TransAlta Corp (TAC) 2014 Q1 法說會逐字稿

Thank you for standing by. This is the Chorus Call conference operator. Welcome to the TransAlta Corporation 2014 First Quarter Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

At this time, I would like to turn the conference over to Brent Ward, Director of Corporate Finance and Investor Relations. Please go ahead.

Thank you, Sachi. Good morning, everyone and welcome to TransAlta's First Quarter 2014 conference call.

I'm Brent Ward, Director of Corporate Finance and Investor Relations. With me today are Dawn Farrell, President and Chief Executive Officer; Donald Tremblay, Chief Financial Officer; Brett Gellner, Chief Investment Officer; John Kousinioris, Chief Legal and Compliance Officer and Todd Stack, Vice President and Treasurer.

The call is webcast and I encourage those listening on the phone lines to view the supporting slides, which are available on our website. A replay of the call will be available later today and the transcript will be posted to our website shortly thereafter.

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 purposes of today's call. The amounts referenced are in Canadian currency unless otherwise stated. The non-IFRS terminology used including comparable gross margin, comparable EBITDA, funds from operations, free cash flow and comparable earnings are reconciled in the MD&A.

On today's call, Dawn and Donald will provide an overview of our operational and financial performance for the first quarter, provide an update on recent events and activities, and then we'll open it up to questions.

With that, let me turn the call over to Dawn.

Thanks, Brent and welcome, everyone. It's great to be here. We just finished our 2013 annual meeting and we thank you all for being patient and waiting till later in the day, helped us have a good meeting and then also meet with some of our retail shareholders.

On today's call, I'm going to comment more specifically on our Q1 results. I'll review our recent business highlights, provide you with a market update particularly on Alberta, and then will also review how we feel we are tracking so far this year against our target.

Before we get into the results, I'd like to take a moment to introduce our recent appointment. Some of you already know that Brett Gellner has been appointed to the role of Chief Investment Officer and will now be solely focused on leading our growth aspects of the Company. He is excited about that and so are we. Donald Tremblay, who you'll hear from later in this call has joined TransAlta and he is now our new CFO. And Wayne Collins, who is not here with us today but we thought we'd mention him, will join us during the second quarter of this year and will take on the leadership accountability for coal and mining. So, we're building the senior management team and we're pretty excited about where we're going.

Moving on to the quarterly results, I am pleased to report that we've had a good start to the year. During the first quarter, we saw steady performance from our generation business across the board, strong availability across the fleet and in line with our annual targets, and we did have sort of extra strong performance, I guess, in our energy trading, which I'll put into context for you a little later in the call. As a result, we did deliver increased comparable EBITDA, FFO and free cash flow compared to the same period for 2013.

During the first quarter, we made some significant progress executing our business plan. Our focus does remain on operations, growth, strengthening our balance sheet and contracting. So let me start first with operations, because I think it is the most important thing in terms of consistency of operations that we need to do throughout the year and beyond.

During the first quarter, we continued to improve on our execution of the operations plan. We did invest a lot of time and effort to position our coal fleet for better performance. Our Canadian coal management team is driving our coal action plan to improve the reliability of our fleet and reduce the operational cost both in the short term and sustainably over the longer term. We're starting to see some of the benefits of our plant outage management in the first quarter of 2014. And as we said before, we believe the discipline rather than further investment is really the necessary ingredient to improving the performance of this fleet and they were able to show that as they went through the quarter.

Availability for the quarter was very strong and was delivered from all business lines. More importantly, unplanned outage rates were lower compared to the same period last year and that's certainly an indicator that we look at very carefully. Unit availability is good and we are managing through the balance of plant issue to restore the unit's full output within the current quarter that must be K3, right? Yeah, just in terms of K3, we had a bit of de-rating there and that's being restored and we can talk about that on the Q&A.

Moving on to our energy marketing team, I'd like to take a moment to review our strategy here and put our first quarter into some perspective and context. During 2012, we did make a deliberate decision to shift our trading methodology to one that's focused on capturing short-term low-risk arbitrage opportunities, which is exactly what our team was able to do in quarter one. They had a great quarter delivering CAD65 million of gross margin. These strong results were largely driven by the team's ability to capture value during -- due to the location of our assets in the eastern markets during a period of extreme weather conditions. The strategies employed during this time were consistent with our low-risk short-term trading methodology.

