TransAlta Corp (TAC) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the TransAlta Second Quarter 2008 Results Conference Call. I would like to introduce Jennifer Pierce, Vice President of Investor Relations. Please go ahead, Jennifer.

Good morning, everyone. As Ryan said, I'm Jennifer Pierce, Vice President of Communications and Investor Relations for TransAlta. Welcome to our second quarter conference call. With me are Steve Snyder, President and Chief Executive Officer; Brian Burden, Executive Vice President and Chief Financial Officer; Ken Stickland, Executive Vice President, Legal, Sustainable Development and EH&S; Frank Hawkins, Vice President and Treasurer; and Michael Lawrence, our Senior Media Relations Advisor.

The second quarter results were released earlier this morning and I hope you've had a chance to review them. Additional operating information will be posted on our website after this call. All information provided during this conference call is subject to the forward-looking statement qualification which is detailed in today's news release and incorporated in full for purposes of our call.

The amounts referenced in this review are in Canadian currency unless otherwise stated. I also remind the audience that Canadian and U.S. GAAP require us to deconsolidate our Mexican operations and report the business as variable interest entity. We therefore report the results of our Mexican operations as equity income or loss.

In addition, the non-GAAP terminology used in this call, including comparable earnings, operating income and gross margin, is reconciled starting on page 22 of the MD&A. Per-share figures for the second quarter of 2008 are based on an average of 199 million shares outstanding, compared to 203 million shares in the second quarter of 2007. Also, please note financial information has been rounded to the nearest whole number.

On this morning's call, Steve Snyder will provide an overview of operating results for the quarter as well as an update on major projects and initiatives. Brian Burden will provide details on our cash flow, capital spending, coal costs, status of our normal course issuer bid program and balance sheet items. To conclude, Steve will provide commentary on what investors can expect for the remainder of 2008, the future outlook and growth for TransAlta and comment on the Board's response to the letter they received from LS Power and Global Infrastructure Partners.

With that, I'll turn the call over to Steve.

Welcome, everyone, to our call and I am pleased today to report that TransAlta has had another strong quarter. Second quarter comparable earnings per share increased 25% to CAD0.25 versus CAD0.20 for the same period last year. Net earnings for the quarter were CAD0.24 per share compared to CAD0.28. Last year, Canadian corporate tax rates were lower and we had gains from asset sales in Centralia related to mining equipment.

Our second quarter comparable results were held by excellent energy trading gross margins which increased by CAD29 million over second quarter 2007. These results were generated by the successful execution of our established trading strategies and due to higher market volatility.

On the generation side, TransAlta benefited from stronger contractual and spot pricing in our core regions. These gains were offset by the planned outage at Centralia Thermal and higher unplanned outages at three of our Alberta Thermal units. These forced outages were caused by higher than normal boiler tube leaks. We have narrowed down the issues causing the leaks. They're isolated to three units and we are addressing them in our maintenance work for the balance of this year.

Overall fleet availability for the quarter was 79%, down from 83% in Quarter 2, 2007. This is due to the planned outage at Centralia Thermal and the higher unplanned outages at Alberta Thermal. Production for the quarter was down approximately 850 gigawatt hours. Of this amount, almost half was a result of economically dispatch in Centralia to take advantage of low prices due to strong hydro volumes.

In Centralia during the quarter, we successfully completed the modifications to the Unit 2 boiler. The unit was returned to service four days ahead of schedule and we are monitoring performance. Although still in the early stages, the unit is performing very well.

As we said previously, Phase 2 of the boiler modification is currently planned to coincide with the scheduled major [MEMS] outage at -- on Unit 1 in 2009. Our success in blending coals now provides us more timing flexibility to evaluate the lessons learned from the work on Unit 2 and to determine when Unit 1 modifications can be scheduled. For the full year, given the economic dispatching in the second quarter, we now expect production from Centralia to be in the range of 8,800 to 9,100 gigawatt hours.

From a pricing perspective, spot prices in the Pacific Northwest average around CAD54 per megawatt hour during the quarter and this was primarily driven by higher natural gas prices somewhat offset by lower spot spreads due to strong hydro generation.

