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THE CHAIRPERSON:
Well, the hour has come.
It's
5:00, and I'd like to say good afternoon, ladies and
gentlemen.
And on behalf of the Board of Directors,
it's my pleasure to welcome you to the annual meeting
of the shareholders of TransAlta Corporation.
The
Board and management very much appreciate your interest
and attendance today.
My name is Donna Soble Kaufman, and as Chair of
the Board of TransAlta, I will act as Chair of the
meeting this afternoon.
Ken Stickland, our Executive Vice-President
Legal, will act as Secretary of the meeting.
He's
seated on your far right.
I would also like to introduce Steve Snyder, who
I'm sure is known to many of you.
Steve is President
and Chief Executive Officer of TransAlta.
I would also like to introduce Brian Burden, our
Chief Financial Officer.
As our meeting is being webcast live, I'd also
like to welcome those shareholders in our Internet
broadcast audience.
We also welcome those of you who are not
shareholders to this meeting, but I remind you that
only shareholders or proxy-holders are entitled to vote
or to take an active part in the formal business of the
meeting.
After the end of the formal business of the
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meeting, I will make some comments from a Board's
perspective.
Mr. Burden will present the Chief
Financial Officer's report, and Mr. Snyder will present
the Chief Executive Officer's report.
Following these presentations, there will be
time for any questions you may have.
I will now call the TransAlta Corporation annual
meeting to order.
We will first go through the formal parts of the
meeting.
Ms. Jacquie Fisher and Mr. Simon Law of CIBC
Mellon Trust, our transfer agent, are in attendance
today, and I appoint them to act as scrutineers of the
meeting.
I asked Mr. Stickland to file a copy of the
notice of this meeting, which was mailed on March 28th,
2008, to shareholders of record as of February 25th,
2008.
A copy of the notice and proof of service will
be filed with the records of this meeting.
The scrutineers have provided me with a
preliminary report on attendance today, and the count
indicates that 1,231 shareholders are present in person
and by proxy representing 67,698,562 common shares.
Accordingly, 33.6 percent of the outstanding common
shares are currently represented at this meeting.
I therefore declare that a quorum is present and
that this meeting is properly constituted for the
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transaction of business.
A copy of the scrutineers' report will be filed
with the records of the meeting.
In order to have the meeting move smoothly, we
have asked a number of shareholders who are employees
of TransAlta to move and second the motions to be put
before the meeting.
As Chair, I have reviewed the minutes of the
last meeting of shareholders held on April 26th, 2007,
and I declare the minutes have been verified and
signed.
book.
They're filed in the corporation's minute
I will therefore dispense with the reading of
those minutes at this meeting.
A copy of the minutes,
for anyone who's interested, is available on a table at
the back of the room for anyone who wishes a copy.
The next item of business is the receipt of the
consolidated financial statements of the corporation
and the auditor's report for the year ended December
31st, 2007.
The consolidated financial statements of the
corporation and auditor's report contained on pages 69
to 109 of our annual report were mailed to shareholders
in accordance with security law requirements together
with a notice of this meeting.
Copies are available on the table at the back of
the room, and I request the Secretary to file a copy of
the annual report with the minutes of this meeting.
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Mr. Ryan MacDonald, a representative of Ernst &
Young LLP, the auditors of the corporation, is
available to answer any questions during the general
question period which follows the meeting.
The next item of business is the election of
directors.
The Board has set the number of directors
to be elected at this meeting as eleven.
We are
satisfied that this number of directors is appropriate
to provide a significant range and depth of expertise
and to meet all corporate governance requirements.
I will now introduce the director nominees
standing for election to the Board and ask that they
stand when I call their name.
William D. Anderson.
Mr. Anderson is a resident
of Toronto, Ontario, and has been a director since
2003.
He was President of BCE Ventures, a subsidiary
of BCE Inc., from 2001 to 2005 and Chief Financial
Officer of BCE from 1998 to 2000.
He has extensive financial experience and has
executed numerous transactions, as well as corporate
and operational restructurings.
Welcome.
Mr. Anderson is a chartered accountant and a
member of the Institute of Chartered Accountants of
Ontario.
He is a director of Gildan Activewear Inc. and
MDS Inc.
Mr. Anderson is chair of the Audit and Risk
Management Committee.
