TAC

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the TransAlta Corporation second quarter 2026 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one one on your telephone keypad. If you would like to withdraw your questi on, please press star followed by one one again. Thank you. Ms. Paris, you may begin your conference.

Thank you, Michelle. Good morning, everyone. My name is Stephanie Paris, and I am the Vice President of Investor Relations and Corporate Strategy of TransAlta. Welcome to TransAlta's second quarter 2026 conference call. With me today are Joel Hunter, President and Chief Executive Officer, Mike Politeski, EVP Finance and Chief Financial Officer, and Chris Fralick, EVP Generation and Chief Operating Officer. Today's call is being webcast, and I invite those listening on the phone lines to view the supporting slides that are posted on our website. A replay of the call will be made available later today, and the transcript will be posted to our website shortly thereafter. All the information provided during this conference call is subject to the forward-looking statement qualification set out here on slide two, detailed further in our MD&A and incorporated in full for purposes of today's call.

All amounts referenced are in Canadian dollars unless otherwise noted. The non-IFRS terminology used, including Adjusted EBITDA and free cash flow, are reconciled in the MD&A for your reference. On today's call, Joel and Mike will provide an overview of TransAlta's quarterly results. After these remarks, we will open the call for questions. With that, I will turn the call over to Joel.

Thanks, Stephanie. Good morning, everyone, and thank you for joining our second quarter conference call. TransAlta delivered solid operational financial performance during the second quarter 2026, demonstrating our fleet's continued resilience during challenging market conditions. During the quarter, we delivered Adjusted EBITDA of CAD 291 million, free cash flow of CAD 143 million, or CAD 0.47 per share, and average fleet availability of 90.2%. While our Alberta merchant portfolio continues to be impacted by softer prices, our hedging strategy and active asset optimization generated realized prices that were well above spot prices during the quarter, along with our hydro and wind assets providing significant environmental offsets to our gas fleet's 2025 carbon compliance obligation. We remain confident in achieving our 2026 guidance range, which Mike will talk about later. In the quarter, we continued to advance our data center strategy with CPP Investments in Brookfield.

More broadly in Alberta, positive recent developments reinforce the momentum and collective commitment across government and industry to develop AI infrastructure. In particular, in June, the government of Alberta published their data center regulations, giving authority to the AESO to proceed with the next phase of their large load integration plan. The regulation includes provisions that permit the AESO to determine underutilized capacity that can be used to serve incremental data center load. Consistent with our messaging at Investor Day, we believe that our gas-fired steam units constitute underutilized generation that can support both grid reliability and the continued build-out of AI infrastructure in the province. Our gas-fired steam units are designed to operate as base load and can produce at capacity factors greater than 90%. The recent performance and lower capacity factors, averaging around 20% in 2025, have been driven by economic decisions, not capability.

Speed to power is critical. We view the data center regulations as an important step towards framework clarity. The determination on how underutilized assets will be incorporated into the build-out of AI infrastructure will be made by the AESO, and we remain actively engaged with them. Also in the quarter, we fully integrated the four gas-fired facilities in connection with the acquisition of Far North. In June, the U.S. Department of Energy issued its third temporary order requiring that Centralia Unit 2 remain available for operation if needed for a period of 90 days. TransAlta is adhering to the order, and we plan to submit a request for reimbursement to the FERC for costs related to the second order.

Progress continues with the conversion of the unit to natural gas. I am pleased to report that our timeline for a final investment decision in the first quarter of 2027 remains on schedule. Last month, we announced that TransAlta has entered into an agreement to acquire two natural gas-fired peaking facilities in Colorado for US$1 billion, paired with a common share offering for CAD 350 million. Both assets are fully contracted to investment-grade counterparties under long-term tolling agreements that include full cost pass-through of all operations and maintenance, fuel and capital expenses, which meaningfully reduce the risk profile of the acquired assets. The acquisition is expected to deliver CAD 110 million per year in low risk, high-quality Adjusted EBITDA to our portfolio and is immediately accretive to free cash flow per share.

We expect closing to occur in the fourth quarter following receipt of all regulatory approvals as well as Canyon Peak Power achieving commercial operations. Adding stable operating assets like this delivers immediate cash flow that can be redeployed into our most compelling growth initiatives, including the Centralia coal-to-gas conversion and Alberta data center projects. Finally, we realigned our executive management team, adding Mike Politeski as our EVP Finance and Chief Financial Officer, and Grant Arnold as our EVP Growth and Chief Commercial Officer. In addition, Nancy Brennan assumed an expanded role as Chief Legal, People, and Corporate Affairs Officer, and Chris Fralick's new title is EVP Generation and Chief Operating Officer. Supported by an exceptional team across the organization, I am confident that we have the right people and structure to execute our strategy and realize long-term value creation for TransAlta.

I'll now turn the call over to Mike to talk more about our financial performance in the second quarter of 2026.

Thanks, Joel. Good morning, everyone. During the quarter, we generated Adjusted EBITDA of CAD 291 million, despite challenging market pricing in Alberta. Our hydro segment Adjusted EBITDA was CAD 87 million, down CAD 39 million from the same quarter in 2025 due to lower Alberta spot and hedge prices, as well as lower intercompany sales of emissions credits. Our wind and solar segment reported Adjusted EBITDA of CAD 90 million. Consistent with the prior year, as higher U.S. wind resource mitigated lower Alberta pricing and reduced wind resource in Eastern Canada. Within our gas segment, Adjusted EBITDA was CAD 14 million higher than the prior year due to strong optimization of our Alberta fleet and positive contributions from our Far North acquisition. Consistent with prior years, our second quarter results benefited from the realization of emissions credits against our prior year carbon obligation.

For the balance of 2026, we expect additional contributions to our segments from the realization of carbon credits against in-year carbon compliance costs. Our energy marketing Adjusted EBITDA decreased by CAD 16 million, primarily due to subdued market volatility in Western Power markets and lower realized gains within the quarter. We expect to have more gains realized by year-end as favorable trade positions settle. In our corporate segment, costs were 8% lower than the prior year due to initiatives to control spend. Finally, our energy transition segment Adjusted EBITDA was lower than the prior year due to the Centralia contract expiry at the end of 2025. We also generated strong free cash flow during the second quarter, totaling CAD 143 million. Our sustaining capital expenditures were down CAD 18 million year-over-year.

However, this was primarily timing related, and we continue to expect sustaining capital of CAD 140 million-CAD 160 million in 2026. Turning to the Alberta portfolio, spot prices averaged CAD 29 per MWh in the second quarter, notably lower than the CAD 40 per MW in the second quarter of 2025. The decline was primarily due to seasonally lower demand and continued strong supply in the market. Although prices were low, we enhanced our margins by meeting portions of our higher price hedge commitments through power purchases when market prices were below our variable production costs. We benefited from approximately 2,400 GWh of hedges at an average price of CAD 63 per MWh, which was CAD 34 per MW higher than the average spot price.

Our gas fleet realized an average price of CAD 68 per megawatt hour, a significant 134% premium to the average spot price, largely due to our dispatch optimization during high price hours, which materially raised our realized price. The hydro fleet also continued to capture merchant upside, delivering an average realized price of CAD 36 per megawatt hour, a 24% premium to the average spot price. Our merchant wind fleet realized an average price of CAD 14 per MWh, which was impacted by increased thermal production and intermittent wind and solar generation. During the quarter, we also delivered approximately 900 GWh of ancillary service volumes at a 14% premium to the average spot price. Through effective fleet optimization and meeting hedge obligations with purchased power, we consistently address the AESO need for reliability products. We continue to have a strong hedge book to support our Alberta cash flows.

