Mr. John Kousinioris reports

TRANSALTA REPORTS FIRST QUARTER 2023 RESULTS AND RAISES 2023 FINANCIAL GUIDANCE

TransAlta Corp. has released its financial results for the three months ended March 31, 2023.

First quarter 2023 financial highlights:

• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $503-million, an increase of 94 per cent over the same period in 2022;
• Free cash flow (FCF) of $263-million, or 98 cents per share, an increase of 145 per cent on a per-share basis from the same period in 2022;
• Earnings before income taxes of $383-million, an improvement of $141-million from the same period in 2022;
• Net earnings attributable to common shareholders of $294-million, an increase of $108-million from the same period in 2022;
• Cash flow from operating activities of $462-million, an increase of 2 per cent from the same period in 2022.

Other business highlights:

• Returned $36-million of capital to common shareholders through share buybacks of 3.2 million common shares;
• Entered into an automatic share purchase plan to facilitate repurchases of common shares through the normal course issuer bid during blackout periods;
• Announced agreement to acquire a 50-per-cent interest in a 320 MW (megawatt) early-stage pumped hydro development project;
• Kent Hills rehabilitation program on schedule with 13 turbines reassembled and commissioning commenced in late April;
• Garden Plain construction nearing completion with all turbines assembled and commercial operations to commence during the second quarter of 2023;
• Northern Goldfields construction nearing completion with commercial operations to commence during the second quarter of 2023;
• Mount Keith 132 kV (kilovolt) expansion project construction activities have commenced and are on schedule to be completed in latter half of 2023.

Revised outlook 2023:

• Increased 2023 annual financial guidance as set out below:
  • Adjusted EBITDA range of $1.45-billion to $1.55-billion, an increase of 19 per cent at the midpoint of prior guidance;
  • FCF range of $650-million to $750-million, an increase of 15 per cent at the midpoint of prior guidance;
  • Energy marketing gross margin range of $130-million to $150-million, an increase of 40 per cent at the midpoint of prior guidance.

"Our first quarter results continue to demonstrate the value of our strategically diversified fleet. Our results benefited from our strong operations, and asset optimization and hedging activities. With our performance across the fleet and our continuing positive expectations for the balance of year, we have revised our 2023 full year financial guidance upwards for both adjusted EBITDA and free cash flow, with revised midpoints exceeding the top end of our original targets to reflect stronger market conditions and solid operational performance," said John Kousinioris, president and chief executive officer of TransAlta.

"We continue to advance our growth plan and are progressing several opportunities with 374 MW of projects in an advanced stage of development. Our progress is on track, and the cash flows from our legacy fleet are positioning us well to realize our clean electricity growth plan," added Mr. Kousinioris.

Key business developments

Automatic share purchase plan

On March 27, 2023, the company entered into an automatic share purchase plan (ASPP) in order to facilitate repurchases of TransAlta's common shares under its previously announced normal course issuer bid (NCIB). The company has received approval from the Toronto Stock Exchange to purchase up to 14 million common shares during the 12-month period that commenced May 31, 2022, and terminates May 30, 2023, representing approximately 5.2 per cent of the company's currently issued and outstanding common shares as at Dec. 31, 2022.

Under the ASPP, the company's broker may purchase common shares from the effective date of the ASPP until the end of the NCIB. All purchases of common shares made under the ASPP will be included in determining the number of common shares purchased under the NCIB. Any common shares purchased by the company pursuant to the NCIB will be cancelled. The ASPP will terminate on the earliest of the date on which: (a) the maximum purchase limits under the ASPP are reached; (ii) the NCIB expires; or (iii) the company terminates the ASPP in accordance with its terms.

During the three months ended March 31, 2023, the company purchased and cancelled a total of 3,169,300 common shares at an average price of $11.23 per common share, for a total cost of $36-million.

Early-stage pumped hydro development project

On Feb. 16, 2023, the company entered into a definitive agreement to acquire a 50-per-cent interest in the Tent Mountain renewable energy complex, an early-stage 320 MW (megawatt) pumped hydro energy storage development project, located in southwest Alberta, owned by Montem Resources Ltd. The acquisition includes the land rights, fixed assets and intellectual property associated with the pumped hydro development project. The transaction closed on April 24, 2023. The company paid Montem approximately $8-million on closing of the transaction, and additional contingent payments of up to $17-million (approximately $25-million total) may become payable to Montem based on the achievement of specific development and commercial milestones. The company and Montem own the Tent Mountain project within a special purpose partnership that is jointly managed, with the company acting as project developer. The partnership is actively seeking an offtake agreement for the energy and environmental attributes generated by the facility.

