TransAlta Corp (TAC) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the TransAlta Corporation 2009 first quarter results conference call. I would like to introduce Jennifer Pierce, Vice President of Investor Relations and Communications. Please go ahead.

Thank you, Operator. Good morning, everyone. Welcome to TransAlta's first quarter 2009 conference call. With me this morning are Steve Snyder, our President and Chief Executive Officer, Brian Burden, Chief Financial Officer, Ken Stickland, Chief Legal Officer, Frank Hawkins, our Vice President and Treasurer and Michael Lawrence, Manager of External Relations.

The first quarter results were released early 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, as is our practice. 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 today's call.

The amounts referenced in the review are in Canadian currency, unless otherwise stated. In addition, the non-GAAP terminology used in this call, including comparable earnings, operating income and gross margin, are reconciled starting on Page 20 of the MG&A.

Per share figures for the first quarter of 2009 are based on an average of 198 million shares outstanding compared to 200 million shares in the first quarter of 2008. 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 our operating results for the quarter and how our major maintenance plans are progressing. Brian Burden will provide details on our cash flow, OM&A, capital spending and balance sheet items. And before going to questions and answers, Steve will provide our outlook for the balance of 2009 and why we are still expecting to deliver comparable earnings per share growth and strong cash flow from operations. Steve?

Thank you, Jennifer, and good morning to everyone. Thank you for joining us.

I'll open with some comments on the quarter. Although we expected lower earnings in the first quarter, given our major maintenance schedules, they were lower than desired. Comparable earnings per share were 0.18, down from 0.50 per share a year ago. Our net earnings however per share for the quarter were higher at 0.21, compared to 0.17 in the first quarter of 2008. This was mainly due to the 65 million after-tax equity loss we recorded for the sale of our Mexico business last year and it also reflected lower income taxes.

While our first quarter was a tough one, we remain on track to deliver comparable earnings growth for the year. We are also making solid progress on our accelerated maintenance program and expect to return to higher availability levels in the second half of 2009.

These plans were set in place to improve reliability at our Alberta Thermal Units, as well as to take advantage of the low market prices we have seen in our core markets. The first quarter had over 700 gigawatt hours of lost production due to planned major maintenance which obviously negatively impacted our gross margins. The latter were also impacted by the failure of an induced draft fan on our Sundance 4 unit, and this resulted in an incremental 328 gigawatt hours being lost in the quarter.

We have filed for a high-impact, low-probability force majeure event to seek the recovery for this loss under the Power Purchase arrangement, but it will take some time before a decision is reached on this matter.

Gross margin from energy trading for the quarter was CAD[50] million, the same as last year. Despite challenging market liquidity, our team achieved excellent results, as they maintained strict discipline and focused on trading strategies where we have an identified competitive edge.

I would now like to talk more about our major maintenance program for the year. From the work completed to date, we have already started to see positive results. Over the last couple of months, the run rate on our boiler leaks at Alberta Thermal has started to improve.

While it is early to project the final full benefits based solely on these early favorable results to date, the trends are all in the right direction and we are achieving the results we planned on. Thus, we will continue to push our plans forward in the second quarter. That will mean an additional 1800 gigawatt hours of planned maintenance outages. Note that this does include the boiler modifications to be implemented for Unit 1 at our Centralia Thermal facility.

While our maintenance plans are unusually heavily weighted to the first half of the year, they have allowed us to take advantage of the lower prices prevalent in our core markets. In the second half of the year, we only have approximately 500 gigawatt hours of planned maintenance activities and all are scheduled within the third quarter.

From an availability perspective, we now expect Alberta Thermal to average 78 to 80% in the first half of the year and 88 to 90% in the second. At Centralia, we are planning on 9800 to 10,200 gigawatt hours of production, excluding the impact of any economic dispatching that we choose to do. Our overall fleet availability is still expected to be in the range of 88 to 89% for the full year.

Now, before providing an update on what to expect for the rest of the year, let me turn the call over to Brian.

Thank you, Steve. The subjects I will cover this morning include our cash flow performance in the quarter and our outlook for the remainder of the year, our operations, maintenance and administration expenses, the status of our capital spend estimates for 2009 and an update on our liquidity.

