TransAlta Corp (TAC) 2013 Q2 法說會逐字稿

Welcome to the TransAlta Corporation 2013 second quarter results conference call. (Operator Instructions). At this time I would like to turn the conference over to Jacqueline O'Driscoll, Senior Analyst, IR. Please go ahead.

Thank you. Good morning, everyone. I'm Jacqueline, Senior Analyst IR. Thank you for joining TransAlta's 2013 second quarter conference call. With me this morning are Dawn Farrell, President and CEO. Brett Gellner, CFO, Maurice St. -Laurent, VP Legal and Corporate Secretary, and Todd Stack, VP and Treasurer. Earlier this morning we released our second quarter results. For those not on the webcast the presentation is posted on our website under the investor section. We will refer to the presentation during the call.

All information provided during this conference call is subject to the forward-looking statement qualification which is detailed in the MD&A and incorporated in full for the purpose of today's call. The amounts are referenced in Canadian currency unless otherwise stated. The non-IFRS terminology used including comparable earnings, comparable EBITDA, comparable growth margins, funds from operations and free cash flow is reconciled in the M D&A. Per share figures for the second quarter of 2013 are based on an average of 262 million shares outstanding compared to 227 million shares in the second quarter of 2012.

Please note that the financial information has been rounded to the nearest whole number. On today's call, Dawn and Brett will provide an overview of our operational and financial performance for the second quarter, provide an update on recent events and activities, and before going to Q&A, Dawn will provide commentary on business activities and outlook for the remainder of 2013. With that, let me turn the call over to Dawn.

Thanks, Jacqueline and welcome, everyone. Today I will comment on our results for the quarter and the first half of the year. I will reviewsome of the key projects and I will also update you on some of the announcements that we had during the quarter. Our second quarter results for 2013 improved over last year. We delivered EBITDA and FFO above what we delivered in the same quarter in 2012. Our energy trading team continued to deliver consistent results.

Their return to normal business means they improved by CAD25 million at the gross margin level over the same quarter in 2012. We also had a full quarter of cash and earnings from the new Solomon and new Richmond assets. These results, plus improved margins in our existing wind, hydro and gas businesses more than offset the decline we experienced in our coal business this quarter. The underlying coal business is strong. Operationally the majority of our coal fleet performed well for the quarter.

Year-over-year decline in our coal fleet was due to negative impact of a non-cash mark-to-market loss on some Alberta hedges, a non-cash provision for the (inaudible), and lower contract prices at Centralia. Overall, I am pleased with the improvements we've seen in our core markets as well as the advances we made both on our growth and our recontracting strategy.

In the quarter, we announced the creation of TransAlta Renewable, the approval of our contract with Puget Sound Energy at the Centralia plant, the execution of a long-term contract for geothermal (inaudible), and a new partnership with mid American to pursue opportunities in the transmission business here in Alberta, and I'll talk more about this later. Results for the first half of 2013 are better than the same period in 2012.

In the table on slide six you will see stronger second quarter and year-to-date comparable EBITDA and FFO. EBITDA is at CAD54 million for the quarter, and CAD68 million year-to-date and funds from operation are up CAD34 million for the quarter and CAD37 million for the year so far. These increases were driven by solid gross margins from the gas and renewables fleet, strong results from energy trading, and year-to-date improvements in our OMNA from our restructuring that we did in November of 2012. You will see on the next slide the availability is a more complex result for the quarter.

Overall our adjusted fleet availability is 5% below the same period last year. This is entirely as a result of the force majeure at Keephills 1 which occurred due to a need to replace the generator winding. Keephills 1 is now expected to be back in service by October of this year and we will continue to receive capacity payments through that period from the balancing pool. Due to the force majeure, we now expect our full year adjusted availability to be 87% to 89%. Excluding the force majeure at Keephills 1, adjusted availability in the quarter was approximately 87% and full year adjusted availability would have been within our target range of 89% to 90%.

I will now turn the call over to Brett, who will take you through more details of the results for the quarter and year-to-date performance. When I return I will review our business activities in the quarter and some of our outlook for the remainder of 2013.

Okay, thanks, Dawn. I'm going start by talking about our core markets and what we are seeing in terms of power prices and then I will take you through our financial results. In the pack northwest power prices continue to strengthen in response to slightly higher gas prices and a return to a more normalized hydro year. For Q2 mid C prices settled about three times higher than last year at about CAD26.00.