For the balance of the year, we have approximately 4,500 GWh of our Alberta generation hedged at an average price of CAD 64 per MWh, well above current forward pricing. For 2027, we have approximately 6,600 GWh hedged at an average price of CAD 64 per MWh, also well above current forward levels. Looking ahead, we continue to expect the Alberta supply and demand imbalance will correct later this decade with anticipated load growth. We believe we are well-positioned to manage through the current pricing environment and to capture growth opportunities to drive long-term value creation for our shareholders. Turning to the balance sheet. In June, Moody's reaffirmed our Ba1 credit rating with a stable outlook, and last week, S&P reaffirmed our BB+ rating while shifting the outlook to negative. We remain committed to strengthening our balance sheet through multiple levers, including asset recycling.

The forecast tightening of the Alberta market and recovery of power prices, along with the expected cash flows from Centralia after conversion, will provide cash flow growth to further strengthen our financial position. Overall, we are pleased with our year-to-date operational and financial performance across all our business segments, and we remain confident in our ability to meet our 2026 guidance range. Our contracted fleet, strong hedge position, and consistent optimization provide us with core cash flows even in a low merchant power pricing environment. The Colorado acquisition is not factored into our reaffirmation of guidance, and upon closing, which is expected in the fourth quarter of 2026, will add to our financial results. I'll now turn the call back over to Joel.

Thanks, Mike. This year, we remain focused on the following priorities. Improving our leading and lagging safety performance indicators while achieving strong fleet availability. Delivering Adjusted EBITDA and free cash flow within our 2026 guidance ranges. Maximizing the value of our legacy thermal sites by advancing our Alberta data center strategy, as well as advancing our coal-to-gas conversion at Centralia toward a final investment decision. Pursuing strategic M&A opportunities. Enhancing our financial strength and flexibility through disciplined capital allocation and cost control. I believe TransAlta offers a compelling investment opportunity. We've operated a safe and reliable power generation fleet for over 115 years, providing strong and consistent cash flows. This strength is grounded in a diversified portfolio of hydro, wind, solar, storage, and thermal assets across three countries. It is enhanced by our industry-leading asset optimization and energy marketing capabilities.

Our legacy sites continue to represent considerable and increasing value. We are proactively pursuing repurposing initiatives at these facilities to address the growing demand for reliable power in our operating markets. Concurrently, we maintain a leadership position across multiple technologies, consistently prioritizing responsible and reliable generation. We are disciplined in how we grow. Our priority is creating shareholder value as we diversify our portfolio within our core geographies and continue to increase the stability and contracted nature of our cash flows. This strategy is supported by a strong financial foundation. We have a flexible balance sheet and ample liquidity, giving us the ability to pursue and deliver multiple growth opportunities while continuing to return capital to shareholders. Finally, and most importantly, we have our people. Everything we achieve is powered by the dedication and expertise of our employees and contractors.

I want to thank them for their commitment and for positioning TransAlta for continued success in 2026 and beyond. Thank you. I'll now turn the call back over to Stephanie.

Thank you, Joel. Michelle, would you please open the call for questions from the analysts?

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In fairness to all, we ask that you please limit yourself to one question and one follow-up. One moment as we compile our Q&A roster. Our first question is going to come from the line of Mark Jarvi with CIBC. Your line is open. Please go ahead.

Good morning, everyone. Just in terms of those discussions with the AESO and the underutilized assets, do you have any sense of when you might have clarity and just how that's impacting anything about getting from the MOU to a definitive agreement with Brookfield and CPP?

Thanks, Mark, and good morning. It's Joel here. I would say there's ongoing discussions with AESO. Again, we are very encouraged, as mentioned in our prepared remarks, by the data center regulations that really turn over to the AESO to determine what is underutilized capacity here as it relates to our gas-fired steam units. Again, we're working with them very collaboratively here as we move forward. I would say with the MOU and the definitive agreements that we have with CPP Investments and Brookfield, those continue to advance, as we highlighted when we announced the MOU back in February. Again, working alongside those two parties and we continue to remain very confident in our ability to bring forward our data center option here later in the year.

The expectation is a matter of months? Could it be a couple of quarters before you have clarity on the underutilized assets?

Hard to say. We can't really speak for the AESO, Mark. We are actively engaged with them, we're hopeful it will be in the next quarter or so. We can't speak on behalf of them as to the timing.

That might influence how you think about scaling beyond the 230 MWs. If that drags on a little bit, hopefully it doesn't, would you look at maybe moving to FID on the first phase of the 230 MWs from phase one allocation and then subsequent scale-up after that through a follow-on agreement? Is there a way to sequence sort of, I guess, moving through FID?

I think that's very possible here, Mark, that we would look to that. It's really up to us along with Brookfield and CPPI to determine that. As we said before, 230, we were very pleased with that in the phase one allocation. Looking forward to how we can build upon that. I'd say that there's possibility here that that could advance the 230 before the remaining here with the underutilized capacity.

Okay. I'll leave it there for now.

Thanks, Mark.

Thank you. Our next question is going to come from the line of Maurice Choy with RBC Capital Markets. Your line is open. Please go ahead.

Thank you, good morning, everyone. Just wanted to touch on any updates you have on the asset recycling initiatives that was mentioned earlier to reduce debt. What are some of the things that are influencing the timing and perhaps selection of some of these assets for sale?

Yeah. Thanks, Maurice. We are very active. We have a few that are well underway. Obviously, we can't give everything away here as we're in processes, if you will. I think what you'll see going forward here, Maurice, just given the amount of opportunities that we see going forward, whether it's a Centralia coal-to-gas conversion, AI data centers, M&A opportunities, and then further kind of organic growth in our portfolio that we're seeing, that I think portfolio rotation will become more active here. We do have a few processes underway. Can't say anything more, but we are certainly very active in that space right now.

Looking forward to hearing more of that. If I could just finish off with just a more broad discussion about forward power prices. I think over the last few weeks since all these announcements were made, we've seen forward prices move up a little bit, particularly for 2029. Yet it still is below the 80-120 range that you laid out in Investor Day. You mentioned at the start of the call that you've seen a lot of positive developments in the province thus far. Just curious as to what else you're expecting to hear in the coming months that would prompt the forwards to rise into your projected range.

First of all, Maurice, when you look out further, like to Cal 28 and Cal 29, there isn't a lot of liquidity. Generally, when you look at forward pricing, you're out 12 to maybe 18 months at best. When I look at Cal 29 today, I think it's marked around CAD 81. It is actually in the range of that CAD 80-CAD 120, that we highlighted at Investor Day. Certainly, we've seen an improvement, in those forward prices since even the announcement with Meta around their data center project with Kineticor and Pembina. We remain very encouraged by that. I think for the market, as we move forward here, just getting further clarity around the ramping of the load growth, will certainly support further the forward pricing.

Again, when I look at where we are today, for Cal 29 from where we were pocket Investor Day at the end of March, we've certainly seen an improvement there. I would expect that over time, as the market sees or has better visibility behind the load ramp, if you will, that will further support these forward prices and could even go higher.

Maybe on that last note, a quick follow-up here. Obviously, we know where CONE is in the province. Also historically when we had, I think it was 2021-2023, when we had triple-digit power prices, that led to the regulator looking more into the industry. In this world of affordability, is there such thing as a balance number where pretty much everyone's happy?

Yeah. When you look at, again, the CONE or the cost new entry that you referred to, I know that that was something that was highlighted with the recent announcement from Pembina and Kineticor, in the low 100s, if you will, which completely makes sense, right, given the cost of new build that we're seeing today relative to even where we were back in 2021 and 2023, as you referenced, where we saw triple-digit pricing. Again, this I think, is where it's really important to have legacy generation, like we have with our gas-fired steam units to help support the infrastructure build-out that we've talked about. That pricing would be below CONE. Where you're seeing here going forward is the market will continue to tighten.