Cash flow from operations in the first quarter was 83 million compared to 237 million a year ago. Cash flow from operations was lower primarily due to the receipt of an extra PPA payment of 116 million in the first quarter of 2008. Cash flow from operations was also lower due to lower cash earnings as a result of the accelerated major maintenance plan that we executed in the quarter. For the full year, our focus for cash flow from operations is now 750 to 850 million, mainly as a result of lower spot prices.

Looking at our operations, maintenance and administration costs for the quarter and the year, we continue to maintain a very strong focus on cost containment. Looking solely on a quarter-over-quarter basis for Q1, OM&A increased substantially, but this is almost all related to the increase major maintenance that we had planned in the quarter. On a full year basis, we are striving to restrict OM&A to increases in line with historical trends of 2 to 3%. And overall, excluding the increased major maintenance, OM&A costs are targeted to be broadly flat compared to 2008.

Looking at our capital spend for 2009, sustaining capital remains on track, while growth capital has increased slightly due to the addition of Ardenville, the 72 megawatt wind project we announced this morning. As previously provided, sustaining capital spend for the year is estimated at 350 to 390 million, no change from the fourth quarter. And the full breakdown of our sustaining capital spend can be found on Page 18 of the MD&A.

In the first quarter of 2009, we spent a total of 76 million in sustaining cap ex. As it relates to our growth cap ex, annual spending is now expected to be 485 to 550 million. This includes the addition of 25 to 35 million related to Ardenville. And the breakdown of growth capital spend can be found on Page 17 of our MD&A. In Q1 2009, we spent 57 million on that growth cap ex.

Turning now to our balance sheet strength, our financial ratios are well within the thresholds that we have established to maintain our investment-grade status. As of March the 31st, they were as follows -- cash flow to interest coverage was 6.6 times. Our minimum target is 4 times. Our cash flow to debt was 29.9%. Our minimum target is 25%. And our debt to total capital was 46.5% with a maximum threshold of 55%.

We also maintained ample liquidity through access to both the Canadian and U.S. debt markets, strong contracted cash flows, as well as committed credit facilities of 2.2 billion. As of March the 31st, we had 1.5 billion still available to us. This, combined with a very manageable debt repayment schedule of only 244 million in 2009, and almost nothing in 2010, leaves us with the financial flexibility to sustain our dividend and meet our current obligation. It also allows us to choose when we go to the market and as a result, we maintain a very competitive cost of capital.

With that, I shall turn the call back over to Steve.

Thank you, Brian. I have already discussed how our operational and major maintenance plans remain on track. Another key component to our earnings growth for the year is our contracting strategy. In the Pacific Northwest, spot prices during the first quarter averaged only CAD35 per megawatt hour, a 50% decline over last year.

Our outlook for the balance of 2009 is in the same range of 30 to CAD35 per megawatt hour.

The pricing drivers here are the sharp decline in natural gas prices combined with demand destruction in the region. Year-over-year, demand is down roughly 3%, a significant decline for our industry.

In Alberta, prices in the quarter were also down, roughly 18% year-over-year. Up until March, prices in Alberta maintained some strength due to the tight reserve margins in the province. However, we do see them coming under increased pressure. Month-to-date, prices have continued to fall. Our outlook for the balance of 2009 is to see prices approximately in the 50CAD to 60CAD per megawatt hour range.

Having noted the above market conditions, our regular hedging strategy had us come into the year with roughly 90% of our portfolio contracted. Additionally, we made the decision early in the year to lock up more of our merchant portfolio with shorter term contracting in both Alberta and the Pacific Northwest. As a result, we are now approximately 95% contracted for the year, with average contract prices of 60 to CAD64 in Alberta and 50 to $55 U.S. per megawatt hour in the Pacific Northwest.

It is this contracting strategy which provides us with a solid level of confidence in being able to achieve comparable earnings growth for the year. Back in February when we had expectations of low double-digit comparable earnings per share growth for the year, it was premised on capturing reasonable forward spot prices which we saw at the time. As a result of the price and demand deterioration in our core markets that we now see, a more realistic expectation would be single-digit comparable earnings per share growth for the year.

Looking forward into 2010, our portfolio is now 85% contracted at prices slightly above this year's contracts. That gives me confidence, combined with higher production next year, that we will be able to again achieve comparable earnings growth from our base operations. Any additional upside will depend on improved market conditions.

