TransAlta Corp (TAC) 2010 Q2 法說會逐字稿

Good morning ladies and gentlemen, welcome to the 2010 second quarter results conference call. I would now like to introduce Jennifer Pierce, Vice President of Investor Relations and Communications. Please go ahead.

Thank you Janette and good morning everyone. Welcome to our second quarter 2010 conference call. With me today are Steve Snyder, our President and Chief Executive Officer; Brett Gellner, our Chief Financial Officer; Dawn Farrell, our Chief Operating Officer; Ken Stickland, our Chief Legal Officer; and Frank Hawkins, our Vice President and Treasurer.

The second quarter results were released earlier and we hope you 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 the 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, funds from operations and gross margin are reconciled starting on page 27 of the MD&A. Per share figures for the second quarter of 2010 are based on an average of 219 million shares outstanding, compared to 198 million shares in the second quarter of 2009. Please note financial information has been rounded to the nearest whole number.

On this morning's call, Steve will provide an overview of our operating results for the quarter. Brett will provide details on our cash flow, OM&A, capital spending, and balance sheet items. Before going to questions and answers Steve will provide our outlook for the balance of the year and a brief commentary on Environmental Minister, Jim Prentice's proposal to regulate emissions from the electricity sector and how Transalta is transitioning itself to compete in a low carbon environment. With that, let me turn the call over to Steve.

Thank you Jennifer and good morning to all. As you can see, our second quarter results have shown good improvements in our operations as reflected in our operating margins and strong advancements in cost saving and productivity initiatives as we align our business with the current low price environment. Our comparable earnings improved substantially; we achieved $0.10 per share compared to a loss of $0.03 per share a year ago, despite the Sundance 3 shutdown and an unusual fourth quarter in energy trading. The drivers behind the improved comparable results include increased production and lower overall operations, maintenance and administrative costs. In addition, our increased renewables production and a modest improvement in pricing in our core markets combined to drive higher generation gross margins.

Our net earnings for the quarter were also up significantly, at $0.23 per share versus a $0.03 per share loss last year. In addition to the operational improvements, net earnings benefited from a $30 million tax recovery. As I mentioned, these results were delivered despite the challenges we faced in the quarter. On May 7th our Sundance 3 unit experienced a failed link on the generator stator, which brought the plant down for an extended 45-day outage. While we believe this classifies as a high impact low probability event of force majeure and that ultimately we will be protected financially, the balancing pool has yet to make the determination of a HILP event. As a result, we have included a $13 million after-tax charge to our earnings for the quarter.

In addition we faced some tough trading market conditions. Gross margins from both our East and West energy trading desks were impacted and we were unable to generate any trading gross margins in the quarter. I view this as a quarterly issue with actions taken to get us back on track in the second half.

Looking at our availability in the quarter, we achieved 81.9%. This was down from the 82.8% last year, primarily due to more extended planned major maintenance outages at Sundance 4 and Centralia 2 units, in addition to the outage on Sundance 3. If you exclude the latter, our availability for the quarter was 84%. Additionally, we are tracking well above last year on unplanned outages at our key fields and Sundance plants. Overall, we continue to track well to our target of achieving 89 it 90% fleet availability for the year.

In summary, despite some one-off challenges and ongoing tough market conditions, we delivered a solid quarter. We continue to drive improvements to our base operational performance while containing our costs. We continue to make steady and disciplined progress on growth and our major projects are being delivered on time and on budget.

Before I turn the call over to Brett, let me just make a few comments on Brian Burden's recent retirement. In June, after five successful years with the company, Brian made the personal decision to retire from TransAlta. Given the strength that we have in our senior management team, we were able to quickly implement our succession plans and promote Brett Gellner to Chief Financial Officer. Many of you already know Brett; he brings with him deep industry knowledge and extensive capital markets experience and he will provide strong leadership for our financial function and for the company.

Over the next two months Brian will work closely with Brett to ensure a smooth transition and I'd like to personally very much thank Brian for all the contributions and for leaving TransAlta in a sound financial position and for his ongoing support.

With that, I'd now like to turn the call over to Brett.

Thanks Steve and good morning everyone. What I'm going to cover is a review of the margin improvements we've achieved from last year, an update on our outlook for cash flow and trading for the year, the status of our capital projects and an update on our liquidity.