We're not seeing much by way of new supply. We're obviously seeing load growth coming, whether it's organically, in the province, as we highlighted at our Investor Day back in March, along with phase one here. We can't say exactly where that price point would be. I think when you look at Alberta relative to other jurisdictions in North America, we remain very cheap, given the surplus generation that we see here. Again, I think it really supports why legacy generation should be utilized, just given that it is at a price that is below CONE that we're seeing today. Going forward, it'll be what it'll be, if you will, as it relates to if there's new generation required and given the cost of that new generation to ensure that the generation provider is earning a full return on capital.

The price will be what it is. Again, I can't say exactly where that price point would be, where there is maybe some kind of, I think, concern around power prices overall for consumers. The other thing to remind yourself of is that when you look at Alberta, when you look at the average power bill, roughly a third is really the price of the electron, and two-thirds is really through the transmission and distribution costs. To the extent that you see additional load come, what you'd hope to see is that the transmission and distribution costs are butter spread more evenly, given the additional load here. That also has to be taken into factor. It's just not the cost of power at the end of the day that impacts consumers. It's all these other costs as well.

That's a really good point. Thank you very much for that color, Joel.

Thanks, Maurice.

Thank you. One moment for our next question. Our next question is going to come from the line of Robert Hope with Scotiabank. Your line is open. Please go ahead.

Morning, everyone. Appreciate the commentary on the asset sales potentially strengthening the balance sheet, and I acknowledge that you may be limited on what you can say. That being said, how do you think about an asset sale program when you have quite a large uncertainty out there regarding the Brookfield Hydro option and the potential for it to top up and provide what could be a significant amount of capital for TA?

Yeah, Rob. I think it's both. When we look at how we further strengthen the balance sheet here, we certainly factor, at some point in time, we can't predict when, but the option that Brookfield has to convert into the hydro here in Alberta. That's one piece of it, and certainly, would not only get the cash infusion that would come in from a potential top-up, but also CAD 750 million of debt that would essentially come off the balance sheet as it relates to the rate AHCs. That's one important factor or lever, if you will, to strengthen the balance sheet. I think it's all of it. It's also doing additional asset sales, because what we're seeing here is just tremendous opportunities for our company. As I mentioned earlier, when we think about the Central Alberta gas conversions being one.

The M&A opportunities that we're seeing out there, like we did with the Colorado acquisition here, just over a month ago, along with just other kind of greenfield opportunities that we're seeing in our portfolio that might be further down in the decade, if you will. That will require capital. Certainly, there's no shortage of uses of capital, if you will. As we look at how we can strengthen our balance sheet, provide incremental cash to the balance sheet, it's obviously Brookfield's conversion is factored there on top of asset recycling.

All right. Appreciate that. Maybe just going back to some prior commentary on the BYOG process, as well as the commentary on repurposing some assets. When you think about your asset fleet in Alberta, how do you think about the decision tree of using, we'll call it your steam conversions, on an interim basis as a bridge to, we'll call it a larger brownfield expansion of your project? How do you work through the uncertainty of, you don't quite know what the AESO will ultimately land on?

Yeah, I think, part of this is first is really landing on how much capacity, as you said, of the gas-fired steam units that we can use or would constitute underutilized, or bring your own generation, if you will. That's the first part here then is part of that decision tree. Obviously there can be a wide range there, given that we have a very sizable gas-fired steam fleet here. As I mentioned in my remarks, the capacity factor has been around 20%, as relates to 2025. We do see excess capacity there that could be used as bring your own generation.

What I really like about that is, for the data center, or AI infrastructure build-out is, as you know, the cost of new build is just so expensive today, and the supply chain constraints are so challenging that using these units to support the AI infrastructure build-out will then lead to new build sometime next decade, because these units won't run forever. It is in a way kind of like a bridge. I don't like to use that term, but that's kind of what this would be, is that you get the AI infrastructure built in the province supported by our existing gas-fired steam units, at some point in time, we would look to then repower those units so they could run for decades after that.

That's, again, I see this is where it's very compelling, for Alberta as it relates to the fact that we do have surplus generation. The supply chain constraints that we see that this fits really nicely that we could use this could be gas-fired steam units. There would be a new build down the road that would be underpinned by long-term contracts with our customers.

Thank you.

Thanks, Rob.

Thank you. One moment for our next question. Our next question will come from the line of John Mould with TD Securities. Your line is open, please.

Hi. Morning, everybody. Maybe just to follow on that last question. On the repowering projects that you have and, I guess FLIPI, as well on the greenfield side, I guess how active are you on those in terms of costing activities, planning, just to be in a position to proceed rapidly with those if there is some kind of meaningful load growth that drives a need for those? Or should investors really think of those as more of a longer-dated option into the next decade, depending on how, possibly well into the next decade. You flagged the timeline of the coal-to-gas retirements in the past. Just in terms of maybe meeting the provinces' load growth more on a long-term basis.

John, when you reference FLIPI, and Keephills 1 and Sundance 5, the total is just over two gigawatts. I'd say there's still a lot of work going on today. It's still very early days. Again, you can see as part of our path forward here, first step is utilizing the underutilized capacity we have with our gas-fired steam units. That makes the most sense. Then look to potentially build out these sites, if you will, next decade. It's not something that we'd look to be building tomorrow because we don't need to. The most effective way is to use the gas-fired steam units. They're the most cost-effective, and it's all about speed to power, too, for AI infrastructure. The assets are there, as you know. The gas is there, the transmission's there, the water's there, everything is there.

Use those first, but knowing, again, as mentioned earlier, they're not going to run forever. Then look to these sites like whether it's FLIPI, K1, or Sundance 5, as we talked about, as to repower down the road. It's a stage process here. It's certainly something we're not looking at doing tomorrow. This would be next decade, but the work is underway now because these take a long time, right, to do all the planning, the stakeholder engagement, all those things that's underway. We do have a bit of time here because we view really repurposing our gas-fired steam units is the way to go.

Okay. Thanks for that. Then maybe just on your hedges, you layered on about, I think 20% or so incrementally just in terms of volume for next year. What kind of appetite are you seeing from customers to contract at more normalized pricing levels versus holding on to something more like the spot exposure to the AE, and just in terms of how that contributes to your ability to add more meaningful length to your hedges between now and the end of the year?

Yeah, John, obviously, we always remain very active as it relates to managing our hedge portfolio. Roughly half of the portfolio is our C&I business, which is, think of those as almost like three-year contracts that continue to roll kind of every year. Those tend to are transacted a bit of a premium over where you would see the forward pricing. The team looks for opportunities here where there's a nice spread that they see that they go, "We're going to lock in these prices." I'm very encouraged by what the team has done so far. If you look at on one of our slides, we show that for next year, we have around 6,700 gigawatt hours already hedged to CAD 64. Again, well above where we're at today when we look at kind of spot pricing.

That's due in large part to our C&I business, along with adding financial hedges where we can. This is something that, it's a real core competency, if you will, of TransAlta, that they look for these opportunities to kind of lock in when they can. I expect they will continue to roll in hedges here going forward. I can't say how much, but they will find opportunities. Again, a large part of that is due to the C&I book that we have.

Okay. I'll get back in the queue. Thank you.

Thank you. One moment for our next question. Our next question is a follow-up question from the line of Mark Jarvi with CIBC. Your line is open. Please go ahead.

Yeah, thanks. Just following up on the underutilized assets. If you got a meaningful amount granted by the AESO, like a gigawatt or more, would that likely be used to scale up increased opportunities around Keephills? Are there conversation opportunities to look at another site like Sundance?

Depending on what the ultimate number is, we certainly have the land there, the gas supply is there, the transmission is there, to support additional build-outs. If you talk of up to a gigawatt, or even higher, certainly that could be supported at around the Keephills facility.

Okay, thanks.

Thank you. One moment for our next question. Our next question is going to come from the line of Patrick Kenny with National Bank Financial. Your line is open. Please go ahead.