In Alberta, average spot price has settled around CAD108 per megawatt hour for the second quarter and these prices were primarily driven by higher than averaged planned and unplanned outage rates, increased gas prices and restrictions on transmission due to upgrade maintenance.

Now, I would like to take a minute to update you on our capital allocation and the progress we are making on some of our major initiatives. I'll begin with the growth projects. On April 21st, we announced a new 53 megawatt efficiency upgrade at our Sundance 5 facility. The upgrade is expected to be commercial in 2009. The total capital cost of the project is estimated to be CAD75 million. As with other upgrades, we expect this investment will provide an unlevered rate of return in the mid to high teens.

On May 27th, we also announced plans to design, build and operate another 66 megawatt wind farm adjacent to our current Summerview facility in southern Alberta. Summerview II as it's called will cost an estimated CAD123 million or approximately CAD1,850 per kilowatt. Construction will begin in the third quarter of 2009 as our crews rotate off of our Blue Trail wind project.

Our other growth projects including Keephills, Kent Hills and Blue Trail are all progressing. We continue to monitor and manage these projects closely. We are seeing increased labor pressure in Alberta and are working through strategies to minimize the impact on both buckets and schedules.

With respect to Mexico, when we initially announced the sale in February, we had anticipated it would close by mid-year. However, the process to adjust various contracts affected by recent change in natural gas regulation in Mexico is taking longer than expected. We remain committed to completing this transaction and at this stage, we're hopeful the transaction will be finalized in the third quarter.

There have been substantive recent government announcements concerning carbon capture and storage. On April 4th, 2008, the government of Canada announced a CAD125 million fund to support the development of CCS technologies. On July 8th, the Alberta government announced it is committing CAD2 billion in funds for the same purpose. These are very significant and positive events. We believe CCS will ultimately enable coal-fired generators, oil sand producers and other industrial emitters of CO2 to significantly and cost effectively reduce emissions and mitigate future compliance costs and regulatory risk.

TransAlta has already applied to the Federal government and will be applying to the Alberta government for funding to conduct the first phase of our own CCS pilot project with Alstom, Canada. We are optimistic our applications for feasibility funding will be approved and that we will be able to move ahead with this important project in short order.

In summary, during the second quarter, we continued to deliver on our projects and strategic priorities to enhance shareowner value. At this point, we are on track to meet our 2008 financial and operational objectives.

I will now turn the call over to Brian.

Thank you, Steve. The topics I will cover this morning include our cash flow performance both in the quarter and against our annual outlook, our capital spend estimates for 2008, an update on our coal costs, the status of our normal course issuer bid and a review of our liquidity position.

Cash flow from operations in the second quarter was CAD171 million. This was marginally higher than the Quarter 2, 2007 largely as a result of favorable movement in working capital. Year-to-date, our cash flow at CAD408 million is around CAD90 million lower than the first half of 2007 due to the higher PPA payments received at the start of 2007. However, our full year forecast for cash flow operations -- from operations remains in the range of CAD850 million to CAD950 million. This is driven partially by an additional PPA payment in the third quarter this year for our improved earnings.

Our outlook for capital spending in 2008 has remained the same, with the exception of an incremental CAD20 million to CAD30 million to account for the expansion of our Summerview wind farm announced on May 27th.

For 2008, we continue to estimate our total sustaining capital spend will be in the range of CAD425 million to CAD460 million and this estimate can be broken down as follows; CAD100 million to CAD120 million for planned major maintenance, CAD70 million to CAD75 million for the Centralia transition plant, CAD100 million to CAD110 million for our Alberta mines and CAD145 million to CAD155 million for routine capital and productivity investments.

And in Quarter 2 of 2008, we spent a total of CAD114 million in sustaining CapEx. In terms of our growth CapEx, our annual spending is now expected to be CAD510 million to CAD550 million. And the total estimate now includes CAD320 million CAD330 million for Keephills 3; CAD135 million to CAD145 million for the Kent Hills wind farm; CAD20 million to CAD25 million for the Blue Trail wind farm; CAD15 million to CAD20 million for the Sundance 5 efficiency upgrade and CAD20 million to CAD30 million for the Summerview wind farm expansion and in Quarter 2 on growth, we spent CAD125 million.

