speaker Change: Into for the ensuing two years and at least from our own perspective. It just didn't make economic sense to kind of triple up if you can see with the three units at.
Speaker Change: At that particular point in time, so we've deferred that.
Speaker Change: A lot of the work has been done we know what we need to do and we've put the unit into mothball, we're going to keep it for Q1, where you expect pricing to be more constructive and then we would.
Speaker Change: Mothball it but you should know we're actually keeping a good chunk of that workforce on the payroll. So so there will be some redundancy in the organization and I.
Speaker Change: It's always disappointing when that happens, but in terms of operators and some of the key people that we need to be able to bring the unit back.
Speaker Change: I just.
Speaker Change: We want to be clear that we're keeping that capability intact, while the unit is effectively.
Speaker Change: So hopefully that gives you a better color.
Speaker Change: No that's great and maybe just a matter when I'm just thinking about maybe some of your comments on the <unk> guidance.
Speaker Change: Yes, Jeremy maybe I think the reference was flat versus 'twenty four but just given the good results and 24 now and maybe just some updated assumptions internally just just direction what are you thinking about.
Speaker Change: With respect to 'twenty five.
Speaker Change: Yes, I can look I can start and Joe can chime in.
Speaker Change: I think our view has changed in terms of where we are on 2025 I think.
Speaker Change: Given our increasing confidence on heartland, given kind of the hedge levels that we have.
Speaker Change: And it's interesting our hedge levels in 2025 at kind of that $75 range begin to approximate about what the gas fleet was able to actually secure over the course of the last quarter.
Speaker Change: Pretty highly hedged.
Speaker Change: <unk> full year of production from our new wind generation. So I would say, we feel pretty good about 2025.
Speaker Change: We're in the final throes of that budgeting work I would say Joel and that will obviously go to the board and will provide the market with guidance.
Speaker Change: At that point in time, but.
Speaker Change: Look we're we've had.
Speaker Change: We've trended to the upper end of our guidance in 2024, which has been great. But we remain confident about 2025, Joel I don't know Phil the only thing I would add there John is.
Speaker Change: Comment earlier that we don't have an investor day. This year, Ben So we would look to provide guidance here in connection with our Q4 results.
Speaker Change: Mid February but to John's point, we're in the middle of our budgeting process right now.
Speaker Change: The guidance that we provided earlier in the year remains intact.
Speaker Change: Okay, Great and then maybe just one quick cleanup.
Speaker Change: What was driving the cash taxes that maybe I missed.
Speaker Change: And then my.
Speaker Change: Initial remarks, but theres, explaining the cash taxes.
Speaker Change: Yeah, Ben So if you think about in Canada up until this year, we Werent, we had loss carryforwards that were able to utilize so think about over the last few years. Despite higher net income we were able to keep our taxpayer relatively low because we had carry forwards those carry forwards have been exhausted. So as we think about.
Speaker Change: 24 end and beyond what we all see here as a higher effective tax rate probably closer to our statutory tax rate for.
Speaker Change: For your modeling and so if you look to our disclosure in the assumptions you can see in our cash taxes. We initially kind of guided our now our assumptions from $140 million to $160 million, that's now $30 million higher at the $160 million kind of Mark.
Speaker Change: Therefore for the year. So again, it's just as a result of us exhausting our loss carryforwards last year.
Speaker Change: Okay got it thank you.
Speaker Change: Yes. Thank you one moment our next question.
Speaker Change: And that will come from the line of Maurice Choy with RBC capital markets. Your line is open.
Maurice Choy: Thank you and good morning, everyone just wanted to stick with Sundance six for a moment.
Maurice Choy: If there was no data center opportunity.
Maurice Choy: With your position today had.
Maurice Choy: It had been different maybe.
Maurice Choy: <unk> prevents shut down and maybe separately.
Speaker Change: What does this mean in terms of.
Maurice Choy: Potential for capacity payments and if you could just elaborate a little bit about an earlier comment about what this may mean for getting an approval on the heartland generation to you I appreciate that.
Speaker Change: Yeah, maybe I'll start with the last one.
Maurice Choy: So there's been no discussions I would say with the competition Bureau, as it relates to <unk> existing fleet. So I just wanted to make sure of that.
Maurice Choy: Folks.