Good morning. I know you guys are still working on the class 3 estimate for the Centralia Unit 2, just wondering if perhaps there's been any progress with potentially tapping into more gas supply and looking at repowering Unit 1. How we should be thinking about the timing of that opportunity, and maybe a comment on how those brownfield returns might stack up to, say, Alberta Greenfield or other U.S. M&A opportunities.

Yeah. Pat, when we look at with Centralia, as you highlighted, we are working toward the class 3 estimate. Everything is on schedule, such that we'll be in a position to have that by the end of the year. It to be then on track to make FID very early in 2027. Again, subject to the permits that are required both for ourselves and obviously with PSE, that they get the WUTC approval. That work is well underway there at the facility. When you look at the returns, hard to beat. As we highlighted when we made the announcement for Centralia, and we said, our estimate is a CAD 600 million capital cost at a 5.5x build multiple. Obviously very attractive. Like any company, I wish we had more of those types of opportunities with those types of multiples. Again, very, very attractive.

Again, just shows the value of having legacy assets where you can either repurpose, maybe extend a contract or what have you, that offer very compelling risk-adjusted returns. When you look at the gas supply, just recall that the gas supply for unit 2, that's on for PSE as the customer to provide not only the gas, but obviously the transportation of that gas to the facility. There is enough gas supply there. The gas line is around 1,500 ft away from the facility, so it is very close. As it relates to unit 1, I think this is a longer-term option because we've been having discussions around that, but very early days. That it would be very compelling given where the location, given the transmission's there, the water is there. You are 85 mi south of Seattle.

There's a lot of reasons why it would be very good to be able to expand that facility. It comes down to, again, gas supply. It's the Williams Northwest Pipeline that is full today, but certainly something that we're talking to them on. Also, just trying to find, obviously, a customer, like a commercial arrangement. Again, very early days, and this would be kind of next decade. We do see that there could be an option there. I wouldn't put a high probability at this point in time. The focus, again, is on getting unit 2 to FID early next year and moving that project along to get it in service by the fourth quarter of 2028.

Okay, that's perfect. Thanks for that. Maybe just on the M&A front, obviously

I know you can't comment on specific opportunities, just curious, after the Colorado transaction closes, how you might describe your wish list in terms of geography, asset type, or technology, fuel supply. Just how you're thinking about maximizing the value of the portfolio going forward through M&A, whether it's capturing synergies across the portfolio or otherwise.

Yeah, Pat. Again, we're very pleased with the Colorado acquisition. I think this is an acquisition that will serve our shareholders for decades to come, given the weighted average duration is 27 years. As we've talked about before, the full cost pass-through that we have there. A very low-risk investment for us that, again, in a core geography, that now we have a presence in Colorado with these two facilities. We're very happy with that. Going forward, though, the M&A strategy remains the same, focused on our four core geographies. You've seen us transact. The Heartland acquisition was here in Alberta. Hut 8 acquisition was in Ontario, and then this most recent one in Colorado. I would say with technology, we remain agnostic. It's all about the highest risk-adjusted returns. That's the key for us.

It just so happens, recently it's been more on the gas-fired side of things. When you look at, again, Hut 8, you look at Colorado, you look at Heartland. If there's opportunities in renewables, we're certainly looking at those as well. Again, it comes down to the highest risk-adjusted returns in our four key geographies. We remain very active there. We're also conscious of our balance sheet and what we can do. This is where, again, I think, as we talked about earlier, active asset optimization, if you are a portfolio rotation, certainly would support those opportunities going forward. It's really more the same, if you will, as it relates to how we look at M&A.

Okay. That's great. Thanks, Joel.

Thanks, Pat.

Thank you. One moment for our next question. Our next question will come from the line of Benjamin Pham with BMO. Your line is open. Please go ahead.

Hi. Thank you. Good morning. I want to follow up on our last question around your comments on risk-adjusted returns across the portfolio, including M&A. Can you parse that out a little bit? Because it sounds like if you're going on different risk profiles within energy infrastructure, that return spectrum does change quite a bit, i.e., the Colorado transaction, where it's long-dated cash flows and the return may be a different profile than maybe some of the other assets. Can you maybe put the bookends of the returns and how you adjust for the risk differences?

Yeah. I would say, Ben, when we look at the various opportunities, so I'll just give you some relevant examples here. You look at the Heartland acquisition, where not fully contracted but substantially contracted here in Alberta, older vintage assets, and we did that at around a 5.4x multiple. When you look at Hut 8, again, older assets, shorter contracts, but we believe we'll be able to recontract those assets in five-year increments. Again, we were able to acquire those at a lower multiple. When you look at Colorado, and yes, it was at a higher multiple, but it makes a lot of sense. That this is brand-new generation, 27-year contracts. We have to look at this on a kind of overall portfolio that you're going to get some at a lower multiple, and there's reasons for that.

There's going to be some, like Colorado, where it's going to be at a higher multiple that is fair value, given, again, the vintage of the assets, given the contracts and the nature of those contracts, and the like. When we look at our opportunities here going forward, you have to take that all into consideration. I think what was important for Colorado is I know some folks looked at really the multiple. That's one way to look at it, but probably the best way to look at it is really the free cash flow yield. The free cash flow yield on that acquisition is approximately 13%, and our free cash flow yield on TA is around 7%. It's free cash flow accretive at the end of the day.

For us, there's a number of ways we look at acquisitions, whether it's an EBITDA multiple, it's a free cash flow yield multiple. We also have to look at the leverage that's on the acquired assets, if any. There's kind of a wide range here. Then you have to compare everything on a per share basis as well, too. That we want to be accretive. At the end of the day, we don't want to do anything that is dilutive, and Colorado was accretive, as I mentioned. Everything has to stack up against on a per share metric basis. Hopefully it gives you some context of how we look at things here. It really depends on the nature of the acquisition.

Okay. Got it. Thanks for the color. Can you comment related to that with some of the credit rating updates? Does that constrain your ability at all on your balance sheet to add in more M&A over the next 12 months? If I can just put a time frame to that.

Oh, hey, Ben, it's Mike here. Maybe I'll handle this one. The negative outlook from S&P, we kind of view that as a temporary hurdle for us. When you look at the soft Alberta power pricing market right now and Centralia being offline here, as we progress that towards FID, our cash flows have come down.

We do see a glide path forward with the recovery of the balance sheet. When you look at the Alberta forward pricing market, you're starting to see that uplift in the back half of 2028 into 2029. If you look at the hedge book we've built here, 2027 sets up pretty nice with 6,600 GW hedged at CAD 64, quite a bit higher than the forward market. If you look at our optimization team and what they are able to do in tough markets, they have pretty amazing capabilities, and you saw that here in the second quarter with what they were able to do. If you look at the data center opportunity in Alberta we are pursuing, and the nature of our assets and the capital light nature of that opportunity, that's very credit positive for us.

Joel's earlier comments on Centralia and progressing that towards FID and that looking like a COD timing back half of 2028. That's a wave of cash flows coming. The final piece is the asset recycling program and doing that for multiple reasons. One benefit of that is obviously proceeds in the door, helping the balance sheet. We see a lot of incremental things that will progress the balance sheet to a position where we want it to be in. In the meantime, is it hampering our flexibility? I would say, no, not really. The things we're pursuing right now, we have the flexibility to operate within the bounds of our balance sheet.

We are definitely conscious of the leverage levels and how the rating agencies are viewing it, we see that improving here over the next while, it's something we are actively working towards.

Okay. Thanks, Mike. Quick one for me to squeeze in, if I may. You mentioned the focus on Keephills respect to the data center opportunity. Can you remind me when you went through the multi-phase process with that asset, was there community engagement involved in that? I know it's industrial site and there's a plant there. Did you do that and work here? It's just the community feedback and support or lack of support for a site.