The mid C forward prices are currently averaging about CAD35.00 for Q3 and Q4 and we expect the year to settle about CAD12.00 higher than last year. In terms of Alberta, power prices also showed considerable strength during the past quarter largely driven by a tight supply and demand balance due to outages and continued load growth. Prices averaged CAD123.00 in the quarter and we did see some benefits to the gross margin across our gas and renewables business as a result. The current forward market is indicating a price of CAD72.00 for the balance of the year.

This next slide breaks out the comparable gross margin by business line for both the quarter and the year-to-date and shows improvements in the gas renewables and trading business. The gas fleet performed well quarter over quarter. Gross margins excluding finance leases increased CAD13 million from the same period last year as a result of increased production and higher market prices. Finance leases which include Solomon contributed an additional CAD10 million for the quarter resulting in an overall CAD23 million or 24% increase compared to the second quarter in 2012.

The renewables fleet also performed well over the quarter increasing CAD48 million compared to the same period last year. Gross margins benefited from strength in market prices, and the revenues associated with the Alberta ancillary services we provide to the market. As for energy trading we had another solid quarter delivering CAD14 million of gross margin in the quarter and CAD31 million year-to-date. The team continues to perform well across all markets and are on track to deliver their target of CAD40 million to CAD60 million in gross margin for the year. These increases from our gas renewables and trading business were partially offset by year-over-year decreases in gross margin from our coal business which were driven by a few factors.

At Centralia, some of the high priced contracts have rolled off, resulting in about a CAD25 million reduction in gross margin at Centralia relative to the same period last year. At our Alberta coal fleet three factors have driven lower year-over-year margins. First we booked a non-cash mark to market loss in the quarter which is associated with some of our forward contracts. This mark to market impact will reverse in future periods. Secondly, we have booked a provision against the Keephills one force majeure and finally, coal costs are higher year-over-year due to additional coal being mined in anticipation for the start up of Sundance 1 and 2.

While we experienced higher power prices relative to last year in the Alberta market which benefited our merchant link and incentive payments in the coal fleet these also resulted in higher penalties for the PPA facilities that were under planned maintenance. This quarter we have included a table on slide 11 to provide you with a bridge between revenues to comparable EBITDA and to FFO. As we stated we focus primarily on EBITDA and FFO given net earnings can be influenced by a number of accounting adjustments some of which are non-cash in nature.

The other reason we focus on EBITDA and cash flow is due to the profile of EBITDA and cash flows from our Alberta PPA plants, both the coal and hydro, whereby the revenue received under the current PPAs are significantly below what we expect to receive once the PPAs expire and yet we have to depreciate the asset as if it was a constant level of the EBITDA and cash flow. As a result, net earnings will be relatively lower until the PPAs expire which start in 2018 for Sundance 1 and 2 and the rest of the plants in 2021. In terms of the results for the quarter our comparable EBITDA in Q2 was CAD247 million, an increase of CAD54 million, or 28%, compared to last year. This result is in line with the analysts estimates for in quarter.

Driving this results were strong margins as I discussed from our gas and renewable business and the energy side. Combined with the economic dispatching at our Centralia plant. In addition, new growth projects Solomon and new Richmond contributed approximately CAD14 million to comparable EBITDA for the quarter. For the full six months we generated comparable EBITDA of CAD514 million which was CAD68 million or 15% higher than the same period last year.

Our cash flow measured as funds from operations was up CAD34 million or 23% relative to the same period last year. Reaching CAD184 million in the quarter. For the first six months of the year FFO was CAD376 million, and we continue to be on track to deliver on the low end of our goal of CAD800 million to CAD900 million in FFO. For the balance of the year we have two remaining planned outages scheduled for the coal fleet as well, as Dawn mentioned, K 1 will return to service in October and the Sundance 1 and 2 units in Q3 and Q4.

Turning to the next slide, as Dawn mentioned we continue to realize lower OM&E. On a year-to-date basis, we've seen a CAD13 million decrease compared to the same period last year due to lower compensation costs as well as our organizational restructuring in the fourth quarter of 2012, and a continued focus on cost. In terms of capital, to date we have spent CAD152 million on sustaining capital and CAD10 million on productivity initiatives. Our estimated spend on growth in Sundance 1 and 2 has increased CAD25 million a range of CAD170 million to CAD195 million in 2013 and most is for the rebuild of Sundance 1 and 2.

