TransAlta signs long-term electricity contract for Centralia and provides update on second quarter
TransAlta Corporation (NYSE: TAC) announced today that its subsidiary TransAlta Centralia Generation LLC has entered into an 11-year agreement to provide electricity from its Centralia, Washington power plant to Puget Sound Energy ("PSE"). Contract details related to pricing are kept confidential for competitive reasons. The agreement is subject to approval by the Washington Utilities and Transportation Commission.
This contract significantly reduces TransAlta's merchant exposure in the Pacific Northwest. As a result of the new contract, along with existing hedges, approximately 35 per cent of Centralia's total available production will be contracted from 2014 until the end of 2020, with 2013 being approximately 45 per cent contracted. On the same basis, approximately 65 per cent of the total available production will be contracted from 2021 through 2025. Centralia's 670 megawatt ("MW") Unit 1 is scheduled to be shut down at the end of 2020 and the 670 MW Unit 2 at the end of 2025 under the terms of Washington State's TransAlta Energy Transition Law. The law was a successful collaboration among policymakers, environmentalists, labor leaders and TransAlta to reduce emissions from energy production without unduly disrupting the local economy.
In addition to entering into the 11-year agreement with PSE, TransAlta has restructured plant operations and taken other steps to improve Centralia's competitiveness and reduce the facility's overall operating and capital costs.
"We are very pleased to welcome Puget Sound Energy as a major long-term customer for our Centralia transition power." said Dawn Farrell, TransAlta President and CEO. "This contract, along with the work done to lower costs, is a significant milestone in our plan to contract the facility and secure cash flows needed for the plant to run to the end of its life. It also validates our belief that access to long-term coal transition power is a source of competitive advantage for regional utilities and other potential customers."
Under the power purchase agreement, PSE will buy 180 MW of firm, base-load power from TransAlta starting in December 2014. In December 2015 the contract increases to 280 MW and from December 2016 to December 2024 the contract is for 380 MW of coal transition power. In the last year of the agreement the contracted volume is 300 MW.
Quarterly and annual financial update
TransAlta also announced today it expects to record a comparable loss(1) for the second quarter 2012 based on a preliminary review of operating results. The comparable loss is expected to be in the range of $18 - $28 million ($0.08 - $0.12 per share). However, Funds From Operations(1) ("FFO") for the quarter are expected to be positive in the range of $140 to $150 million excluding approximately $200 million to be recorded in the second quarter associated with the arbitration panel's decision on Sundance Units 1 and 2 which TransAlta reported on July 23, 2012.
The second quarter comparable loss is primarily due to a loss in Energy Trading and due to the higher planned major maintenance this year compared to the same period last year. Low electricity prices in the Alberta and Pacific Northwest markets were also a factor. It is anticipated that Energy Trading will have a loss of approximately $10 million in gross margin for the second quarter of 2012, compared to positive gross margin of $37 million in the second quarter of 2011. For the full year, TransAlta now expects 2012 Energy Trading gross margin to be in the range of $50 - $70 million.
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