TransAlta Corp (TAC) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the 2011 second quarter results conference call. I would like to introduce Jess Nieukirk, Director, Investor Relations. Please go ahead, sir.

Thank you, Melanie. Good morning, everyone. I'm Jess Nieukirk, Director of Investor Relations. Welcome to TransAlta's second quarter 2011 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 Todd Stack, Treasurer.

Earlier this morning, we released our second quarter results. We hope you've had a chance to review them. Additional operating information will be posted on our website after this call.

All information provided during this conference call is subject to the forward-looking statement qualification which is detailed in today's news release and incorporated in full for purposes of today's call. The amounts referenced in the review are in Canadian currency unless otherwise stated.

I also remind the audience that IFRS requires us to deconsolidate our Fort Sask, SeaGen, and Wailuku facilities and report these results of these operations as part of finance lease or equity income or loss on the statement of earnings. In addition, the non-IFRS terminology used in this call, including comparable earnings, comparable EBITDA, gross margin, and funds from operations is reconciled in the MD&A.

Per share figures for the second quarter 2011 are based on an average of 222 million shares outstanding compared to 219 million shares in the second quarter of 2010.

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. Brett Gellner will provide details on our cash flow, capital allocation, and balance sheet items. And before going to questions and answers, Steve will provide commentary on what investors can expect for the second half of 2011. Steve?

Thank you, Jess. Good morning, everyone.

Our second quarter results showed significant improvements over last year. We achieved comparable earnings of CAD0.29 per share versus CAD0.15 last year, almost double. These strong results were driven by great performance from all of our facilities and from our energy trading team.

In terms of operations, all of our plants continue to run well. Availability was strong across all five of our fuel sources. Our Alberta coal fleet was up. Our gas fleet was strong. And our geothermal, wind, and hydro facilities were ready to produce and benefitted from excellent renewable resources.

Wind resources were better than last year, and we experienced strong water conditions for our Alberta hydro fleet. These good resources, coupled with excellent availability and good cost management, produced strong margins.

In the Pac Northwest, we were able to turn seasonally strong hydro resources into an opportunity by economically dispatching our Centralia facility. That allowed us to advance and complete major maintenance work on both of our coal plants while maintaining our margin targets by purchasing low cost power to fulfill our contractual obligations. As a result and as we stated last quarter, we were able to meet all of our first half financial targets for our Centralia coal plant.

Overall, comparable generation gross margins were up CAD34 million in the quarter, an increase of 11% over last year. In terms of availability, if you exclude the impact of the business decision we made to economically dispatch Centralia thermal, our fleet availability was up 7% to 89% versus 82% last year.

Finally, our energy trading team delivered solid improvements this quarter, with gross margins coming in at CAD37 million. As always, our energy trading team remains disciplined in their strategy and it shows in their results.

As you can see, we've had an excellent quarter and delivered a strong first half of the year right across the organization. These results show the value of the work we've done to sustain solid plant operating performance, of our diverse fuels and diverse geographies in our generation portfolio, and the options that this diversity provides us.

Developing these options has been a core part of our strategy and we are clearly seeing the benefit, whether in the choices we can make in Centralia or from the volume increases we are seeing as a result of our investment in wind. This diversity is a significant and unique asset for TransAlta and for our shareholders.

Let me turn now briefly to the Sundance 1 and 2 arbitration. As this currently stands, the arbitration panel has gone through procedural issues and has identified dates in March and April 2012 to hear both our claims of force majeure and of economic destruction. This means we expect a decision to be forthcoming around mid 2012.

We are disappointed with this lengthy timing, and I believe most stakeholders are as well. The intent of the PPAs was that these types of disputes should be resolved in months, not years. The outcomes are critical to the industry decisions for providing adequate supply within the province. So, separately, we continue to work with all the stakeholders in this matter to see if it can be expedited in any way.

Before I talk about what to expect to the remainder of the year, I will turn the call over to Brett Gellner.

Good morning, everyone. As Steve mentioned, we achieved strong financial results this quarter.

Our comparable EBITDA was up 40% or CAD77 million compared to last year, reaching CAD271 million. This was driven primarily by the strong margins from our renewable assets and trading business combined with economic dispatching at our Centralia coal facility and steady operational performance across the fleet.

