Q4 2024 TransAlta Corp Earnings Call
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Wanda: Good morning, My name is to Wanda and I will be your conference operator today.
Wanda: At this time I would like to welcome everyone to try an auto corporation fourth quarter and for year 'twenty 'twenty four results conference call.
Wanda: All lines have been placed on mute to prevent any background noise.
Wanda: After the Speakers' remarks, there would be a question and answer session.
Wanda: If you would like to ask a question. During this time simply press star one on your telephone keypad.
Wanda: If you would like to withdraw your question.
Wanda: Please press star followed by one one again thank you.
Mr. Harris: Mr. Harris you May begin your conference.
Stephanie Paris: Thank you to Wanda Good morning, everyone. My name is Stephanie Paris, and I am the Vice President of Investor Relations and corporate strategy of Transalta welcome to Transalta is fourth quarter and full year 2024 conference call.
Speaker Change: With me today are John Christie, Norris, President and Chief Executive Officer, Joel Hunter E V. P of finance and Chief Financial Officer, and Blaine Venmo, EVP commercial and customer relations.
Speaker Change: Today's call is being webcast and I invite those listening on the phone lines to view the supporting slides that are posted on our website.
Speaker Change: A replay of the call will be available later today and the script 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 further in our MD&A and incorporated into it.
Speaker Change: The purposes of today's call.
All amounts referenced are in Canadian dollars unless otherwise noted.
Speaker Change: The non I F or S terminology used including adjusted EBITDA and free cash flow are reconciled in the MD&A for your reference.
Speaker Change: On today's call John enjoy will be will provide an overview of trends I'll just quarterly and annual results. After these remarks, we will open the call for questions.
Speaker Change: With that let me turn the call over to John.
Speaker Change: Thank you Stephanie and good morning, everyone and thank you for joining our fourth quarter and full year conference call for 2024.
Speaker Change: As part of our commitment towards reconciliation I want to begin by acknowledging that our company operates on the traditional territories of indigenous peoples across Canada, Australia, and the United States.
Speaker Change: We recognized a rich and diverse histories cultures and contributions of the first nations and you it made tea Aboriginal and native American communities.
Speaker Change: It is with gratitude and respect that we think that people who have lived on these plans for generations to reminding us of the ongoing histories that precede us.
Speaker Change: Transalta delivered strong financial and operational performance in 2024 at the upper range of our guidance, reflecting the value of our diversified portfolio and proactive hedging strategy and the exceptional performance of our fleet and energy marketing segment.
Speaker Change: During the year, we delivered adjusted EBITDA of 1.25 billion free cash flow of $569 million or $1 88 per share and average fleet availability of 91, 2% we.
Speaker Change: We also delivered on a number of key priorities and strategic initiatives.
Speaker Change: First we closed the Heartland acquisition late last year and are now in the process of fully integrating heartlands 1.75, gigawatts of complementary assets into our Alberta portfolio.
Speaker Change: The transaction enhances our competitive position in Alberta by ensuring we maintain a robust and diversified portfolio in the province.
Speaker Change: Our girls team had a strong year completing the 200 megawatt Horizon Hill wind facility. The 300 megawatt white rock wind facilities and the Mount Keith transmission expansion. We also fully completed the Kent Hills rehabilitation project. These assets will collectively contribute over 175 million.
Speaker Change: And adjusted EBITDA to our company annually.
Speaker Change: Third we returned 214 million or <unk> 71 per share to our shareholders through dividends and share repurchases with our share repurchases executed at an average price of $10 59 per share.
Speaker Change: Turning capital to our shareholders is a key part of our capital allocation strategy, which we adapt to market conditions and the timing and progress of our growth opportunities are.
Speaker Change: Our practice is to always have a normal course issuer bid in place and we expect to continue to make accretive share buybacks in 2025 of up to $100 million.
Speaker Change: Fourth we continued to advance the significant contracting and development opportunities that we see at our legacy thermal sites in both Washington State in Alberta.
Speaker Change: Fifth we continue to reduce our C O two emissions.
Speaker Change: Since 2015, we have reduced scope, one and two greenhouse gas emissions by 22.7 mega tons or 70% a remarkable achievement considering the size and diversity of our fleet and we will see coal fired generation from our single remaining coal unit by the end of 2025, which will further reduce our emissions.
Speaker Change: <unk>.
Speaker Change: And finally based on our strong performance in 2024, and our confidence in the future. We're pleased to announce that our board of directors has approved an 8% increase to our common share dividend to <unk> 26 per share on an annualized basis.
Speaker Change: This represents our sixth consecutive annual dividend increase affirming the company's commitment to returning value to shareholders.
Speaker Change: Our balance sheet continues to provide us with strength and flexibility with over $1 6 billion in available liquidity, including approximately $334 million in cash, we're very well positioned to execute our strategic priorities.
Speaker Change: We successfully closed the acquisition of Heartland on December four.
Speaker Change: 1.75, gigawatts of complementary flexible capacity to our company, including contracted cogeneration gas thermal generation and peaking generation along with transmission capacity all of which will be needed to support the energy transition and reliability in the Alberta electricity market.
Speaker Change: 60% of the revenues are contracted with leading counterparties with a weighted average remaining life of 15 years, providing added diversification to our cash flows and tempering our merchant exposure.
Speaker Change: The regulatory review process for the transaction with the Federal competition Bureau was a lengthy one and resulted in an hour agreeing to divest heartlands popular Hill and Rainbow Lake facilities in order to complete the transaction.
Speaker Change: This led to a purchase price reduction of $80 million.
Speaker Change: The revised purchase price for the transaction was approximately $542 million consisting of a cash payment of $310 million as well as the assumption of $232 million of low cost debt.
Speaker Change: And that kind of an economic benefit adjustment of a further $95 million ultimately resulted in the net cash payment of $215 million, which was funded through a combination of cash on hand and draws on our credit facilities.
Speaker Change: The overall net price inclusive of that works out to approximately $270 per kilowatt and an attractive EBITDA multiple of five four times.
Speaker Change: And we're in the process of realizing approximately $20 million of corporate synergies on a pretax basis in connection with the transaction.
Speaker Change: We're pleased to welcome Heartland to Transalta and are happy with how the integration is progressing.
Speaker Change: At our Centralia side, we're exploring multiple opportunities to meet load growth and enhance reliability in the region.
