Ms. Dawn Farrell reports

TRANSALTA REPORTS THIRD QUARTER 2014 RESULTS

TransAlta Corp. had third quarter 2014 comparable EBITDA (earnings before interest, taxes, depreciation and amortization) of $212-million with 92.0-per-cent availability and continued improved performance from all its operations, including its Canadian coal fleet which ran at 88.6-per-cent availability. Comparable EBITDA and FFO (funds from operations) decreased $54-million and $29-million, respectively, compared with the same period last year, primarily due to lower power prices in Alberta which impacted revenues from the company's assets in the province and lower trading margins. For the nine months ended Sept. 30, comparable EBITDA was $735-million and FFO was $537-million.

"Our third quarter results reflect the positive impact of steadily improving our base operations and focus on execution," said Dawn Farrell, president and chief executive officer. "As expected, our operations delivered strong performance and we met our fleet-wide operating targets for the quarter. Unfortunately, with persistent soft power prices in Alberta, we were unable to translate that performance into improved financial results compared with last year. While we did account for lower Alberta pricing in our 2014 business plan, recent market conditions have been weaker than anticipated and we believe lower prices could be sustained through the end of the year. As a result, we are adjusting our FFO guidance to $735[-million] to $755-million for the year."

Power prices in Alberta averaged $64 per megawatt hour (MWh) during the third quarter of 2014 compared with $84 per MWh during the same period last year. TransAlta's strategy of being highly contracted generally limited the impacts of lower prices in the quarter, however, reduced price volatility and limited the company's ability to optimize its hydro assets in Alberta which typically create significant value by capturing high-priced hours. Weak pricing also impacted incentive payments from the company's power purchase arrangements. Prices could remain low through the balance of the year. Accordingly, the company is adjusting its forecasts for the year to the lower end of its previously disclosed comparable EBITDA and FFO ranges. Revised expected comparable EBITDA for 2014 is between $1,005-million and $1,025-million, and revised expected FFO is between $735-million and $755-million.

Recent strategic accomplishments

• Received from Standard and Poor's (S&P) confirmation of its BBB- stable credit rating;
• Completed a public offering of 6.6 million Series G 5.3-per-cent cumulative redeemable rate reset first preferred shares, resulting in gross proceeds of $165-million;
• Agreed to build and operate a $570-million (Australian), 150 MW combined cycle gas power station in South Hedland, Western Australia; fully contracted power station expected to be commissioned and delivering power to customers in the first half of 2017;
• Continued construction with the company's joint venture partner on a $178-million (Australian) natural gas pipeline to the company's Solomon power station; holds a 43-per-cent interest in the join; venture; project on schedule and within budget;
• At Sept. 30, 2014, liquidity approximately $1.6-billion, $587-million higher than at the end of 2013;
• Ended the third quarter with a net debt balance of approximately $3.9-billion, down from approximately $4.3-billion at the beginning of the year with the stronger U.S. dollar offsetting the actual reduction in debt level.

                              THIRD QUARTER REVIEW
                     (In millions, except where indicated)


                         Three months   Three months     Nine months    Nine months
Comparable                      ended          ended           ended          ended
EBITDA                      Sept. 30,      Sept. 30,       Sept. 30,      Sept. 30,
                                 2014           2013            2014           2013
Generation
Canadian coal                      91             95             268            239
U.S. coal                          12             20              43             52
Gas                                77             75             228            246
Wind                               26             25             121            121
Hydro                              26             50              65            127
Total generation                  232            265             725            785
Energy trading (loss)             (3)             17              50             41
Corporate (loss)                 (17)           (16)            (40)           (45)
Total comparable
EBITDA                            212            266             735            781
FFO                               145            174             537            551
Comparable net
earnings (loss)
attributable to
common
shareholders                     (13)             39              22             80

Comparable EBITDA was $212-million down from $266-million for the same period last year due to lower prices in Alberta which impacted the company's assets in the province and lower trading margins, partially offset by improved operational performance at Canadian coal.

FFO also came in lower for the quarter at $145-million, down from $174-million for the same period last year. The decrease in FFO is primarily due to lower comparable EBITDA.

The company reported a comparable net loss for the quarter of $13-million (five cents per share), down from comparable net earnings of $39-million (15 cents per share) in the same period last year. The per share decrease was driven by lower comparable EBITDA, net of taxes, and higher non-controlling interests.

Availability for the quarter was 92.0 per cent, which was 6.1 per cent higher than the availability during the same period last year and brings year-to-date adjusted availability to 89.6 per cent, in line with the company's full-year availability target range of 88 to 90 per cent. Stronger availability year over year helped to partially offset the impacts of lower Alberta pricing. Total sustaining capital expenditures are $255-million in the year to date and the company is on track to be within its 2014 target range of $335-million to $365-million. The company has completed all the planned coal outages for 2014 on units it operates.

Generation

Canadian coal

Comparable EBITDA was $91-million in the third quarter compared with $95-million for the same period in 2013. Lower Alberta power prices during the quarter resulted in a $26-million variance year over year in incentives on the company's PPA plants which offset the positive impacts of higher availability and lower coal costs. Year-to-date comparable EBITDA for 2014 was up $29-million to $268-million compared with 2013, due to higher availability and lower coal costs.

U.S. coal

Comparable EBITDA was $12-million in the third quarter and $43-million year to date compared with $20-million and $52-million, respectively, for the same periods in 2013, primarily due to lower volumes of higher-priced hedges. In the third quarter of 2014, the company also incurred higher costs than the same period in 2013 to purchase power during periods of curtailment. In order to mitigate coal supply risks during the winter months, coal has been stockpiled in anticipation of increased rail congestion in 2015.

