Mr. John Kousinioris reports

TRANSALTA REPORTS FIRST QUARTER 2024 RESULTS

TransAlta Corp. has released its financial results for the first quarter ended March 31, 2024, demonstrating strong operational and financial performance, and reaffirming its 2024 outlook.

First quarter 2024 (Q1 2024) financial highlights

TransAlta's first quarter results exceeded its expectations given the anticipated decline in Alberta spot power prices to $99 per MWh (megawatt-hour) in 2024, as compared with elevated spot power prices of $142 per MWh in 2023. The 30-per-cent decline in spot prices year-over-year was primarily due to milder weather, lower natural gas prices, and incremental generation from the addition of new wind and solar supply in the market. Highlights for the quarter include:

• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $328-million, compared with $503-million for the same period in 2023;
• Free cash flow (FCF) of $206-million, or 67 cents per share, compared with $263-million, or 98 cents per share, for the same period in 2023;
• Earnings before income taxes of $267-million, compared with $383-million for the same period in 2023;
• Net earnings attributable to common shareholders of $222-million, compared with $294-million for the same period in 2023;
• Cash flow from operating activities of $244-million, a decrease of $218-million for the same period in 2023;
• The return of $53-million of capital to shareholders year-to-date through the buyback of 5.9 million common shares constituting 35 per cent of the company's previously announced 2024 enhanced share repurchase program of up to $150-million.

Other business highlights and updates:

• Achieved commercial operation of the 100 MW (megawatt) White Rock West wind facility on Jan. 1, 2024, and the 200 MW White Rock East wind facility on April 22, 2024;
• Completed the Mount Keith 132 kV (kilovolt) expansion on Feb. 29, 2024;
• Advanced commissioning of the 200 MW Horizon Hill wind facility to its final stages;
• Achieved strong operational adjusted availability of 92.3 per cent;
• Paused greenfield growth projects in Alberta pending clarity on the impact of new market regulations announced by the government of Alberta;
• Signed the 2024 Bow River basin water sharing memorandum of understanding in preparation for potential lower water conditions in southern Alberta;
• Announced the transition of its executive vice-president of finance and chief financial officer (CFO) with the retirement of Todd Stack, effective June 30, 2024, and the appointment of Joel E. Hunter as executive vice-president of finance and CFO, effective July 1, 2024.

"Our first-quarter results demonstrate the value of our asset optimization and hedging strategies, supported by our strong operating capabilities. We continue to perform well, while managing through the evolving markets of our operating portfolio, illustrating the advantage of our diversified fleet," said John Kousinioris, president and chief executive officer of TransAlta.

"We are confident that we will reach our 2024 guidance given the performance of our growing generating portfolio. We do not believe that our strong free cash flow results in the first quarter, and our expectations for the balance of 2024, are reflected in the current trading price of our common shares. As a result, we will continue to use share repurchases as part of our capital allocation strategy. Year-to-date, we have deployed $53-million towards share repurchases, which is approximately 35 per cent of our $150-million share repurchase target, or 17 cents per share in value to shareholders," added Mr. Kousinioris.

"We are focused on making balanced capital allocation decisions that enhance value for our shareholders as we execute the next stage of our aspirational clean electricity growth plan. Given the recent announcements on market changes from the government of Alberta, we have decided to pause greenfield development in Alberta until the full impact of the restructured energy market is understood. Our focus will shift to our other core jurisdictions, the United States and Western Australia, where we will look to secure appropriate risk-adjusted returns within stable markets.

"The interim regulations to be adopted by the government of Alberta, effective July 1, 2024, in relation to market power mitigation and the supply cushion in the province remain in effect until Nov. 30, 2027, and are not expected to have a significant impact on our company. We believe market prices and offer behaviour will be driven primarily by preexisting demand and supply fundamentals, which are already reflected in the weaker pricing conditions expected over the period of time that the regulations will be in place," added Mr. Kousinioris.

Key business developments

White Rock wind facilities achieve commercial operation

On Jan. 1, 2024, the 100 MW White Rock West wind facility achieved commercial operation. On April 22, 2024, the 200 MW White Rock East wind facility was also commissioned. The White Rock wind facilities are located in Caddo county, Oklahoma, and are contracted under two long-term PPAs (power purchase agreements) with Amazon for the offtake of 100 per cent of the generation from the facilities. The company's wind generating portfolio in the United States now totals 819 MW in gross installed capacity.

