Good morning. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation Fourth Quarter and Full Year 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Ms. Valentini, you may begin your conference.

Great. Thank you, Ina. Good morning, everyone, and welcome to TransAlta's fourth quarter and full year 2023 conference call. With me today are John Kousinioris, President and Chief Executive Officer; Todd Stack, VP Finance and Chief Financial Officer; and Kerry O'Reilly Wilks, EVP Growth and Energy Marketing. Today's call is being webcast, and I invite those listening on the phone lines to the supporting slides that are posted on our website. A replay of the call will be available later today, and the transcript will also be posted shortly thereafter. All the information provided during this conference call is subject to the forward-looking statement qualification set out here on Slide 2, detailed further in our MD&A and incorporated in full for the purposes of today's call. All amounts referenced during the call are in Canadian currency unless otherwise noted. The non-IFRS terminology used, including adjusted EBITDA, funds from operations and free cash flow are reconciled in the MD&A for your reference. On today's call, John and Todd will provide an overview of the annual and quarterly results. After these remarks, we will open the call for questions. With that, let me turn the call over to John.

Thank you, Chiara. Good morning, everyone, and thank you for joining our fourth quarter and full year results call for 2023. As part of our commitment towards reconciliation, I want to begin by acknowledging that TransAlta's head office, where we are today is located in the traditional territories of the people of Treaty 7, which includes the Blackfoot group comprising the Siksika, the Piikani and the Kainai Frst Nation, the Tsuut'ina First Nation and the Stoney Nako Stoney-Nakoda, including the Chiniki, Bearspaw, and Goodstoney First Nations. The City of Calgary is also home to the Metis Nation of Alberta, Districts 5 and 6. It was another exceptional year of performance for TransAlta in which we increased our key financial guidance and targets twice. We generated free cash flow of $890 million or $3.22 per share from record revenues of $3.4 billion. We had adjusted EBITDA of $1.63 billion, in line with our record results from last year and record net earnings to shareholders of $644 million, a $640 million increase from 2022. We benefited from strong power prices, particularly during periods of market tightness and the exceptional efforts of our optimization, energy marketing and operations teams. Our integrated and diversified fleet continued to show its value by generating excellent results for the third year in a row. We achieved fleet availability of 88.8% across our facilities, which, when adjusted for the Kent Hills extended outage, actually resulted in an underlying performance of 92.8%. I'm pleased to also share that 2023 was a record year for safety performance. We operated without any lost time injuries across our global operations and delivered a total recordable injury frequency rate of 0.3, an outstanding result that improved upon our previous best outcome ever of 0.39 last year. During the year and more recently in…

Thank you, John, and good morning, everyone. I'll start my comments with a discussion on our Alberta portfolio and how it performed over the full year and fourth quarter of 2023. For the full year, we continue to realize high average merchant power pricing for energy and ancillary services across the merchant fleet in Alberta, and we were able to optimize our capacity across all fuel types in our portfolio. The spot price for the year averaged $134 per megawatt hour, which was below the average price of $162 for 2022. Our hydro fleet in Alberta continued to outperform spot prices with an average realized price of $175 per megawatt hour, an exceptional 31% premium above spot price. Our gas fleet in Alberta also outperformed and exceeded our expectations, operating with strong availability and capturing peak pricing throughout the year of $162 per megawatt hour, which was 22% above the spot price. In the year, the gas fleet in Alberta also benefited from higher production levels during peak pricing as well as higher power price hedges, which partially offset the impact of lower Alberta spot pricing and increased carbon compliance costs. Our merchant wind fleet realized an average price of $73 per megawatt hour, which was in line with our expectations. Our full year's results were impacted by warm weather during the fourth quarter of 2023, which impacted overall demand in the province and resulted in lower power prices than we were expecting relative to our revised guidance ranges. Weather conditions for the fourth quarter were very mild compared to the fourth quarter of 2022, which had periods of extreme cold weather. In the fourth quarter of 2023, the spot price averaged $82 per megawatt hour, which was significantly below last year's fourth quarter price of $214. Our hedging program…