Now, I'd like to update you on our coal costs. In the second quarter, we adjusted our standard cost of coal for our Alberta Thermal facilities, increasing it by approximately CAD5 million for the quarter or CAD15 million for the year. Diesel was the primary contributor to the overall increasing fuel costs. However, we fully anticipate recovery of these diesel costs in 2009 through the indices that are part of the PPAs.

In Centralia, our coal costs have escalated but only by approximately 10% as we mentioned in our first quarter conference call and with the completion of the boiler modifications on Unit 2 at Centralia, we have been able to secure a new medium term contracts for PRB coal.

Turning now to our normal course issuer bid program. Our NCIB was renewed on May the 5th and we have continued to buy back shares. During the second quarter, we acquired a total of 1.9 million shares with an average price of CAD35.40 per share. And year-to-date, we have purchased almost 4 million shares at an average purchase price of CAD33.45 for a total of CAD130 million. As in the past, future purchases under NCIB will continue to be balanced with our liquidity needs, credit metrics and the funding of growth going forward.

As it relates to liquidity, on May the 6th, we successfully completed a $500 million senior notes offering. The notes bear interest at a rate of 6.65% and have a term of 10 years. The proceeds from this offering will be used to pay down other debt, finance long-term investments and for general corporate purposes.

Subsequent to the quarter on July the 17th, we received a redemption notice for CAD100 million of TAU debentures to be paid on July 31st. We had anticipated this and had already built this into our funding plans for the year. And this will leave only CAD50 million of debentures in TAU and those are redeemable at the auction of the holder in August 2009. So overall, our liquidity outlook for 2008 remains strong. We have a total of CAD2.2 billion of credit facilities in place, of which approximately CAD900 million was available as of June 30th.

With that, I'll turn the call back over to Steve. Steve?

Thank you, Brian. As I said earlier, our second quarter results keep us on track to deliver another excellent year for our shareowners. Year-to-date, we have achieved CAD0.74 of comparable earnings per share, more than a 50% increase over the same period last year. Cash flow, currently at CAD408 million after two quarters is expected to be within our anticipated range of CAD850 million to CAD950 million. And finally, we expect to achieve our goal of a 10% comparable return on capital employed in 2008.

Looking forward, TransAlta has positive momentum. Market fundamentals of the Pacific Northwest and Alberta continue to be strong. There is solid demand and reserve margins remain tight. These conditions should allow for approved pricing now and into the future. Operationally speaking, we are ready to meet the growing demand for power in the markets we serve. Our Centralia units continue to run well and our boiler modifications work is tracking well.

We do not see any trends to be concerned about in the higher unplanned outages at our Alberta Thermal units during the quarter. For the balance of the year, we remain focused on achieving 90% plus availability across our fleet, excluding derates at Centralia. Energy trading is expected to have a strong year and we estimate gross margins to be in the CAD60 million to CAD80 million range.

As it relates to growth and future earnings, we've announced over 500 megawatts of projects to date, including 225 megawatts at Keephills 3, 53 megawatts at Sundance 5 and 228 megawatts in new wind farms.

We remain focused on executing disciplined growth strategy in our core Western markets. We'll concentrate on renewables, co-generation and thermal efficiency uprates. The opportunities up here are such that we have a pipeline of almost 1,500 megawatts of projects in later stage development. With a majority of these development projects, we have already obtained permitting where we control the natural resources required to execute on them. However, as with any capital investment we will be disciplined in our approach and in invest only in projects that are expected to deliver returns in excess of our targets.

To provide a bit more granularity about our pipeline, I'll briefly discuss the projects with the greatest potential for development in the next five years. First, we are planning three additional uprates at Alberta Thermal totaling 120 megawatts of incremental merchant capacity. If we approve these by year-end, the uprates would be commissioned between 2011 and 2012.