Bow River basin memorandum of understanding

On April 19, 2024, the company announced it had signed a voluntary water-sharing memorandum of understanding with over 30 other water licence holders in the Bow River basin. The government of Alberta continues to anticipate and prepare for lower water conditions this summer, with specific concerns in southern Alberta where agriculture could be impacted by water shortages. The government of Alberta is leading efforts to co-ordinate water usage among water licence holders for Alberta river basins in an effort to ensure licensees get the water they need as opposed to the water to which they are entitled. In recognition of the unique role the company plays in managing water flows while also serving as a key provider to Alberta's electricity grid, TransAlta looks forward to working with the government and downstream stakeholders to maximize water storage in the early season, to help mitigate any anticipated drought conditions. TransAlta anticipates the company's water management efforts will not have an adverse impact on its electricity generating and environmental objectives.

Annual shareholder meeting

The honourable Rona Ambrose did not stand for re-election and retired from the board of directors following the annual shareholder meeting on April 25, 2024. The board extends its gratitude for her service to the company. She has been a valuable contributor to the board since 2017, and the company thanks her for her leadership and insight, including her contributions as chair of the governance, safety and sustainability committee of the board.

At the annual general meeting of the holders of common shares of TransAlta, the company received strong support on all items of business, including the election of all 12 directors and say on pay.

TransAlta announced retirement of chief financial officer and appointment of new CFO

On April 11, 2024, the company announced the retirement of Mr. Stack, executive vice-president of finance and chief financial officer from the company, effective June 30, 2024. The board expresses its deep appreciation to Mr. Stack for his contributions during his 34-year career with the company. Mr. Hunter will be appointed as executive vice-president of finance and CFO, effective July 1, 2024.

Normal course issuer bid (NCIB) and automatic share purchase plan (ASPP)

TransAlta is committed to enhancing shareholder returns through appropriate capital allocation such as share buybacks and its quarterly dividend. The company previously announced an enhanced common share repurchase program for 2024 of up to $150-million, targeting up to 42 per cent of 2024 FCF guidance being returned to shareholders in the form of share repurchases and dividends.

The company also previously announced that it had received approval from the Toronto Stock Exchange to purchase up to 14 million of its common shares during the 12-month period that commenced on May 31, 2023, and will terminate on May 30, 2024. The company intends to renew the NCIB in May, 2024.

On March 19, 2024, the company entered into an ASPP to facilitate repurchases of TransAlta's common shares under its NCIB.

Under the ASPP, the company's broker may purchase common shares from the effective date of the ASPP until the termination of the ASPP. All purchases of common shares made under the ASPP will be included in determining the number of common shares purchased under the NCIB. The ASPP will terminate on the earliest of the date on which: (a) the maximum purchase limits under the ASPP are reached; (b) May 3, 2024; or (c) the company terminates the ASPP in accordance with its terms.

During the three months ended March 31, 2024, the company purchased and cancelled a total of 3,460,300 common shares, at an average price of $9.36 per common share, for a total cost of $32-million.

Mount Keith 132 kV expansion complete

The Mount Keith 132 kV expansion project was completed during the first quarter of 2024. The expansion was developed under the existing power purchase agreement with BHP Nickel West, which has a term of 15 years. The expansion will facilitate the connection of additional generating capacity to the transmission network, which supports BHP's operations and increases its competitiveness as a supplier of low-carbon nickel.

Production tax credit (PTC) sale agreements

On Feb. 22, 2024, the company entered into a 10-year transfer agreement with an AA-rated customer for the sale of approximately 80 per cent of the expected PTCs to be generated from the White Rock and the Horizon Hill wind projects. The expected annual average EBITDA from these contracts is approximately $57-million ($43-million (U.S.)).

First quarter 2024 financial results summary

For the three months ended March 31, 2024, the company demonstrated strong financial and operational performance, and is on schedule to meet its 2024 outlook, due to active management of the company's merchant portfolio and hedging strategies, which included higher production in the hydro and gas segments.

