Earnings Call: Q3 2022

Nov 8, 2022

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation's 3rd Quarter 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Ms. Tomte, you may begin the conference. Thank you, Sylvie. Good morning, everyone, and welcome to TransAlta's Q3 2022 conference call. With me today are John Kousin Yaras, President and Chief Executive Officer Bob Stack, EVP, Finance and Chief Financial Officer and Kerry O'Reilly Wilkes, EVP, Legal, Commercial and External Affairs. Today's call is being webcast, and I invite those listening on the phone lines to view the supporting slides that are posted on our website. Call. A replay of the call will be available later today and the transcript will be posted to our website shortly thereafter. All the information provided during this conference call is subject to the forward looking statement qualification set out here on Slide 2, detailed further 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 noted. Earnings call. The non IFRS terminology used, including adjusted EBITDA, funds from operations and free cash flow are reconciled in the MD and A for your reference. Call. On today's call, John and Todd will provide an overview of the quarter's results. After these remarks, we will open the call for questions. With that, let me turn the call over to John. Thank you, Holly. Good morning, everyone, and thank you for joining our Q3 results call for 2022. As part of our commitment towards reconciliation, I want to begin by acknowledging that TransAlta's head office, where we are today, is located in the traditional territories of the Niitsitapi, the people of the Treaty 7 region in Southern Alberta, which includes the Siksika, the Tafani, the Kainai, the Tsuut'ina and the Stoney Nakota First Nations as well as the home of Metis Nation Region 3. TransAlta had an exceptional 3rd quarter. I'm extremely pleased with the performance of our company. We delivered $555,000,000 of adjusted EBITDA, 38% increase over the prior period with performance significantly above expectations from our Alberta electricity portfolio. The results demonstrate the value of our strategically diversified fleet in Alberta. Our performance was driven by our ability to optimize our fleet, adjust our portfolio position to respond to changing market conditions and deliver operational performance, which enabled us to capture the higher prices experienced in Alberta. As a result, our financial results were ahead of expectations for the quarter. We generated free cash flow of 393,000,000 or $1.45 per share, an 87% increase quarter over quarter. On a year to date basis, we have generated $1,100,000,000 in adjusted EBITDA, 5% increase over 2021 results and free cash flow per share of $2.38 a 28% increase year over year. With this performance across the fleet and our continuing positive outlook on market expectations for the balance of the year, we've revised our 2022 financial guidance upwards, increase in our adjusted EBITDA and free cash flow guidance by $295,000,000 $245,000,000 respectively at the midpoints compared to our original guidance for 2022. We also announced that our Board of Directors approved a common share dividend increase of 10%, representing our 4th consecutive annual increase. The common share dividend will increase by $0.02 to an annualized rate of $0.22 per share starting in January 2023. On the growth side, our development team has added approximately 5 50 megawatts of development opportunities to our growth pipeline during the quarter, bringing our total development pipeline to between 3.5 gigawatts to 4.7 gigawatts. I remain confident in our ability to deliver on the remainder of our 2 gigawatt clean electricity growth plan. We have over 300 megawatts of advanced stage growth that we're working to secure in the upcoming quarters. Switching to our recontracting activities, we are pleased to announce the award of new 5 year ISO capacity contracts at our Sarnia cogeneration and Melanchthon wind facilities in Ontario. Together with the industrial customer contract extensions we executed earlier this year at Sarnia. The ISO capacity contract extends the life of the Sarnia facility and permits us to continue to serve our industrial customers in the region. And finally, we were active during the quarter with our normal course issuer bid. We returned another $16,000,000 to our shareholders through the buyback of 1,300,000 common shares. We've completed $34,000,000 in share back so far in 2022 and expect to continue to do so in light of the company's current share price, which we view as being undervalued. We're proud of the progress we've made on the execution of our clean electricity growth plan. We've secured 800 megawatts of growth projects across Canada, and as I mentioned earlier, we have over 300 megawatts of advanced stage generation and transmission growth opportunities in development, representing additional growth of approximately $500,000,000 With the recent Inflation Reduction Act, we've increased our EBITDA estimates for Horizon Hill and White Brock to now reflect 100% qualification for production tax credits. The capital costs for these projects will also increase as bonus payments are now payable to the turbine supplier tied to the higher PTC qualification. Turning to the U. S, we've made great progress toward our goal of expanding our development pipeline in support of achieving our 5 year growth targets. Our new projects there include 225 Megawatt Trapper Valley site, an expansion of our existing Wyoming wind facility, the 152 Megawatt Monument Road wind site in Nebraska, the 242 Megawatt Dos Rio site in Oklahoma and 100 Megawatt Solar Project, which is also located in Oklahoma. In Canada, we continue to remain disciplined on growth. Our Tempest and water charger projects are at an advanced stage of development and we've added the 100 Megawatt Red Rock Wind Site in Alberta to our development pipeline. We're presently reviewing the tax credits announced in the recent fall economic statement to assess how they might support our Canadian growth. In general, we view the pronouncements under the economic statement to be positive for our business. And we're also seeing growing opportunities in Western Australia in support of our remote mining customers. We're targeting to reach a final investment decision on additional projects with BHP and we've increased the expected size of the Goldfields and the Southern Cross Energy expansion projects in Western Australia. I'll now turn it over to Todd to take us through our financial results for the quarter. Thank you, John, and good morning, everyone. In Alberta, our hydro, gas and wind facilities are dispatched as a portfolio in order to benefit from baseload and peaking energy sales. And in the Q3, the fleet generated just under 2,900 gigawatt hours of electricity. Over the past 2 years, we positioned our fleet to firm renewables and provide capacity and energy when needed by the grid. During