For the full six months, we generated comparable EBITDA of CAD558 million, which was CAD115 million higher than last year for the same period. The strength of our generation assets is reflected in the fact that approximately 75% of the CAD115 million increase was from our generation segment.

Our cash flow, measured as funds from ops, was up 12%, or CAD24 million, relative to last year, reaching CAD226 million in the quarter. For the first six months of the year, FFO was CAD452 million. Therefore, we're on track to deliver our goal of CAD800 million to CAD900 million in FFO for the year.

In terms of energy trading, we achieved gross margins of CAD37 million in the quarter and CAD52 million in the first six months. At this point, we continue to maintain our guidance of CAD45 million to CAD65 million for the full year. But, based on results so far this year, we'll likely be at the upper end of that range or even higher. We'll provide an update on our outlook in the third quarter.

Now turning to capital spend, in Q2 we spent CAD77 million on sustaining CapEx, of which CAD46 million was on major maintenance. For the full year, we still expect to spend between CAD310 million to CAD365 million, which includes the repowering of part of our hydro fleet and productivity initiatives. CAD180 million to CAD210 million of the CAD310 million to CAD365 million is for major maintenance.

We spent CAD33 million in the second quarter on growth and CAD66 million year-to-date. We continue to maintain our growth spend outlook of CAD125 million to CAD185 million for the full year. The full breakdown of our sustaining and growth CapEx can be found in the MD&A.

Finally, our financial position at the end of Q2 remains strong and reflects our ongoing focus on maintaining investment grade credit ratings and a strong balance sheet. Also during the quarter, we renewed our CAD1.5 billion syndicated credit facility, extending the maturity from 2012 to 2015.

Just before turning it back to Steve, I just want to comment on our net earnings for the quarter. Net earnings were lower this quarter compared to Q2 2010 primarily due to two items. First, Q2 2010 benefitted from a one-time tax recovery. Second, we also settled some of the contracts that we de-designated in Q4 2010 and Q1 2011 where we took gains. I'll remind you that the impacts of the de-designation do not affect comparable earnings nor cash flow.

With that, I'll turn it back to Steve.

Thank you, Brett.

The first half of this year has provided us with positive momentum. Comparable earnings per share in the first half are CAD0.63, up 50% over the same period last year. Funds from operations were CAD452 million, up 14%.

Let's look forward now to the second half of 2011. We will continue to focus our efforts on excellence in operations with the goal to deliver availability of 89% to 90% for the year. Although there remains a lot of overall market uncertainty vis-a-vis the economy, our goal is to be ready to take advantage of any improved conditions, however temporary.

I'd note separately that our availability target excludes the impact of our business decision in Q2 to economically dispatch Centralia.

We also continue to focus on managing our costs. Our OM&A costs have been tracking well and are flat to date year-to-date. We continue to invest in and achieve benefits from different productivity initiatives, and we fully expect to hit our goal of offsetting the impacts of anticipated inflation.

And finally, we continue to focus on and be disciplined with our contracting strategy. We are now approximately 95% contracted for the year, up from 91% at the end of the first quarter. This positions us well for the remainder of the year with the right balance of contracted and open positions for current market conditions. Our contracts range in the CAD60 to CAD65 per megawatt hour in Alberta and CAD50 to CAD55 per megawatt hour in the Pac Northwest.

Let me update you now on our overall growth strategy. I'll start with our current projects, which are all tracking well. Our 19 megawatt Bone Creek facility successfully commenced commercial operations on June 1st.

Our 450 megawatt Keephills 3 facility was synched to the grid just two days before that on May 30th and began an extensive testing period. The plant has been steadily and successfully ramped up from 25% load to full load. These and other tests completed to date have shown excellent results.

Currently, we see no obstacles to being able to declare full commercial operations for this plant in the third quarter. With the commissioning of Keephills 3, we will have added over 1,300 megawatts to our portfolio in the last three years.