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Stanley J. Bright.
Mr. Bright is a resident of
Oxford, Maryland, and has been a director since 1999.
He was President, CEO, and Chairman of MidAmerican
Energy Company from 1997 to 1999 and President and CEO
and chairman of the predecessor companies, including
Iowa-Illinois Gas & Electric Company from 1991 to 1997.
He was also a director of MidAmerican Energy
Holdings Company until February 2006 and of predecessor
companies from 1987.
Mr. Bright is chair of the Human Resources
Committee.
Timothy W. Faithfull.
Mr. Faithfull is a
resident of Oxford, England, and has been a director
since 2003.
He is a 36-year veteran of Royal
Dutch/Shell PLC and was formerly President and CEO of
Shell Canada Limited.
Mr. Faithfull has extensive
experience with commodity exposure and risk management
due to his experience directing the global crude oil
trading operation of Shell International Trading and
Shipping Company.
He is a director of Canadian Pacific Railway
Limited, AMEC PLC, and the Shell Pension Trust in the
UK.
Mr. Faithfull is a member of the Audit and Risk
Committee and of the Human Resources Committee.
Ambassador Gordon D. Giffin.
Ambassador Giffin
is a resident of Atlanta, Georgia, and has been a
director of TransAlta since 2002.
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He is a senior partner of the law firm McKenna,
Long & Aldridge.
Ambassador Giffin served as United States
Ambassador to Canada from 1997 to 2001.
Prior to this
appointment, he practised law for 18 years where he
focused on energy regulatory work at the state and
federal levels.
He is a director of AbitibiBowater,
Inc., Canadian National Railway Company, Canadian
Imperial Bank of Commerce, Canadian Natural Resources
Limited, and Ontario Energy Savings Limited.
He is
also a member of the Council of Foreign Relations and
sits on the advisory board of the Canadian-American
Business Council.
Ambassador Giffin is the chair of the Governance
and Environment Committee.
C. Kent Jespersen.
Mr. Jespersen is a resident
of Calgary, Alberta, and has been a director since
2004.
He is Chair and CEO of La Jolla Resources
International Limited.
He has held senior executive
positions with NOVA Corporation of Alberta, Foothills
Pipe Lines Limited, and Husky Oil Limited.
He is chairman and a director of Orvana Minerals
Limited and CCR Technologies Limited, and a director of
Matrikon Inc. and Axia NetMedia Corporation.
Mr. Jespersen is a member of the Governance and
Environment Committee and of the Human Resources
Committee.
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Michael M. Kanovsky.
Mr. Kanovsky is a resident
of Victoria, British Columbia, and has been a director
since 2004.
Mr. Kanovsky is a professional engineer,
is an independent businessman, and has extensive
business experience in the development and foundation
of energy and electrical energy companies.
He is a director of Accrete Energy Corporation,
Devon Energy Corporation, ARC Energy Trust, Bonavista
Energy Trust, and Pure Technologies Inc.
Mr. Kanovsky is a member of the Audit and Risk
Committee and of the Governance and Environment
Committee.
Gordon S. Lackenbauer.
Mr. Lackenbauer is a
resident of Calgary, Alberta, and has been a director
since 2005.
Prior to joining the Board, he was Deputy
Chairman of BMO Nesbitt Burns where he was responsible
for the principal activities of the firm which included
fixed-income sales and trading, new issue underwriting
syndication, and merger and acquisition advisory
mandates.
He is a director of NAL Oil & Gas Trust, CTV
Globemedia and a governor of Mount Royal College.
Mr. Lackenbauer is a member of the Audit and
Risk Committee and of the Governance and Environment
Committee.
Dr. Martha C. Piper.
Dr. Piper is a resident of
Vancouver, British Columbia, and has been a director
since 2006.
Prior to joining the Board, she was
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President and Vice-Chancellor of the University of
British Columbia.
Prior to that, she was
Vice-President Research at the University of Alberta.
She is a director of the Bank of Montreal,
Shoppers Drug Mart Corporation, and a member of the
Canadian delegation to the Trilateral Commission, an
organization fostering closer cooperation among the
core democratic industrialized areas of the world.
She
is an officer of the Order of Canada and recipient of
the Order of British Columbia.
