TransAlta Corp (TAC) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the 2011 fourth quarter results and year-end conference call. I would now like to introduce Jess Nieukerk, Director of Investor Relations. Please go ahead.

Thank you, Lee. Good morning everyone. I'm Jess Nieukerk, Director of Investor Relations. Welcome to TransAlta's fourth quarter and year-end 2011 conference call. With me are Dawn Farrell, President and CEO, Brett Gellner, Chief Financial Officer, Ken Stickland, Chief Legal and Business Development Officer, and Todd Stack, Treasurer.

Earlier this morning, we released our fourth quarter and full-year 2011 results. We hope you've had a chance to review them. For those who are not on our webcast, we have also posted our 2011 Q4 and full-year presentation on our website under our Investor section, as we will be referring to it during this call. Further operating information will also be posted after the 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 this review are in Canadian currency, unless otherwise stated. I will also remind the audience that IFRS requires us to deconsolidate our Fort Sask, CE Gen, Wailuku facilities, and report the results of these operations as part of finance lease or equity income on the statement of earnings. In addition, the non-IFRS terminology used in this call including comparable earnings, comparable EBITDA, gross margins, funds from operations, and free cash flow is reconciled in the MD&A.

Per share figures for the fourth quarter 2011 are based on an average of 224 million shares outstanding, compared to 222 million shares in the fourth quarter of 2010. For the full-year, the average number of shares outstanding for 2011 is 222 million, compared to 219 million in 2010. Please note, financial information has been rounded to the nearest whole number. On this morning's call, Dawn will provide an overview of operating results for the full-year and the fourth quarter. Brett Gellner will provide details on our cash flow, comparable EBITDA, capital allocation and balance sheet items. And before going to questions and answers, Dawn will provide commentary on our outlook for 2012. Let me turn the call over to Dawn.

Good morning, everyone. It's a real privilege to be here today. Today, we reported full-year comparable earnings per share growth of 7% over 2010. We achieved comparable earnings of CAD1.04 per share, compared to CAD0.97 in 2010. As you can see on the first slide, our financial results for the year have improved with both comparable EBITDA and funds from operations increasing. These results were driven by our diversified portfolio of generation assets, good operating performance from our fleet, and great performance from our energy trading team.

The overall generation margins increased by CAD48 million, renewables gross margin increased from 18%, as a share of our total gross margin to 24% between 2010 and 2011, as we saw that our wind and hydro resources recovered to a more normal level in 2011, compared to 2010. I must say, though, we were not happy about our fourth quarter. Q4 earnings of CAD0.13 a share were well below the CAD0.36 a share we delivered in 2010, and below the expectations for the financial performance we expect from our diversified portfolio of generation assets.

The unplanned outage at Genesee 3, higher wrap penalties here in Alberta, and lower prices in the Pacific Northwest hurt our financial performance. We did expect a lower quarter relative to 2010, due to increased interest expense and depreciation as a result of the commissioning of Keephills 3. However, we lost CAD0.16 a share between production and pricing in Alberta and the Pacific Northwest, respectively, taking us off the path of delivering stronger growth for our shareholders.

Now, when we do look back over the year, we are happy with the operating results, and particularly with the improved performance since 2008 in the Alberta coal fleet. Operationally, we've continued to strengthen our plans to deliver on our target of 89% to 90% fleet availability. One-time events like G3 do affect us, but when you look at the rest of our operated coal fleet, it performed in line with or above last year, and our gas and our wind fleets maintained strong availability. Our maintenance practices are showing results, and are sustainable into the future. We continue to perform above industry averages for the age and fuel mix of our fleet.

Our growth also advanced moderately in 2011. We brought both our 19 megawatt Bone Creek hydro facility and our 450 megawatt Keephills 3 unit online. Earlier in 2011, we announced the Richmond, a 68 megawatt wind farm in Quebec, which once complete this year will bring our total wind portfolio to over 1,100 megawatts. And finally, we made substantial progress with Sun 7, our 700 megawatt gas-fired facility slated for completion in 2016. Also in 2011, we made good progress on the environmental front, to protect shareholder value. You all know about our deal in Washington, and I'll update you on our contracting efforts there, as well as the status of the Canadian federal coal regulations, after you've had a chance to hear from Brett.

