Mr. John Kousinioris reports

TRANSALTA REPORTS THIRD QUARTER 2023 RESULTS

TransAlta Corp. has released its financial results for the three and nine months ended Sept. 30, 2023.

"Our third quarter results continue to demonstrate the value of our strategically diversified fleet, which benefited from our asset optimization and hedging activities. With strong performance across the fleet and our continuing positive expectations for the balance of year, we continue to track towards previously revised guidance," said John Kousinioris, president and chief executive officer of TransAlta.

"We are pleased to have completed the acquisition of TransAlta Renewables. Our combined company's greater scale and enhanced strategic positioning will drive value for all of our shareholders as we continue to advance our growth plan. Within the quarter, we were also pleased to reach commercial operations at Garden Plain, our 27th wind facility. We are now delivering clean electricity to our customers, Pembina Pipeline and PepsiCo, helping them achieve their sustainability goals.

"We also continue to progress our advanced-stage pipeline and other potential opportunities in the context of the current market environment. We are focused on making disciplined capital allocation decisions to ensure we deliver project returns that are appropriate for the current market environment and enhance value for our shareholders. We have 418 MW [megawatts] of projects in advanced stage of development on which we are working to reach final investment decisions in the near term. The cash flows from our legacy fleet are positioning us well to realize our clean electricity growth plan," added Mr. Kousinioris. "Finally, and more recently, we are pleased to have entered into an agreement to acquire Heartland Generation, which we believe will support our competitive positioning and diversify our generating portfolio in Alberta."

Key business developments

TransAlta to acquire Heartland Generation from Energy Capital Partners

On Nov. 2, 2023, the company announced that it had entered into a definitive share purchase agreement with an affiliate of Energy Capital Partners, the parent of Heartland Generation Ltd. and Alberta Power (2000) Ltd. (collectively, Heartland), pursuant to which TransAlta will acquire Heartland and its entire business operations in Alberta and British Columbia. The acquisition will add 10 facilities to TransAlta's fleet, totalling 1,844 MW of new capacity. Heartland owns and operates generation assets consisting of 507 MW of cogeneration, 387 MW of contracted and merchant peaking generation, 950 MW of gas-fired thermal generation, transmission capacity, and a development pipeline that includes the 400 MW Battle River carbon hub. The transaction is expected to close in the first half of 2024, subject to customary closing conditions, including receipt of regulatory approvals.

The purchase price for the acquisition is $390-million, subject to working capital and other adjustments, as well as the assumption of $268-million of low-cost debt. The company will finance the transaction using cash on hand and draws on its credit facilities.

The assets are expected to add approximately $115-million of average annual EBITDA (earnings before interest, taxes, depreciation and amortization), including synergies. Approximately 55 per cent of revenues are under contract with high-creditworthy counterparties, which have a weighted-average remaining contract life of 16 years. Corporate pretax synergies are expected to exceed $20-million annually.

TransAlta completes acquisition of TransAlta Renewables Inc. to simplify structure and enhance strategic position

On Oct. 5, 2023, the company announced the completion of the acquisition of TransAlta Renewables pursuant to the terms of the previously announced arrangement agreement between the parties. TransAlta acquired all of the outstanding common shares of TransAlta Renewables (RNW shares) not already owned, directly or indirectly, by TransAlta and certain of its affiliates, resulting in TransAlta Renewables becoming a wholly owned subsidiary of the company. Prior to the arrangement, TransAlta and its affiliates collectively held 160,398,217 RNW shares, representing 60.1 per cent of the issued and outstanding RNW shares, with the remaining 106,510,884 RNW shares held by TransAlta Renewables shareholders other than TransAlta and its affiliates.

The arrangement was approved by RNW shareholders at a special meeting of shareholders held on Sept. 26, 2023, and by the Court of King's Bench of Alberta on Oct. 4, 2023. The consideration paid totalled $1.3-billion, which consisted of $800-million of cash and approximately 46 million common shares of the company.

The closing of the acquisition of TransAlta Renewables represents a key milestone for the company and the simplified and unified corporate structure positions it well for future success. The combined company will unify TransAlta's assets, capital and capabilities to enhance cash flow predictability while enhancing its ability to realize future growth.

The RNW shares were delisted from the Toronto Stock Exchange (TSX). Common shares of the company will continue to trade on both the New York Stock Exchange (NYSE) and the TSX under the symbols TAC and TA, respectively.