Dr. Piper is a member of the Governance and
Environment Committee and of the Human Resources
Committee.
Luiz Vásquez Senties.
Mr. Vásquez is a resident
of Mexico City and has been a director since 2001.
He
is founder, President, CEO, and Chairman of Group
Diavaz, an international constructor of off-shore oil
and gas platforms, developer of oil and gas fields, and
a distributor of natural gas in Mexico.
He is also the
chair of the Mexican Natural Gas Association.
Mr. Vásquez is a member of the Human Resources
Committee of the Board.
Stephen G. Snyder.
Mr. Snyder, TransAlta's
President and Chief Executive Officer, is a resident of
Calgary, Alberta, and has been a director since 1996.
He has guided TransAlta through its evolution from an
Alberta-focused regulated utility to an international
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power generator.
Mr. Snyder is a director of the Canadian
Imperial Bank of Commerce and chair of the Calgary
Stampede Foundation.
Donna Soble Kaufman.
I am a resident of
Toronto, Ontario, and have been a director of TransAlta
since 1989 and have been Chair of the Board since 2005.
I am a former partner of Stikeman Elliott, an
international law firm where I practised antitrust law.
I am a director of BCE Inc. and Bell Canada.
I am also
a director of Historica, a Fellow of the Institute of
Corporate Directors, and a member of the Canadian
Advisory Board of Catalyst, a non-profit organization
working to advance women in business.
I am an ex-officio member of all committees of
the TransAlta Board.
These, ladies and gentlemen, are the individuals
being proposed for election at this meeting.
I would now like to open the meeting for
nominations of directors to serve for the following
year.
MR. CURRAN:
My name is Jeff Curran, and I'm a
shareholder, and I nominate William D. Anderson,
Stanley J. Bright, Timothy W. Faithfull, Ambassador
Gordon D. Giffin, C. Kent Jespersen, Michael M.
Kanovsky, Gordon S. Lackenbauer, Dr. Martha C. Piper,
Luiz Vásquez Senties, Stephen G. Snyder, and Donna
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Soble Kaufman to be elected as directors of the
corporation to hold office until the next annual
meeting of shareholders or until their successors are
elected or appointed.
THE CHAIRPERSON:
Thank you, Jeff.
Are there any further nominations?
Hearing none, I declare nominations closed.
Since the number of nominees does not exceed the
number of directors to be elected by the shareholders,
I would request a motion that the nominees be elected
as Directors of the corporation to hold office until
the next annual meeting of shareholders or until their
successors are elected or appointed.
MR. HAWKINS:
My name is Frank Hawkins, I'm a
shareholder, and I so move.
MR. RIDGE:
My name is Martin Ridge, I'm a
shareholder, and I second the motion.
THE CHAIRPERSON:
Thank you, Frank.
Thank you, Martin.
All in favour?
Contrary, if any?
I declare the motion carried.
The next item of business is the appointment of
auditors.
I would request now a motion that Ernst &
Young LLP be appointed auditors of the corporation to
hold office until the close of the next annual meeting
of shareholders, at such remuneration as shall be fixed
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by the Board of Directors.
MS. PIERCE:
My name is Jennifer Pierce, and I'm a
shareholder, and I so move.
MR. NIEUKERK:
My name is Jess Nieukerk.
I am a
shareholder, and I second the motion.
THE CHAIRPERSON:
Thank you, Jennifer and Jess.
All in favour?
Contrary, if any?
Hearing none, I declare the motion carried.
I would now expect that the scrutineers will
bring forward, please, the final tally.
Thank you very much.
Hot off the press.
The shareholder attendance at the meeting today
is the following: 1,255 common shareholders are present
in person and by proxy, representing 67,882,324 common
shares.
Accordingly, 33.73 percent of the outstanding
common shares are represented at this meeting.
With the consent of the meeting, I now declare
the formal business of the meeting at an end.
Before I turn the podium over to Brian Burden
and Steve Snyder, I'd like to make a few remarks of my
own.
Last year we continued to execute on our plan
and to deliver value to you, our shareholders.
It was
a very strong year for TransAlta, and we're pleased to
report record results.
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I have been a shareholder and director for 18
years, and during this time, I've seen many changes in
the industry, the company, and more recently, in
shareholders' expectations.
