message from Dawn Farrell, President and CEO

At TransAlta, we make long-term investments in our fleet. For all our fuel sources, how we weigh economic, environmental and social factors determines whether we build wealth or create waste. Wealth creates opportunity. Our customers receive competitive power, our shareholders track towards their retirement goals, our employees earn their incomes and our communities receive support for their social and economic challenges.

Our 2012 achievements are outlined in our Annual Report. There, we highlight last year's successes and challenges. In this report we extend our goals out in time and put them into the framework of sustainability. We also tell the full story of everything we do to preserve the investment in our assets over time.

As you examine our targets, you'll notice that what's "environmental" to others, is "economic" to us. For example, building our renewables fleet and extending the lives of our hydro plants – are at the heart of growing the economic prosperity of TransAlta.

You'll wonder how our team can track over 23 goals. Focus is at the heart of success. Setting too many goals can distract and water down results. We know this. Many of our goals are specific to team or individual achievements in the company. Many of them underpin what we do day in and day out. Only a handful of targets sit at the executive level. We have highlighted those targets and they are the ones I focus on. We believe our goals are ambitious and if we achieve what we have set out in this report, our company will be more sustainable than it is today.

It's important to understand how we set our targets. At TransAlta, we take pride in our work – we like everything to be done perfectly. But we're also pragmatic. We know that if we write something down, check our progress and keep at it, we will succeed. We also know that if we only write down what we are sure we can get done – we won't stretch ourselves. Achieving what we've set out in this report will take time – but we will do it. We recognize patience and pushing are two sides of the coin that will buy us success.

Three events in 2012 require additional commentary: our decision to shut down Project Pioneer, our learnings on safety, and our decision to let 160 people go in November.

Project Pioneer and Carbon Certainty

For more than five years, our company invested significant time, effort and capital into a carbon capture and storage (CCS) project called Project Pioneer. We set out to prove the value of the project and we worked hard to ensure its success. Last year, we recognized that without a carbon price and a market for CO2 for the oilfields, the project was not economically feasible. As a result, we decided to shut down the project and not take the federal and provincial funding. This means two things for TransAlta. First, it's more than likely that some of our coal plants will reach 48.5 years of age before CCS is viable and will be replaced by either gas, hydro or wind. Second, we have to go back to the drawing board and study additional CCS technologies. We continue to believe that coal will be required for electricity production long-term, and our targets reflect this reality.

Record-Breaking Safety Performance

On safety – our learnings were so positive they now underpin the way we think about achieving goals and targets overall. Our safety results are top quartile, thanks to the determination of everyone at TransAlta to record incidents and near misses, examine and analyze them for trends, and share insights. By being open and transparent we now recognize where changes must be made to protect people and increase productivity. Recently, we have started to apply this model to forced outages. Replacing blame with accountability and learning have helped us build a more transparent culture – and we're seeing positive results.

Creating a Business-Centric Model

Our decision to reduce staff in 2012 was made within the context of driving competitiveness and our long-term sustainability. Our investments in technology, our reduction in construction projects and our move to decentralize decisions to the field, led to a reduction in staff. Over the years we have learned that when something hard has to be done, the best way to face it is with integrity and a deep resolve to treat people with respect. We know everyone who left will do well in the marketplace and we thank them for their service. I am extremely grateful for the employees who continue to work tirelessly to keep the company strong. They are the heart of our company and the driving force behind all of our sustainability efforts.

Strong Connection with Community

Just one comment on 2013 before I close. You’ll see a long-term target on employee volunteerism in the communities we serve. We have a long history of volunteering through our retirees who have won awards for their community efforts. This year, I’m volunteering on a number of committees, the most notable being the co-chair with Chief Rick Hanson on our Calgary United Way campaign. We have many stories of how TransAlta employees have served their communities. I believe that empowering our employees to contribute to both their families and communities is at the heart of building a more sustainable future for all of us.

Until next year . . .

Sincerely,

Dawn Farrell
President and CEO
May 30, 2013

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