Thanks, Todd. As I look at our strategic priorities for 2024, we're focused on progressing the following key goals: first, improving leading and lagging safety performance while achieving strong fleet availability of 93.1%, progressing the equivalent of 400 megawatts of additional clean energy projects across Canada, the United States and Australia. Achieving COD on the White Rock wind, Horizon Hill Wind and Mount Keith transmission projects next month, continuing the expansion of our development pipeline by adding 1,500 megawatts of development sites with a focus on renewables and storage, closing and integrating Heartland Generation, achieving EBITDA and free cash flow within our guidance ranges, proceeding with an enhanced common share repurchase program for 2024 of up to $150 million through our ongoing normal course issuer bid program and advancing our ESG program. I'd like to close by highlighting what I think makes TransAlta a highly attractive investment and a great value opportunity. First, our cash flows are strong and underpinned by a high-quality and growing diversified portfolio. Our business is driven by our unique reliable and perpetual hydro portfolio, our contracted wind and solar portfolio and our efficient gas portfolio, all of which are complemented by our world-class asset optimization and energy marketing capabilities. Both the acquisitions of TransAlta Renewables and Heartland Generation will further diversify and increase the contractiveness of our cash flows while Heartland's peaking assets will complement our Alberta strategy. Second, we're a clean electricity leader with a focus on tangible greenhouse gas emissions reductions. We remain on track to achieve our ambitious CO2 emissions reduction target of 75% by 2026 from 2015 levels, and we also remain committed to net 0 by 2045. We remind everyone that the Heartland acquisition will not affect either of these commitments. Third, as noted earlier, we have a diversified and growing development pipeline and a talented development team focused on realizing its value with appropriate returns. And fourth, our company has a sound financial foundation. Our balance sheet is strong, and we have ample liquidity to return cash flow to our shareholders through share repurchases, close the Heartland acquisition and also pursue and deliver our clean electricity growth plan. Finally, we have our people. Our people are our greatest asset, and I want to thank all our employees and contractors for the outstanding work they have done to deliver another record year for TransAlta. Thank you, and I'll turn the call back over to Chiara.

Thank you, John. Ina, will you please open the call for question from the analyst. (ph)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. [Operator Instructions] Your first question comes from the line of Mark Jarvi from CIBC Capital Markets. Please go ahead.

Thanks. Good morning, everyone. A couple of questions on the share repurchases. Maybe just first, is it exclusively just a function of the share price or what are the considerations went into the sort of vault messaging, which seems to prioritize buybacks relative to what you communicated at Investor Day in November?

Yeah, Mark. Good morning, and thanks for the question. It is -- look, we review our capital allocation approach constantly. We look at kind of the timing of having the growth coming into the company and the needs of the balance sheet as we allocate it in the capital allocation framework that we've adopted. But when we kind of looked at where our trading price has gotten to at a level that was below $10, that certainly became a catalyst for us focusing on allocating more capital to doing share buybacks, supporting the price, which is clearly important to us and important in a context of, at least from our own perspective, seeing it being so undervalued in the marketplace.

Maybe I'll just add that over the last five years, we have pretty consistently bought back our shares, somewhere between the $50 million and $90 million mark of shares. In 2023, our average purchase price was around that $11. So we have been active in the market. We've said that previously that we'd be opportunistic on it, when we don't like where -- we don't think the share price is trading at a reasonable price and where the stock is trading today, clearly, we set the signal out there.

Understood. And so then if the share price sort of rallied in the back of this or dips higher, like is there a level where you sort of turn it off or should -- is the message to the market that likely you'll be somewhere close to the $150 million allocation this year?

I mean, we basically came out and kind of signaled to the market that where we stand today, we're looking at, essentially, I think, Todd, you mentioned it in your presentation doubling the amount of share buybacks that we would normally do. I think the -- to Todd's point, the average price that we did share buybacks did last year was just a little bit over $11 a share. And given where we're trading today, that kind of allocation to capital seems to be a reasonable amount when we look at it being kind of carried through over the course of the year.

I think consideration was the timing -- on growth, John. [Multiple Speakers] Just where we're looking at our growth program for 2023, we're coming to the end of a construction phase. We're looking at a number of other projects to move forward in 2024. But I think the capital requirements in 2024 would be relatively light for those new projects.

