TransAlta Q1 2026 Earnings Report

TransAlta EPS Results

• Actual EPS: $0.04
• Consensus EPS: $0.01
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: N/A

TransAlta Revenue Results

• Actual Revenue: $406.19 million
• Expected Revenue: $436.36 million
• Beat/Miss: Missed by -$30.17 million
• YoY Revenue Growth: N/A

TransAlta Announcement Details

• Quarter: Q1 2026
• Date: 5/6/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 6, 2026
• Conference Call Time: 11:00AM ET

TransAlta (NYSE:TAC) is a Canada-based power generation and wholesale marketing company headquartered in Calgary, Alberta. The company develops, owns and operates electricity-generating facilities and provides power to utilities, commercial and industrial customers, and wholesale markets.

TransAlta’s generation portfolio includes hydroelectric, natural gas, wind, solar and battery storage facilities. The company has also historically operated coal-fired power plants and has been transitioning its generation fleet toward lower-emission sources, including renewable energy and natural gas. Its activities include power generation, energy marketing and the development of new generation and storage projects.

Founded in 1909, TransAlta serves electricity markets in Canada, the United States and Australia. The company’s common shares trade on the New York Stock Exchange under the symbol TAC and on the Toronto Stock Exchange under the symbol TA. TransAlta is led by President and Chief Executive Officer John Kousinioris.

TransAlta Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: TransAlta reported Adjusted EBITDA of CAD 204 million and free cash flow of CAD 102 million (CAD 0.34 per share) in Q1 2026, citing strong fleet availability and hedging that kept realized prices above spot while maintaining confidence in meeting 2026 guidance.
• Positive Sentiment: Management has about 6,900 GWh hedged at CAD 64/MWh for the balance of 2026 and ~5,500 GWh hedged at CAD 65/MWh for 2027, a material premium to current forward curves that the company says reduces near‑term market exposure.
• Neutral Sentiment: The MOU with Brookfield and CPP Investments for Alberta data‑center development is described as comprehensive and progressing toward definitive agreements this year, but outcomes remain subject to the evolving AESO process and regulatory approvals.
• Positive Sentiment: TransAlta is advancing the Centralia coal‑to‑gas conversion with a planned final investment decision in Q1 2027, is complying with DOE orders (unit unlikely to run economically), and expects the conversion to contribute roughly CAD 150 million of annual EBITDA beginning in 2029.
• Positive Sentiment: The company added CFO Mike Politeski and EVP Growth & CCO Grant Arnold, and says it has an active, disciplined M&A pipeline focused on highly contracted, accretive opportunities while preserving balance‑sheet flexibility.

Presentation

[Operator]

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.

[Stephanie Paris, VP of Investor Relations and Corporate Strategy at TransAlta]

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.

[Stephanie Paris, VP of Investor Relations and Corporate Strategy at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Mike Politeski, EVP Finance and CFO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Stephanie Paris, VP of Investor Relations and Corporate Strategy at TransAlta]

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

[Operator]

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.

[Operator]

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

[Robert Hope, Analyst at Scotiabank]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Robert Hope, Analyst at Scotiabank]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Robert Hope, Analyst at Scotiabank]

Sounds great. Appreciate the color. Thank you.

[Joel Hunter, President and CEO at TransAlta]

Thanks, Rob.

[Operator]

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

[Mark Jarvi, Analyst at CIBC]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Mark Jarvi, Analyst at CIBC]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Mark Jarvi, Analyst at CIBC]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Mark Jarvi, Analyst at CIBC]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Mark Jarvi, Analyst at CIBC]

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

[Joel Hunter, President and CEO at TransAlta]

Thanks.

[Operator]

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

[Benjamin Pham, Analyst at BMO Capital Markets]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Benjamin Pham, Analyst at BMO Capital Markets]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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

[Benjamin Pham, Analyst at BMO Capital Markets]

Okay. Very good. Thank you.

[Joel Hunter, President and CEO at TransAlta]

Thanks, Ben.

[Operator]

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.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at 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.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

Is that a gating item for your MOU?

[Joel Hunter, President and CEO at TransAlta]

No. I don't believe so.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

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

[Mike Politeski, EVP Finance and CFO at TransAlta]

Thank you.

[Joel Hunter, President and CEO at TransAlta]

Thanks, Ben.

[Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets]

No worries.

[Operator]

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

[John Mould, Analyst at TD Cowen]

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.

[John Mould, Analyst at TD Cowen]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[John Mould, Analyst at TD Cowen]

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

[Operator]

Thank you.

[Joel Hunter, President and CEO at TransAlta]

Thanks, John.

[Operator]

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

[Patrick Kenny, Analyst at National Bank Capital Markets]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Patrick Kenny, Analyst at National Bank Capital Markets]

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?

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Patrick Kenny, Analyst at National Bank Capital Markets]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Joel Hunter, President and CEO at TransAlta]

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.

[Patrick Kenny, Analyst at National Bank Capital Markets]

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

[Joel Hunter, President and CEO at TransAlta]

Thanks, Pat.

[Operator]

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.

[Stephanie Paris, VP of Investor Relations and Corporate Strategy at TransAlta]

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

[Operator]

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

Participants

Executives

• Joel Hunter, President and CEO
• Mike Politeski, EVP Finance and CFO
• Stephanie Paris, VP of Investor Relations and Corporate Strategy

Analysts

• Benjamin Pham, Analyst at BMO Capital Markets
• John Mould, Analyst at TD Cowen
• Mark Jarvi, Analyst at CIBC
• Maurice Choy, Director of Canadian Energy Infrastructure at RBC Capital Markets
• Patrick Kenny, Analyst at National Bank Capital Markets
• Robert Hope, Analyst at Scotiabank