In summary, 2011 was a solid year for TransAlta, not as good as we had hoped for, given where we were tracking, and after the first three quarters of the year. But it did prove that our asset and diversification strategies are delivering good results. I'll talk about our opportunities, as well as some of our challenges in 2012, once Brett has had a chance to review our numbers in more detail. And now let me turn the call over to him.

Thanks, Dawn, and good morning, everyone. So I'm going to cover our comparable EBITDA and free cash flow, our liquidity and balance sheet strength, and our contracting. So for those of you reviewing the slides, you'll see on slide 11 that we achieved over CAD1 billion in comparable EBITDA in 2011, up CAD122 million from last year, or 13%. The key drivers of this were improved margins from the renewable business, both in terms of production, but also in terms of higher prices, strong year over year trading results, the addition of Keephills 3 for four months, and further optimization of our Centralia coal units.

When you look at our comparable EBITDA on a quarterly basis, it was down only in the fourth quarter on a year over year basis at CAD273 million, primarily as a result of the G3 unplanned outage, and higher penalties paid primarily associated with our Sun 6 unit. Funds from operations were slightly higher than 2010, but the increase was not as material as EBITDA, as FFO was impacted by higher interest costs with the startup of our K3 unit. FFO in 2010 also benefited from a CAD30 million positive tax recovery.

On slide 13, we show our free cash flow, which is the amount of cash available after paying the dividends, partner distributions and sustaining CapEx. As you can see, our free cash flow for 2011 was CAD181 million. Furthermore, we have very good dividend coverage. As a percentage of FFO, we paid out approximately 25% in dividends. And as a percentage of FFO less sustaining CapEx, we paid out approximately 46%. Our energy trading business had a very strong 2011, delivering CAD137 million in gross margin, up from CAD41 million last year. In the fourth quarter, energy trading delivered CAD40 million of gross margin, up from CAD24 million in 2010.

Our OM&A was up in 2011 as a result of higher compensation costs due primarily to our trading results, and also due to several productivity initiatives that we completed throughout 2011. These initiatives will start to pay off in 2012, and we're targeting a 5% reduction in our OM&A expenses, despite the pressures on costs, especially in Alberta. We spent CAD361 million in sustaining capital in 2011. As we laid out during Investor Day, our capital expenditures will be higher for this year, as we are undertaking more than normal outages on our coal fleet, in order to set them up for their end of life. We will still have major -- outages on these units going forward, but not to the same extent. In 2013, our outages go back to a more normal schedule, and, therefore CapEx is expected to be lower than 2012. In terms of growth, we spent CAD123 million in 2011, bringing our total growth capital spend to CAD2.7 billion in the last three years. In addition to this for 2012, we have an estimated growth cap spend of CAD200 million to CAD245 million for our committed growth projects, which include our three coal upgrades and our new Richmond wind facility.

As we've said in the past, we're committed to maintaining investment grade credit ratings. With this goal in mind, we've issued -- we issued 270 million of preferred shares November, and sold some underperforming assets. We also renewed our CAD1.5 billion credit facility last year. We're also received about CAD70 million in 2011 of equity from the dividend reinvestment program, and just recently introduced a premium dividend program, which is an efficient way for the Company to attract new equity to support our investment grade ratings, but also our growth program. This new program is not available in the United States. To further reduce our debt, we will be allocating the majority of, if not all of our free cash flow over the near term, medium near term, towards debt repayment to further strengthen the ratios and the balance sheet. Finally, as of December 31, we have substantial liquidity with approximately CAD900 million available under our CAD2 billion of facilities.

So now, just before turning the call back over to Dawn, I'm just going to talk about our contracting. Going into 2012, we had approximately 86% of our fleet contracted. This is slightly below our target of 90%, but we're comfortable with this level. Our average contract price in Alberta is in the range of CAD60.00 to CAD65.00 per megawatt hour, which compares to the current forward curve of approximately CAD65.00 to CAD70.00 per megawatt hour for 2012. We've seen the forward curve in Alberta come down since last year, given the unseasonably warm weather we have been having. That said, demand continues to be strong in Alberta, having grown approximately 2.5% in 2011, and is forecast to grow another 3% this year.