Second, we are working with Mid-American Energy Holdings Company, our CE gen geothermal partner to develop facilities to add approximately 80 megawatts of capacity net to TransAlta in the short term. The permits are currently being amended and negotiations are ongoing for PPAs for the output of the new facilities. Our plan is to target commercial operations beginning in the 2012 and 2013 period. Given the resource base of proven and probable reserves exceed 2,000 megawatts, there is the potential for significant more development at Salton Sea. This development and its associated long-term contracts will continue to be a priority for us.

Third, given our proven competitive edges, we'll continue to focus on our wind opportunities. There, we have reserves and/or partnerships in place to provide us with several promising projects over the next five years. These developments provide flexibility for a mix of long-term contracts or merchant exposure. In Alberta, we now have site control and are working on permitting and transmission options to add an incremental 850 megawatts of wind in the southwestern and south central part of the province.

And fourth, building around our Kent Hills position, another 260 megawatts is fully permitted and ready to be developed in New Brunswick. We would want this development if it goes ahead to be backed by longer term PPA [all-tech] agreements with local utilities.

Overall, we have the potential to more than double the capacity of our renewable portfolio and increase our non-Alberta PPA megawatts to over 60% of the total portfolio in the next five years. These projects of course would only proceed if the expected returns continue to meet or exceed all of our financial targets and if we can finance them while maintaining our balance sheet strength and investment grade credit ratings.

TransAlta has proven that we can deliver growth projects on time, on budget and on strategy. We are confident in our ability to continue to do so in the years ahead through the continued execution of a disciplined strategy that has created significant shareowner value in recent years. We have an experienced wind development and construction team in place and we are proactively attracting the necessary senior talent and experienced EPC and pro-tech management skills to ensure success in our total development program.

Now, I know some of you will be anxious to pose questions concerning the matter related to LS Power and Global Infrastructure Partners. Let me briefly address the letter that we received from these organizations. On July 18th, TransAlta received a non-binding letter from LS Power Equity Partners and Global Infrastructure Partners regarding engaging in a dialogue about a possible acquisition of TransAlta for CAD39 per share in cash.

The Board of Directors issued a press release on July 21 concerning the letter, in which it indicated TransAlta's Special Committee of Independent Directors will carefully consider the letter and will respond in due course. That process is ongoing. The Board is working with Greenhill & Company and Goodmans LLP. Once the Board is in a position to respond to the letter, it will do so through a press release.

At this time, we have nothing further to disclose and as such, will not be responding to questions concerning the letter. Once the Board is in a position to respond to that letter, we will do so through a press release. In closing, we remain committed to our growth strategy, confident in our ability to deliver shareowner value in the years ahead and quite frankly we are quite excited about the future.

I am now going to turn the call back to Jennifer and we'll answer if you have question-and-answer period.

Thank you, Steve. As usual, so that we can rotate through the callers, we shall take one question and one follow-up from each caller before moving down the queue. We will answer questions from the investment community first and then open the call to the media. We will then respond to individual investors, so please identify yourself when asking a question. I remind you, we do not provide guidance and that we will answer your model-related questions offline after the call.

Operator, we will now take questions, please.

Thank you. (OPERATOR INSTRUCTIONS).

And our first question is from Sam Kanes. Please go ahead with your question, Sam.

Good morning. With respect to Q2 fundamental earnings, you showed an 8% tax rate. I'm just wondering if you can give us some tax rate guidance going forward or what was unusual in the quarter and how it kind of interconnected to that -- that low number, Brian?

Yes. So first, the tax rate guidance would be still 23% to 28% for the full year.

Okay.

And I think -- as you know, when we have lower earnings in certain quarters because of some of our you know tax arrangements that we have -- so we have standard deductions, that means that we have a lower rate. So, that would be normal as you can see in the last quarter, but still around the 23% to 28% for the full year.

