TransAlta CorporationTAC

Morningstar Rating

Stock Research and Analysis

by Mark Barnett

While purely merchant players are largely at the mercy of the volatile power markets, TransAlta has just under 50% of its generation tied up in long-term power purchase agreements (PPAs) in Alberta, the characteristics of which are similar to a traditional Read more

Bulls Say

Diminishing excess capacity in Alberta could prove to be a windfall for TransAlta going forward, as it rolls over existing contracts at higher electricity prices.

Long-term, spot prices should remain relatively high in Alberta as the combination of inadequate transmission, demand growth, and resistance to new projects in the north should keep supply tight.

TransAlta's diversification and long-term contracting reduce its commodity-price and regulatory risk.

Low-cost generating assets help TransAlta remain profitable even in the face of rising commodity prices and labor costs.

With merchant-generation assets trading at substantial discounts to what we consider their intrinsic values, TransAlta could have some appealing acquisition opportunities. Read more

Bears Say

Carbon legislation in the United States could shave significant value off of the company's huge coal-fired plant in Centralia, Wash.

TransAlta's older plants require increasing amounts of maintenance capital as they age; more than 50% of its fleet is over 30 years old.

Environmental regulations in Canada may make it more expensive to operate inefficient coal plants there in the future, and TransAlta may not be able to pass on all of the compliance costs to buyers.

Unlike regulated utilities, a significant portion of TransAlta's earnings are tied to the unpredictable movements of the energy markets, greatly increasing the volatility of returns.

TransAlta's growth profile depends heavily on extensive new build of wind generation. Any projects not currently under construction could remain shelved in the current economic climate. Read more

Strategy

TransAlta uses long-term contracts to stabilize margins and manage the cyclical nature of the industry. Although a dissident shareholder waged a proxy fight in 2008 to push for more aggressive tactics, Read more

Management

TransAlta's management earns good marks for attention to minority shareholder interests. The company has successfully transitioned from a regulated integrated electric utility in Alberta to one of the better merchant power generators with international Read more

Profile

TransAlta is an unregulated electricity-generation utility based in Alberta, Canada. The company owns about 8,000 megawatts of capacity accounting for a sale of its Mexico Read more

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