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

TransAlta Power, L.P.

November 03, 2005 20:46 ET

TransAlta Power, L.P. reports third quarter earnings

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) -

Third Quarter Highlights:

- Reported net earnings of $0.11 per unit.

- Distributed $0.20 per unit to unitholders.

- Increased production 12 per cent.

TransAlta Power, L.P. (TSX:TPW.UN) today announced third quarter net earnings of $8.3 million ($0.11 per unit), compared to $8.4 million ($0.12 per unit) for the third quarter 2004. Total distributions paid to unitholders in cash and units were $0.20 per unit, which is comparable to distributions paid to unitholders in the same period in 2004.

"TransAlta Power, L.P. reported another steady quarter," said Ian Bourne, TransAlta Power, L.P. president and director. "Overall, our operations performed well and we successfully completed planned maintenance at our Meridian and Ottawa facilities."

In the nine months ended Sept. 30, 2005, net earnings was $23.7 million ($0.33 per unit), compared to $20.7 million ($0.29 per unit) for the same period in 2004. The increase in net income was due to the addition of the Meridian plant in December 2004. Total distributions paid in cash and units at Sept. 30, 2005 were $43.7 million ($0.60 per unit) compared to $41.6 million ($0.59 per unit) for the nine months ended Sept. 30, 2004.

TransAlta Power, L.P. also declared cash distributions of $0.06625 per unit for payment on each of Dec. 31, 2005, Jan. 31, 2006 and Feb. 28, 2006 to unitholders of record at the close of business Dec. 10, 2005, Jan. 10, 2006 and Feb. 10, 2006 respectively. Based upon TransAlta Power, L.P.'s current operations, it is estimated that 65 per cent of the 2005 cash distributions will be taxable in 2005.

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.

This presentation may contain forward-looking statements, including statements regarding the business and anticipated financial performance of TransAlta Power, L.P. and TransAlta Cogeneration, L.P. These statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward looking statements. Some of the factors that could cause such differences include legislative or regulatory developments, competition, global capital markets activity, changes in prevailing interest rates, currency exchange rates, inflation levels and general economic conditions in geographic areas where TransAlta Cogeneration, L.P. operates.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis (MD&A) contains forward-looking statements. These statements are based on certain estimates and assumptions and involve risks and uncertainties. Actual results may differ materially. See page nine for additional information.

This MD&A is dated Nov. 3, 2005. The 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 nine months ended Sept. 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. 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 third quarter report, in compliance with the requirements of Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings.

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 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Net earnings $ 8.3 $ 8.4 $ 23.7 $ 20.7
Cash available for
distribution (1) $ 12.6 $ 9.0 $ 39.5 $ 25.2
Distributions paid in cash
and units $14.7 $14.0 $ 43.7 $ 41.6
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) "Cash available for distribution" is a non-GAAP measure. For a
further discussion, including reconciliation from cash flow from
operations, see page 10 of this MD&A.


TA Cogen

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Net earnings $ 17.4 $ 17.1 $ 50.3 $ 42.4
Cash available for
distribution (1) $ 25.4 $ 28.7 $ 83.8 $ 76.7
Cash distributions paid $ 26.0 $ 18.1 $ 81.9 $ 50.8
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) "Cash available for distribution" is a non-GAAP measure. For a
further discussion, including reconciliation from cash flow from
operations, see page 10 of this MD&A.


OPERATING RESULTS

A. TransAlta Power

Equity earnings from TA Cogen and distributions paid

(in millions, except 3 months 9 months
per unit amounts) ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Equity earnings from TransAlta
Cogeneration, L.P. $ 8.7 $ 8.5 $ 25.1 $ 21.2
Total distributions paid
in cash and units $ 14.7 $ 14.0 $ 43.7 $ 41.6
Total distributions paid
in cash and units per unit $ 0.1988 $ 0.1962 $ 0.5964 $ 0.5917
------------------------------------------------------------------------
------------------------------------------------------------------------


Equity earnings represent 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 earnings can be found in the TA Cogen Net earnings and cash distributions paid section of this MD&A.