In the Pac Northwest, prices continue to remain soft due to low natural gas prices. 2010 forwards are in the CAD25.00 per megawatt hour range, although we do remain well-contracted for this year in the CAD50.00 to CAD55.00 per megawatt hour range. Given the low prices, we will continue to optimize Centralia by economically dispatching the plant. So with that, I'm going to turn it back over to Dawn.

Okay. Thanks, Brett. Before telling you what to expect for 2012, let me update you on the status of the Sundance 1 and 2 arbitration, and also on the work that we're doing on Canada's greenhouse gas legislation. With respect to the Sundance Units 1 and 2 arbitration, the process is continuing. The hearing dates have now been set for April, and we expect a final decision sometime in July. We do remain confident that in our position of economic destruction of these units, and we do expect -- continue to expect to recover the net book value of these assets. The Sundance 3 arbitration is also continuing, and we do expect a determination later this year on that.

Now with respect to the status of the greenhouse gas regulations in Canada, there is developments continue on with the Federal Government, with the federal government's regulations for coal-fired power. TransAlta, along with our industry colleagues across Canada, have provided the government with a common alternative mechanism that could be used to meet their reduction targets, but at a significantly reduced impact on the economy. Our hope is that the final legislation will allow us to run our coal assets right to the very end of their lives, before we are obligated to either life-extend using CCS, or shut down and replace with other forms of generation. There's still lots of discussion about how the final rules will fall out, and we expect another set of rules for review sometime later this year.

Now let me turn to the outlook for 2012. We do have a heavy major maintenance schedule ahead of us. We have six major turnarounds on our coal units in 2012, five in Alberta, and, of course, one in Centralia. Six major outages -- maintenance outages is one of our biggest years we've ever faced, but remember this schedule is not new. We've been planning these turnarounds for the last number of years, as you know from our disclosure at Investor Day.

Our three uprights, the generator replacement on Sun 3, and the end-of work life, like the DCS systems for our Keephills units, were announced two or three years ago. And these outages on K1 and 2, set these units up very well for the long-term. Now, long lead planning is critical in our business, and our engineering and operations teams put a lot of effort and detail into these plans, so they can deliver on them successfully. I'm confident that these outages will be executed well, and that 61 megawatts in upgrades at Keephills and Sundance will add long-term value for our shareholders.

Looking at Centralia, the prolonged downturn in pricing has also made recontracting Centralia more difficult, but we're making some progress here as well. We are in talks with several utilities who are beginning to see the benefits of having low cost transition coal power in their portfolios. Our key tradeoff, as we said before, is not to lock in long-term contracts at a time when prices are at all-time historical lows. We believe we can compete, competitively offer long-term contracts, priced well below new gas plants that will need to be built in the region, and our contracts will provide in state utilities with the benefits of an equity return. So we remain steadfast in our desire to close contracts on the plants over the coming year.

Looking at the markets, the Pacific Northwest remains challenging, and Alberta continues to be strong but very volatile. The Pacific Northwest market so far this year has averaged in the low CAD20.00 range which does happen in that market, but the expectations as we look forward, are lower prices as we've seen from the recent decline in gas prices. Alberta, although it spiked in mid-January causing prices to settle around CAD70.00 for the month, when you exclude this volatility, prices have really only averaged CAD30.00 to CAD40.00 for the first two months of the year. The warm weather here is impacting our overall expectations for Alberta for the quarter.

All this being said, we're aiming at hitting the targets that we set out for you at Investor Day. Our fleet availability target remains in the 89% to 90% range, despite 263 outage days in our coal fleet. This is a direct result of the work we have done over the past several years, on the unplanned side. We also expect to be between CAD65 million and CAD85 million in gross margin from energy trading. While this is down from last year's performance, it is up on a historical basis, and we believe it is realistic -- a realistic range for the team can deliver. We're targeting to be in the CAD800 million to CAD900 million range for funds from operations.

And finally, as Brett has mentioned, we continue to remain quite disciplined on our cost structure. We will continue to invest in productivity initiatives in 2012. But despite that, our goal is for our operations and maintenance and administration costs to come down by approximately 5% this year, compared to what we spent in 2011.

To conclude today's conference call, I want to touch on how we continue to drive our growth strategy. Earlier this year, we found that we were not short-listed for the Saskatchewan Wind RFP. While we were disappointed, we remain disciplined in the returns we are targeting, and shareholders can be confident that when we do win these RFPs, shareholder value will be created. Experience shows this team, that growth without the appropriate returns, won't grow the bottom line of this Company.