Looking at 2012, New Richmond and our thermal upgrades are all on schedule. These projects will add another 127 megawatts to our portfolio. As it relates to our Sundance 3 and Keephills 1 and 2 upgrades, we have been able to confirm with suppliers in Japan that they now expect to meet their original delivery schedules. And therefore, we do not anticipate any impact on our plans as a result of the related disruptions in Japan. The upgrades will be completed over the course of the major maintenance cycles on each of the respective units.

We also continue to work on Sundance 7, our 700 megawatt natural gas fired facility which is tracking well. We are still targeting the 2015 timeframe for this plant. The Alberta market is showing strong signs of recovery and demand is forecasted to grow at roughly 3% a year for the next several years. Given current reserve margins in Alberta, we expect there to be more than enough demand to support Sun 7 along with the other proposed projects for that timeframe.

Overall, our development pipeline remains robust with solid opportunities in both wind across Canada and geothermal in the US. The strong commodities market is also creating new opportunities in Australia for generation growth, and we will take a close look at those opportunities.

And as always, we will continue to look at potential asset acquisitions that fit our profile and return expectations.

Let me now update you on what to expect with the ongoing process to contract our Centralia facility long term and lower our merchant exposure in the Pac Northwest. With the Energy Transition Bill passed and signed into law in Washington State, we have begun the task to initiate discussions with the various utilities and other potential buyers in the region.

We are confident about our ability to contract Centralia favorably, given the legislative framework and the overall need for baseload generation in the region. However, the process will be complex and it will take some time.

That said, we are still well contracted in Centralia over the next couple of years, and this provides us with some flexibility in terms of timing for signing new contracts. Longer term, our goal would be to shift our merchant exposure from the Pac Northwest to Alberta where we can compete in an open market.

Before concluding today's call, I want to comment briefly on the organizational announcement we made yesterday. I will be retiring from TransAlta effective January 1st, 2012. My timing is driven by the simple fact that over the next few years our industry and TransAlta have important long term impacting decisions to make on technology and growth.

It's my belief that the CEO making these decisions for TransAlta should be around to see them through to their conclusions. As I'll be 65 before that occurs, it makes sense to me to make this change now and not in two years.

Equal drivers are the current strength of the Company, and that the Company is also fortunate to have an internal candidate of Dawn Farrell's caliber ready to step in seamlessly and lead TransAlta through this exciting period of strong opportunity for the Company. Dawn knows the industry. She knows TransAlta and has been a significant contributor to our current position as well as our planning for the future. Now she will drive these plans as the next CEO.

Between now and year-end, I will work closely with Dawn to effect a smooth transition and maintain our current momentum, as demonstrated by our results over the last several quarters.

With that, I will now turn the call back to Jess for a 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 question offline after the call. Operator, we'll take questions now, please.

Thank you. We will now take questions from the telephone lines. Please note that questions will first be taken from members of the financial community and then followed by members of the media. (Operator instructions.) Paul Lechem from CIBC.

Thank you. Good morning. Just wondering if you can give us any schedule for any major planned outages through the balance of the year. You mentioned that the economic dispatch of Centralia helped you on that front a little bit. But, is there anything upcoming in the next couple of quarters?

Yes, we will have outages in the back half. And if you take a look at what we've spent year-to-date on major maintenance and then look at what we've shown in the MD&A in terms of major maintenance remaining for the six months, that'll give you an indication, Paul, of what's left on our outages.

Okay. Any details on facilities, specific facilities there?

Yes. At Sun 6, we do have some gas work yet on our facilities, some outages, and on units 4 and 5 -- Sundance 4 and 5.

Okay. And you mentioned the percentage of power that was hedged for the balance of the year. Can you talk about 2012 at all in terms of what, if any, is hedged out in 2012?

Yes. So, based on a similar way, it's about 85% for 2012.

And can you give us any pricing on that?

I believe we actually provide that.

I think, Paul, we've looked at -- I did mention there I think we're in the CAD60 to CAD65 range in Alberta, CAD50 to CAD55 for the Pac Northwest.

And the 85% is totally in line with our normal status at this time in the process. And as you saw the past year, we went from 85% to 90% to 95%. We expect the same thing to happen next year and very consistent with our hedging strategy.

Okay, thanks. And the pricing for next year is in line with what you have for 2011?

Yes.

Okay, perfect. Thank you very much.

Linda Ezergailis from TD Securities.

