Good morning. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the TransAlta Corporation third quarter 2018 results conference call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. I would now like to turn the call over to Sally Taylor, Manager of Investor Relations. Please go ahead.
Thank you, Kelly. Good morning, everyone, and welcome to TransAlta's third quarter 2018 conference call. With me today are Dawn Farrell, President and Chief Executive Officer, Brett Gellner, Chief Financial Officer, and Robert Millard, Vice President, Regulatory and Legal. Today's call is webcast, and I invite those listening on the phone line to view the supporting slides, which are available on our website. A replay of the call will be available later today, and the transcript will be posted to our website shortly thereafter. As usual, all information provided during this conference call is subject to the forward-looking statement qualification, which is set out on slide two, detailed in our MD&A, and incorporated in full for the purposes of today's call. All amounts referenced during the call are in Canadian currency, unless otherwise stated.
The non-IFRS terminology used, including gross margin, comparable EBITDA, funds from operation, and free cash flow, are reconciled in the MD&A for your reference. On today's call, Dawn and Brett will review the quarterly results and outlook for the remainder of the year. After these prepared remarks, we will open the call for questions. With that, let me turn the call over to Dawn.
Thanks, Sally, welcome to everyone who is joined us for the call today. Once again, I am going to be very brief with my comments that we can have more time for questions at the end of the call. To sum up the quarter, I am pleased with our results and the performance of the business so far this year. We continue to expect the business to perform at the high end of our cash flow estimates for 2018. Our year-to-date cash flow is higher year-over-year. Our plants are performing at the high end of our plan, and we are meeting our debt reduction targets. I especially like what I see from the team up at Sundance, who this year have delivered the strongest availability since 1990. Congratulations to them.
Here in Alberta, there's been a lot of work done to optimize our fleet as we've turned the Sundance units from contracted PPAs to merchant units. We are proving quarter by quarter that the cash flows in the TransAlta Alberta's business are consistent and here to stay. Having a portfolio here in Alberta of hydro, wind, carbon offsets, merchant, and contracted coal with asset optimization capability is paying off. Our growth team in the third quarter finished the Kent Hills project and have turned their attention to delivering the next two projects. I was personally pleased to announce that our offtaker for the Big Level project is Microsoft, a great customer to partner with. We continue to see some nice bite-size investments with good returns as we finish our debt reduction and begin to turn our attention to the future.
With that, I'm going to hand you over to Brett, who will take you through the detail on the quarter, and then I'll have just one or two closing comments before we open it up for questions.
Thank you, Dawn, and good morning, everyone. I'm going to start with our segmented cash flows, which reflects our EBITDA less CapEx. As you can see from the chart at the top of this slide, in Q3, our segmented cash flows in 2018 were in line with the same period in 2017. Canadian coal was lower than last year, primarily due to higher CapEx this quarter relative to the same period as last year. This is due to timing, as CapEx in Canadian coal is tracking to be below last year on a full-year basis. The EBITDA in Q3 from Canadian coal this year was in line with last year. U.S. coal was also lower in the quarter relative to last year, as there were more unplanned outages this quarter, requiring us to purchase power in the open market to satisfy some of the hedges.
Australian gas is also lower since last year included both the Solomon and South Hedland power stations, whereas this year only includes the South Hedland power station. The reduction in these three segments were offset by higher cash flows in all the other business segments, particularly from energy and trading and marketing and our hydro business, which is higher due to stronger prices. On a year-to-date basis, which is the bottom chart, we have shown the bridge when adjusting for two key one-time items. The first item is for the CAD 34 million we received in 2017 related to the index dispute settlement in Ontario. The second item is for the CAD 157 million PPA termination payment we received this year. When those two one-time items are excluded, our total segmented cash flow is up CAD 52 million or approximately 10% from 2017 on a year-to-date basis.