Turning to Sun 7, it's tracking very well. We'll make the final equipment selection in the next few weeks, and are aiming for final approval by year-end. We see significant opportunities, in all the markets we're working in. As always, our key challenge is to pick the right assets, so we can add value. So with that, let me turn the call back over to Jess for the question and answer session.

Thank you, Dawn. So we that 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 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. Lee, we'll take questions now, please.

Thank you, Mr. Nieukerk.

(Operator Instructions).

The first question is from Paul Lechem from CIBC. Please go ahead.

Thank you. Good morning. Brett, I think you mentioned the hedging for 2012 in the Pac Northwest at CAD50.00 to CAD55.00. Can you talk a little about beyond 2012, how much you're hedged and at what prices, at both Pac Northwest and Alberta?

Paul, I think -- we don't obviously specifically disclose the Pac Northwest on it's own. We do provide the overall percentages, which were in the slide presentation there. Obviously, people do know that the hedges have been rolling off down there. But on an overall fleet basis, we continue to be in the 70% range.

Okay. But I'm assuming then, that beyond 2012 the pricing on the Pac Northwest especially, falls off quite dramatically?

We haven't disclosed any of that as of yet, Paul.

Okay. And one more question. On the MF Global, I read that the total collateral that you have with them was CAD36 million. You've recognized a reserve of CAD18 million. Can you talk a little about, why the CAD18 million, not the CAD36 million? What the process is to recover that, how much you expect to get, obviously 50%, but how do you come to that number? And then what other exposure you might have with other brokers? Thank you.

Sure. Yes. So they are our main agent for that, so those trades -- and the 50% was really just our assessment at this stage, in terms of other process. And there's a lot of different information out there at this stage, in terms of what's going on, both in the US and the UK. So we felt the 50% number at this stage, was the appropriate number. We're still confident, having said that, that the monies will be available and given back. We just thought it prudent to take a provision at this stage. It will take time to work through it, but we're on it, and have submitted everything we needed to submit to ensure that our claims are on the record.

And do you have a time frame for resolution?

We don't at this stage. These things, they have a life of their own, to some extent. So we'll just update you quarterly on it.

Okay. Thank you.

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

Thank you. Just a clarification, with respect to the recontracting efforts at Centralia. Did you say that you're targeting to have Centralia fully contracted going into 2013?

No. No, we said that we're in discussions with several utilities in the region there. And that we're hoping to close some contracts with one or two of those utilities over the next year.

Okay. Thank you for that. And have you been able to capitalize on the low forward power prices in the Pac Northwest to lock in some economic dispatching margins at Centralia in 2012?

Yes, we, as we do every year, we are actively -- we look at that market daily and take those opportunities. So we look at whether or not it's better off buying the power than running the plant, and so we will continue to do that throughout the year here. And usually as you know, it's this time of year and kind of second quarter, when those opportunities arise.

So then given that you have the outage planned at Centralia, would that imply then that your lost gigawatt hours of around 3,300 gigawatt hours, would be -- could be a little high?

Well, again, if again, we'll take opportunities to do our planned outages during those times. So if you strip out the fact that we're able to time those appropriately and not impact our margins, then I would say it's still the right number. It's just that, we're not losing margin against it.

Okay. Thank you.

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

Thank you. I'm wondering if you could maybe give us some color on your recent discussions with the debt rating agencies? And recognizing that your expectation is to recover the full book value of Sundance 1 and 2 from your -- after your arbitration process is complete, what happens if you don't fully recover, in terms of your and balance sheet? And what you might have to do to mitigate the effects of that?

Yes. So first of all, we have active dialogue with our -- the rating agencies throughout the year. And so we keep them informed of where we're at on Sundance A, really, nothing more to say. Our position is that, we feel it's economically destroyed, and we will recover our book value. So I'm not going to get into any kind of scenarios around what a down side case might look like, but certainly our position is, we will recover our book value.

Okay. And based on your current plans, the debt rating agencies are comfortable with that, and you believe you're on track to maintain your debt rating?

