Earnings Call: Q3 2018

Oct 31, 2018

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. Thank you. I would now like to turn the call over to Sallie Taylor, Manager of Investor Relations. Please go ahead. Thank you, Kelly. Good morning, everyone, and welcome to TransAlta's Q3 2018 conference call. With me today are Don 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 lines 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 2, detailed in our MD and 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 and A for your reference. On today's call, Don 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. So with that, let me turn the call over to Dawn. Thanks, Sally, and welcome to everyone who's joined us for the call today. Once again, I'm going to be very brief with my comments so that we can have more time for questions at the end of the call. To sum up the quarter, I'm 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 plans are performing at the high end of our plan and we're 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. So congratulations to them. Here in Alberta, our there has 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's Alberta 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 really is paying off. Our growth team in the Q3 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 sized investments with good returns as we finish our debt reduction and begin to turn our attention to the future. So with that, I'm going to give you hand you over to Brett, who will take you through the detail on the quarter, and then I'll have just 1 or 2 closing comments before we open it up for questions. Okay. Thank you, Don, and good morning, everyone. So I'm going to start with our segmented cash flows, which reflects our EBITDA less CapEx. So 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 2 key one time items. The first item is for the $34,000,000 we received in 2017 related to the index dispute settlement in Ontario. The second item is for the $157,000,000 PPA termination payment we received this year. When those two one time items are excluded, our total segmented cash flow is up $52,000,000 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 $59,000,000 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 $300,000,000 to $350,000,000 excluding the one time PPA termination payment. Now turning to the market fundamentals. In Alberta, fundamentals continue to be strong. On a year to date basis, prices have averaged $49 per megawatt hour compared to $22 per megawatt hour for the same period as last year. Prices in October have averaged approximately $64 a megawatt hour and we expect prices for all of Q4 to average over $60 a megawatt hour. For 2018, current forward prices are approximately $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 Tidewater 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 $26 per megawatt hour from $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 dropdown 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 $400,000,000 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 175,000,000 dollars will occur between now and the end of 2020 through the mandatory principal payments associated with the amortizing debt. This quarter, we continue to invest more in our share buyback program. During the Q3, we acquired and canceled approximately 1,300,000 shares, bringing the total number of acquired and canceled shares for the year to approximately 1,900,000 at an average price of $7.34 per share. We'll continue to buy back shares at the TransAlta level under our normal course 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, but we will continue to remain disciplined. This quarter, we commissioned the Cant Hills 3 wind expansion, bringing total generating capacity of our Cant Hills wind farm to 167 Megawatts and construction is fully underway at the big level wind farm. And in August, we started construction in the Antrim wind farm in New Hampshire. So 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 will 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. So in summary, you can see we continue to generate strong cash flows from a highly diversified set of assets and we have one of the strongest balance sheets in the industry positioning us well for the future. So with that, I'll turn it back over to Dawn. Thanks, Brent. So taking the broad view, we have successfully stabilized and adapted our business to the new realities in our industry. So just to summarize Brett's points, we have a solid base of existing assets, We're growing the business and we're demonstrating value by consistently generating increased cash flows even as we change plans from one regime to another. As I look ahead, I do see 3 key areas of focus for the company. So first, we'll continue to grow the value of the portfolio of assets here in Alberta, which generates stable and growing cash flows that are here to stay. We see a stronger market, upside in our hydro assets and 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 and the rules for the capacity market are lining up the way we'd hoped they would. We have capacity, energy and ancillary service products to sell into this market. And as demand increases, we have more capacities to bring back online. Now from a capital allocation perspective, investing in the Alberta business so that it's ready for the capacity market is the top priority for the company and we have everything on track to hit our targets and to achieve strong returns. Now 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 Keep Hills 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 and grow to grow and diversify our business. Now to 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 sheet stays strong. Now this isn't easy to do as you know, but the team is finding projects like Antrim and Big Level, not big projects, just singles, but 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. Now 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. So with that, we'll close. I want to thank the employees of TransAlta who've done tremendous work, and we continue to move forward. So with that, I'll turn it to Sally for questions. Thank you, Don. Kelly, can you please open up the call for questions? Certainly. 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 201920 20 with how the coal units are being utilized, is 2018 a good proxy? Or do you see any big moving parts in 2019 2020 there? Yes, Rob. Clearly, we'll come out with our guidance at the right time. But yes, 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. But yes, I mean, 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. And 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 have been by the 2 unplanned outages and their nature and whether or not they'll drag into Q4? No, the unplanned outages were just sort of typical unplanned outages that you get in coal plants. There's nothing there that will drag into Q4 at all. So it's I mean effectively we typically go into that summer with quite a bit of the portfolio hedge, 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. But when we look at the year for that group, I mean, it's they're having a good year overall. Okay. And 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? Yes. They continue to be very strategic to TransAlta shareholders because of the high valuations in those assets. So 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 of 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. And I wanted to clarify if that's the case. And then with that, does that should we think about degradation of availability of your running Sundance at peak times? Is that something I think about into next year? Yes. Ben, so 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. So 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, so