And then just coming to the point, Todd, in terms of the $3.5 billion line in Investor Day, now you want to do sort of an enhanced buyback here. How do you pay for everything? Is it just a function of timing, updated us in terms of financing options on the growth platform? How do you sort of dovetail in this enhanced buyback activity, at least in the short term, we'll still sort of try to deliver on $3.5 billion CapEx plans?

Yeah. I would just say that your comment there around timing, it is somewhat a timing aspect of capital uses, which in 2024. As we move into 2025, we'll again reevaluate the balance between growth and share buybacks.

But I would say, Mark, our clean electricity growth plan is a five-year plan in terms of executing the actual growth. The company has considerable cash flow generation capability over the course of that time period. And as we've shown, I think folks in our Investor Day that we're very confident in our ability to actually fund the growth. We're more focused on making sure we get the right projects and the right returns, to be honest, more than worried about the cash flow that we're generating to be able to meet the needs, certainly over the next period of time. So I think we feel good in our ability to take a balanced approach here.

Okay. I’ll leave it there for now. Thanks for your time.

Thanks very much, Mark.

Thank you. And your next question comes from the line of Maurice Choy from RBC Capital Markets. Your line is open.

Thanks and good morning. Maybe sticking with the share buybacks, bigger picture. I know, John, you mentioned that DCF per share is roughly 70. But as you look at the outer years, I'm sure where the power prices can change. So in your opinion, does the logical buybacks hold true even when you're using a projection for DCF per share beyond 2024? Is it sound to have such a program for not just one year but for years to come?

Yeah. Look, I would say it's absolutely. We've been positioning our portfolio, adding in contracted assets, building up our C&I (ph) business. We're not giving long-term projections here on free cash flow. But at $10 a share, I still see purchases being accretive to the shareholders.

Yeah. I would agree with Todd where he said -- in terms of his response, it certainly is something that we would be looking at over time. And as Todd pointed out, we've traditionally done in that $50 million to $80 million range. I think, Todd, over the course of the last number of years, we bought back almost 30 million shares, I think, is the actual number. So it's not -- it's certainly a greater focus. We're doubling up kind of the expectations of what we're going to be deploying in terms of share buybacks. But right now, I think there's a great opportunity for us to do that.

Maybe just a follow-up on that. Your free cash flow guidance of $1.47 to $1.96, which by the way, I'd like to focus on per share metrics here. Can you confirm that there's no buybacks in there? And given your comments, Todd, just now about where the shares are trading, any buybacks are immediately accretive to this guidance?

I missed the last top of that question, but the first half, you are correct. We have not included in the denominator or a change in share count in that free cash flow forecast.

So to answer the second part of your question because I think I didn't hear it, Maurice, it would be accretive, correct, to the number -- to the free cash flow per share number, which is something that we're focused on, clearly, as an organization.

Great. Thank you. And maybe just to finish off. John, you mentioned that you continue to view investments in contracted clean energy assets as being the best interest of the company. And Todd, I think you also mentioned that you want to grow or to grow sake. As you look at the projects that make up your clean electricity growth plans, can you paint a picture as to what the average free cash flow yield is? And broadly speaking, in a very near term, what projects are at the higher end of that free cash flow yield range.

Maurice, we tend to look at it as a portfolio. So there would be projects that we would be developing that would have returns that would be lower on the sliding scale. We've talked to people about this when we look at it from the context of the returns on a risk-adjusted basis. So if you have a renewables project in Australia, for example, where we get a full return of on capital during the contracted period, having a high single-digit return for a project like that may make sense. If you're looking at a project, for example, like Water charger, which would be a merchant battery project where we're relying on our optimization team here in Alberta to extract value from that facility through the skill set that they have, we would be looking at considerably higher returns well into the double-digit returns for a project like that. And then depending on the risk profile of the project and our ability to derisk it as we go forward, everything from the supply chain to the contracting approach that we're taking for the development it would lie in between. So it isn't a bright line singular kind of approach that's being done. It is a sort of a point number that's being done. We tend to look at on a project-by-project basis, what are the attributes of the project and what is the skill set that we can bring to it from a value proposition going forward. So it really does vary.

I guess it's fair to say that any dollar that goes into gold projects, that dollar will compete with dollar and their share buybacks, depending where your ship rate is trading?

I'm sorry, you broke up there, Maurice, said I couldn't catch that. Todd?