Okay. Thank you. Follow-up. I remember back -- I might get this wrong but when you got involved in acquiring Centralia complex in the first place in 1999, there is some form of grandfathering that Washington State -- the government of Washington State gave you with respect to certain missions. Maybe they're not related to carbon. Maybe it's just simply sulfur dioxide or [knocks]. Can you update me on that?

Sam, it's Ken here. I think you're referring to sales tax breaks that we've got that were in place as a result of utilizing coal from our mines. We've taken that into account as we've transitioned to PRB coal in the short run, but beyond that I'm sure I can give you any more details.

Perhaps it would have to do with sulfur dioxide strippers that you put up. Maybe it was just that and --

Yes. I think it was related to the scrubbers that we installed at the time which were -- in conjunction with continuing to use the coal out of the Centralia mines.

But with respect to follow-up, I guess any type of carbon climate change regulations to come, there is no grandfathering per se based on what you see so far pending. I know there's no clarity yet.

Yes. I'll just give you a quick response on that and then we'll honor the couple of questions. But there is that goal climate change 6,001 where our plant at Centralia is grandfathered in for the next [well] year, provided we don't enter into outlet contracts for greater than five years, so we are grandfathered in the short run.

For five years?

Yes. As long as we don't enter into contracts beyond five years.

I see. So, could that in theory be superseded by a federal --

Sam, we'll wrap --

Short answer is yes.

Okay. Thank you.

Thank you. The next question is from Linda Ezergailis. Please go ahead with your question, Linda.

Thank you. With respect to the independent Board of Directors review has that caused any other reviews of asset sales for Binghampton perhaps or Cogen to be put on hold pending the outcome of the Independent Directors Board or are those other processes ongoing in the background?

Yes. Linda, it's Steve. A simple answer is no. The special committee is focused on studying and analyzing the proposal we've received and we'll focus on that. As far as the rest of the Company is concerned, we're totally focused on not being distracted by that and just delivering good operating results and on our targets and our development plans and that's where it stands as of today.

So operations, development plans, share buybacks, potential asset builds, everything progressing as expected a few months ago?

And the special committees -- you know, the facts are simple as we said. The special committee has been formed. They take the proposal seriously. They'll look at it. They'll analyze it. They'll be very careful on that. They have outside advisors on that. As far as the rest of the Company is concerned, my task is quite simple. Don't get distracted by that right now. Let's move this Company forward and continue to execute on the plans we've got and deliver results like we did in the second quarter which was a 25% increase over last year and keep that trend going for the rest of the year.

Okay. Now, my follow-up question is a little bit more detailed, end note 12 related to shareholders equity. There's a CAD388 million loss on derivatives designated as cash flow hedges which eats a little bit into total shareholders equity. Could you perhaps provide some color as to what that is? Would it perhaps reverse over time and the impact that it has on your debt to invested capital?

Yes. I mean, basically what that is -- that's an increase in the OCI which is near the comprehensive income which is basically just because future prices are now stronger and therefore, you have to record a larger liability in terms of as you look at those contracts. So, as you say, that could reverse depending on the movement in our prices that we see moving forward.

And when the credit agencies -- that does increase the debt to invested capital, but credit agencies look through that because they know that the OCI is really something that moves around and doesn't affect really our real sort of underlying if you like credit status and obviously if they settle that reverses.

Thank you.

Thank you. The next question is from Matthew Akman. Please go ahead with your question, Matthew.

Thanks very much. My question is around contracting at Centralia and Brian, you just referenced higher [forward] prices in various regions, including that one, so could you update us please on whether you are doing contracts at considerably higher prices as you look out two, three and four years at Centralia?

Yes. Centralia we've put in place the contracts for three to five years, covering the majority of our production there. As we've said, we've seen increases in sort of 2008 versus -- sorry, 2008 versus 2007 of round about 10% but it then starts to flatten out, so it's not a 10% per year. We'll still see some increase but probably more in the moderate range of 1% to 3%.

Matthew, I think your question might have been not on coal costs but on power contracts in the Centralia facility. Is that correct?

That's correct.