The increase in 2018 is due to lower capital across the fleet and higher EBITDA in hydro, wind, and Canadian gas, all of which have more than offset the impact of higher carbon costs in Canadian coal. This chart shows the contribution of each of our business units to our cash flows on a year-to-date basis. As you can see, we're highly diversified by business segment. These cash flows are being generated by over 70 assets across Canada, the United States, and Australia. I'll now turn to free cash flow for the entire company, which takes into account interest expense, taxes, non-controlling interest payments, and preferred share dividends. This chart shows a bridge on a year-to-date basis with and without the one-time items I mentioned earlier. When we exclude the one-time items, free cash flow is up CAD 59 million relative to last year.
The increase is mainly due to lower sustaining capital, as our funds from operations are relatively flat compared to last year, as we offset any reduction in EBITDA with lower interest costs associated with our debt reduction program. Based on our year-to-date cash flows, we continue to expect to close out the year at the upper end of our free cash flow guidance range of CAD 300 million-CAD 350 million, excluding the one-time PPA termination payment. Turning to the market fundamentals. In Alberta, fundamentals continue to be strong. On a year-to-date basis, prices have averaged CAD 49 per megawatt hour, compared to CAD 22 per megawatt hour for the same period as last year. Prices in October have averaged approximately CAD 64 a megawatt hour, and we expect prices for all of Q4 to average over CAD 60 a megawatt hour. For 2018, current forward prices are approximately CAD 56 per megawatt hour.
As a result of higher prices in Alberta, not only has our hydro and wind portfolio generated strong cash flows, but the EBITDA margins on a per megawatt hour of production from our Canadian coal fleet have also increased significantly, as is shown on the bottom chart of this slide. On the natural gas side, we continue to use as much gas as possible at the coal facilities to take advantage of low gas prices, as well as to reduce our carbon obligations. Once the Pioneer Pipeline is up and running, we'll be in a position to co-fire even more gas at these sites. In the Pacific Northwest, prices year-to-date have improved as well, increasing to CAD 26 per megawatt hour from CAD 21 per megawatt hour last year. Currently, prices are strong given the gas supply situation in the Pacific Northwest associated with the pipeline disruptions in British Columbia.
In terms of capital allocation, as you know, we've been using most of our cash flow proceeds from drop-down transactions to TransAlta Renewables and project debt financings to significantly reduce our corporate debt. At the same time, we've been able to continue to grow the company and buy back shares. As we look forward over the next couple of years, our capital allocation strategy will continue to focus on the same three areas. On the balance sheet front, we intend to repay the CAD 400 million bond maturing in late 2020 from the excess free cash flow generated by the business, further strengthening the balance sheet. In addition, between TransAlta and TransAlta Renewables, a further debt reduction of approximately CAD 175 million will occur between now and the end of 2020 through the mandatory principal payments associated with the amortizing debt.
This quarter, we continued to invest more in our share buyback program. During the third quarter, we acquired and canceled approximately 1.3 million shares, bringing the total number of acquired and canceled shares for the year to approximately 1.9 million at an average price of CAD 7.34 per share. We'll continue to buy back shares at the TransAlta level under our normal program, with the intention of using incremental cash flow generated by the business to reduce the number of shares outstanding when we believe our shares are undervalued. From a growth perspective, we're seeing good opportunities to grow the business with projects that add long-term value. There's lots of things we're evaluating and believe we can continue to add valuable projects to the fleet. We will continue to remain disciplined.
This quarter, we commissioned the Kent Hills Three wind expansion, bringing total generating capacity of our Kent Hills Wind Farm to 167 megawatts. Construction is fully underway at the Big Level Wind Farm. In August, we started construction on the Antrim Wind Farm in New Hampshire. Turning to Alberta, Tidewater announced the other day that they've received regulatory approval for the natural gas pipeline to our facilities, which will allow them to begin construction. As a result, it's highly likely we'll move forward over the next several weeks with exercising our option to invest 50% in the pipeline. We also continue to advance the preliminary engineering work on the conversion of our coal facilities to gas.
In summary, you can see we continue to generate strong cash flows from a highly diversified set of assets. We have one of the strongest balance sheets in the industry, positioning us well for the future. With that, I'll turn it back over to Dawn.