Speaker Change: We're currently advancing discussions with the customer on a redevelopment opportunity to extend the operating loss of life of our legacy Centralia site through our contracted coal to gas conversion.
Speaker Change: We're also considering other opportunities to build out the energy campus on our significant land holdings, including potentially wind solar batteries pump storage and next generation technologies.
Speaker Change: We expect to be able to share detailed development plans for centralia during the first half of 2025.
Speaker Change: We are also advancing opportunities that our legacy thermal sites in Alberta, which we believe offer ideal conditions for datacenter opportunities, including speed to power expansion potential tier for reliability competitive power pricing and supportive renewable product offerings.
Speaker Change: Our work is progressing through three phases.
Speaker Change: The first phase, which we completed in the fall was the socialization phase in this phase, we engage with potential customers highlighting our service offerings engaging interesting our Alberta sites.
Speaker Change: The second technical Phase is ongoing and includes location assessments geotechnical work zoning and interconnection applications and we recently submitted our keep hill site into the interconnection queue through a two phased submission over the course of 2027 and 2028 permitting.
Speaker Change: Permitting and engineering assessments supply chain engagement and the evaluation of existing fiber optic networks water rights and cooling pond capabilities.
Speaker Change: This phase is advancing well towards detailed and derisked commercial offerings that we can showcase to our potential customers.
Speaker Change: Our next and final phase is commercialization, which includes contracting with high quality Counterparties and the beginning of construction at our sites.
We aim to secure exclusivity with key partners by mid 2025 with detailed design and definitive agreements expected later in the year we.
Speaker Change: We anticipate operational data centers 18 to 24 months after signing definitive agreements I'll now pass it over to Joel.
Joel: Thanks, John and good morning, everyone.
Joel: We are extremely pleased with our fourth quarter and full year operational and financial performance across all of our business segments.
Joel: The Alberta merchant portfolio, notably outperformed the spot market, thanks to our hedging and optimization strategies, despite the ongoing challenging pricing environment.
Starting with our full year results.
Joel: Hydro segment generated adjusted EBITDA of $316 million in line with our expectations given lower realizing salary spot prices.
Joel: Decline year over year was partially mitigated due to realized premiums above spot prices and positive contributions from hedging as well as a greater volume of Zoe services due to increased demand by the ISO.
Joel: We are also able to sell additional environmental attributes to partially offset the power price declines at the merchant Hydro fleet.
Joel: The wind and solar segment delivered adjusted EBITDA of $316 million or 23% increase compared to 2023, primarily due to the addition of the Oklahoma wind assets and a return to service of the Kent Hills.
Joel: The gas segment achieved 92, 2% availability and delivered adjusted EBITDA of $535 million the year over year decline was due to lower power prices in Alberta and increased dispatch optimization from our Alberta gas fleet. However, the impact of lower realized prices was offset by a favorable hedge position.
Joel: The energy transition segment delivered $91 million of adjusted EBITDA, which decreased year over year due to increased economic dispatch driven by lower market prices, which negatively impacted merchant production.
Joel: Our energy marketing segment delivered exceptional performance with adjusted EBITDA of $131 million, an increase of $22 million or 20% year over year. This was due to favorable market volatility across north American power and natural gas markets.
Joel: And finally corporate costs increase year over year, primarily due to increased spending to support our strategic and growth initiatives.
Joel: Our adjusted EBITDA excludes the impact of Brasow penalties assessed ERP integration costs and Heartland acquisition related costs. As these items are not reflective of ongoing operations or performance of our operating assets.
Joel: As John mentioned overall, we delivered another strong year with a $1.25 billion of adjusted EBITDA, reaching the upper range of our 2024 guidance. Our free cash flow was also strong delivering $569 million or $1 88 per share also in the upper range of guidance.
Joel: Shifting now to our fourth quarter results.
The Hydro segment produced adjusted EBITDA of $57 million in line with last year.
Joel: Higher merchant revenues were driven by higher volumes, which were partially offset by lower spot power prices and lower environmental and tax attributes.
Joel: The wind and solar segment produced adjusted EBITDA of $95 million, an increase of 16% primarily due to the addition of our Oklahoma wind facilities and the return to service of Kent Hills.
Joel: The gas segment saw adjusted EBIT decreased by 18% to $116 million, mostly due to lower realized power prices in Alberta and higher carbon pricing.
Joel: The energy transition segment delivered $28 million of adjusted EBITDA in line quarter over quarter.
Joel: Edison energy marketing adjusted EBITDA increased by $13 million to $27 million versus the same period last year due to favorable market volatility and timing of realized settle trades.
Joel: Corporate costs increased quarter over quarter, largely due to higher spend sports strategic and growth initiatives noted previously.
Joel: Overall, we generated $285 million of adjusted EBITDA in the fourth quarter in line with 2023, despite milder weather conditions that contributed to lower merchant power prices in Alberta.
Joel: Lower free cash flow of $48 million in the fourth quarter was primarily due to higher sustaining capital expenditures, which is typical for the fourth quarter, along with higher realized foreign exchange losses higher current income tax expense increased spending on growth opportunities and higher net interest expense due to our lower capitalized interest and interest income.
Joel: Yeah.
Joel: Turning to the Alberta portfolio, the 'twenty 'twenty four spot price averaged $63 per megawatt hour, which was notably lower than the average price of $134 per megawatt hour in 2023.
Joel: The decline year over year was primarily due to incremental generation from the addition of new gas wind and solar supply as well as lower natural gas prices.
Joel: Our hydro fleet delivered an average realized price of $91 per megawatt hour.
Joel: 144% premium to the average spot price.
Joel: The gas fleet also exceeded our expectations, we deployed hedging strategies to enhance our portfolio margins and mitigate the impact of lower merchant power prices. Throughout 2024, we had 9100 gigawatt hours at an average price of $86 per megawatt hour or 137% premium to the average spot price or merchant wind fleet.
Joel: <unk> realized an average price of $35 per megawatt hour in line with our expectations given the evolving of Darden merchant power market.
Joel: Despite relatively benign weather last year, which resulted in lower power prices in average we captured additional margins by filling a portion of our higher priced hedges with purchase power when prices were below our variable cost of production.
Joel: By optimizing our fleet throughout the year and fulfilling 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 and.
Joel: In 2024, our average realized price spring Zoe services settled at $46 per megawatt hour approximately 75% of the average spot price.