the quarter, the province experienced high electricity demand driven by record setting heat, particularly in August early September. During the same period, planned and unplanned outages at several generators as well as outages on the transmission tie lines reduced overall supply capacity. These factors contributed to strong pricing throughout the quarter with the average pool price for Q3 settling at $2.21 per megawatt hour compared to $100 per megawatt hour in Q3 of 2021. Pool prices were also impacted by higher natural gas prices as compared to last year. Our fleet operated exceptionally well in the quarter and supplied increased electricity when it was needed most. Our strong financial performance in Q3 was underpinned by high availability at our hydro and gas facilities, which tracked at just under 98%. Production from our gas fleet was approximately 84% hedged at $80 per megawatt hour and the remaining merchant production realized a price of $2.64 per megawatt hour. Combined, the Alberta Gas fleet generated $290,000,000 of revenue, Which equated to a blended realized price of $146 The ability of our hydro fleet to capture peak pricing was once again demonstrated in the quarter with realized merchant prices of $2.46 per megawatt hour, which represented an 11% premium over the average spot price. Realized price for ancillary services also increased over 2021 from $46 per megawatt hour in Q3 of last year to $128 per megawatt hour this quarter. Our merchant fleet in Alberta also benefited from strong on and off peak pricing, realizing an average merchant price of $136 per megawatt hour. Looking at the balance of 2022, we have 18 50 gigawatt hours of Alberta gas generation hedged at an average price of $95 per megawatt hour and our fuel requirements are fully hedged with 19,000,000 GJ's of natural gas locked in at approximately $3.60 In addition to our contracted production, we continue to retain a significant open position in order to realize higher pricing during times of peak market demand. And we see forward prices for the balance of the year in the range of $140 to $150 per megawatt hour. Our performance in Q3 was led by the hydro fleet, which delivered nearly a threefold increase in adjusted EBITDA from $82,000,000 in the Q3 of 2021 to $245,000,000 this quarter. As we described earlier, The increase was driven by a combination of stronger realized pricing and higher volumes for both energy and ancillary services. Adjusted EBITDA from the gas segment, which includes our contracted assets as well as our Alberta merchant fleet was up 26%, primarily due to high availability and stronger merchant pricing in Alberta. Adjusted EBITDA from the Energy Transition segment decreased by $4,000,000 year over year due to the retirement of the KeyPills Unit 1 and Senden's Unit 4. This was partially offset by adjusted EBITDA from our Centralia facility, which improved by $20,000,000 or 54%. Our energy marketing team's results again exceeded our expectations for the segment with $53,000,000 in realized EBITDA. Overall, we're very pleased with TransAlta results, which exceeded our expectations. I want to thank all of our employees for their performance in delivering one of the best quarters in TransAlta's history. As I mentioned earlier, our results were led by our Alberta hydro fleet. Year to date, the hydro segment generated $394,000,000 of adjusted EBITDA with full year expectations in the range of $475,000,000 to $500,000,000 Production from the hydro fleet was up 20% over 2021 results for both electricity volumes and for ancillary service volumes. Electricity production increased by 101 gigawatt hours ancillary services volumes increased by 140 gigawatt hours compared with the same period in 2021. Ancillary services volume since the Q1 of 2021 averaged approximately 7.50 GJ's per quarter or sorry, gigawatt hours per quarter and the realized prices averaged 52% of the spot price. Energy volumes in the same periods have averaged approximately 4 20 gigawatt hours per quarter with a realized premium of 18% to the spot price. While volumes in real life prices may vary somewhat period to period, the long term value of hydro is significant for our shareholders. I'm going to turn now to highlight our longer term trends for free cash flow and EBITDA performance and the continuing financial strength of the company. Year to date we've delivered adjusted EBITDA of $1,100,000,000 and free cash flow of $646,000,000 or $2.38 per share. These are exceptional results, which have exceeded our original expectations and allow us to increase full year guidance. We're well positioned to refinancing our upcoming November debt maturity. We have hedges for a significant portion of the underlying rates and expect to complete an offering when we see a constructive opening in the bond markets. During the quarter, we closed a $400,000,000 2 year term facility that we will use to support construction of the Oklahoma growth projects ahead of our permanent funding. The facility will also be used to support other funding needs as they arise. Despite the ongoing volatility in energy markets, our balance sheet and liquidity remained very strong. We closed the quarter with $2,300,000,000 of liquidity, including approximately $800,000,000 in available cash. This positions us extremely well to fund our future growth pipeline, including our 6 80 megawatts of projects under construction. As we've indicated previously, our 2 gigawatt clean electricity growth plan is fully funded and we don't see the need to issue common equity to complete the program. As John mentioned earlier in the call, with our exceptional year to date results and our expectations for the Q4, We're pleased to increase our adjusted EBITDA and free cash flow guidance for 2022. We're now estimating our adjusted EBITDA to be between 1.38 at $1,460,000,000 representing a 26% increase at the midpoint of the range versus our original guidance. We are also now estimating our free cash flow guidance range to be between $725,000,000 $775,000,000 representing a 49% increase at the midpoint of the range versus our original guidance. This equates to a free cash flow per share of $2.77 at the midpoint. In addition to our estimates for adjusted EBITDA and free cash flow, we've revised our power price outlook for Alberta and Midsea for the full year We've increased our outlook for gross margin in the energy marketing segment to approximately $155,000,000 at the midpoint. Before I turn things back to John, I'll turn to TransAlta Renewables. Our operating wind and solar assets as well as the majority of our contracted gas assets are held within TransAlta Renewables and are fully consolidated in TransAlta's results. For the Q3, TransAlta Renewables delivered $88,000,000 of adjusted EBITDA and cash available for distribution of $46,000,000 Results were below expectations, driven primarily by low wind resource across all regions, the extended outage at Kent Hill's 1 and 2 wind