Speaker Change: I understand that so so the Sundance six decision had nothing to do with any kind of competition Act.
Maurice Choy: Kind of approval going forward.
Maurice Choy: Look.
Maurice Choy: We're very much focused on maximizing the optionality of all of the fleet that we have and we'd look to do that at the same time, while trying to maximize the EBITDA that the fleet is going to be able to generate just by being as operationally efficient as we possibly can be.
Maurice Choy: We see a lot of supply coming into the market in 'twenty five we see a lot of that impacting.
Maurice Choy: The market construct that we have there so from our perspective. It just made sense to match up our generational capabilities with kind of our hedging position to make sure that that.
Maurice Choy: That we were in balance in terms of reliability contracts.
Maurice Choy: I think it's actually a bit of a bigger discussion than just reliability contracts I mean, what we have seen with the Ram and the market redesign in the province of Alberta is an increasing focus on reliability generally and our construct I would say that preserves the energy only market, but kind of does so in a way that sort of.
Maurice Choy: I'd say incentivize us capacity.
Maurice Choy: Going forward. So that's also something that is prospectively I think important for Sundance.
Maurice Choy: From a revenue perspective, that's going to take some time to to work through and so what we've done is we've kept the unit.
Maurice Choy: Around we think it has a lot of value, whether it's reliability or whether there is a market recovery because we are seeing load growth increase in the province.
Maurice Choy: And.
Maurice Choy: And it just made sense for us to make that decision at that particular point in time, we have the ability to bring the unit back if circumstances change and I think that's a three month notice period to be able to do that and Meanwhile, we will be making sure that we keep our operational capabilities to enable it to enable us to be able to do that should should market chains and us.
Maurice Choy: No worries, if a datacenters announced in the province, and lets say its a gigawatt in size that changes the entire supply and demand.
Maurice Choy: Fundamental within the province, we go from being in a place where we have plenty of excess supply compared to the demand a bit of a supply imbalance to one where it's quite a bit tighter.
Maurice Choy: And we're actually seeing that I think in terms of reserve margins too if you rollout.
Maurice Choy: 627, you ended up seeing things tighten up considerably in the province. So we just think there's a lot of value in the unit. We just don't think we're going to need it in 'twenty five.
Maurice Choy: Okay.
Maurice Choy: Pretty good segue into.
Speaker Change: Your comment about Repowering for legacy sites and from my understanding at least have six patents.
Speaker Change: Sundance five.
Speaker Change: <unk> can you describe what would motivate you to go about repowering, including market conditions contracts electricity policy or even balance sheet position.
Maurice Choy: Yes, and when we think of kind of the legacy fleet that we have in Alberta at least in my own mind, and Blaine and I and our team we talk about it all the time, along with Chris who runs our operations. So it's K one.
Maurice Choy: No.
Maurice Choy: The Sun five some for potentially century, so there's extra four units.
Maurice Choy: We have I mean, we don't consider.
Maurice Choy: Sun, one and two as sort of being part of the mix at this particular point in time I don't think you would see us bring the units back on a merchant basis to be honest I think.
Maurice Choy: That's more of Sun, six and I say that in the context of the way that we're thinking about heartland potentially as well but.
Maurice Choy: If we had datacenters or or reliability kind of contracting that made sense to bring those units back in in a way that that justified kind of the capital expenditures required to bring them back to the place, where we would be comfortable with them operationally or even upgrade them and make them more efficient that's what it would require.
Speaker Change: And then just when we look at our cash flow sort of forecasted going forward and our borrowing capacity Joel I don't think we see yourself as being particularly financially constrained in terms of being able to do what we need to do from a data center perspective at this point in time, so I have to say Murray I'm pretty.
Speaker Change: Pretty optimistic like Theres, a lot of work to be done, but but I feel good about all of the optionality that we have I mean candidly I think we have more optionality than than anybody does in the province of Alberta.
Maurice Choy: Candidly like where we are.
Speaker Change: That's great to hear thank you very much.
Speaker Change: Thank you one moment for our next question.
Maurice Choy: And that will come from the line of Patrick Kenny with MBS. Your line is open.
Patrick Kenny: Thank you and good morning, everyone. John just back on the Heartland transaction then.
Patrick Kenny: I'm just curious how this new macro outlook across North America.