Joel: Turning to the fourth quarter spot prices averaged $52 per megawatt hour significantly lower than the $82 per megawatt hour in 2023, However, our Alberta hydro and gas fleets continue to outperform with average realized prices up $78 and $75 per megawatt hour, respectively, a significant premium to the average spot.
Joel: Price of $52 per megawatt hour.
Joel: Okay.
Joel: Turning to our 2025 outlook, we expect that our results will be broadly in line with 2024 four.
Joel: For 2025, we expect adjusted EBIT to EBITDA to be in the range of 1.15 to 1.25 billion.
Joel: And free cash flow to be in the range of $450 million to $550 million or dollar 51 to $1 85 per share.
Joel: Now there are a number of factors influencing our 2025 outlook.
Joel: First we expect Alberta, and mid C spot power prices decline to a range of $40 to $60 and U S 50 use $70 per megawatt hour.
Joel: Second we are well hedged both financially and through our commercial and industrial business, which I will speak to momentarily.
Joel: Third are looking fluids, the full year impact from Heartland, and our Oklahoma wind assets.
Joel: Fourth we expect our Omani this year to be higher year over year due to the full year impact from addition of heartland as well as the advancement of our growth initiatives and finally, we expect continued solid performance from the energy marketing segment with a midpoint gross margin of $120 million.
Joel: The confidence in our EBITDA and free cash flow guidance is supported by the performance of the contracted fleet as well as our hedging and optimization strategies.
Joel: 75% of our generation revenue is from our contracted assets and hedging position, which along with our stable energy marketing earnings gives us confidence in our 2025 outlook.
Joel: It is our expectation that our company will become increasingly contracted overtime.
Joel: Looking at this year, we have approximately 7700 gigawatt hours of our Alberta generation hedged and an average price of $70 per megawatt hour. This is well above the current forward curve, we will continue to optimize our fleet and reduced production and low priced high supply hours by fulfilling our financial hedges and customer requirements with <unk>.
Joel: <unk> market purchases.
Joel: Looking to 2026, our team is hedge production at an average price of approximately $75 per megawatt hour also well above current forward pricing levels.
Joel: Turning to capital allocation, we continue to maintain a balanced prudent and disciplined approach.
Joel: First we are focused on keeping adjusted debt to EBITDA in the range of three to four times second we will return capital to shareholders through dividends, while maintaining a payout ratio of approximately 50% of free cash flow in 2025.
Joel: Growth and share repurchases will continue to compete for capital our goal is to maximize shareholder value and we will assess each growth opportunity against returning capital directly to shareholders.
Joel: Our capital allocation strategy adapts to market conditions, and this year, we expect to deploy our free cash flow towards our legacy thermal sites potential M&A as well as our long term growth plan.
Joel: We believe that investing in our legacy thermal energy campuses will provide the greatest long term value for our shareholders. We also expect to continue to make accretive share repurchases with capital that we do not deploy to growth.
Joel: At the midpoint of our guidance for 2025, we expect to generate $500 million of free cash flow, which provides continued flexibility as funds to deploy in 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.
Speaker Change: I will turn the call over to Josh Thank.
Josh Thank: Thank you Joel as I look at our strategic priorities for 2025, we're focused on the following key goals first improving our leading and lagging safety performance indicators, while achieving strong fleet availability.
Josh Thank: Achieving EBITDA and free cash flow within our 2025 guidance ranges.
Josh Thank: Third maintaining a high fleet availability and reputation as a world class operator.
Josh Thank: Fourth maximizing the value of our thermal energy campuses.
Josh Thank: Fifth successfully executing M&A that may arise and advancing our growth plan and finally successfully implementing an upgrade to our ERP system.
Josh Thank: We will remain prudent and disciplined in our approach to growth focusing on delivering value to our customers and our shareholders and we look forward to sharing more with you at our 2025 Investor day that we're planning to host in November.
I believe transalta offers a compelling investment opportunity first we're a safe reliable operator with a highly capable workforce.
Josh Thank: Second our cash flows are strong and resilient and underpinned by our diversified hydro wind solar and gas portfolio complemented by our world class asset optimization and energy marketing capabilities third where a clean electricity leader with a focus on tangible greenhouse gas emission reductions as we remain on.
Josh Thank: Track to achieve our ambitious 2026 C O two emissions reduction targets.
Josh Thank: Fourth there is tremendous value in our legacy thermal sites, which our team is actively working to repurpose to meet the evolving needs of our customers and markets.
Josh Thank: Fifth we're positioned for growth with a diverse set of high value growth opportunities that our talented development team is focused on realizing for our shareholders and sixth our company has a sound financial foundation, our balance sheet is strong and we have ample liquidity to pursue and deliver multiple growth opportunities with the flexibility to also return.
Josh Thank: Capital to our shareholders through dividends and potential share repurchases.
Stephanie Paris: 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 our results and strong finish to 2024. Thank you I'll turn the call back over to Stephanie.
Stephanie Paris: Thank you John upgraded to why would you. Please open the call for questions from the analysts.
Stephanie Paris: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question.
Speaker Change: Star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Robert Hope with Scotiabank. Your line is open.
Speaker Change: Good morning, everyone.
Speaker Change: Just taking a look at the 2025 priorities de includes strategic M&A.
Speaker Change: When you think about kind of the geographies or asset types or modalities that you are looking at what are most attractive and what are the least attractive.
Robert: Good morning, Robert.
Robert: Why don't I start responding.
Joel: Responding to the question and maybe I'll turn it over to Joel to add any color.
Robert: He has so.
Joel: Look we are seeing a number of opportunities.
Robert: North America, particularly in the United States from an M&A perspective.
Robert: And broadly speaking they fall into two categories from our perspective, one is legacy gas assets that we see operating in certain jurisdictions and interestingly for US renewables. There's a lot of focus on natural gas fire generation right now and we're actually seeing potentially a time as better value on the renewable side.
Robert: And then on the gas side.
Robert: In terms of the geographies I would say that we're primarily focused on I think Joel it's fair to say kind of Western North America. So.
Robert: There is Alberta, but our focus is much more on the western part of the United States with a particular focus on I would say the Pacific northwest in the desert southwest right now as being sort of core.
Robert: Just focus areas for our organization.
Robert: We have a lot of expertise trading power in the region. We've operated in the Pacific Northwest for a considerable period of time in and are extremely comfortable with the region and candidly like its long term.