When we look beyond the next couple of years, which we always do, given our long cycle of business, we are still positive on our outlook for long-term demand growth in our core Western region, and we are also positive on higher electricity prices, as we are on the increasing value of renewable assets.

Now, let me talk now about how we are managing disciplined growth. Just this morning, we announced plans to design, build and operate a 72 megawatt wind power facility in southern Alberta called Ardenville. It will cost an estimated 135 million or approximately 1,875 per kilowatt. That's very cost competitive in today's market. Equipment costs for the project are locked up and we are negotiating long-term contracts for an estimated 40% of the revenue. Construction is scheduled to begin early in 2010 and the wind farm is expected to be commissioned in Q1 2011.

Beyond Ardenville, our project development pipeline is full. We will pace any development to suit market conditions, to leverage our competitive advantages, and to ensure a very balanced approach to capital allocation. We do continue to see excellent opportunities to compete for and negotiate long-term profitable PPAs on our renewable projects with local utilities.

This is clearly a challenging and complex time for our industry. It is marked by growing opportunities, as asset valuations become more realistic, but it also faces a large degree of future external uncertainties. TransAlta, as I've outlined today, is in a very good position to deal with this environment.

To better ensure we stay on top of every key issue, I am putting into place a Chief Operating Officer position reporting directly to me. Dawn Farrell has been appointed to this position, and as COO, Dawn will have responsibility for all of our current operational activities. Specifically, this role combines our existing Generation Operations, Generation Technology and Commercial Development under singular leadership. This new organization will allow us to drive more effective integration and performance in all of our key operating and commercial functions.

Given the increasing importance of technology in our industry, we have also appointed a Chief Technology Officer reporting to Dawn, and that executive will be Will Ridge. Richard Langhammer, who earlier this year announced his intention to retire at year end after 23 years with the Company, will take on a new interim responsibility as our Chief Productivity Officer. He will report directly to me and this will add even more focus to our drive to improve productivity and reduce costs. I would certainly like to thank Richard for all of his years of service to the Company.

For the past five years, TransAlta has demonstrated a solid track record of performance. We've done what we said we were going to do and in 2009, we are focused to deliver on our goals and provide comparable earnings growth for our shareholders. We will continue to push our strategy forward to build a sustainable future for TransAlta. We believe our financial strength positions us well to do just that, even during these recessionary times.

I'll now turn the call over to Jennifer for our question-and-answer period.

Thank you, Steve and Brian. So that we may rotate through callers, we shall take one question and one follow-up from each caller before moving down the queue. We shall answer questions from the investment community first and then open the call to the media. We shall then respond to industrial investors, so please identify yourselves when asking questions. And I remind you that we do not provide specific guidance and that we shall answer your model-related questions offline after the call. Operator, we're happy to take questions now.

Thank you. (Operator instructions). The first question will be from Sam Kanes from Scotia Capital. Please go ahead.

Thank you. I guess the question is for Brian. It has to do with income tax expense. Your P&L shows a CAD15 million recovery out of 19 million provision. I'm sure part of is Sundance 4, the PPA recovery expectation you have, but can you help us with the other nuances that made that adjustment so striking in Q1?

Yes, it's really -- I mean, if you ever look at any quarter, it's really around timing. As you know, I don't really talk in details about how our taxes are moving. Basically, it's around -- we've got lower earnings in the quarter, as you've seen, which is why our rate is also lower, but I don't want to go into any details. If you look at any particular quarter, it's not very -- sort of interesting in terms of looking at that piece, so I don't want to go into any more details on the tax.

Well, I feel a 7% interest rate is kind of interesting. That's what I asked the question. My follow-up would be on Centralia coal costs. You do mention 10 to 15% is what your expectation is rising this year due to mostly transportation moving up. Would you have a feel to give us for 2010, 2011, going forward as well?

Not at this time, no.

Thank you. The next question will be from Billy Hagstrom from Catapult Capital. Please go ahead.

Good morning, guys, thanks. I thought you said you believe that you're comfortable with EPS growth in 2010. Could you clarify? Is it expected to be single digit as similar to 2009?