The gross margin was almost entirely cash based with 95% of it realized in the quarter. Of the CAD65 million generated in the quarter, approximately CAD15 million is our normal run rate from trading activity with the majority of the balance of that gross margin being the incremental upside.

Our energy trading team remains focused on managing our generation and marking assets as well as meeting our growing customer commitments. We do expect the team to continue to deliver a CAD10 million to CAD15 million of gross margin as we go forward. So we think that we would return to normal profitability as we go quarter-by-quarter through the year.

And we're also continuing to work hard at growing our customer business and have 680 megawatts under contract here in Alberta now, which is really good news.

Let me turn to our second priority, which is creating value through growth and this is really at the core of our business strategy in terms of value creation as we go forward. Four months into the year, our growth plan is well underway. Since the beginning of the year, we've advanced our Sun 7 project, we've commenced construction with our joint venture partner on our natural gas pipeline in Western Australia, we've progressed to the next phase of a competitive bid process for Alberta's Fort McMurray 500 KV transmission. And some of the most exciting news, just recently we were selected as the successful bidder to build, own and operate a 150 megawatt combined cycle gas power plant in South Hedland Western Australia. I think, we've done great. I think, our progress to date this year has been good and exactly what we want to see. I think, we're seeing some real momentum and I'll give a little bit more color on those projects as we get a little bit later in the call.

Our third area of focus is to continuing to strengthen our balance sheet. And again, there was lots of activity there as we went through the quarter. In order for us to enhance our ability to grow the portfolio and improve your return on investment, we took the following steps during the quarter. We completed a secondary offering of TransAlta Renewables' common shares for a total gross proceeds of CAD136 million. We announced the sale of our CEGen assets for $193.5 million creating additional financial flexibility to support growth and the balance sheet, and we're on track to close during the second quarter for that transaction. We aligned our dividend to the Company's growth and financial objectives, which increased free cash flow by approximately CAD120 million a year. These initiatives drove results in the redeployment of approximately CAD500 million towards our balance sheet and growth strategy and generate incremental cash flow. Donald will speak to our ability to fund growth later on in the call as well.

Our final priority, of course, remains contracting. We are highly contracted across the entire portfolio. We reduced our exposure to market volatility by entering into long-term arrangements to sell our power forward. As you can see, we are approximately 88% hedged across the portfolio for the balance of the year at an average of CAD55 a megawatt-hour in Alberta and CAD40 a megawatt-hour in the Pacific Northwest. Today we're at about 78% hedged across the portfolio for 2015, and at an average of CAD50 to CAD55 in Alberta and CAD40 to CAD45 in the Pacific Northwest.

Turning to slide 8, one of our goals is to reduce our exposure to volatile short-term power markets in all regions, where we have assets, by locking down pricing for the upcoming years. We are at the top end of our hedging ranges for 2014 and 2015 and continue to grow our customer sales to ensure we enter each year well hedged. This allows us to protect against weak prices as well as capture opportunities to add incremental margin when the market is volatile.

I'd like to take a moment to just give you a little more color on the progress on the growth front. We've continued to make advances on Sun 7, which you all know is a natural gas facility here in Alberta. And we've now moved forward to the point of filing our AUC permits. We've also completed a request for interest from engineering companies for the construction. We continue to target commercial operations [date] of Sun 7 at the end of 2018, when market fundamentals are showing the need for a facility of this size and configuration. And Brett and his team are looking at options to contract or hedge the project to mitigate the risk.

We have progressed to the next phase of a competitive bid process for Alberta's Fort McMurray 500 KV transmission project. As I talked to you before, due to the confidentiality required by [the ISO], I can't say much more other than that.

We've recently announced two new projects with long-term contracts in Australia, a natural gas pipeline and our 150 megawatt combined cycle gas power plant in Port Hedland. Our joint venture partner and ourselves are moving ahead to construct the gas pipeline, which will feed our Solomon power station. It's a smaller project, capital returns to us is around CAD85 million. But we are -- there are some potential for expansion opportunities, which we're positioned for and I certainly will talk about later in the call.