Thanks, Brett. Taking the broad view, we have successfully stabilized and adapted our business to the new realities in our industry. Just to summarize Brett's points, we have a solid base of existing assets, we're growing the business. We're demonstrating value by consistently generating increased cash flows, even as we change plants from one regime to another. As I look ahead, I do see three key areas of focus for the company. First, we'll continue to grow the value of the portfolio of assets here in Alberta, which generate stable and growing cash flows that are here to stay. We see a stronger market, upside in our hydro assets. A capacity market that will provide value for our coal to gas conversions.
The economy is growing here in Alberta, as is the power demand, the rules for the capacity market are lining up the way we'd hoped they would. We have capacity, energy, and ancillary services products to sell into this market, and as demand increases, we have more capacities to bring back online. From a capital allocation perspective, investing in the Alberta business so that it's ready for the capacity market is a top priority for the company, and we have everything on track to hit our targets and to achieve strong returns. Our second priority is, of course, we're in the final stages of our transition to clean energy. We are well advanced with getting natural gas to our plants and making final investment decisions to convert our coal units to gas.
My congratulations to Brett and his team and to the team over at Tidewater for their excellent work on that pipeline and for positioning TransAlta well ahead of the market in bringing gas to our plants. Our ability to extend the life of our Sundance and Keephills units on gas creates cash flow well into the 2030s and potentially beyond, depending on how we position our investment strategy from here. Our third priority is to continue to grow and diversify our business. I'll be clear, I think we've established in the past that we will continue to remain absolutely disciplined on finding good projects with the right returns so that as we invest in these projects, cash grows and our balance sheets stay strong. This isn't easy to do, as you know, but the team is finding projects like Antrim and Big Level.
Not big projects, just single, projects that meet the criteria that we're looking for, and we see many more of those coming our way as we examine the portfolio of assets in our investment committee. Overarching all three of these objectives is our drive to continually improve how we get work done and to align our costs to the future. With that, we'll close. I want to thank the employees of TransAlta who've done tremendous work, and we continue to move forward. With that, I'll turn it to Sally for questions.
Thank you, Dawn. Kelly, can you please open up the call for questions?
Certainly. At this time, I would like to remind everyone, in order to ask a question, please press star then the number 1 on your telephone keypad. Your first question comes from the line of Rob Hope from Scotiabank. Please go ahead, your line is open.
Good morning, everyone.
Hey, Rob.
Just want to first off start on the maintenance capital. We've seen you reduce your 2018 expectation, and when you look out to 2019 and 2020 with how the coal units are being utilized, is 2018 a good proxy, or do you see any big moving parts in 2019 and 2020 there?
Yeah, Rob. Clearly, we'll come out with our guidance at the right time. Yeah, I think it's a pretty good proxy going forward. As you can appreciate, every year is different because of the number of planned outages do vary year-over-year. I think as kind of a general long-term average, it's pretty good. In there is the mining capital as well, and as we transition more and more into gas away from coal, that will come down as well. Yeah, without being able to give you some specific numbers at this stage, it's a reasonable proxy for going forward.
All right. That's helpful. Then just moving over to U.S. coal. Pricing was strong, just given hydrology and the gas flows there. Can you give us a sense of what the drag would've been by the two unplanned outages and their nature and whether or not they'll drag into Q4?
No, the endpoint planned outages were just sort of typical unplanned outages that you get in coal plants. There's nothing there that'll drag into Q4 at all. Effectively, we typically go into that summer with quite a bit of the portfolio hedged, then we have some merchant at the margin. If we have a couple of days where we have to cover some hedges, then that can effectively reduce the amount of cash that they make on an annual basis. When we look at the year for that group, they're having a good year overall.
Okay, then just one final one. Your hydro plants in Alberta, just want to get your thinking on those on a long-term strategic nature, just given that we continue to see very, very strong valuations in private markets for those assets.
Yeah, they continue to be very strategic to TransAlta shareholders because of the high valuations in those assets. We need you guys to start talking about that so that investors will know that we have them and that they're important and a big part of this portfolio and should be something they should be valuing equivalently in the TransAlta portfolio.
