TransAlta Power, L.P.
TSX : TPW.UN

TransAlta Power, L.P.

July 25, 2005 19:21 ET

TransAlta Power, L.P. announces second quarter results

CALGARY, ALBERTA--(CCNMatthews - July 25, 2005) - TransAlta Power, L.P. (TSX:TPW.UN)

TransAlta Power, L.P. today announced net income of $3.0 million for the three months ended June 30, 2005, compared to $0.4 million for the same period in 2004. Higher earnings are mainly due to the addition in December 2004 of a 25 per cent interest in the Meridian Cogeneration plant in Saskatchewan.

"Plant operations in the second quarter were strong with higher availability quarter over quarter. As well, we successfully completed the Sheerness planned maintenance which also increased plant capacity by 4 megawatts," said Ian Bourne, president and director.

Net income for the six months ending June 30, 2005 was $15.4 million compared to $12.3 million for the same period in 2004. Increased net income for the year to date was mainly due to the addition of the Meridian Cogeneration plant.

TransAlta Power, L.P. also declared cash distributions of $0.06625 per unit for payment on each of September 30, October 31 and November 30 to unitholders of record at the close of business September 10, October 10 and November 10, respectively. Based upon TransAlta Power L.P.'s current operations, it is estimated a majority of the 2005 cash distributions will be taxable in 2005.



Highlights
for the for the
(in millions, except three months ended six months ended
per unit information) June 30 (unaudited) June 30 (unaudited)
---------------------------------------------------------------------
2005 2004 2005 2004
Net income $ 3.0 $ 0.4 $ 15.4 $ 12.3
Total distributions paid
in cash and units $ 14.6 $ 13.8 $ 29.0 $ 27.5

---------------------------------------------------------------------
Net income (per unit) $ 0.04 $ 0.01 $ 0.21 $ 0.18
Total distributions paid
in cash and units
(per unit) $ 0.20 $ 0.20 $ 0.40 $ 0.39
Weighted average
units outstanding 72.8 70.3 72.5 70.0
---------------------------------------------------------------------


TransAlta Power, L.P. owns a 49.99 per cent interest in TransAlta Cogeneration, L.P., which owns interests in five gas-fired cogeneration facilities in Ontario, Alberta and Saskatchewan and in a coal-fired, mine-mouth facility in Alberta. These facilities have a total generating capacity of 1,338 megawatts of electric power, all of which is sold under long-term contracts to high-quality counterparties.


Management Discussion and Analysis

This management's discussion and analysis (MD&A) should be read in conjunction with the unaudited interim financial statements of TransAlta Power, L.P. (TransAlta Power) and the unaudited interim consolidated financial statements of TransAlta Cogeneration, L.P. (TA Cogen) as at and for the three and six months ended June 30, 2005 and 2004, and should also be read in conjunction with the annual audited financial statements and MD&A contained in TransAlta Power's annual report for the year ended Dec. 31, 2004. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). All tabular amounts in the following discussion are in millions of Canadian dollars unless otherwise noted. This MD&A is dated July 25, 2005. Additional information respecting TransAlta Power and TA Cogen, including TransAlta Power's annual information form, is available on SEDAR at www.sedar.com.

The financial reporting procedures and practices of TransAlta Power and TA Cogen have enabled the certification of TransAlta Power's second quarter report, in compliance with the requirements of Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings.

Forward-Looking Statements

This MD&A contains forward-looking statements, including statements regarding the business and anticipated financial performance of TransAlta Power and TA Cogen. In some cases, forward-looking statements can be identified by terms such as 'may', 'will', 'believe', 'expect', 'potential', 'enable', 'continue' or other comparable terminology. These statements are not guarantees of TransAlta Power's and TA Cogen's future performance and are subject to risks, uncertainties and other important factors that could cause TransAlta Power's and TA Cogen's actual performance to be materially different from those projected. Some of the risks, uncertainties and factors include, but are not limited to: legislative and regulatory developments that could affect revenues, costs and the speed and degree of competition entering the market; global capital markets activity; timing and extent of changes in commodity prices, prevailing interest rates, currency exchange rates, inflation levels and general economic conditions in geographic areas where TransAlta Power and TA Cogen operate; results of financing efforts; changes in counterparty risk; and the impact of accounting standards issued by Canadian standard setters. Given these uncertainties, the reader should not place undue reliance on these forward-looking statements.

Overview

TransAlta Power's earnings result from its 49.99 per cent ownership interest in TA Cogen. The remaining 50.01 per cent of TA Cogen is owned by TransAlta Corporation through two wholly-owned subsidiaries: TransAlta Energy Corporation (TEC) (50.0 per cent) and TransAlta Cogeneration Ltd. (0.01 per cent). TA Cogen distributes cash to TransAlta Power, TEC and TransAlta Cogeneration Ltd. in amounts proportionate to their ownership interests in TA Cogen. TransAlta Power, in turn, pays cash distributions to its unitholders. A detailed discussion of TA Cogen's operating results can be found in the TA Cogen sections of this MD&A to provide context for TransAlta Power's results.




Financial Highlights

TransAlta Power
3 months 6 months
(in millions, ended June 30 ended June 30
except per unit amounts) 2005 2004 2005 2004
------------------------------------------------------------------------
Net earnings $ 3.0 $ 0.4 $ 15.4 $ 12.3
Cash available for
distribution(1) $ 12.6 $ 7.1 $ 27.0 $ 16.1
Total distributions paid in
cash and units $ 14.6 $ 13.8 $ 29.0 $ 27.5
------------------------------------------------------------------------
Net income (per unit) $ 0.0412 $ 0.0057 $ 0.2124 $ 0.1757
Cash available for
distribution (per unit) $ 0.1731 $ 0.1010 $ 0.3724 $ 0.2300
Total distributions paid in
cash and units (per unit) $ 0.1988 $ 0.1962 $ 0.3976 $ 0.3924
------------------------------------------------------------------------
Weighted average number of
units outstanding 72.8 70.3 72.5 70.0
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) "Cash available for distribution" is the amount by which TransAlta
Power's cash on hand or to be received respect of that period
exceeds: (i) any unpaid administration expenses of TransAlta Power;
and (ii) amounts required for the business and operations of
TransAlta Power, including pursuing growth opportunities.


Cash available for distribution is a measure of TransAlta Power's ability to make distributions to unitholders based on operating results; however, it is not defined under GAAP and it should not be considered an alternative to, or more meaningful than, net income or cash flow as determined in accordance with GAAP as an indicator of TransAlta Power's performance or liquidity. TransAlta Power's cash available for distribution is not necessarily comparable to a similarly titled measure of another partnership.