Kent Hills wind facilities update

Rehabilitation of the Kent Hills 1 and 2 wind facilities is well under way. All of the towers have been fully disassembled, with foundation demolition and removal nearing completion. Construction of new foundations is progressing well, with approximately two-thirds of foundations poured. Tower reassembly is also progressing, with 13 turbines reassembled to date and associated commissioning activities commenced. The company continues to target returning all turbines to service in the second half of 2023. The current estimate of the capital expenditures is approximately $120-million, inclusive of insurance proceeds.

During the first quarter of 2023, the company filed and served a statement of claim in the New Brunswick Court of King's Bench against certain defendants who the company believes are responsible for, or contributed to, the failure of the turbine foundations at the Kent Hills 1 and 2 wind facilities. The claim seeks damages for lost profits, replacement costs and other related costs to perform the remediation of Kent Hills 1 and 2, net of any insurance recoveries. The ability to recover any amounts is uncertain at this time.

First quarter financial results summary

Adjusted EBITDA for the three months ended March 31, 2023, was $503-million, an increase of $244-million, or 94 per cent, compared with the same period in 2022, largely due to increased revenue from the Alberta electricity portfolio, driven primarily by gas, hydro and wind facilities as a result of higher merchant prices, increased revenue in the energy transition segment due to higher production at Centralia unit 2, and stronger market prices in the Pacific Northwest and higher production in the gas segment due to stronger market conditions in Alberta. Adjusted EBITDA was further improved by higher ancillary services revenues in hydro, higher environmental attribute revenues in the hydro, and wind and solar segments, and higher earnings from the energy marketing segment, due to short-term trading of both physical and financial power and gas products across all North American deregulated markets. These increases were partially offset by higher fuel and purchased power resulting from higher market price of coal and higher coal usage, higher carbon compliance costs in the gas segment due to higher carbon price per tonne and higher gas production, lower production in the wind and solar segment due to stronger wind resources in the first quarter of 2022, and higher OM&A in the energy marketing and corporate segments.

FCF for the three months ended March 31, 2023, was $263-million compared with $108-million in the same period of 2022, driven primarily by higher adjusted EBITDA and lower interest expense. This was partially offset by higher current income tax expense, higher distributions paid to subsidiaries' non-controlling interests and changes in provisions compared with 2022. The company expects a portion of the current tax expenses to reverse during the balance of the year as projects under construction are completed, including the Garden Plain wind project and projects in Australia.

Net earnings attributable to common shareholders for the three months ended March 31, 2023, was $294-million compared with $186-million in the same period of 2022, an increase of $108-million. During the first quarter of 2023, the company benefited from higher revenues, partially offset by higher fuel and purchased power, higher carbon compliance costs, higher depreciation due to the acceleration of useful lives on certain facilities in 2022, higher OM&A costs related to the corporate and energy marketing segments, lower asset impairment reversals, and higher income tax expense due to higher earnings before tax. Net earnings attributable to common shareholders in the current period were impacted by higher net earnings allocated to non-controlling interests.

Cash flow from operating activities for the three months ended March 31, 2023, was $462-million, an increase of $11-million compared with the same period in 2022, primarily due to higher revenues net of unrealized gains and losses from risk management activities. This was partially offset by higher unfavourable changes in working capital, mainly from changes in collateral paid and received, and higher fuel and purchase power, and carbon compliance costs.

Alberta electricity portfolio

The Alberta electricity portfolio generated gross margin of $349-million, an increase of $185-million compared with the same period in 2022. Higher gross margin was the result of increased merchant production and higher realized prices for the company's gas and hydro segment, merchant hedging contributions and growing contribution from contracted wind.

Alberta power prices for the first quarter of 2023 were higher compared with last year as a result of generally higher demand in the province and significantly lower net power imports due to strong prices in adjacent power markets. The average pool price increased as a result of these factors from $90 per MWh (megawatt-hour) in 2022 to $142 per MWh in 2023.

For the three months ended March 31, 2023, the Alberta electricity portfolio achieved a realized merchant power price of $156 per MWh, compared with the Alberta electricity price, which averaged $142 per MWh. Higher realized merchant power pricing for energy across the fleet was due to higher market prices and optimization of the company's available capacity across all fuel types. The segment spot prices exclude gains and losses from hedging positions that are entered into in order to mitigate the impact of unfavourable market pricing.

Hedged volume for the three months ended March 31, 2023, was 2,046 GWh (gigawatt-hours) at an average price of $136 per MWh compared with 1,738 GWh at an average price of $84 per MWh in 2022.

Increased 2023 financial guidance

The company increased its 2023 outlook for adjusted EBITDA to be between $1.45-billion and $1.55-billion. The midpoint of the range represents a 19-per-cent increase over the company's previous 2023 outlook as at the fourth quarter of 2022.