Thank you. I'll hop back in the queue.
Your next question comes from the line of Ben Pham from BMO. Please go ahead, your line is open.
Okay, thanks. Good morning. I had a couple questions on the Canadian coal business. It looks like the Sundance units, looking at the realized pricing, it looks like you're running them as more of a peak pricing sort of asset. I wanted to clarify if that's the case. Then with that, should we think about anything about degradation of availability if you're running Sundance at peak times? Is that something to think about into next year?
Ben, you're correct that when you look at the Alberta market, you really need higher pricing events to make a margin on those units to cover all their costs and the carbon tax and all the rest of it. We typically keep them kind of on a min stable, and then we're ready to achieve profits in the market when they come. There is no question that if there was a much greater use of them in that regard over time, you would have to start to degrade the availability. They're being lightly used this year, I don't expect that. Certainly, as we think about our guidance for next year and the year after, those are the kinds of considerations that we would bring to you.
Currently at the current use that they are in the market, I'm not an engineer, as you know, I shouldn't be even speculating on this, I don't think at the current use, we'd expect to see a big degradation. It would only be if they really got into that mid merit range, where they were in that 50%, 60% availability that you'd start to have to factor that into your economics.
Okay. Got it. Then as, I guess on the cost line, you're benefiting from co-firing and whatnot. Can you also comment on, do you see Q3, the volatility is coming back a little bit, the volatility you're seeing, is that what you've been expecting all year in your numbers?
First of all, we didn't really know how the market would react to more merchant capability here in the market. As you know, generally the way you think about contracted versus energy only is if you've got PPAs and contracts for capacity, generally you're barely making a margin at all on your energy. You're kind of bidding that in at variable costs. Then generally, if you've got merchant units, if you want to keep them in the market and you want to keep them cost positive so that they can actually provide a service, they have to be able to extract some sort of value for the capacity value at various points during the year, or you have to shut them down, right? They don't work in the marketplace.
We did expect, as we got into the marketplace, that you would see more volatility because of that phenomenon. I think it just takes a while for the market to adjust. I do think the market is now adjusting correctly to the way that it should run, given the mix of PPAs and merchant in the marketplace. These are the kinds of expectations we would build in as we look ahead for next year.
Lastly, can I ask you, I know you've been doing a lot of work on conversions and looking a bit more into that. As you head towards the point of actually generating under the converted coal to gas, is there a situation where you can actually not convert just coal fire because maybe the utilization isn't as high as what you may have expected?
Yeah. Remember that conversion capital is not very high, right?
The thing that we have to do in our optimizations as we make our final decisions is look at, yes, you might have a unit that only runs 12%, 15% of the time. You can co-fire on gas, you don't really need to put that expense in. You do tend to have higher overall costs to maintain a coal unit. You got to keep your mine open. There's a lot of thought that goes into those economic optimizations. Brett and his team are doing a lot of work on that. I don't know, Brett, if you want to comment. There's certainly lots of different factors, and you're basically searching for the one that's going to give you the lowest cost overall, the longest life, the best availability, and on an NPV basis, give you the better cash.
maybe, Brett, you want to add because your team's doing that work?
Sure. Yeah. Ben, certainly, before conversion, we'll maximize how much gas we can utilize for co-firing. There's no question. As we've mentioned in the past, there's a number of factors that are going into our decision to convert, and some of them Dawn mentioned. Also remember, federally, these assets have limited life with staying on coal. By converting, we get extra life out of them. We also, as Dawn says, have much lower operating and capital costs going forward. They are more flexible on gas than they would be on coal. Then you have days when gas prices are very attractive from our perspective. So, just being able to utilize and all that and factor that into the decisions.
The other thing is, if you stay too long on coal, there may be other capital you have to put in and operating costs to manage other environmental requirements on the NOx and SOx side. By converting to gas, those are not required.
Okay. That's great. Thanks for the update.
Your next question comes from the line of Mark Jarvi from CIBC Capital Markets. Please go ahead. Your line is open.
