TransAlta Corp (TAC) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the 2010 Fourth Quarter Results and Year-end Conference Call. I would like to introduce Jess Nieukerk, Director of Investor Relations. Please go ahead, sir.

Thank you, Teresa. Good morning, everyone. I am Jess Nieukerk, Director of Investor Relations. Welcome to TransAlta's Fourth Quarter and Year-end 2010 Conference Call. With me are Steve Snyder, President and CEO; Brett Gellner, Chief Financial Officer; Dawn Farrell, Chief Operating Officer; Ken Stickland, Chief Legal Officer; and Hume Kyle, Vice President, Controller and Treasurer.

Earlier this morning we released our fourth quarter and full year results. We hope you have had a chance to review them. Additional offering information will be posted on our website after the call. All information provided during the 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 this review are in Canadian currency unless otherwise stated.

In addition, the non-GAAP terminology used in this call, including comparable earnings, comparable EBITDA, operating income and gross margin is reconciled in the extended news release. Per-share figures for the fourth quarter 2010 are based on an average of 220 million shares outstanding compared to 211 million shares in the fourth quarter of '09. For the full year, per-share figures are based on 219 million shares outstanding compared to 201 million in 2009. Please note financial information has been rounded to the nearest whole number.

On this morning's call, Steve Snyder will provide an overview of 2010, and the progress we have made against our strategic initiatives. Brett Gellner will provide details on our cash flow, OM&A, capital allocation, and balance sheet items. He will also provide an update on our core markets and our contracting. And before going to Q&A, Steve will provide more context around our Sundance 1 and 2 units, and provide an outlook for what investors can expect for 2011. Steve?

Good morning. I am pleased to report today full year comparable earnings growth of 9% over 2009. We achieved comparable earnings of CAD0.40 per share in the quarter, the same as last year, and CAD0.98 per share for the full year compared to CAD0.90 in 2009.

As we look back on 2010, we would characterize these results as satisfactory in light of the challenges we faced. In absolute terms, we would want to do better. The challenges of 2010 were mostly issues beyond our control. They included weak market conditions, historically low wind resources, unseasonably low hydro resources. Taken together, these issues meant we had to make up a lot of ground, and we did. But it wasn't enough to overcome all of the market-related impacts. Overall, though, I do feel that we advanced well on many of the initiatives that are within our control.

On driving our base, we set out to hit an aggressive availability target of 90% for the year. We didn't quite make it due to the unexpected events at Sundance plants, but we came close. We achieved 88.9% availability, a strong improvement over the 85.1% achieved in 2009. Excluding these events for the year, we would have been right in line with our target.

Driving the base also means driving productivity and cost savings. We started out with a target of offsetting inflation on our OM&A expenses and holding them flat to 2009. As Brett will tell you, we did an excellent job in this area and came in 5% ahead of our initial target.

Our second strategic imperative is to green and diversity our portfolio. We successfully commissioned three new wind facilities -- Summerview, Ardenville and Kent Hills, 189 megawatts in total, on time and on budget. We also successfully completed the full integration of Canadian Hydro's operations into our fleet. In just two years we have almost doubled the size of our renewable fleet and operation, bringing the total close to 2150 megawatts.

We also made steady progress to reposition coal. We are much closer today to providing future certainty for all of our coal assets than we were a year ago. This is a result of the MOU that we signed with Washington State, the realignment of our major maintenance plans for our Alberta coal units in conjunction with the federal government's plans to phase out coal at 45 years, and the advancement of Project Pioneer, our carbon capture and storage project. I will update you more on these initiatives in a moment.

Finally, in 2010, we announced a 15 megawatt upgrade at Sundance 3, and our plans to develop Sun 7, a 700 megawatt natural gas-fired plant that will enable us to capitalize on our existing infrastructure at Sundance as we phase out of our older coal-fired units.

So, overall, although 2010 was challenging from the market, we have successfully delivered on many of our top initiatives, and I feel we have good momentum as we go into 2011.

Before I talk about what to expect in 2011, I will turn the call over to Brett, to update you on our financials.