TransAlta Power declared total distributions of $14.7 million of which unitholders reinvested distributions of $5.6 million under the Premium Distribution, Distribution Reinvestment and Optional Unit Purchase Plan (DRIP) during the third quarter of 2005 compared to distributions declared of $14.0 million of which $5.4 million was reinvested under the DRIP in the third quarter of 2004. For the nine months ended Sept. 30, 2005, total distributions declared were $43.7 million of which unitholders reinvested distributions of $17.1 million under the DRIP compared to total distributions declared of $41.6 million of which $16.7 million was reinvested under DRIP during the same period in 2004.



Interest expense

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Interest expense $ 0.2 $ - $ 0.6 $ -
------------------------------------------------------------------------
------------------------------------------------------------------------


Interest expense of $0.2 million and $0.6 million for the three and nine months ended Sept. 30, 2005, respectively, was interest paid on advances from TA Cogen. There was no interest in the comparable periods in 2004, as interest income on cash deposits offset interest expense.



B. TA Cogen

Net earnings and cash distributions paid

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Net earnings $ 17.4 $ 17.1 $ 50.3 $ 42.4
Cash distributions paid $ 26.0 $ 18.1 $ 81.9 $ 50.8
------------------------------------------------------------------------
------------------------------------------------------------------------


For the three and nine months ended Sept. 30, 2005, net earnings increased by $0.3 million and $7.9 million, respectively, compared to the same periods in 2004 due to the addition of the Meridian plant.

Meridian was acquired during the fourth quarter of 2004, adding 110 megawatts (MW) of net 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 $7.9 million and $31.1 million for the three and nine months ended Sept. 30, 2005, respectively, compared to the same periods in 2004. The increases in distributions were used by TransAlta Power to repay advances received from TA Cogen associated with the purchase of Meridian.



Availability, production and revenues

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Availability (%) 89.5 94.5 90.6 91.6
Total production (GWh) 1,364 1,213 4,221 3,690
------------------------------------------------------------------------
------------------------------------------------------------------------

Revenues
------------------------------------------------------------------------
Electrical $ 38.4 $ 30.7 $ 116.2 $ 87.1
Capacity 34.7 34.1 110.5 104.5
Thermal and other 8.7 3.1 26.7 8.7
------------------------------------------------------------------------
Total $ 81.8 $ 67.9 $ 253.4 $ 200.3
------------------------------------------------------------------------
------------------------------------------------------------------------


Plant availability for the three and nine months ended Sept. 30, 2005 was lower than the same periods in 2004 as a result of higher planned outages at the Ottawa plant and higher unplanned outages at the Mississauga plant.

Total production increased by 151 gigawatt hours (GWh) and 531 GWh for the three and nine months ended Sept. 30, 2005 over the same periods in 2004. These increases were primarily the result of incremental production from Meridian.

Revenues from the Sheerness plant are earned under an Alberta Power Purchase Agreement (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 of which 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 revenues increased by $7.7 million and $29.1 million for the three and nine months ended Sept. 30, 2005, respectively, from the same periods in 2004. Incremental revenue from Meridian was $8.4 million and $28.5 million, respectively, for the three and nine months ended Sept. 30, 2005.

Capacity revenues increased by $0.6 million and $6.0 million for the three and nine months ended Sept. 30, 2005, respectively, compared to the same periods in 2004 primarily due to incremental revenue from Meridian of $2.2 million and $7.5 million.

Thermal and other revenue increased by $5.6 million and $18.0 million for the three and nine months ended Sept. 30, 2005, respectively, from the same periods in 2004. The increase is primarily the result of incremental revenue from Meridian of $4.7 million and $15.1 million for the three and nine months ended Sept. 30, 2005.



Cost of fuel

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Total cost of fuel $ 38.5 $ 26.3 $ 121.7 $ 80.6
------------------------------------------------------------------------
------------------------------------------------------------------------


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. Gas commodity prices for the Windsor plant are also fixed under two agreements which expire Dec. 1, 2011 and Dec. 1, 2014, respectively. 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 is 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 $12.2 million and $41.1 million for the three and nine months ended Sept. 30, 2005, respectively, compared to the same periods in 2004 as a result of the addition of Meridian resulting in incremental costs of $12.9 million and $42.4 million for the three and nine months ended Sept. 30, 2005, offset by a one-time payment of $1.1 million received at the Sheerness plant during the second quarter of 2005.