Hi. Good morning. You guys mentioned the strong availability at Sundance. Just wondering your thoughts in terms of the other coal assets, ones that are on PPA, whether or not you think, what is the availability for those assets look over the next couple of quarters and whether or not you think the availability incentive payments will stay pretty high?
The team up at Alberta Coal has, as you know, they've been working on getting the right mix. To get high availability, you got to invest your capital in the right place, then you've got to do all your operating procedures excellent every day sort of thing. They've been at that with a variety of initiatives and projects for a long time now. We're seeing strong availability across the fleet. In particular, we're pleased with the way that they've just been running everything. As we go into our guidance for 2019 and 2020, we always have to look at the investment and availability trade-off, and it's something that we talk about when we give our availability ranges. They're doing a hell of a job up there. It's excellent.
Okay. While we're talking about coal, just ATCO's come out and said they're doing a strategic review of their Canadian power assets, including the coal facilities in Alberta. I was just wondering if you had either any interest in any of those assets? At the same time, if they did sell their interest in Sheerness, whether or not you guys would be willing to sort of tag along with that.
Yeah, we can't comment on that kind of thing on a conference call like this. The one thing you just might look at is TransAlta's market share in this market is quite high. We like the assets and our position that we have here today.
Okay. Understood. Just going into the hydro assets in Western Canada. If you look back and sort of realize prices in this quarter, last quarter was very strong, sort of a fall off this quarter despite power prices being improved year-over-year. Just maybe you can help us figure out maybe why it didn't perform quite as high as maybe we would've thought.
Sorry.
The hydro.
Oh, yeah.
Yeah, the one factor, Mark, is if you look at September, prices did come off quite a bit. Unfortunately, when you just take simple averages, it doesn't capture what goes on an hourly basis. I would say the September impact of that a bit. Normally, as we start moving into this time of year, the water levels we're managing for the spring ahead of the runoff and the reflows. That's part of what's going on there.
Yeah. Just without extending any expectation at all for Q4, remember, the way the hydro optimizers work is they're basically rationing water over the highest price hours that they think are coming. Generally, people think there's more pricing in Q4 than there is in Q3.
Right. Okay. That's helpful. Thank you.
Your next question comes from the line of Andrew Kuske from Credit Suisse. Please go ahead. Your line is open.
Good morning. Just on Canadian coal and the sustaining capital in the mine. I know there's a little bit of commentary in the MD&A on the sustaining capital done in the quarter, in the pit. Is that really just an anomaly in the quarter? Is this really just setting you up for the next few years of life and then just the future transition on gas?
Andrew, that's exactly what's going on there. As we open up this final pit here, which has the best coal and the lowest cost, that's the coal we want to burn as we go through the next three years. We had to spend the money this year to get positioned for that.
How should we think about just the next quarter or two? When does the mine capital start to fall off and get to a more sort of quote unquote "normal rate?
I would say, Andrew, we're still working through that. We'll provide that guidance when we come out. As Dawn says, you've got different things going on there. The opening of the pit as we transition through and the additional just ongoing maintenance that you would always have with the equipment. I can't give you a number at this stage. Our plan is to have that number start to track downwards clearly as we continue to burn coal fire more, obviously, because we're using a lot less tons than we have in the past. Clearly with the mothballing of two units, we're using a lot fewer tons. That will start to wind down. We'll update you on that as we come back to you on our guidance for next year.
Okay. Then maybe just transitioning to the next question. When you think about your maturity schedule and just the financing market, as you look at your asset base, to what extent could you do green bonds for parts of the portfolio and just the timing of that? Because especially when you look at your hydro assets and the step-up in expected EBITDA as they roll off of PPAs in the early 20s.
Andrew, are you thinking about a green bond to replace the 2020? Is that what you're thinking?
That's one option. Either 2020 or just how do you think about the green bond market today and then potential use in the future?
