Maurice Choy: Maybe as a quick follow-up since you mentioned the dynamics of how some of these hedges or power prices are set. You been able to hedge at about $80 per megawatt hour despite the recent decline in near-term forward prices, can you provide some color as to how you think your counterparties are happy signing at premium prices like these — and what it may mean in terms of the true price signal for future years.
John Kousinioris: Yes. So look, our C&I team reports to Blain. And I think people sometimes forget when we talk about our hedges, I think Blain something like 40% of our hedge position is sort of our own book, it’s not sort of the financial hedges that we do in the marketplace. We have a variety of customers — it is a multiyear in many respects procurement that customers do. So they don’t just necessarily look at one year. I think a typical kind of procurement would be closer to three years in terms of what we do. So people tend to look at pricing over a longer period of time, they factor in what gas prices would be, there’s volatility there. I mean they’re relatively inexpensive today, but that can change and we’ve seen it change.
And it’s reflective of all of the efforts that we’ve had in previous years in terms of setting that book at prices that we thought made sense in the context of where we thought fundamental pricing was going to be in the market. So it’s a bit of an art, I think that we have. And I think Blain even recently we’re pretty happy with where some of the pricing is coming in, in our C&I book, notwithstanding, where pricing is in the market.
Blain van Melle: That’s right, John. And when we look at that hedging program and customer base, which is broad spanning a lot of different industries within the province here, we really take a focus with them of being able to provide that price certainty that they need for their business. The same reason that we hedge, output of our power plants is really to achieve what they need in their business, which would be. Not their core thing from the widget they’re producing or the — whatever the customers they’re serving, they need that certainty and that’s the service that we feel we’re providing them.
John Kousinioris: And the chunks of contracts are from the relatively small to the pretty significant. I mean, everything from like a management a hotel business to municipality. So it’s quite a broad spectrum of customers that we have.
Maurice Choy: Understood. And if I could finish off with a question on capital allocation here. You mentioned that you’re going to focus on US and Aussie assets versus Alberta greenfield projects. Can you help us compare the returns of these projects versus buying back shares? I know you mentioned that buying back shares is the best value for shareholders there. But maybe more specifically is spread between buying back shares and the returns for these projects over and how that has changed over recent months?
John Kousinioris: Yeah. Look we think our share price is undervalued Maurice. I mean you and I have chatted about that before. I think if you just look at the kind of cash that we’re looking at generating this year and you look at it as a percentage of where our price is that’s a pretty good return for our shareholders right now. So do we have opportunities that are in the teens, sometimes high teens? We do. They’re probably more, I would say on the thermal side than they are on the renewable side. But given where we’re trading today, we tend to think of that as creating a little bit of a mark in terms of I think where our shareholders are expecting us from a capital allocation perspective. So that clearly influences the way that we’re thinking about deploying capital to support growth.
Maurice Choy: Perfect. Thank you very much.
Operator: Thank you. One moment for next question please. And it comes in the line of Patrick Kenny with NBF. Please proceed.
Patrick Kenny: Yeah. Good morning everybody. I guess before the new rule changes taken back here July 1, are you pursuing any modifications to either the price cap the supply cushion target or perhaps any parameters around the reference unit. I’m just wondering if you had any color on what recommendations you might be making to the government before these rules take effect.
John Kousinioris: Yeah. Good morning, Patrick and thank you for the question. I would say a couple of things. I’ll turn it over to Blain to talk about one of the elements that we have more on the supply cushion regulation, which is something I think that we’ve been focused on playing going forward. I do want to — you mentioned kind of the reference plant, we’ve made it pretty clear I would say to the AESO that the reference plant that they’re using to set the pricing is not at least from our own perspective, broadly reflective of what you could actually do from a commercial perspective in the marketplace today in the sense that I think the kind of returns, the pre-tax returns that they set are lower than would need to be the case, and both the capital costs associated with developing a plant like that is actually lower than needs to be.
So from that perspective even though we don’t think that price limit is going to have any kind of a meaningful or appreciable impact given where fundamental supply and demand is in the province. We think it’s low, candidly, and we’ve told them that. I’m not sure it’s going to have any impact in terms of where things will be in terms of the interim regulation but we think it’s low. And then on supply cushion, it is something that we are looking to see if we can actually extract a bit of a change going forward. And Blain maybe I’ll turn it over to you because you’re in the midst of that.
Blain Van Melle: Yes. So one of the conversations were in there Patrick related around the supply cushion regulation and the reconstitution of pool price if long lead assets are brought online to support reliability and they’re not actually needed due to forecasting error. So it’s one that kind of creates some concern because it might have the impact of reducing the price fidelity signal that we see in the market. We think that’s a broadly supported change by the rest of the industry based on the conversations that we’ve had. And we’re optimistic based on the conversations that we could maybe see some change to that one. Again like John mentioned in his earlier comments though given the supply/demand fundamentals and where pricing is over the next few years that those regulations are in place, we don’t think that it’s a huge impact but we just want to ensure that if we are better in those situations the price signal remains what it should be based on the supply/demand fundamentals of the market and not just for our own fleet, but for every generator within the province.