FCF outlook has also been increased and is now expected to be between $650-million and $750-million. The midpoint of the range represents a 15-per-cent increase over the company's previous 2023 outlook.

The energy marketing gross margin range has been revised to $130-million to $150-million, an increase of 40 per cent at the midpoint of the company's previous 2023 outlook.

The associated table provides additional details pertaining to the 2023 outlook.

Range of key 2023 power and gas price assumptions are shown in the associated table.

Other assumptions relevant to the 2023 outlook are shown in the associated table.

Liquidity and financial position

The company continues to maintain a strong financial position in part due to long-term contracts and hedged positions. As at March 31, 2023, TransAlta had access to $2.6-billion in liquidity, including $1.2-billion in cash and cash equivalents.

Normal course issuer bid

During the three months ended March 31, 2023, the company purchased and cancelled a total of 3,169,300 common shares at an average price of $11.23 per common share, for a total cost of $36-million.

Segmented financial performance

Hydro:

• Adjusted EBITDA for the three months ended March 31, 2023, increased by $45-million compared with the same period in 2022, primarily due higher power and ancillary service prices in the Alberta market, and higher environmental attribute revenues. In addition, the company captured revenue through forward hedging for the Alberta hydro assets and realized gains from the hedging strategy in the first quarter of 2023.

Wind and solar:

• Adjusted EBITDA for the three months ended March 31, 2023, decreased by $1-million compared with the same period in 2022, primarily from lower production due in part to weaker wind resources during the quarter and lower liquidated damages recognized at the Windrise wind facility, partially offset by higher environmental attribute revenues and higher power pricing.

Gas:

• Adjusted EBITDA for the three months ended March 31, 2023, increased by $135-million compared with the same period in 2022, mainly due to higher realized energy prices for our Alberta merchant assets, net of hedging, lower natural gas prices and lower OM&A due to staffing reductions in Alberta. This was partially offset by increased natural gas consumption and carbon compliance costs, driven by higher production, higher carbon price per tonne and lower Ontario merchant pricing and steam generation.

Energy transition:

• Adjusted EBITDA for the three months ended March 31, 2023, increased by $49-million compared with the same period in 2022, primarily due to increased production stemming from strong market prices in the Pacific Northwest and higher availability at Centralia unit 2.

Energy marketing:

• Adjusted EBITDA for the three months ended March 31, 2023, increased by $22-million compared with the same period in 2022. Results exceeded segment expectations from short-term trading of both physical and financial power and gas products across all North American deregulated markets. The company was able to capitalize on short-term volatility in the trading markets while maintaining the overall risk profile of the business unit.

Corporate:

• The company's corporate costs for the three months ended March 31, 2023, increased by $6-million compared with the same period in 2022, primarily due to recoveries realized in 2022, increased spending to support strategic and growth initiatives, lower allocations of corporate costs to the generation segments and increased costs due to inflationary pressures.

Conference call

TransAlta will hold a conference call and webcast at 9 a.m. MT (11 a.m. ET) today, May 5, 2023, to discuss its first quarter 2023 results. The call will begin with a short address by Mr. Kousinioris, president and chief executive officer, and Todd Stack, executive vice-president of finance and chief financial officer, followed by a question-and-answer period for investment analysts and investors. A question-and-answer period for the media will immediately follow.

Dial-in number -- first quarter 2023 conference call

Toll-free North American participants call:  1-888-664-6392

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 is accessible at 1-888-390-0541 (Canada and United States toll-free) with TransAlta pass code 337489 followed by the pound sign. A transcript of the broadcast will be posted on TransAlta's website once it becomes available.

TransAlta is in the process of filing its unaudited interim consolidated financial statements and accompanying notes, as well as the associated management's discussion and analysis (MD&A). These documents will be available today on the investors section of TransAlta's website or through SEDAR.

About TransAlta Corp.

TransAlta owns, operates and develops a diverse fleet of electrical power generation assets in Canada, the United States and Australia with a focus on long-term shareholder value. TransAlta provides municipalities, medium and large industries, businesses, and utility customers with clean, affordable, energy efficient and reliable power. Today, TransAlta is one of Canada's largest producers of wind power and Alberta's largest producer of hydro-electric power. For over 111 years, TransAlta has been a responsible operator and a proud member of the communities where it operates and where its employees work and live. TransAlta aligns its corporate goals with the UN Sustainable Development Goals and its climate change strategy with CDP (formerly Climate Disclosure Project) and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. TransAlta has achieved a 68-per-cent reduction in GHG (greenhouse gas) emissions, or 22 million tonnes, since 2015 and has received scores of A-minus from CDP and A from MSCI.

We seek Safe Harbor.