Yeah. Well, just to be honest, we still plan to expire that bond in 2020 because we absolutely want to have, as I've said before, if you think about a balance sheet for the Alberta business, we want to be the company that has a much lower debt going into that market than anybody else, just so that we can just be there no matter what's going on in terms of the pricing. We haven't put much thought into the green bond market relative to renewables at this point. Most of our strategy so far for renewables has been to look at project financing. Our criteria for any new incremental investment there is that it has to have the cash flow to support project financing and sort of the equity. That's something that I guess we could look at as we go forward here.
Maybe Brett, you can comment.
Yeah. Andrew, obviously, as you can appreciate, we look at all possible sources of capital when we evaluate those. Haven't had a need to look at that market, as Dawn says, but I think when we have looked at it, we've always come away not seeing it overly materially better than just going with the project financing strategy that we've been doing.
Okay.
Having said that, as we get closer to when the hydro comes off, it is definitely that and other options that we can look at as ways to finance going forward.
Yeah, we definitely see. I'm actually astonished by it, but kind of year after year, the project debt market has excellent coupons in it and have really supported any sort of long-term PPAs that you have. It tends to always beat out every form of financing.
Okay. That's helpful. Thank you.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes to the line of Robert Kwan from RBC Capital Markets. Please go ahead. Your line is open.
Great. Thank you. Maybe just coming back to hydro, you noted both the way the volumes moved around as well as kind of some, Brett, you mentioned the hourly price volatility. I'm just wondering, was there another piece or I don't know if that was in kind of that hourly answer. How much of the difference, if you look sequentially versus Q2, was just the movement we saw in ancillary prices?
Yeah. It would be important because that's an important market for the hydro as it is for some of our other assets here in Alberta. Remember the ancillary service prices, think of them pretty much tracking what energy prices do, not the same absolute dollar amount, but in terms of if energy prices are higher, clearly, we get higher ancillary service prices. Those two kind of move in sync, more or less. Volumes wouldn't have been much of the issue. It was more just as I say, we saw September fall off quite a bit. That would have had an impact on both the energy and the ancillary.
Got it. Just moving to capital allocation, the NCIB activity, we saw it ramp up here in the third quarter. Brett, you also mentioned, you want to be active when you're seeing value. If we look at where you repurchased shares in the third quarter, and we look at the current share price right now, is it fair to say that this heightened level, you expect it to continue, if not even ramp up with the share price below CAD 7?
Yeah. If you look where we've been buying, you can probably appreciate that we're probably going to still consider using the program. Like I say, it's a balance of, as we said when we announced the program, it's part of our whole capital allocation decision. As we look at our growth projects, we've made our way through a good bulk of the debt repayment. That's behind us. We throw it into the mix, Robert, when we're looking at it. You can see we've been plugging away at it.
Yeah. Certainly, Robert, if we see stronger cash flows, that helps to make that decision more easily. We probably should have mentioned in the script, S&P did confirm our BBB- credit rating. It's still negative, as they see how we balance the portfolio going into 2020. There's always a trade-off here between share repurchase, debt repayment, and we've, of course, want to start making the investments in the coal to gas as well, which is another source of cash usage.
For sure. Okay. Maybe if I can just finish here, just any update on the CFO search, and I guess just recognizing that Brett has experience in the chair. Are there any major initiatives that are just currently on hold pending a permanent CFO, or is it just business as usual?
Oh, no, it's absolutely business as usual, and we expect to be-- You'll see who that is by year-end here.
Okay. That's great. Thanks very much.
In the meantime, Brett has to do all the work.
Great. Thank you.
Your next question comes from the line of John Mould from TD Securities. Please go ahead. Your line is open.
Thanks. Good morning. Maybe just starting with wind development, you talked earlier about your appetite to take on more wind projects. Can you provide some context on how that market for additional U.S. wind projects looks to you right now and where you're seeing the most interesting opportunities on a regional basis?
