Ms. Dawn Farrell reports

TRANSALTA REPORTS SOLID SECOND QUARTER 2020 RESULTS

TransAlta Corp. has released its second quarter 2020 financial results, with comparable EBITDA (earnings before interest, taxes, depreciation and amortization) of $217-million compared with $215-million in the same period of 2019. EBITDA for the six months ended June, 30, 2020, was $437-million, in line with the same period last year. Funds from operations (FFO) for the three and six months ended June 30, 2020, increased approximately 3 per cent and 2 per cent to $159-million for the quarter compared to $155-million in 2019 and $331-million year to date as compared to $324-million in 2019.

Free cash flow (FCF), one of the company's key financial metrics, totaled $91-million and $200-million for the three and six months ended June 30, 2020, an increase of $42-million and $56-million respectively. Year-to-date, the company has generated FCF of 72 cents per share, a 41-per-cent increase compared to 2019.

"Second quarter results are in line with our expectations and continue to show strong EBITDA and free cash flow generation from our diversified fleet. With the support of our back-to-office protocols, we continue to deliver the essential power to meet the demands of our communities and our customers," said Dawn Farrell, president and chief executive officer. "These results demonstrate the strength of our operations, hedging and energy marketing capabilities, as well as our people.

"We also expanded our co-generation fleet with the acquisition of our Ada co-generation facility into our portfolio and welcomed Consumers Energy and Amway as new customers. We are excited to mark our first co-generation facility in the United States and we look forward to building on this U.S. toehold as we further progress our on-site generation strategy into the region.

"I'd like to thank all of our front-line employees, contractors and their families whose exceptional efforts keep up the strong operational performance of the company in the face of these challenging times."

Comparable EBITDA for the three and six months ended June 30, 2020, were consistent with the same periods in 2019. This was driven by full period operations of the Big Level and Antrim facilities in the company's wind and solar segment, superior performance from the Energy Marketing segment, favourable gross margins from the U.S. coal segment, and favourable gains resulting from equity hedge settlements and lower expenses in the Corporate segment. This favourable performance was offset by anticipated weaker margins in the Canadian coal, hydro and North American Gas segments resulting from weaker prices in both the Alberta market and the Ontario power markets due to lower market demand and the impact of COVID-19. The Canadian coal comparable EBITDA in the quarter and year to date also declined due to recognition of a $7-million provision adjustment for out-of-period line losses relating to the Alberta Electric System Operator (AESO) line loss rule proceeding.

Operations, maintenance and administration (OM&A) expense for the three and six months ended June 30, 2020, decreased by $18-million and increased by $6-million, respectively, compared to the same periods in 2019. Variability caused by the total return swap resulted in a decrease of $7-million and an increase of $17-million for the three month and six months ended June 30, 2020, respectively. Excluding the impact of the total return swap, OM&A decreased by $11-million in both periods, due to tighter cost controls, lower labour costs across multiple segments and lower legal fees.

FCF totaled $91-million and $200-million for the three and six months ended June 30, 2020, respectively. FCF for the three and six months ended June 30, 2020, increased by $42-million and $56-million, respectively, compared to the same periods in 2019. The increase was driven primarily by strong segmented cash flows, realized foreign exchange gains, lower sustaining capital expenditures and lower distributions paid to subsidiaries' non-controlling interests. Segmented cash flows generated by the business are $47-million and $48-million higher for the second quarter and year-to-date periods in 2020, respectively, compared with 2019, due to higher performance in the company's U.S. coal, North American gas, wind and solar, and energy marketing segments that more than offset lower results in the Canadian coal and hydro segments.

Clean energy investment program

Coal to gas

TransAlta's growth construction programs are underway and progressing forward under its business continuity health measures. The company is on-track to complete the conversion of Sundance unit 6 during the second half of 2020. The company continues to advance conversion of its Keephills unit 2 and unit 3 planned for 2021 and has issued full notice to proceed for both units. The company is on track to issue full notice to proceed in 2021 for Sundance unit 5, with an expected commercial operation date in 2023.

In furtherance of the coal-to-gas fuel supply needs, TransAlta entered into long-term natural gas delivery transportation agreements with NGTL, bringing the cumulative total of new and existing pipeline transportation service to the company's generating facilities up to 400 terajoules (TJ) per day by 2023. TransAlta's current commitments, including its 139 TJ per day supply arrangement with Tidewater Midstream and Infrastructure Ltd., will remain in place until the closing of the Pioneer transaction. The Pioneer transaction is subject to customary regulatory approvals, which are currently expected in the second half of 2021.

Sundance 3

On July 22, 2020, the company announced that it gave notice to the AESO of its intention to retire the currently mothballed coal-fired Sundance unit 3, effective July 31, 2020. The retirement decision was largely driven by TransAlta's assessment of future market conditions, the age and condition of the unit and the ability to supply energy and capacity from our generation portfolio in Alberta. This decision advances our transition to 100 per cent clean electricity by 2025. An asset impairment of approximately $69-million ($52-million posttax) will be recorded in the third quarter of 2020.