Recently, we announced that we were selected as the preferred bidder through a competitive process to build and operate 150 megawatt combined cycle plant in Port Hedland, Australia. This project needs a lot of money, it's approximately CAD550 million in capital, and it will be built over the next 2.5 years. The contracts for these assets will be for 20 and 25 years respectively, and have given us critical mass in the region. And I think this is important for TransAlta as this is a region that we really like to be in and that we like to grow in.

As I said at our annual meeting earlier this morning, we really like the Australian market. We've been there for 20 years now and are well positioned with a strong reputation for both operational capability as well as the ability to close transactions. The growth we've achieved in Australia demonstrates our commitment to expanding in this region. We set out this year with the goal of building our Australian portfolio to 600 megawatt. With the recent pipeline in the Port Hedland announcement, I think we believe now that we hit our target for what we want to do in that market.

Before turning the call over to our new CFO, Donald Tremblay, I would like to review our progress to date on our 2014 objectives, and this is how we're marking ourselves against what we think we've got to do to get to where we want to go. Financially, EBITDA, FFO and free cash flow are all on track. We remain committed to our investment grade credit rating, which we're confirmed by both DBRS and S&P during the first quarter.

Operational excellence and marketing. We continue to focus on improving our Canadian coal. Our availability for our first quarter is off to a great start, but we know that we have to continue to do that quarter after quarter. Our sustaining capital is in line with where we want to be. Our energy marketing, of course, is ahead in the first quarter and they are continuing to optimize around our assets and pursue contracting opportunities. And then, as you've seen, we are tracking well on the growth front.

So with that I'll stop my comments now and I'm going to turn the call over to Donald, who will take you through the financials.

Thank you, Dawn. As Dawn already showed you, our comparable EBITDA for the first quarter was CAD310 million, up CAD42 million from the same period last year. Year-over-year improvement in EBITDA were primarily driven by strong power and gas price in the Northeast during January and February, overall solid performance from our generating assets, and a full quarter's contribution from Wyoming and New Richmond wind projects. These positive contribution were partially offset by lower pricing in Alberta, impacting most of our wind and hydro in the province, a de-rating at our Keephills 3 generating unit and higher gas consumption due to opacity issue at Keephills and Sundance.

Our FFO for the quarter was also significantly higher than last year at CAD238 million, tracking to be within the guidance of CAD740 million to CAD790 million we provided at the beginning of the year. Interest expense is slightly higher than last year due to lower amounts capitalized and a stronger US dollar, while cash income tax is at the same level as last year despite significantly higher earnings during the period.

Free cash flow available to support the dividend to our shareholder and our [growth totaled CAD138 million] during the period.

Moving to the next slide, you'll see that our sustaining capital during the quarter was CAD64 million, slightly higher than same period last year due to timing. Our sustaining capital for the year, as you can see on the slide, is still in line with our target for the year.

The last point we'd like to address with you today is our liquidity position and our funding plan. We continue to maintain significant liquidity. We closed the quarter with just over CAD900 million in liquidity, up from under CAD900 million at the end of last year. This morning, we completed our TransAlta Renewable secondary offering and increased our liquidity by [approximately CAD130 million] and we are expecting to close the sale of CEGen during the second quarter for additional proceeds of [nearly CAD200 million].

These two transactions combined with the reduction of the dividend announced at the beginning of the year, significantly improve our financial flexibility and credit metrics. Our DRIP program has seen to be very popular among our shareholder and more than one-third of our dividend is reinvested every quarter.

We have approximately CAD700 million of debt coming to maturity in the next 12 months and we expect to be able to refinance these in due course. In 2013, we launched TransAlta Renewables. This provide us with a source of liquidity, a great vehicle to fund contracted assets, if needed, and give us the confidence that we can grow our business accretively over the next few year without sacrificing our balance sheet.

With that, let me now turn the call back over to Brent.

Thank you Donald. We will answer questions from the investment community first and then open the call to the media. I would also remind you that my team and I will be available after the call for any follow-up questions you may have.

Operator, we will now take questions please.