New growth project [Multiple Speakers]

It is part of the mix, Maurice, when we look at the allocation of capital. Yeah.

Great. Thank you.

[Operator Instructions] Your next question comes from the line of John Mould from TD Cowen. Your line is open.

Thanks. Good morning, everybody. Maybe just continuing the development theme. I'm just wondering if you can give a little more color on what you're seeing as the greatest gating factor right now for finalizing development projects. Is it financing costs equipment, project-specific challenges like interconnect? And second part, just on Alberta specifically, are you finding the renewable development from your perspective anyways, in Alberta? I'm thinking about your -- within your company, just to be clear, is it all constrained until you get clarity on whatever power market changes might be getting announced next month or in the months ahead?

Yeah. Good morning, John. You kind of answered the first part of your question, I think, by reference to the second part of the question. As you might recall, when we talked about kind of our growth pipeline and where it is, we went through a period where the projects that we had we're kind of a bit more of a U.S. flavor with a little bit of Australia thrown in. Right now, in terms of the relative readiness of projects to go forward, they have a bit more of an Alberta and Australia flavor going forward. So when we're looking at them from a gating perspective, we've done a ton of work in terms of derisking the projects and getting them to a place where we're increasingly comfortable with both the cost and even the revenue side of where we could go through. But I think having a bit more certainty from a market evolution perspective going forward is something that certainly is important to us. It's important to the -- to our Board, and were close to getting some of that certainty or clarity from an Alberta market perspective over the course of the next probably 45 days or so as we begin to get some responses and direction on the renewables pause and what's going to come out of that. And kind of the pathway from a market evolution perspective in many respects, which create opportunities for us as an organization given some of the gaps that are in the market. So I'd say those are probably the critical pieces. And then just touching on Australia briefly, and I'll see if Kerry wants to add anything as well. She's on the call today. We're, in many respects, tied to the timing and the process that our customers have as they go through their own process. And when they look at their capital needs and the evolution of the markets that are in that part of the world, we work with them, but we very much are tied to their investment decisions as we go forward. Kerry, I don't know if is there anything else to add to that or?

The only thing I would add is just to underscore the impact of regulatory uncertainty. You would have read in our release that we monetized 83% of the PTCs relating to Oklahoma. And when we look at the CR, the discussion document that was released last Friday, the ITC haven't been fully enacted, it really does impact our ability to attract investment to our Canadian jurisdictions as well as to Alberta. So I think I'd probably choose that as my #1 challenge that we're faced with right now.

I mean, stability is really critical, right, to making sort of the long-term bets that we make when we make investments, John. So that's probably driver number one, over some of the other items that you itemized in your question.

Okay. No, that's all fair points on stability. And maybe touching on something related just on the carbon credit front, it looks like you did increase sales of carbon credits from our hydro portfolio in the fourth quarter. Can you maybe just provide us an update on how you're thinking about the carbon credit portfolio more broadly and the pace at which you're thinking about monetizing that?

Sure. And I can start and then Todd and Kerry can jump in as well. Look, it's quite a valuable asset that we have in the organization, and it grows. So we've got a pretty capable team that manages it very, very actively over time. And the kind of decisions that we make around it is, does it make sense to take it in here. Does it make sense to kind of defer it for a year? We are seeing carbon pricing increasing. We are seeing the value of the credits over time increase even though the discount as against the face value, if I can call it that, sometimes increases over time. They are increasing. And then the trick is, at which point because of the proliferation of renewables. Does the value begin to wane, if I can put it that way from a carbon credit perspective? So it's a calculus of trying to, frankly, monetize or extract the greatest amount of value that we can from the portfolio of credits that we have. We're also looking at sheltering the carbon obligations that the company has as it goes forward and whether we can actually use some of those credits to shape products for customers that meet their needs going forward. So it isn't an easy answer, but at least in the near term, when I think of the next year or next two years, there is significant value in kind of picking the right timing, so to speak, in terms of the -- when we monetize. I don't know, Todd or Kerry, will it said that.

My current expectation is we would look to start reducing our inventory volumes of those emission credits over the next three to five years.

I totally agree.

And the only thing I would add is that more to your holistic future carbon credit question, what we saw in the last Friday's discussion document was the introduction by the federal government is saying that they're not hard and fast in terms of emissions that they're introducing an ability going forward to use offsets and credits against your emissions. So I would say in that carbon pet will continue to be attractive in the short and midterm.