TransAlta tops list of Newsweek's World's Most Trustworthy Companies for 2023

On Sept. 14, 2023, the company announced that it ranked first on Newsweek's inaugural World's Most Trustworthy Companies 2023 list for the energy and utilities category. The list identifies the top 1,000 companies in 21 countries and across 23 industries. Newsweek's 2023 World's Most Trustworthy Companies have been chosen based on a holistic approach to evaluating trust across three pillars of public trust -- customer, investor and employee. The list was compiled based on an extensive survey of over 70,000 participants, gathering 269,000 evaluations of companies that people trust as a customer, as an investor and as an employee.

Garden Plain wind facility reaches commercial operations

In August, 2023, the Garden Plain wind facility was commissioned, adding 130 MW to the company's gross installed capacity. The facility is fully contracted with Pembina Pipeline and PepsiCo Canada, with a weighted average contract life of approximately 17 years.

Third quarter financial results summary

During the third quarter of 2023, the company continued to demonstrate strong performance in its Alberta electricity portfolio, led by the Alberta gas and hydro segments, which continue to benefit from higher-than-expected energy and ancillary service pricing in the Alberta market, lower-than-expected natural gas prices and favourable hedging impacts resulting in higher-than-expected gross margins.

For the nine months ended Sept. 30, 2023, the company demonstrated stronger performance compared with the same period in 2022, mainly due to the continued strong market conditions in Alberta, higher hedged prices, higher hedged volumes and lower realized gas prices in the gas segment, and higher merchant pricing and production in the energy transition segment, partially offset by lower wind resources. For the three and nine months ended Sept. 30, 2023, the energy marketing segment's performance was lower compared with the same periods in 2022 due to timing of realized settlements, but in line with segment expectations.

Production for the three months ended Sept. 30, 2023, was 5,678 gigawatt hours (GWh) compared with 5,432 GWh for the same period in 2022. The increase in production was primarily due to higher dispatch in Alberta and higher production in Ontario for the gas segment. Hydro production for the three months ended was lower compared with the same period in 2022 due to higher water resource from delayed spring runoff in the third quarter of 2022 and lower-than-average water resource in the third quarter of 2023. Production for the nine months ended Sept. 30, 2023, was 16,246 GWh compared with 15,253 GWh for the same period in 2022. The increase in production was primarily due to stronger market conditions in Alberta and the Pacific Northwest in the gas and energy transition segments, partially offset by lower production in the wind and solar segments due to lower wind and solar resources in all regions. Both the three and nine months ended Sept. 30, 2023, benefited from the addition of the Garden Plain wind facility.

Adjusted availability for the three and nine months ended Sept. 30, 2023, was 91.9 per cent and 89.4 per cent, respectively, compared with 93.8 per cent and 90.1 per cent, respectively, for the same periods in 2022. Adjusted availability for the three months ended Sept. 30, 2023, decreased primarily due to planned outages in the gas segment and unplanned outages in the energy transition segment, partially offset by the partial return to service of the Kent Hills facilities. Adjusted availability for the nine months ended Sept. 30, 2023, was further impacted by planned outages in the hydro segment.

Adjusted EBITDA for the three months ended Sept. 30, 2023, exceeded the company's expectations for the period; however, it decreased by $102-million compared with the same period in 2022. Energy prices and ancillary service prices for three months ended Sept. 30, 2023, were higher than TransAlta's revised expected full-year financial guidance provided in the second quarter of 2023. They were, however, lower than the comparative period due to the exceptional prices experienced in 2022 impacting adjusted EBITDA in both the gas and hydro segments. The hydro segment's adjusted EBITDA was further impacted by higher production due to higher water resource in 2022 from a delayed spring runoff. These decreases to adjusted EBITDA were further impacted by lower results in the energy marketing segment due to adjustments to revenues to account for the timing of realized gains and losses on closed exchange positions and unrealized mark-to-market gains and losses and lower merchant pricing in the energy transition segments, partially offset by the higher production in the gas segment. For the nine months ended Sept. 30, 2023, adjusted EBITDA increased by $250-million, compared with the same period in 2022, largely due to higher realized prices and production from the gas facilities, lower natural gas prices, and higher revenue in the energy transition segment due to higher merchant pricing and higher production. These increases were partially offset by higher carbon compliance costs in the gas segment, higher OM&A (operations, maintenance and administration), and lower revenues in the wind and solar and energy marketing segments.

