TransAlta Corporation (TSX:TA) (NYSE:TAC) announced today that its
subsidiary TransAlta Centralia Generation LLC has entered into an
11-year agreement to provide electricity from its Centralia,
Washington power plant to Puget Sound Energy ("PSE"). Contract
details related to pricing are kept confidential for competitive
reasons. The agreement is subject to approval by the Washington
Utilities and Transportation Commission.
This contract significantly reduces TransAlta's merchant
exposure in the Pacific Northwest. As a result of the new contract,
along with existing hedges, approximately 35 per cent of
Centralia's total available production will be contracted from 2014
until the end of 2020, with 2013 being approximately 45 per cent
contracted. On the same basis, approximately 65 per cent of the
total available production will be contracted from 2021 through
2025. Centralia's 670 megawatt ("MW") Unit 1 is scheduled to be
shut down at the end of 2020 and the 670 MW Unit 2 at the end of
2025 under the terms of Washington State's TransAlta Energy
Transition Law. The law was a successful collaboration among
policymakers, environmentalists, labor leaders and TransAlta to
reduce emissions from energy production without unduly disrupting
the local economy.
In addition to entering into the 11-year agreement with PSE,
TransAlta has restructured plant operations and taken other steps
to improve Centralia's competitiveness and reduce the facility's
overall operating and capital costs.
"We are very pleased to welcome Puget Sound Energy as a major
long-term customer for our Centralia transition power." said Dawn
Farrell, TransAlta President and CEO. "This contract, along with
the work done to lower costs, is a significant milestone in our
plan to contract the facility and secure cash flows needed for the
plant to run to the end of its life. It also validates our belief
that access to long-term coal transition power is a source of
competitive advantage for regional utilities and other potential
customers."
Under the power purchase agreement, PSE will buy 180 MW of firm,
base-load power from TransAlta starting in December 2014. In
December 2015 the contract increases to 280 MW and from December
2016 to December 2024 the contract is for 380 MW of coal transition
power. In the last year of the agreement the contracted volume is
300 MW.
Quarterly and annual financial update
TransAlta also announced today it expects to record a comparable
loss(1) for the second quarter 2012 based on a preliminary review
of operating results. The comparable loss is expected to be in the
range of $18 - $28 million ($0.08 - $0.12 per share). However,
Funds From Operations(1) ("FFO") for the quarter are expected to be
positive in the range of $140 to $150 million excluding
approximately $200 million to be recorded in the second quarter
associated with the arbitration panel's decision on Sundance Units
1 and 2 which TransAlta reported on July 23, 2012.
The second quarter comparable loss is primarily due to a loss in
Energy Trading and due to the higher planned major maintenance this
year compared to the same period last year. Low electricity prices
in the Alberta and Pacific Northwest markets were also a factor. It
is anticipated that Energy Trading will have a loss of
approximately $10 million in gross margin for the second quarter of
2012, compared to positive gross margin of $37 million in the
second quarter of 2011. For the full year, TransAlta now expects
2012 Energy Trading gross margin to be in the range of $50 - $70
million.
TransAlta's operations across the fleet performed well during
the quarter. Comparable Generation gross margin was in line with
last year despite the higher planned maintenance outages and lower
power prices. In addition, TransAlta has now completed four of six
major maintenance outages as planned on its coal units, and remains
on track to deliver on its fleet availability goal of 89 - 90 per
cent for the full year. TransAlta also completed two uprates on its
Keephills 1 & 2 Units adding vital power to the growing Alberta
market.
For the full year, TransAlta continues to target FFO at the low
end of its previously stated range of $800 - $900 million excluding
approximately $200 million to be recorded in the second quarter
associated with the recently announced Sundance decision. Funds
From Operations at these levels, combined with available liquidity
and the contribution from TransAlta's dividend reinvestment plan,
currently at an approximate 70 per cent participation level, are
sufficient to cover its dividend and sustaining capital program in
2012.