Robert: Prospects when we're looking at load growth and all of the opportunities we see there Joe out or if you want to add anything to that and the only thing I would add to that John is we are seeing kind of the multiples converge as you highlighted both for contracted renewables versus thermal generation.
Robert: You know the kind of size that we look for is probably similar to what we saw with heartland kind of in that 500 to 75 $750 million kind of enterprise continues to do well.
Robert: Would be ideal for us. So again, we spent a lot of time on this we get to see everything that comes available in the market. There's always hundreds of transactions per year, and so we remain very disciplined and focused as John highlighted on it kind of more on a geographical focus in the west.
Robert: With being really technology agnostic.
Speaker Change: Alright, I really appreciate that color.
Speaker Change: And then maybe just moving over to the key pillar data Center development you are now in the Technicolor kind of phase.
Speaker Change: Maybe add a little bit more color on what you think a potential outcome could be here is this just bringing back seven existing are improving the reliability and kind of utilization of existing capacity or could there be something more fulsome here, including.
Speaker Change: Further developments can you maybe just put.
Speaker Change: Some outcomes of what this could look like.
Yeah.
Speaker Change: Happy to.
Speaker Change: I think the way we're thinking of it is actually in I think it's fair to say a three phased approach. So keep hills would be the initial campus that we're focused on as an offering for data centers.
Speaker Change: Followed by sharing that so we're quite pleased by what we're seeing at share and that's from a potential perspective, and then with a focus after that more around Sundance, which is probably Joel I think it's fair to say more in the in the vein of a bit more of a redevelopment.
Speaker Change: Piece there for Sundance.
Speaker Change: Right now we would envision and the work that we're doing is primarily around key pillar II at the moment as an offering.
Speaker Change: <unk> would be that that unit would provide.
Speaker Change: Notionally behind the fence generation for a datacenter, but with a connection to the grid. So.
Speaker Change: 90% or so would be powered essentially from our unit there with the remaining 10% of reliability.
Speaker Change: Coming off of the grid. The work we've done is pretty extensive.
Speaker Change: We have you know.
Speaker Change: A lot.
Speaker Change: Of the opportunity mapped out everything from geotechnical work in terms of where the data center would actually locate the date they actually require quite a large footprint in terms of what they would require.
Speaker Change: Right through to looking at how the water would flow to cool the facility how the electrons would would flow either from the grid or from the facility to a substation to be stepped down to actually work for the facility we've done zoning work.
Speaker Change: They're the county is very very supportive and we have a real good handle on the fiber network and what its capabilities are so we're we're optimistic but our goal is to be in a position where we have really done an extensive set of preliminary work to make kind of a commercial offering and the technical assessment for.
Speaker Change: Our customers as easy as possible so we're front ending.
Speaker Change: Deliberately from our perspective as much as we can in terms of the offer that we will be providing and our discussions continue.
Speaker Change: Yeah.
Speaker Change: That's great color congrats thank you.
Speaker Change: Thanks.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Mark Jarvi with CIBC. Your line is open.
Speaker Change: Yeah. Good morning, Ron I, just wanted to continue on with the conversation. We just had you had there John.
Mark Jarvi: In terms of like the Counterparties, you said Youre, obviously, you folks in the technical work, but are the range of Counterparties for data centers is there a number of them that you are talking to right now and it sounds like given you said, 90% served by key pillars unit Youre kind of in a former megawatt type load is that a fair number for the first set of phase.
Speaker Change: A data center deals.
Mark Jarvi: Good morning, Mark.
Speaker Change: I'll answer the second part first the answer that is yes that is what we're looking at initially the initial offering would be 400 megawatts from Q2, followed by another 400 megawatts at K, three which is the way. We're we're looking at phasing it in terms of the customers look we've been having.
Speaker Change: Conversations for a period of time, where we began with our first phase and its continued with our second phase with.
Speaker Change: Without getting into specific numbers like our universe of potential customers is in kind of the range of about 20 I would say they include both hyperscale orders and co locators than and we have had discussions with.
Speaker Change: With both end and we continue to.
Speaker Change:
Speaker Change: It'll be as constructive as we can to meeting.
Speaker Change: Their particular needs. So so that hopefully that gives you a bit of a sense of the way that we're working through it.
Speaker Change: And have any of those conversations evolved at all just in.
Speaker Change: In spite of our survey in light of what's happened in the last couple months here, whether it's tariffs economic uncertainty in Canada, a little bit of political attention across the border.
Speaker Change: Is that changing anything pushing that conversation don't.
Speaker Change: Yes, it's a great question not not that we have seen them looking at blame here two blade I can't I can't think of it really.
Speaker Change: Driving either the work that we're doing or candidly the.
Speaker Change: Discussions that we're having with potential customers. The one thing that we're focused on though is just from a supply chain perspective, I mean, if there are tariffs.
Speaker Change: Just being mindful about.
Speaker Change: Time to actual actual delivery of some of the key components that we require and that's mostly around the substation in the transmission, it's less about the actual facility.
Speaker Change: Itself and and you know what that might mean from a cost perspective, I don't think it really changes the economics all that much in terms of the aggregate offer that we're providing them.
Speaker Change: Okay, and then turning to Centralia.
Speaker Change: In terms of when you kind of land on agreement.
Speaker Change: Any sense of the capital required.
Speaker Change: To reposition that asset sounds like Dakota gas conversions first phase maybe some larger you said energy campus.
Speaker Change: In terms of how the asset then ultimately progresses. After the end of this year or is it sort of down for 2026, and then back up in 2027, just sort of the.
Speaker Change: The timelines and then maybe the capital required for that turnaround.
Speaker Change: Yeah, why don't I start and then I'll get blamed to maybe you can fill in.
Speaker Change: So look on that one.
Speaker Change: Without getting into specifics on what the capital would be and by the way we have done quite a bit of engineering and have a handle on.
Speaker Change: What's the capital would be I mean, there's basically three prongs of work that we need to do there one would be.
Speaker Change: The actual conversion itself and that's largely dealing with the burners the coal burners turning them into gas secondly, there'll be some control work and upgrades that we need to do and thirdly, you have to remember then Blaine always reminds me of this you know we were harvesting the plant in the latter phases of its life. So there is a bit of maintenance work I'd say blame that we need to do to bring it up.
Speaker Change: To a place where the plant would be able to run for well over a decade.