Thanks, Steve, and good morning, everyone. I am going to provide a review of our comparable EBITDA earnings, cash flow and capital expenditures for the year. I will also provide an update on our liquidity and balance sheet strength, and provide an overview of our core markets and contracting for 2011.

Overall, we performed well relative to last year, especially considering the challenges that Steve mentioned. Our 2010 comparable EBITDA was CAD77 million, or 9% higher than 2009, reaching CAD965 million in 2010. This is primarily driven by the addition of higher margin renewable assets to our fleet, improved availability and production in our coal fleet, a full year of the new contract at Sarnia, and lower OM&A costs. These positives were offset by lower than expected wind resource in the first quarter, the retirement of our Wab facility, and lower prices.

With the addition of Canadian Hydro and construction of new wind assets, our renewable business now contributes 24% of our generation gross margin, up from 18% in 2009. Our OM&A was 5%, or CAD33 million lower than last year. This was a result of fewer outages and lower costs due to productivity improvements. We were able to reduce our OM&A despite adding approximately 950 megawatts of new renewable generation assets since October 2009, when we acquired Can-Hydro.

Our energy and trading business had a strong fourth quarter, delivering CAD24 million in gross margin, up from CAD10 million last year. For the year, energy trading delivered CAD41 million of gross margin, which was in the middle of our revised guidance range of CAD30 million to CAD50 million.

Our interest costs were higher than last year as we had the full year of costs and debt associated with the addition of Canadian Hydro acquisition. So, with higher comparable EBITDA and lower depreciation offset by higher interest costs, we were able to achieve comparable EPS for the year of CAD0.98.

Our funds from ops and cash flow from operations also increased year-over-year. Funds from ops increased by CAD54 million to CAD783 million, while cash flow from ops increased CAD231 million, reaching CAD811 million. This was driven by higher cash earnings, but also from positive changes and working capital.

In terms of our capital spend in Q4, we spent CAD87 million on our growth projects and CAD470 million for the full year. This was slightly below our target spend of CAD475 million to CAD535 million for the year. In sustaining CapEx we spent CAD106 million in the quarter and CAD308 million for the full year, which was in line with our target of CAD275 million to CAD320 million. And you can see our full year MD&A for more breakdown of this.

Our year-end financial position remains strong and reflects our ongoing focus on maintaining investment grade credit ratings. We undertook a number of initiatives in 2010 to enhance our financial strength. So, for example, we revised our dividend reinvestment plan in the second quarter of last year, and this plan has attracted good participation. The plan is expected to reduce our dividend payments by CAD65 million to CAD70 million annually. We also issued 300 million of preferred shares in December at 4.6%.

Finally, we undertook a number of initiatives to reduce our costs in alignment to the lower market conditions. All of these initiatives combined with higher cash flow allowed us to reduce our net debt balance by approximately CAD180 million year-over-year.

We have also disclosed our intent to sell our 25% interest in the Meridian facility, the proceeds from which we will be using to retire debt. This transaction is still subject to final consent, but we expect to close it by the end of April.

Finally, we continue to maintain ample liquidity to support our business requirements. As of December 31, we had approximately CAD1.1 billion available under our CAD2 billion of committed credit facilities.

So, now I just want to provide an overview of our core markets in our contracting. In the Pac-Northwest, prices continue to remain soft due to low natural gas prices. Also due to weak demand and strong hydro conditions. In this market, forward prices for 2011 are currently trading at only $27 per megawatt hour. We don't see much improvement there at least until 2012, provided the natural gas market strengthens along with demand.

In Alberta, the low natural gas prices will continue to impact the market. We are seeing forward prices strengthened. The Alberta economy is strengthening and with it demand is improving. Forwards in Alberta are currently trading up in the 60 to 65 range for 2011, and in the 55 to 60 range for 2012.

Although prices are forecasted to remain low through 2011 and perhaps into 2012, especially in the Pac-Northwest, we have continued to be diligent in our contracting strategy.

Coming into 2011, we were 91% contracted on a full fleet basis, or 83% contracted on our merchant megawatts. A large portion of our contracting relates to our merchant megawatts in the Pac-Northwest, which affords us some protection from the low price environment. The average price of our contract in Alberta for 2011 was in the range of 65 to 70, and for the Pac-Northwest, it is in the range of 55 to 60.

