Performance Measures

Our goal is to achieve consistent 89 - 90 per cent fleet availability and optimize production.

Availability is a key factor in determining revenue in many of our contracts. Availability is the percentage of time a generating unit is capable of running, regardless of whether or not it is generating electricity. Availability of 100 per cent over an extended period of time is not achievable as all plants require ongoing maintenance and experience, from time to time, unplanned outages.

TransAlta greatly improved its availability in 2010 relative to the last two years, but fell just short of its 90 per cent target primarily as a result of the Sundance 3 High Impact Low Probability force majeure event. Improved availability was driven by lower planned and unplanned outages at Alberta Thermal and lower unplanned outages at Centralia Thermal.

Production increased as a result of higher availability and higher wind and hydro volumes resulting from the Canadian Hydro acquisition.

Our goal is to offset the impact of inflation on Operations, Maintenance and Administration (OM&A) expenses.

Managing our OM&A costs is essential to improving the bottom line. Productivity is measured as OM&A expense per installed megawatt hour (MWh).

OM&A expenses per installed MWh decreased by over 10 per cent year over year primarily due to lower planned outages, cost savings from various productivity initiatives, and higher installed capacity.

TransAlta’s target is to continue to manage OM&A costs through continuous productivity improvements in order to offset inflation. In addition, OM&A costs per installed MWh will be impacted going forward as a result of capitalizing major inspection costs under International Financial Reporting Standards (IFRS).

Our goal is to undertake sustaining capital expenditures that ensure our facilities operate reliability and safely over a long period of time.

Sustaining capital expenditures are investments made to maintain our current operations. They include routine and major maintenance on our plants, equipment for our mines, and investment in our information systems and productivity.  

Sustaining capex in 2010 was in line with the target of $275 - $320 million.

In 2011, sustaining capex is expected to be higher as a result of reporting under IFRS, which requires major inspection costs to be capitalized.

Our ultimate goal is to achieve zero injury incidents; targeting an Injury Frequency Rate (IFR) of 1 by 2015.

Safety is a core value at TransAlta. We take it very seriously and measure ourselves against industry-wide standards. IFR measures all fatal, lost time, and medical aid injuries.

Our goal is to steadily grow comparable EBITDA, comparable EPS, and FFO on a trend-line basis over the commodity cycle.

Comparable Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) is frequently used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. Comparable Earnings Per Share (EPS) is frequently used to measure a company's ongoing profitability.

Funds From Operations (FFO) is a measure of cash flow. It reflects the cash flow available to maintain our equipment, meet our debt repayment obligations, return capital to shareowners through dividends, and invest in new capacity.

0.98

1.46

783

729

828

Comparable EBITDA and comparable EPS increased year-over-year due to higher availability and production, the addition of higher margined renewable assets, and lower OM&A costs. Comparable EPS also increased due to lower depreciation expense.

Our FFO increased in 2010 to $783 million as a result of higher cash EBITDA, offset by higher interest expense due to the acquisition of Canadian Hydro.

Investment Ratios

Our goal is to maintain investment grade credit ratings.

Financial strength and flexibility are critical to the company’s ability to create value, capitalize on opportunities, and manage industry cyclicality. The long-term ratios and ranges used to measure our performance include:

Cash flow to interest: 4 - 5x
Cash flow to debt: 20 - 25%
Debt to invested capital: 55 - 60%

4.3

4.9

7.2

18.3

53.6

20.5

56.1

31.7

48.1

In 2010, we maintained a strong balance sheet, financial ratios, ample liquidity, and investment grade credit ratings supported by our high level of contracting and low-to-moderate risk business profile. Cash flow to total debt decreased to just below our target due to higher debt levels associated with the acquisition of Canadian Hydro Developers and cyclically low power prices. In 2010, we initiated a three per cent discount on our dividend reinvestment and share purchase plan and issued $300 million of preferred shares to help support our goal of investment grade ratings, and as a result our debt levels decreased year-over-year.

Sustainable Long-Term Shareholder Value

Our goal is to achieve an average Return On Capital Employed (ROCE) and Total Shareholder Return (TSR) of 10 per cent per year over the long term.

We measure returns to our shareholders and investors through ROCE and TSR. ROCE is a measure of the efficiency and profitability of capital investments. TSR is the total amount returned to investors over a specific holding period and includes capital gains or losses and dividends.

In 2010, comparable ROCE increased to 6.1 per cent due to higher comparable earnings and higher EBITDA. ROCE has been below our goal due to low power prices and because TransAlta has invested a considerable amount of capital in new investments during the last few years that generate ROCE lower than target in the early part of the facility’s economic life, but greater than target later on.

Given a slow economic recovery and low power prices, TransAlta’s five-year rolling average TSR was below our goal in 2010.