Yeah, I would say that we see better opportunities in the U.S. market than we do in Canada. We see better opportunities working with corporate customers than we do entering into RFPs. Anywhere where there's a government RFP with a government backing for the PPA, the competition is brutal and the returns are just, I would never put my grandchildren's money into it. I'd never put anybody's money into it. It's just not enough to justify taking the risk because over time, those projects just aren't going to be viable. Our teams are focused on, I would say they're much more focused on the U.S. market than they are the Canadian market. We'll put prices in for sure, because you never know if people run out of money to throw away. Net-net, we're seeing prices more strongly in the U.S.
I guess the other thing is, I've been in this part of the cycle before. The worst I've ever seen was in the 1997 to 1999 period, and of course, now I'm really showing my age. At that time, we saw returns like this and money like this and people chasing these kinds of returns, and then it just kind of all ends because they go to try to finance it or absorb the debt, and it doesn't work. Now, maybe we're in some unique part of the investment cycle, I don't know. What I see in this part of the cycle is you've got to look at 100 projects to get one, and you got to be patient, and you got to just keep turning them away. Because everybody always wants to make the case that it's different this time.
Just go with us, just invest at these low prices or low returns. We're just holding our nose and not doing that. We've got good returns on the projects that we have done.
Okay. Are you still seeing the U.S. Northeast as the most interesting spot in the country regionally?
No, you see it in different spots. I think it depends more on demand than it does supply. If you look at the ESG market, particularly what I see, I'm on the board of a chemicals company, I see a lot of people that are in that part of the industry, the old economy, we're called sort of thing. Everybody's really concerned overall about their greenhouse gas emissions or their NOx emissions. I'm actually, interestingly enough, seeing more cogeneration than I've seen for 20 years. I think it's because, at the end of the day, what used to be a nice-to-do has become an imperative. It's a corporate imperative now. You're seeing a lot of people having to report on their emissions now. We've been ahead of the game on that always. TransAlta's always had really aggressive reporting on our sustainability targets.
You're seeing that as becoming something that's just going to be more standard. I see a lot of demand coming, it's really being able to fill the demand for the locations where the customers are. I don't see any region as being a hot region.
Okay. Thanks. That's helpful. Maybe just moving on to the Brazeau Pump Storage project, I'm wondering if you have any updates on that initiative and how your thinking on that project has evolved in the context of the AESO report on dispatchable renewables.
Yeah. The AESO report on dispatchable renewables was really limiting themselves to the period between now and 2030. Of course, Brazeau wouldn't even start till like now, 2028, and it would be a 50, 60, 70-year project. That kind of project does not fit in a market. We continue to work with government to see what is the way to move that kind of project forward. In the meantime, we're not spending any real substantive money on it. I think the other thing is this Bill C-69. If it was passed the way that it's currently looked at, we would pull Brazeau, and we wouldn't continue with it because you can't be in a situation in Canada where you can have a political decision after you've spent a whole bunch of money. We are waiting to see what that looks like as well.
It's in the Senate right now. We're hoping for real changes coming out of the Senate on that. Net-net, it continues to be, I know that project will absolutely have to be built in this province, especially when you look at the greenhouse gas targets and some of the work that's going on. You're going to need a way to actually store renewables. People talk about these batteries. All our work shows that a lithium-ion battery is not a form of storage. It's just a load-balancing thing for the grid.
If you truly want to get into more renewables, which are really low cost, you truly want to store them, you need to do projects like Brazeau. We need to, in this country, be prepared to really know how to do these large-scale projects, we just haven't found a way to get that done yet. Stay tuned. It's not a short-term project. It's more in the long term.
Okay. Appreciate the context. Those are my questions. Thanks very much.
Thanks so much.
Your next question comes from the line of Patrick Kenny from National Bank Financial. Please go ahead. Your line is open.
Yeah. Good morning, and thanks for the comments around the Tidewater pipeline. Just wanted to confirm if exercising the 50% option is with a view to take the capacity on the pipe up to the full 440 million a day, and then also with ATCO now bringing a pipe into the area, if Sundance and Keephills are now fully covered from a gas supply perspective to support full conversion, or if you still need to secure another pipeline.