Maurice Choy: That's changed your view on the Heartland assets more on a relative basis. So.
Maurice Choy: Is it still more accretive to shareholder value to close the transaction.
Maurice Choy: Even if it means adjusting some of the deal terms.
Maurice Choy: Just to beef up your Alberta presence.
Maurice Choy: Or.
Maurice Choy: No.
Maurice Choy: Taking that 600 plus million.
Maurice Choy: And potentially looking at opportunities outside of Alberta, with this new macro outlook.
Maurice Choy: Perhaps in certain other U S markets.
Speaker Change: Yes, I think so good morning, Patrick.
Maurice Choy: Look I would say.
Maurice Choy: Were probably more bullish around what we can do with Harlan.
Maurice Choy: Today.
Maurice Choy: Given how we see the market potentially evolving in the province of Alberta over the medium to longer term I think.
Maurice Choy: That transaction's accretive we would.
Maurice Choy: We would be hard pressed to be able to buy assets at this kind of price level anywhere in North America and I think the returns are really strong and we have a.
Maurice Choy: Hyper sort a vigilant focus on returns from a shareholder perspective, that's really what drives our decision, making so when we think of the.
Maurice Choy: The evolution of the province, when we think of the sheer NES units for example, which were units that.
Maurice Choy: Didn't factor sort of prominently I would say from a valuation perspective, as we were thinking of it I think those units have more value today in terms of legacy steel in the ground in terms of our ability to deploy capital in other parts of North America given the.
Maurice Choy: The evolution that we're seeing in marketplaces, there, we don't feel that we're particularly constrained from a financial perspective to be able to do that so it's not an either or kind of situation is sort of additive as we.
Maurice Choy: Look at the two so.
Maurice Choy: We're excited about opportunities that we see in the Pacific Northwest, we're actually excited about opportunities that we see in the desert southwest we continue to look at.
Maurice Choy: Both of those areas and we think that in the medium to long term. There is a lot of opportunities in western Australia, as well, which are our core markets. So I think net net we feel good overall in terms of where we are.
Speaker Change: And to your point I guess from a capital allocation standpoint.
Speaker Change: Your own cost of capital has improved quite a bit over the past four or five months.
Speaker Change: But obviously at the same time asset prices are up so I'm just curious how.
Maurice Choy: How are you thinking about and maybe this is for Joel but how are you thinking about the buyback program.
Maurice Choy: This year is $150 million target versus I know you talked in the past about capital recycling opportunities and maybe getting a bit more aggressive on some strategic M&A.
Speaker Change: Yeah, I think look why don't I start and then I'll turn it over to Joel I look I think.
Maurice Choy: The share buy back program at least for my own perspective, and look at something that we talk to our board and we'll be talking to our board of borrowed as part of our 2025 budgeting process, but like I think it's a constant lever that I think we're focused on as a management team.
Maurice Choy: Our cost of capital has improved but I still see a $1 70.
Maurice Choy: I think ballpark year to date in terms of free cash flow per share and when I look at that in the context of broker trading like I think it's still a good deal to buyback shares and create value for our shareholders that way. So it's something that balance is important like we can't let our fleet and our business atrophy, we're going to have to continue to make.
Maurice Choy: Investments and move that along but but certainly when opportunities present themselves to do share buybacks to support our share price and to create that value I think it's going to be definitely one of the things that we'll be looking at from a capital allocation perspective, Joe I agree John and the other thing pad is that as mentioned earlier is when we come out with our 2025 guidance in February I think we will have.
Maurice Choy: More color around that say with respect to the dividend and obviously, there's going be any extension of the share buyback and 25% at that point in time, but to John's point, we remain committed to fulfilling the $450 million. This year, we're around 76% complete.
Maurice Choy: They ended the quarter. So we will look to line that up here by the end of the year at the $150 million.
Maurice Choy: And just maybe Joel as a sneak peak I mean, how would you rank deleveraging.
Maurice Choy: In the priority list versus accelerating growth opportunities for next year.
Maurice Choy: Pat on that we do maintain a very strong balance sheet. When you look at our leverage right now on an adjusted EBITDA of around $3 two.
Maurice Choy: Turns of debt to EBITDA at this point in time, it has crept up a bit but still in line with our triple B are double B plus credit ratings.