Depreciation and amortization

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Depreciation and amortization $ 14.7 $ 14.9 $ 47.4 $ 45.0
------------------------------------------------------------------------
------------------------------------------------------------------------


Depreciation expense decreased by $0.2 million and increased by $2.4 million for the three and nine months ended Sept. 30, 2005, respectively, over the same periods in 2004. The decrease for the three month period was primarily due to reduced production at the various plants, offset by the addition of the Meridian plant.



Operating and maintenance

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Operating and maintenance $ 10.2 $ 8.9 $ 31.0 $ 30.0
------------------------------------------------------------------------
------------------------------------------------------------------------


Operating and maintenance expense for the three and nine months ended Sept. 30, 2005 increased by $1.3 million and $1.0 million, respectively, compared to the same periods in 2004 due to increased incremental costs from Meridian of $0.8 million and $1.8 million for the three and nine months ended Sept. 30, 2005.



Interest expense

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Interest expense $ 0.9 $ 0.8 $ 3.0 $ 2.3
------------------------------------------------------------------------
------------------------------------------------------------------------


Interest expense for the three and nine months ended Sept. 30, 2005 was slightly higher than 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 Sept. 30, 2005 and Dec. 31, 2004:

Increase/
(decrease) Explanation
------------------------------------------------------------------------
Distributions $ 3.0 Accrual of the October and
receivable from November 2005 distributions
TransAlta receivable from TA Cogen offset
Cogeneration, by the receipt of the January
L.P. and February 2005 distributions
declared at Dec. 31, 2004.

Advances from (13.2) Repayment by TransAlta Power of
related parties funds due to TA Cogen under a
credit facility.

Partnership units 17.1 Issuance of partnership units
under the DRIP.
------------------------------------------------------------------------
------------------------------------------------------------------------


TA Cogen

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

Increase/
(decrease) Explanation
------------------------------------------------------------------------
Cash $ 10.3 Timing differences in payments
and balances left in general cash
accounts to meet opening fourth
quarter requirements.

Accounts receivable (7.3) Lower billing due to seasonality
of earnings.

Advances to (13.2) Repayment by TransAlta Power of
related parties, funds due to TA Cogen under a
net of repayments credit facility.

Power plants, net (41.5) Depreciation expense partially
offset by net additions to the
power plants.

Distributions 6.0 Higher accruals for the October
payable and November 2005 declared
distributions offset by January
and February 2005 distributions
accrued at Dec. 31, 2004.

Advances from (15.1) Repayment by TA Cogen of funds
related parties due 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 nine months ended Sept. 30, 2005 and 2004:



3 months ended Sept. 30 2005 2004 Explanation
------------------------------------------------------------------------
Cash, beginning
of period $ 0.1 $ 1.9
Cash provided
by (used in):
Operating activities (0.3) (0.1) In 2005, cash outflows were due
to increased equity earnings from
TA Cogen offset by net earnings.
In 2004, cash outflows were from
equity income from TA Cogen
offset by net earnings.
Investing activities 13.0 9.0 In 2005, there was an increase
in distributions received from
TA Cogen compared to 2004.
Financing activities (12.6) (10.0) In 2005, there was an increase
in cash distributions paid to
unitholders and repayment of
advances from TA Cogen compared
to 2004.
------------------------------------------------------------------------
Cash, end of period $ 0.2 $ 0.8
------------------------------------------------------------------------
------------------------------------------------------------------------

9 months ended Sept. 30 2005 2004 Explanation
------------------------------------------------------------------------
Cash, beginning
of period $ 0.1 $ 0.2
Cash provided
by (used in):
Operating activities (1.3) (0.4) In 2004 and 2005, cash outflows
were from increased equity
earnings offset by increased net
earnings.
Investing activities 41.0 25.3 In 2005, there was an increase in
distributions received from TA
Cogen compared to 2004.
Financing activities (39.6) (24.3) In 2005, there was an increase in
cash distributions paid to
unitholders and repayment of
advances from TA Cogen compared
to 2004.
------------------------------------------------------------------------
Cash, end of period $ 0.2 $ 0.8
------------------------------------------------------------------------
------------------------------------------------------------------------


At Sept. 30, 2005 TransAlta Power's working capital requirements increased by $15.9 million from Dec. 31, 2004. This increase is due to an increase in distributions receivable from TA Cogen of $3.0 million and the repayment of $13.2 million of advances from TA Cogen. 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 Sept. 30, 2005, TransAlta Power had 73.8 million units outstanding with a book value of $672.9 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 power plants, 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 nine months ended Sept. 30, 2005 and 2004:



3 months ended Sept. 30 2005 2004 Explanation
------------------------------------------------------------------------
Cash, beginning
of period $ 8.5 $(0.5)
Cash provided
by (used in):
Operating activities 32.1 21.8 In the third quarter of 2005,
cash inflows increased over the
same period in 2004 as a result
of an increase in cash earnings
and an improved working capital
position.
Investing activities (2.6) (2.0) In 2004 and 2005, cash outflows
were from additions to power
plants offset by repayments from
related parties.
Financing activities (26.4) (18.5) In 2004 and 2005, cash outflows
were primarily due to
distributions paid to
unitholders.
------------------------------------------------------------------------
Cash, end of period $ 11.6 $ 0.8
------------------------------------------------------------------------
------------------------------------------------------------------------

9 months ended Sept. 30 2005 2004 Explanation
------------------------------------------------------------------------
Cash, beginning
of period $ 1.3 $ 0.7
Cash provided
by (used in):
Operating activities 109.9 63.7 In 2005, cash inflows increased
over 2004 as a result of an
increase in cash earnings and an
improvement in working capital.
Investing activities 1.6 (9.7) In 2005, cash inflows were from
the repayment of advances by
TransAlta Power, partially offset
by additions to power plants. In
2004, cash ouflows were primarily
a result of additions to power
plants.
Financing activities (101.2) (53.9) In 2005, cash outflows were from
distributions paid to unitholders
and advances to related parties,
net of repayments. In 2004, cash
outflows were mainly the result
of distributions paid to
unitholders.
------------------------------------------------------------------------
Cash, end of period $ 11.6 $ 0.8
------------------------------------------------------------------------
------------------------------------------------------------------------


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 the 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 third quarter of 2005, TA Cogen made cash distributions of $26.0 million, spent $6.0 million on capital expenditures and repaid long-term debt of $1.0 million. During the third quarter of 2004, TA Cogen made cash distributions of $18.1 million, spent $3.4 million on capital expenditures and repaid long-term debt of $0.3 million.

At Sept. 30, 2005, TA Cogen's working capital requirements decreased by $4.8 million compared to Dec. 31, 2004. This decrease was primarily the result of a $15.1 million decrease in amounts due to TEC under a credit facility, a $3.9 million increase in accounts payable and a $6.0 million increase in distributions payable, offset by a $13.2 million decrease in amounts from TransAlta Power, a $7.3 million decrease in accounts receivable and a $10.3 million increase 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 three quarters of 2005 due to reduced planned maintenance. Thermal production at Mississauga has been reduced as Boeing has closed its facility. This 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 three quarters of 2005 primarily due to reduced planned maintenance.

Power prices

Electricity spot prices for the remainder of 2005 are anticipated to be higher than those in the first three quarters of 2005 in Alberta and Ontario driven primarily by higher gas prices. The exposure of Sheerness to volatility in electricity prices is substantially mitigated through the PPA as a significant portion of production will be contracted based on achieving specified availability targets. Exposure to electricity prices in the Ontario market is minimal due to firm-price, long-term electricity sales contracts.

Commodity prices

Coal costs for the remainder of 2005 are expected to be consistent with the first three quarters of 2005. Gas commodity prices for the Ontario plants are expected to increase by approximately three per cent in the fourth quarter of 2005 due to the escalation provisions in the gas supply contracts. The majority of transportation costs for the Ottawa and Mississauga plants are fixed under the transportation swap agreement with TEC. The Fort Saskatchewan and Meridian plants have limited exposure to movements in gas commodity or transportation costs as their respective customer supplies all gas necessary for use in these plants.

Future operations - Ontario plants

The long-term power purchase agreements at the Ontario plants expire between 2012 and 2017 and the gas commodity supply agreements for these plants expire between 2007 and 2014. Over the past year there has been a fundamental upward shift in gas prices and, if the increase is sustained, will result in decreasing margins, beginning at the Ottawa plant in 2008.

TA Cogen is currently reviewing alternatives for the future operations of the Ontario plants, including contract renegotiations, alternate uses of the plants, and other options in the market. The assessment of some of these alternatives could affect the carrying values of these plants.