John Kousinioris: As opposed to a misdiagnosis effectively that results in more generation being online than needed to be if you see what I was saying we’re saying.
Patrick Kenny: Okay. That’s great. But I guess if the rule changes take effect as is say without any of your recommendations, would you consider perhaps an early retirement of some of your boiler-converted units over the next two-year to three-year interim period? Or do you just — is the plan to forge ahead no change to your maintenance capital program and continue to keep these units available even if utilization does nudge down and you’re not able to capture much in the way of peak pricing going forward?
John Kousinioris: I’d say Patrick we constantly assess kind of the economics associated with each of the plants and kind of the role that they play within the market both in terms of the kind of energy market that we have today and in terms of their potential role is providing reliability services that they could potentially be compensated for the province going forward which is sort of a new area that we’re exploring. Decisions that we make I think on those plants I’d say Blain are going to be based fundamentally on supply and demand dynamics that we see in the province and kind of the forward curve pricing not so much the impact on the interim regulations which we really don’t think are going to really influence kind of overall economics or outcomes all that much.
Patrick Kenny: Okay. Makes sense. And then if I could just on the Alberta hydrology here. I’m sorry, if I missed it but — can you just walk us through how the MoU compensates for any opportunity cost or lost revenue related to managing the water supplies in the South? And then if this is, sort of, a temporary agreement until the reservoir levels are back to normal? Or is this more of a go-forward agreement in the years ahead as well?
John Kousinioris: So I think — so the MoU doesn’t really have anything in it that kind of deals with sort of a compensation perspective. It’s kind of a — think of it as an agreement to agree or an agreement to work together in a cooperative way to make sure that appropriate decisions are being made. We actually don’t think it will impact the ability of our company to actually operate the manner in which we currently operate the hydro fleet. I think we’re part of that agreement primarily because we’re the carrier of the water. We’re not really a consumer of the water. So I think the province is much more concerned about the consumers of water. And when we think of it it’s more in terms of a populous, sort of, industrialized water basin it’s more of the Bow River sort of in Southern Alberta that flows through Calgary — that they’re concerned about.
There isn’t one in place for the North Saskatchewan which is where Abrazo [ph] and Bighorn facilities actually are. So it’s an agreement to sort of work cooperatively to make sure that as the carrier of the water we’re supportive in whatever manner needs to be the case. In terms of the hydrology, I’d say the soil is probably dry although I think Patrick you being here in Southern Upper we’ve had a bunch of [indiscernible] snow over the last few days. I think today is for sunny day we’ve seen in quite a while. The snowpack isn’t bad. It’s about I would say a bit over 80% of what kind of average would be. It’s kind of looking to be at least from a water perspective, broadly the same as 2023 was. And then I think it’s also important to remember that the North Skatchewan is a bit more glacier fed.
So it’s challenged by kind of where is the still pack in the moment. So when we look at kind of the way the water you’re shaping up in Alberta, I’d say not much different probably than last year and better than we are seeing in Washington State and certainly British Columbia, which are for sure dry, I would say.
Patrick Kenny: Okay. That’s great. And yeah, let’s hope the wait stuff disappears this weekend. All the best in retirement to Todd. Congratulations.
Todd Stack: Well, we like it to stick around for a bit, Patrick.
Operator: Thank you. [Operator Instructions] One moment for our next question, please. And it comes from the line of Chris Varcoe with Calgary Herald. Please proceed.
Chris Varcoe: Good morning. John. On your decision to help the four projects in Alberta, what would it take for TransAlta to bring any of them back? Or are they permanently shelved?
John Kousinioris: Good morning, Chris, and thank you for the question. So one of them is permanently Shell, which is the Riplinger wind farm, which was a sizable wind farm kind of on Western French — Southwestern fringe of the Rockies and it is within — I think it’s a 35-kilometer exclusion zone near the amounts that have been set. So that is a project that we will not be proceeding with. The other projects are on hold. They’re not canceled. The team is working to preserve them and make sure that as soon as we get the kind of clarity that we need from the regulatory process. And Blain mentioned this earlier in our call, a sense of the fidelity of the price signal as we go forward. There are things that could be resurrected and investments that could be made there sort of novel — two of them are more novel.
One of them is a wind farm, but it does have a merchant component to it after the contract expiry period. The other two projects were peaking gas unit, which would supplement what we’re looking at doing with Heartland. But the Heartland acquisition, I think, meets the need for us. And then finally, the other one was a very large storage facility west of Calgary, also merchant. And we hear potential for certain types of services being procured by the province to help with the stability of the grid that could incent that project being built. But look, we’re very careful with our shareholders’ money, and we’re not going to invest in these kinds of projects unless we have a good level of comfort that our return expectations are going to move that, and it’s a little opaque right now.
Chris Varcoe: Two last quick questions. Back in 2021, you’d mentioned that TransAlta was examining carbon capture and storage for potential adoption at Sundance 5 at some point? And I know that Heartland has the Battle River carbon hub project that is also on the books. I’m wondering right now, what are your current thoughts on the potential of CCUS in Alberta, but also the challenges to them?