While at times challenging, the dialogue with
shareholders has been a positive experience for us.
We
have had to take a very hard look at our strategy and
at the Board of Directors itself.
This thorough process reflects a sound strategy
and has reaffirmed our belief that we are ready to take
on the challenges of our changing times.
Over the last year, your Board remained
committed to building a strong and sustainable company.
We remained focused on three key areas: Our strategic
plan, our sustainable business practices, and, of
course, our corporate governance.
We have been fully engaged in the development of
TransAlta's strategic plan, working closely with our
management team with a particular focus on strategic
direction.
We also worked to ensure that management
was effectively assessing and addressing risk factors
associated with that plan.
Over the year, we've monitored progress against
the strategic plan, and we have seen some very positive
results across the four key pillars of our balanced
capital allocation strategy: growth investments,
portfolio optimization, share buy-backs, and dividends.
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The dividend is an important component of how we
return value to our shareholders.
We were very pleased
to announce an 8 percent increase in TransAlta's
dividend and to adopt a formal dividend policy earlier
this year.
The policy reflects your Board's intention
to maintain a balanced approach to capital allocation.
And, as earnings grow, we think the dividend should
grow also.
We believe our low to moderate risk strategy and
commitment to financial strength and flexibility will
continue to provide shareholders with sustainable
returns through shifting commodity markets and credit
cycles.
We also know that companies are expected to
deliver more than short-term monetary performance.
Corporations that genuinely address social, ethical,
and environmental factors deliver a sustainable
business model and are recognized for doing the right
thing.
TransAlta has continued to champion sustainable
development, and we are proud that the leading
organizations, like the Carbon Disclosure Project, have
recognized our efforts.
Last year it selected
TransAlta as one of sixteen Canadian companies
highlighted for proactively addressing the challenges
posed by climate change.
Our commitment to an ethical culture and strong
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corporate governance provides us with a solid
foundation from which to operate.
This is critically
important in view of increasing change and
industry-wide instability.
We not only keep pace with North America's
changing governance standards, we continue to lead the
way.
For example, in the area of compensation, we were
among the first to adopt share ownership instead of
options as the most responsible way to align management
incentives with shareholder interests.
Our work has included modifying the committee
structures to ensure more direct oversight on risk and
the environment.
The Audit and Risk Committee, the
Governance and Environment Committee, and the Human
Resources Committee have clear mandates to carefully
study their respective areas, to closely review
management's decisions, and to report to the Board
regularly.
For the sixth consecutive year, The Globe and
Mail recognized TransAlta as one of the best governed
corporations in Canada and the best governed company in
the utility sector.
Our governance efforts reflect our great respect
and appreciation for our shareholders.
We know we must
continue to earn your trust.
I would like to conclude my remarks by
reiterating that your Board has complete confidence in
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our current strategy and our management team.
We will
continue to work to deliver consistent value.
Going forward, I remain committed to our Board's
approach, overseeing the business from economic,
environmental, and social perspectives.
We believe
that the foundation we have built has positioned us
well for continued profitable growth.
After our record year in 2007, we have turned
our attention now to 2008 and beyond, with your
interests uppermost in our minds.
On behalf of the Board of Directors, I would
like to thank our employees.
The TransAlta team is
highly competent, energized, motivated, and committed
to the objectives and priorities of the company.
And I personally would like to thank our Board
for their diligence and commitment.
We are honoured
that you, our shareholders, have placed your confidence
in us, and we thank you for your continued support.
Thank you very much.
I'm pleased now to ask Brian Burden to come
forward.
MR. BURDEN:
Thank you, Donna, for the introduction,
and good afternoon, ladies and gentlemen.
Before I begin my formal remarks, let me remind
you that all information provided during the annual
general meeting is subject to the forward-looking
statement qualification, which is outlined in this
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slide.
The amounts referenced in this presentation are
in Canadian currency unless otherwise stated.
Today I will report on the company's record
financial performance in 2007 and the first quarter of
2008.
Looking forward, I will cover our outlook for
the 2008 to 2010 period, and I will conclude my remarks
by laying out for you our financial strategy that
supports our low to moderate risk business model and
creates sustainable shareholder value.
2007 was a record year for TransAlta.