Yeah. Good question, Patrick. We've got a couple responses there. As you know, at this stage, we've committed to the base volume of the 130 a day, and we will ramp that up as we develop and stage in our conversions over time. We'll only make those commitments once we're highly confident that we need that extra capacity. If you do the math on full conversion across our fleet, you will need to ramp that up. We've always said, day one, that we want more than one pipeline into the sites, for backup redundancy, reliability, access to multiple sources of gas, that is still our plan, and we'll continue to pursue that. Our first objective was to get a pipeline in there, and with the Tidewater, it was able to get us in there quickly. Not just for the conversions.
As we said, we just needed the capacity also to take advantage of co-firing and maximize our co-firing, because today, we're very limited to what pipeline capacity we have in there today. We're maximizing co-firing, but it's limited by pipeline, not by the boilers themselves. Getting that initial volume in there will give us the ability to take advantage of low gas price days and also then just ramp up quickly when we need to.
Okay, great. Thanks for that, Brett. Maybe just a quick question for Dawn here. Now that you have a relationship with Microsoft, I assume as part of your growth strategy, you'll be pursuing other business development opportunities with them. Just wondering how you're thinking about building more renewables for Microsoft versus, say, trying to bring them into Alberta as more of a behind-the-fence customer at, say, Sundance, Keephills in a couple of years?
Oh, yeah. I would say it's more building more renewables for them. There are customers that would be interested in. Are you thinking about bringing them? Just explain that again. When you say bring them behind the fence, are you talking?
Yeah. I guess it doesn't have to be Microsoft specifically, but data centers in general.
Yeah. That's what you're talking about. Yeah. The team has been working with, there's a number of blockchain companies that would like to get on the land and get behind the fence. So far, it sounds easy, but it's not as easy as it sounds because you have to have an actual connection from the plant and the plants are not configured like that. They're configured to go into those big transmission lines that supply Alberta. We've had a bit of a project on that, but we're not really pressuring on that right now. I think when it comes to companies like Microsoft, right now they're buying farms, in any jurisdiction to back up their power supply. I think over time, what we'd be hoping to do is do more work with them at their various sites.
That's how we're focused there, but you're 100% right on getting customers like that and working with them and being able to serve them is a big part of our future strategy.
All right. That's perfect. Thank you very much.
Your next question comes from the line of Jeremi Rosenfield from Industrial Alliance. Please go ahead, your line is open.
That was a new one. Morning. Just one question I wanted to go back to. Off the top, there were some comments on the hydro plants in Alberta and the valuation of those facilities. Dawn, I'm just kind of curious if you thought about potentially monetizing a minority stake in the plants post PPA expiry, potentially underwriting long-term contracts to a buyer of a minority stake, as a way to both on one side, source capital for growth opportunities, but also to demonstrate the actual value of those plants to the market via sale transaction.
Yeah, in my younger years where I would listen to all this stuff and go, "Wow, that sounds really cool. Let's do that." It's been proven over and over again from what I've seen in the financial markets that companies who take that strategy actually do not get the other part of the value showing up in their stock price. I don't think it's a viable strategy. I think the better strategy for us is to profile those assets, profile those cash flows, profile those valuations, prove quarter by quarter that they're strong cash flows, and get the value up. We don't need the capital today. We've done everything we need to do to rebalance. I can't find a better return than those assets anywhere in the entire planet. If you look at, those are 100-year assets with low book values, with high cash flows, and excellent returns.
The current shareholders at TransAlta should love that they're in our company, in those assets, in those kinds of returns. If someone could prove to me that companies that did that saw the valuations flow through, I might be a little bit more open to it, but everything I've seen so far, and you can go case by case, I've looked at all of it doesn't turn out to be a true story. The arbitrage never turns out to be there. I'm not keen for that strategy.
Okay, thanks. That's it.
There are no further questions at this time. I will now turn the call back to Sally Taylor for closing comments.
Thanks, Kelly. Thank you everyone for joining us today. That concludes our call. If you have any further questions, please don't hesitate to reach out to us directly in the IR department. Thank you.
This concludes today's conference call. You may now disconnect.