Our revised capital costs for Sun 1 and 2 is higher are due to additional asbestos abatement costs and balance of plant costs associated with the restart of the facility which has been off line for over two and a half years. And although these costs are higher doing this work on the equipment now reduces capital in the 2015 to 2019 period so that investment in the plant does not increase over its lifetime.

In terms of our outlook for capital over the next three years we will be providing that update in the fall. With that, I'm going to turn it back over to Dawn.

Thanks, Brett. Our second quarter results are busy on many other fronts. In late June we announced the creation of a new Canadian publicly traded renewables company called TransAlta Renewables. Once finalized, TransAlta Renewables will provide investors with the opportunity to invest directly in a highly contracted portfolio of renewable power generation. TransAlta Renewables will allow us to have another platform for pursuing acquisitions.

We expect to hold approximately %80 to 85% interest in the new company. Proceeds from the offering are expected to be in the range of CAD200 million to CAD250 million which will be used by TransAlta to pay down debt and strengthen our financial position. In the quarter we finally received regulatory approval for our contract with Puget Sound Energy which eliminated any uncertainty around the secured future cash flows for the Centralia plant.

This contract means we have is 35% hedged on average through to 2020 and 65% hedge from 2021 to 2025 which significantly changes our contract submits on a go forward basis. During the quarter we also announced a joint venture with Mid American Energy holdings company to create Cal Energy, a new entity that allows to us market our geothermal assets in California as a portfolio rather than as individual plants. With this new structure we were able to execute an 86 MW long term contract for renewable geothermal power with the city of Riverside. The recontracting effort will ensure the profitability of these assets for another 25 years.

We also announced a creation of TAMA Transmission with Mid American transmission. This new strategic partnership establishes another excellent opportunity for contracted infrastructure growth projects in an area where we have established expertise. Today, Mid American owns and operates approximately 18,000 miles of transmission throughout North America and through their transmission subsidiary have a track record of winning competitive transmission projects.

TAMA Transmission will participate in the competitive bidding process for Alberta sport McMurray West transmission project. This project provides a successful transmission facility operator with a low risk stable opportunity to obtain a fully contracted asset for the next 35 years. As you can see, halfway through the year we have made significant advances on our growth and recontracting strategy and are continuing to add value to the Company.

As we move through the rest of the year, we remain committed to increasing our contract admits in the short-term to reduce volatility of cash which supports capital reinvestment, growth and the payment of our dividend. The following chart highlights our progress to increase our level of contracted ness across the fleet to support revenue certainty.

We remain approximately 90% hedged for the balance of 2013 and are working towards increasing our mid to long-term hedge levels with new contracts at Centralia and by expanding our commercial and industrial business here in Alberta. In Alberta we have executed hedges in the CAD60.00 range and continue to secure future hedges in the CAD55.00 range over the next several years. We continue to focus on growing our customer business in Alberta. Through the quarter we have contracted another 41 MW bringing our total to 541 MW.

Our goal is to expand this business to 600 MW over the balance of the year. So let me finish with an update on the events within the quarter and how we are tracking against our goals for the year. I will also provide you with an update on our growth activities. So let me begin with the recent planning events near southern Alberta. As a power generation company with hydro assets this event involved us since our assets are essential to the water management on our river systems in southern Alberta.

Our hydro systems sell the highest level of water in 100 years due to both high amounts of rainfall and snow melt. Our dams are designed to manage water levels through our facilities for a one and 10,000 year flood event. At no time there was a risk of breech or failure of any of our dams. However, there was so much water that some of our facilities were impacted by flooding.

We are currently completing the inspections at all our facilities along with restoration work and will assess any financial impacts through the third quarter. We have more work to do but believe the cost to return all units to full service will have a minimal financial impact as we have sufficient insurance coverage for this damage. Let me now move on to an update on Sundance Unit 1 and 2. The restoration of the units is progressing as planned. Unit 1 is now in its final commissioning stage and we expect to return to service date of August 6.

The additional capital spending on the units is warranted and will help ensure strong availability as the units run through the end of their lives to the end of 2019. In addition this work is being performed concurrently with boiler repairs to prevent the need for a later outage for this work. I would like to take a few minutes now update you on some of the key objectives we set for ourselves this year.