Comparable earnings were $264 million, $1.31 per share,
versus $234 million, $1.16 per share in 2006.
And the
increase in 2007 comparable earnings was driven by an
83 million increase in gross margins from our
generation business.
This was due primarily to higher
pricing, lower fuel costs, and increased production at
our Centralia thermal facility.
Net earnings for the year were $309 million
compared to $45 million in 2006, due to the improved
earnings, changing tax rates in 2007, and the fact that
we were not impacted by write-downs as we were in 2006.
Looking at cash flow, in 2007 cash flow from
operations was $847 million for the year, and this was
the highest ever achieved in TransAlta's history.
And
this compares to $490 million in 2006.
The improvement is due to an increase in cash
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earnings of $106 million and a reduction in coal
inventory at Centralia and the timing of contracted
revenue and PPA payments.
In 2007 we received $185 million of PPA revenues
related to 2006.
So overall, we have established a
solid track record of growth, and TransAlta is well
positioned for the future.
Earnings per share has doubled since 2004.
Cash
flow from operations has grown 43 percent over that
same period.
And total shareholder return for 2007 was
29 percent, with cumulative returns since 2004 at 89
percent.
Finally, we have driven our comparable return on
capital employed to 9.7 percent, up from 7.4 percent,
and we will continue to see further improvement in
2008.
With our focused business strategy and strong
near-term market opportunities, we expect to continue
to deliver solid improvement in shareholder value in
2008 and beyond.
Our first quarter results are already a clear
demonstration of this.
for TransAlta.
It was another strong quarter
Comparable earnings per share for the
quarter were up by 79 percent over the same period last
year.
And the increase was primarily driven by the
strong continuing performance that we are achieving at
our Centralia thermal operations, and this combined
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with the higher fleet availability and stronger pricing
in the quarter in both Alberta and the Pacific
Northwest markets led to a $51 million increase in our
gross margins.
Net earnings for the quarter were impacted
primarily by the write-down of our Mexico business;
however on a go-forward basis, the sale will be
accretive to earnings.
Cash flow for the quarter was $237 million, down
from $331 million a year ago.
And cash flow in the
quarter was lower than the previous year due to higher
PPA revenues from 2006 being carried into the first
quarter of 2007.
And cash flow was also impacted by
higher cash taxes paid in the quarter and due to
movements in coal inventory at Centralia.
Overall, though, we remain on track to deliver
$850 to $950 million in cash flow for the year.
As it relates to our liquidity, given our strong
balance sheet and good cash flow from our existing
generation facilities, we have ample liquidity.
We have a total of $2.3 billion of credit
facilities in place.
And as of March the 31st, 2008,
we had a total of $1.2 billion of credit available from
our facilities.
So in summary, these results clearly
demonstrate that our strategy is working.
Our balance
sheet remains strong, and we have the ability to
deliver on our goal of low double-digit earnings
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growth, which I would now like to turn to.
As we look forward to the 2008-2010 period, we
will continue to capitalize on our strengths and
continue to grow both our earnings and cash flow.
Based on our top quartile operations and the assumption
of conservative pricing of $70 to $85 dollars per
megawatt hour in Alberta and $50 to $55 per megawatt
hour in the Pacific Northwest, we expect -- we fully
expect to deliver low double-digit annual earnings per
share growth.
Of course, cash is one of the key metrics for
this business, and our expectation over the next
several years is to see cash flow growth to annual
levels of approximately $850 to $950 million.
And this
growth represents an increase of almost 50 percent
since 2004 when we embarked on our current strategy.
Turning now to our financial strategy.
I would
like to outline for you the three key points I hope you
will take away today.
And they are, one, we have a
well-balanced capital allocation plan that both
reinvests in the business and returns capital to
shareholders; two, we maintain a low to moderate risk
profile.
To complement this strategy, we maintain a
strong balance sheet and investment-grade credit
ratings that provide us with access to capital and
financial flexibility through all market cycles.
We continuously focus also on three key
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financial measures: internal rate of return on a
project basis, portfolio return on capital employed,
and total shareholder return.
Turning to our capital allocation plan, we
believe in a balanced approach to capital allocation,
which includes portfolio optimization, returning
capital to shareholders through dividends and share
buy-back, and investing in new capacity, provided
projected returns exceed predetermined thresholds.