Yes, the [simple] is that if you look at -- we're 85% contracted and we'll have more production from our plants and so from an availability PPA viewpoint, we should be very solid earnings. The upside will be in the market conditions. We're not forecasting at this point any strong market conditions, but that combination should allow us modest growth in 2010.

Okay. So are you still maintaining your long-term earnings growth metric of low double-digit which I believe you provided last on your fourth quarter earnings call?

I think that is largely going to now be market-dependent and if the market conditions start to improve, there's no reason why that wouldn't happen, and if they don't improve, that'll obviously be challenged. So we'll have to see after 2010 how demand and prices come back.

Great, thanks for the time.

Thank you. The next question will be from Bob Hasting from Canaccord. Please go ahead. Your line is now open.

Hi, thank you. Just a clarification to Sam's question on the tax. Would your estimate for the year be unchanged and the rate to you?

Yes, the estimate for the full year will be at 20 to 25%.

Great, thank you. And just a more strategy question maybe for Steve or whomever, is obviously, demand has been impacted here, a challenging economy, hard to get access to capital for many companies. You guys have got a pretty good balance sheet. What would be your strategy regarding acquisitions? Do you see opportunities out there? What kind of things would you maybe be focused in on?

So Bob, Steve here. So, yes, we are seeing a lot of assets come through the pipeline in terms of potential interest for people to sell. We are being very disciplined. I think it's still early in this downturn and it's not clear to me that the values are actually at the lowest value yet, so we'll continue to keep looking at them. Anything we would look at is going to be first in our main geographies of Western Canada and Western U.S. and it would be focused on renewables. And those are our two priorities now and that's what we'll continue to focus on, but there are -- I think there will be some opportunities. I don't think we're losing anything by being patient and we'll keep looking to see if there are some excellent values out there that we can take advantage of.

Subject to availability, do you have any sort of boundaries on size?

We would not put the investment grade credit metrics at risk and so you know what our targets are for that, so within those bounds that we would be open to take a look.

Okay. Without equity at these levels?

We would keep those ratios in line and we would -- obviously, in any financing, we would look at both debt and equity, but the goal would be that we would not damage our investment-grade credit rating through any of those processes. If I may say, that's the sandbox limits on us that we have -- on the disciplined side.

I just meant that in terms of -- in tough market conditions, that everything is a little cheap, including maybe your stock price, so would you actually raise equity to buy something else that was cheap?

Situational, we'd clearly -- everyone would like to do it only at high stock price, but we'd also look at it relative to the value of the assets that are out there, so it's a relative situation. So I think we're open-minded, but we're going to be disciplined and the credit metrics will be a key driver and liquidity will be the key driver of any decision we make.

Okay. Thank you very much.

Thank you. The next question will be from Linda Ezergailis from TD NewsCrest. Please go ahead.

Thank you. I appreciate all the granularity you've provided on 2009 expected maintenance, especially since it's risen since your fall Investor Day. I'm looking forward to 2010 and wondering if we can still expect a sustaining capital range of 270 to 315 million, or should we consider upsizing that?

At this time, I think you can leave it in line with -- as you're saying.

Okay. And then just a follow-up question with respect to your Ardenville wind farm. What sort of utilization rate on the wind should we be considering and I guess how much more would have to be contracted for this to be economic, or are you baking in for the uncontracted portion, current, forward pricing in Alberta?

So basically, it's run about 36, 37% is the capacity factor, so much higher than our average fleet. And as Steve said, we've secured to run about 40% at present. As you know, we manage our sort of assets on a portfolio basis, so we're always looking at the average, and this does give us returns well above the 10%. We've done a lot of scenario planning around different prices, so we feel very comfortable that we can start to lock in things further, but we'll lock in the 40% at the moment and as I said, we're comfortable this will give us great returns over the long-term.

Again, Linda, because wind is (inaudible) run, there's not a lot of risk on the revenue side with a volatility relative to prices, so we are doing the contracting more to take the volatility out.

Thank you.

Thank you. The next question will be from Matthew Akman from Macquarie. Please go ahead.

Thanks very much. You talked about Alberta power prices having weakened off and there's a lot of wind assets for sale. What kind of Alberta power prices on the forward curve do you have to assume in order to make this wind project at Ardenville more attractive than buying wind assets that are out there for sale?