Thank you. Ladies and gentlemen, we will now begin the analyst's question-and-answer session. (Operator Instructions) Paul Lechem, CIBC.

Thank you, good afternoon. As you move Sun 7 through the process here, I was just wondering what your current thinking is on contracting the facility, are you still targeting the 75% number or maybe you can get, more generally, can you give us some thinking now on your propensity or your appetite to take on more merchant risk as we're going forward?

Paul, I mean, we don't have big appetite to take on more merchant risk. I mean, as you know, the TA hasn't rolled off for Sun 1 and 2 in 2018, and the good news about that merchant risk is it's more profitable. But as we think about Sun 7, part of it is to replace those units. But frankly, we're trying to figure out ways to create more contracted niche for that plant in this market. And as you know, the operator market tends to have capacity payment built into the energy price and consumers here tend to be fairly comfortable. I just came from our annual meeting and our 80 year-old are comfortable with taking market risk, because they think that the average price in the market will be lower than if they hedged with the local retailers. So, that means -- that's a small part of the market, but it means there's not a huge demand for longer-term contracts. So the team is working with the people that we have in our C&I business, we're working with industrial customers just to see if there are way to make that work, because as you know, the market is going to need a combined cycle plant in that timeframe. And if you don't build the plant, you are going to see higher prices, much higher prices. But at the same time, we've got to find a way to figure out how to finance or get the contracting for it. So we haven't given up on that, but it's certainly challenging.

Okay. Could you give us some color or commentary around the 680 megawatts that you have contracted at this point in time, how -- what kind of average length is that for and any thoughts in terms of what type of off-takes there are on that?

I will let Brett answer that question.

Yes, Paul. So generally, those are kind of in the two to four year range, and it's commercial. So smaller customers, too small industrial, but even some larger industrials. So it's kind of in that range. The key for us on Sun 7 clearly is to get longer-term than that and given the size of the plant. But we've made really good progress in the last 18 months on that business, which I would say a couple years ago, we probably wouldn't have seen even that kind of contracting going on. So, that's giving us good intel into the market on what we can do. And as Dawn says, we're looking at different ways to look to contract a good portion of Sun 7.

Okay. Would you like to speak one more in the -- Dawn, I just wanted to circle back to your comments around Western Australia, where you said you're closing your 600 megawatt target, you love the region and then you seem to say though you hit your target, and sometimes it turns out, does that mean you want to grow more in Western Australia, are you comfortable at this level, what are your thoughts about investing further in that region?

Yes, Paul, it's Brett again. We hit the target we set out a couple of years ago, which is great, but we'll continue to pursue more in that market if it hits the return on risk profile that we want. And we want to get these obviously up and running and very successful, but as things come along, we'll take a look out them, if they meet our targets. The beauty out there is they are long-term contracted, providing good returns in line with our expectations and we know the market well. So there's not as much competition to be honest with you. I mean, it's -- because we've been there has given us the footprint.

Yes, I think Paul, I would add it. We probably -- what we'd like to do is, get these projects really running for everyone and do -- and then do the analysis, the market analysis to see what our next goal should be before we actually say we're going to do more. So I think we have to really look at the supply and demand, look at which miner is expanding there, there may be some assets not for sale there. So we really want to look at that as a market of growth, see what the market might look like. And Aron Willis runs our Australian market. He is also -- Brett and he work together very closely. He reports to Brett on the growth side. There's a lot of assets potentially coming up for sale as well on the Eastern side of Australia. So, we want to do some good market studies on just what is the potential before we set a new target. So, for now, we are satisfied, we met the first target and I'd say in the next year, we'll set another target.

Ben Pham, BMO Capital Markets.

Okay, thank you and good afternoon. Just a thing on Australia, I'm just wondering what is the JV with Fortescue fitting your overall future plant in Australia, is that more of a natural gas pipeline opportunities at all, what about it then overall?

Well, they are the customer, right? So, not a JV. So, the power plant at Solomon we operate and sell power directly to them at the mine, the gas plant is the JV with a local pipeline company in Australia, and we'll supply gas clearly to the Solomon facility, which is under contract with Fortescue. That's where the expansion opportunities will come. If there is an opportunity to extend that pipe to other mines, not just Fortescue's mines, then we have an opportunity to earn a return on that. The Port Hedland project is a couple of customers. One is the state owned utility and then Fortescue is also there, but state owned is more of it. And so again, they're not joint venture partners, they are customers on that (multiple speakers).

