TransAlta Q3 2026 Conference Call - TRANSALTA CORP

Explicit Guidance:

• Reaffirmed full-year 2026 adjusted EBITDA and free cash flow guidance ranges, driven by a strong hedge book and asset optimization; the net impact of the Colorado acquisition and Oklahoma disposition is expected to be modest for 2026.
• Sustaining capital expenditures for the full year remain within the previously guided range of $140–$160 million, with Q4 maintenance capex expected to be higher to keep aggregate spending within this band.
• 2026 guidance includes continued realization of emissions credits to offset carbon compliance costs, though management expects credit realization to better match compliance costs in the period incurred, improving quarterly segment clarity.

Business-Segment Outlook:

• Alberta Thermal: Remaining fleet will operate at higher capacity factors to support hedging and reliability; mothballed units (Battle River 4 & 5, Sundance 6) offer optionality to return to service as market fundamentals strengthen and data center load develops.
• Data Center & New Load: The Boreal Technology Hub (formerly KeyPills) is targeted for up to 1.6 GW of electrical load; initial 230 MW allocation (Phase 1) is secured, with further capacity potentially sourced from underutilized generation (including mothballed units) and future redevelopment of Sundance 5 and KeyPills 1.
• Colorado: Two newly acquired natural gas peaking facilities (318 MW total) are expected to deliver approximately $110 million in low-risk, high-quality adjusted EBITDA annually, commencing immediately upon commissioning.
• Wind/Solar: Renewable assets will continue to provide environmental offsets for the gas fleet's carbon obligations; specific segment EBITDA performance will reflect continued optimization of hedge positions and emissions credit monetization.

Market and Competitive Outlook:

• Alberta Power Market: Spot prices are expected to remain soft in the near term due to strong supply and mild weather, but management anticipates higher-priced hours emerging as market fundamentals tighten with new load.
• US Market Dynamics: Significant demand exceeds power supply in multiple US jurisdictions (Texas, Pennsylvania, New York) due to regulatory moratoriums, creating a competitive advantage for Alberta as the only North American jurisdiction with available power capacity.
• Pricing Strategy: The company expects to continue capturing merchant upside via dispatch optimization during high-price hours; the Alberta fleet realized a 53% premium to spot prices for gas and 19% for hydro in Q3, supported by a strong hedge book.

Macro / Industry Outlook:

• Regulatory & Policy: Management views Alberta's government and AUC/ASO regulatory framework as supportive of data center growth, prioritizing reliability and affordability without compromising grid stability, contrasting with US moratoriums.
• Electrification & Onshoring: Continued onshoring and electrification trends are driving increased power demand across core geographies, providing a long-term growth tailwind for the portfolio.
• Federal Mandates: Compliance with the US Department of Energy Section 202 order (requiring Centralia Unit 2 availability for 90 days) is ongoing, with confidence in cost recovery.

Strategic Initiatives:

• Boreal Technology Hub (KeyPills/Sundance):
  • Timing: Definitive agreements for the full project scope are anticipated early 2027, pending finalization of the "underutilized generation" solution with the AUC/ISO.
  • Capacity: Up to 1.6 GW total build-out is anticipated, powered initially by 230 MW of allocated capacity and underutilized steam units, with longer-term potential from repowering projects.
  • Status: AUC approval for the KeyPills 1 project was received in October; master site development permits are currently being pursued.
• Asset Optimization & Mothballing: Battle River units 4 & 5 are being mothballed to preserve long-term optionality; Sundance 6 mothball outage is extended. Flexibility exists to return these units to service at >90% capacity factors with minimal capital.
• Repowering & Conversion:
  • Centralia Coal-to-Gas: Environmental permits expected by year-end; Final Investment Decision (FID) targeted for next year.
  • KeyPills 1/Sundance 5: Redevelopment projects are in the queue for large-frame turbine delivery (5+ year lead times), targeting next decade deployment.
• M&A / Asset Recycling:
  • Colorado Acquisition: Closed Oct 2026 for $1B, adding 318 MW of contracted peaking capacity.
  • Oklahoma Divestiture: 49% stake in 502 MW wind portfolio sold to ARIES for $305M; proceeds to strengthen balance sheet.
  • Future Recycling: Active exploration of monetizing non-core assets (90+ asset portfolio) to enhance financial flexibility; no specific timeline or value targets disclosed beyond general "patient" approach.

Risks and Headwinds to Outlook:

• Market Price Volatility: Soft spot prices in Alberta due to oversupply and mild weather could impact merchant revenue, mitigated by the large hedge book.
• Regulatory Uncertainty: Finalizing the "underutilized generation" framework with the ASO/ISO remains a critical path item for data center load realization.
• Construction/Supply Chain: Long lead times for large-frame turbines (5+ years) pose a constraint on near-term repowering speed.
• Community/Stakeholder: Potential concerns regarding noise, water usage, and environmental impact from the Boreal data center project, though initial stakeholder feedback has been positive.
• Carbon Compliance: While current renewable assets provide offsets, future quarterly performance visibility depends on the timing match between emissions credit realization and compliance obligations.

Management Tone on the Future:

• Confidence: High confidence in achieving 2026 guidance and the long-term value of the Alberta portfolio.
• Strategic Pivot: Strong conviction that "steel in the ground" and existing infrastructure offer unique optionality to capture data center growth, a trend not fully anticipated at the time of the Heartland acquisition.
• Execution Focus: Emphasis on "disciplined capital allocation," "safe and reliable" operations, and maximizing value of legacy sites through repurposing.
• Hedging Philosophy: Active management of the hedge book to protect cash flows while maintaining upside exposure as market conditions evolve.

Miscellaneous:

• Hedge Book: ~2,100 GWh of Alberta generation hedged for the balance of 2026 at an average price of $67; ~6,700 GWh hedged for 2027 at an average price of $65.
• Partnerships: Ongoing collaboration with Brookfield, CPPI Investments, and BGRE on the Boreal project; partnership with ARIES on the Oklahoma wind portfolio.
• Employee Relations: 45 employees will remain on-site at Battle River to prepare assets for potential future service.