First Quarter 2021 Highlights
Other Highlights
Subsequent Events & Updates
TransAlta Corporation reported its financial results for the quarter ended March 31, 2021.
“TransAlta delivered excellent results during the first quarter, ahead of our financial expectations. Our strong performance was led by our Alberta Hydro fleet as we experienced the first few months of fully merchant operations in the Alberta electricity market. Our strategically diversified fleet of hydro, wind, energy storage and thermal assets demonstrated its competitiveness and continued value in the new market structure,” said John Kousinioris, President and Chief Executive Officer. “Our Energy Marketing segment also had an exceptional start to the year with favourable trading results across North America. Given these exceptional results, we expect performance to track to the upper end of the range of our 2021 guidance.”
Set out below are additional highlights from the quarter as well as more details regarding the Company’s financial results and liquidity and financial position.
Financial Results
The Company reported an exceptional first quarter 2021 result with comparable EBITDA(1) of $310 million compared to $220 million in the same period of 2020. Funds from operations (“FFO”)(1) were $211 million for the quarter compared to $172 million in the same period of 2020.
Comparable EBITDA for the three months ended March 31, 2021 increased by $90 million compared with the same period in 2020, largely due to higher comparable EBITDA at the Hydro and Energy Marketing segments and lower expenses in the Corporate segment. The Hydro segment’s strong performance was due to higher average merchant prices in the Alberta power market coupled with the expiry of the Alberta PPAs, which resulted in the elimination of the net obligation payments provided to the Alberta Balancing Pool in the prior period. The Energy Marketing segment also had exceptional performance resulting from favourable short-term trading of both physical and financial power and gas products across all North American markets. The Corporate segment reported lower expenses driven by receipt of the Canada Emergency Wage Subsidy (“CEWS”) funding and realized gains from a total equity swap that hedged the employee share-based incentive plans. This was partially offset by lower performance at the Centralia segment due to an unplanned outage occurring during a period of higher merchant pricing in the first quarter of 2021.
FCF(1), one of the Company’s key financial metrics, totaled $129 million for the three months ended March 31, 2021, an increase of $20 million compared to the same period in 2020, driven primarily by the higher comparable EBITDA noted above. FCF reflects the after-tax performance as well as the impact of the settlement of provisions and higher distributions paid to subsidiaries’ non-controlling interests.
Operations, maintenance and administration (“OM&A”) expenses for the three months ended March 31, 2021 decreased by $23 million compared to the same period in 2020 as variability caused by the total return swap resulted in a favourable period-over-period change of $18 million and the receipt of CEWS funding of $8 million provided a further benefit. Excluding the impact of the total return swap and CEWS funding, OM&A expenses increased slightly due to increased staff costs, legal expenses and higher insurance premiums.
Liquidity and Financial Position
The Company continues to maintain a strong financial position in part due to our long-term contracts and hedged positions. At the end of the first quarter, TransAlta had access to $2.1 billion in liquidity including $648 million of cash and cash equivalents.
Alberta Electricity Portfolio
On Dec. 31, 2020, the Alberta PPAs expired and, effective Jan. 1, 2021, the applicable facilities began operating on a fully merchant basis in the Alberta market, forming a core part of our Alberta electricity portfolio optimization activities. The variability in production by facility is driven by the diversity in our fuel types, which enables portfolio management, and allows for maximization of operating margins. The Alberta portfolio includes hydro, wind, energy storage and thermal units. A portion of the baseload generation in the portfolio can be hedged to provide cash flow certainty.
In the three months ended March 31, 2021, the Hydro and Alberta Thermal segments achieved realized power prices of $122/MWh and $87/MWh respectively compared to the Alberta spot price, which averaged $95/MWh. The Company was able to benefit during higher-priced periods by optimizing dispatch in the Hydro segment while our hedging positions at Alberta Thermal minimized unfavourable market pricing during lower priced hours in the quarter.
Other Activities
Conversion to Gas
On Feb. 1, 2021, we announced the completion of TransAlta’s first conversion to gas-fired generation at Sundance Unit 6. The Sheerness Unit 1 conversion to gas was also completed in the quarter and was returned to service on March 31, 2021. The Keephills Unit 2 gas conversion is currently in progress with planned completion in the second quarter.
During the quarter, we advanced detailed engineering for the Sundance 5 repowering project. As a result of the detailed design review, the Company’s cost estimate for the project has increased and is now in the estimated range of $900 to $950 million. Project costs have increased to account for changes in final design. In addition, a decision was made to upgrade the high-pressure turbine as part of the repowering scope to allow for maximum operating flexibility in the unit going forward. The Company expects to issue full notice to proceed later this year and the target completion date for Sundance 5 is now estimated for H1 2024.
Windrise Wind
Construction activities on the Windrise wind project continues to advance with procedures in place to protect the construction team during the COVID-19 pandemic. The construction schedule has been modified to reflect a COVID-19-related delay in the delivery of the wind turbine components. The project began receiving wind turbine generators on site in mid-Oct. 2020. The bulk of the major equipment has been delivered to site and turbine erection activities have commenced. The project has advanced significantly and, as at the end of March 2021, was approximately 84% complete. In addition, the main transmission line is progressing well and remains on track for energization during the second quarter. The project is tracking to be completed during the second half of 2021.