Okay. I got that. And then the TransAlta Renewables, the 70%, is that the sweet spot for you guys right now, I mean what will cause you to look at changing that percentage over time?

Yeah, I think, what we said to the market is that when we originally marketed the document that we were comfortable with 70% to 80% ownership and we continue to maintain that as we go forward. I think it's important for TransAlta shareholders to own 70% of TRI, because of the stable cash flows that support the credit rating and stability of cash flow. So we are comfortable at that range.

Okay. And if I may just squeeze in one more, because Paul squeezed one in, just any update on the Keephills 1 force majeure just in terms of timing and resolution?

No update on timing or resolution. It's probably we're in early days on that. When we do have some information, we'll let you know.

Okay. Okay, thanks a lot guys.

Linda Ezergailis, TD Securities.

Thank you. I have some operational questions. I guess specifically, can you explain the opacity issues in your Canadian coal operations and how those will be mitigated or eliminated and what might be associated operating or capital cost be with that?

Yeah, I mean, we've had opacity issues always out of those plants in the winter time, Linda. I think the reason is a little bit more obvious now, it's because we're now disclosing our coal segment, so you can see some of that detail. And in particular [niche], because gas prices were so high, we have an obligation if we have opacity issues to burn gas in order to make up the megawatts. So we've always had those issues.

In terms of mitigating that risk all together and getting rid of it, that's probably unlikely. I think there will always be periods in the winter time when it's cold where we and others' plant unfortunately were not designed in a way that they can always meet that opacity requirement. But the -- certainly from a mitigation perspective, there's a lot of maintenance so you can do on the precipitators to make sure that you're getting every last bit out of them. And sometimes they can -- what they can do is bring a different quality of coke and to reduce opacity now that's a [slippery sauce] right? Because you don't want to be taking some of your best low ash coal and burning too much of it, because then you end up paying for it some other time of the year. So there are always some mitigating factors but I think it just shows up a little bit more clearly for you in this quarter, because of the disclosure.

Okay. And then the de-rating on K3. What was the issue there and some of that going to continue forth?

K3 is a 2011 vintage plant. So it's relatively new and if you remember, in other Investor Days, we've shown you the [flat to up] curve. We have heating problems at the beginning of life for the first five years and we have at the end of last year you also have to look at various things with your equipment. So in this case, I'd say 90% of the issue is the pulverizers or the design of the pulverizers. It's problem, we're working through with Hitachi and we've got quite a bit of work to do in terms of group cost on it. Short term, it's the guys are on it, they are fixing it, but part of it is as you got to have parts and things to overcome it. But it's a de-rate related to a design fault.

Okay, thank you.

Juan Plessis, Canaccord Genuity.

Well, thanks very much. In your outlook section of the MD&A, you mentioned that your per tonne coal cost in 2014 are now expected to be 7% to 9% lower than in 2013, and this is down from 10% to 12% lower cost talked about the end of last quarter. What's changed in the past two months that have caused you to expect a lower reduction in coal costs?

It's like two things basically like the de-rating of Keephills, so we're like consuming less coal and the sizing of the unit at Sundance that basically was not as expected -- expected outside this year. So two reason basically lower volume at the mine.

Okay, thanks for that, Donald. And as well on the outlook section, you're now expecting interest expenses in 2014 to be a bit higher than in 2013. Just two months ago, you were expecting interest rates to be pretty consistent with 2013 levels. Is this more related to foreign exchange expectations and can you provide a sense of magnitude for how much higher you expect net interest expense to be?

I think it's two cause, like capitalization will be expected to be a bit lower, and interest -- the FX on the US dollar debt. (inaudible) on [$2 billion] of US debt. So, you can do the math.

Charles Fishman, Morningstar.

Thank you. In slide 10, you indicated CAD13 million year-to-date for EBITDA growth. Just to make sure on understanding that, is that from the wind farms year-over-year?

Yes, it is.