For 2012, we are currently 82% contracted on a fleet basis with contract prices in the same range as 2011.

So, just before turning it back to Steve, I just wanted to comment on two noncash, noncomparable items impacting our results. The first relates to a CAD28 million after-tax mark-to-market gain associated with some power price hedges against the output of our Centralia facility. While these hedges remain effective economic hedges, they have been deemed ineffective for accounting purposes. This resulted in the gains being recorded in Q4 rather than at their settlement dates, the vast majority of which will occur in Q2 2011. Therefore, while future earnings will be lower as these hedges settle, the expect cash flows remain unchanged.

The second item involves a CAD54 million after-tax impairment charge related to select assets in our gas and coal fleets. This charge is a result of our updated fair value analysis that reflects lower natural gas prices and therefore lower power prices going forward in analyzing our coal generation assets on a unit pair basis. This noncash impairment charge represents less than 1% of our asset value base and has no impact on cash flows.

So, with that, I am going to turn it back over to Steve.

Thank you, Brett. Before providing the outlook for 2011, I would like to comment briefly on our recent notice of termination for destruction of TransAlta's Sundance units 1 and 2 under the terms of the Sundance A power purchase arrangement. Sundance units 1 and 2 are TransAlta's oldest coal-fired generation units. They have been operated well and provided low cost, reliable power to Albertans for 40 years. On routine inspection late last year, our engineers discovered that boiler 2 conditions were outside of approved design limits. We immediately took the units offline and notified the Alberta Boiler Safety Association. They concurred with our actions and indicated that we could not return the units to service without their approval.

Over the last couple of months, TransAlta's engineering and operations staff, along with independent experts and key equipment suppliers, conducted a rigorous assessment of the boiler conditions and determined it would cost well over CAD100 million to repair the two boilers and restore the units to safe operating conditions. This meant it would cost significantly more to restore the units than they would subsequently earn under the governing PPA. The PPA contemplated this possibility and established terms to protect TransAlta's shareholders. The PPA also [laid out] procedures for the owner, the buyer and the Alberta Balancing Pool to work through their various interests.

These processes are complex and could potentially play out over an extended time period, so we will update the market as appropriate. That said, we are confident in our position and we expect to recover the net book value of these two units such that this event will not have the material and financial impact to our shareholders.

As for the rest of our coal fleet, let me briefly update you on what to expect from our longer term initiatives for repositioning it. I believe we will increasingly see developments in both Canada and the US that will provide more clarity for all of our coal assets. I will start by addressing Centralia.

Many of you may have seen or heard of several proposed bills that have been introduced to Washington State, calling for an early transition of our Centralia plant off of coal. These proposals are similar to private member bills in the Canadian context. As we have said before, we fully support an early transition to lower carbon powered generation in the state, and we continue to work with the State to find a viable solution. Centralia provides 10% of the state's baseload power. Accordingly, we do not believe that a transition before 2025 is feasible without negatively impacting grid stability as well as employment and the economic health of that region.

Any transition must allow sufficient time and diligence to transition employees and provide alternative baseload power without significantly increasing costs to consumers. That makes sense for Washington and for TransAlta shareholders. This transition will take time, but I believe that is exactly where we will end up, and we are committed to this, as is the State.

In Canada, we also continue to carefully monitor and participate in policy discussions at the federal level with respect to the federal government's 45-year proposal. We believe this proposal will be formally presented in the April time frame for consultation and eventually be finalized and put into regulation before year end. This proposed regulation brings more certainty to our coal fleet, and we continue to plan and manage our business accordingly.

Finally, we also continue to work with our partners on the front-end engineering and design of Project Pioneer, our carbon capture and storage project. This study will provide a more comprehensive review of both capital and operating costs, as well as help validate its CO2 reduction performance.

Our larger concern at this point is the lack of carbon pricing in the market. Without a price for carbon, it is hard to justify these expensive technologies. Although TransAlta believes that technology is a key driver needed to achieve Canada's environmental targets, it will not be without cost that must be recovered in the marketplace.