Thank you. First of all, congratulations to you, both Steve and Dawn, on the announcement.

I'm wondering if -- I don't know who can give me maybe some more color on your trading results, perhaps even starting with a breakdown of the outperformance between your strong operational results in the Alberta and Pacific Northwest region in trading versus the acquisition of electricity and natural gas contracts, like what was the nature of those natural gas contracts and might there be opportunities in the future.

Linda, well first I'll just thank you for your opening comment, but I'll now let Brett answer the tricky part of that.

So, Linda, just a couple things on trading. As you know, last year at this time we had a slow start in our trading business. Historically we've generated anywhere between CAD40 and CAD100 million in that business, averaging probably CAD60 million, CAD65 million. You saw in the back half of last year we had solid performance, and that's carried on into the first half here.

It's across our books. Clearly we saw some volatility in parts of Alberta that helped us out. But, our strategies are across all our books and we don't provide specific details on all our books and where we make our money. But, I don't know if that helped you out.

Not so much on the acquired contract side. Can you maybe clarify a little bit the nature of those and if that might continue, and what the magnitude of that contribution would have been in the quarter?

Yes. And I think we've communicated this in the past. We have been growing our C&I business. And we had an opportunity to acquire some customers and to really build that business. I would say, though, it's a small component of those trading results. And again, we don't provide that level of detail down into the --.

That was helpful context. Now, if I may ask a follow up question, the sale of Grande Prairie, can you disclose the proceeds and the reason for that sale and any other assets that might be sold?

We can't disclose the proceeds, but the reasons were quite simple. It was really an outlier in our portfolio, a result of the Canadian Hydro acquisition. We knew when we bought Canadian Hydro they had this asset. We did not see it as a long term fit for TransAlta and would proceed to find a buyer who would be more suitable for it.

In this particular case, the buyer, which is the forestry agent, really has -- it's really part of their operation. It makes much more sense for them to control it than for a third party in this particular case. And they wanted -- they were interested in it and we wanted to sell it. So, it was just a natural transaction.

Okay. Any other assets potentially up for sale less core?

Nothing, no. But, we've said consistently we're always looking at our portfolio. If something's not performing well, we either fix it or get rid of it. We don't have any in there to get rid of right now, but doesn't mean we won't have in the future. But, right now, there's nothing on the horizon.

Great. Thank you very much.

Juan Plessis from Canaccord Genuity.

Great. Thank you. Congratulations on a good quarter, and let me also extend my congratulations to you, Steve, on your upcoming retirement and to Dawn on the new role.

My question, with respect to the Sundance arbitration, you said you are working with all stakeholders to see if the process can be expedited in any way. Can you comment on what steps you are taking to expedite the process?

Yes, it's Ken Stickland here, just a couple of things. The claims process that we need to follow is set out in the terms of the PPA. So, we have a structured process that we need to go through, and that's the arbitration process. There are some opportunities to have some issues dealt with, some narrow issues dealt with by the courts. But, that's a more formal process.

In all of these issues that we face, whether they're under a PPA or any other contractual arrangement, we would always explore opportunities to resolve this on a commercial basis with our customer. I mean, that's always the goal, to try and resolve them on a commercial basis rather than on a contested basis.

In terms of the specifics of the steps, all I can let you know is that we're just engaged in conversations. There's nothing concrete. But, it's just part of the normal process of trying to resolve these things commercially.

Okay. Thanks for that, Ken. Now, as a follow up question, with regard to Centralia, the plant was out for the entire quarter partly due to economic dispatching and partly due to planned and unplanned outages. Can you talk about the unplanned outage and if that outage issue has been resolved, and also if the economic dispatching continues into the third quarter?

It's Steve here. I guess it's a -- there's a fine line in defining planned and unplanned. But, essentially when we saw the opportunity to economically dispatch, we decided it would -- we could move all the maintenance we could see into that period so that really it would try and get done efficiently. It eliminates overtime. It allows us to concentrate suppliers.

I can tell you that unit 1 came back last night and is operating -- ramping up now to full capacity. And we expect the second unit to be ramped up in the next 24 hours. So, we expect to run normally through the second.

Great. Thanks very much.