Okay. And then, the second question I had was the US EPA spring -- US Supreme Court ruling today on the Cross-State Air. Does that have any impact on you guys?

Well, I cannot answer that because we've been busy with our annual meeting and probably haven't read the paper.

Okay, I apologize, that just occurred today. So, you certainly are excused. They just confirmed the Cross-State Air Pollution Rules in the US and that was my question, but I can certainly give you in a pass because you guys had a busy day on that.

If we can, we'll do a better work on that and maybe we can get back to you on that. So, we just haven’t had of chance to see it.

Matthew Akman, Scotiabank.

Hi, thanks. On the Keephills 2 force majeure outage that was going on during the quarter, was there any provision taken for that in the quarter?

Yes, there were.

Did you quantify it?

CAD12 million.

Okay. So that's actually included in the quarterly result?

Yes, it is.

Yes, yes.

Okay, thank you. Also on the coal plants on page 10 of the MD&A, there is a comment that offsetting some issues were positive factors such as favorable contract pricing relative to, I guess, last year in the quarter and I just didn't understand that because I think that your hedge prices are actually lower year-over-year in Alberta.

I think they’re relating to capacity payment on the PPA.

Capacity payments?

On the PPA. So, the PPA, as you know, the PPAs have escalators in them. So it's related to that.

Okay, so it's actually not sort of pricing of energy. Okay. And then last, quickly related to the trading profit, on page 15 of the MDA, there is a comment that I guess incentive compensation accounted for a lot of the increase in O&M, and it looks like CAD12 million year over year. So I'm just trying to understand that is that like bonuses paid to traders accrued for the quarter?

Like some of it is under accrual of last year. Some of it is accrual for this quarter performance. The portion for the quarter is about CAD8 million, and there is probably CAD3 million for last year like accrual.

Andrew Kuske, Credit Suisse.

Thank you, good afternoon. I guess the first question is for Dawn, and I don't know if it was in your comments on this call or on the AGM. But you mentioned the interest and just the actions you've taken in the last few months on being involved in infrastructure assets that effectively touch power, whether they be transmission of pipelines, how do you think about that business and how big it could be as a percentage of your total asset base today?

I frankly don't think about that. I mean I think, we are a little more opportunistic about that and we're opportunistic about around that areas, kind of where we are in the market, where we've got assets, where we've got customers. So if we see, so for example here in Alberta, if we could win that project, that would be a big opportunity for the Company and it certainly would cause us to get ready to go get another transaction line here. And I'd say now in Western Australia, given that we've got the gas pipe -- plant that we are going to build at Port Hedland, we probably look at another gas pipeline. So I think it's really more in that business at this time, we're being more opportunistic and positioning that relative to our current assets and customers. And if we got really good at it, then I think we'd start to think about how to make it a share of our business going forward. So it's kind of a crawl before you walk kind of comment.

Yes, so I guess fair to say it's just logical extensions off of the existing asset base or in some respects, it helps get things done on the assets you own or enhancements on those assets?

Enhancements on our knowledge of the market and our ability to be impactful in the market and be of service to the customers that we serve. So, that's a great way to put it a logical extension at this point.

Okay. Thank you and then I guess this is either for Donald or Brett on just how you think about the Australian business, and do you think of this business as effectively being internally self financing at some point in time, where the cash I think is generated out of the current assets just gets redeployed and recycled into Australia into more opportunities there or do you think about flowing cash out of Australia back to Canada for other purposes or just if you could just give us some color and context on how you think about that marketplace?

Yes. Let's be honest, I think we look at it very similar to we would look at it if they were sitting in some part of the United States. We effectively look at our whole portfolio and the cash coming in from that. And then where do we redeploy that into the best returning projects and if that happens to be outside of Australia, then we'll bring that cash back and with that elsewhere. So yes, I wouldn't think about it as, it's now kind of a standalone generating its own and now they've got to figure out where they will reinvest their capital. We still look at it from -- one TransAlta shareholder perspective.

And then a follow-up on that point, if I may. Are you seeing better opportunities say, risk-adjusted opportunities for deploying capital on Australia than you are in North America?

