Morningstar | Cold Weather and Trading Benefit TransAlta’s First-Quarter Results; Offset by Unplanned Outage
We are reaffirming our CAD 8.30 per share fair value estimate after TransAlta reported 2019 first-quarter adjusted comparable EBITDA of CAD 221 million versus CAD 236 million in the same period last year. Results benefited from cold weather and energy trading but were more than offset by the expiration of a power purchase agreement for the Mississauga gas-fired power plant and an unplanned outage at the Centralia coal-fired plant in Washington State.Cold weather pushed average Alberta Pool prices to CAD 69 per megawatt-hour in the recently ended quarter versus CAD 35 in the same period last year. The Hydro segment contributed CAD 27 million of EBITDA in the first quarter, CAD 10 million more than last year, and would have contributed an additional CAD 40 million if not for obligations under existing PPAs with the Alberta Balancing Pool.
We recently raised our fair value estimate due to our increased confidence that TransAlta’s hydro plants will benefit from the expiration of PPAs starting in 2021. Our higher level of confidence was due in part to the willingness of Brookfield Renewable Partners to invest CAD 750 million in securities convertible into equity ownership interest in the hydro assets. The first-quarter result supports our increased confidence.
It was disappointing to again see TransAlta’s financial results negatively impacted by an operational problem. The unplanned outage at Centralia resulted in a CAD 25 million cash loss in its day ahead hedging positions. Our poor stewardship rating is due in part to these operational miscues.
TransAlta and its subsidiaries are engaged in the production and sale of electric energy. Co. has 3 segments: the Generation segment which owns and operates hydro, wind, geothermal, biomass, natural gas and coal-fired facilities, and mining operations; the Energy Trading segment which is engaged in the wholesale trading of electricity ; and the Corporate segment which provides finance, tax, treasury, legal, regulatory, environmental, health and safety, sustainable development, corporate communications, government and investor relations, information technology, risk management, human resources, internal audit, and other administrative support to the Generation and Energy Trading groups.
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