Gas

Comparable EBITDA was $77-million in the third quarter and $228-million in the year to date compared with $75-million and $246-million, respectively, for the same periods in 2013. The year-to-date decrease in comparable EBITDA is primarily due to lower Alberta prices impacting results from the Poplar Creek facility in the second quarter and the effects of the new contract for the Ottawa facility.

Wind

Comparable EBITDA was $26-million in the third quarter and $121-million in the year to date compared with $25-million and $121-million, respectively, for the same periods in 2013, as increased production offset lower prices in Alberta.

Hydro

Comparable EBITDA was $26-million in the third quarter and $65-million in the year to date compared with $50-million and $127-million, respectively, for the same periods in 2013. Lower prices and low price volatility in Alberta limited the company's ability to take advantage of resource flexibility to produce electricity during higher priced hours. Additionally, lower water resources than in 2013 impacted the company's third quarter and year-to-date results.

Energy trading

After generating substantial comparable EBITDA of $49-million in the first quarter of 2014, energy trading generated a comparable EBITDA loss of $3-million in the third quarter, down $20-million compared with the third quarter of 2013 due to lower commodity price volatility in Alberta and the Western U.S. Year-to-date comparable EBITDA in 2014 was $50-million, up $9-million from $41-million in the 2013 year-to-date period, as a result of the company's ability to optimize its energy marketing assets during the volatile market conditions caused by extreme weather events in the northeast during the first quarter of 2014.

Corporate

The company's corporate segment incurred costs of $17-million in the third quarter of 2014, consistent with $16-million for the same period in 2013. Year to date, the company's corporate segment incurred lower costs of $40-million compared with $45-million in the same period in 2013. The lower costs were a result of a change in allocation of overhead costs to the company's business units, partially offset by higher incentive-based compensation.

Recent events

Standard & Poor's confirmation of credit rating

On Oct. 9, 2014, Standard & Poor's confirmed TransAlta's BBB- stable credit rating.

Sale of preferred shares

On Aug. 15, 2014, the company completed a public offering of 6.6 million Series G 5.3-per-cent cumulative redeemable rate reset first preferred shares, resulting in gross proceeds of $165-million. The proceeds from the offering are being used for general corporate purposes, including the financing of capital projects and the reduction of short-term indebtedness of the corporation. The proceeds also provide flexibility to repay debt maturing early in 2015.

South Hedland

On July 28, 2014, the company announced that it had agreed to build, own, and operate a 150 MW combined cycle gas power station in South Hedland, Western Australia. The project is estimated to cost approximately $570-million (Australian) to build, including the cost of acquiring existing balance of plant assets, related infrastructure and transmission access. The development has been fully contracted under 25-year power purchase arrangements (PPAs) with Horizon Power, a state-owned utility company, and the Pilbara Infrastructure Pty. Ltd., a wholly owned subsidiary of Fortescue, a mining company. The project may be expanded to accommodate additional customers at later dates. The power station will supply Horizon Power's customers in the Pilbara region as well as Fortescue's port operations. IHI Engineering Australia has been selected as the contractor to construct the power station. Applications for the relevant work and environmental permits have been submitted and are now in progress. Construction is expected to take place over the next three years and the power station is expected to be commissioned and delivering power to customers in the first half of 2017.

The associated table depicts key financial results and statistical operating data.

                                THIRD QUARTER 2014 HIGHLIGHTS

                          Three months   Three months    Nine months    Nine months
                                 ended          ended          ended          ended
                             Sept. 30,      Sept. 30,      Sept. 30,      Sept. 30,
                                  2014           2013           2014           2013

Adjusted
availability                      92.0           85.9           89.6           86.4
Production (GWh)                11,445         11,088         32,795         29,842
Revenue                           $639           $623         $1,905         $1,705
Comparable EBITDA                  212            266            735            781
Reported net
earnings (loss)
attributable to
common shareholders                (6)            (9)            (7)            (5)
Comparable net
earnings (loss)
attributable to
common
shareholders                      (13)             39             22             80
Funds from
Operations                         145            174            537            551
Cash flow from
operating
activities                         216            253            546            601
Free cash flow                      33             64            191            235
Basic and diluted
earnings (loss) per
common share                    (0.03)         (0.03)         (0.03)         (0.02)
Comparable net
earnings per
share (loss)                    (0.05)           0.15           0.08           0.31
Funds from
operations per
share                             0.53           0.65           1.97           2.10
Free cash flow per
share                             0.12           0.24           0.70           0.90
Dividends paid per
common share                      0.18           0.29           0.65           0.87

The complete report for the quarter, including MD&A and unaudited interim financial statements, as well as the company's quarterly presentation, is available on the investors section of the company's website.

Conference call

The company will hold a conference call and webcast at 1 p.m. Mountain Time (3 p.m. Eastern Time) today to discuss its third quarter 2014 results. The call will begin with a short address by Dawn Farrell, president and chief executive officer, and Donald Tremblay, chief financial officer, followed by a question-and-answer period for investment analysts, investors and other interested parties. A question-and-answer period for the media will immediately follow. Please contact the conference operator five minutes prior to the call, noting TransAlta as the company and Brent Ward as moderator.

Dial-in numbers

Toll-free North American participants call:  1-800-319-4610

Outside of Canada and U.S. call:  1-604-638-5340

A link to the live webcast will be available on the investor centre section of TransAlta's website. If you are unable to participate in the call, the instant replay will be accessible at 1-800-319-6413 (Canada and U.S. toll-free) or 1-604-638-9010 (outside of Canada) with TransAlta pass code 2231 followed by the number sign. A transcript of the broadcast will be posted on TransAlta's website once it becomes available.

We seek Safe Harbor.