TransAlta (US:TAC)2022-11-08 23:13Financial Data and Key Metrics Changes - TransAlta Corporation reported adjusted EBITDA of CAD 555 million for Q3 2022, a 38% increase compared to the prior period, driven by strong performance in the Alberta Electricity portfolio [7] - Free cash flow for the quarter was CAD 393 million, or CAD 1.45 per share, representing an 87% increase quarter-over-quarter [8] - Year-to-date adjusted EBITDA reached CAD 1.1 billion, a 5% increase over 2021, with free cash flow per share of CAD 2.38, a 28% increase year-over-year [8][27] - The company revised its 2022 financial guidance upwards, increasing adjusted EBITDA and free cash flow guidance by CAD 295 million and CAD 245 million respectively [8][30] Business Line Data and Key Metrics Changes - The hydro segment delivered adjusted EBITDA of CAD 245 million in Q3 2022, nearly tripling from CAD 82 million in Q3 2021, driven by stronger realized pricing and higher volumes [23] - Adjusted EBITDA from the gas segment increased by 26% due to high availability and stronger merchant pricing in Alberta [24] - The Energy Transition segment saw a decrease in adjusted EBITDA by CAD 4 million year-over-year, attributed to the retirement of certain units, partially offset by improved performance from the Centralia facility [24] Market Data and Key Metrics Changes - The average pool price for electricity in Alberta for Q3 2022 was CAD 221 per megawatt hour, compared to CAD 100 per megawatt hour in Q3 2021, influenced by high electricity demand and natural gas prices [19] - The hydro fleet realized merchant prices of CAD 246 per megawatt hour, an 11% premium over the average spot price [21] - The gas fleet generated CAD 290 million in revenue, with a blended realized price of CAD 146 per megawatt hour [20] Company Strategy and Development Direction - The company aims to continue delivering clean electricity solutions and is focused on securing 400 megawatts of clean electricity projects across Canada, the U.S., and Australia [36] - TransAlta is actively expanding its development pipeline, with a focus on renewables and storage, and is progressing on various projects including the rehabilitation of Kent Hills wind facilities [37] - The company is committed to achieving a 75% reduction in CO2 emissions by 2026 from 2015 levels and is focused on equity, diversity, and inclusion initiatives [39] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2023, expecting a constructive year with average prices in the Alberta power market projected around CAD 119, with Q1 showing particularly strong pricing [48] - The company is not overly concerned about political interference in the market, emphasizing the importance of a long-term view on pricing [49] - Management highlighted the need for a balanced approach to decarbonization, including carbon capture and storage (CCS) as part of the long-term strategy [66] Other Important Information - The Board of Directors approved a common share dividend increase of 10%, marking the fourth consecutive annual increase [9] - The company returned CAD 16 million to shareholders through share buybacks during the quarter, with a total of CAD 34 million in buybacks for 2022 [12] - TransAlta Renewables delivered CAD 88 million of adjusted EBITDA, below expectations due to low wind resources and extended outages [32] Q&A Session Summary Question: Capital Allocation Strategy - Management indicated that higher cash flow will be allocated towards dividends, share buybacks, and ongoing growth projects, with a focus on maintaining a strong balance sheet [44][45] Question: 2023 Pricing Outlook - Management expressed optimism for 2023, with expected strong pricing in Q1 and a constructive overall market outlook [48] Question: Growth Pipeline and M&A - The internal development pipeline is expected to meet growth targets, with M&A considered to supplement growth rather than as a primary strategy [56] Question: Carbon Capture and Storage Opportunities - Management acknowledged the importance of CCS in achieving decarbonization goals and is monitoring developments in government policy [66] Question: Kent Hills Rehabilitation Update - The priority is to rehabilitate Kent Hills wind facilities, with expectations for turbines to return to service by mid-2023 [69] Question: Hydro Plant Ownership and Performance - Management provided details on the Brookfield deal, indicating that the hydro fleet's performance this year may affect ownership stakes [92][94]