In the short term opportunities are being pursued for alternative uses of purchased gas while curtailing power production.

Capital expenditures

Capital expenditures for 2005 are expected to be between $14.0 million and $16.0 million, the majority of which are for planned maintenance and an increase in generating capacity at the Sheerness plant.

Distributions

From the 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. Based upon TransAlta Power's current operations, it is estimated that 65 per cent of the 2005 cash distributions will be taxable in 2005.



SELECTED QUARTERLY FINANCIAL INFORMATION
(Unaudited, in millions, except per share amounts)


TransAlta Power
Q4 2004 Q1 2005 Q2 2005 Q3 2005
------------------------------------------------------------------------
Revenues $ 13.5 $ 13.0 $ 3.5 $ 8.7
Net earnings $ 12.9 $ 12.4 $ 3.0 $ 8.3
Net earnings per unit $ 0.18 $ 0.17 $ 0.04 $ 0.11
Total distributions paid
in units or cash $ 14.3 $ 14.4 $ 14.6 $ 14.7
Total distributions paid
in units or cash per unit $ 0.1971 $ 0.1988 $ 0.1988 $ 0.1988
------------------------------------------------------------------------
------------------------------------------------------------------------

Q4 2003 Q1 2004 Q2 2004 Q3 2004
------------------------------------------------------------------------
Revenues $ 14.7 $ 12.1 $ 0.5 $ 8.5
Net earnings $ 14.6 $ 11.9 $ 0.4 $ 8.4
Net earnings per unit $ 0.21 $ 0.17 $ 0.01 $ 0.12
Total distributions paid
in units or cash $ 13.6 $ 13.7 $ 13.8 $ 14.0
Total distributions paid
in units or cash per unit $ 0.1962 $ 0.1962 $ 0.1962 $ 0.1962
------------------------------------------------------------------------
------------------------------------------------------------------------


TA Cogen
Q4 2004 Q1 2005 Q2 2005 Q3 2005
------------------------------------------------------------------------
Revenues $ 84.1 $ 96.5 $ 75.1 $ 81.8
Net earnings $ 27.1 $ 26.0 $ 6.9 $ 17.4
Total distributions paid in cash $ 22.1 $ 29.6 $ 26.3 $ 26.0
------------------------------------------------------------------------
------------------------------------------------------------------------

Q4 2003 Q1 2004 Q2 2004 Q3 2004
------------------------------------------------------------------------
Revenues $ 78.4 $ 78.1 $ 54.3 $ 67.9
Net earnings $ 29.5 $ 24.2 $ 1.1 $ 17.1
Total distributions paid in cash $ 24.6 $ 18.4 $ 14.3 $ 18.1
------------------------------------------------------------------------
------------------------------------------------------------------------


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.

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.

NON-GAAP MEASURES

TransAlta Power and TA Cogen evaluate their performance and the performance of its plants using a variety of measures. These measures discussed below are not defined under GAAP and therefore should not be considered in isolation or as alternative to, or more meaningful than, net earnings or cash flow from operations as determined in accordance with GAAP as an indicator of TransAlta Power or TA Cogen's financial performance or liquidity. These measures are not necessarily comparable to a similarly titled measure of another company.

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 earnings or cash flow as determined in accordance with GAAP as an indicator of TransAlta Power's performance or liquidity.



TransAlta Power

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

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Cash flow used in
operating activities $ (0.4) $ (0.1) $ (1.3) $ (0.4)
Change in non-cash working
capital balances - - (0.2) (0.1)
Net proceeds from issuance
of partnership units - 0.3 - 56.7
Redemption of partnership
units - (0.3) - (56.4)
Distributions received
from TA Cogen 13.0 9.1 41.0 25.4
------------------------------------------------------------------------
Cash available for
distribution $ 12.6 $ 9.0 $ 39.5 $ 25.2
------------------------------------------------------------------------
------------------------------------------------------------------------


(In millions, except 3 months 9 months
per unit amounts) ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Cash available for
distribution $ 12.6 $ 9.0 $ 39.5 $ 25.2
Net earnings 8.3 8.4 23.7 20.7
Total distributions paid
in cash and units 14.7 14.0 43.7 41.6
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash available for
distribution (per unit) 0.1714 0.1269 0.5426 0.3585
Net earnings (per unit) 0.1129 0.1185 0.3255 0.2945
Total distributions paid in
cash and units (per unit) 0.1988 0.1962 0.5964 0.5917
------------------------------------------------------------------------
Weighted average number
of units outstanding 73.5 70.9 72.8 70.3
------------------------------------------------------------------------
------------------------------------------------------------------------