When we include the impacts of the force majeure at Keephills 1, our expectation for adjusted fleet availability for the year are now 87% to 89%, down from our target of 89% to 90%. Year-to-date adjusted availability normalizing for the Keephills 1 outage is at 90% and we expect to remain at this level for the balance of the year. Our corporate results remain ahead of target and as discussed our Sundance Units 1 and 2 rebuild are partially complete with Unit 1 expected to be back in service next week. We are on track to deliver the full OM&A statements we outlined in the plant to realign the organization and find operational efficiencies from our IT investments.

And finally, we are on track to increase our customer business to 600 MW by the year. Let me conclude by providing an overview on the growth activities which now are a significant area of focus for the Company. We are continuing to see the needed for new plants in Alberta before the end of the decade as a number of coal plants retire and load growth remains strong. The market expectation continues to show growth requirements of over 2% to 3% a year as we go through this period.

TAMA power continues to move fords with the Sundance 7 facility. We are confident it is the right technology and offers the flexible that the provincial power market will need at end of this decade. We have selected a site which gives us numerous operating advantages, we've selected the best technology and secured turbines and long-term service agreements. This will allow us to keep moving forward.

We believe we have a nine to 12 month lead over any competitor looking at a large-scale combined cycle facility in Alberta and critical work is underway regarding interconnection and permitting. We expect to submit our application to the ISO for inter-connection early in the second quarter of 2014 and our major environmental permit will be ready by the end of 2015.

Our in service date is aiming for the end of 2018 and could be shifted to the end of 2019 if market conditions warranted. We are actively pursuing several opportunities in our core markets and continue to pursue co-generation projects here through the TAMA power business in Canada. The TAMA Transmission team is preparing a competitive bid for the Fort McMurray transmission line and we are fully staffed there and ready to go. Let me now turn the call back over to Jacqueline.

Thank you, Dawn. We will answer questions from the investment community first and then open the call to the media. We will then respond to individual investors so please identify yourself when asking a question. We also ask that you limit your questions to one plus a follow-up before re-entering the queue so that we can keep things moving along. I remind you we do not provide guidance and that we will answer any model related questions offline after the call. Operator, we will now take questions, please.

Thank you. (Operator Instructions). The first question from Juan Plessis, of Canaccord Genuity. Please go ahead.

Thanks very much. Wondering, Brett, if you could break out for us the after tax amounts for the K 1 non-cash provision and the non-cash mark to market losses in the quarter?

Yeah, they are each about similar amounts in the CAD10 million range.

Okay. And that is after tax?

That is before.

Before tax. Okay. And are these included in your comparable DS number?

Yes. Yes.

Okay. Thanks. And how much was the additional coal cost related to the startup of Sundance?

If you go to the gross margin table in where we break out by western coal you will get a feel for that by looking at the fuel costs year-over-year. That will give you a sense.

Okay. Thanks for that. And just here as a follow-up you have seen a positive decision out of the Washington state utilities and transportation commission with respect to the Centralia contract with Puget Sound. Just wondering if you can comment on what you are seeing in that market for further contracts for Centralia production?

I think, Juan, right now at this point, the teams are working with a number of the smaller players in that marketplace. I think one of our challenges is that, as I talked about earlier in the the call, that contract from Puget gives us contracted ness of 65% from 2020 to 2025. So we have really only a very thin slice of contracts that we can sign that are in that 10 for 11 year range so that is creating a bit of a challenge for us. For the most part the teams are focused on either contracts that go to the end of 2020 or some smaller amounts of contracts that could go to the end of 2025.

Okay. Thank you very much.

Next question is from Paul Lechem of CIBC. Please go ahead.

Thank you, good morning. Just wondering about the CE Gen plants in California. You mentioned that you recontracted about 25% of the capacity there. Can you discuss a little bit about what the other 75% looks like at this point in time, what the opportunities are to re-contract there? And what kind of pricing are you getting in that market?

Well, the pricing is confidential, but the team continues to work with other players, like the city of Riverside, and this breakthrough of being able to contract out of the group of assets rather than on a unit basis has made quite a difference to the discussions. So we are continuing to focus on other customers with contracts slightly smaller or in the same range of what we are looking at, what we just announced.