Maurice Choy: So as we balance that going forward share buybacks further capital allocation, along with maintaining a strong balance sheet. So to the extent, we see opportunities to further strengthen the balance sheet through.
Maurice Choy: Reducing our debt, we will look to that but we see other opportunities right now given that we are very comfortable with our leverage levels and we don't really have any expiries in the near term I mean, we have three or $400 million about this time next year ish.
Maurice Choy: So we're in pretty good shape in terms of do you know what I mean, Patrick in terms of kind of.
Maurice Choy: Any any any kind of expires that we needed to manage through.
Patrick Kenny: Okay, that's great I'll leave it there guys. Thanks.
Maurice Choy: Thanks.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of John Mould with TD Securities. Your line is open.
John Mould: Hi, everybody.
John Mould: Continuing on the data center.
John Mould: Wondering if you could touch on on.
John Mould: The question of bring your own power and the policy direction here.
John Mould: Yes.
John Mould: We all understood or as both the current supply surplus and arguable spare capacity.
Maurice Choy: A company like yourselves has at Waltham, and just given that Alberta chief advantage in this.
Maurice Choy: Theme seems to be potential speed to market and when you're expecting to see clarity on the rules of the road here both from the data center perspective, and the power provider perspective.
Speaker Change: Yes, good morning, John.
Maurice Choy: That's.
Speaker Change: A bit of a hard one to answer and maybe what I'll say is that look our province has been.
Maurice Choy: Very clearly supportive of data centers coming into the jurisdiction I mean, the government has.
Maurice Choy: <unk> been involved in missions for example into the silicone valley, where they've been trying to up socialize kind of the opportunity that sets the opportunity set that Alberta.
Maurice Choy: <unk> I think what's going to be required here is balanced so having a.
Maurice Choy: A lot of load come into the jurisdiction in a way that.
Maurice Choy: <unk>.
Maurice Choy: Has a significant impact on power pricing by tightening up the market.
Maurice Choy: I think it's something that I think the government and the ISO was probably leery of they want to make sure that the grid remains reliable. So when you hear things like bring your own power I think what folks are kind of saying I think to me anyways. That's code for let's do this in a balanced way and make sure that the system remains affordable reliable and we continue to.
Maurice Choy: Decarbonize that over a period of time I think that's where we have an advantage because we have a lot of capacity candidly about with relatively modest capital investments, we can bring back from a speed to market perspective, and it would be additive generation. If you see what I'm, saying in terms of being able to flex up and be able to.
Maurice Choy: To make sure that three legged stool that I've mentioned.
Maurice Choy: Reliability affordability and sustainability.
Maurice Choy: Sustainability kind of remains over the longer term. So so I think this is something that we can navigate I don't know that it requires.
Maurice Choy: Blaine I would say I don't know that it requires a lot of regulatory intervention for us to get there I think it just requires discipline and making sure that.
Maurice Choy: We can match reasonably supply and demand as it comes up.
Speaker Change: That's very helpful. Thanks, Thanks, very much for that.
Speaker Change: Thank you.
Speaker Change: Clearly the focus of our call has been on Optionality.
Maurice Choy: While the amendment and Centralia and not so much on the broader <unk>.
Maurice Choy: Renewables portfolio.
Speaker Change: Your potential development pipeline. So just wondering how was your development team Harry development teams currently spending their time on on kind of Canada versus the U S. But also on the thermal opportunity set or maybe I'll rephrase that is the reliability opportunity set because that would include storage as well versus some of the more Paul.
Maurice Choy: Renewable power projects that you had in your earlier stage pipeline historically, yes.
Speaker Change: So look we continue to advance.
Maurice Choy: Kind of a clean electricity growth plan.
Speaker Change: That remains a priority for US we had you know our near term projects had in Alberta flavor as you know and we we paused those given that we were wanting to see the Rem developed here in the province of Alberta, and get a sense of.
Maurice Choy: Confidence around the fidelity of the.
Maurice Choy: Of the of the of the price. So when you look at sort of the activities of the team right now I would say probably.
Maurice Choy: Probably.
Maurice Choy: Half of the team efforts would be would be spent on kind of create value from the legacy assets I think it's a pretty significant opportunity set and the returns are significant for our shareholders. There candidly returns that would be significantly in excess of what I would say conventional power development would provide so I think.