Michael McGowan from BMO Capital Markets.

Hi. Good morning. Just have a quick question about one of the write-offs during the quarter. You mentioned that one of the Canadian Hydro assets was written down, but you didn't say which one. Can you expand on that?

Yes. Again, we don't comment, Mike, specifically on those generally. So, it's just our -- part of normal valuation that we go through under IFRS. And it just so happened we had one asset that we wrote down.

Okay. And just with respect to Centralia and the economic dispatch there, I didn't see it in the financial statements. But, were you able to quantify how much margin you picked up through the economic dispatch?

No. Again, I think if you look at the MD&A, you'll see the bridge to last year and that'll give you a sense of the difference. But, we don't, again, provide that level of detail because it gets into a bit of our hedging strategies around those assets.

I think -- Michael, it's Steve here -- what we set out to accomplish and what we did with the economic dispatch, we looked at could we hit our targeted margins and do the dispatch and get our maintenance done, and would that be a better value process. And that's what we thought it would be, and that turned out to be the case.

I don't think that we were able to make more than we thought out of economic dispatching, but were able to hold what we targeted for the year in terms of making our year and, at the same time, do effective maintenance work. So, it was a hold on the margins and a win on the maintenance, net-net.

Okay, great. Thanks for that.

And we did that, and we hope that we'll keep that through the second half.

Andrew Kuske from Credit Suisse.

Good morning. Just a big broad question for you, Steve. I mean, obviously you've been with the Company for a long period of time. You saw the deregulation of the power market in Alberta, the IPP power bubble and collapse, several downturns during the period of time you've been with the Company. Just give us some perspective on how you believe you've positioned the Company over that period of time and really the next leg that Dawn will take over with the Alberta power market really tightening up at this point and some questions about what happens in the post PPA world.

Well, let's take an hour and a half presentation down to a minute and a half here and try to highlight in the strictest sense. Look, I think right now the Company -- the strength of the Company is in our diverse fuels and diverse geographies. And we've worked hard to get that over the last 10 years. That gives us lots of optionality.

So, we've got five main fuels, we're strong in all of them in terms of operations and resources and cost structure, and three geographies. So, simple math, any year we go into, we've got 15 sort of different opportunities that we can be addressing.

So, number one, we've got a strong growth base in front of us. Two, the team's done a tremendous job the last three years on operational performance. We've got -- we recognize we've got an aging coal fleet. Having said that, we've done great work the last three years to get the most out of it we can. And so, we feel right now that our performance in the plants is very strong and can be consistent going forward. So, that allows us to take opportunities in the short-term market, strong growth ahead of us.

We're well positioned on the environmental front. That was critical with all of the potential legislation. We're very well positioned in terms of not only renewables but dealing with the coal fleet relative to carbon capture and the Canadian rules.

So, net-net, where we sit today is a strong base, some excellent growth opportunities. And I believe that, going forward, convert those into steady both capacity and income growth, and that will hopefully drive the dividend and then drive shareholder value. I think that's simply put, and maintain the strong cash flow that we've got. So, I think we're in a very good position right now to go forward.

And then, just maybe a more specific question out of the broader question. How big of either asset base or cash flows will the Alberta market be for TransAlta in the future if we, say, looked five years out?

Well, I think during the next five years, I mean, we're in Alberta, so the PPAs are pretty set on their cash flow. So, I think that'll just be steady Eddie and we'll just deliver that. I think you could look at the growth opportunities. We've already identified in Alberta 700 megawatts of natural gas and we have potential for some more wind.

So, as those unfold, that'll just drive the cash flow up. And then, of course as we get closer to the expiry of the PPAs, there is an excellent opportunity as for capture all that margin that is now held by third parties. And that would provide very, very strong cash flow to help, one, replace the fleet, but more importantly, also grow the fleet. There's enough cash there.

So, I mean, my view is we just have steady cash flow improvement over the next five years and we get the big bump in post 2020 period.

That's very helpful. Thank you.

Robert Kwan from RBC Capital Markets.

Great. Thank you. I guess first best wishes, Steve, in retirement. And congratulations, Dawn, for the new appointment.