A reconciliation of cash flow used in operating activities to cash available for distribution is as follows:



3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Cash flow used in operating
activities $ (0.4) $ (1.8) $ (0.9) $ (0.3)
Change in non-cash working
capital balances (0.1) 1.6 (0.1) (0.1)
Net proceeds from issuance
of partnership units - 3.9 - 56.3
Redemption of partnership units - (3.7) - (56.1)
Distributions received from
TA Cogen 13.1 7.1 28.0 16.3
------------------------------------------------------------------------
Cash available for distribution $ 12.6 $ 7.1 $ 27.0 $ 16.1
------------------------------------------------------------------------
------------------------------------------------------------------------


TA Cogen

3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Net earnings $ 6.9 $ 1.1 $ 32.9 $ 25.3
Cash available for
distribution(1) $ 17.5 $ 10.0 $ 58.4 $ 48.4
Cash distributions paid $ 26.3 $ 14.3 $ 56.0 $ 32.7
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) "Cash available for distribution" is the amount by which TA Cogen's
cash on hand or to be received in respect of that period exceeds:
(i) any unpaid administration expenses of TA Cogen; (ii) repayment
of long-term debt; (iii) amounts required for the business and
operations of TA Cogen and the power plants; and (iv) any cash
reserve which the Board of Directors of the TA Cogen general partner
at its discretion determines is necessary to satisfy TA Cogen's
current and anticipated obligations and liabilities.


A reconciliation of cash flow from operating activities to cash available for distribution is as follows:



3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Cash flow from operating
activities $ 37.0 $ 21.9 $ 77.9 $ 41.2
Changes in non-cash working
capital (13.4) (5.6) (11.3) 15.3
Non-cash interest expense (0.1) (0.1) (0.2) (0.2)
Levelization repayment to TEC (0.2) (0.1) (0.5) (0.3)
Repayment of long-term debt
principal (1.0) (0.9) (1.9) (1.8)
Capital and maintenance
expenditures, net of recoveries (4.8) (5.2) (5.6) (5.8)
------------------------------------------------------------------------
Cash available for distribution $ 17.5 $ 10.0 $ 58.4 $ 48.4
------------------------------------------------------------------------
------------------------------------------------------------------------


Significant events

2005

During the second quarter of 2005 TA Cogen reached a settlement regarding a cost of coal dispute. On May 30, 2005 the dispute was settled and $2.8 million was refunded to TA Cogen. $1.7 million of the refund was recorded as a reduction in accounts receivable, and $1.1 million was applied against the cost of coal in the quarter.

During the first quarter of 2005 the allocation of the purchase price paid by TA Cogen for the purchase of Meridian was finalized. On March 31, 2005 final adjustments to the purchase price were made in accordance with the Asset Purchase Agreement dated Dec. 1, 2004. The adjustments made to reflect the actual amount of working capital acquired by TA Cogen resulted in a decrease in the purchase price of $0.9 million.

In the first quarter of 2005 TA Cogen reached a settlement with a customer of the Ottawa plant regarding metering differences. The cost of the settlement was $2.3 million, of which $0.7 million had been accrued in 2004. The additional settlement cost of $1.6 million was recorded as a reduction of revenue in the first quarter of 2005.



Operating results

A. TransAlta Power

Equity income from TA Cogen and distributions paid

3 months 6 months
(in millions, ended June 30 ended June 30
except per unit amounts) 2005 2004 2005 2004
------------------------------------------------------------------------
Equity income $ 3.4 $ 0.5 $ 16.4 $ 12.6
Total distributions paid in
cash and units $ 14.6 $ 13.8 $ 29.0 $ 27.5
Total distributions paid in
cash and units per unit $ 0.1988 $ 0.1962 $ 0.3976 $ 0.3924
------------------------------------------------------------------------
------------------------------------------------------------------------


Equity income represents TransAlta Power's 49.99 per cent interest in the net earnings of TA Cogen, the operating limited partnership. A detailed discussion of TA Cogen's net income can be found in the TA Cogen Operating Results section of this MD&A.

TransAlta Power declared total distributions of $14.6 million of which unitholders reinvested distributions of $5.8 million under the DRIP during the second quarter of 2005 compared to distributions declared of $13.8 million of which $5.1 million was reinvested under the DRIP in the second quarter of 2004. For the six months ended June 30, 2005, total distributions declared were $29.0 million of which unitholders reinvested distributions of $11.6 million under the DRIP compared to distributions declared of $27.6 million of which $11.1 million was reinvested under DRIP during the same period in 2004.



Interest expense

3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Interest expense $ 0.2 $ - $ 0.4 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------


Interest expense of $0.2 million and $0.4 million for the three and six months ended June 30, 2005, respectively, was interest paid on advances from TA Cogen. There was no comparable interest in the same period in 2004.



B. TA Cogen

Net earnings and cash distributions paid

3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Net earnings $ 6.9 $ 1.1 $ 32.9 $ 25.3
Cash distributions paid $ 26.3 $ 14.3 $ 56.0 $ 32.7
------------------------------------------------------------------------
------------------------------------------------------------------------


For the three and six months ended June 30, 2005, net income increased by $5.8 million and $7.6 million, respectively. Higher net income in the quarter and for the year to date was primarily a result of the addition of Meridian.

Meridian was acquired during the fourth quarter of 2004, adding 110 MW of generating capacity, bringing TA Cogen's total net generating capacity to 807 MW. Revenues from Meridian are earned under long-term contracts with Saskatchewan Power Corporation (SaskPower) and Husky Oil Ltd. (Husky) which expire on Dec. 31, 2024.

Cash distributions paid by TA Cogen increased by $12.0 million and $23.3 million for the three and six months ended June 30, 2005, respectively, compared to the same periods in 2004. The increase in distributions was used by TransAlta Power to repay advances received from TA Cogen associated with the purchase of Meridian.



Availability, production and revenues

3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Availability (%) 83.1 82.0 91.2 90.2
Total production (GWh) 1,267 1,071 2,857 2,478
------------------------------------------------------------------------
------------------------------------------------------------------------

Revenues
------------------------------------------------------------------------
Electrical $ 29.5 $ 18.5 $ 77.8 $ 56.5
Capacity 37.0 33.9 75.8 70.4
Thermal and other 8.6 1.9 18.0 5.5
------------------------------------------------------------------------
Total $ 75.1 $ 54.3 $ 171.6 $ 132.4
------------------------------------------------------------------------
------------------------------------------------------------------------


Plant availability for the three and six months ended June 30, 2005 was higher than the same periods in 2004 due to fewer unplanned outages.