So, there's no question in the markets we're in, the answer is yes, and I'd say the competition is lower, but it's the customers there they really look to pay for reliability and people that have been operating in those regions for a long, long time. If you get an asset that appear that say it's really a long-term good contract, but the owner doesn't really matter, because of the operations, the way it operates like a wind farm, then clearly we see a lot more competition in the returns being bid lower. And so they still might be attractive to us, but we certainly after really scrub and make sure we're comfortable with that and the risk, not that we don't do that in Australia, but so far it's been that way, but there are pockets of opportunity here in Canada as well that good returning projects so.

Yes, Andrew, I guess I'd add there. I mean, if we can get to where we want to go, we'd like to have a couple of regions where we have concentrations of assets. So we have that in Canada, we have it in renewables across Canada and we have it in Australia. And we can get over time that, not over the next two years, let's say over the five years. We can get another concentration of assets in another region, and then effectively the Company would be large enough where there would be enough organic growth in the region that we can have -- we'd have a -- it'd be great from an allocation of capital perspective and you could be -- you can make sure you are always allocating just highest return. So right now, having Australia effectively beat Canada because of returns as a good thing and if we could get one more concentration I think it would be helpful to the Company overall in terms of its ability to grow sustainably.

Okay, that's very helpful. Thank you.

(Operator Instructions) Robert Kwan, RBC Capital Markets

Good afternoon. If I can come back to trading, I'm just wondering, we saw obviously some pretty high and volatile prices in New England for power and gas. I'm just wondering if you can talk about some of the specific strategies or drivers that were the biggest contributors. And then you also mentioned early in the call that you have assets in the area that back stopped some of these trading strategies, and so I'm just wondering what those assets are?

You want to answer or you want me to answer.

Go ahead, Donald.

So, like a lot of the transactions that they're doing is basically like arbitrage between markets. So it's very short-term in nature like in the cash market. They clearly like to position again of last year in terms of like transmission position or gas transportation position and that's exactly what they see -- they are capturing. So, when they took their position like they had like -- like they had some expectation of profit, clearly like that was like, we're ahead of their expectation, but like it's one-time event. But I don't see -- we expect to repeat this, we don't expect them to repeat this, but it was good cash for us for Q1.

So these long-term multi-year contracts that they've taken out on pipeline and transmission capacity is basically about they talked going into the quarter to lock that down on the hope that we would see something volatile as we went into Q1.

And in most case, like it's a short-term position, so it's once the transmission that they're taking.

Yes, they comes up a bit.

Okay, and those are the assets. So basically the transmission rights versus any, because if you weren't using the Ontario plant. So, whatever was left open there (multiple speakers)?

It's a bit of optimization with the Ontario plant as well, because we have like gas, and they have the ability to arbitrage around the gas as well. They have gas transportation to take the gas from Alberta to Ontario, and that's what there are arbitraging over the quarter.

Okay. Just wondering, Dawn, I think it was at the AGM you mentioned on the whole MSA allegations that, you wanted to take a leadership role and changes in the market. I'm just wondering, can you talk about what some of these major changes you see are and how you -- what you think needs to be implemented and ultimately how you see that potentially changing market as we go forward?

You know what, Robert, I don't actually think that we necessarily need changes, but I think in terms of leadership, first of all we need to be able to explain to consumers in the market how the market works, so that there is greater trust in the industry on what we're doing here. So I think first of all, it's about communication about the existing market. And then I do think it is working within the contract of the agencies, whether it's the [AEC or the ISO] or MSA themselves to ensure that we've got greater clarity approval and how the market works. And so we take this Company -- we take our ability to run this Company and the effect and the value for this Company very seriously. So, we just believe that there needs to be greater transparency of rules, processes for getting those rules may be verified. And then you have to be able to communicate then to consumers so that consumers trust them, and that's what's difficult about this market. It is hard to explain it to the average person and that's where we see we've got to take a stronger role.

This concludes the analysts' Q&A portion of today's call. We will now take questions from members of the media. (Operator Instructions). There are no questions from the media. I will hand the call back over to Brent Ward for closing comments.

Thank you, Sachi. That concludes TransAlta's first quarter conference call. Thanks for joining us. Again, if you have any follow-up questions, we are available after the call. Have great day.

This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.