Yes, I mean, it's very attractive and well above the 10% hurdle at round about the 70 to CAD100 rate and even at something like a CAD60 rate, you would be round about the 10%, so it's very attractive in terms of its returns, Matthew.

Okay, thanks for that. Follow-up on Centralia, can you please remind us where we are on the overhaul of that? When you shifted to Powder River coal, there was some major work on both units. You're going to take some downtime in this particular corridor. Is that the end of the major maintenance at Centralia now to refurbish the boiler for PRB coal?

Yes, it is. Unit 1 comes down as planned on May 1st and then that's the last of the major maintenance work we've got on that plant.

Thank you very much.

Thank you. The next question will be from Andrew Kuske from Credit Suisse. Please go ahead.

Thank you. Good morning. Just as it relates to Centralia, if you choose to go into economic dispatch mode during Q2, what restrictions do you have from your coal suppliers and your ability to actually store inventory at Centralia at this point?

Well, I won't go into detail on that. We have got some flexibility and we are working with them, and both plants are off at present -- that's public information -- and have been since mid-April, so we're working with our coal suppliers and we do have quite a bit of flexibility which makes it economic to do this, but I don't want to go into details around that, Andrew. Obviously, we negotiate and discuss those things privately.

Okay. And then if you could just give us a little bit more color on what you're seeing on your boiler leaks at this point in time and really, as it relates to the quality of labor you're now seeing in the Alberta marketplace?

Andrew, the -- well, we're seeing a steady decrease, early months, but a steady decrease in the boiler leaks down to what I would call the level we would expect and the terms of the labor, we are getting -- certainly, availability is easier and overall, we're getting more experienced people and that is also helping. So the trends are all in the right direction right now.

Has there been anything on wages? Have wages declined slightly or have they held pretty firm?

No, I -- that's going to take a while. Right now, these are -- we are working with the trade unions which have signed contracts last year. There may be opportunities if the markets continue to deteriorate to go in and have separate negotiations, but right now, all of the companies are dealing with existing trade union contracts.

All right. Thank you.

Thank you. (Operator instructions). The next question will be from Robert Kwan from RBC Capital Markets. Please go ahead.

Good morning. Just on the hedging, the 95%, I assume is kind of fleetwide and includes the PPAs, but can you just confirm the prices that you disclosed? Do those include or exclude the PPAs?

Yes, it's 50 to 55 U.S. in Pac Northwest and 60 to 65 Canadian in Alberta.

But Brian, it went to 60 to 65. Does that include PPA pricing?

That's the merchant piece.

That's the merchant piece, okay. And then just in general, with the lower power prices we've seen, I know you kind of bumped up the hedging in Q1 '09, but if you look at what you want to do for 2010 and beyond, has the lower prices -- how has that changed your hedging strategy?

Well, we would tend to want to now lock in earlier and for shorter term. Two years ago, we would have been trying to keep more merchant open. Obviously, seeing rising prices now, we'll reverse that and that's what you saw this year when we closed out early in the year for the rest of this year. There's not a lot of liquidity in the Alberta market for 2010, so we'll have to do that a bit closer in, but we're going to be -- again, be very disciplined around ensuring that we lock in the earnings earlier than later.

Okay. And you haven't changed the target, given where the pricing is? It's just the pricing is going to be what it's going to be and --

Yes, we still have the -- a four year sort of process ladder wherever your contracts come up and the tendency will be, as these contracts come up, short term here, to try to contract more, rather than less.

Thanks, Steve. Thanks, Brian.

Thank you. The next question will be from Michael McGowan from BMO Capital Markets. Please go ahead.

Good morning. Reviewing your annual information form and I noticed that Sarnia had been derated down to 506 megawatts from 575 megawatts. Can you talk about that a little bit? And I was just wondering if any costs associated with that derate showed up in the Q1 results.

Michael, it's Jennifer Pierce calling (sic). What we did is, we made the decision that it would cost us more capital to keep some of that equipment operational than the returns we would get off of that asset. So as a result, we have reduced the install capacity of the facility accordingly, so there's no impact to the financial statements around that.

Okay. And I just noticed that your depreciation expense has actually increased materially this quarter, even though your generation was down quite a bit. Is that sort of a new run rate we can be looking at now?