Sarnia Recontracting
On May 12, 2021, the Company executed an Amended and Restated Energy Supply Agreement with one of its large industrial customers at the Sarnia cogeneration facility which provides for the supply of electricity and steam. This agreement will extend the term of the original agreement from Dec. 31, 2022 to Dec. 31, 2032. However, if the Company is unable to enter into a new contract with the Ontario Independent Electricity System Operator (“IESO”) or enter into agreements with its other industrial customers at the Sarnia cogeneration facility that extend past Dec. 31, 2025, then this agreement will automatically terminate on Dec. 31, 2025. The current contract with the IESO in respect of the Sarnia cogeneration facility expires on Dec. 31, 2025. The Company is in active discussions with the three other existing industrial off-takers regarding extensions to their supply of electricity and steam from the Sarnia cogeneration facility on comparable terms.
Kaybob Cogeneration
The Company will not be proceeding with the Kaybob cogeneration facility as a result of Energy Transfer Canada ULC’s (“ET Canada”), formerly known as SemCAMS Midstream ULC, purported termination of the agreements to develop, construct and operate the 40 MW cogeneration facility at the Kaybob South No. 3 sour gas processing plant. As a result, the Company has recorded an impairment of $27 million in the first quarter of 2021. TransAlta has commenced an arbitration seeking full compensation for ET Canada’s wrongful termination of the agreements. A hearing for this matter has not yet been scheduled.
COVID-19 Response Update
The World Health Organization declared a Public Health Emergency of International Concern relating to COVID-19 on Jan. 30, 2020, which they subsequently declared, on March 11, 2020, as a global pandemic.
The Company continues to operate under its business continuity plan, which focused on ensuring that: (i) employees who can work remotely do so; and (ii) employees who operate and maintain our facilities, and who are not able to work remotely, are able to work safely and in a manner that ensures they remain healthy. During the second and third quarters of 2020, the Company successfully brought employees who were working remotely back to the office without compromising health and safety standards. In December 2020, as a result of rising COVID-19 case counts in the Province of Alberta and in light of office attendance restrictions eventually imposed by the Government of Alberta, staff at TransAlta’s head office returned to remote work protocols. All of TransAlta’s offices and sites follow strict health screening and social distancing protocols with personal protective equipment readily available and in use. Further, TransAlta maintains travel bans aligned to local jurisdictional guidance, enhanced cleaning procedures, revised work schedules, contingent work teams and the reorganization of processes and procedures to limit contact with other employees and contractors on-site.
All of our facilities continue to remain fully operational and are capable of meeting our customers’ needs. The Company continues to work and serve all of our customers and counterparties under the terms of their contracts. We have not experienced interruptions to service requirements. Electricity and steam supply continue to remain a critical service requirement to all of our customers and have been deemed an essential service in our jurisdictions.
The Company continues to maintain a strong financial position due in part to its long-term contracts and hedged positions and its ample financial liquidity.
Segment Results
First Quarter 2021 Segmented Results |
3 Months Ended |
|
March 31, 2021 |
March 31, 2020 |
|
Hydro |
77 |
26 |
Wind and Solar |
76 |
74 |
North American Gas |
35 |
29 |
Australian Gas |
32 |
30 |
Alberta Thermal |
43 |
44 |
Centralia |
12 |
33 |
Energy Marketing |
43 |
13 |
Corporate |
(8) |
(29) |
Total Comparable EBITDA(1) |
310 |
220 |
Consolidated Financial Highlights
Net loss attributable to common shareholders, for the three months ended March 31, 2021, was $30 million compared to net earnings of $27 million in the same period in 2020. The decrease was largely due to higher fuel and purchased power costs, asset impairments, an increase in tax expense and higher earnings related to non-controlling interests. This decrease was partially offset by higher revenues, favourable changes in foreign exchange rates and lower OM&A.
Total sustaining capital expenditure of $34 million was $5 million higher compared to 2020 primarily due to higher planned major maintenance at our Alberta Thermal segment.
First Quarter 2021 Highlights
In C$ millions, unless otherwise stated |
3 Months Ended |
|||||
March 31, 2021 |
March 31, 2020 |
|||||
Comparable EBITDA(1) |
$ |
310 |
$ |
220 |
||
Free cash flow(1) |
$ |
129 |
$ |
109 |
||
Adjusted availability (%) |
88.6 |
92.8 |
||||
Production (GWh) |
5,541 |
6,486 |
||||
Revenues |
$ |
642 |
$ |
606 |
||
Fuel and purchased power(2) |
$ |
243 |
$ |
193 |
||
Carbon compliance(2) |
$ |
50 |
$ |
45 |
||
Operations, maintenance and administration |
$ |
105 |
$ |
128 |
||
Net loss attributable to common shareholders |
$ |
(30) |
$ |
27 |
||
Cash flow from operating activities |
$ |
257 |
$ |
214 |
||
Funds from operations(1) |
$ |
211 |
$ |
172 |
||
Net loss per share attributable to common shareholders, |
$ |
(0.11) |
$ |
0.10 |
||
Funds from operations per share(1) |
$ |
0.78 |
$ |
0.62 |
||
Free cash flow per share(1) |
$ |
0.48 |
$ |
0.39 |
||
Dividends declared per common share |
$ |
— |
0.0425 |
|||
Dividends declared per preferred share(3) |
$ |
— |
$ |
0.2562 |
TransAlta is in the process of filing its unaudited interim Consolidated Financial Statements and accompanying notes, as well as the associated Management’s Discussion & Analysis (“MD&A”). These documents will be available May 13, 2021 on the Investor Centre of TransAlta’s website at www.transalta.com or through SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar.shtml.
For more information about TransAlta, visit our web site at transalta.com.