And what is the benefit of being able to combine the assets into one package?

I think it just gives more flexibility to the buyer in terms of their ability to just have a contract to a geothermal asset rather than a unit contingent contract. It has been able to allow us to aggregate and to talk to some of the smaller players rather than focusing on the big loads in those areas.

Okay. In the Pac northwest as pricing moves up slightly there, are there any additional costs as you sort of bring Centralia back online and actually generate power out of there, any additional costs you might have to incur there?

No, I mean basically the way we have got that plant set up we were able to re-contract the rail and the coal relative to the new profitability in the plant. If there was a significant really huge increase in pricing there are some additional costs that will are come through the rail because of the way we have got that contract set up there. But the profitability of the plant would improve overall as prices improve.

Okay. Thanks.

Next question is from Mark Barnett, of Morningstar Equity Research. Please go ahead.

Hey, good morning.

Good morning.

Good morning.

I know you can't talk about the specifics of the pricing back to the Cal Energy geothermal assets but could you talk relative to maybe some of the other PPAs and the standard offer pricing given there was a direct contract with a municipality and the tenure of the PPA. Were you at a premium or maybe just a little bit of color on that?

I think the way we set up the contracts is there is a price to the end of the term of the PPA which is the long-term PPA it goes into the 2030s. And there is capital that is required as you go through the piece to be able to do the investment because as you know in geothermal you have to invest as you go in the pipes. And really what we used our cost forecasts and did our normal expectation of the kinds of returns that we expect in order to make a new investment. So, that contract met our hurdle rates for investment requirements here at TransAlta.

Okay. Understandable. A quick question on the hydro. What was the impact obviously your availability was a little bit lower in the quarter versus 2012. How much of that impact was hydro, and are we pretty much through that for the rest of the year?

The availability that was lower in the quarter was entirely related to the Keephills 1 force majeure, which is a repair of a (inaudible). When you adjust out for that the availability is as we predicted it would be. In our availability numbers hydro is not included in those because they are different kind of asset. Those availability numbers are really for our coal, gas and wind suites.

Oh, pardon me. I was looking at slide 7 from the presentation where you break out the renewable availability figures. I know it is not a big item so I won't stick with that. That's fine. Thanks.

Yeah, that renewables is wind, though, right? That is wind.

Okay. Great. Thank you.

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

Good morning. Just coming back to contracting the Pac northwest. Dawn, you mentioned one of the challenges in dealing with some of the smaller players, or just players in general, was the long-term contractedness in the 2020 plus time frame. Just wondering as you go out to some of those players you do have the gas permitting upside, or accelerated permitting upside, and just wondering if you are looking at some sort of blending model for coal power from Centralia and then maybe something from a gas plant longer term?

I would say at this point we are not because I mean part of what has got to happen in that market is you have got to see, as you know, a new gas plant in the CAD65.00 range plus and that market is still trading in the CAD30.00 to CAD40.00 range so I would say they would have to start to see price signals well above CAD50.00 before people would really want to talk seriously about that gas plant. But we are in that kind of 2013-2014 time frame. By the time you get to 2015 and market really starts to absorb what is happening in that marketplace, because as you know there is shutdowns of other coal plants, they shut down (inaudible), so that does start to bring up offer base load generations toward the end of that 2020 period. I would say the market would be more open to those kinds of discussions as we got closer in to where they see the need for a new gas plant. So at this point, they are not there.

Okay. And just on that, as you go out to the PUDs, do you see the lack of the ROE uplift that PSE would have received as being a major hurdle in terms of those negotiations?

I don't think it is a major hurdle. I mean I think for sure it was an advantage in the discussion with Puget. But I think for all of them they have got pressure to add renewables. Many of them would like to add TransAlta transition coal as part of their portfolio because it is low cost and it helps them with rates. So I think it is more just how they build their portfolios and how they are thinking about the tradeoffs between renewables and prices that is the big concern that they have and I think as they see Puget be able to put a good contract into their portfolio it starts to give them the incentive to think about what they have to do to balance their portfolio between higher cost renewables and lower cost coal.

Okay. Just last question I have is on a couple of the cost items you flagged in the outlook. One was Alberta coal costs now rising 5% to 7% versus previously flat and I don't know if that is just the extended Keephills 1 outage to lower volumes and the other is on OM&A going up a little bit and reference to emergent maintenance work and wondering if there is extra color on that?