Yes, most of the depreciation increase, about 8 million of the 13 million, was due to FX, so you're seeing that conversion. Obviously, as you know, overall exchange doesn't affect us on the full P&L, but you see elements of 8 million of that and there was -- about 4 or 5 million was the run rate. So depending what your thoughts are around the exchange rate, if the exchange rate stays the same, yes, it is going to be the new run rate, but if the exchange rate changes, you've got that element, the 8 million, as I said, that could reduce or increase.

Okay. Thank you.

Thank you. The next question will be from Robert Howard from Prospector Partners. Please go ahead.

Hi. I just was wondering -- I know last year, you guys stopped the stock buyback program and now, here you're talking about a new power plant project, and I was just kind of wondering if you could just sort of talk about comparing the decision between investing in a new plant versus the stock buyback and how you're wanting to deal with capital, use capital, in those different ways and the decision process that you kind of make between the two?

Yes, basically, we have a disciplined capital allocation that looks at increasing dividends, looks at share buyback, looks at fully optimization and looks at growth. So we're always looking at comparing to share buyback and what we should do. We prefer growth, as we've said, so if we've got really good projects that have got really good returns, which we think are (inaudible), then we will be more prone to do those, but we're reviewing those on a regular basis. And what the share buyback option does, it does push our developers, and as we're looking at projects, we might go to get better returns. So share buyback is still there. We still have an NCIB program and we're likely to renew that as it comes up in May. Obviously, that's a Board decision, and we'll work with the Board, but we regularly review this and look at the full pieces of our capital allocation when making decisions.

And just a quick add-on -- certainly in the case of wind, where you're up and running fairly quickly, you get immediately -- fairly immediate cash flow, plus the fact it's -- 40% is estimated -- estimated 40% contracted and it's well above our hurdle rate. This is an excellent project where we made that decision.

Right. Though it seems like this is -- I guess that type of project will be there for potentially a longer amount of time and who knows how long the depressed stock price will give you opportunities for opportune buybacks? It's sort of --

We will look at that -- we look at that every quarter, every Board meeting, and again, with the Board, we'll work to re-assess that and make our judgments against that. So it's on our mind all the time. Right now, we look at our liquidity needs and we look at this opportunity, we made in this particular case, the decision to advance Ardenville.

And just quickly on the 2010 contracted output, does that -- is that just the output that's contracted or is there fuel rate -- is fuel also locked in as well, or is there a potential for that to move around a bit?

Robert, this is Jennifer. When we contract, we're looking at locking in the gross margin and based upon the type of business we have, we own most of our fuel and we contract the balance that we don't have.

Okay, great. Thank you.

You're welcome.

Thank you. We have a follow-up question from Sam Kanes of Scotia Capital. Please go ahead.

Yes, you had a positive swing in OM&A and your commercial operation developments to 6 million expense in Q1 versus 10 million year-over-year. Is there any particular thing going on there in terms of that run rate?

Yes, it was just lower headcount and lower compensation costs compared to last year. That was the main movement, so depending on where you think the -- remember, the earnings last year was 105 million --

Yes.

And depending on where you think the earnings are, the run rate -- based on our 65 to 85 million, you'll expect overall lower costs, probably not as much of a delta as you've got in the first quarter, but lower costs than you did at -- obviously, when we're achieving 105 million last year.

Got it. Thank you. And finally, you mentioned this volunteered reduction of NOx emissions of 20% with the Department of Ecology of Washington State. I'm just curious how you're doing that. Have you found some new, unique way or low-cost way, or is there cost to this, of what you're about to do with respect to NOx reduction?

It's Ken here. I wouldn't classify it as unique. It's part of what we do every day. Our role in the environment, given the footprint we have, is to continue to work with stakeholders to find ways to move that agenda forward and an opportunity presented itself in Washington State to work with them on a cooperative basis. So we pursued that.

In terms of where that might land us, we obviously are looking at the equipment changes that we're making down there and the conversion to the Powder River Basin coal, which gives us some advantages. You'll recall that we've made a significant investment at Centralia on our scrubbers previously and on the (inaudible) burners, so we think a combination of all those things gives us a reasonable chance at meeting that (inaudible) target. As you know, things continue to evolve and environmental requirements are getting tougher, so in the longer term, obviously, more to come, but in the shorter run, I think that this is a good place for us to land.