In term of gross margin improvements, we are starting to realize the benefits from adding higher margin renewables to our portfolio and from the Sarnia contract we completed last year. Our gross margin as a percentage of revenues increased in both Q2 and in the first six months relative to last year. We've also seen our operating income margins improve, not only due to the improvement in gross margins but also because of lower OM&A and lower depreciation. Our margins have improved despite lower trading results in the quarter.

In terms of OM&A, our costs were down from last year, both on the quarter and in the first six months. In the quarter, OM&A was down 35 million and down 49 million on a year-to-date basis. These improvements are primarily driven by lower major maintenance and timing differences in our maintenance spend relative to last year. We also are benefiting from economies of scale with respect to the assets we've added to our fleet and due to other productivity initiatives. As a result we now expect OM&A cost for the year to be slightly below 2009.

As a result of the increase in margins, our funds from operations FFO was 184 million in Q2 which was 90 million better than last year. For the six months our FFO was 374 million versus 285 in 2009. FFO provides a better view of our overall cash generation by eliminating the variances in volatility of working capital in any given quarter.

Cash flow from operations in the quarter was 98 million, an increase of 41 million relative to last year. For the first six months cash flow from operations increased 132 million from last year to reach 272 million this year. Because of the low wind resources we experienced in the first quarter, combined with a revised outlook for energy trading gross margins of 40 to 60 million, we have revised our outlook for cash flow from operations for the year to 800 to 900 million.

In terms of trading, we revised this down as we will not increase our risk profile to try to make up Q2. Our outlook for trading in the second half is consistent with performance we have achieved in the past.

Now I would like to provide an update on our growth projects. We currently have four projects under construction which include Keephills 3, 2 wind farms and 1 hydro facility. We're also planning up rates at Keephills 1 and 2 in 2011 and 2012. Once completed, these six projects will add 412 megawatts of additional capacity to our fleet. All these projects continue to progress on time and on budget. We spent 193 million on these projects in Q2 and 270 million in the first half of this year. A detailed breakdown of our gross spend can be found on page 23 of our MD&A.

In terms of timing, we expect Kent Hills 2 to be online in December of this year, Ardenville and Bone Creek in the first quarter of 2011, and Keep Hills 3 in the second quarter of 2011. Once these projects are online, we expect to see an increase in our available free cash flow.

Turning now to sustaining CapEx, we spent 98 million in the quarter and 143 million in the first six months. For the full year we have revised our sustaining CapEx number down by 20 million to 275 to 320 million. This is primarily due to changes in scheduling a planned major maintenance for some of our natural gas units. Planned major maintenance and inspection for gas units are based on operating hours and due to lower customer demand in the first two quarters of the year, some of this work will now occur in 2011.

As you'll see in our disclosure, our planned outages increased in the second quarter. This is mainly due to higher planned outages at Centralia, where we took advantage of soft market conditions to do additional maintenance work. However, there was little financial impact on our operating income, given the weak markets. Our overall major maintenance capital and operating costs will be in the range of 190 to 215 million for the year, of which we've spent 112 million year-to-date. Of what is remaining, approximately 70% is expected in Q3 and the rest in Q4.

The lost gigawatt hours due to planned maintenance is expected to be approximately 480 in Q3 and 108 [in Q4]. [The breakdown of] major maintenance spend can be found on page 24 in the MD&A.

So finally, we continue to maintain ample liquidity as of June 30th we had approximately 800 million of our 2.1 billion committed credit facility still available to us. We also continue to maintain strong credit metrics as shown on pages 59 and 65 of our quarterly report. With that I'm going to turn it back over to Steve.

As we look forward to the remainder of 2010, we will continue to drive our base operations to hit our overall fleet availability target of 89 to 90%. We will also remain disciplined on our cost structure. We're off to an excellent start here and our goal is for our OM&A to come in below our 2009 cost levels. Combined with these goals is our continuous focus on the markets, our contracting strategy and disciplined growth. Although the second quarter saw some relief from the low price environment we are in, we did not see a sustained improvement. Our view on the outlook for the rest of the year for power prices in our core markets is that they'll remain soft. Forward prices for Alberta for the second half of 2010 are trading in the $55 to $60 per megawatt hour range and the Pacific Northwest forward prices are in the $35 to $40 per megawatt hour range. We currently do not see improvement for price in these markets until 2011, but clearly we will continue to look for opportunities to contract at higher prices as they occur.

Let me now turn to talk about the recent announcements made my Canada's Environment Minister, Jim Prentice, with respect to reducing emissions in Canada's electricity sector. On June 23rd Mr. Prentice announced that the government of Canada is taking action to help achieve its CO2 targets by introducing new emission standards for coal fired generation. Coal fired units that cannot meet the new standard could be shutdown at the latter of either their 45-year economic life or their associated PPA.