Total production increased by 196 GWh and 379 GWh for the three and six months ended June 30, 2005 over the same periods in 2004. These increases were primarily the result of incremental production from Meridian, which was acquired during the fourth quarter of 2004.

Revenues from Sheerness are earned under an Alberta Power Purchase Arrangement (PPA). Under the terms of the PPA, Sheerness earns monthly capacity revenues. In addition, Sheerness earns energy payments for the recovery of pre-determinable variable costs of producing energy, an incentive/penalty for achieving above or below the targeted availability and an excess energy payment for power production above committed capacity; all are included in electrical revenues. TA Cogen's electrical revenues from the Ontario plants are earned under long-term contracts with the Ontario Electricity Financial Corporation (OEFC). The Fort Saskatchewan plant earns no electrical revenue, as Dow Chemical Canada Inc. (Dow Chemical) purchases the entire output of the plant by way of capacity payments. Meridian earns monthly electrical capacity and energy payments under a long-term contract with SaskPower. The electric energy payments are for the recovery of fuel, operation and maintenance and other variable costs. Meridian also earns steam energy revenue under a long-term agreement with Husky.

Electrical revenue increased by $11.0 million and $21.3 million for the three and six months ended June 30, 2005, respectively, from the same periods of 2004. Incremental revenue from Meridian was $9.7 million and $20.1 million respectively for the three and six months ended June 30, 2005.

Capacity revenue increased by $3.1 million and $5.4 million for the three and six months ended June 30, 2005, respectively, compared to the same periods of 2004. The increase is primarily due to incremental revenue from Meridian of $2.5 million and $5.3 million for the three and six months ended June 30, 2005.

Thermal and other revenue increased by $6.7 million and $12.5 million for the three and six months ended June 30, 2005, respectively, from the same periods of 2004. The increase is primarily the result of incremental revenue from Meridian of $5.2 million and $10.4 million for the three and six months ended June 30, 2005, respectively, and higher steam and hot water prices at the Ottawa plant.



Cost of fuel

3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Total cost of fuel $ 38.1 $ 24.4 $ 83.2 $ 54.3
------------------------------------------------------------------------
------------------------------------------------------------------------


Cost of fuel includes coal, gas commodity and transportation costs. Gas commodity prices for the Ottawa and Mississauga plants are fixed, with an escalation factor, under the terms of an agreement with TEC that expires on Dec. 31, 2005. In addition, gas commodity prices for the Ottawa plant are fixed for the period from January 2006 to November 2007 under the terms of a separate agreement with TEC. TA Cogen also has a transportation swap agreement with TEC to fix gas transportation costs for the Ottawa and Mississauga plants from November 2002 to November 2007. Natural gas used by the Fort Saskatchewan and Meridian plants are provided by Dow Chemical and Husky, respectively.

Coal for Sheerness is supplied from the Sheerness mine, which is owned and operated by Luscar Ltd. Coal is supplied at a price consisting of a fixed monthly charge and a variable per tonne charge, both of which are subject to escalation.

Fuel costs increased by $13.7 million and $28.9 million for the three and six months ended June 30, 2005, respectively, compared to the same periods of 2004. The increases are primarily a result of the addition of Meridian in December 2004, offset by the $1.1 million one-time payment from ATCO. The incremental costs associated with Meridian were $14.3 million and $29.5 million for the three and six months ended June 30, 2005, respectively. The cost of gas increased by $11.71/MWh to $47.50/MWh for the three months ended June 30, 2005, and increased by $9.88 to $46.73/MWh for the six months ended June 30, 2005.




Depreciation and amortization expense

3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Depreciation and amortization
expense $ 16.1 $ 14.6 $ 32.7 $ 30.1
------------------------------------------------------------------------
------------------------------------------------------------------------


Depreciation expense increased by $1.5 million and $2.6 million for the three and six months ended June 30, 2005 over the same periods of 2004 primarily as a result of the addition of Meridian during the fourth quarter of 2004.



Operating and maintenance expense

3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Operating and maintenance
expense $ 12.9 $ 13.6 $ 20.8 $ 21.2
------------------------------------------------------------------------
------------------------------------------------------------------------


Operating and maintenance expense for the three and six months ended June 30, 2005 decreased by $0.7 million and $0.4 million compared to the same periods in 2004 due to the timing of planned maintenance expenses, partially offset by incremental costs from Meridian.



Interest expense

3 months 6 months
ended June 30 ended June 30
2005 2004 2005 2004
------------------------------------------------------------------------
Interest expense $ 1.1 $ 0.6 $ 2.1 $ 1.6
------------------------------------------------------------------------
------------------------------------------------------------------------


Interest expense for the three and six months ended June 30, 2005 was slightly higher than the amounts incurred during the same periods in 2004 due to interest expense incurred on advances from TEC under the $50.0 million credit facility that was established on Sept. 30, 2003.



Balance sheets

TransAlta Power

The following summarizes significant changes in the balance sheets of
TransAlta Power between June 30, 2005 and Dec. 31, 2004:

Increase/
(decrease) Explanation
------------------------------------------------------------------------
Distributions
receivable $ (3.3) Accrual of the July and August
2005 distributions receivable
from TA Cogen offset by the
receipt of the January and
February 2005 distributions
declared at Dec. 31, 2004.
Advances from
related parties (9.8) Repayment by TransAlta Power of
funds due to TA Cogen under a
credit facility.
Partnership units 11.6 Issuance of partnership units
under DRIP.
------------------------------------------------------------------------

TA Cogen

The following summarizes significant changes in the consolidated balance
sheets of TA Cogen between June 30, 2005 and Dec. 31, 2004:

Increase/
(decrease) Explanation
------------------------------------------------------------------------
Accounts receivable $ (7.9) Lower revenues due to seasonality
of earnings and planned outage
for major maintenance at
Sheerness.
Advances to
related parties (9.8) Repayment by TransAlta Power of
funds due to TA Cogen under a
credit facility.
Power plants, net (31.3) Depreciation expense partially
offset by net additions to the
plants.
Distributions payable (6.7) Accrual of the July and August
2005 declared distributions
offset by January and February
2005 distributions accrued at
Dec. 31, 2004.
Advances from
related parties (17.0) Repayment by TA Cogen of funds
owed to TEC under a credit
facility.
------------------------------------------------------------------------
------------------------------------------------------------------------


Liquidity and capital resources

TransAlta Power

Capital for TransAlta Power is raised through established credit
facilities, issuance of partnership units and distributions received
from TA Cogen. TransAlta Power's primary cash requirement is for making
distribution payments and to finance future growth opportunities.

