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The Sundance coal-fired power plant 100 kilometres west of Edmonton.Ian Jackson/The Globe and Mail

TransAlta Corp. has been ordered to rebuild units at its Sundance coal-fired power plant that are at the centre of dispute with TransCanada Corp.

Last year, TransAlta said the units at the Calgary facility could not be repaired economically and must be shut down permanently.

The move irked TransCanada, because it ended a power purchase agreement about six years before it was supposed to wrap up.

The pipeline and utility giant argued TransAlta failed to adequately prove that the units could not be repaired economically.

Today an independent arbitration panel ordered TransAlta to rebuild the units.

Russ Girling, TransCanada president and CEO, says he's pleased that the panel decided the agreement shouldn't be terminated.

"We look forward to receiving the economic value that Sundance A provides to TransCanada," Mr. Girling said in a release.

"As the independent panel ruled, it is now up to TransAlta to decide how it will honour this decision and establish a reasonable schedule to return the Sundance A units to service."

TransAlta says its expects to have the units restored to full service by fall 2013 and estimates the total impact of net penalties is approximately $50-million.

In a release, TransAlta says its will record a net penalty of approximately $150-million for the second quarter of this year, but adds that will be partially offset by approximately $100-million in capacity payments it will continue to receive, starting in the third quarter.

The units will cost approximately $190-million, TransAlta said, adding the panel's decision will see it record an impairment cost of up to $45-million in the second quarter compared to a current book value of $140-million.

"The panel's ruling validates TransAlta operated the units in accordance with industry standards and good operating practices, but encountered unforeseeable circumstances," Dawn Farrell, TransAlta president and CEO, said in a release.

"We shut them down when our engineers told us that the units put the safety of our employees at risk. We clearly made the right decision."