We continually review our assets and are
committed to allocating capital to our core markets if
investments meet our hurdle rate.
And to the extent
opportunities do not exist, we are committed to
returning capital to shareholders.
The recent sale of
our Mexico business is a good example, and we expect a
significant portion of the 300 million we will receive
will go towards share buy-back.
Moving to our dividend, in February our Board
announced an 8 percent increase in our annual dividend
to $1.08.
Additionally on March the 25th, the Board
further clarified its commitment to growing the
dividend along with earnings by declaring a dividend
policy with a payout ratio target of 60 to 70 percent
of annual comparable earnings.
On share buy-back, we currently have a normal
course issuer bid outstanding.
The NCIB allows us to
buy back up to 10 percent of our outstanding shares,
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and for TransAlta, this is about 20 million shares.
And as of March the 31st, we had purchased
approximately 4.3 million shares at an average price of
$31.53 under our existing program.
Our expectation is to renew our NCIB when it
comes due later in May, and we will fund future share
buy-back with cash flow and any proceeds from
divestitures.
Lastly, the key to our long-term sustainability
is obviously our asset investment program, which will
drive our earnings and cash flow growth over the longer
term.
Just yesterday we announced that we are
proceeding with a 53-megawatt uprate at our Sundance
facility, and this is in addition to the 387 megawatts
of growth projects we have previously announced.
This
brings our total investment in growth projects close to
$1.2 billion.
We will continue to look for the right
opportunities to grow our portfolio and continue to be
disciplined in only pursuing projects that meet our
hurdle rates of at least 10 percent after-tax unlevered
free cash IRR.
Another fundamental pillar of our financial
strategy is maintaining a low to moderate risk profile.
We complement this strategy with a strong balance
sheet.
We also maintain strong financial ratios and
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stable investment-grade credit ratings because these
provide for financial flexibility through all credit
environments and a lower cost of capital than
non-investment-grade companies.
And as you can see in the graphs,
non-investment-grade spreads have widened much more
than investment-grade credit spreads.
And our cost of
capital is in line with most regulated Canadian peers
and much lower than US merchant IPPs, which are all
sub-investment grade.
We believe this to be extremely
important in our capital-intensive industry.
Finally, I would like to leave you with our
continued commitment to drive shareholder value.
We do
so through our focus on delivering low to moderate risk
projects with unlevered after-tax IRRs that exceed
10 percent.
Our announced projects include Keephills 3, Kent
Hills, Blue Trail, and the Sundance uprate, and all
these exceed our targets.
And we have taken the
necessary steps to manage construction and operating
risks by fixing costs, where possible, and maintaining
an appropriate balance between merchant and contracted
megawatts.
We're also focused on driving return on capital
employed beyond 10 percent and are doing so through the
optimization of our existing fleet and through the
addition of new higher returning assets.
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And finally through our commitment to provide a
strong dividend yield and year-over-year growth in EPS
and cash flow, we are focused on driving total
shareholder returns of greater than 10 percent
annually.
With these things in mind, we hope that you
will continue to view TransAlta as a compelling
investment opportunity.
Thank you.
And with that I'll turn the podium
over to Steve.
MR. SNYDER:
Thank you, Brian.
And a very warm
welcome, indeed, to all of our shareowners who have
joined us today, particularly those who have braved
these unusual weather elements out there.
We
appreciate you making this effort late in the day, so
thank you.
Donna Kaufman, our Chair, has said we had a
great year.
And that's because our plants continue to
operate in the top quartile in terms of reliability and
availability, thanks to some of the best employees in
our industry.
And we've got great customers.
That combination has produced a four-year track
record of steadily improving performance and, of
course, a record year in 2007.
And that's all we'll
talk about the past.
Of course, you want to know, where do we go from
here?
Well, let me leave you some very simple messages
today: Your company is in strong financial shape.
We
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are maintaining a sensible capital structure; it keeps
our cost of capital low.
We can be proactive investors
when many others can't, and we can weather the market
and credit cycles that always occur in our industry.
We have strong cash flow.
need to sustain our business.
It's more than we
And we use these excess
funds in a balanced approach to capital allocation that
includes a strong dividend, share repurchases, and
investments in new and existing assets.