Sorry, sorry. I was just --

I think what we've stated is that we have a general outlook on contracting that asset over a five-year term and I think that we look at a discipline approach of going 20%, 25% over a rolling five-year term. You see how the forward market has expanded over the last couple of months and so, I think that we're seeing higher prices in the backend of that and as we re-contract the asset, we'll be able to capture a portion of those higher prices.

Okay. My follow-up is then more specifically on the '09 situation and given the new flexibility on Unit 1 at Centralia in terms of the timing of the re-furb, have you been able to capture the strong forwards from the strong forward prices we've seen in the last two or three months for '09 and potentially run that plant to capture those in next year?

Matthew, it's Steve. Clearly, we're monitoring that situation. We do have some more flexibility and we'll make those decisions towards the year end.

Okay. Thanks very much.

Thank you. The next question is from Bob Hastings. Please go ahead with your question, Bob.

Hi. Thank you. Just as the two [bleaks]. I didn't quite catch where they were first of all.

Bob, it's [Unit 2] and three of our facilities and each of our plants are unique and our teams have gone in and tried to assess some uniqueness in those plants. It means we would use slightly different processes going forward. They've identified what they feel are some longer term fixes and they'll put those into place as we go through the last half of the year.

Besides, they're all in Alberta?

Yes, that's correct.

And PPA plants, or does it include [Wab]?

Yes. It's Alberta Thermal and with PPAs.

Okay. So, my question then is the -- I remember the Wab tube leaks from some -- a long time ago and you were able to fix those but it came -- and I know that they have more of a waterfall tube structure and that there was huge problems with that. Are these things a lot cheaper and easier to fix than -- than what you had to spend on Wab?

I think simply put the answer is yes, these are pretty isolated. Tube leaks are sort of a standard issue in any coal fire plant and we've had a tremendous track record for many, many years. We've got a little blip here. Having said that, we're not going to treat it. A blip will go in and we're going to make sure we can manage that whole situation, but we're not expecting any major changes in how we operate the plants as a result of this.

Okay. Thanks. And the other question was on Mexico. There's been a little bit of delay for the reasons you mentioned. Are any of these potentially able to change the price you might receive or is there any deal breakers in here from the other party?

It's Ken here, Bob. At this time, we're working towards sorting out those issues and beyond what we've said in the -- Steve's comments here. I don't think that would be appropriate to comment. We are in negotiations with them and I can't tell you what the outcome of that would be. Obviously, we would only do something that's beneficial for our shareholders.

Okay. Thank you very much.

Thank you. The next question is from Robert Kwan. Please go ahead with your question, Robert.

Morning. Looking at the trading results, I was just wondering how much if any of the increase in the profits stem from opportunities due to the planned and unplanned outages?

No. They would have very little to do with that. It's just our training team looking at those -- there's a little bit more volatility in the quarter and a little bit of more activity and they were able to just take advantage of that. Simple as that in both the Western and Eastern markets.

Okay. And then, the second question. Higher level. When you're looking at your productions over the next few years, do you feel your share buyback program will be constrained as you wrap up the growth CapEx? Look at increasing the dividend as a number of your shareholders would like you to do and then, the deterioration of equity associated with the share buyback?

Robert, Steve Snyder here. We've said from day one the principal we have here is a balanced allocation of capital constantly under review. Our view this year was that share buybacks during the year was a proper approach combined with increase of our dividend. We'll keep maintaining that approach and -- but we do a constant re-look and as the world changes, we match out our growth we'll do that balancing analysis one more time. But it's not -- there's nothing locked in stone here. A constant revisiting and then picking the best approach at that particular time.

Okay. Do you see the ability to maintain an MTIB yet at similar levels or do you think that's probably going to need to be scaled back to fit the balance sheet?

We have -- as you've seen our result to date, we have had -- continue to have very strong cash flow, very strong earnings that provides a lot of optionality for the Board to consider and we'll keep - our job as management, we'll keep giving those results and they'll keep re-accessing that capital allocation. So right now, we have lots of flexibility and we'll just re-assess on a go-forward basis.

Okay, great. Thank you, Steve.