FCF (free cash flow) totalled $228-million and $769-million, respectively, for the three and nine months ended Sept. 30, 2023, compared with $393-million and $646-million, respectively, in the same periods in 2022. For the three months ended Sept. 30, 2023, FCF decreased $165-million, primarily due to lower adjusted EBITDA, higher current income tax expense, higher distributions paid to subsidiaries' non-controlling interests and higher sustaining capital expenditures. For the nine months ended Sept. 30, 2023, FCF increased by $123-million, primarily due to higher adjusted EBITDA, lower interest expense, mainly driven by higher interest income due to higher interest rates, and higher interest capitalized on construction capital expenditures. This was partially offset by higher distributions paid to subsidiaries' non-controlling interests, higher sustaining capital expenditures and higher current income tax expense compared with 2022.

Earnings before income taxes for the three and nine months ended Sept. 30, 2023, increased by $327-million and $569-million, respectively, compared with the same periods in 2022. Net earnings (attributable to common shareholders) for the three and nine months ended Sept. 30, 2023, were $372-million and $728-million compared with $61-million and $167-million for the same periods in 2022. For the three and nine months ended Sept. 30, 2023, the company benefited from higher revenues net of unrealized gains and losses from risk management activities and lower natural gas commodity prices, partially offset by higher carbon compliance costs. The company also benefited from higher asset impairment reversals and lower net interest expense, partially offset by higher net earnings allocated to non-controlling interests. Depreciation decreased in the three months ended Sept. 30, 2023, due to the extension of useful lives on certain facilities, but was higher for the nine months ended Sept. 30, 2023, compared with the same period in 2022, due to the acceleration of useful lives on certain facilities in the prior period. The nine months ended Sept. 30, 2023, also benefited from lower income tax expense, partially offset by higher OM&A expenses.

Cash flow from operating activities for the three and nine months ended Sept. 30, 2023, increased by $477-million and $628-million, respectively, compared with the same periods in 2022, primarily due to higher revenues net of unrealized gains and losses from risk management activities, lower fuel and purchased power, and favourable changes in working capital. This was partially offset by higher carbon compliance costs and, for the nine months ended Sept. 30, 2023, higher OM&A.

Alberta electricity portfolio

For the three and nine months ended Sept. 30, 2023, the Alberta electricity portfolio generated 3,092 GWh and 8,771 GWh of energy, respectively. This was an increase of 226 GWh and 648 GWh, respectively, compared with the same periods in 2022. Higher production in the three and nine months ended Sept. 30, 2023, was primarily due to higher dispatch and higher hedged gas volumes from the company's merchant gas assets, partially offset by lower water and wind resources in Alberta.

Gross margin for the three and nine months ended Sept. 30, 2023, was $382-million and $1,033-million, respectively, a decrease of $42-million and increase of $277-million, respectively, compared with the same periods in 2022. Lower gross margin in the three months ended Sept. 30, 2023, was a result of lower energy production, lower ancillary service prices, lower ancillary services volumes and lower realized energy prices from the hydro assets, partially offset by higher dispatch from the gas assets. Higher gross margin for the nine months ended Sept. 30, 2023, was primarily due to merchant revenues and higher realized energy prices for the company's gas assets. In 2023, more gas fuel costs were hedged and the natural gas prices were lower compared with 2022.

The realized merchant power price per MWh for the three and nine months ended Sept. 30, 2023, was $179 per MWh (megawatt hour) and $176 per MWh, respectively, compared with $253 per MWh and $164 per MWh in the same periods in 2022. For the three months ended Sept. 30, 2023, realized merchant power price per MWh was strong but lower than the comparative period, primarily due to lower natural gas prices. For the nine months ended Sept. 30, 2023, higher realized merchant power pricing for energy across the portfolio was primarily due to higher market prices and optimization of the company's available capacity across all fuel types.

Hedged volumes for the three and nine months ended Sept. 30, 2023, were 2,086 GWh and 5,800 GWh at an average price of $120 per MWh and $117 per MWh, respectively, compared with 1,681 GWh and 5,320 GWh at an average price of $80 per MWh and $79 per MWh, respectively, in 2022.

2023 financial guidance

In the second quarter, TransAlta revised its 2023 full-year financial guidance upwards for both adjusted EBITDA and free cash flow to reflect stronger market conditions and solid operational performance. The company's fleet remains well positioned to capture the continuing strength that the company sees in the Alberta merchant market. The company remains on track to meet its revised financial guidance and is focused on redeploying these cash flows toward growing its contracted clean electricity asset base.