Let me turn now to our outlook for 2011. We are starting the year with a lot of momentum in both our generation and energy trading businesses. Our availability levels are back to historical highs and, as a result, we do expect to achieve 89% to 90% fleet availability for the total year.

From our energy trading team we expect to achieve CAD45 million to CAD65 million in gross margins. I think that is a realistic range given the economic times we continue to face in our core markets. It is modestly lower than what we felt last November.

We will also remain disciplined on our cost structure. For 2011, we expect to offset any inflation in our operations, maintenance and administration costs as a result of continued productivity and cost-saving initiatives.

To conclude today's conference call, I want to touch on how we continue to drive our growth strategy. In 2010, we successfully delivered on 189 megawatts of new wind generation on time, on budget. We also commissioned Bone Creek, our 19 megawatt hydro facility in BC. And in 2011, we will deliver on Keephills 3, our new 455 megawatt supercritical coal-fired facility with Capital Power scheduled to come on line in late Quarter 2.

And, finally, we continue to prepare for our three upgrades next year, Sun-3 and Keephills 1 and 2, which will add an additional 61 megawatts to our fleet.

On the new development front, we are looking carefully at asset acquisitions, as well as projects we have in our advanced development pipeline. This, of course, includes Sun-7, which we are accelerating our work on. So, clearly, we have a busy and challenging year ahead, but there are a lot of good things happening and our teams are set to deliver.

With that, I will turn the call back to Jess, who will handle 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, we do not provide guidance and that we shall answer your model-related questions offline after the call. Teresa, we will take the questions now, please.

Thank you. (Operator Instructions) The first question is from Sam Kanes from Scotia Capital. Please go ahead.

Good morning, Steve. I am aware of how complex Sundance 1 and 2 PPA is, I'm just wondering if there is any circumstance, and this is a hypothetical question, where TRP might make the decision to fund that CAD100 million-plus investment that looks to be required? Is that within the domain of this or is it virtually certain in your mind that Sundance 1 and 2 will not come back to service at this time?

Sam, it's Steve. I guess it is certainly within their prerogative to take a look at that as the [op] taker. At this point that hasn't been the case and we are now proceeding from all the official notices to go from here.

So, they have declined to do that, I guess, is what you're saying?

I wouldn't say they have declined; they haven't indicated they would wish to do that. I think that is their right to take a look at that and talk to us. We haven't had any discussion from that or initiative in that regard, but I think that option is open. All I can tell you is that hasn't been the case to date.

I see. Thank you, Steve. A follow-up question to do with, I guess, compressor equipment. Most gas-burning power plants, the critical point is when you get to that stage of actually procuring equipment, or a commitment to that, where would you say that is in the time frame of how you are accelerating your planning for Sundance 7, 700 megawatts?

Yes, in terms of Sun-7, we are now looking at the permitting and the advanced engineering stage, and talking to suppliers on equipment.

Okay. Thank you.

Thank you. The next question is from Linda Ezergailis of TD NewCrest. Please go ahead.

Thank you. Just a follow-up question to Sam's on the PPA termination process. In your determination of the Sundance 1 and 2 units being uneconomic to repair, replace, build or restore, what was your economic test? Did you take into account just TransAlta's expected future income, or did you include the owner of the PPA's future income when you were comparing whether or not to proceed with the repairs?

Yes, Linda, it's Brett Gellner. Within the PPA, and it sounds like you are familiar with the clause, you take into consideration a number of factors, including the age and condition of the facility and the incomes of ours and theirs. So, we took into consideration all those factors and that is what led us to make the decision to file for destruction.

Okay, thank you. And just moving on to a different facility, Meridian, what was the rationale for moving to sell that and where are you in the sale process?

Linda, it's Steve Snyder. The rationale is pretty simple. It was a small plant with multiple owners, and we felt that we could redeploy that capital at a higher rate of return, and our partners were interested in owning the unit, so it made a natural meeting to put that together. And I think Brett mentioned in his presentation, we are hopeful that the thing can be finalized in the next several months.

Great. Thank you.