Thank you. The next question is from Michael McGowan. Please go ahead with your question, Michael.

Good morning. I was hoping you could provide an update on the potential of [dike breach] at the Keephills facility?

Oh, you're speaking with regards to the ash lagoon, Michael?

Pardon me.

You're speaking with regard to the ash lagoon?

Yes.

Yes. There is no update to that other than we have been able to contain the -- any leaks from the lagoon and our teams continue to work on that containment strategy and if there's any change to status, we will certainly update the appropriate people at that time.

So, it's still too early for capital costs, submits or potential impact on operations there?

Yes, that's right. Well one, let me just say there has been no breach at this point. We're not anticipating it, but we're prepared for it. In case it were to happen that's only the normal precaution to take. Way too early to determine what will be required longer term, but I do not expect it to be significantly major but we'll manage that and we've had contingency plans all in place so ensure that the Keephills plant can continue to run through any eventualities. So at this point in time, very good shape.

Just one last question. You know, if you did have to spend some capital there, would the capital spend be TransAlta's requirement or the PPA holders requirement?

That's not determined yet. What we would do is we would do what we have to do and then we sort that out afterwards. It will not be -- I do not believe would be significant, but it's too early to tell what the root cause was or what the long-term remedy will be. Short term, we have no issues.

Okay. Thanks. Those are my questions.

Thank you. The next question is from Daniel Shteyn. Please go ahead with your question, Daniel.

Yes. Good morning, everyone. Question related to the growth plans that were briefly outlined by Steve earlier in the presentation. I guess what I'm thinking of here is those numbers look pretty impressive. Now in terms of the financing requirements related to those growth plans do you believe that your growth CapEx could run at levels similar to those currently experienced in 2008 and whether you believe that will require infusions of equity from a source other than free cash flow over the next couple of years?

No. I think the general comment is we can always find ways to fund great projects. I mean there are a number of different ways. As you know we've got capacity on our balance sheet. We continually look at portfolio optimization. We may sell assets in the future. We can use partners.

So, I think from this point of view I think it's just great that we're laying this out that we have this potential growth but is in late stage development that we can actually move forward on our own and I think we'll manage that as we move forward so I think that's what we're laying out to them as you know. We're committed to a strong balance sheet and investment grade ratings.

Yes. I think Daniel, relative to our balance sheet, relative to our cash flows I would call this a responsible modest growth strategy at this point in time.

Okay. And can you wrap some dollars around those megawatt numbers?

I don't think at this stage. We're just trying to lay out for you that we've got these in late stage development obviously as we do the update as we do every year we'll lay out our long-term financial plans. But I think -- you know we've been on the basis of 10 percent unlevered after tax returns and you can see where the megawatts so I think you could probably work through that.

Daniel, I mean you can use -- I mean there's some numbers out there that you could use for rough estimates that the industry uses. I mean wind projects are 1,800 to 2,200 kilowatt. We tend to be at the low end of that range due to our competitive edges.

Geothermal tends to be in the 4,000 to 5,000 kilowatt range but has matching long-term pricing contracts to support that capital and the co-generation type projects have a wide range depending on the projects and your host customer but certainly there in the probably the 2,000 plus or minus range, you know 1,800 to 2,200 range and uprates tend to be in that same range also. So those are just some ballpark rule of thumb numbers that you could use to forecast capital requirements.

I think also Daniel, with a good list of projects it allows us to choose the best projects with the best returns so that gives us a stronger platform going forward.

Right. Okay. As a follow-up, what's your contracted position in terms of power production going into the rest of the year? In the beginning you said your output was contracted and I think 90% plus?

Yes. So round about 92% in this year and round about late 80s for 2009.

Okay. So you're still at 92% for the balance of the year?

Yes.

Okay. Thanks very much.

Thank you. (OPERATOR INSTRUCTIONS).

Our next question is from [John Arnold]. Please go ahead with your question, John.

Yes. Could you guys help me think about on Salton Sea the centers you value for new build costs? I mean geothermal's like 4,000 a KW for a Greenfield site and just if you could help me understand. I'd [like] to peg you to a number which is how much synergy you'll get from your existing site?