facilities and the timing of the environmental credit sales. Based on our year to date results, we expect R and W's full year CAFD to track towards the lower end of our 2022 guidance range. With respect to Kent Hills, rehabilitation is well underway, including turbine disassembly and foundation demolition. About 3 quarters of the towers have been fully disassembled and over half of the foundations have been removed. Construction of new foundations has begun with the 1st concrete pours completed and the new wind turbine components have been delivered to replace the unit that was damaged. We're targeting the rehabilitation to be completed by the second half of twenty twenty three. Each turbine at Kent Hills 1 and 2 wind facilities will return to service as soon as its foundation is replaced and the turbine is reassembled and tested. Liquidity remains strong at R and W for the upcoming funding needs. In addition to our $700,000,000 committed credit facility, we had $229,000,000 of cash at the end of the quarter. And with that, I'll turn the call back over to John. Thanks, Todd. As I look at our strategic priorities for 2022, our goal is to continue delivering clean electricity solutions to our customers and to be the supplier of choice for customers that are focused on sustainable growth and decarbonization. In 2022, we're focused on progressing the following key goals: reaching final investment decisions on the equivalent of 400 Megawatts of Clean Electricity Projects in Canada, the United States and Australia. We're on track to securing another 200 megawatts in addition to the 200 megawatts already announced so far this year with over 300 megawatts of advanced stage projects in development. Achieving COD on the Garden Plain Wind and Northern Goldfield solar projects, progressing construction on our U. S. Wind projects at White Rock and Horizon Hill and advancing our Mount Keith transmission expansion project in Western Australia, expanding our development pipeline with a focus on renewables and storage, progressing the rehabilitation of Cantill's wind, achieving EBITDA and free cash flow within our revised guidance ranges and advancing our ESG objectives, which includes reclamation work at Highvale in Centralia, the provision of indigenous cultural awareness training to all our employees and achieving at least 40% female employees by 2,030. I'd like to close by highlighting what I think makes TransAlta an attractive investment and a great value opportunity. First, our cash flows are resilient and are supported by a high quality and highly diversified portfolio as evidenced by our exceptional results in the quarter. Our business is driven by our unique, reliable and perpetual hydro portfolio, our clean wind and solar portfolio and our efficient gas portfolio, all of which are complemented by our world class asset optimization and energy marketing capabilities. 2nd, we're a clean electricity leader with a focus on tangible greenhouse gas emissions reductions. Earlier this year, You're recognized by MSCI for this leadership with an A rating. We have adopted a more ambitious CO2 emissions reduction target of 75% by 2026 from 2015 levels and are committed to setting a science based emissions reductions target. In addition, our focus on removing systemic barriers through our commitment to equity, diversity and inclusion and good governance shows our commitment to leadership across all dimensions of ESG performance. 3rd, we have an extensive and diversified set of growth opportunities, expanding our renewable development pipeline by nearly a gigawatt so far this year with a talented development team focused on realizing its value. Execution is on track. We've delivered on that growth pipeline in 2021 and we're continuing to deliver on it in 2022. 4th, Our company has a sound financial foundation. Our balance sheet remains strong and we have ample liquidity to fund our growth plan. Finally, our people. Our people are our greatest asset and I want to thank all of our employees and contractors for the work that they have done to deliver our exceptional results this quarter. TransAlta is an exciting point in its evolution. We focus quarter. Thank you. I'll turn the call back over to Holly. Thank you, John. Sylvie, would you please open the call up for questions from analysts and media? You will then hear a 3 tone prompt acknowledging your request. And if you would like to withdraw from the question Please lift the handset before pressing any keys. Please go ahead and press star 1 now if you have a question. And your first question will be from Rob Hope at Scotiabank. Please go ahead. Good morning, everyone. First question is just on allocation of capital. We've seen a significant step up in cash flow this year. How are you thinking about allocating it? We've seen a little bit on the buyback, some dividend increase. Could we see the rest to pay down debt, further accelerate their growth profile or could we see incremental returns to shareholders through a larger buyback? Yes. Good morning, Rob. Great question. We allocate the way we look at sort of the allocation of capital in the company on a deconsolidated basis. You're right, we are seeing a higher cash flow over the course of the year. We have increased our dividend. We do have a significant growth profile that's ongoing. It's almost $1,500,000,000 of construction, which is ongoing. And as I mentioned in the call, we continue to look opportunistically to increase the share buybacks. That's something that I expect Continue to do certainly into this quarter. And again, you would expect that to be a reasonably substantial sum that we would be looking to do in terms share buybacks. Todd, I don't know if you want to add anything to that. Look, I would just add that, Rob, the dividend is really focused on what I would say more fundamental long term projections of the stability of the company, not really just the one time or the one quarter's results. So that's really just about the future sustainability of the company. As John said, we have a lot of room left on our NCIB program. And so I think certainly at the prices that we've seen over the last couple of months here that we think it's an attractive purchase. Rob, I'd say we're pretty comfortable with where our debt levels are. I mean, I think the credit facility we put in place and kind of our focus on refinancing the bond, We're pretty happy there. All right. Appreciate the color there. And then maybe taking a look at 2023. Just looking at where the forward curve is, we've seen you add some additional hedges out for that year. When you take a look pricing and the dynamics in 2023. Do you have a bias upwards or downwards in terms of the Alberta power market? And I guess secondly, are you worried about any political interference In terms of 2023, I'd say right now our view is that it looks to be a constructive year. I think the forward curve, the average price for the year is kind of in that $119 