Okay. Thanks. That's helpful. And then maybe I'll just slide one last one on Heartland. Can you just provide any updates on the transaction timing and how the competition process is expected to unfold?

Yeah. Happy to. So we had three major approvals that we required from a regulatory perspective. The first one was from the British Columbia Utilities Commission. We've actually secured that approval. The second one is from the FERC in the United States, and we're awaiting that, I would say, imminently as we go forward. The final one and the most significant one would be how the review that's being undertaken by the Competition Bureau. We are progressing with that. We've got great engagement, I would say, with the Bureau or team engages with them regulatory and giving them the kind of information they need to be able to properly assess sort of the competitive impacts of the proposed merger in real time, given the evolution that we're expecting to see in the marketplace in the province of Alberta. So from a timing perspective, we remain sort of optimistic that we'll be able to get through that process in an appropriate way and be in a position to close the transaction kind of in the latter part of the first half of the year that would be about where we are right now, John.

Okay. Great. Those are my questions. I’ll get back in the queue. Thank you.

Thank you. And your next question comes from the line of Patrick Kenny from National Bank Financial. Your line is open.

Thank you. Good morning. Maybe just sticking with the regulatory frontier and specifically the Alberta government potentially creating this generator of last resort entity. How are you guys thinking about protecting the economics for your Alberta portfolio, including the Heartland Generation assets here, which I know you see a lot of value in the peaking capacity there? Just wondering how we should be thinking about the risk of a new government-based participant in the market?

Patrick. Look, when we think of the government potentially stepping in to create a company that would either require or create generation to ensure the reliability of the grid, I think that is very much an in extreme as I would say, kind of scenario, a scenario in which there is a genuine concern over the reliability of the marketplace. So it's not -- I would say when we look at our investment decisions and when we look at sort of the optimization of our fleet going forward, it doesn't candidly feature in our assessment kind of in the near term when we look at things going forward. I think there is a genuine concern on the part of the government of Alberta that if the CER is enacted in a way and is maintained in a way that results in the reliability of the grid in Alberta being challenged, then they kind of see themselves as having an obligation to ensure that the grid is reliable. And we saw the consequences that could arise just last month when we had temperatures that were approaching minus 40%, and we were on the edge in terms of maintaining the reliability of the grid. So it's really a last ditch (ph), at least our view would be that it's really that last ditch insurance policy kind of approach and the thinking of the government, at least based on our discussions with Upstate.

Okay. Thanks for that. And you touched on the CER, John. Maybe just delving into that a little bit more and thinking about this potential shift towards emissions limit versus intensity performance standards. Curious your thoughts on how these changes might impact your outlook for optimizing generation or overall margins for your fleet going forward as well?

Yeah. It -- so as you know, the federal government came up with kind of a thought paper really on the CER. We're obviously responding and engaging with them as they go through the process. I think it caution is still a lot piece for them. I don't know that folks should be viewing it as kind of tangible accepted proposals from the federal government in terms of where they would evolve the CER. So I think there's still an open question as how they would proceed. But I would say in respect of what we've seen, directionally, I think it's positive for where we are. I think, one, the emergency provisions that they had before, I think were unworkable, they're much, much better. Now in terms of letting the province touch on whatever generation it needs in a circumstance when there is an emergency and they need to ensure reliability. I think in terms of unabated gas and to your point, moving specific performance factor, more to an envelope of emissions is the way I think of it. It's also positive. And I think our view, at least based on the work that we've done today would suggest that it provides more room certainly for peakers to be able to run to ensure, again, the reliability of the system going forward. So directionally, I would say, helpful in terms of where we are, certainly in the context of the Heartland Generation transaction and our broader fleet. But Patrick, the Temple will be in the details, right, in terms of where we are. And we still have a lingering concern that although the signaled flexibility is helpful, we may actually need a bit more to ensure that the grid remains reliable in the province of Alberta and what they're proposing.

Okay. That's great, John. I appreciate your comments.

Thank you.

Okay. Well, thank you, everyone. That concludes our call for today. If you have any further questions, please don't hesitate to reach out to the TransAlta Investor Relations team. Thank you, and have a great day.

Thanks everyone.