Well, yes. Again, if you -- you can read their reports that they publish, and they will comment on their position on Sun A. So from our perspective, this is one issue that we're dealing with. We're a large Company, and so we'll manage through it. And as I said our position is, we feel strongly about our position on it at this stage.

Okay. And the DRIP, the premium DRIP should help. What sort of participation rate?

Yes, well, currently -- so we just introduced that, as you know. So the current program, we were getting about 30% participation rate. It's always tough to tell until we see the track record from these things. But if we look at other companies that have similar programs, we're hopeful that 40% to 50%. But again, we won't know until we start to see it come in over the next few quarters here.

Great. Thanks, Brett.

Yes.

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

Good morning. Just wanted to come back to the Centralia contracts, and the shape of the contracts. So I think historically when, especially when the BPA was having some trouble with its rates, you were migrating to kind of 24 by 7 by 365 contracts, which has allowed some of this economic dispatch. So I am just wondering, you've been able to keep the hedge price up, despite low curve. And I just wanted to confirm that the contract shapes are still pretty flat across the year, and that you're not unduly open in Q2 and the off-peak periods?

Yes, Robert, Jess here. Obviously, we've not given a lot of the shape, but as per Brett mentioning, we've typically done more of the economic dispatching throughout Q1 and Q2. The shape hasn't -- I wouldn't say, it has really changed, and we've not -- from what would be in your models.

Yes, Robert, was your question about the contracts that we're looking at for -- as we go forward on Centralia, or the current contracts?

More the current, Dawn, like you've done a really good job kind of holding the overall hedge price. Yet it's generally been above where the forward curve is, and has been. So I'm just kind of wondering, have you held the price by say, maybe moving a little bit more on-peak or away from Q2? And if that's not the case, just kind of wondering if there is some extra color as to what, the types of things you have been doing to keep that price up, in that north of CAD50 level?

Yes, if we told you that, we would have to shoot you. (Laughter). So we can't disclose that, sorry.

That's fair. Just a second question, the OM&A costs you're expecting, as you mentioned down 5% -- just wondering, and that's with the commissioning of Keephills 3, so is it on a almost per megawatt hour installed base that you expect the decrease to be even more than 5%?

Yes, it should, in theory, because you're spreading it off more megawatts, but the 5% relates to the absolute, yes.

Okay. That's great. Thank you.

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

Hello. On the Centralia hedges, I guess Dawn, maybe I'll ask you to answer the question that you wanted to answer -- (Multiple Speakers). (Laughter).

I didn't want to answer it.

And the question, is are you looking for longer term hedges or contracts at Centralia? Or kind of short and medium term contracts with the utilities that you're discussing things with?

No, our entire focus to date is on long-term. So it's on looking at how much exposure we want to close to, both 2020 and 2025 on both of those units. So those are the discussions, and that's where the value is for these, for the customers in that region.

Okay. And then I think at Investor Day, Brett, as a follow up you mentioned that you guys had ceased putting contracts on your normal four year rolling average down there, because of what at the time were kind of short-term weather impacts and so forth. Is that still what we can expect from TransAlta, as we head towards 2013 is that you'll have more open exposure than you normally would under the old four year rolling contract profile?

Well, again, Matthew, we manage the full portfolio. So that's not just Pac Northwest, but Centralia -- or Alberta combined, and that's our main objective. So we'll manage within our targets between those two. I would say that in Centralia, clearly our focus is, as Dawn indicated the longer term. That's not to suggest, though, that we won't find opportunities for shorter term, and it might be more shaped to where Robert was going. But our overall objective is longer term contracts there. And then in terms of what we do in Alberta, obviously, we can balance between the two markets and still be within our overall hedge program.

But our policy continues to be the four year ladder. We have not changed that policy.

Right.

And so -- you'll -- at this -- and that policy continues to override all of our hedging activity.

Thanks. I have others, but I'll get back in the queue. Thank you.

Thank you.

(Operator Instructions).

The next question is from Paul Tan from Credit Suisse. Please go ahead.

Hi. Good morning. With regards to growing in the US west, could you provide some color, in terms of what you've been doing so far? Are you sort of concentrating your efforts on development or acquisitions?