Thank you.

Thank you. We have a follow-up question from Linda Ezergailis of TD NewsCrest. Please go ahead.

Thanks. While we're on the subject of environmental considerations, what sort of risk is there to TransAlta not meeting the mercury reduction requirements in Alberta for 2010? And is it reasonable to assume that the previous capital expenditure and operating expense guidance provided for 2010 would incorporate any sort of cost to comply with the targeted mercury reductions?

Firstly, just looking the risk, we're in great shape there. I don't see at this stage any risk that we won't meet those targets in 2010. We've worked hard on examining technology choices. We've got that right-sized for our plants up there and we're in very good shape on that.

In terms of the cost of this, as you'll recall under our PPAs for those plants that are subject to PPAs, we've got pass-through protection on that, and then for anything that's merchant, obviously, we're exposed on that side, but costs have come down significantly from when we first started addressing this issue about three years ago. So we're in good shape overall. All the costs are baked into our forecast.

And what is that cost, might I ask, expected to be?

Linda, we'll get back to you. I don't know. It's not material for the financials.

No.

Okay. Thank you.

Thank you. We have a follow-up question from Robert Kwan from RBC Capital Markets. Please go ahead.

Just on the new guidance of lower growth and comparable EPS, does that assume a positive Sun 4 force majeure claim?

No.

Okay. And then the last question, just on your cap ex profile, obviously, it's going to be pretty heavily loaded in the next three quarters. Can you give kind of a quarterly breakout as you see (inaudible) sustaining in the --

Jennifer will give you that offline.

Yes, I'll give that to you.

Great, thanks, Brian.

Thank you. We have a follow-up question from Matthew Akman from Macquarie. Please go ahead.

Thanks. Brian, are there any implications to your earnings from the 192 million of collateral that you guys just got on the door? Obviously, there's an interest payment that you make on that, but you pay down some debt, so what's the net effect of it?

So as you say, apart from the interest, there's no real sort of implications. Obviously, as you know, the collateral has come in because of the lower prices that we're seeing, particularly in the Pac Northwest over the long term. So obviously, from a liquidity point of view, although it's good in the short-term, we don't count on that, Matthew, because you know prices in the future can change at any particular point in time. And that's one of the reasons why we've shown it separately on the balance sheet. You'll have seen our disclosure is more transparent on that because it's unusual that we would have that much coming in the quarter, so we just showed it separately. You're right. It's just the interest impact that you get on the balance in terms of paying down short-term debt from those proceeds.

So it's a small positive to earnings?

Yes, it is, yes.

Okay. Thank you.

Thank you. And there are no further questions from the financial community at this time.

Thanks, Operator. With that, we'll provide the interested media the opportunity to ask any questions.

Certainly. (Operator instructions). We have a question from Pam Russell from Platts. Please go ahead.

Yes, can you guys -- I missed when you were talking about the $34 per megawatt hour price. That was -- you're saying that's the merchant pricing in the Northwest?

That's the forward pricing in the Pacific Northwest currently.

Okay. And is that in Canadian dollars or U.S. dollars?

U.S. dollars.

And how does compare in Canadian dollars? Do you have a comparable --

Well, two different markets and exchange rates, so Alberta is pricing between 60 and CAD65 per megawatt hour.

And if I can ask another question, can -- and I'm sorry, I apologize about this. I missed the discussion about the Centralia -- the emissions reductions on the Centralia plant and the agreement that was reached with the state. Can you repeat that information that you guys have reached the agreement to reduce emissions by 20% over what had been previously agreed upon?

Why don't I just refer you to the MD&A on that? Basically, we've reached a voluntary agreement there. That is subject to review in a public hearing in late May, so that is not a completed arrangement yet, but if you'd like to refer to the MD&A -- if it's not clear there, you can certainly give us a call and we can clarify that for you.

Okay, great. Thank you.

Thank you. (Operator instructions). Ms. Pierce, there are no questions from the media at this time.

Great. Thank you very much, Operator, and thank you to all those that participated in our conference call this morning.

Thank you. The conference call has concluded. You may disconnect your telephone lines at this time. We thank you very much for your participation.