Thank you. The next question is from Matthew Akman of Macquarie. Please go ahead.

Hi. I guess this question is for Brett in that it relates to the change in the way O&M is going to be treated in 2011. And obviously it looks like you're going to be capitalizing much more and expensing much less. Can you quantify, Brett, maybe the impact of that for 2011 relative to what it would have been if there hadn't been the accounting change?

Yes, Matthew. So, under IFRS, when we do our numbers, and you'll see this, obviously, come Q1, there is not a big impact on our P&L nor our balance sheet. And so even though you have this reduction on OM&A that goes into capital, you have to go back and recast the balance sheet as if you had capitalized that. And, remember, those expenses are generally depreciated over a relatively short period of time, so when you adjust for all of that plus some of the assets that will be equity accounted under IFRS, there is not a big material impact.

Now, in any one year, depending on what that expenditure is, we could see a little higher or lower, but over kind of a three-year period, it will average out. So, our plan is to -- we are still thinking through how we can maybe hold a bit of a call just to walk through that at some point here, because it is -- there are four or five items that I think people need to be aware of. But net-net, there is really not a material impact.

Okay, but just as a follow-up, am I right in thinking that the amount of O&M expense is going to be tens of millions of dollars less than it would have been? I mean, in 2010, I think you were expensing 30% to 40% or something of a lot of this maintenance, and you are guiding that in 2011, you are expensing virtually none of it.

Yes. So, Matthew, if you go back even in our, I think our Q3 or even previous years, we show how much we had expensed, and that can give you a bit of a guide for that. So, I think 2010, we suggested in the 65% to 75% was being expensed. Previous years, it really depends on the maintenance schedule, but that will give you a sense of how much would move.

Okay, so just bottom line we're looking at an increase in D&A, then, to offset that?

Yes, and there are a few other moving parts, as I say, on the P&L just for other factors. I want to leave you with the net-net piece, because if you're only looking at one part of the income statement you are going to miss the movements in the other parts.

Okay. Thanks a lot, Brett.

Thank you. The next question is from Juan Plessis of Canaccord Genuity. Please go ahead.

Thank you very much. I was just wondering, how will you be accounting for the PPA revenue from Sundance 1 and 2 in 2011?

Yes, so our position is that we have an FM and we are entitled under an FM to our capacity payments. Clearly, we have filed destruction at the same time and are going to proceed with that process with the buyer. So, at this stage that is our intent and that is how we are going to move forward.

Okay, thanks for that. Also, there is a comment in the release that you are not going to operate the Poplar Creek facility in 2011. Just wondering if you can provide a bit of color on what's going on there?

Sure, and it's only part of the Poplar Creek. There are two real assets up there. One is the cogen, which will continue to operate and own. It's a base plant. We have turned that back to Suncor, and that has very little impact on our financial statements. We just thought they were better suited to operate that plant than we were.

Okay, great. Thanks very much.

Thank you. The next question is from Michael McGowan of BMO Capital Markets. Please go ahead.

Hi. Good morning. Just a bit of a procedural question. For the last number of quarters you have consistently reduced, have been reducing your depreciation expense based on life extension estimates. Can you talk a little bit about which assets in particular those relate to and I guess the rationale there?

Okay. Michael, it's Brett. Yes, and I think we have disclosed this throughout. We looked at our asset lives that we are using for our coal fleet, and so we updated for that. And then, also, just in terms of when we went to decommission our Wab, we got some benefits just because the cost of decommissioning was less than what we had booked. And so those are the two main factors going forward. Clearly, as we add new assets, we have to factor that in, too. So, those are the two main things and I believe we have disclosed that in our previous financials.

Okay. But the coal fleet, I mean, they have fixed useful lives, so it essentially related to some of the maintenance work you've been doing there? Is that really what it is?

Yes. No, really, we aligned it to the 45 years, which is the proposal that is being put forward by the federal government.

Okay, great. Thanks. I'll jump back in the queue.

Thank you. The next question is from Robert Kwan of RBC Capital Markets. Please go ahead.

Good morning. Just on Sun 1 and 2, were there -- when you were doing kind of previous work on the units, were there signs in the periods leading up to December that there might have been some problems at the unit?