This announcement did not come as a surprise. This is something that we've been working closely with the federal government on for the last number of years through their various industry consultation processes. And while there is still a lot to be defined with the plan, it does start to bring some clarity to the future of environmental legislation in Canada and it does provide ample lead time for a transition to lower carbon generation.

The plan is workable in my view, but it will require the resolution of a number of key issues if it is to succeed. These include managing the liability of supply, payment of transition costs, more clarity on emission standards 40 years from now for natural gas facilities and mechanisms for carbon pricing. So there's a lot of hard work ahead of us yet, but I do believe we can get it done.

We believe TransAlta is well positioned to take advantage of these changes. We have built a very diversified fleet and we have significant experience with multiple fuel sources. In the near-term we will continue to lower our carbon footprint by building out our renewable portfolio with an immediate focus on expanding our wind and geothermal operations.

In the medium term, as we look at the potential to replace some coal fired base load generation with natural gas fired generation we have the expertise and advantages to do so. We have been in the natural gas fired generation business for over 20 years. We also have excellent low-cost sites available and importantly, we have needed key resources at these sites, including ready access to transmission, gas lines and water supply, which we believe provide TransAlta with a strong competitive advantage for the future.

In addition, over this timeframe we can also look to expand our hydro operations through upgrades to our current systems and through new run-of-river projects. Here we have 100 years of hydro experience that we can draw on.

And in the longer term we will maintain open all our options for future coal generation using emerging technologies to lower and even eliminate emissions. Our prime focus here is carbon capture and storage with our own Project Pioneer. We continue to work closely with the federal and provincial governments and are industry partners including Austin, Capital Power and now Enbridge to prove this technology and to ensure the commercial viability of CCS and the future of clean coal.

However, Project Pioneer also gives us unique insights into all the emerging technologies. That is a valuable resource to have in any carbon constrained environment.

And with respect to Centralia, negotiations with the State are ongoing and both parties are still committed to reaching an agreement. So as environmental legislation continues to unfold, we believe TransAlta is well positioned for the future with many opportunities and many options open to us.

With that, I will now turn the call back to Jennifer and we'll commence with our question and answer period.

Thank you Steve. 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 individual investors. So please identify yourself when asking a question. I remind you that we do not provide guidance, and that we shall answer your model-related questions offline after the call. Janet, we will now take questions, please.

(Operator instructions) Our first question is from David Ortman, a private investor.

I represent shares of TransAlta held by the Sierra Club and was asking whether or not TransAlta would be willing to forgo and stop the tax subsidy that Washington State Legislature has granted to Washington Centralia plant in order to make those funds available for the transition to a natural gas at a far more rapid date than what has currently been on the table?

As you know, we are in discussions with the State to find ways that will meet both their requirements and our requirements over time to reduce our carbon footprint. Those negotiations are ongoing and until they're finalized I would have nothing else to say on that.

Your next question is from Sam Kanes from Scotia Capital.

Steve, in this process with Centralia and the Canadian government, obviously shareholders out there and analysts and you too are looking for some form of granularity or protection, if you may, of existing shareholder investments through this transition. That was your number two point of course in Canada, the dollars of transition how they are allocated and of course the words of principle that you have at the moment in your Centralia MOU. How much granularity do you think we can expect or you're trying for of that shareholder transition protection comfort I guess and will it lead potentially into say reregulation, like a number of states have done in the United States?

Sam, let me try here; there's a number of points there. First, our principle in starting all of this is shareholder protection, that's where we start from day one. I think then we go into negotiation processes; those by definition have to be I think held in confidence until people can come to agreement on some very tough issues. But certainly once we're through that process, we want to share with the shareholders as much as we could within the confines of that. I can assure you we are not going to agree to anything that we feel would hurt our shareholders short or long run.

I think there's understanding by all the parties involved here that that's an important issue and we see a great willingness to work with us on that issue. So at this point I'm confident we can get through with that. Certainly granularity is coming, but it will be dependent somewhat on the pace of negotiations--.

Reregulation risk or even opportunity or how these transition dollars are treated?

Well first just one comment. These processes will take some time, they're complex, they're important and I don't think we can expect quick answers but I think we will get positive answers. I would say that certainly in Alberta I do not see a move to any reregulation. I believe the government is quite dedicated to open markets and I think that can be preserved through this process and that consumers in the province and the companies will benefit from that, so I don't see that. In the US I think we're sort of in a hold position but certainly what we're working with in Washington State would be more cost of service than it would be regulation.