The following chart summarizes the sources and uses of cash of TransAlta
Power for the three and six months ended June 30, 2005 and 2004:

3 months ended June 30 2005 2004 Explanation
------------------------------------------------------------------------
Cash, beginning of
period $ 0.1 $ 3.3
Cash provided by
(used in):
Operating activities (0.4) (1.8) In 2005, cash outflows were from
increased non-cash earnings
offset by an improved working
capital position. In 2004, cash
outflows were from cash earnings
and increased working capital
requirements.
Investing activities 13.1 7.1 2005 reflects the increase in
distributions received from TA
Cogen.
Financing activities (12.7) (6.7) In 2005, cash outflows included
cash distributions paid to
unitholders and repayment by
TransAlta Power of funds due to
TA Cogen under a credit facility.
In 2004, cash outflows included
distributions paid to unitholders
offset by advances from TA Cogen.
------------------------------------------------------------------------
Cash, end of period $ 0.1 $ 1.9
------------------------------------------------------------------------
------------------------------------------------------------------------

6 months ended June 30 2005 2004 Explanation
------------------------------------------------------------------------
Cash, beginning of
period $ 0.1 $ 0.2
Cash provided by
(used in):
Operating activities (0.9) (0.3) In 2005, cash outflows were from
increased non-cash earnings. In
2004, cash outflows were from
non-cash earnings.
Investing activities 27.9 16.3 2005 reflects the increase in
distributions received from TA
Cogen.
Financing activities (27.0) (14.3) In 2005, cash outflows included
cash distributions paid to
unitholders and repayment by TA
Cogen of funds due to TEC under a
credit facility. In 2004, cash
outflows included distributions
paid to unitholders, offset by
advances from TA Cogen.
------------------------------------------------------------------------
Cash, end of period $ 0.1 $ 1.9
------------------------------------------------------------------------
------------------------------------------------------------------------

At June 30, 2005 TransAlta Power's working capital increased by $6.1
million from Dec.31,2004. The increase is due to the repayment by
TransAlta Power of $9.8 million of funds due to TA Cogen under a credit
facility, partially offset by a reduction of $3.3 million in
distributions payable. TransAlta Power does not foresee any inability to
meet obligations as they come due as TA Cogen provides funding for all
distributions made by TransAlta Power.

At July 25, 2005, TransAlta Power had 73.2 million units outstanding
with a book value of $667.4 million.

TA Cogen

Capital for TA Cogen is raised through established credit facilities and
cash flow from operations. Cash requirements include distributions,
maintenance and additions to capital assets, repayment of levelization
advances to TEC, repayment of maturing long-term debt and the related
interest costs.

The following chart summarizes the sources and uses of cash flows of TA
Cogen for the three and six months ended June 30, 2005 and 2004:

3 months ended June 30 2005 2004 Explanation
------------------------------------------------------------------------
Cash, beginning of
period $ 0.6 $ -
Cash provided by
(used in):
Operating activities 37.0 21.8 In 2005, cash inflows increased
over 2004 as a result of an
increase in cash earnings and an
improved working capital
position.
Investing activities (0.8) (7.0) In 2005, cash outflows were from
the repayment by TransAlta Power
of funds due to TA Cogen under a
credit facility, offset by
additions to assets. In 2004,
cash outflows were primarily a
result of asset additions and
advances made to TransAlta Power.
Financing activities (28.3) (15.3) In 2005, cash outflows were from
distributions paid to
unitholders, repayment of long-
term debt and repayment by TA
Cogen of funds due to TEC under a
credit facility. In 2004, cash
outflows were the result of
distributions paid to unitholders
and repayment of long-term debt.
------------------------------------------------------------------------
Cash, end of period $ 8.5 $ (0.5)
------------------------------------------------------------------------
------------------------------------------------------------------------

6 months ended June 30 2005 2004 Explanation
------------------------------------------------------------------------
Cash, beginning of
period $ 1.3 $ 0.7
Cash provided by
(used in):
Operating activities 77.9 41.2 In 2005, cash inflows increased
over 2004 as a result of an
increase in cash earnings and an
improvement in working capital.
Investing activities 4.1 (7.7) In 2005, cash inflows were from
the repayment by TransAlta Power
of funds due to TA Cogen under a
credit facility, offset by
additions to assets. In 2004,
cash outflows were primarily a
result of asset additions.
Financing activities (74.8) (34.7) In 2005, cash outflows were from
distributions paid to
unitholders, repayment of long-
term debt and repayment by
TA Cogen of funds due to TEC
under a credit facility. In 2004,
cash outflows were the result of
distributions paid to unitholders
and repayment of long-term debt.
------------------------------------------------------------------------
Cash, end of period $ 8.5 $ (0.5)
------------------------------------------------------------------------
------------------------------------------------------------------------


During the first quarter of 2005, the repayments by TransAlta Power of amounts due to TA Cogen were reflected as investing activities. During the second quarter of 2005, TA Cogen reclassified first quarter 2005 cash flows to financing activities to be consistent with the current presentation. This reclassification resulted in an increase in cash provided by investing activities of $5.8 million in the first quarter, with a corresponding increase in the cash flow used in financing activities for the same period.

During the second quarter of 2005, TA Cogen made cash distributions of $26.3 million, spent $4.8 million on capital expenditures and repaid long-term debt of $1.0 million. During the second quarter of 2004, TA Cogen made cash distributions of $14.3 million, spent $5.2 million on capital expenditures, and repaid long-term debt of $0.9 million.

At June 30, 2005, TA Cogen's working capital increased by $8.8 million compared to Dec. 31, 2004. This increase was the result of a $16.5 million decrease in amounts due to TEC under a credit facility and a $6.7 million decrease in distributions payable, offset by a $9.8 million decrease in amounts due from TransAlta Power, a $7.9 million decrease in accounts receivable and increases in cash balances. TA Cogen does not foresee any inability to meet obligations as they come due.

Outlook

The key factors affecting TA Cogen's financial results for 2005 are the megawatt capacity in place, the availability of and production from generating assets, the costs of production and the margins applicable to non-contracted production. As such, these key factors may also affect TransAlta Power's financial results.

Production and availability

Production for the remainder of 2005 is expected to increase in comparison with the first half of 2005 due to the completion of planned maintenance at Sheerness. Thermal production at Mississauga will be reduced as Boeing has announced that its facility will cease production in the third quarter of 2005. The closure is expected to reduce margins and cash flow by approximately $0.3 million in 2005 and $1.1 million in 2006.