range and Q1 looks strong. I think, Todd, the average price is nudging up towards $200 in that period with January February being particularly strong and Q3 also looks good. So we expect another good year, I would say, in 2023. So we're optimistic That the company will continue to perform in a strong manner going forward. In terms of political intervention or interference, We tend to think of things in terms of I think you have to take a long term view of where pricing is in the marketplace rather than kind of looking at some of the strength that we've seen in pricing over the course of the last 3 or 4 months. It's been a circumstance driven by heat, by gas pricing, by some of the constraints, some of the outages we've had, interties. So the company has performed well, but I think you have to take a long term view on where power prices are from a government perspective and That's our message to the government. I think the energy only market works and has worked over the course of the year. And When we look at the cost of delivered power to consumers, it's as much the cost of transmission and distribution as it is the electrons. The other thing I would say is it is open for certainly commercial and industrial customers and even consumers at home to enter into contracts where they can kind of fix Their cost for power at levels that are significantly below, I would say, where some of the wholesale prices have cleared over the course of the last few months. And So that's a lever that they can pull and that's something that we've been encouraging folks to at least think about. That's it for me. Thank you. Thank you. Thanks, Rob. Next question will be from Mark Jarvi at CIBC Capital Markets. Please go ahead. Thanks. Good morning. John, when you look at the growth pipeline, I know you show 59% of your target EBITDA on hand here, you've got Tempest and a few other projects, which could get you closer to 80%. So when you think about getting to your target in 2025, Is the expectation that the internal development pipeline will get you there? Or do you think M and A is something that you're leaning on to get you to that 2025 targets? Good morning, Mark. I'd say really two answers to that question. I think we're pretty confident that it's our internal development pipeline that's going to get us there. The M and A side would be helpful. I mean candidly, I'm encouraging the team from an M and A perspective to be more focused on transactions that would supplement our growth pipeline rather than bringing in assets to be able to achieve the result. The other thing I would say is, look, we're reevaluating our targets as we go forward. We're very comfortable with our 2 gigawatt target. What we are seeing is The cost of construction is increasing a bit. So that $3,000,000,000 target, as a practical matter, maybe drifting upwards a bit. But we are seeing returns stay in with the expectation levels that we have. So you might see the EBITDA number also in a commensurate way kind of adjust going upwards. So That's something that we're working to provide clarity and that's something I think Todd that when we come up with our guidance we'll do a little bit of a refresh in terms of the way we see numbers going forward. And then just a follow-up on that comment. You talked about higher EBITDA around the PTCs, sharing some of that with the suppliers. It does look like the EBITDA multiples on the build costs have come down a little bit, but obviously it's a bit one moving parts there with tax equity and whatnot. So net net, are the returns on those projects increasing? Or as you said, they're just holding flat and you're passing through the higher costs? Mark, I'd say they're largely holding flat at the end of the day. Really just the 100% PTC treatment Did get a bit of a pickup for the projects, but we did commit to share some of that upside, potential upside with the turbine supplier as we mentioned. Okay. And then just last question for me is just around we're getting closer to maybe some outcome on the review of TIER and the CES, just updated views and impact on the Yes. I mean, we're waiting and I think we'll be hearing shortly actually in terms of where the TIER outcome is that I know that the provincial government has been working hard to land that and is in a dialogue with the beds to be able to land that. I don't think we're expecting to see any surprises. I think we're seeing the carbon price trajectory to continue to increase Certainly in 2023 into that mid-sixty dollars range, there is a discussion about the performance standard and how it might decline over time. These are all things that our expectation is that they will land broadly in the middle of the fairway in terms of what our forecasting would see we're not expecting any surprises on those. Yes. And I'd just like to say like we've over the last couple of years tried to what I would say is somewhat immunize or soften the impacts of any tier any changes to tier, Any changes to tier, the environmental criteria. One of the upsides that I think We're kind of encouraged by or potentially may come out of some of the values of our renewable energy credit portfolio and what's generated off the wind and hydro fleets, which may have Actually more value than what we were previously thinking. So we're waiting eagerly. Can you just expand on that last comment, Todd, in terms of See more value from the credits? Yes, just the ability the potential ability to use more renewable energy credits to offset carbon liabilities from carbon emitting facilities. And so if there's a larger demand for those credits, then we see upside in the value. I think there's a notion that the amount of That could be procured to basically offset the carbon price might be enhanced or lifted a bit to create more of a balance in the demand and supply of those attributes in the marketplace, which I think gives us uniquely an opportunity to monetize some of our inventory, so to speak, over the course of the coming years, I would say, Mark. Okay. Thanks, John. Thanks. Thank you. Next question will be from Darius Lasey at Bank of America. Please go ahead. Hey, guys. Good morning. Thank you for taking my question. Just maybe a little bit more high level, I was Wondering if you could comment on thoughts on the carbon capture and storage opportunity in Alberta. Obviously, nothing in your pipeline at present, Curious how you're thinking about that long term? Yes. Look, I think in order for the province to get to a place where our governments are targeting it to get to a place in terms of the decarbonization of the grid. I think we're going to need all of the above solution, which I think is going CCS. So that's something I think that's developing from a government policy perspective. We think it makes sense that they would be focusing energies around that. Our major discussion point with the government is to make sure that they take a balanced and kind of a technology agnostic approach to the