Under International Financial Reporting Standards ("IFRS"), and
taking into consideration TransAlta's existing contracts, the new
contract with PSE and management's expectations for forward market
electricity pricing in the Pacific Northwest, TransAlta expects, at
quarter end, to write down the carrying value of the Centralia
Thermal plant by approximately $350 million relative to its current
book value of approximately $770 million, and the associated tax
assets by approximately $170 million, relative to their current
book value of approximately $215 million.
The reduction in the value of the deferred tax asset will result
in an increase in the Company's overall effective tax rate from an
accounting perspective; however, from a cash flow perspective,
TransAlta does not expect to pay any cash taxes for Centralia
through to the end of the plant's economic life in 2025.
Based on the arbitration panel's decision which TransAlta
announced on July 23, under IFRS TransAlta expects to write down
its Sundance Units 1 and 2 in the second quarter of 2012 by
approximately $45 million relative to the current book value of
$140 million. This write down, combined with the net penalty from
the Sundance arbitration to be recorded in the second quarter,
results in a net earnings impact of approximately $185 million.
Under IFRS these impairments can be reassessed and written back
up in the future if cash flows improve, although no assurances can
be given about whether, when or to what degree carrying values may
be recovered.
The second quarter comparable loss is adjusted for the write
down of Centralia, the associated tax assets, the Sundance Units 1
and 2, the net penalty associated with the Sundance arbitration, as
well as other non-comparable items, primarily related to the
impacts of previously de-designated hedges, consistent with
treatment in prior quarters. Under IFRS, TransAlta expects to
record a net loss of approximately $790- $810 million ($3.48 -
$3.57 per share) in reported earnings for the second quarter
2012.
TransAlta will provide a more detailed view on the second
quarter and its full year outlook when it releases its second
quarter 2012 results and hosts a conference call with management on
July 31, 2012.
(1) Comparable earnings, comparable earnings per share and funds
from operations, are not defined under International Financial
Reporting Standards ("IFRS"). Presenting these measures from period
to period provides supplemental information to help management and
shareholders evaluate earnings and other trends in comparison with
prior periods' results. These non-IFRS measures should not be
considered in isolation or as an alternative to or to be more
meaningful than net earnings attributable to common shareholders or
cash flow from operating activities, as determined in accordance
with IFRS, when assessing our financial performance or liquidity.
These measures are not necessarily comparable to a similarly titled
measure of another company.
TransAlta is a power generation and wholesale marketing company
focused on creating long-term shareholder value. TransAlta
maintains a low-to-moderate risk profile by operating a highly
contracted portfolio of assets in Canada, the United States and
Australia. TransAlta's focus is to efficiently operate our
geothermal, wind, hydro, natural gas and coal facilities in order
to provide our customers with a reliable, low-cost source of power.
For 100 years, TransAlta has been a responsible operator and a
proud contributor to the communities where we work and live.
TransAlta is recognized for its leadership on sustainability by the
Dow Jones Sustainability North America Index, the FTSE4Good Index
and the Jantzi Social Index. TransAlta is Canada's largest
investor-owned renewable energy provider.
This news release may contain forward looking statements,
including statements regarding the business and anticipated
financial performance of TransAlta Corporation. These statements
are based on TransAlta Corporation's belief and assumptions based
on information available at the time the assumption was made. These
statements are subject to a number of risks and uncertainties that
may cause actual results to differ materially from those
contemplated by the forward-looking statements. Some of the factors
that could cause such differences include, pricing in the market
place, our inability to enter into long term contracts due to
prevailing market conditions, legislative or regulatory
developments, competition, global capital markets activity, changes
in interest rates, currency exchange rates, inflation levels and
general economic conditions in geographic areas where TransAlta
Corporation operates.
Note: All financial figures are in U.S. dollars unless noted
otherwise.
Contacts: TransAlta Corporation - Investor Inquiries: Jess
Nieukerk Director, Investor Relations Phone: 1
800-387-3598investor_relations@transalta.com TransAlta Corporation
- Media Inquiries: TransAlta Media Relations Phone: 1 403-267-3999
www.transalta.com
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