Availability for the remainder of 2005 is expected to be higher than the first half of 2005 primarily due to the completion of the planned maintenance mentioned above.

Power prices

Electricity spot prices for the remainder of 2005 are anticipated to be comparable to or higher than those in the first half of 2005 in Alberta and Ontario with expectations for higher gas prices, weaker hydro generation, and stronger seasonal power demand. The exposure of Sheerness to volatility in electricity prices is substantially mitigated through the PPA as a significant portion of production is contracted based on achieving specified availability targets. Exposure to electricity prices in the Ontario market is substantially mitigated through firm-price, long-term electricity sales contracts.

Commodity prices

Coal costs for the remainder of 2005 are expected to be consistent with the second quarter of 2005. Gas commodity costs are expected to increase slightly in the fourth quarter of 2005, due to the escalation of gas prices in the Windsor-Essex gas supply contracts. The gas commodity costs for the Ottawa and Mississauga plants will also escalate in the fourth quarter of 2005 under the terms of the swap agreement with TEC. Transportation costs for the Ottawa and Mississauga plants are fixed under the transportation swap agreement with TEC. Under the transportation agreement with TransCanada PipeLines Ltd., transportation costs for the Windsor-Essex plant are expected to decrease slightly for 2005. The Fort Saskatchewan plant has no exposure to movements in gas commodity or transportation costs as the customer supplies all gas necessary for use in the plant. The increase in gas commodity and transportation costs in the fourth quarter will not materially increase fuel costs.

The long-term power purchase agreements at the Ontario plants expire between 2012 and 2017. The gas commodity supply agreements for these plants expire between 2007 and 2014. Over the past six months there has been a fundamental shift in long-term gas prices. The increase in gas prices, if sustained, will result in decreasing margins at the Ontario plants following the expiration of the current gas commodity supply agreements. As a result, alternatives are being evaluated for these plants, including contract renegotiations, alternate uses of the plants, and other options in the market. This evaluation is expected to be completed in the fourth quarter of 2005.

Capital expenditures

Capital expenditures for 2005 are expected to be between $13 and $17 million, the majority of which are for planned maintenance and an uprate of generating capacity at Sheerness.

Distributions

From inception of TransAlta Power in 1998 to the end of 2003, cash distributions had been fully tax-deferred. Unitholders are not required to pay income tax in the year of receipt on the distributions that are tax-deferred. For 2004, 85 per cent of the cash distributions were tax-deferred. A majority of the 2005 cash distributions are expected to be taxable in 2005.



Selected Quarterly Financial Information
(Unaudited, in millions of Canadian dollars except per share amounts)

TransAlta Power

Q3 2004 Q4 2004 Q1 2005 Q2 2005
------------------------------------------------------------------------
Revenues $ 8.5 $ 13.5 $ 13.0 $ 3.5
Net income $ 8.4 $ 12.9 $ 12.4 $ 3.0
Net income per unit $ 0.12 $ 0.18 $ 0.17 $ 0.04
Total distributions paid in
units or cash $ 13.9 $ 14.3 $ 14.4 $ 14.6
Total distributions paid in
units or cash per unit $ 0.1962 $ 0.1971 $ 0.1988 $ 0.1988
------------------------------------------------------------------------
------------------------------------------------------------------------

Q3 2003 Q4 2003 Q1 2004 Q2 2004
------------------------------------------------------------------------
Revenues $ 4.7 $ 14.7 $ 12.1 $ 0.5
Net income $ 4.2 $ 14.6 $ 11.9 $ 0.4
Net income per unit $ 0.07 $ 0.21 $ 0.17 $ 0.01
Total distributions paid in
units or cash $ 11.2 $ 13.6 $ 13.7 $ 13.8
Total distributions paid in
units or cash per unit $ 0.1962 $ 0.1962 $ 0.1962 $ 0.1962
------------------------------------------------------------------------
------------------------------------------------------------------------

TA Cogen

Q3 2004 Q4 2004 Q1 2005 Q2 2005
------------------------------------------------------------------------
Revenues $ 67.9 $ 84.1 $ 96.5 $ 75.1
Net income $ 17.1 $ 27.1 $ 26.0 $ 6.9
Total distributions paid in cash $ 18.1 $ 22.1 $ 29.6 $ 26.3
------------------------------------------------------------------------
------------------------------------------------------------------------

Q3 2003 Q4 2003 Q1 2004 Q2 2004
------------------------------------------------------------------------
Revenues $ 54.2 $ 78.4 $ 78.1 $ 54.3
Net income $ 9.4 $ 29.5 $ 24.2 $ 1.1
Total distributions paid in cash $ 22.6 $ 24.6 $ 18.4 $ 14.3
------------------------------------------------------------------------
------------------------------------------------------------------------


TA Cogen's gas-fired operations are seasonal in nature with higher electricity rates and production volumes contracted in the winter months and lower electricity rates and production volumes contracted in the summer months under long-term contracts with OEFC. Higher planned maintenance costs are ordinarily incurred in the second and third quarters when electricity prices are expected to be lower, as electricity prices generally increase in the winter months in the Canadian market.



TRANSALTA POWER, L.P.
FINANCIAL STATEMENTS

Balance Sheets
(in thousands of dollars)

June 30 Dec. 31
Unaudited 2005 2004
------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 129 $ 58
Distribution receivable from TransAlta
Cogeneration, L.P. 6,542 9,880
Accounts receivable 91 251
Prepaid expenses 8 -
------------------------------------------------------------------------
6,770 10,189
Investment in TransAlta Cogeneration, L.P. 580,473 588,668
------------------------------------------------------------------------
$ 587,243 $ 598,857
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 6 $ 15
Advances from related parties (Note 2) 18,293 28,045
Distributions payable 9,679 9,512
------------------------------------------------------------------------
27,978 37,572
Partners' equity
Partnership units 667,365 655,779
Contributed surplus 381 381
Deficit (108,481) (94,875)
------------------------------------------------------------------------
559,265 561,285
------------------------------------------------------------------------
$ 587,243 $ 598,857
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Statement of Partners' Equity
(in thousands of dollars except number of units outstanding)

Number of units General Limited
Unaudited outstanding partner partners Total
------------------------------------------------------------------------
Balance, Dec. 31, 2004 71,987,683 $ (10) $561,295 $561,285
Partnership units
issued under DRIP 1,260,645 - 11,586 11,586
Net income (2) 15,390 15,388
Distributions declared (3) (28,991) (28,994)
------------------------------------------------------------------------
Balance, June 30, 2005 73,248,328 $ (15) $559,280 $559,265
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Statements of Earnings and Deficit
(in thousands of dollars except per unit amounts)

