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TransAlta looks to Australia project to get back on track

The Keephills 3 power plant is a 495-gross-megawatt coal-fired generating facility located about 70 kilometres west of Edmonton.


TransAlta Corp. chief executive Dawn Farrell is convinced the company has turned the corner after some setbacks, but it could be a few years before the Calgary-based energy producer can increase the dividend that was cut in February.

The company announced earlier this week that it will invest $580-million to build a 150-megawatt gas-fired power plant at South Hedland in Western Australia, a project that will help put it back on a growth track, Ms. Farrell said Wednesday.

"My feeling about where we are right now is that we've really turned the corner," she said.

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"We had to make some really tough decisions in February to resize the dividend, and we told shareholders we were doing it to ensure we could grow the company and really put it on a stable footing. … And this project that we announced Monday that is ready to go is a good example of the kinds of thing we believe will add good value to the company going forward."

Ms. Farrell and board chair Gordon Giffin faced some angry shareholders at the annual meeting this spring after chopping the dividend from 29 cents to 18 cents a share in February.

On Wednesday, TransAlta reported improved operational performance at its Alberta coal-generated power plants, which were plagued with unscheduled shutdowns in 2013. However, lower electricity prices in Alberta depressed revenue.

The company said it earned $13-million in EBITDA for the second quarter of 2014, down from $247-million from the same period in 2013. It was hit by lower electricity prices in its home province, which averaged $42 per megawatt-hour in the quarter, down from $123 per megawatt-hour in the second quarter of 2013.

It expects to see significant improvement in cash flow in 2018, when long-term power contracts in Alberta begin to expire and it can obtain market pricing. And South Hedland will generate cash in 2017.

"The business is solid now at its current level and our team is really focused on how do we increase value between now and 2017. We feel good about 2017 and '18, and that's when you start thinking about [increasing] the dividend," Ms. Farrell said in an interview.

TransAlta is also still dealing with allegations that it engaged in price fixing in the Alberta market.

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The province's Market Surveillance Administrator (MSA) alleges that TransAlta engaged in "anti-competitive conduct" in 2010 and 2011 by taking three coal-fired power plants off line on four cold days, during high-demand hours and in periods when other players in Alberta's competitive power market were the least likely to be able to pick up the slack. This, the administrator alleges, drove up electricity prices and allowed TransAlta to reap as much as $16-million in additional profits.

But the company disputes the claims, insisting it played by the rules of the deregulated market. The matter will go to a hearing at the Alberta Utilities Commission in December.

"Any time there is a case like that, you suffer a reputational risk. We were able to make it clear to people in Alberta that there are two sides to the story, and that this market is complex," Ms. Farrell said.

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