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 Sept. 30, 2023, TransAlta had access to $2.6-billion in liquidity, including $1.2-billion in cash; well in excess of the funds required for committed growth, sustaining capital and productivity projects. On Oct. 5, 2023, $800-million of cash was used for the TransAlta Renewables transaction.

Hydro:

• Adjusted EBITDA for the three and nine months ended Sept. 30, 2023, has exceeded the company's expectations as energy and ancillary services prices were higher than originally anticipated. Adjusted EBITDA for the three months ended Sept. 30, 2023, decreased by $95-million compared with the same period in 2022, as 2022 was exceptional and benefited from a delayed spring runoff in the third quarter of 2022 and exceptional energy and ancillary service pricing in the Alberta market. Adjusted EBITDA for the nine months ended Sept. 30, 2023, increased by $9-million, compared with the same period in 2022, primarily due to higher realized energy and ancillary services prices in the Alberta market, and higher sales of environmental attributes, partially offset by higher OM&A costs. OM&A for the nine months ended Sept. 30, 2023, increased primarily due to higher legal fees, higher insurance costs, salary escalations and incentive accruals. For the three and nine months ended Sept. 30, 2023, the company captured revenue by forward hedging for the Alberta hydro assets and realized gains from the hedging strategy.

Wind and solar:

• Adjusted EBITDA for the three months ended Sept. 30, 2023, decreased by $5-million compared with the same period in 2022, primarily due to lower revenues driven by weaker wind resource across the operating fleet, partially offset by the addition of the Garden Plain wind facility and the partial return to service of the Kent Hills wind facilities. Adjusted EBITDA for the nine months ended Sept. 30, 2023, decreased by $44-million, compared with the same period in 2022, primarily due to lower production, weaker wind resource, lower environmental attribute revenues driven by a reduction to offsets and emission credit sales, and lower liquidated damages recognized at the Windrise wind facility. OM&A in both periods increased due to salary escalations, higher insurance costs and long-term service agreement escalations.

Gas:

• Adjusted EBITDA for the three and nine months ended Sept. 30, 2023, increased by $59-million and $295-million, respectively, compared with the same periods in 2022, mainly due to higher production from stronger market conditions in Alberta, lower natural gas prices and higher hedged gas volumes, partially offset by lower thermal revenues due to reduced customer demand in Ontario. The nine months ended Sept. 30, 2023, further benefited from higher realized energy prices for TransAlta's Alberta gas merchant assets, net of hedging, partially offset by higher carbon costs and fuel usage related to production.

Energy transition:

• Adjusted EBITDA decreased by $22-million for the three months ended Sept. 30, 2023, compared with the same period in 2022, primarily due to lower merchant prices, partially offset by lower purchased power costs. Adjusted EBITDA increased by $29-million for the nine months ended Sept. 30, 2023, compared with the same period in 2022, primarily due to higher merchant pricing and higher production, partially offset by higher purchased power costs required to fulfill contractual obligations during planned and unplanned outages. Lower OM&A expenses also favourably impacted the period due to the retirement of Sundance Unit 4 in the first quarter of 2022.

Energy marketing:

• Adjusted EBITDA for the three and nine months ended Sept. 30, 2023, decreased by $40-million and $25-million, respectively, compared with the same periods in 2022. Gross margin for the three and nine months ended Sept. 30, 2023, was above segment expectations but adjusted EBITDA was lower period-over-period due to adjustments to revenues to account for the timing of realized gains and losses on closed exchange positions and unrealized mark-to-market gains and losses which are expected to be realized in future quarters. OM&A increased mainly due to higher incentives related to revenues before adjustments. The company was able to capitalize on volatility in the trading of both physical and financial power and gas products across North American deregulated markets while maintaining the overall risk profile of the business unit.

Corporate:

• Adjusted EBITDA for the three months ended Sept. 30, 2023, was consistent compared with the same period in 2022. Adjusted EBITDA for the nine months ended Sept. 30, 2023, decreased by $14-million, compared with the same period in 2022, primarily due to higher incentive accruals reflecting the company's performance, increased spending to support strategic and growth initiatives, and increased costs due to inflationary pressures.

Conference call

TransAlta will hold a conference call and webcast at 9 a.m. MST (11 a.m. EST) today, Nov. 7, 2023, to discuss its third 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, 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 -- third 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 502345 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 hydroelectric power. For over 112 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 greenhouse gas emissions or 22 million tonnes since 2015 and has received scores of A minus from CDP and AA from MSCI.

We seek Safe Harbor.