3 months ended June 30 6 months ended June 30
Unaudited 2005 2004 2005 2004
------------------------------------------------------------------------
Revenues
Equity income from
TransAlta
Cogeneration, L.P. $ 3,439 $ 539 $ 16,438 $ 12,644
Expenses
Management and
administration 280 176 603 355
Net interest expense
(income) 196 1 447 (6)
------------------------------------------------------------------------
476 177 1,050 349
------------------------------------------------------------------------
Net income $ 2,963 $ 362 $ 15,388 $ 12,295
------------------------------------------------------------------------
------------------------------------------------------------------------

Net income per unit
(basic and diluted) $ 0.04 $ 0.01 $ 0.21 $ 0.18
------------------------------------------------------------------------
------------------------------------------------------------------------
Weighted average
number of units
outstanding
(basic and diluted) 72,829 70,338 72,514 70,031
------------------------------------------------------------------------
Deficit, beginning
of period $ (96,841) $ (74,362) $ (94,875) $ (72,553)
Net income 2,963 362 15,388 12,295
Distributions declared (14,603) (13,876) (28,994) (27,618)
------------------------------------------------------------------------
Deficit, end of period $(108,481) $ (87,876) $(108,481) $ (87,876)
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Statements of Cash Flows
(in thousands of dollars)

3 months ended June 30 6 months ended June 30
Unaudited 2005 2004 2005 2004
------------------------------------------------------------------------
Operating activities
Net income $ 2,963 $ 362 $ 15,388 $ 12,295
Equity income from
TransAlta
Cogeneration, L.P. (3,439) (539) (16,438) (12,644)
Change in non-cash
operating working
capital balances 61 (1,621) 143 56
------------------------------------------------------------------------
Cash used in
operating activities (415) (1,798) (907) (293)
------------------------------------------------------------------------
Investing activities
Distributions
received from
TransAlta
Cogeneration, L.P. 13,151 7,147 27,971 16,326
------------------------------------------------------------------------
Cash provided by
investing activities 13,151 7,147 27,971 16,326
------------------------------------------------------------------------
Financing activities
Net proceeds from
issuance of
partnership units 5 3,902 15 56,340
Redemption of
partnership units - (3,697) - (56,100)
Advances from
(repayment to)
related party (4,002) 1,809 (9,752) 1,809
Distributions paid
to unitholders
(net of DRIP) (8,724) (8,741) (17,256) (16,365)
------------------------------------------------------------------------
Cash used in
financing activities (12,721) (6,727) (26,993) (14,316)
------------------------------------------------------------------------
Increase(decrease)in cash 15 (1,378) 71 1,717
Cash, beginning
of period 114 3,277 58 182
------------------------------------------------------------------------
Cash, end of period $ 129 $ 1,899 $ 129 $ 1,899
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


TRANSALTA POWER, L.P.
NOTES TO THE FINANCIAL STATEMENTS - UNAUDITED

(dollar amounts in millions)

1) ACCOUNTING POLICIES

These unaudited interim financial statements do not include all of the disclosures contained in TransAlta Power, L.P.'s (TransAlta Power) annual financial statements. Accordingly, these unaudited interim financial statements should be read in conjunction with TransAlta Power's most recent annual financial statements.

TransAlta Power's earnings result from its 49.99 per cent interest in TransAlta Cogeneration, L.P. (TA Cogen). TA Cogen's results are partly seasonal in nature with higher electricity rates and production volumes contracted in the winter months and lower electricity rates and production volumes contracted in the summer months under long-term contracts with Ontario Electricity Financial Corporation and Saskatchewan Power Corporation and under an Alberta Power Purchase Arrangement.

The accounting policies used in the preparation of these unaudited interim financial statements conform with those used in TransAlta Power's most recent annual financial statements.

2) CREDIT FACILITIES

TEC credit facility

On July 1, 2003, a $10.0 million revolving credit facility was established between TransAlta Power and TEC, whereby TEC can lend funds to TransAlta Power at the equivalent term cost of funds plus 1.50 per cent, with mandatory payment on demand from TEC. No amount was drawn on this facility at June 30, 2005 (Dec. 31, 2004 - $nil). The effective interest rate at June 30, 2005 was 4.15 per cent (2004 - 4.24 per cent).

TA Cogen credit facilities

On Sept. 30, 2003, a $10.0 million credit facility was established between TransAlta Power and TA Cogen, whereby TransAlta Power can lend funds to TA Cogen at the equivalent term cost of funds plus 1.25 per cent, with mandatory payment on demand from TransAlta Power. No amount was drawn on this facility at June 30, 2005 (Dec. 31, 2004 - $nil). The effective interest rate at June 30, 2005 was 3.90 per cent (2004 - 3.99 per cent).

On Sept. 30, 2003, a $10.0 million credit facility was established between TA Cogen and TransAlta Power, whereby TA Cogen can lend funds to TransAlta Power at the equivalent term cost of funds plus 1.30 per cent, with mandatory payment on demand from TA Cogen. The maximum amount of borrowing permitted was increased to $30.0 million on Nov. 29, 2004. The balance outstanding at June 30, 2005 was $18.3 million (Dec. 31, 2004 - $28.0 million). The effective interest rate on this facility at June 30, 2005 was 3.95 per cent (2004 - 3.99 per cent).



TRANSALTA COGENERATION, L.P.
FINANCIAL STATEMENTS


Consolidated Balance Sheets
(in thousands of dollars)

June 30, Dec. 31,
Unaudited 2005 2004
------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 8,455 $ 1,276
Accounts receivable 25,230 33,133
Advances to related parties,
net of repayments (Note 3) 18,293 28,045
Prepaid expenses 1,059 388
Inventory 3,014 4,447
------------------------------------------------------------------------
56,051 67,289
Long-term receivable 861 828
Power plants, net (Note 2) 1,285,462 1,316,784
------------------------------------------------------------------------
$1,342,374 $1,384,901
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 26,101 $ 22,584
Distributions payable (Note 4) 13,086 19,764
Advances from related parties (Note 3) 7,994 24,968
Current portion of long-term debt 4,072 3,926
------------------------------------------------------------------------
51,253 71,242
Due to related party (Note 3) 4,793 5,525
Long-term debt 49,022 51,095
Power purchase arrangement,
net of accumulated amortization of $8,364 67,636 70,560
Asset retirement obligation (Note 5) 8,700 9,115
Partners' equity
Partnership units (Note 2) 1,323,056 1,323,056
Deficit (162,086) (145,692)
------------------------------------------------------------------------
1,160,970 1,177,364
------------------------------------------------------------------------
$1,342,374 $1,384,901
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Consolidated Statement of Partners' Equity
(in thousands of dollars except number of units outstanding)