various kinds of or various types of generation that could facilitate the evolution of the marketplace from storage to Even hydro, frankly, wind or combinations of those things. And I think they're listening to that. And we've seen that with the fall economic statement that came out and have been encouraged by what seems to be an all of the above approach in terms of incentivizing development going forward. So the one thing with CCS that we continue to kind of assess. It's just the cost associated with it and just the technological certainty around it. So I know folks are working on those things and hopefully it results in something that can be realized. I think it will help us with our glide path. Great. Thank you for that. One more if I can. This one's on R and W. You guys had a couple of nice milestones in the quarter. You got Sarnia re contracted. I was wondering if you could maybe just touch upon what are the next And on that just a little bit and if you have one, provide an update as to when you might actually start to turn some of those repaired turbines back on. Maybe I'll start on that, Darius. Clearly, the highest priority of TransAlta Renewables is getting those Kent Hills facilities turbines back up and running. Happy with the progress so far of disassembling. The next big milestone we'll see is as they start putting turbines back together and reconnecting them to the grid with new foundation. So that's priority number 1. I don't think that we'll see, although we've been having some discussions, but the intent is to disassemble and report all of the foundations and then begin the reassembly and recommissioning. I don't think you'll see that until close to mid year next year of when the first turbines start to come back online. Although I would say the team is actively looking at is there a way to kind of change the rehabilitation process to actually accelerate the time frames at which some come on, even though it might mean kind of delaying the rehabilitation of some of the turbines into the balance So we're continuing to work on optimizing that, I would say, Todd. I think optimizing is the key word. Like we have been focused on cost for the whole project. But if we can bring some of the turbines back on earlier that may if we need to rejig the schedule that may be the most efficient thing to do. Then I think also for R&W in terms of growth, I think some of the Australian projects that we're working on with BHP would be another avenue that we're looking at for them and That's something the team is working on both in Calgary and in Perth to get across the goal line. Okay, great. Thank you guys very much. I'll turn it back here. Thanks so much. And next question will be from Maurice Choi, RBC Capital Markets. Please go ahead. Thanks and good morning. Maybe just sticking with the R and W team here. John, you mentioned on the last call that you'd be looking to provide clarity on the strategies of these two entities. Can you just an update on how you view this, The 2 working together to in terms of growth or when should we expect that clarity moving forward? Yes. No, Maurice, good morning. We are actively working on that. And it's our expectation that we'll do so at the time that we provide guidance for both companies, which we're trying to actually accelerate with a view to potentially doing that in kind of a December timeframe, I would say, Todd, which is something that we're focused on doing, Marie. So certainly, Before the end of the year, we would look to provide just clarity in terms of the positioning of the 2 companies going forward so that investors that both have a better line of sight to how the future may look. That's great. And we look forward to that. Maybe just a quick follow-up to that. Will that update also provide visibility of the drop downs from TA to Arnabiv like what assets will go? Yes, I think it will there are a number of what we're calling ROFR projects within TransAlta Renewables expansions and projects down In Australia, the Blonde R and W and we'll look to provide clarity on that. I think the answer is yes. And my second question is about Slide 12, which is the strong performance that you have on hydro. In particular, I want to talk about the realized ancillary service pricing that you have. You've got 58% average over the last 7 quarters. And if my calculation is right, this quarter, Q3, you've had 58, strong, just under 60% realized pricing sharp contrast to Q2, which was sub 40%. Can you speak to some of the dynamics in the quarter that saw you have this favorable capture pricing that you didn't see in Q2 and your thoughts on whether or not these dynamics will continue? Yes. So Maurice, I think when we look at kind of what has happened over the course of the year, I'd say I'm not Surprised by how we've seen the AS proceed in terms of the average price that's been realized kind of in that, call it 50% to 60% range. I think in times where like we experienced in Q3, you had high levels of volatility, we would expect There to be a greater percentage, I would say, Todd, a higher lift in terms of the difference between the energy price and the AS price. And at times when there is less volatility even though the average price might be reasonably high, you'd expect it to be if you think of a sliding scale more on the left side of the scale as opposed to the higher right side of the scale. I think the relationship holds and it's primarily, I think, driven From a volatility perspective, when the market is tight, I think AS is super valuable and we'll see Todd, I don't know if you have any color on that, but at least that's the way I think of it. No, it is all predicated on actual volatility. $120 prices can come be derived in a couple of ways. It could be prices between $100,000 $140,000 average out to $120,000 or it could be prices between $50,000,000 $250,000,000 that's right. And in that latter case, that's when you really get to pick off the volatility in the higher prices and you see it in the ancillary services market as well as in the energy market for hydro. And you saw it in terms of the demand in the quarter, I would say, Maurice, as well, where we at just about, I think it was 800 gigawatt hours of AS that was basically delivered by the company, whereas our I think a more typical run rate would have been about 50 gigawatt hours less than that typically, I think over time more in that 750 range. I think Todd you even mentioned that in your notes. Right. And Maybe just one more thing is that we've seen it pan out over the course of the summer and even here into Q4 where the renewables are having a massive impact on that volatility where if it's sunny and windy prices are trading in that $60 to $80 range. And as soon as we start to see the sun disappear or the wind drop off, prices jump up $50 $60 minimum in that period. And so that volatility around the renewables is just going to be get bigger over time. Yes, I'd say it's directionally positive