TA Cogen

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

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Cash flow from
operating activities $ 32.1 $ 21.8 $ 109.9 $ 63.7
Changes in non-cash
working capital 0.6 10.7 (10.6) 25.3
Non-cash interest expense (0.1) - (0.3) -
Levelization repayment to TEC (0.2) (0.1) (0.7) (0.4)
Repayment of long-term
debt principal (1.0) (0.3) (2.9) (2.7)
Capital and maintenance
expenditures, net
of recoveries (6.0) (3.4) (11.6) (9.2)
------------------------------------------------------------------------
Cash available
for distribution $ 25.4 $ 28.7 $ 83.8 $ 76.7
------------------------------------------------------------------------
------------------------------------------------------------------------


TRANSALTA POWER, L.P.
FINANCIAL STATEMENTS

Balance Sheets
(in thousands of dollars)
Sept. 30, Dec. 31,
Unaudited 2005 2004
------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 170 $ 58
Distribution receivable from
TransAlta Cogeneration, L.P. 12,874 9,880
Accounts receivable 120 251
Prepaid expenses 4 -
------------------------------------------------------------------------
13,168 10,189
Investment in TransAlta Cogeneration, L.P. 569,865 588,668
------------------------------------------------------------------------
Total assets $ 583,033 $ 598,857
------------------------------------------------------------------------
------------------------------------------------------------------------


LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 51 $ 15
Advances from related parties (Note 2) 14,823 28,045
Distributions payable 9,757 9,512
------------------------------------------------------------------------
24,631 37,572
Partners' equity
Partnership units 672,849 655,779
Contributed surplus 381 381
Deficit (114,828) (94,875)
------------------------------------------------------------------------
558,402 561,285
------------------------------------------------------------------------
Total liabilities and partners' equity $ 583,033 $ 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 1,838,230 - 17,070 17,070
Net earnings 2 23,713 23,715
Distributions declared (4) (43,664) (43,668)
------------------------------------------------------------------------
Balance, Sept. 30, 2005 73,825,913 $ (12) $558,414 $558,402
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


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

3 months 9 months
Unaudited ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Revenues
Equity earnings from TransAlta
Cogeneration, L.P. $ 8,702 $ 8,536 $ 25,140 $ 21,180
Expenses
Management and administration 196 122 799 477
Net interest expense 179 6 626 -
------------------------------------------------------------------------
375 128 1,425 477
------------------------------------------------------------------------
Net earnings $ 8,327 $ 8,408 $ 23,715 $ 20,703
------------------------------------------------------------------------
------------------------------------------------------------------------

Net earnings per unit
(basic and diluted) $ 0.11 $ 0.12 $ 0.33 $ 0.29
------------------------------------------------------------------------
------------------------------------------------------------------------

Weighted average number
of units outstanding
(basic and diluted) 73,499 70,942 72,825 70,338
------------------------------------------------------------------------
Deficit, beginning of period $(108,481) $ (87,877) $ (94,875) $ (72,554)
Net earnings 8,327 8,408 23,715 20,703
Distributions declared (14,674) (14,002) (43,668) (41,620)
------------------------------------------------------------------------
Deficit, end of period $(114,828) $ (93,471) $(114,828) $ (93,471)
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Statements of Cash Flows
(in thousands of dollars)

3 months 9 months
Unaudited ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Operating activities
Net earnings $ 8,327 $ 8,408 $ 23,715 $ 20,703
Equity income from TransAlta
Cogeneration, L.P. (8,702) (8,536) (25,140) (21,180)
Change in non-cash operating
working capital balances 20 14 163 70
------------------------------------------------------------------------
Cash used in operating
activities (355) (114) (1,262) (407)
------------------------------------------------------------------------
Investing activities
Distributions received
from TransAlta
Cogeneration, L.P. 12,978 9,050 40,949 25,376
------------------------------------------------------------------------
Cash provided by
investing activities 12,978 9,050 40,949 25,376
------------------------------------------------------------------------
Financing activities
Net proceeds from issuance
of partnership units 5 317 20 56,657
Redemption of
partnership units - (312) - (56,412)
Advances from (repayment to)
related party (3,470) (1,388) (13,222) 421
Distributions paid to
unitholders (net of DRIP) (9,117) (8,614) (26,373) (24,979)
------------------------------------------------------------------------
Cash used in financing
activities (12,582) (9,997) (39,575) (24,313)
------------------------------------------------------------------------
Increase (decrease) in cash 41 (1,061) 112 656
Cash, beginning of period 129 1,899 58 182
------------------------------------------------------------------------
Cash, end of period $ 170 $ 838 $ 170 $ 838
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