Number of units General Limited
Unaudited outstanding partner partners Total
------------------------------------------------------------------------
Balance, Dec. 31, 2004 149,726,524 $ (7) $1,177,371 $1,177,364
Net income 3 32,878 32,881
Distributions declared (5) (49,270) (49,275)
------------------------------------------------------------------------
Balance, June 30, 2005 149,726,524 $ (9) $1,160,979 $1,160,970
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Consolidated Statements of Earnings and Deficit
(in thousands of dollars)

3 months ended June 30 6 months ended June 30
Unaudited 2005 2004 2005 2004
------------------------------------------------------------------------
Revenues
Electrical $ 29,479 $ 18,532 $ 77,757 $ 56,477
Capacity 37,010 33,911 75,827 70,387
Thermal and other 8,599 1,838 18,010 5,550
------------------------------------------------------------------------
75,088 54,281 171,594 132,414
------------------------------------------------------------------------
Operating expenses
Cost of fuel 38,100 24,354 83,178 54,327
Depreciation and
amortization
(Note 6) 16,148 14,610 32,651 30,069
Operating and
maintenance 12,857 13,628 20,755 21,169
------------------------------------------------------------------------
67,105 52,592 136,584 105,565
------------------------------------------------------------------------
Operating income 7,983 1,689 35,010 26,849
Interest expense 1,104 610 2,129 1,555
------------------------------------------------------------------------
Net income $ 6,879 $ 1,079 $ 32,881 $ 25,294
------------------------------------------------------------------------
------------------------------------------------------------------------
Deficit, beginning
of period $(149,336) $(121,492) $(145,692) $(140,875)
Net income 6,879 1,079 32,881 25,294
Distributions
declared (19,629) (20,322) (49,275) (25,154)
------------------------------------------------------------------------
Deficit, end
of period $(162,086) $(140,735) $(162,086) $(140,735)
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Consolidated Statements of Cash Flows
(in thousands of dollars)

3 months ended June 30 6 months ended June 30
Unaudited 2005 2004 2005 2004
------------------------------------------------------------------------
Operating activities
Net income $ 6,879 $ 1,079 $ 32,881 $ 25,294
Depreciation and
amortization (Note 6) 16,583 15,148 33,550 31,039
Non-cash interest
expense 87 78 170 165
------------------------------------------------------------------------
23,549 16,305 66,601 56,498
Change in non-cash
operating working
capital balances 13,429 5,568 11,270 (15,303)
------------------------------------------------------------------------
Cash provided by
operating activities 36,978 21,873 77,871 41,195
------------------------------------------------------------------------
Investing activities
Additions to
power plants (4,847) (5,194) (5,609) (5,845)
Repayment from
(advances to) related
party (Note 3) 4,002 (1,809) 9,752 (1,809)
------------------------------------------------------------------------
Cash provided by
(used in) investing
activities (845) (7,003) 4,143 (7,654)
------------------------------------------------------------------------
Financing activities
Distributions paid
to unitholders (26,307) (14,297) (55,953) (32,658)
Advances to related
party, net of
repayments (Note 3) (807) - (16,471) -
Levelization repayment
to TransAlta Energy
Corporation (242) (131) (484) (262)
Repayment of
long-term debt
principal (973) (905) (1,927) (1,793)
------------------------------------------------------------------------
Cash used in
financing activities (28,329) (15,333) (74,835) (34,713)
------------------------------------------------------------------------
Increase (decrease)
in cash 7,804 (463) 7,179 (1,172)
Cash, beginning
of period 651 - 1,276 709
------------------------------------------------------------------------
Cash (bank overdraft),
end of period $ 8,455 $ (463) $ 8,455 $ (463)
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


TRANSALTA COGENERATION, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED


(in thousands, except as noted)

1) ACCOUNTING POLICIES

These unaudited interim consolidated financial statements do not include all of the disclosures contained in TransAlta Cogeneration, L.P.'s (TA Cogen) annual consolidated financial statements. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with TA Cogen's most recent annual consolidated financial statements.

TA Cogen's results are partly seasonal in nature with higher electricity rates and production volumes contracted in the winter months and lower electricity rates and production volumes contracted in the summer months under long-term contracts with Ontario Electricity Financial Corporation and Saskatchewan Power Corporation and under an Alberta Power Purchase Arrangement.

The accounting policies used in the preparation of these unaudited interim consolidated financial statements conform with those used in TA Cogen's most recent annual consolidated financial statements with the exception of the following new accounting policy.

Derivative financial instruments

Financial swaps are used to hedge the partnership's exposure to fluctuations related to output from the plants. If hedging criteria are met (described below), gains and losses on these derivatives are deferred and recognized in earnings in the same period and financial statement caption as the hedged exposure (settlement accounting). The derivatives are not recorded on the balance sheet.

To be accounted for as a hedge, a derivative must be designated and documented as a hedge, and must be effective at inception and on an ongoing basis. The documentation defines all relationships between hedging instruments and hedged items, as well as the TA Cogen's risk management objective and strategy for undertaking various hedge transactions. The process includes linking derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or anticipated transactions. The corporation also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives used are highly effective in offsetting changes in fair values or cash flows of hedged items. Hedge effectiveness of cash flows is achieved if the derivatives' cash flows substantially offset the cash flows of the hedged item and the timing of the cash flows is similar. Hedge effectiveness of fair values is achieved if changes in the fair value of the derivative substantially offset changes in the fair value of the item hedged. If the above hedge criteria are not met, the derivative is accounted for on the balance sheet at fair value, with the initial fair value and subsequent changes in fair value recorded in earnings in the period of change.

If a derivative that has been accorded hedge accounting matures, expires, is sold, terminated or cancelled, and is not replaced as part of the corporation's hedging strategy, the termination gain or loss is deferred and recognized when the gain or loss on the item hedged is recognized. If a designated hedged item matures, expires, is sold, extinguished or terminated, and the hedged item is no longer probable of occurring, any previously deferred amounts associated with the hedging item are recognized in current earnings along with the corresponding gains or losses recognized on the hedged item. If a hedging relationship is terminated or ceases to be effective, hedge accounting is not applied to subsequent gains or losses. Any previously deferred amounts are carried forward and recognized in earnings in the same period as the hedged item.