Your next question is from Matthew Akman from Macquarie.

I wanted to expand on the same theme as it relates to Alberta and in particular I'm just wondering how you see the process for negotiating or discussing, finalizing the details of how these coal plants survive or don't survive with governments. You've got some big decisions to make on CapEx over the next three to five years even on these plants and I'm just not sure if there's a process in place to achieve clarity on exactly what the rules are, what the standards are that they have to meet and exactly when they're going to go out of service.

Good questions Matthew and thank you. First of all, I would say there is a very clear cut process with both the federal government and the provincial government that involves consultations, strong consultations with industry and negotiations, discussions between the province and the federal government and the essence of those discussions I think the core principles are reliability, supply and maintaining a system that encourages investment in the power sector. So I think those are at the core of that.

I would say that the good news here - and I think I mentioned in my comments, we do have time. That is the good news here. All the proposals will not take effect until 2017 at the earliest. We've got seven years. More importantly, TransAlta as a company, we've been gearing up for this for three or four years now. It's not new to us, not surprised by it and as I mentioned in my comments, we have lots of optionality around whatever outcome comes. That's basically a result of our expertise in multiple fuels and multiple markets and ability to move and flex.

So a cornerstone of our process is maintaining optionality as long as we can and I sense on both provincial and federal government side a great understand of how critical this process is. They will take their time and I do believe at the heart of it they want to ensure that investors are not hurt during the process. So I think at this point I have confidence we'll get through this in excellent shape; a lot of time ahead of us though to finalize everything.

Is there a taskforce in place or something like that, including government officials at different levels and coal generation company representatives or what is the exact - is there something like that?

I don't know if I'd use the word taskforce, but there is proactive engagement by the Minister Environment federally, the Minister of Natural Resources federally, the Minister of Energy in Alberta, the Ministry of Environment in Alberta and I believe this will go the Premier level certainly in Alberta. So there is an active process, there is active engagement and there is active consultation, with an issuance being taken both by governments and industry to try to get all the details resolved.

There has been a lot of work done. I think there's a lot of work to be done. That has to be done I think with some degree of confidentiality around it while different options are looked at, explored and numbers are shared, but I can assure you there is a good process in place. I feel comfortable with it anyways at this point and I think it will lead to positive resolution of this whole situation in reasonable time. I don't know the timeframe, but I would hope within the next 12 months.

Your next question is from Robert Kwan with RBC Capital Markets.

Question on the 2010 outlook for EPS growth. You're now quoting double-digit, I guess it's a small change but previously it had been low double-digit; watt that intentional and can you provide some more color on that?

Given our midyear and given our contract position and what Steve had said in terms of the outlook in terms of higher prices, right now we are comfortable where the analysts are at in terms of our outlook and that's pretty much what we're going to provide at this stage.

So there's no change though moving from that double-digit to low double-digit, there's nothing behind it, no change in your outlook?

No. Robert, I would just take 2009 and say that was a bit of an abnormal year and that on a longer-term basis we would still be consistent with the low double-digit growth over time. It varies a bit by year but overall, so no change at all in reference to consensus for this year.

Secondly, on energy trading, can you provide some more color on the bets that were taken that went against you that compressed the results?

Robert, we don't bet, but I will turn it over to Brett to respond to you.

It was down for a couple of reasons. One, we had high precipitation in the West that was unexpected and came quickly and then we also saw lower spreads and congestion constraints in the East. As I mentioned though, we're not going to try to make up Q2 in the backend; we are going to look at our trading strategies but we're not going to be increasing our risk to try to make it up.

I didn't mean necessarily bets, but just to be clear, these were proprietary positions; they weren't backed or traded around the physical?

They were proprietary, that's correct.

Your next question is from Andrew Kuske from Credit Suisse.

I guess a question for Brett and it's just in relation to the margins. If I looked at your margins on the basis of what you produced this year, so if I looked at revenues per megawatt hour production, that actually declined versus last year and your margins actually declined versus last year. So just philosophically, how do you think about your margins in that kind of framework versus what you present in the MD&A with your margins actually improving versus your per-megawatt hour of installed capacity?