Ben, whenever we have any investment that we make, we have community engagements or stakeholder engagement very early on, right at the development stage and really through the whole life cycle of the asset. Once the asset is developed and then operating, we stay in the community. We remain very engaged with the community. Again, we're an important part of these communities in which we operate in. When you look at Keephills, we are again, very actively engaged there. Within the community, there is certainly a lot of support there, at Keephills, just given the infrastructure is there today. It's been there for many decades. We have to remain very active there and really bring our stakeholders along with us on this journey when we develop any project. It's not only here in Alberta, it's anywhere in which we operate.

Stakeholder engagement is just critical. Through, like I said, development and through the operating life of the asset. Again, we are very engaged there. It's really important that we are very transparent with our stakeholders. We have transparent communication. It's really important that we have that because these are our stakeholders, and we want to make sure that we are communicating with them, we're listening to them, understanding what their needs and their concerns are. It really is almost like a partnership at the end of the day, when you are putting infrastructure into a community. I would say with Keephills, we're certainly very actively engaged in that right now and have been for decades because we've been operating there for that long.

Okay, got it. Thank you.

Thank you. There are no further questions at this time, I would like to hand the conference back over to Stephanie Paris for closing remarks.

Thank you, everyone. That concludes our call for today. If you have any further questions, please contact the TransAlta investor relations team.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

Good morning. My name is Shannon, and I will be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation First Quarter 2026 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one one on your telephone keypad. If you would like to withdraw your question, please press the star followed by one one again. Thank you. Ms. Paris, you may begin your conference.

Thank you, Shannon. Good morning, everyone. My name is Stephanie Paris. I am the Vice President of Investor Relations and Corporate Strategy of TransAlta. Welcome to TransAlta's first quarter 2026 conference call. With me today are Joel Hunter, President and Chief Executive Officer, Mike Politeski, EVP Finance and Chief Financial Officer, Chris Fralick, EVP Generation, Nancy Brennan, EVP Legal and External Affairs. Today's call is being webcast. I invite those listening on the phone lines to view the supporting slides that are posted on our website. A replay of the call will be made available later today. 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 set out here on slide two, detailed further in our MD&A and incorporated in full for the purposes of today's call.

All amounts referenced are in Canadian dollars unless noted otherwise. The non-IFRS terminology used, including Adjusted EBITDA and Free cash flow, are reconciled in the MD&A for your reference. On today's call, Joel will provide an overview of TransAlta's quarterly results. After these remarks, we will open the call for questions. With that, I will turn the call over to Joel.

Thanks, Stephanie. Good morning, everyone, and thank you for joining our first quarter conference call. TransAlta delivered solid operational performance during the first quarter of 2026. During the quarter, we delivered adjusted EBITDA of CAD 204 million, Free cash flow of CAD 102 million, or CAD 0.34 per share, and average Fleet availability of 93.8%. While our Alberta merchant portfolio was impacted by softer than expected prices, our hedging strategy and active asset opti-optimization generated realized prices that were well above spot prices during the quarter. We remain confident in achieving our 2026 guidance range. In the quarter, we advanced our data center strategy in Alberta and coal to gas conversion at Centralia, hosted our Investor Day, providing an overview of our strategy and context on the current and future operating environment.

We closed the acquisition of Far North Power Corporation, adding contracted generation in our core market of Ontario. In connection with our fourth quarter and year-end 2025 results, we announced an MOU with CPP Investments in Brookfield for data center development in Alberta, with TransAlta as the exclusive power and site provider. We continue to be actively engaged with our counterparties. We are making progress towards definitive agreements. Last month, the AESO released an updated draft process for Phase 2A of their large load integration. It is important to note that this is draft, which does not represent final outcomes and will continue to evolve as discussions progress. TransAlta continues to participate in the AESO's Large Load Integration Working Group, and we look forward to hearing additional details as they finalize their process in the coming months.

In March, the U.S. Department of Energy issued another temporary order requiring Centralia Unit Two to remain available for operation if needed for a 90-day period ending on June 14th. TransAlta is adhering to the order and recently submitted its request for reimbursement to the FERC for costs related to the initial order. Progress continues with the conversion, and I'm pleased to report that our timeline for a final investment decision in the first quarter of 2027 remains on schedule. In the quarter, we achieved adjusted EBITDA of CAD 204 million, a decrease of CAD 66 million compared to the first quarter of 2025. This was primarily due to the reduction of generation at Centralia, lower Alberta power and hedge prices, as well as reduced market volatility, which affected energy marketing performance.

Hydro segment adjusted EBITDA was CAD 35 million, down CAD 12 million compared to the first quarter of 2025 due to lower Alberta spot hedge and hedge power prices, lower ancillary services, reduced merchant volumes, and fewer emissions credit sales to third parties. The wind and solar segment reported adjusted EBIT of CAD 95 million, a 7% decrease compared to the first quarter of 2025, mainly due to lower wind resource and availability in Eastern Canada. Within the gas segment, adjusted EBITDA was CAD 93 million, CAD 11 million lower than first quarter of 2025, primarily due to lower Alberta spot and hedged power prices and the retirement of the Ada cogeneration facility. These impacts were partially mitigated by higher realized prices on Ontario and the acquisition of Far North Power. The energy transition segment experienced a year-over-year decrease in adjusted EBITDA of CAD 36 million.

Adjusted EBITDA is anticipated to remain neutral or slightly negative within the segment, primarily due to ongoing expenses associated with retired units in both Alberta and Washington State. These costs are partially mitigated through revenues from byproduct sales. energy marketing adjusted EBITDA decreased by CAD 4 million-CAD 17 million, primarily due to higher incentive costs and realized and associated with higher unrealized mark-to-market gains. Corporate costs of CAD 37 million were 10% lower when compared to the first quarter of 2025. In the first quarter, free cash flow totaled CAD 102 million, driven by reduced net interest expense and increased realized foreign exchange gains from operating activities.

Overall, despite low Alberta spot power prices, we are pleased with our first quarter operational performance across all of our business segments and remain confident in our ability to meet our 2026 guidance range. Turning to the Alberta portfolio, spot prices averaged CAD 32 per MWh in the first quarter, which was notably lower than the average price of CAD 40 per MWh in the first quarter of 2025. The decline year-over-year was primarily due to a mild winter in addition of new gas generation in the market. The gas fleet exceeded merchant market pricing by realizing average price of CAD 48 per MWh, a 50% premium to the average spot price of CAD 32 per MWh.

The hydro fleet also continued to capture merchant upside, delivering an average realized price of CAD 46 per MWh, a 44% premium to the average spot price. The merchant wind fleet realized an average price of CAD 20 per MWh, which was impacted by increased intermittent wind and solar generation in the overall Alberta merchant power market. Although weather conditions during the quarter were generally mild, contributing to lower average power prices, we enhanced our margins by meeting portions of our higher price hedge commitments through power purchases when market prices were below our variable production costs. We benefited from approximately 2,400 gigawatt-hours of hedges, an average price of CAD 66 per MWh, CAD 34 per MWh higher than the average spot price.

During the quarter, we delivered approximately 1,000 GWh of ancillary service volumes at a modest 9% discount to the average spot price. Through effective fleet optimization and meeting hedge obligations with purchased power, we consistently address the AESO's demand for reliability products. Looking at the balance of the year, we have approximately 6,900 gigawatt-hours of Alberta generation hedged at an average price of CAD 64 per MWh, well above the current forward curve of CAD 41 per MWh. Going forward, we'll continue to optimize our fleet and reduce production in low-priced, high-supply hours by fulfilling our financial hedges and customer requirements with open market purchases. For 2027, we currently have approximately 5,500 GWh hedged at an average price of CAD 65 per MWh, well above current forward pricing levels.