Speaker Change: Going forward the cost of doing that work would be a fraction of what it would cost to do a newbuild and when I think of that you know it would be in the order of I don't know Blaine around 25%, probably maybe a third of what a new build would be so hopefully that gives you a bit of a sense playing out.
Speaker Change: No. If you want to add any color on I think that's right and if you remember Mark we have a lot of experience doing conversions with all the units. We did here in Alberta. So we're building off that work and using the same teams that we did that.
Speaker Change: The kind of value engineer the project at Centralia and come up with the best capital outcomes. After Ken and then just on the timing market at the unit would shut down at the end of 'twenty five in terms of coal fire generation and then it would be down for 2026 for us to do a bunch of the work that we need to do in <unk>.
Speaker Change: Make sure our gas supply is set up appropriately and I think Blaine realistically it would be a 2027 ish.
Speaker Change: Kind of a return to service I would think and it's and it's new kind of form roughly speaking.
And then what's the gas supply constraint in terms of how much capacity then you could actually provided the customer.
Speaker Change: Right now yes.
Speaker Change: Yes, I think so the customer has a.
Speaker Change: Gas supply I think it's and transportation.
Speaker Change: Aspartame I mean, the pipeline is literally across the street from our facility.
Speaker Change: I think we would view this in a phased.
Speaker Change: Kind of approach and I think that that we're working with them to come up with a way that.
Speaker Change: The gas supply wouldn't be an issue a little bit of a constrained probably blend in the first three to five years I would say and then at the expectation would be that it would be unconstrained thereafter, but we're working to kind of debottleneck. It even in the initial period.
Speaker Change: And can you put a sort of a megawatt of capacity around what's the gas supply could enable right off the gate.
So the unit would be there to backstop.
Speaker Change: Reliability in the region and our and our intention right now is to have the fixed 70 available.
Speaker Change: The gas supply issue would be how often it would be able to run at full tilt as opposed to you know the the size of what the unit offering would be but the capacity factor for the unit. It felt like we're talking 50% it would be significantly.
Speaker Change: Hello that in terms of providing reliability given the intermittency that with what we're seeing in the region. There. Okay that makes sense. Thanks for your time today.
Mark Jarvi: Thanks, a lot mark.
Speaker Change: Please standby for our next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Maurice Choy with RBC capital markets. Your line is open.
Maurice Choy: Thanks, and good morning, everyone.
Maurice Choy: Just wanted to follow up on that potential M&A of legacy gas assets in the U S.
Maurice Choy: Yeah, absolutely absolutely recognizing that you haven't announced anything we may not have been happening.
Maurice Choy: And you already have some share there in the region as well, but just thinking holistically what is the strategic eight peer like I wonder is it to create a platform to grow in a non renewable energy way in the states with the capture.
Maurice Choy: The growth in electric in the states.
Maurice Choy: Understand that key.
Yeah.
Maurice Choy: So.
Maurice Choy: I'd say from an M&A perspective, Maurice I think.
Speaker Change: You've actually kind of got it right. So so what we've done is we've looked at our organization and looked at what our particular skill sets are and we have a number but two of them that are quite striking at least from our perspective is we do have the ability to run all types of generation, our ability to run generation and.
Maurice Choy: Technology agnostic way.
Maurice Choy: Is is excellent too we're very good at dealing with customers.
Maurice Choy: And being able to provide solutions to them directly and then finally, our trading and energy marketing expertise.
Maurice Choy: Is super strong and a differentiator a number of people to realize this I mean, we're the largest trader in the Pacific Northwest for example in mid C. In terms of power, we have transmission that goes up and down the west coast and we've spent literally years and years moving power from the desert southwest up through California into the Pac northwest them back down again.
Maurice Choy: So we think that that is a region that with the expertise that we have and kind of the overall long term growth prospects that it has that we can have a.
Maurice Choy: A significant position in and be able to do extremely well for our shareholders. So it's really about mirroring the opportunity in our region and aligning it with the internal skills and capabilities that our organization has to create value for our shareholders and I think it'll be a mix of greenfield brownfield and frankly legacy app.
Maurice Choy: So that we can get from an M&A perspective so.
Maurice Choy: That's in essence, what we're trying to do.
Maurice Choy: Okay.
Maurice Choy: Understood and maybe you could just bring it altogether then looking at all the options that you have from key pillars to M&A share buybacks.
Speaker Change: You mentioned I think Joe you mentioned that the target debt to EBITDA is three or four times in that range can you share how much investment capacity you have before reaching the high end that range and I think in the past you mentioned potentially seeking an investment grade credit rating is that still on the table.
Speaker Change: Yes, Yes, Murray I'll start with the you know the investment grade rating with Zimbra.
Speaker Change: As a reminder, we do have an investment grade rating today with <unk>, we are at Triple B low with a stable outlook with them and we are double b plus with a stable outlook with both Moody's and S&P.
Speaker Change: They've also said in the past would we want to go to investment grade in our view right now is that the sweet spot for US. If you will it gives us the most financial flexibility is to maintain the double b plus ratings with both S&P and Moody's and the triple B minus rating with with <unk>.
Speaker Change: And with that comes in a range of as we've highlighted around three to four times, we exited last year at three six times. So we do have some capacity here going forward and as the balance sheet growth that we'll see additional capacity come with it.
Speaker Change: The one item too is that Brookfield.
Speaker Change: The convertible option, if you will into the hydro's.
Speaker Change: <unk> agencies treat that as debt today.
Speaker Change: Field were to convert that option between now and the end of 2028.
Speaker Change: The option is available to them that does free up additional capacity as well. So when we look at where we sit today with our debt to EBITDA at around three five times and we look at our strong free cash flow generation.
Speaker Change: I think it looks very similar to where we were last year Murray as far as the amount of capacity that we have so you think about for the Heartland acquisition, where we are at a fund that with our free cash flow along with draws on our credit facility. So when we think about what we can spend going forward here kind of living within our means.
Speaker Change: Looking to any portfolio management.
Speaker Change: Or rotation, if you will our common share issuance.
Speaker Change: Kind of in that 500, probably $750 million that we could spend.
Speaker Change: And just to be clear, while it's here.
Speaker Change: The $500 million to $700 million.
Speaker Change: You said living within your means are you.
Speaker Change: You are not ruling out asset sales and equity issuance is to do so.
Speaker Change: Yes.
Speaker Change: We're not our it's not at all what I'm, saying is that you know right now just based on what we see in front of us whether it's with data center opportunities here in Alberta, along with the Centralia opportunity along with kind of I call bite sized if you will our M&A opportunities. We think we can do all that with living within our means to the extent that we see bigger.