John, it's Clearly adding a project and existing site the most efficient way to do things I couldn't quantify that other than what is limited infrastructure -- additional infrastructure required and the good thing about the geothermal development is that we're able to match the contract to the cost structure and that assures the long-term returns so they are excellent projects for us in that regard.

Sure. Are you concerned by the commentary in the [CPU] scene regarding the [Guizers] contract -- the [Kalpine] roll. The commentary from the commission was yes we'll approve it but we're going to limit future contracts that are above market/

I have recently spent time in California with varied regulators and all the message that I have got is that geothermal production is number one on their ranking of what they would like to see developed for the California market and that they will support that development. At this point in time that's what we're going on.

Sure. And could you talk about what management's compensation is regarding a change of control?

John, I think that's something that you can look up in our proxy, so it's on the website.

It's fully disclosed and in the proxy statements I think as clear as any company has made it and I think you can get it there and then we can move on to other questions out here.

Sorry. I just wanted to confirm it hadn't changed.

No. It's all laid out and --

No, no. I know it. I just wanted to confirm it hadn't changed. Thank you.

Thank you. The next question is from Bob Hastings. Please go ahead with your question, Bob.

Thank you. The trading side. You moved your guidance up by -- it looks like CAD10 million in the range. Is that just sort of an update for this year based on where you are to date? Is that sort of --

Yes. That's just an update for this year given our strong quarter. We would be still 50 to 70 is the range we have for longer term.

Okay. Thank you. And a question on your debt that you just did the note. Were you able to -- did you have to give them what's been going on with this suggestion of potential take-out? Did you have to sort of protect those holders?

Yes. We did get changing -- change of control provisions in that issue.

So, what happens with it with the change of control? They have the option to put it back?

Yes. It's Frank Hawkins here Bob. The change of control is an event that has to have more than 51% -- 50% change in control as we'll as a ratings downgrade within 60 days of that change in control and then the debentures are paid out at 101.

Okay. Thank you very much.

Okay.

Thank you. And at this time, there are no further questions.

Well, operator, we'll open the lines to media at this point in time if they have any questions that they'd like to ask.

Thank you. Members of the media, if you do have questions, please press the numbers zero one. We do have another question from Sam Kanes. Please go ahead with your question, Sam.

Sorry about that.

Sam, you're a media star now.

No, well, I'm not writing any newspaper summary that's for sure. I'll leave it to better people. Ontario export restrictions in terms of your Sonja plant and get this whole [schmazle] in Ontario I guess I have to ask you about your starting a facility I believe. It's 2010 and your five year contract expires. Is the government doing anything for you to allow optionality in terms of exporting to Michigan and what do you see going forward with that plant if you could even see?

Sam it's Steve. A very simple -- we have looked at the various options for expert potential. They would be difficult to implement but we'll continue to work them and relative to the government -- Ontario government, particularly the OPA, they just indicated that they're prepared to sit down with us and have discussions on how they can best utilize the capacity of that plant to allow them to meet the demands in the internal market and we are prepared to sit down with them at any time to have those discussions and as I sit here today we'd be optimistic that we'll come to some good resolutions there over the course of the next couple of years.

Thanks, Steve.

Let's open the call to the media now, please.

Thank you. We do have a question from [Paul Haverswed]. Please go ahead with your question, Paul.

Hello, gentlemen. Understanding that you're not going to talk about the activities of special committee I'm wondering if they've given you any sense of timing and when they might come back with the decision?

It's Steve. No they have not. They've indicated they're going to take what time they need to do a thorough analysis and they'll announce that when it's done so at this point in time I do not have any sense of that at all.

All right. Thank you.

Thank you. And at this time there are no further questions.

Well with that operator, we thank everybody for their participation on our call this afternoon or this morning. We will be around this morning and this afternoon to answer any follow-up questions. Thank you very much.

Thank you. This now concludes the TransAlta Second Quarter 2008 Results Conference Call. Thank you for participating and have a great day.