I don't expect that. Certainly, as we come out 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. But currently at the current use that they are in the market, I'm not an engineer as you know, so I shouldn't be even speculating on this, but 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. And then as I guess on the cost line, you're benefiting from coal firing and whatnot. But can you also comment on do you see Q3, the volatility is coming back a little bit, but are you I mean it's the volatility you're seeing is that what you've been expecting all year in your numbers? Yes. I mean, so first of all, we didn't really know how the market would react to more merchant capability here in the market. And 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. And then generally, if you've got merchant units, if you want to keep them in the market and you want to keep them costs 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. So we did expect, as we got into the marketplace that you would see more volatility because of that phenomenon. And then I think it just takes a while for the market to adjust. So 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. And these are the kinds of expectations we would build in for as we look ahead for next year. And lastly, can I ask you on the I know you've been doing a lot of work on conversions and looking a bit more into that? But as you head towards the point of actually generating under the converted, call it gas. Is there a situation where you can actually not convert just coal fired because maybe the utilization isn't as high as what you may have expected? Yes. I mean, I think remember that conversion capital is pretty low. It's not very high, right? So 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 and you don't really need to put that expense in. But you do tend to have higher overall cost to maintain a coal unit and then you got to keep your mind open. So there's a lot of thought that goes into those economic cost optimizations. Brett and his team are doing a lot of work on that. I don't know, Brett, if you want to comment. But 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. But maybe Brett, you want to add because your team is doing that work? Sure. Yes, Ben. Certainly, before conversion, we'll maximize how much gas we can utilize for co firing. There's no question. But 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 Don mentioned, but also remember, federally, these assets have limited life with staying on coal. So 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. And then you have days when gas prices are very, very attractive from our perspective. And so just being able to utilize 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 an operating cost to manage other environmental requirements on the NOx and SOx side. So 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 wanted to know your thoughts in terms of the other coal assets, ones that are on PPA, whether or not you think what sort of what is the availability for those assets outlook over the next couple of quarters and whether or not you think the availability incentive payments will stay pretty high? Well, I mean the team up at Alberta Coal has as you know they've been working on getting the right mix. To get high availability, you've got to invest your capital in the right place and then you've got to do all your operating procedures excellent every day sort of thing. And they've been at that with a variety of initiatives and projects for a long time now. So we're seeing strong availability across the fleet. And in particular, we're pleased with the way that they've just been running everything. So as we go into again, as we go into our guidance for 2019 2020, we always have to look at the investment and availability trade offs and it's something that we talk about when we give our availability ranges. But they are just they're doing a hell of a job up there. It's excellent. Okay. And then while we're talking about coal, you know, ATCO has 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 any interest in any of those assets or 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? Yes, 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. So we like the assets in our position that we have here today. Okay. Understood. And then just going to the hydro assets in Western Canada. If you look back and sort of realized prices in this quarter, last quarter was a 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 they didn't perform quite as high as maybe we would have thought? Sorry. The hydro. Oh, yes, yes. Yes. I mean, the one factor, Mark, is if you look at September, prices did come off quite a bit. And so unfortunately, when you just take simple averages, it doesn't capture what goes on, on an hourly basis. So I would say the September impacted that a bit. And 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 reflow. So that's part of what's going on there. Yes. And just without setting 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 and 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. Hey, 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 and A on the sustaining capital is done in the quarter in the pit. Is that really just an anomaly in the quarters? Is it really just setting you up for the next few years of life and then just the future transition on gas? Yes. Yes, Andrew, that's yes, very exactly what's going on there. So 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 3 years. So we had to spend the money this year to get positioned for that. So how should we think about just the next quarter or 2, like when does the mine capital start to fall off and get to more sort of normal rate? Yes. I would say, Andrew, we're still working through that. We'll provide that guidance when we come out. As Don 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, but 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. And clearly with the mothballing of 2 units, we're using a lot fewer tons. And so that will start to wind down. But we'll update you on that as we come back to you on our guidance for next year. Okay. And 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 business, especially when you look at your hydro assets and the step up in expected EBITDA as they roll off the PPAs in the early '20s? Andrew, are you thinking about a green bond to replace the 2020? Is that what you're thinking? I mean, 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? Yes. Well, just to be honest, I mean, 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. When you look at we haven't put much thought into the green bond market relative to renewables at this point. But I think as and most of our strategy so far for renewables has been to look at project financing and every 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. But that's something that I guess we could look at as we go forward here. Maybe Brett, you can comment. Yes. I mean, Andrew, we 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 John 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. Having said that, as we get into 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. Yes, 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. So it tends to always beat out every form of financing. Okay. That's helpful. Thank you. Your next question comes from the line of Robert Kwan from RBC Capital Markets. Please go ahead. Your line is open. Great. Thank you. Maybe just kind of coming back to hydro and 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? Yes. I mean, 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. So those 2 kind of move in sync more or less and volumes wouldn't have been much of the issue. It was more just, as I say, we saw September fall off quite a