We built the sustainable development and
technological knowledge skills necessary to effectively
navigate through the longer-term emerging uncertainties
in our industry.
We have a great customer base that is positioned
in growing markets, and of course, our employees are
dedicated, they're cost-focused, they're resilient, and
they're loyal.
They are all shareowners, and they
understand shareowner value.
These strengths, combined with favourable market
conditions, give us the confidence that we can deliver
annual low double-digit earnings growth during this
period plus strong cash flow.
Our strategy is designed to deliver on those
commitments.
strengths.
It is very focused.
It is built on our
It is based on fuel diversity, so we are
not dependent on any one fuel for success or failure.
It is based on the markets where we have knowledge and
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scale and that are growing.
It is designed to ensure our assets take full
advantage of the current strong market cycle and
steadily grow our earnings.
In parallel, and in a very disciplined manner,
we will build and buy additional generating capacity
that will sustain that earnings growth well beyond the
current cycle.
We are actioning our strategy.
Short term we
are focused on opportunities in wind, geothermal, and
cogeneration.
In all of these, we have a proven
expertise and a track record of success.
Our Keephills
3, Kent Hills, and Blue Trail projects are already
announced.
And Alberta's cogeneration opportunities
are also high on our list.
We remain on the lookout
for existing assets to buy.
In the medium term, we hope to be able to add
run-of-river hydro opportunities.
operating experience in that area.
We have 100 years of
And in the long
term, we firmly believe that cost-effective
technologies will emerge that will allow coal
facilities to be developed that are cost competitive
and essentially CO2 emission free.
That will allow us
to, once again, tap into one of our best long-term
growth opportunities using our very large, low-cost
coal reserves.
What about our existing assets outside of our
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core development area of Western United States and
Western Canada?
Well, clearly over time, we'd like to
find the proper transactions that will allow us to
shift more of that capital into our core markets.
But
we're going to do that in a very surgical way when the
markets are right.
We have great assets there, and
there's no need to do a slash and burn.
We have already acted on Mexico.
Its returns,
while positive, were below what we believe we can
achieve with assets in our targeted geographies or
through share repurchases.
In summary, the next five years look strong for
TransAlta.
Beyond this period, we have superb growth
opportunities that will allow us to build additional
generation capacity and ensure that earnings growth
continues.
Clearly, though, there are some big elephants,
as I call them, coming into the room with us, and they
are interrelated.
They are the environment, they are
emerging technologies, and they are plant replacement
costs.
The driver of these issues is a need for the
energy industry to break the equation that has
sustained it, Canada, and much of the world for a very
long time.
And that simple equation is that our
economic health is linked to energy growth, which is
linked to environmental impact.
"The Triple E
27
Equation," I call it.
For the past 100 years, this equation has been
acceptable in society's eyes.
Now many feel the
environmental impacts are too great to continue as we
have in the past.
point of view.
At TransAlta, we do not argue that
For over a decade now, we have taken a
leadership role in reducing our environmental
footprint, but that early leadership also means we are
nearing the limits for further improvement.
We have
already implemented many of the opportunities that are
available to us.
So let me make a few critical observations
here: First, this issue is very complex, and it does
not lend itself to simplistic solutions.
Shutting down
a coal plant when the power supply situation is tight
is an unacceptable response, with its own social and
economic consequences.
And this challenge is immense
for our industry.
Some are talking about potentially changing
hundreds of billions of dollars in infrastructure far
before its natural life expectancy.
The resulting cost
to consumers and customers is unacceptable.
Third, in the electricity sector, supply
responds directly to demand.
There is no storage
capability, and that means in the short term, much of
the solution must come from consumers reducing that
demand.
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Fourth, much of the world, including North
America and particularly in Alberta, are blessed with
huge reserves of coal.
They are low cost, and they're
reliable in terms of supply.
To simply say no to coal
without first exploring every avenue possible to cost
effectively eliminate its CO2 emissions would be a
fatally flawed approach.
So what should we do?
Again, an overly
simplistic approach would be naive for something this
complex.
So first we have to drive hard to see if we
can implement a carbon-capture solution.
Without the
ability to retrofit existing facilities around the
world, we simply cannot achieve meaningful reductions
in carbon impacts.
Using carbon capture is not only a
realistic goal, it is an essential goal.