As discussed at Investor Day on March 23rd, we continue to expect anticipated increase in load will rebalance the current oversupply of generation Alberta later this decade and drive opportunities for growth in the long term. Last month, we announced the addition of two new executives to our leadership team. I'm pleased to welcome Mike Politeski to TransAlta as he takes on the role of Executive Vice President and Chief Financial Officer. Mike brings over 25 years of experience in the energy sector. Over the course of his career, he has played a significant role in large-scale transactions and business transformation and brings deep experience in investor relations, governance, and capital allocation. His established reputation as a strong, collaborative leader will be important as we pursue our strategic objectives. I'm also pleased to welcome Grant Arnold as our Executive Vice President, Growth and Chief Commercial Officer.

Grant brings over 30 years of leadership, commercial and technical experience in the power generation and energy sector. He has contributed and led prior companies through significant growth, expanding their operating and development portfolios across North America. I'm confident Mike and Grant will strengthen TransAlta's high-caliber leadership team, where together we will execute our strategy focused on disciplined growth and operational excellence. I'll now turn the call over to Mike to offer a few words as he steps into the role.

Thanks, Joel. I've been impressed by what TransAlta has built, an operationally strong business with a clear strategy and meaningful opportunity set ahead. I'm grateful for the warm welcome I've received externally as well as inside the organization, and I'm looking forward to working with all of you as we deliver on our strategy. My focus will be straightforward. I plan to continue to strengthen our financial position and support the execution of our strategic priorities. We will operate with excellence, grow with discipline, and maximize value for our shareholders, all while ensuring we maintain our financial strength and flexibility through disciplined cost and capital management. I'll now turn the call back over to Joel.

Thanks, Mike. For 2026, we remain focused on the following priorities: Improving our leading and lagging safety performance indicators while achieving strong fleet availability, delivering adjusted EBITDA and Free cash flow within our 2026 guidance ranges, maximizing the value of our legacy thermal sites by advancing our Alberta data center project, as well as advancing our coal-to-gas conversion at Centralia toward a final investment decision, pursuing strategic M&A opportunities, and enhancing our financial strength and flexibility through disciplined capital allocation and cost control. Stepping in as CEO, I believe TransAlta offers a compelling investment opportunity. We operate a safe and reliable fleet that generates strong and consistent cash flows. That strength is grounded in a diversified portfolio of hydro, wind, solar, and thermal assets across three countries, and it's enhanced by our industry-leading asset optimization and energy marketing capabilities. Our legacy thermal sites continue to represent considerable and increasing value.

We are proactively pursuing repurposing opportunities at these facilities to address the growing demand for dependable power in our operating markets. Concurrently, we maintain a leadership position across multiple technologies, consistently prioritizing responsible and reliable generation. We are disciplined in how we grow. Our priority is creating value for our shareholders as we diversify our portfolio within our core geographies and continue to increase the stability and contracted nature of our cash flows. This strategy is supported by a strong financial foundation. We have a flexible balance sheet and ample liquidity, giving us the ability to pursue and deliver multiple growth opportunities while continuing to return capital to shareholders. Finally, and most importantly, we have our people. Everything we achieve is powered by the dedication and expertise of our employees and contractors.

I want to thank them for their commitment and for positioning TransAlta for continued success in 2026 and beyond. Thank you. I'll now turn the call back over to Stephanie.

Thank you, Joel. Shannon, would you please open the call for questions from the analysts?

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Robert Hope with Scotiabank. Your line is now open.

Morning, everyone. Maybe to start off with. I know it's early days, can you give us any sense or color on how the Brookfield MOU for the data center in Alberta is progressing, whether that be for the initial or the subsequent phases?

Yeah, Robert. Joel here. You know, we made significant progress, as we announced back at the end of February, signing the MOU with Brookfield and CPPI. I would say to you that this wasn't your kind of boilerplate MOU. It's quite comprehensive, including reaching agreement on a lot of the commercial terms. We are now in the process of the definitive agreements, and that remains very active between ourselves, CPPI and Brookfield. Can't give you a definitive timeline on that other than it is progressing as planned, and it is a very collaborative effort between both ourselves and Brookfield and CPPI.

All right. Appreciate that. Then maybe moving over to the M&A market, it is highlighted as a, you know, a strategic opportunity for 2026. Can you comment on, you know, how the market is progressing, whether you're seeing a good amount of deal flows and kind of what opportunities look the best at this moment?

Rob, I would say that there is certainly a lot of deal flow. We are constantly looking at opportunities really within our core geographies. When we look at to Canada, for example, you know, most recently just announced the acquisition of Far North Power Corporation. We're seeing opportunities here and in the U.S., in particular in the WECC. It's across all technologies, whether it's thermal, wind, solar. It is quite competitive, we have to remain very disciplined in how we approach M&A. You know, we kind of look at it through the lens. It has to be accretive to our, you know, cash flow per share. It can't harm the balance sheet, we have to, you know, preserve our balance sheet strength going forward.

I would say it has to be in strategy, and it has to be highly contracted. You know, one of our objectives here as we look at M&A or any capital allocation that we're doing, Rob, that we want to increase our contractiveness over time. It is critically important that when we look at opportunities, that it comes with a, you know, a strong contract profile or at least a pathway to recontracting in the future. I would say to you overall, it's a very robust market. It is very competitive, and we just remain very disciplined in how we approach these M&A opportunities.

Sounds great. Appreciate the color. Thank you.

Thanks, Rob.

Thank you. Our next question comes from the line of Mark Jarvi with CIBC. Your line is now open.

Yeah, thanks. Good morning, everyone. Joel, just with the additions to the management team, is there anything else you'd like to add to the team? I guess below Mike and the additions there, is there sort of a filling of the bench that is required over the next couple of quarters?

Mark, I would say that we've really landed our management team here with the addition of Mike and Grant. We also have on our, on our Senior Management Team here, Chris Fralick and Nancy Brennan are here with me today, along with Jane N. Fedoretz, who's our Head of our Chief Administrative Officer, and Mark Flickinger, who's our Head of Major Construction Projects. We have the right team in place. What we see below the team at our Vice President level is very strong, a very deep bench here that really kind of excites me as we look to execute on our strategy here going forward. Very comfortable where we're at, Mark, here with our executive team, along with the rest of our employees.

Whether it's from VPs right down to, you know, people, you know, in the field, wherever, they're it's a very, very strong team of people that we have in our organization. It goes to my closing remarks that if it wasn't for our people, we wouldn't be able to execute day-to-day, you know, safely and efficiently with our operations or execute on our strategy.

Okay. You know, with them settling in their seats, does that, does that potentially push out any sort of M&A timelines, you know, out a few more quarters? Just curious on how Mike and Grant coming in the fold in the midst of the data center definitive, uh, agreements coming together, whether or not they see something or terms or anything like that that could potentially just push out the timeline before you get to definitive agreements, just given the fact they've just come on board with the company?

Yeah, Mark. To answer your first question with respect to M&A, no, it's actually very active. Again, we have a strong team that actually reports into Grant that with respect to M&A and kind of corporate development that they're very active right now. That's certainly not gonna slow down things at all as it relates to M&A. Similarly, with the data center file as well, the teams that are really responsible for delivering that report into Grant. Grant's, even though he starts today, is, you know, actively engaged with the team here. We certainly don't see any slowdown here with that given the progress that we have made to date, both with the MOU with CPPI and Brookfield.

It certainly helps having two, kind of executives like Mike and Grant to come in and really support where we need to go, with executing on these major initiatives, but it's certainly not slowing us down.

That's good to hear. The last question from me is just, you brought up the draft, the phase IIA. Curious in terms of your updated discussions around some bridging solutions. We heard one of your peers talk about the view that they think there's still excess supply from supply in the market with existing generation, and it can avoid costly grid upgrade charges. Where are you in the conversations around maybe being able to use your fleet a bit more in terms of going beyond the 1.2 GW in phase I?