I'll make a couple of comments there. First, if you actually take out trading you'll see that and look just solely at our generation you will see our margins have increased not only as a percentage of revenue but on a per megawatt hour, but also if you really look at our disclosure quickly, what you're going to see is that our renewables went up quite significantly on a per megawatt hour plus they're starting to contribute more to our fleet, so overall we're moving in the right direction from our perspective, given the assets we've been adding both from the Can Hydro and some of the other assets we've been building. Plus we are very focused on our OM&A and some productivity initiatives to enhance those margins going forward.

Then when you think about the renewables in the mix, because it's clearly been very beneficial for you, this might be a question both for you and for Steve, when you start to look at some of the competition and the players coming into Canada, Nexterra or FPL, whichever name you want to use, coming into the Canadian market to a greater degree, International Power among others, do you see it a bit more challenging to actually allocate capital in that area?

Maybe I'll start, Andrew. No, I would say not, if you just look at the various renewables, we either own the resource or have tremendous expertise and we bring to bear a very strong balance sheet and access to capital markets that many competitors don't have. So whether it's a greenfield development or an asset acquisition, I believe we're well positioned. We've proven on wind that our capital cost per kilowatt are among the lowest in the industry, we have tremendous expertise in hydro I've mentioned, and we're excellent at determining wind resource and where to build. They're good competitors and that's fine, but I think we're well positioned to continue to grow steadily in the market.

Your next question is from Michael McGowan from BMO Capital Markets.

I have a question about some of the nonrecurring items that were recorded this quarter. You had a $30 million tax recovery and also $14 million in interest expense; is that $14 million in addition to the $30 million tax recovery as in interest you believe is owing to you?

Yes, it is in addition, so the $30 million is just due to resolution of certain outstanding tax matters as is the 14 but they are combined, you have to combine the two.

So it's really 44 million.

The 14 million is a pretax and the 30 is an after-tax.

Okay. Can you comment on what periods those relate to specifically?

We don't comment on our tax matters, so all I can say is just due to past tax matters and resolution of them.

Okay. If I can ask just a follow-up question. You provided some guidance on your hedging numbers for the second quarter of 2010 but I didn't see any outlook for 2011. Have you updated that at all?

We haven't at this stage and we'll probably do that at Investor Day.

Mike, it hasn't changed from our guidance that we've given in the past in our road show presentation, so that guidance for 2011 still holds as to what is contracted and the average price of that.

Your next question is from Chad Friess from UBS.

You mentioned that the second half of 2010 doesn't look that good from a power price perspective but 2011 looks better. Perhaps you could discuss some of the factors that make you more confident that an improvement in the Alberta power market is coming in 2011 given the specter of continued low gas prices and with Keephills 3 coming on-stream?

One, we are seeing demand growth in Alberta for power, probably in the 2 to 3% range and so that will start to have an impact. So I think it's just general improvement in the economy is probably the main drivers. We're not necessarily going to see spectacular price increases but the economy is starting to improve and we'll see some. The other thing is the reality is still that replacement power continues to be at much higher cost than existing and ultimately that price has to start to be reflected in the market prices. So we'll see modest improvement next year based on economic growth particularly in Alberta.

Thanks. Looking at your current slate of capital spending, most of it comes to an end early to mid next year. I was wondering if you could provide a bit of clarity on how you're thinking about where you will direct 2011 cash flow and how you'll balance that with debt repayment?

Again, we're constantly looking at growth opportunities so we'll monitor that as we get closer. Clearly if we don't have a place to park the cash in the immediate term, we'll put it towards debt to shore it up for the future long-term growth.

Your next question is from Bob Hastings from Canaccord Genuity.

To pull up on the Alberta power market outlook, you mentioned that replacement costs power, particularly in renewables is much higher, which I would agree with. So my question I guess is that you've been experiencing very low cost in wind power capital cost; how did you get there? And then secondly, are people just building wind power in Alberta just to be able to show power turbines in their annual reports? I see Suncor is looking to build quite a bit of power and just sell into the merchant market.

Bob, I can't comment on what other companies are doing. For us, it's fundamental to our strategy to grow the company and reduce our carbon footprint and most importantly make money with it, so that's our three key drivers. The reason I believe that we have a good competitive edge in wind is really based on 10 years experience.

We've developed construction project management techniques that we're able to transfer from project to project so our learning curve is paying off there. We have long term relationships with key suppliers of turbines and managed to negotiate good contracts with them both for capital costs as well as for ongoing maintenance and we have a very strong team with 10 years experience on managing this. Mistakes were made early in the process 10 years ago and so they're not repeated and they're not magnified. Other people are still login through the process. I think net net, really 10 years experience and learning have combined to give us an edge and it's a key part of our growth strategy and it gives us the long-term contracting and the lower carbon footprint and good margins, all good things from a shareholder perspective in my view.