Speaker Change: <unk>, we would certainly look to rotate capital and or our issue common equity, but again as a reminder, here it has to be accretive to the shareholder it has to be accretive to our earnings per share to our cash flow per share has to be within strategy has to be underpinned by a long term contract assets check all those boxes.
Speaker Change: Before we look to to rotate capital, but certainly if we see an opportunity where we can sell an asset at a 11 times and redeploy that into something at six times, we'll do that a really great example that with Heartland, we bought that at a 5554 turns multiple.
Speaker Change: Again, we see those types of opportunities, we will do that and look to rotate capital.
Speaker Change: Got 88 facilities Murray's now in three different countries.
Speaker Change: Some of them are less.
Speaker Change: So I would say a strategically important than others being candid about it. So I think we've got quite a bit of flexibility of the other thing I would say Joel is that the legacy asset opportunities have a bit of a slower burn in other words, it's not like you are doing.
Speaker Change: Acquisition, where you need to come up with $500 million executed today dealing what we're dealing with here in Alberta from a thermal asset perspective, and also dealing with the opportunity that we're seeing at Centralia, it's a bit more butter spread over a couple of year period. So we do have capacity.
Speaker Change: It makes perfect sense, thanks for the color.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change:
Speaker Change: Our next question comes from the line of Patrick Kenny.
Speaker Change: National Bank your line is open.
Speaker Change: Yeah. Thank you good morning.
Speaker Change: Maybe just first on your free cash flow guidance interest expense was up year over year for obvious reasons.
Speaker Change: So as sustaining capital so I'm just wondering if.
Speaker Change: If you could provide a bit more color on the key drivers there and then I guess as we look into 2026 and beyond you know how your sustaining capital budget might evolve.
Speaker Change: Directionally towards a more normalized run rate.
Patrick: Yeah, Good morning, Patrick.
Speaker Change: You're right, our sustaining capital kind of in that.
Speaker Change: 145 to 165 in terms of the guidance, we're providing for 'twenty for 2025 is a little bit higher than it would have been over the last few years, we were probably in the range of around $20 million or so that is reflective of the increase is reflective of.
Speaker Change: Two things one of them would be candidly. The addition of the Heartland.
Speaker Change: Assets into the organization, which we're going to we've added one seven gigawatts of generation there we need to maintain that and that's something that we're going to need to do as part of the normal course of the operations of those facilities, which which has an impact on I'd say our run rate Joel from a from a capital spending perspective, and we're also doing a little more.
Speaker Change: <unk> of what we would call life expense extension Slash Dam safety spending I think is what you would see that we're doing I mean are those facilities are perpetual facilities from our perspective and we're in a place where we have a few projects that we're focused on doing.
Speaker Change: We're executing on that I think those are really the main drivers I'd say troll and.
Speaker Change: And Pat I think your point on non interest expense, we did see that higher in the fourth quarter year over year.
Speaker Change: Due to its closing the Heartland acquisition, along with just lower cash balances and you know our guidance here, we're seeing kind of our interest expense to be probably about $15 million higher kind of year over year compared to where we were in 2024 and maybe one more thing Patrick we're taking a a pretty.
Conservative approach in our growth expenditures. So I think there would've been a time in the past, we would have sort of capitalized maybe a little bit more of that.
Speaker Change: We're going to do that at a later stage I'd say in the development lifecycle of a project.
And and having some of those expenditures kind of flow through.
Speaker Change: The year that that isn't a big driver, but it is a little bit of a change from our perspective I'd say.
Speaker Change: Okay. Thanks for that color I appreciate that.
Speaker Change: Shifting gears.
Speaker Change: Any update on the Acos proposal or process here to look at.
Speaker Change: Securing strategic reserves.
Speaker Change: Yes.
Speaker Change: Things are progressing on the data center front, how you might be thinking about the relative value of <unk>.
Speaker Change: Contracting any of your CTG assets.
Speaker Change: They're the ones that are operating or mothballed.
Speaker Change: With the ACO as opposed to holding them back and being available for contracting with any.
Speaker Change: Private behind the meter customers.
Speaker Change: Yeah.
Speaker Change: So look on the on the.
Speaker Change: Just broadly speaking in very quickly just on the ramp on the market redesign and blade and Ken can jump in here as well I would say that that is progressing theres a lot of work to be done I think we've seen kind of the first sort of overall proposal that the ICL is looking at for the market construct plane I guess late last year and while Theres been input that's been provided on that.
Speaker Change: <unk> continues its thematic Lee, though I would say.
Speaker Change: We're seeing in the market construct particularly with the development of kind of that day ahead market.
Speaker Change: A.
Speaker Change: A construct that favors dispatch of generation.
Speaker Change: Generation that.
Speaker Change: Has capacity that it can provide into the market so given.
Speaker Change: The mix of fleet that we have in the province of Alberta that bodes well certainly for our gas fleet at our Hydro fleet as we go forward. So from that perspective, it's positive in terms of the more direct issue of where would you direct your thermal generation I mean hydro would be a premium product.
Speaker Change: We believe there is more value in having those units around to contract.
Speaker Change: Directly with customers from a data center perspective, then.
Speaker Change: Earmarking them for let's just call it broadly reliability products and Thats what R. R.
Speaker Change: Our current focus is there was a bit of a discussion for example about reliability contracts earlier on that that would have had as a requirement that a unit be taken off for example from the grid at the end of that that that period of time, that's not something.
Speaker Change: That I would say blayne, where all that particularly interested in and I think theres tremendous option value in the fleet in and right now given our hedging ability, we'd rather have our units available to us to operate in the market. We like what we're seeing from a day ahead prospective incentivising dispatch of coal generation in the market design going forward and really work.
Speaker Change: King to meet their datacenter needs I don't know Blaine anything to add there with new ancillary service product fresh the ramping products that would favor our peaking capacity as well as our hydro facilities. So a lot of like John mentioned market design components that favor detachable SaaS wrapping generation that we kind of positioned our fleet for.
Speaker Change: Okay, and then a follow up.
Speaker Change: In terms of offering.
Speaker Change: Green option for your potential data center customers in Alberta can you just walk us through the <unk>.
Speaker Change: Various ways you can take.
Speaker Change: It will help your customers decarbonize their footprint over time and how.