Windcharger battery storage

Construction for Windcharger, Alberta's first battery storage project, is in its final stages and will achieve its commercial operations date in August, 2020.

Windrise wind

Construction activities on the Windrise wind project continues to advance with all appropriate procedures in place to protect the construction team during the COVID-19 pandemic. The construction schedule has been modified to reflect a COVID-19-related delay in the delivery of the wind turbine components and the company plans to complete construction and commissioning in second half of 2021.

Kaybob co-generation

The company continues to advance the Kaybob co-generation Project with commercial operations scheduled to commence in the second half of 2021; however, the company continues to monitor COVID-19 and market conditions to determine if any adjustments to plans are necessary. During the first half of 2020, TransAlta executed agreements for the purchase of the reciprocating engine generator, generator step up transformers, electrical building and switchgear. The project secured a municipal development permit in March, 2020, and Alberta Energy Regulator permit approval in early April, 2020.

Board of director changes

On July 30, 2020, Robert Flexon delivered his resignation from the board, which is to be effective Aug. 1, 2020. Mr. Flexon recently assumed the role of chair of the board of directors of PG&E Corp. and is resigning from the Board due only to the potential for perceived conflicts of interests between PG&E and the company. Mr. Flexon has provided valuable insight during his time on the Board, which included acting as the inaugural chair of the investment performance committee of the board.

COVID-19 response update

The company formally implemented its business continuity plan on March 9, 2020, which focused on ensuring that: (i) employees that could work remotely did so; and (ii) employees that operate and maintain our facilities, and who were not able to work remotely, were able to work safely and in a manner that ensured they remained healthy. During the second quarter of 2020, the company began a staggered approach to bring employees that were working remotely back to the office. All of TransAlta's offices and sites follow strict health screening and social distancing protocols with personal protective equipment readily available. Further, TransAlta maintains travel bans aligned to local jurisdictional guidance, enhanced cleaning procedures, revised work schedules, contingent work teams and the reorganization of processes and procedures to limit contact with other employees and contractors on-site.

While the company's results have been impacted by price and demand as a result of COVID-19, all of the company's facilities remain fully operational and capable of meeting its customers' needs. The company has modified its operating procedures and implemented safety protocols that are allowing all office employees to now return to sites across the fleet by end of July. The company continues to work and serve all of its customers and counterparties under the terms of the relevant contracts. TransAlta has not experienced interruptions to service requirements. Electricity and steam supply continue to remain a critical service requirement to all of the company's customers and have been deemed an essential service in all of the jurisdictions in which TransAlta operates.

The company continues to maintain a strong financial position in part due to its long-term contracts and hedged positions. The company is scheduled to receive $400-million from the second tranche of financing from the Brookfield investment in the fourth quarter of 2020 and has access to additional capital through potential project financing of existing assets that are currently unencumbered. The company currently has access to $1.6-billion in liquidity, including $257-million in cash, and has sufficient liquidity to meet the upcoming debt maturity due November 2020 and growth construction requirements. The next major debt repayment is scheduled for November, 2022.

In addition, the company has approximately 75 per cent of its Alberta thermal baseload merchant generation hedged at approximately $53 per megawatt-hour for the remainder of 2020.

Consolidated financial highlights

Net loss attributable to common shareholders for the three months ended June 30, 2020, was $60-million compared with nil in the same period in the prior year. The decrease is largely due to lower revenues, higher depreciation, asset impairment and lower income tax recoveries partially offset by lower OM&A and foreign exchange gains. Net loss attributable to common shareholders for the six months ended June 30, 2020, was $33-million, compared to a loss of $65-million in the same period in 2019, an improvement of $32-million. Stronger earnings from our U.S. coal and Wind and Solar segments, foreign exchange gains and a reduction in the Centralia mine decommissioning provision due to changes in discount rates resulting in an asset impairment reversal were partially offset by higher depreciation, higher interest expense and lower income tax recoveries.

Total sustaining capital expenditures of $55-million were $31-million lower compared to 2019 primarily due to higher planned major maintenance in our coal segments in 2019.

TransAlta is in the process of filing its unaudited interim consolidated financial statements, the accompanying notes and the associated management's discussion and analysis. These documents will be available July 31, 2020, at TransAlta's website, or through SEDAR and EDGAR.

Conference call

TransAlta will hold a conference call and webcast at 9 a.m. MT (11 a.m. ET) on July 31, 2020, to discuss the second quarter 2020 results. The call will begin with a short address by Ms. Farrell and Todd Stack, 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.

Second quarter 2020 conference call

Toll-free North American participants call:  1-888-231-8191

Related materials will be available at TransAlta's website. If you are unable to participate in the call, the instant replay is accessible at 1-855-859-2056 (Canada and the United States toll-free) with TransAlta passcode 3287982 followed by pound key. A transcript of the broadcast will be posted at 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.

We seek Safe Harbor.