And you've continued to build wind in Alberta despite the current market conditions. Have you been able to secure longer-term contracts at better prices or are you just selling into the merchant market?

We're doing both contracting and a bit of merchant and that merchant risk is taken within the context of our total portfolio of managing some upside and leaving some upside there and actually I feel quite good about that mix right now.

Your next question is from Matthew Akman from Macquarie.

I had a follow-up and it relates to this Sundance forced outage and de-rate. I know that you guys quantified the impact of the outage to the end of June essentially but I'm just wondering if you've looked at and if you could at all quantify the potential ongoing impact of the de-rate through the rest of this year and 2011 and into 2012? Is it meaningful?

Matthew, I think what we've said in our disclosure is the asset right now is running at about a capability of 325 megawatts and so based on your outlook for forward pricing in Alberta, you can calculate what you expect the impact to be. I don't think it's significantly material for the balance of this year and certainly in through the balance of 2011 and 2012, so I don't think we're going to forecast what the impact of that is, but we've kind of given your our outlook for the capability of the plant.

Your next question is from Linda Ezergailis from TD Newcrest.

Is it reasonable to assume a 20% marginal tax rate on the $14 million interest recovery?

We won't comment on specific items. We've provided our guidance in the MD&A of our effective tax rate of 20 to 25%.

All right. In your MD&A you gave an update on the change in economic usable life review that you're doing and I guess most recently the focus has been on the coal fleet as well as the mining assets; what other assets are still pending in terms of the comprehensive review and I guess specifically in the Q2, the reduction and depreciation of 7 million, would that be considered an ongoing effect or was some of that kind of a onetime change as well?

To answer your questions I think there were two. I'll answer your last one first. Yes, that's an ongoing change, the depreciation. And then in terms of the review and I think we addressed this in Q1; we are looking at our gas and hydro assets, but again we'll be very conservative in the way we assess those and we don't see a material impact but we haven't completed our work yet.

And we've completed the coal work, Linda.

When do you expect to complete the hydro and wind by?

At this stage it's difficult to provide you a sense, but my sense is by the end of the year.

(Operator instructions) Your next question is from Shawn Burke with HSBC Securities.

Can you give us a little bit more detail about your current liquidity position? Are comfortable with the levels of short-term debt that you have? Do you have any financing plans going into the second half of this year? And if there are any noteworthy discussions with the rating agencies, can you update us on that?

Three questions I guess that you asked. The first one with respect to our liquidity we are very comfortable with our position right now, we have ample liquidity. One of your other questions was with respect to credit rating agencies; we had discussions with them in January of this year and we'll be having some strategic reviews with them very shortly again. We keep in touch with them all the time. And the third question, we don't really preannounce capital market activity but with our recent $300 million issue that we did in March, we don't see any real immediate needs for capital.

I'm trying to do the short-term debt calculation and it looks like it's fairly heavy. I was wondering if you feel comfortable with the amount of short-term debt you have outstanding?

Yes, we are comfortable with that. We're taking advantage of some very good short-term rates right now.

We have no further questions at this time. I would now like to turn the meeting back over to Ms. Pierce. Please go ahead.

Thank you operator. We'll open the call to any media that may have an interest in asking management a question at this time.

(Operator instructions) We have a question from [Dina Omira] from Calgary Herald.

My question pertains to offsets and how TransAlta in Alberta and Canada is dealing with a future where it won't be able to count on the offsets as much as you had previously thought?

As you know, our strategy around the environment has been multipronged; we don't rely on any one particular mechanism to deal with the environmental consequences of impending legislation, so in the past we've looked at offsets as one piece of that. Remember that in Alberta we still have a $15 per ton levy on emissions so to the extent that we have offsets that would be eligible for that we would use them for that process. Given the shift in the way the legislation is changing both in Canada and in the US, we haven't done any recent offset transactions and in fact, we've sold a little bit of the position that we have. So that's how we've been dealing with it.

(Operator instructions) We have no questions at this time. I'd now like to turn the meeting back over to Ms. Pierce. Please go ahead.

Great. Thank you very much operator. I think with that we will conclude our second quarter conference call and if you have any specific questions, Jeff and I are certainly available following the call to help you with your analysis of the quarter and outlook going forward. Again, thank you for your time. Have a good day.

The conference is now ended. Please disconnect your lines at this time.