No. When we did this inspection, we were surprised at what we saw and acted immediately on the results of the findings. So, at the end of the day, the units are 40 years old and these things happen.

Okay. So, I guess there is nothing really you can learn from what happened here that --

Well, we certainly have done a lot of -- we spent two and a half months here doing extensive inspections of the units and reviewed everything and all the procedures, and of that I am sure there will be learnings. I would just say a broad comment, boiler corrosion is an industry issue, it's industry-wide. It is particularly an issue as units get older, and there is not a lot of industry experience on 45-year-old coal plants of this size and vintage and technology. So, we have to look at new techniques going forward, and this has been helpful in testing those techniques, and we'll be able to use those techniques now on other plants as we go forward. So, it's been positive in that regard.

Okay. And just a last question. The asset sale for Meridian, it sounds like that's probably just a one-off, but I thought I'd just ask the question, any thoughts on some of the other plants, either some of the very small plants that you've got or maybe Australia? Anything there?

No. Basically, our approach has been very consistent. It is basically a hurdle rate approach. If the assets are at or above our hurdle rate, we like them, and if they're not we don't like them, and we either fix them or find a solution. I just think in the Meridian case, while it might have been at the hurdle rate, it was a small unit and there was a strong interest in our partners to try and consolidate, and we were supportive of that effort.

Okay, great. Thanks very much.

Thank you. The next question is from Chad Friess of UBS. Please go ahead.

Hi, guys. Not to beat a dead horse, but I was wondering if you could discuss how the issues at Sun 1 and 2 differed from those at Wab 4 from 10 years ago? I ask because it seems like the issues happened around the same point in their respective unit's lifecycle.

Yes, it's Steve here. Well, first of all, the Wab technology was quite different, particularly the boiler. It was a different technology in the boiler. It was a different issue at Wab. It was what we call stress fatigue, not corrosion fatigue. And, of course, the operating parameters around that plant were much different than the Sun 1, 2 units. And so while we did look to make those comparisons, we could not find any, and there was really no learnings from that plant that could apply to Sun 1 or 2 in any way. Different technology, different issues and different problem with the boiler than on Sun 1 and 2.

Okay, thank you. And just a housekeeping question. Tax rate is guided towards 17% to 22% next year, a little bit higher than previous years. I'm wondering if you can shed some light on the change there?

No, I think it's just really reflecting -- we deal with our tax department and they go through the math and that's what they give us. The resource allowance came into this year, so that had some noise, I guess, in the rate, plus higher earnings.

I'd like to think it's just because we're making more money, and that's what we'll try to do this year, too.

Good problem to have. Okay, thanks, guys.

We'll try to drive that one hard.

Thank you. The next question is from Mark Barnett of Morningstar. Please go ahead.

Hey, good morning, guys. I know you had mentioned today that you are looking at a couple of acquisition opportunities. I know you're always on the look for something that meets your hurdle rates, but I'm just wondering if there was a particular area of interest or type of generation that was sort of at the top of the list?

Steve here. We remain quite focused on what we have been consistently trying to do the past three or four years, which is renewables across Canada and generate some assets in general along the West Coast of US and Canada. Those are the markets we know best and where we think there is some excellent opportunities. And so we continue to -- anything that would fit that criteria we have a strong interest in looking at to see if we could expand our fleet profitably.

Okay. So, not really looking around in the US despite some of the maybe weaker power conditions and distressed operators?

Well, we're looking at anything certainly right now that would be sort of on the West Coast that we could link in our core operations in Washington State, to use our knowledge of trading marketing transmission systems, to bring a competitive edge to it. And at this point in time we think there is enough opportunities there, we don't have to look further afield than that. But I would say just broadly speaking we do believe that we want to grow this company, and if those opportunities are exhausted, then we will reexamine where we have to look. But right now we think there is enough in that area.

Great. Thanks a lot.

Thank you. (Operator Instructions) The next question is from Linda Ezergailis of TD NewCrest. Please go ahead.