TRANSALTA POWER, L.P.
NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)
(in millions of dollars)


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

TransAlta Energy Corporation (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 Sept. 30, 2005 (Dec. 31, 2004 - $nil). The effective interest rate at Sept. 30, 2005 was 4.35 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 Sept. 30, 2005 (Dec. 31, 2004 - $nil). The effective interest rate at Sept. 30, 2005 was 4.10 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 Sept. 30, 2005 was $14.8 million (Dec. 31, 2004 - $28.0 million). The effective interest rate on this facility at Sept. 30, 2005 was 4.19 per cent (2004 - 3.99 per cent).



TRANSALTA COGENERATION, L.P.
FINANCIAL STATEMENTS

Consolidated Balance Sheets
(in thousands of dollars)
Sept. 30, Dec. 31,
Unaudited 2005 2004
------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 11,599 $ 1,276
Accounts receivable 25,794 33,133
Advances to related parties,
net of repayments (Note 3) 14,823 28,045
Prepaid expenses 473 388
Inventory 4,839 4,447
------------------------------------------------------------------------
57,528 67,289
------------------------------------------------------------------------
Long-term receivable 986 828
Power plants, net (Note 2) 1,275,281 1,316,784
------------------------------------------------------------------------
Total assets $1,333,795 $1,384,901
------------------------------------------------------------------------
------------------------------------------------------------------------


LIABILITIES AND PARTNERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 26,491 $ 22,584
Distributions payable (Note 4) 25,753 19,764
Advances from related parties (Note 3) 9,859 24,968
Current portion of long-term debt 4,147 3,926
------------------------------------------------------------------------
66,250 71,242
Advances from related party (Note 3) 4,426 5,525
Long-term debt 47,957 51,095
Power purchase arrangement,
net of accumulated amortization
of $ 9,455 66,545 70,560
Asset retirement obligation (Note 5) 8,868 9,115
Partners' equity
Partnership units (Note 2) 1,323,056 1,323,056
Deficit (183,307) (145,692)
------------------------------------------------------------------------
1,139,749 1,177,364
------------------------------------------------------------------------
Total liabilities and partners' equity $1,333,795 $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 earnings 5 50,284 50,289
Distributions declared (9) (87,895) (87,904)
------------------------------------------------------------------------
Balance, Sept. 30, 2005 149,726,524 $(11) $1,139,760 $1,139,749
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Consolidated Statements of Earnings and Deficit
(in thousands of dollars)
3 months 9 months
Unaudited ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Revenues
Electrical $ 38,400 $ 30,657 $ 116,157 $ 87,134
Capacity 34,635 34,111 110,462 104,498
Thermal and other 8,722 3,130 26,732 8,680
------------------------------------------------------------------------
81,757 67,898 253,351 200,312
------------------------------------------------------------------------
Operating expenses
Cost of fuel 38,549 26,262 121,727 80,589
Depreciation and amortization
(Note 6) 14,710 14,909 47,361 44,978
Operating and maintenance 10,202 8,864 30,957 30,033
------------------------------------------------------------------------
63,461 50,035 200,045 155,600
------------------------------------------------------------------------
Operating income 18,296 17,863 53,306 44,712
Interest expense 888 788 3,017 2,343
------------------------------------------------------------------------
Net earnings $ 17,408 $ 17,075 $ 50,289 $ 42,369
------------------------------------------------------------------------
Deficit, beginning of period $(162,086) $(140,735) $(145,692) $(140,875)
Net earnings 17,408 17,075 50,289 42,369
Distributions declared (38,629) (19,471) (87,904) (44,625)
------------------------------------------------------------------------
Deficit, end of period $(183,307) $(143,131) $(183,307) $(143,131)
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