Yeah, Mark, it's certainly there's active dialogue between ourselves, the AESO and the government. Nothing has changed from what we highlighted at Investor Day on March 23rd. As we look at our, you know, coal to gas units here in Alberta, which is roughly 2.7 GW of installed capacity that last year ran at around a 20% capacity factor. We point to those units to say there is surplus capacity there that could be used as, you know, call it like almost like a bridge, if you will, for phase II to new generation in the future. I think that's acknowledged that, you know, all levels, that there is the spare capacity.

I think, you know, what we're trying to get to here is a win-win situation where we can bring in a data center customer, meet their needs by using a portion of that surplus capacity that's there with our coal to gas units. At the same time, ensuring reliability and affordability for the grid here in Alberta. Very active dialogue. We know that the AESO wants to get it right. We understand that, you know, they are concerned about reliability in the province, but they also are, you know, they see the real opportunity here for data centers to come to the province. Active dialogue, as you can well imagine here, we remain optimistic, you know, using our coal to gas fleet here, going forward beyond phase I.

Would there be an expectation that you'd make some other commitments if you're gonna use the existing generation to facilitate incremental load, whether it's a commitment to bring on new generation down the road, dispatch conditions on the existing fleet? Would there be sort of something, I'm not saying concession per se, but some sort of measures you think they'd be required to facilitate the more usage of the existing assets?

I would just say to you, Mark, that, you know, those are things that we do, when we do have discussions that we do bring up here. We're trying to find, you know, a solution here, where we see that there's, again, this surplus capacity and how best to utilize it, to ensure that we, you know, improve the reliability, if you will, of the grid. I think it's safe to say, though, that, you know, especially with the MOU between Alberta and the federal government and the CER, going away, that when we think about data centers here in Alberta, this is a long-term investment opportunity, for both the data centers and for ourselves. When I look at our existing fleet, they're not gonna be around forever.

If we can get data centers here in Alberta, then, you know, in all likelihood, you know, we would look to deploy more capital in the province to support the needs of that, of that load longer term. Again, we remain encouraged by, you know, again, what we're seeing from a policy standpoint. We remain encouraged with our discussions with our customers here that, you know, we're taking a very long-term view and, you know, ultimately, if we could get to a point where we are building, you know, new facilities here, it would be underpinned obviously by a long-term contract with our customers if we got to that point.

Okay. Makes sense. Thanks for the time this morning.

Thanks.

Our next question comes from the line of Benjamin Pham with BMO. Your line is now open.

Hey, morning. First off, congratulations to Mike and Grant on their appointments. I wanted to go back to the timing of the Alberta MoU. I wanted to clarify, is TransAlta still sticking with that expectation for definitive agreements by end of year?

Yes, Ben. That's we're working toward. Again, things are well advanced. As I mentioned earlier, Ben, the MoU was a large part of that. There was a lot of work behind that that really started last year and ended with us signing the MoU at the end of February. We are now again working toward various definitive agreements. You know, our expectation is it's gonna be in year. Just can't give you a definitive time around that, but it's certainly something that is a top priority for us and I believe for our counterparties as well.

Okay. Sounds good. I wanted to ask too next on your MD&A package. You've broken up your development pipeline between mid stage and early stage. I can see the mid stage one includes most of the Centralia conversion. I think that's what's in there. Can you unpack the thermal more for us? There's, what, 1.9 GW. Is that mostly the Alberta redevelopment sites in there?

There is that there. You know, we highlighted, you know, three sites in Alberta here with Keephills Unit 1, SunHills and Flippy. That's part of it. We are, you know, exploring opportunities south of the border as well, in Wyoming and Arizona. Again, you know, early days on that, but our corporate development team is looking for thermal opportunities there that would be considered greenfield. You know, the key here is with the team, and we talked about this last year when we outsourced really our renewables development to NovaClean, that the focus internally here for our team at TransAlta has been more on thermal here in Alberta and south of the border.

We have some opportunities as well in Western Australia that we're looking at.

Okay. Very good. Thank you.

Thanks, Ben.

As a reminder, to ask a question at this time, please press star one one on your touchtone telephone. Our next question comes from the line of Maurice Choy with RBC Capital Markets. Your line is now open.

Thank you. Good morning, everyone. If I could just start with something that Joel, you mentioned on the press release, specifically about how near-term headwinds in Alberta are materializing. I wonder if you could just elaborate a little bit on that and what you meant on that.

Maurice, and good morning. What we meant by that is if you look at again our first quarter results, that the average spot price being CAD 32 per MWh. What we experienced in the first quarter here in Alberta and really in the West, if you will, taking into consideration even the Mid-C market, is there was really no weather. It was very mild, very benign. As a result, we didn't really see really any spikes in pricing that we normally would experience kind of in the winter in those markets. That, really put, you know, pressure obviously on our results here in Alberta for the first quarter. That's really the headwinds that, you know, we experienced.

When you look, you know, for the balance of the year, as mentioned in my prepared remarks, you know, the forward rate now. Forwards are right around CAD 41, kind of still within our range, at the lower end of our range, if you will, in the guidance that we provided at CAD 40-CAD 60 per MWh for the year. What gives us confidence though, Maurice, right now is a couple things. One, obviously our hedges, hedged at CAD 64, here, for the balance of the year, which is very good. Also we just, you know, look forward that there could be a weather event.

You know, the important thing here, Maurice, is that our fleet is available so that when that does happen, that we can flex up the portfolio very quickly to respond, to the, those, these times in the market when it tightens up and pricing does spike. So you know, again, we're confident still in our outlook for the year, despite the challenges that we faced in the first quarter. I was very pleased, though, that we generated very strong free cash flow in the quarter of CAD 102 million. Again, you know, we remain, you know, convinced that, you know, our guidance for the year is in line with the midpoint that we talked about at CAD 1 billion of EBITDA and CAD 400 million of free cash flow.

That's great. Maybe as a quick follow-up, since you discussed forward curves. I recall that in the past when we start thinking about 2028 and beyond, you know, there's discussion about whether or not the forward curves are truly representative of what you think is gonna occur. Could you just, you know, share your thoughts of whether or not what you think about where the forwards are for those years, if you think that that's right or could go up?

Yeah, you know, Maurice Choy, I think it's very similar to what we discussed at Investor Day, that the forward curve today when you look out to 2028 and 2029 is not reflected to what we believe. I think what we pointed to at Investor Day is that between now and 2025, we see here in Alberta just over a gigawatt of net change in load. Due in large part obviously to phase I, being 1.2 GW of load in the province, along with just normal demand growth over this period of time of roughly 600 megawatts. There's some incremental supply that would come, as we highlighted at Investor Day, including, you know, potential unit upgrades at other facilities that obviously are not owned by TransAlta.

Potentially, a restoration of the intertie. That when you combine it all together, you know, we see that again, as mentioned, this net load increase of about 1.1 GW. When we put that through the models, that would, you know, translate to, you know, power prices or forward prices in that kind of north of CAD 85. I think what we used at Investor Day was roughly CAD 100 MWh by 2029. Nothing has changed with that. You know, given that we do see the market, you know, kind of tightening up here over the next four years or five years, with not a lot by way of new supply coming.

Thank you. Just to finish off on the carbon tax policy, it feels like maybe we're approaching a point where we're gonna hear something. Just curious whether or not, you know, what, A, what have you been hearing on that? B, how much of the MOU that you have in front of you is highly dependent on this carbon tax outcome?

Yeah, I would say to you, again, you know as much as we do right now with respect to the MoU and kind of that glide path on the carbon tax, which recall in the MoU would be up to CAD 130 per tonne. You know, I think the question is, you know, what's the time to get to there? You know, that's the discussion obviously between the Alberta government and the federal government there. You know, nothing has really changed for us. I mean, it's, we know, we look at the MOU, it's directionally positive, I think, for the energy industry overall, here in Alberta. We are, we're awaiting the final outcomes of that like everyone else.