I guess just the first thing, and this is probably for Steve. I just wanted to get your thoughts on the -- what may unfold here on the federal government's coal plan. And specifically, do you have any comments around the potential to change the 45 year date and also the implementation date for 2015 and what odds you might attach to that?

Well, I think that, one, I think there will be a lot of work done in the next three months on the federal regulations. I think, in their mind, they would like to have something in place by year-end for a whole bunch of reasons, and I won't speak for them. But, that's the sense I get.

The Alberta government similarly would like to get this resolved because, without getting it resolved, all we have is uncertainty. And uncertainty is bad for new supply into market, and Albert needs new supply. So, my belief, broadly speaking, is that the forces at work, industry, provincial, and federal, are all geared to try to find a solution, a resolution between now and year-end.

TransAlta is comfortable with the 45 year rule. We're comfortable in principle with fixed dates for closures for coal plants. We can make that work for TransAlta. And we have the optionality, because of our CCS investments, to come out of that period with still coal optionality at the end of it.

And so, I think the key is I believe we will get resolution in the second half. I believe it will then provide certainty for the industry. That will be the net positive out of it all. And I don't believe that the regulations will end up being particularly onerous for any generator. I think there's -- a practical reality has set in that, in today's economy, we have to do this with some common sense approach.

So, I think we will get the CO2 targets and manufacturers will get the flexibility to do that in a way that is fair to shareholders. And I don't think we'll be left with any stranded cost issues. No one wants that to be the case.

So, as we sit here today, I feel that we could have a positive resolution by year-end. That might be optimistic, but that's -- I think that's tracking towards that right now.

And just on that 45 year, do you think that there is a chance that they may push that out to an even longer date, sort of materially change the 2015 implementation date?

I'm not sure about the 2015 date. I'm not sure if they'll change the 45 year rule. I think there is -- industry has been asking for flexibility around that as opposed to a prescriptive plant by plant approach, which was the original federal recommendation, that it be more of a fleet wide approach.

And so, my hope is that we'll end up with a fleet wide approach as opposed to a plant by plant. So, that may mean that individual plants may vary from the 45 year. But, net-net, the carbon reduction target won't be changed.

Okay. And my other question is on the coal outlook for Centralia over kind of the medium to longer term. Just given some of the pricing we've seen coming out of the Powder River Basin, historically you've benefitted for taking coal out of the northern part of the basin. Just wondering kind of how you think coal is -- and how your contracting might be playing out over the next several years.

I think our focus in the coal contracting will be more around the various qualities of coal to maximize the heat rate in the plant and to get the most out of each BTU. I think we feel quite good about the broad contracts and the pricing and our flexibility around them. I think now we're fine tuning the various coal suppliers to get the best mix for Centralia.

So, I think our focus will be more on mix. We feel good about the contracting, the flexibility, and the pricing that we've got already in place for the next five years.

Are you still getting good pricing coming out of the north part of the basin, or has that largely gone away?

The simple answer is yes. Yes.

Okay, great. Thanks very much.

Dominique Barker from CIBC Asset Management.

Hi. Could you talk about your fuel costs on a dollar per megawatt hour basis? Specifically, coal costs per megawatt hour seem to be increasing and the gas is decreasing significantly.

Yes, it's Brett. A couple things. Well, on the gas, obviously some of that's tied to where gas prices are, so you'll see that kind of movement. You have the details if you look, and you can see the -- do the math in the per megawatt hour coal cost.

Clearly, as we -- it's just a reflection of the mining plans. These are long term plans we do have to adjust to when we have units taken off, and manage the plans accordingly. So, I wouldn't -- there is always inflationary pressures in the coal side of the business, which, as we mentioned earlier, our objective is -- through productivity improvements is to offset those. And we'll continue to focus in on that.

So, on a normalized basis, where do you expect, say, the coal cost to be on a megawatt hour basis?

Yes. We don't -- other than what we're provided in the MD&A, we don't provide much more. But, I think you can just put in some kind of inflationary impact. But, again, we're going to work to offset those, but those will change as we manage our mine plans.

These are -- the mining, you have to look at five and 10 year plans in this business. And that's --.