Consolidated Statements of Cash Flows
(in thousands of dollars)
3 months 9 months
Unaudited ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Operating activities
Net earnings $ 17,408 $ 17,075 $ 50,289 $ 42,369
Depreciation and amortization
(Note 6) 15,209 15,354 48,759 46,393
Non-cash interest expense 80 81 250 246
------------------------------------------------------------------------
32,697 32,510 99,298 89,008
Change in non-cash operating
working capital balances (641) (10,696) 10,629 (25,348)
------------------------------------------------------------------------
Cash provided by operating
activities 32,056 21,814 109,927 63,660
------------------------------------------------------------------------
Investing activities
Capital expenditures (6,035) (3,392) (11,644) (9,237)
Repayment from (to) related
parties (Note 3) 3,470 1,388 13,222 (421)
------------------------------------------------------------------------
Cash (used in) provided by
investing activities (2,565) (2,004) 1,578 (9,658)
------------------------------------------------------------------------
Financing activities
Distributions paid to
unitholders (25,962) (18,106) (81,915) (50,764)
Advances to related parties,
net of repayments (Note 3) 847 - (15,624) -
Levelization repayment to
TransAlta Energy Corporation (242) (131) (726) (393)
Repayment of long-term debt
principal (990) (270) (2,917) (2,714)
------------------------------------------------------------------------
Cash used in financing
activities (26,347) (18,507) (101,182) (53,871)
------------------------------------------------------------------------
Increase in cash 3,144 1,303 10,323 131
Cash (bank overdraft),
beginning of period 8,455 (463) 1,276 709
------------------------------------------------------------------------
Cash, end of period $ 11,599 $ 840 $ 11,599 $ 840
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes.


TRANSALTA COGENERATION, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands of dollars, 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 Sept. 30, 2005 (Dec. 31, 2004 - $nil). The effective interest rate at Sept. 30, 2005 was 4.10 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 Sept. 30, 2005 was $14.8 million (Dec. 31, 2004 - $28.0 million). The effective interest rate at Sept. 30, 2005 was 4.19 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 Sept. 30, 2005 was $6.5 million (Dec. 31, 2004 - $18.0 million). The effective interest rate at Sept. 30, 2005 was 4.10 per cent (2004 - 3.94 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 Sept. 30, 2005 was $nil (Dec. 31, 2004 - $nil). The effective interest rate at Sept. 30, 2005 was 4.10 per cent (2004 - 3.92 per cent).



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

Sept. 30, Dec. 31,
2005 2004
------------------------------------------------------------------------
Advances to TransAlta Power $ 14,823 $ 28,045
------------------------------------------------------------------------
------------------------------------------------------------------------

Credit facility - due to TEC $ (6,490) $(18,041)
Reimbursement of expenses and third party costs (1,779) (5,955)
Current portion - levelization payment due to TEC (1,590) (972)
------------------------------------------------------------------------
Advances from related parties $ (9,859) $(24,968)
------------------------------------------------------------------------
Levelization repayment due to TEC $ (4,426) $ (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 qualified for hedge accounting treatment by TA Cogen as a cash flow hedge.

Distributions payable to TransAlta Power at Sept. 30, 2005 were $12.9 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 518
------------------------------------------------------------------------
Balance, Sept. 30, 2005 $ 8,868
------------------------------------------------------------------------
------------------------------------------------------------------------

6) SUPPLEMENTAL CASH FLOW INFORMATION

3 months 9 months
ended Sept. 30 ended Sept. 30
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Depreciation and amortization
per statement of earnings $ 14,710 $ 14,909 $ 47,361 $ 44,978
Mining equipment depreciation,
included in fuel expense 499 445 1,398 1,415
------------------------------------------------------------------------
Depreciation and amortization
per statement of cash flows $ 15,209 $ 15,354 $ 48,759 $ 46,393
------------------------------------------------------------------------
------------------------------------------------------------------------


Contact Information

  • TransAlta Power, L.P. - Media inquiries
    Sneh Seetal
    Senior Media Relations Advisor
    (403) 267-7330
    Pager: (403) 213-7041
    Email: sneh_seetal@transalta.com
    or
    TransAlta Power, L.P. - Investor inquiries
    Mardell Van Nieuvenhuyse
    Senior Analyst, 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