It sounds like the 52% average over 7 quarters, that's probably something that's Quite sustainable moving forward, although I appreciate Yes, that would be our view. Okay, Great. Thank you. Next question will be from Andrew Kuske at Credit Suisse. Please go ahead. Thanks. Good morning. Maybe a kind of narrow question, but a broad question at the same time. Could you maybe give a refresh on just the terms of the Brookfield deal as it relates to the percentage of ownership on the hydro plants. Just and I ask just in part given The hydro performance that you put up this quarter and I think at the time of the transaction there was a cap at 49%, but you were predicating everything really on a 30% to 33% ownership stake. Yes. So good morning, Andrew, happy to do that. And now I've got to go back into the depths of my memory for all of that. But effectively, the way the transaction works is Our hydro fleet is valued on the basis of 13x EBITDA with a fixed amount of sustaining capital deducted from that, which if memory serves, is 15,000,000 year in terms of the set price that we've done. And we do a 3 year average to figure out what they would get. So their $750,000,000 investment is what percentage is $750,000,000 of that 13 times that 3 year average EBITDA of the hydro performance over time. And then They do have essentially 2 top up rates. 1 is a 10% top up rate provided TransAlta's VWAP at the time is over $14 a share, and they do have the ability to increase that ownership stake up to 49% of TransAlta is trading over $17 a share at that time. I think there's also the ability to be able to go up to 25% in the event that their ownership stake is significantly below that. They wanted to be able to have a meaningful ownership stake if it fell to a relatively de minimis level. So I think that's in a nutshell, I think all of the levers That kind of surround the transaction. Does that help? Sorry, go ahead, Todd. Yes. Andrew, you mentioned the 30% level. That was really predicated on EBITDA from the hydro facility potentially being in that $200,000,000 to $250,000,000 or $225,000,000 to $250,000,000 This year is a year that sort of goes towards that 3 year average and we'll be pushing $500,000,000 of EBITDA this year. So those That percentage ratio will change accordingly should they choose to exercise their option. Okay. Appreciate that color. That was a lot of information out of the resources of If I could maybe ask a follow-up question just on the government economic update that came out last week. And if you had a hypothetical facility with the same returns on both sides of the border, the Canada U. S. Border, What legislative framework do you think you would allocate capital into? Would it really be IRA? Or is there enough Sort of meat on the bone in Canada now to attract capital. Yes. Look, I think The economic update that the federal government did was really constructive, and I do think it was directed at basically levelizing the playing field. So what really drives us right now is really the opportunity set, I would say. I would say The drag, let's say, on a Canadian investment has largely been kind of taken away. The other thing I would say is that and folks sometimes forget this, we tend to view the policy environment in both countries now as being something that is oriented at increasing demand More than actually at the end of the day helping our returns, and I'll explain what I mean by that. A lot of people just kind of think The ITCs come in, that's a gain that the company gets. I think sophisticated buyers understand what that Means for the returns of the developer and then they recalibrate the PPA prices to assess with that What an appropriate level of return given the risk that's being taken. So I think people shouldn't be thinking of it in terms of a windfall If that makes sense. Okay. Very helpful. Thank you. Sure. Thank you. Next question will be from John Mould at TD Securities. Please go ahead. Hey, good morning, everyone. Maybe just going back to your priority slide and the reference to securing long term contracts for the Alberta merchant fleet. Can you just clarify, is that more a reference to the mid term customer contracts that form part of your hedging number or more kind of one off merchant win PPAs like what you did with Exshaw or some mix in between? It's actually both. John, good morning. I'm glad you raised that. It is actually both. We As you know, the market in Alberta, the forward market in Alberta has limited liquidity. So when we think of our C and I business and we think of our total hedging levels, A pretty big component of that is based on our C and I business, especially the fixed price component rather than the flow component of the C and I business, Which tends to be, Todd, probably 2 to 3 years would be kind of the average tenor of those. In tandem with that, as you know, we've got quite a bit of merchant wind, for example, in Alberta. And even at times, we have discussions with people on hydro, if there would be something that we would Be willing to do to help shape on hydro that would provide kind of medium term or even longer term contracts like you saw with Lafarge that we would have done earlier in the year. So it's really both. We do see a critical component of our hedging program in Alberta as requiring what I would call outside of financial market hedging. So it is both. And the team has targets around both. We drive them from a goal perspective in terms of what they're trying to do. Okay. And maybe just to follow-up on that Because you mentioned hydro, I mean, is some sort of offtake for hydro really achievable, just given the benefit that you got in quarters like the past one where between AS and Energy. I guess maybe AS would still accrue you, but there's exceptional benefits for TransAlta that PPA price would have Pretty high for that deal to get done. Is that a fair way to think about it? I think it is. I think people kind of gravitate the ask often gravitates to the hydro and the response is typically you have to understand that is a premium product given the relative scarcity and the role that it plays here in the province. The way to think of it is exactly the way you've articulated. And it's part of the portfolio that we try to keep open frankly for exactly the reasons that we saw in the last quarter. Okay, great. And then maybe just pivoting to Ontario, the ISO is going to procure 4 gigawatts of capacity, including up to 1.5 gigawatts of gas. You've qualified for the first long term RFP, not the expedited round, I believe. But what investments are you considering? Are you looking at batteries? Would you look at Any investments in gas beyond batteries such as enhancements of upgrades or maybe even new units just given that 1.5 gigawatt slice or are you really not looking at new capital in meaningful, I should say, new capital and gas at this point? Yes, it's a real active discussion right now, I would say, in the company, John. And