Okay. And just a second question on -- and sorry, I may have missed this on the call. Did you talk about the Sundance 3 outage and the balancing pool rescinding its decision? Can you talk about how they're allowed to go back and rescind an earlier determination and what possible outcomes could come out of that Sundance 3 high impact, low probability decision?

Sure. It's Ken Stickland here. I'm probably the best one to address that. Simply put, we don't think they can do that. So, that's the first part of the response.

There are a number of -- the Sundance 3 claim has a number of components to it. So, we've got an issue related to one piece of equipment and then another issue related to the piece of equipment that we'll replace next year in the outage. So, there are multiple claims there.

Frankly, I don't think the balancing pool is entitled to do what they've done and we're disputing that with them. But, if you keep your eye on the -- if we kind of look at the broader issue, the HILP determination is just an interim determination. The real issue is is it a force majeure claim or not. And we're quite confident that we do have a force majeure claim.

So, there are in all of these things some interim issues that need to be resolved. And I don't put a whole lot of stock on how that determination goes. I mean, it does help us, obviously, if they give the determination and the opposite is if they try to revoke it. But, the real issue is ultimately, at the end of the day, is it a force majeure claim or not. And as I said, we're quite confident that it is.

And timing? Do you have any idea of the timing of that decision?

So, the challenge with having to take the -- replace the piece of equipment next year is that it tends -- you tend to have to wait until you've got the equipment out and figure out what the relationship between the causes are. So, that'll push that decision out into next year. So, we won't have likely an early determination of that this year.

Thank you.

(Operator instructions.) Mark Barnett from Morningstar.

Hey, good morning all. Just a couple of quick bigger picture questions. I know you've commented in the past extensively on M&A and how you like to keep it around your footprint. I'm just wondering, there have been a lot of major wind portfolios in the US up for sale. And maybe some comments on what you see driving that and then any potential that you've taken a look at some of those assets and what you might think about them.

Steve here. Well, I think the number of assets for sale doesn't surprise us. It's a normal industry cycle, particularly in renewables, where you get a lot of developers and smaller developers entering the business, and then you'll get a bit of a tough economy and they struggle with financing or getting their projects to completion. And so, they tend to be put on the block for sale. So, I think that's a normal process.

We do look at those from time to time because it gives us a sense of what pricing is going on out there and what other developers are doing. But, we would not look too seriously at those. Our primary focus is renewables across Canada. And we have some excellent opportunities in southern Alberta, in Saskatchewan, in the East Coast, and along the West Coast of the US.

So, we could look at some wind opportunities along the West Coast of the US. We probably would not be interested in an isolated wind facility in some other region at all. So, we see enough growth opportunities both in terms of assets and/or development work within our three geographies that we have no interest at this point in looking at alternate ones. That could change in the future five years from now, but I don't think it's going to change in the near term.

Okay. Thanks for that outlook. And just a second question on the CCS project. There have been a number of projects cancelled in the US so far this year, and some of that was lack of regulatory support and some of it was costs. But, I'm just wondering what's driving your current success and sort of positive view on your project. Is it the difference in technology? Is it just the fact that you have a clear timeline for regulation?

I think it's a number of factors. One is we have the strong support of both the federal and provincial governments, who are strongly supportive of developing this technology for the long term benefit of CO2 reduction. We do see, through our feed studies, our engineering studies, that costs are coming down. And three, we do see some certainty coming out of the current environmental regulatory process. And I think both the federal and provincial governments have recognized the need that, in that process, they don't want to do anything that would then damage the ability to go into CCS type technologies.

So, all the stars are aligned right now. I recognize that in the US the challenge was a lot different. They did not see any carbon pricing in the future or much regulation on the environment. They haven't had quite the same level of support at the federal level or state level for the projects. And they would see more uncertainty than we would. We see less of those issues. And so, we still think there is an excellent probability that CCS could go forward. And we'll know that probably in 2012.

Much appreciated. Thanks.

There are no further questions from members of the financial community. We will now proceed to take questions from members of the media. (Operator instructions.) We have no question from members of the media at this time. I would now like to turn the meeting back over to Mr. Nieukirk.

Thank you, Melanie. That concludes TA's second quarter conference call. I'd like to thank everybody for joining us today. And as always, I am available after the call here 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.