Production for the renewables fleet for the three months ended March 31, 2024, was 1,849 GWh (gigawatt-hours) compared with 1,503 GWh for the same period in 2023, an increase of 346 GWh, or 23 per cent, primarily due to:

• Production from new facilities, including the White Rock West wind facility commissioned in January, 2024, and the Garden Plain wind facility commissioned in August, 2023;
• The return to service of the Kent Hills wind facilities, completed in the first quarter of 2024;
• Precommissioning production from the White Rock East wind facility and the Horizon Hill wind project, partially offset by lower wind resource in Alberta;
• Higher hydro production due to significant demand resulting from periods of extreme cold conditions in Alberta.

Total production for the three months ended March 31, 2024, was 6,178 GWh compared with 5,972 GWh for the same period in 2023, an increase of 206 GWh, or 3 per cent, primarily due to:

• Higher production of 356 GWh, or 11 per cent, from the gas segment driven primarily by the Sarnia facility, as market conditions were favourable which enabled higher dispatch, resulting in higher merchant production to the Ontario grid;
• Higher production from TransAlta's renewables fleet, discussed above, partially offset by:
  • Negatively impacted production of 801 GWh, a decrease of 496 GWh, or 38 per cent, from the energy transition segment compared with the same period in 2023, primarily due to higher unplanned outage hours and increased economic dispatch at the Centralia facility.

Adjusted availability for the three months ended March 31, 2024, was 92.3 per cent, compared with 92 per cent in the same period in 2023, an increase of 0.3 per cent, primarily due to:

• The return to service of the Kent Hills wind facilities;
• Lower unplanned outages in the wind and solar segment, partially offset by:
  • Unplanned outages at Centralia Unit 2 in the energy transition segment;
  • Unplanned outages at Sundance Unit 6 and the Australia gas facilities; and
  • Planned major maintenance outages in the hydro segment.

Adjusted EBITDA for the three months ended March 31, 2024, was $328-million compared with $503-million in 2023, a decrease of $175-million, or 35 per cent. Although overall results were in line with expectations for the year, the major factors impacting adjusted EBITDA compared with the same period of 2023 are summarized below:

• Hydro adjusted EBITDA decreased by $19-million, or 18 per cent, compared with the same period in 2023, primarily due to lower realized gains on forward contracts, and lower realized power and ancillary services prices in the Alberta market, partially offset by higher production due to significant demand in periods of extreme cold temperature conditions in Alberta, and higher sales of environmental attributes to third parties;
• Wind and solar adjusted EBITDA increased by $1-million, or 1 per cent, compared with the same period in 2023, primarily due to higher environmental attribute revenues, higher production from the return to service of the Kent Hills wind facilities, the commercial operation of the Garden Plain and White Rock West wind facilities, and the Northern Goldfields solar facilities, partially offset by lower realized power prices in Alberta and weaker wind resource across the Alberta operating fleet;
• Gas adjusted EBITDA decreased by $106-million, or 44 per cent, compared with the same period in 2023, primarily due to lower realized power and ancillary prices from the Alberta merchant fleet, driven by lower spot prices and the impact of lower-priced hedge contracts, lower capacity payments in 2024 for Southern Cross Energy in Australia due to the scheduled conclusion on Dec. 31, 2023, of the demand capacity charge under the applicable contract, higher fuel and purchased power from higher production, increased carbon costs and higher OM&A (operations, maintenance and administration) expenses, mainly due to increased salary escalations, partially offset by the commencement in March, 2024, of capacity payments from the Mount Keith 132 kV expansion and lower natural gas commodity costs;
• Energy transition adjusted EBITDA decreased by $28-million, or 52 per cent, compared with 2023, primarily due to lower production from higher unplanned outages at Centralia Unit 2 and increased economic dispatch due to lower market prices, partially offset by lower fuel costs from lower production volumes;
• Energy marketing adjusted EBITDA decreased by $19-million, or 49 per cent, compared with the same period in 2023, but is in line with management expectations, primarily due to lower realized settled trades in the first quarter of 2024 on market positions in comparison with the prior period, partially offset by lower OM&A due to lower incentives;
• Corporate adjusted EBITDA decreased by $4-million, or 17 per cent, compared with the same period in 2023, primarily due to increased spending to support strategic and growth initiatives.