bit. So that would have had an impact on both the energy and the ancillary. Got it. And then just moving to capital allocation, the NCIB activity, we saw it ramp up here in the Q3. And Brett, you also mentioned you want to be active when you're seeing value. So if we look at where you repurchase shares in the Q3 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 $7? Yes. I mean, if you look where we've been buying, you can probably appreciate that we're probably going to still consider using the program. And like I say, it's a balance of, as we said when we announced the program, it's part of our full capital allocation decision. So as we look at our growth projects, we've made our way through a good bulk of the debt repayment. So that's behind us. So we throw it into the mix, Robert, when we're looking at it, but you can see we've been plugging away at it. Yes. And certainly, Robert, if we see stronger cash flows, that helps to make that decision more easily. And you also we probably should have mentioned in the script, we did have S and P did confirm our BBB- credit rating. It's still negative, as they see how we balance the portfolio going into 2020. So 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. And 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, but are there any major initiatives that are just currently on hold pending a permanent CFO or is it just business as usual? No, it's absolutely business as usual and we expect to be you'll see that who that is by year end here. But in the meantime, Brad 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? Yes. 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. So anywhere where there's a government RFP with the 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 you're just over time those projects just aren't going to be viable. So our teams are focused on I would say they're much more focused on the U. S. Market than they are the Canadian market. And we're just we'll put prices in for sure, because you never know if people run out of money to throw away. But 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. But 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. But we're 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 and or low returns. And we're just holding our nose and not doing that. So that we've got good returns in the projects that we have done. Okay. I mean are you still seeing the U. S. Northeast as kind of 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. I mean there's if you look at the sort of the ESG market and particularly like what I see, I'm on the Board of a chemicals company, right? So I see a lot of people that are in that part of the industry, the old economy, we're called sort of thing. And everybody is really concerned overall about their greenhouse gas emissions or their NOx emissions. So I'm actually interestingly enough seeing more cogeneration than I've seen for 20 years. And 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. And 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 has always had really aggressive reporting on our sustainability targets. But you're seeing that as becoming something that's just going to be more standard. So I see a lot of demand coming and it's really been able to fill the demand for the locations where the customers are. So I don't see any region as being a hot region. Okay, okay. Thanks. That's helpful. And then maybe just moving on to the Brazo pump storage project. I'm wondering if you have any updates on that initiative and how you're thinking on that project has evolved in the context of the ASOS report on dispatchable renewables? Yes. I mean the ASOS report in dispatchable units renewables was really kind of limiting themselves to the period between now 2030. And of course, Brazil 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. So 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 69, if it was passed the way that it's currently looked at, it would cause we would pull Brazil 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 spent a whole bunch of money. So we are waiting to see what that looks like as well. It's in the Senate right now and we're hoping for real changes coming out of Senate on that. So 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 kind of a load balancing thing for the grid. So if you truly want to get into more renewables, which are really low cost and you truly want to store them, you need to do projects like Brazil. But we need to in this country be prepared to really know how to do these kind of large scale projects. And that's just we just haven't found a way to get that done yet. So 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. Thanks so much. Your next question comes from the line of Patrick Kenny from National Bank Financial. 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 $440,000,000 a day. And then also with ATCO now bringing a pipe into the area, if Sundance and Key Pills are now fully covered from a gas supply perspective to support full conversion or if you still need to secure another pipeline? Yes. So good question, Patrick. We've got a couple of responses there. So as you know, at this stage, we've committed to the base volume of the kind 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. But if you do the math on full conversion across our fleet, you will need to ramp that up. We've always said at day 1 that we want more than 1 pipeline into the sites for backup, redundancy, reliability, access to multiple sources of gas. And so 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. And 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. And so we're maximizing co firing, but it's limited by pipeline, not by the boilers themselves. So 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. And then maybe just a quick question for Don 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, I'd say, Sundance, Keybills in a couple of years? Yes. I would say it's more building more renewables for them. When you see the there are customers that would be interested in are you thinking about bringing them? What do you just explain that again when you say bring them behind the Yes. I guess it doesn't have to be Microsoft specifically, but data centers in general? Yes, yes, yes. That's what you're talking about. Yes, the team has been working with there's a number of blockchain companies that would like to get on the line and get behind the fence. So far that's 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 and supply Alberta. But 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, I mean they're right now they're buying farms in any jurisdiction to back up their power supply. And then I think over time what we'd be hoping to do is do more work with them at their various sites. So 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 Rami Rosenfield from Industrial Alliance. Please go ahead. Your line is open. That was a new one. Good 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. So Don, 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? Yes. I mean 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. So, 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. So, there's 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. So the current shareholders at TransAlta should love that they're in our company in those assets in those kinds of returns. So if there was 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 by case by case, I've looked at all of it. It doesn't turn out to be a true story. So the arbitrage never turns out to be there. So 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 Sallie Taylor for closing comments. Thanks, Kelly. Thank you everyone for joining us today. That concludes our call. But 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.