You know, nothing has changed with respect to how we're thinking about things here in Alberta, or in Canada in general, today versus where we were even a month ago.

Is that a gating item for your MOU?

No. I don't believe so.

Understood. Thanks for that. Congratulations again to both of you, Joel and Mike, on your new positions.

Thank you.

Thanks, Ben.

No worries.

Our next question comes from the line of John Mould with TD Cowen. Your line is now open.

Hey, morning, everybody. I'd really just like to focus on your hedge update. You've added a meaningful volume of hedges for 2027 relative to what you disclosed at the end of year. I guess, first part is how are you thinking about further, you know, firming those up as you're able to, just given where forwards are sitting relative to, you know, maybe where they might get to, if there's a line of sight on, you know, material market tightening? I realize that's a little inconsistent with, you know, when the load might arrive, but, you know, we've seen forwards move around pretty substantially on, you know, longer dated expected changes in load.

I guess, you know, as a follow-up to that, what are you seeing in terms of, you know, appetite from customers to lock in prices at a level that, you know, are maybe higher relative to where things are sitting this year, but conversely, you know, could be pretty attractive relative to where, you know, pricing might move to if we get a more balanced and normalized environment, driven by some of the low growth we've talked about on the call today?

Yeah, John. You know, good morning. You know, I would say to you that, as we look out to 2027 and beyond, but focusing more on 2027, yeah, we did add hedges throughout the quarter. Today, as I mentioned in my prepared remarks, we're around 5,500 GWh hedged at an average price is CAD 65, again, well above where we're at on the forwards today. If you look at the forward curve right now, it's around CAD 46, just to put it into context. You know, recall that with our hedging, it's not only financial. The large part of it actually is our C&I book.

These tend to be an average tenor of three years, and they tend to attract, you know, a premium over the forward, given they, you know, our customers want that certainty for their three year period as relates to the amount of generation they require. Our team remains very active in that market. I think it is one of our core capabilities that we have here in Alberta to really manage that book, if you will. I would say to you that when we look to 2028 and 2029, there's really no liquidity out there at this point in time. Generally, what we see when we're looking at putting on any type of hedges, it's kind of about 18 months forward, if you will.

I would say also that, you know, if we saw forward pricing that is below where we expect it to be, so based on my prior comments and what we said at Investor Day, I think the team would hold back saying that the forward curve isn't reflective of where we think pricing will ultimately go to. And, you know, we've done this in the past where, you know, a number of years ago, where we looked at the forward curve and we would really look at it and said the forward curve isn't reflective of where we expect pricing to go. Think of this back in really 2021, 2022, and 2023. And we benefited from that we were a bit, I would call, more open.

Then similarly, the team saw a tightening or a loosening in the market, if you will. There was gonna be more supply really in 2024 and 2025 and became very active in the hedging. You know, thankfully, we did that. Again, as I said earlier, you know, we are hedged at CAD 64 for this year. Last year, we were hedged at CAD 71. Again, we have a strong team that is constantly looking at the markets and saying, "Okay, what's best here to either lock in at current forward pricing or remain open?" Hopefully it gives you some context around it.

You know, we are focused on 2027 and really 2028, 2029 remain open right now, given there's not a lot of liquidity out there, and the forward curve is not reflective of where we think it will go.

Okay. That's great. All my other questions were answered, so I'll leave it there. Congrats to Mike and Grant.

Thank you.

Thanks, John.

Our next question comes from the line of Patrick Kenny with National Bank Capital Markets. Your line is now open.

Hey, good morning, everybody. Just back on the MoU at Keephills, outside of your commercial discussions, just wondering if you could provide an update on, you know, where things are at with the site development plans and the permitting process? Maybe just comment on, you know, how things have progressed from an overall regulatory approval standpoint to build out the full gigawatt potential, just relative to your initial assumptions coming into the year?

Yeah. I would, I would say to you, Patrick, you know, first of all, this is one of the advantages of using Keephills. It's an operating facility today. All its permits are in place. What was key last year was with Parkland County getting the rezoning approved by Parkland County, and we got that, which was a significant step forward for us as it relates to data center development there. Obviously, we've got our allocation under phase I here at the AESO, as you well know.

Everything is well in hand because it is an operating facility here that there's nothing meaningful here that we need by way of permits here to continue to advance the opportunity that we have in front of us at Keephills today.

Okay, that's great. On Centralia, just wondering if you had an update or any clarity on, you know, the mandate being potentially terminated or perhaps extended beyond mid-June? I guess if still online, if your team sees any opportunity to start generating some positive cash flow from the facility through the summer?

Patrick, you're referring obviously to the 202(c) order that we received that's out to call it mid-June. You know, obviously, TransAlta continues to comply with the order. We're also actively engaged both with the State of Washington and the DOE as relates to the order. You know, it hasn't run thus far, and our expectation is that it likely will not run here, you know, through the order, given that when you look at pricing in the Mid-C market, which today is around CAD 42 for the balance of the year. And looking at the variable cost of production from the facility, it's well in excess of that. We don't expect that the facility will run. We are, again, complying with the order.

I think it's also important to note that we continue to advance the coal to gas conversion with the facility and working with PSE. We are encouraged by PSE filing for their rate filing here back in the first quarter. We are doing, you know, the front-end engineering and design work right now at the facility, which is good, to get to, you know, a final investment decision sometime in Q1 of next year. What we do know is Centralia is critical to the reliability, you know, it needs in the market that everybody's in agreement that the coal to gas conversion is essential. Again, we have really good dialogue, you know, between the State of Washington and the DOE.

Okay. Thanks for that. Then last one for me, Joel. Just, you know, from a balance sheet perspective, as you navigate this weaker period of free cash flow in Alberta, while at the same time, you know, still keen to look at M&A opportunities outside the province. Just wondering how you might be thinking about asset divestitures across the portfolio, say over the near to medium term, just to, you know, ensure a strong financial position and have some dry powder ahead of any, you know, future opportunities that might come along.

Yeah. Pat, it's a couple of things I've just observed. First one, as we said at Investor Day, is that our metrics are get the EBITDA being the key metric here, could drift above that 4x. It would be temporary, that when you look at where we see our EBITDA going in Alberta, with stronger prices in that kind of post 2027 time period, that there's certainly a glide path out. Along with having Centralia come online, it will generate about CAD 150 million per year of EBITDA for us, starting really in 2029. Again, there is a glide path here that we see.

To your point around, you know, to create additional, I call dry powder, we are looking at the portfolio. We have a few things that we're looking at right now that we're very actively engaged on, where we may look to rotate some assets here within the portfolio to create some of that dry powder, given that we are seeing, you know, the question earlier around the M&A opportunities. It remains very robust, so that we want to be in a position that, again, if there's an opportunity out there that's, again, in line with our strategy, a highly contracted asset.

Again, and the risk-adjusted returns meet our hurdle rates and it's accretive on a per share basis, that we would look to pursue that opportunity, but at the same time, not overly stretching the balance sheet. Then, you know, on top of, you know, capital rotation, you know, there was a transformative type opportunity. There's other levers that we can pull as well, including, you know, the Brookfield conversion here for the hydro assets that we have. That's one. Then you obviously have common equity for something that is transformational here. Again, any opportunities that we look at have to be accretive.

Okay. That's great. Thanks, Joel. Appreciate the comments.

Thanks, Pat.

Thank you. There are no further questions at this time. I would now like to turn the conference back to Stephanie Paris for closing remarks.

Thank you, everyone. That concludes our call for today. If you have any further questions, please contact the TransAlta investor relations team.

This concludes today's conference call. You may now disconnect.