look, What we've said is, we're our growth is primarily focused on renewables. But when we see a gas opportunity for an existing client, The ISO was an existing client in the province of Ontario. It's something that we would consider. So although it's early days. We are turning our minds to what some kind of participation might consist of, particularly when we look at the footprint that we have kind of in that Sarnia Windsor area. So nothing definitive yet, but we're definitely looking at it, I would say. Okay. I'll leave it there. Thank you very much. Thank you. Question. And your next question will be from Najeebaidu at IA Capital Markets. Please go ahead. Hi, good morning. Just wanted to go back to the topic of capital costs and net returns. You mentioned that the returns are relatively flat given the different moving pieces. I'm just wondering if you can give us a refresh of where you see IRRs in different markets and Maybe that will kind of help inform where you'd lean to invest a bit more in one jurisdiction more than another. Yes. Nadje, happy to do that. We look, we continually look at what our hurdle rates are, and we tend to focus on IRRs being one of the key factors that we look at. And frankly, we really focus on contracted period IRRs. I think what we're seeing is in terms of the opportunity sets that we're pursuing, notwithstanding some of the, I would say, near term inflationary headwinds that we're seeing in the marketplace as the returns are kind of hanging in. And I think when we think of that, I think, Todd, it would be sort of upper single digit returns if we can get to a double digit return. I'm just talking about the base transaction without us adding any of the benefits that we can by optimizing it, whether it's everything from an operational perspective The way that we're financing it to whatever we do continues to be broadly speaking, I think what we're looking at. I don't know if that answers your Todd, if you have any perspectives. And I think we're seeing it very similarly. Just the last point, in each of the 3 jurisdictions that we operate in, I don't think We see a huge difference between sort of Canada certainly the return environment, I'd say, Todd, Canada, the U. S. And or Australia at this point. It's pretty similar. They're all very similar in geographies on rates of returns. And as we kind of talked about a little bit before, We see the best returns coming from the greenfield development, brownfield development sites that we have. We're still active in the M and A market. We do look at a lot of transactions. And I would say we haven't actually seen a reduction in prices or multiples being paid for M and A transactions, which seems disconnected from where we've seen the underlying interest rates move and where we've seen inflation move. Now maybe that's a short term issue We'll start to see a little bit more rational investing on the M and A side, but that's really what's been leading us towards the greenfield development side. And just to kind of close the discussion, I mean, we would the way we would look at returns is we do focus on it from a risk adjusted perspective. A very long tenor PPA from AA rated offtaker would be viewed differently from the company as something that would be shorter in tenor, has a larger merchant tail in terms of what you're looking at and has creditworthiness that isn't the same as the other party. The other area that we look at would be just The market dynamics in terms of where the project is and that's particularly with a view to the merchant period. Is it constructive and one that is based on line demand fundamentals, where there's some distortion in the market that concerns us. So it's a bit Of a judgment call that we make with our Board when we move forward. Okay. That's really helpful. And I guess maybe to Take that to the next sort of step when you think about updating your sort of the outlook for 2023, you talked Maybe refreshing the strategy for R&W, but just given where you are in your targets, I mean, it would seem like $250,000,000 of incremental EBITDA is very conservative. Is that a number that you think You mean for balance of 2022? No, I think it's Yes, the 2 gigawatt growth program, sorry, that's targeting $250,000,000 of EBITDA. We're 55% of the way through that we're at about $150,000,000 of the $250,000,000 I'm not sure that's going to be part of our guidance in December that we'll be readdressing that. No, but no, Najee, sorry, I misunderstood your question. It ideally, I would like to see if we could actually update what we actually think those numbers are going forward. And my current expectation is that $250,000,000 number would increase, right, because The returns are holding yet the cost of capital to build out some of the pipeline is increasing. So we would expect The return rate to be holding, but both of those numbers to kind of lift as time goes by, if that makes sense. Yes, exactly. Because I mean, just based on what you've achieved, that $300,000,000 would seem more like an achievable target, but we'll wait for that update in due time. Just wanted to ask a couple more questions. Yes, just on the buybacks, you mentioned maybe being a bit more aggressive on the buybacks In the short term, is that even with the increase in the share price today, I mean, you bought stock at around $12.5 shares are going to be Above that today, has that changed at all your view on buybacks? Look, we're always opportunistic on our share buybacks when we see the share price trading below. I mean last time it dropped below the $13 level after Q2 and we thought That was a good opportunity to purchase. So look, we'll just play it by ear and we'll look for opportunities to support the shares. Okay. So I take it below 13% is a no brainer and above that depends on what else is on the table. Just so I would say based on where it's currently I think based on where the share price is currently trading, I think people can expect us to do more share buybacks, yes. Okay. So just a final question on Garden Plain. Any updates on Pembina's decision to exercise their option there. And is that option, if you can just remind us, is it only exercisable at COD? Or is there Sort of a longer timeline associated with that? No, I think it is basically exercised at COD. And as I recall, it's 30% of their proportion of the wind farm, 30 of the 100 of the 130 megawatts. It's 50 of the 100 that they have the rights to purchase, isn't it? Yes. Which towards up to about 40% of the facility. And no update from them in next question will be from Patrick Kenny at National Bank Financial. Please go ahead. Thank you. Good morning. Hey, guys. Just on your Alberta Gas portfolio, I know you've layered on a few more near term hedges through 2023, but I'm just curious given the volatility experienced in the quarter, if you're starting to have more conversations with the industrial power consumers in the province And whether or not there's any increase