On the coal it is really the standard rate which includes depreciation on the capital so with some of the lower tons associated with the K 1 being down is the reason that has been revised upwards. And then the O M&A, yes, it is just slight upward from where we were for some of the K 1 work that we need to complete and again, some of the OM&A for the startup of Sun 1 and 2.

Yes.

But we are still targeting to manage it close to flat and offset by inflationary benefits with productivity and other cost management.

And as you know, when a unit goes down you want to take advantage of the time the unit is down so that pushes some of those costs into that quarter.

So that is really just going to be something that you are now going to expense versus capitalize?

On the OM&A you mean?

Correct.

Yes. Once it is running then it is all expense.

Oh. So it is actually running costs, it is not anything in terms of repair work that has come up?

No. It is more associated with the operating costs not the capital costs.

Okay. That's great. Thank you.

The next question is from Andrew Kuske, of Credit Suisse. Please go ahead.

The first question is for Dawn. If you step back with the renewable spend, you have a large position of a publicly traded company which you are going to receive dividend flows from. You have got a really good coal portfolio sitting in Alberta which we will wait five years until the PPAs roll and now you're heading into transmission, sort of revisiting transmission, after being out of it for more than a decade. Philosophically how do you think of the positioning of really what is left of TransAlta residual with TransAlta renewables going out the door in the next week or so?

You are thinking about the Australian stuff and the Centralia? Those areas?

Just philosophically, how do you think about the positioning of TransAlta Corp. on a residual basis because the lion's share of the assets are still coal sitting in Alberta but you've got a large publicly traded company that you will hold an interest in, TransAlta renewables. Should we philosophically be thinking about the company a little differently than we have in the past?

No, not at all. I think the key thing is, our strategy has been very much the same and TransAlta Renewables provides us with the tools for that strategy. But overall we want to expand our renewables business significantly and we have been that track for quite awhile and we he continue to look at acquisition opportunities for renewables both here in Canada and the United States. We have stated publicly that we want to be at 600 MWs in our Australian market and we are moving towards that in terms of what we are doing with Solomon.

We are a big player here in Alberta which is why we are investing in Sun 7 and expanding potentially into the transmission business, and we continue to believe we have a lot of strength in our western markets through what we do both with Centralia and our trading business, and you have seen us working hard to re-contract the long-term assets down there at the geothermal. So, we continue to drive exactly on the same corporate strategy as we have which is to be a strong player in Alberta and expand our presence in the US. We are a big player in a small market in western Australia but that has been a very profitable business for us so we continue to push there.

Okay. That's helpful. I guess if you X out the renewable portfolio that is going to be held in a separate vehicle which you own 80% to 85% of, what would be the contracted position of a TA Corporate?

Well, we don't look at it that way. We have a corporation, a total corporation, and when we add together the contractedness of the renewables that we own, plus the contract extensions that you have seen us do, plus what we have got in our Alberta coal, we actually increased the contractedness of the company going forward with the numbers move that we made in this quarter. I do not look at TransAlta Renewables as a is separate company that has been a spinoff. It is a company that we now have set up to focus on growing our renewables and we intend to keep the majority ownership high in the company and continues to be a strong part of our overall corporate strategy.

And then, if I may, just one detail question to Brett, On the CAD25 million of costs on Sun. You mentioned the asbestos. What was really the breakdown of that incremental CAD25 million. How much was labor versus some of the other items?

It is about a third or half labor and then the rest equipment materials expenses associated with the balance of plant. And again, like I said, we took the opportunity while it was down to do that work and that will save us from having to do that work in one of the outages later on.

That is exceptionally helpful, thank you.

Next question is from Matthew Akman, of Scotia Bank. Please go ahead.

Wanted to ask about operations in the quarter at a couple of plants. At Centralia therma, on page 19 you disclosed there was 621 GWh of increase in higher planned and unplanned outages and I'm just wondering to what extent the outages at Centralia in the quarter were unplanned and if it is at all meaningful what was going on there?

No. It was just a regular quarter for the work that we do at Centralia.

Okay. So the unplanned part wasn't a big part of it?

No, it is not significant.

Okay, thank you. And also on Popular Creek, the plant by plant data is showing about 86%, 87% availability which is pretty good but I mean given the spark spread was very, very wide in the quarter you probably would have liked it to be a bit better. Was anything going on there? Was there a planned outage?