2) ACQUISITION AND INVESTMENT

On Dec. 1, 2004, TA Cogen acquired TransAlta Energy Corporation's (TEC) 50 per cent interest in the 220-megawatt gas-fired Meridian Cogeneration Facility (Meridian). Consideration for the acquisition was in the form of $49.5 million of cash on hand, and issuance of $30.0 million of units to each of TEC and TransAlta Power. TransAlta Power financed the purchase of units of TA Cogen by borrowing $30.0 million under an existing credit facility with TA Cogen.

The purchase price allocation was finalized in the first quarter of 2005 and resulted in a reduction of the purchase price of $0.9 million. The finalized purchase price allocation is summarized in the following table.



Net assets acquired at assigned values:
Power plants, including capital spares $109,661
Working capital 70
Asset retirement obligation (1,191)
------------------------------------------------------------------------
$108,540
------------------------------------------------------------------------
------------------------------------------------------------------------


Consideration:
TA Cogen cash payment to TEC $ 48,540
Issuance of note payable to TEC 30,000
TA Cogen units issued to TEC 30,000
------------------------------------------------------------------------
$108,540
------------------------------------------------------------------------
------------------------------------------------------------------------


The acquisition has been accounted for using the purchase method of accounting. TA Cogen's interest in Meridian is accounted for as a joint venture and therefore the financial statements reflect only TA Cogen's proportionate interest in the related assets, liabilities, revenues and expenses.

3) CREDIT FACILITIES

TransAlta Power facilities

On Sept. 30, 2003, a $10.0 million revolving credit facility was established between TransAlta Power and TA Cogen whereby TransAlta Power can lend funds to TA Cogen at the equivalent term cost of funds plus 1.25 per cent, with mandatory payment on demand from TransAlta Power. No amount was drawn on this facility at June 30, 2005 (Dec. 31, 2004 - $nil). The effective interest rate at June 30, 2005 was 3.90 per cent (2004 - 3.99 per cent).

On Sept. 30, 2003, a $10.0 million credit facility was established between TA Cogen and TransAlta Power, whereby TA Cogen can lend funds to TransAlta Power at the equivalent term cost of funds plus 1.30 per cent, with mandatory payment on demand from TA Cogen. The maximum amount of borrowing was increased to $30.0 million on Nov. 29, 2004. The balance outstanding at June 30, 2005 was $18.3 million (Dec. 31, 2004 - $28.0 million). The effective interest rate at June 30, 2005 was 3.95 per cent (2004 - 3.99 per cent).

TEC facilities

TA Cogen increased the maximum amount of borrowing permitted under its existing credit facility with TEC from $20.0 million to $50.0 million on July 1, 2003. The facility bears interest at the equivalent term cost of funds plus 1.25 per cent, with mandatory repayment on demand from TEC. The balance outstanding at June 30, 2005 was $1.6 million (Dec. 31, 2004 - $18.0 million). The effective interest rate at June 30, 2005 was 3.90 per cent (2004 - 3.99 per cent).

On Sept. 30, 2003, a $50.0 million credit facility was established between TA Cogen and TEC, whereby TA Cogen can lend funds to TEC at the equivalent term cost of funds plus 1.25 per cent, with mandatory payment on demand from TA Cogen. The balance outstanding as at June 30, 2005 was $nil (Dec. 31, 2004 - $nil). The effective interest rate at June 30, 2005 was 3.90 per cent (2004 - 3.99 per cent).

The net amounts due to TEC and TransAlta Power are comprised of the following:



June 30 Dec. 31
2005 2004
------------------------------------------------------------------------
Credit facility - Due from TransAlta Power $ 18,293 $ 28,045
------------------------------------------------------------------------
Credit facility - Due to TEC $ (1,570) $(18,041)
Reimbursement of expenses and third party costs (5,039) (5,955)
Current portion - Levelization payment due to TEC (1,385) (972)
------------------------------------------------------------------------
Due to TEC $ (7,994) $(24,968)
------------------------------------------------------------------------
Levelization repayment to TEC $ (4,793) $ (5,525)
------------------------------------------------------------------------
------------------------------------------------------------------------


4) RELATED PARTY HEDGING TRANSACTION

On March 8, 2005 TA Cogen entered into an agreement with TEC, a company under common control, whereby TEC provided a financial fixed-for-floating price swap to TA Cogen at market prices during planned maintenance at Sheerness in the second quarter of 2005. The transaction qualifies for hedge accounting treatment by TA Cogen as a cash flow hedge.

Distributions payable to TransAlta Power at June 30, 2005 were $6.5 million (Dec. 31, 2004 - $9.9 million).

5) ASSET RETIREMENT OBLIGATION

A reconciliation between the opening and closing asset retirement obligation is provided below:



Balance, Dec. 31, 2004 $ 9,115
Revisions to estimated cash flows (765)
Accretion expense 350
------------------------------------------------------------------------
Balance, June 30, 2005 $ 8,700
------------------------------------------------------------------------
------------------------------------------------------------------------


6) SUPPLEMENTAL CASH FLOW INFORMATION

3 months 6 months
ended June 30 ended June 30
Unaudited 2005 2004 2005 2004
------------------------------------------------------------------------
Depreciation and amortization
per statement of earnings $ 16,148 $ 14,610 $ 32,651 $ 30,069
Mining equipment depreciation,
included in fuel expense 435 538 899 970
------------------------------------------------------------------------
Depreciation and amortization
per statement of cash flows $ 16,583 $ 15,148 $ 33,550 $ 31,039
------------------------------------------------------------------------
------------------------------------------------------------------------


TransAlta Power, L.P.
Box 1900, Station "M"
110 - 12th Avenue S.W.
Calgary, Alberta Canada T2P 2M1

PHONE
403.267.7110

WEBSITE
www.transalta.com

CIBC Mellon Trust Company
P.O. Box 7010 Adelaide Street Station
Toronto, Ontario Canada M5C 2W9

PHONE
Toll-free in North America: 1.800.387.0825
Toronto or outside North America: 416.643.5500

FAX
416.643.5501

WEBSITE
www.cibcmellon.com


Contact Information

  • TransAlta Power, L.P. - Media inquiries
    Sneh Seetal
    Senior Media Relations Advisor
    Phone: (403) 267-7330
    Pager: (403) 213-7041
    Email: media_relations@transalta.com
    or
    TransAlta Power, L.P. - Investor inquiries
    Daniel J. Pigeon
    Director, Investor Relations
    Phone: (403) 267-2520 or 1-800-387-3598 in Canada and U.S.
    (403) 267-2590 (FAX)
    Email: investor_relations@transalta.com
    Website: www.transalta.com