TransAlta to hold off on power investments: CEO

"Most markets are partially regulated. We don't see that changing in any particular direction for some time," Steve Snyder told the annual meeting of shareholders.

TransAlta now expects "fewer opportunities for growth in Canada and the U.S.A. than we might have thought two years ago," Snyder said, citing Ontario as a locale where energy policies have been in flux over the past several years.

TransAlta has four electricity plants in Ontario, including a recently expanded facility in Sarnia that produces 575 megawatts.

The Sarnia plant was designed to sell 25 to 40 per cent of its capacity into the Ontario wholesale electricity market but current regulatory conditions "don't allow us to do that," Snyder said.

Ontario Energy Minister Dwight Duncan announced late last year that the Liberal government will change a price cap of 4.3 cents per kilowatt-hour imposed in 2002 and is reviewing other policies of the former Conservative government in Canada's most populous province.

The changes could improve the Sarnia plant's outlook but in the meantime, "there is no escaping the fact that running a large plant at less than capacity is a drag on our earnings," Snyder told shareholders.

"New rules can quickly and dramatically turn this situation around. If the new rules don't help us, we'll clearly have to address the issue — and we will."

Snyder also said the company is looking "relentlessly" for ways to drive down costs, particularly as it expects increased maintenance expenditures at some aging plants over the next two to three years. He said the company will likely spend 50 to 75 per cent more during this period than it will need to spend in future years.

"The benefits of the new life cycle maintenance plans we are currently implementing will really start to show in 2006 and beyond," he said.

TransAlta said its newer plants — including the Sarnia facility and two new Mexican power plants — are contributing to "pressures" on profits.

"Our greenfield plants are inherently a drag on earnings for their initial years," he said. "The good news is that these costs naturally come down with time, and with their additional production revenues we'll start to see improved profitability as we go forward."

TransAlta's 2003 profit was $234.2 million, up from $199.6 million in 2002, as revenue rose to $2.5 billion from $1.81 billion.

In this year's first quarter, however, lower electricity prices caused profits to fade three per cent to $47.2 million despite a 10 per cent gain in revenue due to new plants coming on line.