Cash flow from operating activities totalled $244-million for the three months ended March 31, 2024, compared with $462-million in the same period in 2023, a decrease of $218-million, or 47 per cent, primarily due to:

• Lower gross margin on lower revenues and higher carbon-compliance costs;
• Lower current income tax expense due to decrease in earnings before tax;
• Lower accounts payable and accrued liabilities, and higher collateral provided as a result of market price volatility, partially offset by lower accounts receivable from lower revenues and higher collateral received related to derivative instruments.

Free cash flow totalled $206-million for the three months ended March 31, 2024, compared with $263-million for the same period in 2023, a decrease of $57-million, or 22 per cent. The major factors impacting free cash flow were:

• Lower adjusted EBITDA items as noted above;
• Lower current income tax expense due to lower earnings before tax;
• Lower sustaining capital expenditures due to the receipt of a lease incentive related to the relocation of the company's head office;
• Lower distributions paid to subsidiaries' non-controlling interests relating to the timing of distributions paid to TA Cogen and the cessation of distributions by TransAlta Renewables Inc., resulting in higher free cash flow.

Net earnings attributable to common shareholders totalled $222-million for the three months ended March 31, 2024, compared with $294-million in the same period in 2023, a decrease of $72-million, primarily due to:

• Lower adjusted EBITDA due to items discussed above;
• Fluctuations in current and deferred tax expense with earnings before tax across the quarters.

Alberta electricity portfolio

The average spot power price per MWh for the three months ended March 31, 2024, was above the upper end of guidance, but decreased from $142 per MWh in 2023 to $99 per MWh in 2024, primarily due to:

• Milder weather compared with the same period in 2023;
• Lower natural gas prices;
• Higher generation from the additions of new wind and solar supply in the market compared with the prior period.

Gross margin for the three months ended March 31, 2024, was $231-million, a decrease of $118-million, compared with the same period in 2023. The decrease was primarily due to:

• The impacts of lower Alberta realized spot prices and lower fixed-price hedges, partially offset by:
  • Higher environmental attribute revenues.

Hedged volumes for the three months ended March 31, 2024, were 1,908 GWh at an average price of $88 per MWh compared with 2,046 GWh at an average price of $136 per MWh in 2023. Hedged production volumes for the three months ended March 31, 2024, decreased compared with the same period in 2023, primarily from fewer strategic hedges executed for the first quarter of 2024.

Liquidity and financial position

TransAlta expects to maintain adequate available liquidity under its committed credit facilities. As at March 31, 2024, the company had access to $1.7-billion in liquidity, including $417-million in cash.

Two thousand twenty-four financial guidance

The associated table outlines TransAlta's expectations on key financial targets and related assumptions for 2024.

The company's outlook for 2024 may be impacted by a number of factors as detailed in the associated table.

Alberta spot price sensitivity: a plus/minus $1 per MWh change in spot price is expected to have a plus/minus $3-million impact on adjusted EBITDA for 2024.

Conference call

TransAlta will hold a conference call and webcast at 9 a.m. Mountain Time (11 a.m. Eastern Time) today, May 3, 2024, to discuss its first quarter 2024 results. The call will begin with an address by Mr. Kousinioris, president and chief executive officer, and Mr. 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.

First quarter 2024 conference call

Access the webcast on-line.

A link to the live webcast will be available on the investor centre section of TransAlta's website. To access the conference call via telephone, please register ahead of time using the call link on-line. Once registered, participants will have the option of: (1) dialling into the call from their phone (via a personalized PIN (personal identification number)); or (2) clicking the call me option to receive an automated call directly to their phone.

Related materials will be available on the investor centre section of TransAlta's website. If you are unable to participate in the call, the replay will be accessible on-line. A transcript of the broadcast will be posted on TransAlta's website once it becomes available.

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 the Future-Fit Business Benchmark, which also defines sustainable goals for businesses. TransAlta's reporting on climate change management has been guided by the international financial reporting standards (IFRS) S2 Climate-related Disclosures Standard and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. TransAlta has achieved a 66-per-cent reduction in greenhouse emissions or 21.3 million tonnes carbon dioxide equivalent since 2015 and received an upgraded MSCI environmental, social, governance rating of AA.

We seek Safe Harbor.