Great. Thank you. In your outlook section, you mentioned that you expect and anticipate a modest comparable EPS growth in 2011. Can you clarify, is that also the CAD0.98 base? And is that kind of restating 2010 to IFRS, or is that CAD0.98 and then some growth with IFRS earnings in 2011?

Yes, so two points there. Again, back to my earlier comment. IFRS will not have much of an impact, so I don't think you need to adjust for that. But the modest growth just really into 2011, when you look at the power prices. Obviously, as we indicated, we are seeing some strengthening in Alberta, which is positive. Less so in the Pac-Northwest. Longer term, again, we are positive on the Alberta market. We are starting to see the reserve margins further out tighten up, and we think that is positive. Clearly, natural gas will have an impact on that, but at the end of the day you've got to take it off this year, 2010.

Just as simply, we believe we will do better in 2011 off the CAD0.98 than we did in 2010, and IFRS, I have a hard time spelling it.

Well, I think we would all appreciate maybe a detailed call on those four or five moving items.

Yes, I'll leave that up to Brett.

Just a quick follow-up call. Your availability targets or expectations for 2011. I'm assuming that excludes Sun 1 and 2? Like, you just take the units out, or is that --

Correct. Just those units will not be restarted in 2011.

So, they are not in the numerator or the denominator?

That's correct.

Okay. Thank you.

Thank you. The next question is from Patrick Kenny from National Bank Financial. Please go ahead.

Good morning. Just looking at your credit ratios at year end, cash flow to debt ratio just dipping below your target of, I believe, 20%, 25%. I was wondering if there was any update on your discussions with the rating agencies in your current investment grade credit ratio rating?

Yes, it's Brett. We are always in constant contact with them. We meet with them regularly and we keep them up-to-date on all the things we are working on. But, yes, certainly we see a weakness in that one particular metric. But, again, we are committed to the investment grade ratings and part of it has just been the power market and low wind resources at the beginning of the year. So, we'll continue to stay focused on that. We also look at this stuff on kind of an average three-year average, not just any one particular year. There are other factors that are taken into consideration as well by the agencies beyond just the financials, like our business profile, our contracting strategy or risk profile. But we do stay in touch and work closely with them.

Okay, great. And just maybe a quick follow-up question your depreciation expense guidance going forward. I know there is another dip in Q4, but we should expect a bit of an uptick given IFRS going forward. So, just wondering what the new run rate should be quarter-over-quarter?

Yes, again, I think I want to lead you back with my original comment, which was don't expect much change on the P&L, bottom line P&L. So, I think we need to probably have this session to walk you through these four or five items just to show you what's moving on the P&L. Because just speaking to any one of them is -- normally, we don't give that kind of guidance specifically. So, there are other parts to it.

Okay, great. That's all I had. Thanks.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back to Mr. Nieukerk.

Yes, if there are no more questions, any last ones from the investment community, and then let's open it to the media, please.

Perfect. (Operator Instructions) The next question is from Juan Plessis of Canaccord Genuity. Please go ahead.

Thanks very much. You mentioned in the release the CAD114 million adjustment to depreciable assets due to updating the purchase price allocation of the Canadian Hydro acquisition. Just wondering what's going on there and if any of the associated CAD4 million of lower deprecation expense was a catch-up for previous quarters in the year?

Yes, so under normal, any acquisition you always go back and just have a look at your purchase price allocation, so that's what we did. And that resulted in a little bit more being booked to goodwill. But the quarter does reflect the full amount and that will go forward.

Okay, thanks for that. And just a follow-up. You had a large move in the mark-to-market hedges. Why such a big move in the quarter?

Again, it is due to the hedging effectiveness at our Centralia, and we dedesignated some hedges, so we had to take the gain in Q4 for accounting reasons. But the economics do not change on those, and so that is what you're seeing in the quarter. It just so happened we took that in this quarter.

Okay, thank you.

Thank you. (Operator Instructions)

Okay, Operator, let's open the call to the media.

Perfect. (Operator Instructions)

No questions?

There are no questions registered at this time.

All right. Thank you, Teresa. That concludes our fourth quarter, year-end 2010 conference call. I would like to thank the audience for joining us today, and I am available after this call for any follow-up questions.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.