In terms of up at Sun corps, there was some overall issues in terms of just typical outages that go on during the quarter there.

Nothing ongoing?

No.

Just one last question. Brett, you mentioned part of the reason for the coal cost escalation is you are doing some mining in advance for Sun 1-2. So that obviously negatively impacted this quarter. I'm wondering if that means the gross margins at Sun 1 and 2 could be wider than normal in the coming quarters when it comes on because the coal is already mined?

Yes, a little bit, Matthew. Again, we focus on the standard rate and spread that over all of the tonnage. It is really a function of other outages planned outages and how that calculation shakes out. But I mean it is in advance of that activity so we are incurring the costs today for the benefit down the road.

Okay. Thanks very much. Those are my questions.

Okay.

(Operator Instructions). The next question is from Jeremy Rosenfield, of Desjardins Capital Markets. Please go ahead.

Thanks. In terms of the Keephills outage, I'm wondering if the other coal units, and specifically the other Keephills units, have been examined for similar problem and if there are any updates related to that?

We are evaluating the Keephills 2 unit because it is the same vintage. It was built a year after. And we have no additional information on that yet. We are still waiting to get the results back on that.

So presumably when Keephills 1 comes back online this fall we will know he if there is additional work that has to be done at Keephills 2?

Yes, we will know that in the fall sometime.

Excellent. Turning to the Mid AM partnership to working on the Fort McMurray transmission project. We saw from the ESO that there is about 30 other interested parties. Curious, what is the competitive advantage here that you are going to try to about push through to win that project away from the other interested parties? And then just a second question on that one in terms of how much spending you actually do up front to try to win RFP, is that a material amount that you have to spend up front?

First of all, no, it is not material and it is a good investment to see if we can win a project like that. We know that the all transmission in all markets is hotly contested. And Mid AM has a fantastic track record of entering into processes where there is 30 people trying to win and they come out the winner. I think in terms of the partnership, they certainly bring a huge expertise on the construction side, and in making sure that they can put forward a competitive bid that is cost effective overall, and then what we bring is the local knowledge of the Alberta market.

We have been in the market as you know for a hundred years. We know the stakeholders. We know the kinds of concerns that they do. We do stakeholder processes and have done them all through Alberta with all of our different assets so we have a fairly good process for how you get that done. The key challenges always with building transmission is the land owner issues and, of course, first nations issues. So our team is accountable for bringing that kind of knowledge to the bid and their team is accountable for bringing the best in class construction and cost practices. So we think together we have got a good shot and that is we decided to place the bet there.

Okay. Great. Those are my questions. Thanks.

This concludes the analysts Q&A portion of today's call. We will now take questions from members of the media. (Operator Instructions). The first question is from Jeremy Van Loon of Bloomberg news. Please go ahead.

Good morning. I'm just wondering if you could provide any more insight in terms of the partnership with Mid American in terms of plans for gas plants that you have talked around the LNG expansion in British Columbia as well as any other gas plant related expansion?

Yes. With Mid AM we have a number of different projects that we are working on to see if we can bring them across the line. We are finding that some of the work that we are trying to do there in BC is a little slower than we anticipated as people are adjusting their expectations to the kind of work that has to be done in the local area in order to get some of the LNG facilities across the line, but nevertheless our teams are focused there and as well, here in Alberta there is quite a number of opportunities at the projects are being built up.

We continue to focus in both those places but we also, as I said earlier in the call, Sundance 7 a really important plant. It is absolutely needed for the Alberta market in that 2018 to 2020 time frame and our team is focused there to make sure that plant is ready for the market at the end of the decade as Sundance Units 1 and 2 roll off.

Just another follow-up question. I know Mid American has been looking for more renewable energy deals and I'm just wondering have they reached out to you for a part of the renewable spinoff or expressed any interest in working together on any renewable projects?

On renewables, we don't typically work together on that. We think we have a competitive advantage on our own here in Canada on renewables and we also believe that our renewables business is strong enough to compete and take that competitive advantage to the US so we see that as a strategy that we will go it alone on.

(Operator Instructions). There are no more questions from the media. I will turn the call back over for closing remarks.

Thank you, that concludes our call for today. We will be available throughout the day to answer any follow-up questions you may have. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.