This technology works in small-scale
applications.
That's been proven, and our research
indicates our chances of success to scale up for mass
production are high.
The signs all point that
carbon-capture storage will be economically viable
against any other technology, and we should be
aggressively pursuing this option.
We also don't have to drive renewables.
We are
doing that at TransAlta, but there are limits, from
cost to technology, on how far we'll be able to drive
that particular energy resource.
Third, transmission interconnections to other
29
systems need to be approved and need to be built.
Alberta lags behind almost all major jurisdictions in
terms of interconnections that help support reliability
of supply.
And fourth, we need to encourage the use of all
fuel sources.
I wish we had the luxury of the elusive
silver bullet, but we don't.
We simply have to use
every fuel source available.
We can't try to eliminate
any particular one, and nor can we try to only build
one fuel source in the future.
These technological solutions are available,
they won't come cheaply, they won't come easily, but
they are there.
And at TransAlta, we intend to
continue to be a leader in sustainable development and
to work hard with all our partners to find those
solutions.
So as you can see, it's an exciting time for
TransAlta and our industry.
Clearly there are also
challenges and uncertainties.
It's why we believe in
financial discipline and a very focused business
strategy.
Immediately ahead of us we have excellent
opportunities to increase our earnings and our
dividend.
In the medium term, we have superb options
to grow our asset base and lay a framework for
sustained earnings growth.
And in the long term, I see increasing
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capabilities to successfully break the old Triple E
Equation and meet stricter environmental standards
while delivering excellent shareowner value.
Those are not mutually exclusive at TransAlta,
and that will unleash still another level of very
long-term earnings power for your company.
So I want to thank every shareowner, whether a
longtime holder of our shares or a more recent
purchaser, for your confidence in our company.
Clearly
I believe you have made a wise investment, not only for
today, but for the long term.
So thank you very, very
much for that support.
That will conclude my formal remarks, and we are
now going to open the floor up to any questions you
might have.
Before I do that, let me just have a few rules
of engagement so it will be fair to all our
shareowners.
I would ask that each person limit themselves
initially to one question.
We'll try to come back to
you if you have other questions and if there's time,
and that you would limit your question or comment to
about three minutes so that we can try to get as many
shareholders to participate as possible.
We will provide microphones for you, so please
use a microphone, because we are broadcasting on the
Internet, and it would be helpful and would be
31
appreciated if you would state your name and whether
you are a shareholder or a proxy-holder and for who you
hold the proxy.
So on those slight notes, I would like to now
open the floor to any questions or comments that
shareholders may have for myself or the Board.
We have a gentleman here in the middle.
And,
again, I would appreciate it if you use the
microphones.
We are webcasting, and it's the only way
for the webcasters to hear the question.
MR. WEICHMAN:
My name is Frank Weichman.
I'm a
shareholder, and I'm interested in alternative energy
sources.
So in a sense, one question is, is the wind
power that you're using really economic, and are you
also looking at nuclear for the future?
MR. SNYDER:
economic?
The simple answer, is wind power
It still requires a slight subsidy, but
that's becoming increasingly small these days.
So I
suspect within a few years, wind power will be
standalone as an economically viable facility.
In terms of nuclear power, I think you
mentioned?
MR. WEICHMAN:
Yeah.
MR. SNYDER:
I believe that broadly across North
America, nuclear power will have to be part of the
energy equation.
not to use it.
We can't afford, broadly speaking,
32
I think there is, in Alberta, a low probability
of it being found to be economical and competitive.
A
lot will depend on oil sands technologies, but it is
clearly beyond the 2020 period before it's even a
factor in the industry.
I think, Donna, that your presentation covered
it all, so I . . .
I think everyone would like to get outside and
relax and have a chance to maybe chat informally with
some Members of the Board, so I'm going to turn the
podium now back to Donna to close the meeting.
THE CHAIRPERSON:
Thanks, Steve.
Well, I'm going to be very brief, and I'd like
to sincerely thank everyone for your attendance, for
your participation, and for your loyalty to the
company.
It's greatly appreciated, and we'd like to
invite you to join us for refreshments just outside.
The Board and management will be there to chat
with you, to answer any questions you may have, and we
look forward to seeing you next year.
Thanks a lot.