Speaker Change: How are you thinking about.
Speaker Change: Bearing the cost of sharing the risk related to the industrial carbon tax going forward.
Speaker Change: Yeah.
Speaker Change: Maybe a couple of things there so.
Speaker Change: First of all.
Speaker Change: We have a significant portfolio of environmental attributes and that portfolio was supplemented every year as our wind generation of our hydro generation operates in the province of Alberta, which is helpful. I think for mud industrial carbon pricing perspective, which I think Patrick it's probably fair to say, it's a bit of a question Mark you know as we go forward given.
Speaker Change: Where auto while might be going 2345 months from now and how that trickles down into the province more directly we do have merchant wind generation in the province of Alberta, which uniquely I think we have and are able to kind of bundle, which the with the offerings that we have for example at heap he'll keep hills to create a green.
Speaker Change: Or product and then finally, we also have projects.
Speaker Change: Projects that we had put a bit on hold given.
Speaker Change: Given the uncertainty around the room that we can bring to also.
Speaker Change: Provide green power to supplement the data center and Tempest is a great example of that.
Speaker Change: 100 megawatt wind farm that we can bring on we've continued to advance that product. So that it can be available and we even have a bit of work around doing potential solar up.
Speaker Change: At the old mine sites that we have in west Central Alberta. So it's a combination of things that we're working through to kind of provide that option to the extent. It's it's required and we think longer term. It will be candidly I think the focus right now is on speed to power and and reliability and thermal is a critical component of that but I.
But we haven't lost I'd say blame kind of a threat on the need to be responsible from a decarbonization perspective overall.
Speaker Change: Yes.
Speaker Change: Okay. That's great I appreciate all the comments I'll leave it there.
Speaker Change: Thanks, a lot Pat.
Speaker Change: Please standby for our next question.
Our next question comes from the line of John Mould with TD Cowen Your line is open.
John Mould: Hi, good morning, everybody maybe just.
Speaker Change: Continuing on the Alberta seem here.
Speaker Change: On where youre seeing surplus capacity in the province right now.
Speaker Change: So I think you previously characterized that as around one to two gigawatts. How has your thinking evolved based on the generation dynamics, you've seen so far this year with the new supply.
And <unk> got attending mothballing some six.
Speaker Change: Just success of key bills on the data Center front.
From your perspective is that potentially directly drive the need for Sundance site redevelopment over the mid term you know, whether it's more coal to gas conversions or.
Speaker Change: Especially bringing back to some five repowering like Hey, how are you thinking of all those moving parts from the broader supply dynamic in the province.
Good morning, John I think we could probably spend hours responding to that to that question, but let me try.
Speaker Change: <unk>.
Speaker Change: So we do think the market is oversupplied at the moment I mean, we've got 23 and a bit thousand megawatts of installed capacity and we peak at around call. It 12000, sometimes a little bit more kind of between 12 and 13000. So there is quite a bit of supply in the province, and then when we think of for example.
Speaker Change: Hempel load growth in the province, which we do think will occur for example from data centers. So I think the market can comfortably absorb.
Speaker Change: One to two gigawatts some number in that range that would be a transalta view in terms of what it can absorb and keep and that has two things associated with it one.
Speaker Change: The reliability of the market.
Speaker Change: <unk> intact, which I think is critically important not just to the ISO candidly is very important from a transalta perspective that that's the case.
Speaker Change: And secondly, there is the generation to be able to just.
Speaker Change: Deal with that from a speed to power perspective.
People have heard the premier say people need to bring their own power from our perspective, having units that are more in the vein of peaking units which with.
Speaker Change: With with capacity factors that are below 50% like our coal to gas units up in the region are ideally suited to actually meeting that need given that they can flex up and actually provide additional capacity.
Speaker Change: In the market when it's needed I think kind of a new generation and by the way is that as the data centers come in I think it helps to rebalance the supply and demand.
Speaker Change: Imbalance that exist today in the marketplace with more constructive pricing.
Speaker Change: Cause I think where we are today is not I think pricing that in sense in your generation coming into the problems in terms of the redevelopment opportunity, we do see that more in the 2000 <unk>.
Speaker Change: I think we need to see what's going to happen in terms of the ramp and how it's going to perform.
Speaker Change: I think youre going to see quite a bit of natural gas retiring just end of life candidly in that time period beginning in the early 2030. Then we're also looking to see how technology develops as a gas is that hydrogen do do we need dual fuel capability, how does that progress as we go forward. So it is a bit of a longer timeframe I would say.
Speaker Change: I don't know if you want to add any color to that but that's just a thumbnail sketch I think that's pretty good.
Speaker Change: Hopefully that helps John.
Speaker Change: No that does thank you and then maybe.
Speaker Change: Just on on the Ram lag.
Speaker Change: The higher level framework I think it's fair to say no, but still lots of details to sort out.
Speaker Change: Are you expecting there'll be sufficient clarity on those details later in the year and the market structure elements, so that both U S and IPP.
Speaker Change: Large loans in the Hyperscale or co locators.
Speaker Change: Our comfortable signing a firm firm agreement like do you see that as a barrier is the Ram and its progress a barrier at all to those deals being finalized.
Speaker Change: At least we're not seeing it right now as being a barrier and candidly.
Speaker Change: Our strategy is by doing the work that we're doing candidly in Centralia here in Alberta, we're really focused on contracting.
Speaker Change: Our assets, so I think you'll see over time, our merchant exposure probably declined but the play and I know you are in those discussions as well as I am but just your view on that I am not sure. It's no I think that's right. John is that we are trying to insulate ourselves from.
Speaker Change: Market events and market design elements.
Speaker Change: Contracted assets as best we can on the timing comment Jon that you asked about.
Speaker Change: We'd expect that as we progress through 2025, those higher level design elements will be further refined it will have a good sense of what those actually looked like and what the impacts will be we are doing our own modeling even with the higher level design elements right now to understand the impacts on both on our fleet and how we can communicate that to potential customers and what we should be <unk>.
Speaker Change: Don.
Speaker Change: And when I say the timing, we would expect to be kind of moving through 2025 and getting to the stage by the end of the year, where we have a pretty clear picture is that the implementation plan that the ISO has to get.
Speaker Change: The market.
Speaker Change: Kind of running and then <unk>.
Speaker Change: <unk> market type of framework, so that they can fully implement by the end of 2027 needs to start happening.