Yes, I think the -- when we look at the west overall, we look at probably a little bit more acquisition targeted and related in the -- when you go down the US into California, because that's really where the value would lie in those assets. When you look at sort of Western Canada, there's quite a bit of greenfield opportunity both here in Alberta and also in British Columbia, as the LNG assets potentially are being developed there. So I would say in Canada, Canada's all about greenfield as you know, because all of the resource extraction that's going on relative, to what's going on with China. Whereas the United States is more asset acquisition-related, because of the low economy there, and the opportunity to buy assets at lower prices.

Thanks for that. And the second question, would be regarding on wind power. Do you continue to see wind power equipment costs declining? And with regards to that one, if it is so, are you -- with declining capital costs, are you trying to enhance your returns? Or just lowering primarily the price that you're receiving from off-take agreements.

Well, certainly what we're seeing is in the competitive market, the prices as they go down are lowering the prices on wind projects to the end consumer -- whether that's -- and it's to the utilities, and we are seeing that -- that we do think that returns are also declining, especially on long-term fixed price contracts. So I think people potentially have a lower return expectation than we do. But, our overall view is you've got to run those assets for 25 years, and get the cash out of them. So -- that's just kind of the -- I think right now, the both lower returns and lower equipment costs are being bid away to the end customer.

Great. Thank you very much.

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

Hi, good morning. I guess following in a similar vein, could you talk a little about the Saskatchewan RFP, and where your hurdle rates might be versus bids that didn't end up short-listed?

No, we can't really talk about that. That's competitive information. And there's lots of factors that go into whoever won that bid, and what they would have done. So we wouldn't compare to that.

Okay. Fair enough. Just one more question, if I might. With Sundance 7, you had mentioned earlier that you expected to kind of have the transmission issues sorted out by early this year. Can you talk about where you stand with that?

On the transmission issue?

Yes.

Well, the transmission issues are coming along really well, and in Alberta there was a report released by the technical panel. And then it was backed up by the government, in terms of supporting the build of the two transmission lines, which I -- is very positive overall for the market here in Alberta and for projects like Sun 7.

Okay. Thanks.

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

Thank you. Just wanted to follow up on that transmission. You had -- you disclosed you had a little bit of spending in the quarter. I'm just wondering what some of the nature of what you're doing on the transmission side? And then as kind of part of that, are you interested in the potential for competitive transmission build in Alberta?

You mean TransAlta is becoming a builder of transmission in Alberta?

Well, you had a little bit of transmission spending, so I'm just wondering is that kind of more hookups around your facilities? And then with just Alberta opening it up to competition, are you interested in kind of reentering that market on a larger scale?

Yes, let me answer the second question first, and then Brett will talk about the transmission (inaudible) spending. Re-entering into the transmission business is not something that we're looking at currently. I mean, we may discuss it in the future, but it's certainly not our focus. We've got lots to -- we've got more than enough to do, with what we see on the horizon for the generation front at this time.

Yes, and Robert, just when we sold transmission back in the earlier part of the decade, there was a little portion that we retained, and that's what that's associated with. We get return on typical cost of service on that, so any spend goes directly into a rate-based calculation. But there's a reason we still continue to own a bit, and that's what you're seeing the spend on.

Okay. And just a final question. You've got the disclosure that in Alberta you expect coal costs on a standard costing basis to go up by 4%. Just wondering with the standard costing, and when you start to mix in the expected production for the year, what do you expect coal costs on a per megawatt hour basis to do? Or will it be close to that 4%?

Yes, it will still be roughly around the same there, Robert, on the per megawatt basis.

And I think if you look at our disclosure, Robert, you can see what our fuel costs are, on a per megawatt hour, and just kind of use that as a guide, the 4% against that.

Yes. No, that's great, I just wanted to make sure there wasn't something kind of in that whole standard cost disclosure that you were trying to articulate. Thank you very much.

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

Thanks. I wanted to talk a little bit about the fuel cost increase of Centralia. You disclosed it's up 9% in 2012. I'm just wondering if those contracts then, would still be below market?

So the increase in part is, Matthew, due to some of the diesel components in the rail costs. And as you know, where oil prices are and diesel prices are, so that's part of it. Like, when we look at our costs, obviously it's the coal, the commodity plus the delivery cost from the Powder River Basin, so it's an all-in cost. So when you compare below or above market it's, there's a lot of components to it, and where your coal plant is situated. All I can say is, it's one we manage closely, and that we've got good relationships between both the rail company and the coal suppliers on that.