in appetite with respect to entering into long term fixed pricing contracts such that You might be able to convert some of your Alberta merchant gas capacity to more of a fixed price long term contract with some of these larger high creditworthy counterparties. Sure. Thanks and good morning, Patrick. Todd, do you want to Well, I was just going to say, look, the C and I business is actively out there looking for transactions. And John mentioned average terms of 2 to 3 years, but we do stretch out into 5 year terms with a number of counterparties for supply. That really forms part of our hedge portfolio. In addition, we do have a long term contract that starts in November of next year that was originally intended to go with our Sun5 projects that we It's 200 megawatts, 2 20 megawatts that we can apply to the CTG units as well. So I think We have a lot of underlying and always looking to add to that portfolio. But I would say, Patrick, that the bulk of the discussion that we're I mean the interest is primarily around the renewables, I would say, much more than it is around the existing natural gas portfolio that we have. And I think the difference in discussion is pretty significant between the 2. They're much more oriented towards The renewable side than it would be the gas side. Got it. Okay. That's helpful. Thank you. And then maybe Yes, just to follow-up on the Alberta hydro question earlier. And assuming Brookfield does end up with only a 25% ownership stake in the assets versus the original expectations of 30% to 35%. Curious if you might lean towards crystallizing that bonus 5% to 10% stake, so to speak, Either by selling that portion of capacity on a long term contracted basis or perhaps just selling that equity stake to a buyer Looking for environmental attributes, but just either way to shore up the balance sheet further and accelerate other contracted renewable opportunities. Yes. I'd say there's no discussion or contemplation of doing that at this point, Patrick. I think we feel pretty comfortable with kind of our balance sheet strength and the cash flow that's being generated from the business and sort of the way we're facing in our clean growth plan. So right now, I don't think we're looking at doing anything And it's very early days. I mean they have several years yet before the option even is able to be exercised. So early days. Okay. That's great. Thanks. I'll leave it there. Thank you. Thank you. Next question will be from Chris Varcoe at the Calgary Herald. Please go ahead. Hi. This is a question for John. John, can you give us an update on where the company's examination of carbon capture projects and the potential for it might fit in with TransAlta. I believe with last year you talked about the potential of or examination of it at least with regards to Sundance 5. Yes, Chris, good morning. So we made the decision, not last summer, but it's the summer of July of 2021 not to proceed with our Sundance V project at that time. And that was due to a number of reasons, everything from sort of the regulatory directions that we saw going into supply and demand dynamics, increasing costs and some of the technological uncertainty that we were seeing with carbon capture and storage. So we made the decision not to pursue the Sun 5 repowering and as a consequence, Carbon capture and storage isn't sort of a primary focus for the company going forward. Our growth focus is far more on renewables at this point, particularly wind, which is a strength of ours, but storage and solar factor into that. We'll be opportunistic on natural gas serving customers that we have. But although we watch CCS and look to see how it's developing From a technological perspective, it isn't a core focus for our company at this point. Thank you. Just a separate question is, the COP27 conference has begun this week. I guess, I'm curious what stance do you want to see the governments of Canada and Alberta take at the It's interesting, we actually have one of our colleagues will be attending and speaking at the conference early next week, I think it is. Look, we think that climate change is a real factor that we all need to deal with. We're looking to see that the federal government continues to have the kind of commitment it has to having Canada reach It's carbon reduction and emissions reductions targets and are more looking at kind of how policy is developing domestically, which is why the pronouncements under the fall economic update were so critical for industry. And From an Alberta perspective, we're looking at how the province is also looking to evolve the generation in the jurisdiction to make Sure that the grid is greening as we go through and creating some of the room for the oil and gas development that is the core For our province and the standard of living that we have here in Alberta. It's more of something that we're looking at, I think broad long term directions and how things are evolving. We're looking at, for example, cross border credit trading and whether there's alignments around those kinds of things as we move forward because that's something that's of value to us. And when we look at other potentially important business lines that we can go to. It's sort of an early it's sort of a precursor to those kinds of things taking place. But our real focus is on domestic policy in the U. S. And Canada and in Australia. So it's policy in the U. S. And Canada and in Australia. So it's more of a forum where we look to where the future might be going rather than looking at kind of our immediate investment decisions. Finally, just a follow-up on a question that you'd referenced a little bit earlier. This is regarding the green credits within the fall economic update. And I just want to be clear here, Will the provisions that are included in that update, will that impact your spending decisions in Canada versus making a similar kind of investment in Australia or the United States? I think it definitely makes investments in Canada more competitive with the portfolio We're looking at in the U. S. And in Australia. I think for our company, we're much more focused on kind of the maturity of the opportunities that we have, Chris, so when I look at kind of our development pipeline and kind of the phasing or the sequencing of those opportunities, It's more Alberta focused right now or Alberta heavy, I would say right now, and to a lesser extent, Australia focused. We're working to build a bunch of stuff that we procured in the U. S. But when I look at kind of our newest projects that will come to be, it's really Alberta and to a lesser extent, Australia and certainly the government policy is helpful in terms of the way we're looking at things for sure. Thank you. Thank you. Thank you. At this time, we have no further questions. Please proceed with your closing remarks. Thank you, everyone. That concludes our call for today. If you have any further Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please