Speaker Change: At the end of this year.
Okay.
Speaker Change: Okay got it maybe one last one on renewables and how much of your of your BD times being spent on potential renewable projects versus thermal site optimizations acquisitions and not not asking for you to preview.
Speaker Change: November Investor Day, right now, but just looking for a sense of how your broader corporate thinking around.
Speaker Change: Capital allocation versus towards renewables.
Speaker Change: Versus thermal is evolving.
Speaker Change: So I would say.
Speaker Change: Trying to answer that so I would say our M&A team is busy.
Speaker Change: Right now I would say in terms of our commercial and business development teams are writ large.
Speaker Change: The majority of their time would be spent on extracting value from the legacy.
Speaker Change: Facilities.
Speaker Change: That.
Speaker Change: Those returns are really constructive returns and it's a real focus for the organization and we think it benefits our shareholders. The most so renewables development would be the minority of the time that we're spending right now and.
Speaker Change: It's not just progressing projects I think we often lose sight of is that team is also the one that is more focused on the renewables also focus on pipeline. So we think we're in a phase where legacy assets and I would say more thermal related opportunities are kind of where our sweet spot is in kind of the immediate foreseeable sort of future M&A.
Speaker Change: And then kind of more into a normal cadence, where you would see renewables coming in a little bit later in the in the decade. So that gives you a bit of a set on the <unk>.
Speaker Change: Think it's critical for growth teams.
Speaker Change: To be able to pivot towards the best opportunities that they see in front of them in a particular period and that's exactly what we've done I think that'll be critical going forward.
Speaker Change: Okay. Those are my questions. Thank you very much.
Charles: Thanks Charles.
Speaker Change: Please standby for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Benjamin Pham with BMO. Your line is open.
Benjamin Pham: Hi, good morning.
Benjamin Pham: Just going back to the Alberta.
Benjamin Pham: Redevelopment opportunities.
Benjamin Pham: You bet.
Benjamin Pham: Have conversations with.
Benjamin Pham: The Counterparties at 28, or so you've mentioned do you get the sense that the amount of megawatt needs.
Benjamin Pham: Way outstrip the supply out of here and you can provide.
Ben: Good morning, Ben.
Ben: It's hard to answer that question honestly.
Ben: I think maybe.
Ben: Maybe the best way to answer it is sort of twofold I think the.
Ben: The phased offering that we have and in particular, beginning with sort of 400 megawatts at K too.
Ben: Is more than adequate I would say for meeting the needs of a very substantial datacenter presence in the region and I'm just going from memory. You also need about an acre of land I think roughly speaking for every one megawatt of generation to cutting no build out effectively as part of their social land supply is critically important.
Ben: So I don't think we're constrained in terms of what we're proposing at key pills. For example, both with K two in Q3 in terms of meeting.
Ben: The needs of our customer and that would be very impactful to our company.
Ben: We're not seeing on a more macro basis.
Ben: We're not seeing any let up.
Ben: In the.
Ben: Increasing load.
Ben: Data centers AI, driven electrification generally I would say and I think thematic Lee we're seeing jurisdictions be short power like like weather, if anything what's interesting about Alberta, it's actually a bit long power compared to many jurisdictions and when we look at kind of the immediate jurisdictions around us and even looking at.
Ben: Places like North, Virginia, and places like that people are short power. So the time it takes to.
Ben: Get to market effect or get to the end state, where you can kind of plug in and do it is elongated and I think that's an advantage that Alberta has and that we have in particular.
Ben: Got it and can you walk through I know you mentioned China.
Ben: Transmission connection application.
Ben: In service dates and whatnot.
Ben: Can you can you talk about beyond the connection is is there what's the regulatory process beyond that.
Ben: So.
Ben: There's a there's a few things that we need.
Ben: To have in place and they range everything from.
Ben: Just to give you a sense of the work that is required everything from resulting the land that we have there. So that it is appropriate to be used for a data center, we actually have a road.
Ben: We need to close so we need permitting and when relaxations around that we need.
Ben: To be able to go through the interconnection process, which.
Ben: Go through multiple stages in the first stage is pretty straightforward Blaine, there's I think three or four stages that you need to go through.
Ben: It would take some time months to be able to see.
Ben: That through.
Ben:
Ben: What other permits that we need a building permit frankly to be able to get the data center built our assessment is that the time.
Ben: To actually.
Ben: Getting to where we need to go the critical path item isn't really the permitting process I think the critical path item for us is making sure that we can get things like breakers transformers candidly to be able to move the power from our plants.
Ben: The distance, which isn't a long distance that would go to the site that would be ideal for the datacenter to locate and go from a high voltage out of the plan to be stepped down toward the appropriate voltage to go down into the data center, that's a critical path item like getting <unk>.
Ben: Getting transformers Breakers, I don't know Blaine 18 months two years to get some of that done we know that the build of the datacenter itself is roughly a two year time period 18 months.
Ben: Two years. So there is broad alignment around that and we're actually thinking about maybe going out and ordering some of that equipment. Just so that we can get ahead of the queue.
Ben: Okay got it and just one more if I may that thanks, a lot for that he referenced set here for reliability in that that's effectively no doubt downtime.
Ben: It is the requirement for <unk>.
Ben: <unk> III to is it more availability.
Ben: Above 90% and then the Bts affected buys the difference from.
Ben: The spot market or some other source.
Ben: That is correct you broke up there a little bit, but I think you're 100% right. So what do we think of tier four you're right. It's 99 point 99, nine I think it's five nines.
Ben: In terms of what the availability is so the work that we have done is what do we need to do to make sure that our unit will be available I'd say blayne roughly 90% of the time.
Ben: And that engineering work.
Ben: Is done and Thats not that far off from where frankly the unit is now with the residual 10% coming from the grid to be able to give you that additional 10% of availability that you need I would say there was also a difference in the customer I think with a hyper scaler.
Ben: They do want to have that.
Ben: Availability all of the time no matter, what with our co locators, sometimes your flexibility to be able to deal with things like maintenance and maybe out of shape to the availability periodically is a little bit better, but then I think the way you articulated is exactly right.
Ben: Okay understood. Thank you.
Ben: Thank you Ben.
Ben: Thank you.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue I would now like to turn the call back to Stephanie for closing remarks.
Speaker Change: Thank you everyone that concludes our call for today. If you have any further questions. Please don't hesitate to reach out to the <unk> Investor Relations team.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
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