But the 9%, though, is reflective of a contracted situation for 2012 though, that expires in 2012; is that correct?

Yes.

Yes, yes, that's correct. As we -- we tend to have sort of similar type of hedging strategy on coal, as we do -- on our inputs as we do on our outputs. So as we go forward on Centralia, contracts will roll off, and we'll make decisions about rolling new ones on, or looking at a mix of some spot market coal. So that's also -- that's a consideration as we look forward in the cost structure of Centralia.

Just to understand your disclosure, not to get anything more than you disclosed, I think what you're saying in your disclosure is, the rail and coal contracts from PRB expire at the end of 2012?

No. No, the -- it's Ken here, Matthew. The rail contracts have got a longer term than that. The coal contracts that, we've got the pathway so to speak secured, so we can ensure delivery to the plant. Just like you would do with a gas pipeline, we've got longer term rights to the transportation. But we manage the actual coal supply itself, on a ladder basis as Dawn indicated, so that there's not an exact match between the coal contracts and the rail contracts.

Okay.

I don't know if that's helpful.

-- it goes beyond 2012?

The rail contracts do.

The rail does.

Thanks. That's all my questions.

Thank you. The next question is from Jeremy Rosenfield from Desjardins. Please go ahead.

Yes, thank you. Good morning, everybody. First question, I guess, just coming back to the whole hedging discussion that was going on earlier at Centralia, but more from a Western Canada perspective, at this point would you be looking to add more hedges in Western Canada? Or given what happened last year, would it be maybe more prudent at this point to keep hedges off going forward, especially with the many plants coming down? What's the strategy there?

And are you refer -- I'm assuming when you say, Western Canada, you mean Alberta.

Yes, that's correct.

You're asking us whether or not, we should stay more open in Alberta, given prices in Alberta?

Given prices, but also given plants coming offline.

Oh -- that's the -- maintenance schedule overall.

Again, what we said, and what we do, is we manage our whole portfolio. So we balance between Centralia and Alberta, but if we see opportunities where we think it's the right time to lock in some hedges, we'll take those. If we think if, there's more upside, we'll then stay a bit more open. We look at it very, very -- we do the analysis, not just within the year, but over the next several years to see what the dynamics are. And we factor in the things that you just talked about. So right now, we're 86% across, and -- but as we see opportunities, we may lock some of that in, for instance.

Okay. And maybe just a second question. In terms of potential opportunities associated with upstream gas producers, I know at Investor Day you had mentioned that there might be some potential to get greater value for the gas being produced in Western Canada. And also potentially locking in fuel prices for longer periods of time, by signing some type of agreement with gas producers. Has there been any more development on that side?

Well, there's actually been quite a bit, and obviously, we haven't announced anything, because we're not at that stage yet. But as you can expect in this low price environment, that we've got a large degree of interest from the energy sector here, in looking at various ways to -- for us to both manage our long-term risk -- and remember this is a long-term risk we're trying to manage. But also provide opportunities for them to participate, and that would include contracting up some of their power needs. So you can expect as we move forward through this year, that we'll be making good progress on that. And that, and that I would certainly expect by the time we get down towards Investor Day, we'll be able to give you a more fulsome update on that.

Okay, great. Thanks for that. I don't know if I can ask a third one, if that's allowed here. The third question --

Go ahead, Jeremy.

Okay, great. The third question that I might ask, just that in the presentation you had mentioned that you are looking at the potential to sell some assets out of the portfolio. I was wondering if you could provide either, maybe just geography or a fuel type, not to overextend yourselves, but just some kind of color there?

Yes. No, sorry, that was reference to what we've done already. We did that in 2011, some underperforming assets. So --

Okay, so nothing more going forward then?

No. No.

Okay, great. Thanks a lot.

Thank you. There are no more questions at this time. I would like to return the meeting back over to Mr. Nieukerk.

Yes, Lee, let's just open it up quickly to the media, to see if there's any questions.

Terrific.

(Operator Instructions).

There are no more questions at this time. Please go ahead, Mr. Nieukerk.

Thank you, Lee. This concludes our 2011 Q4 and full-year conference call. I would like to thank everyone that participated today. And of course, I will be 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 thank you for your participation.