Maurice Choy: It's critical that we allocate the resources to.
Maurice Choy: The capture of that opportunity set, but having said that we continue to look at opportunities.
Maurice Choy: From a renewables perspective, the focus is definitely on the pipeline.
Maurice Choy: Managing it making sure that we've got good opportunities and kind of what we're considering to be our priority markets, which are more western North America faced as opposed to more in the SPP, where we were.
Maurice Choy: Initially a little bit more.
Maurice Choy: Focus, but the team is working on advancing projects. They are working on expanding the pipeline. They are actually doing some pretty creative things on the pipeline to be honest that that that there's still nascent. So we can kind of give you color on that but that's something that we're excited about and and we continue to work on a couple of large projects that.
Maurice Choy: Hopefully, we'll be very impactful for the company. So it's quite a quite a mix of I would say the conventional.
Maurice Choy: The unconventional and by unconventional I mean in terms of fuels.
Maurice Choy: And kind of our bread and butter legacy assets in terms of going forward. The team is busy.
Maurice Choy: Our challenge is actually John.
Maurice Choy: Finding and hiring capable people that can that can move it along so that's what we've been.
Maurice Choy: Doing to make sure that we've got the capacity to deal with it.
Speaker Change: Okay. That's that's great. Thanks, and then maybe just one last one on an ancillary is.
Maurice Choy: Both.
Maurice Choy: Quarterly result, and.
Maurice Choy: The market more broadly you know pretty good.
Maurice Choy: <unk>, both on volumes and price realizations, there despite pretty reasonable spark spreads given the energy price, which can have the effect of.
Maurice Choy: The interesting dynamic there I'm just wondering a little more color on how youre seeing the market did.
Speaker Change: Did the inner tie outage play a part in the ancillary demand this quarter and then looking forward how are you feeling about how the ancillary.
Maurice Choy: Services piece of the ramp is unfolding recognizing it's very early days still there.
Maurice Choy: Yes.
Maurice Choy: Look.
Speaker Change: Maybe try to deal with the last part first.
Maurice Choy: <unk>.
Speaker Change: I can't give you a lot of color on how the ramp is developing from a from an ASP perspective, I think that's really early days I think the discussions had been focused more on what I would call the conventional energy market rather than kind of a supplementary.
Speaker Change: Of the market.
Speaker Change: And hydro's role in meeting those particular needs John but look I think we feel pretty confident that our hydro fleet is going to.
Maurice Choy: The valuable and will continue to perform well.
Speaker Change: Look at where we are this year, we've got average pricing this year that.
Maurice Choy: Is sort of in that I think year to date, we're about $65 or something like that in the province, and we'll we'll get over $300 million.
Maurice Choy: With our hydro fleet as we go forward. We're also seeing the ISO procuring more aaas, which is which is interesting and I think that's just a reflection of the kind of volatility that we're seeing is the the grid evolves I mean, there was a time.
Maurice Choy: Like three years ago, I would say blayne win.
Maurice Choy: The kind of scale of intra hour kind of variation in supply would have been more in the 400 or 500 megawatt range. We're seeing like 2000 megawatts in terms of variation that can occur.
Maurice Choy: The wind drops off where its evening in our solar ends up going away. So the need to kind of respond to that and to make sure that the grid is reliable from a frequency perspective. So when we look at our hydro there's kind of nothing better I mean, it's better than batteries and our.
Maurice Choy: View, particularly for regulating reserves and I think what Youre seeing is just a reflection of the need for those services as the market kind of evolves over time so.
Maurice Choy: I'm pretty confident that we're going to have good good hydro performance going forward and.
Maurice Choy: Look I think we almost got to 900.
Maurice Choy: In terms of the quantity of <unk> that was procured in the last quarter, which is like exceptionally hydro I don't recall ever having that level. So so I think it's a strong strong product.
Speaker Change: Okay, that's great I'll leave it there thanks very much.
Speaker Change: Thank you John.
Speaker Change: That is all the time, we have for Q&A today, I would now like to turn the call back over to Mr. <unk> for any closing remarks.
Speaker Change: Great. Thank you everyone that concludes our call for today. If you have any further questions. Please don't hesitate to reach out to the IR team here at Transalta. Thank you very much and have a great day.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
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