TransAlta shares rise after penalty
‘ It removes one of the uncertainties’
One day after electricity producer TransAlta agreed to pay a $ 56- million penalty for manipulating power prices in Alberta, investors pushed its share price to the highest point in a month.
TransAlta — which announced earlier this week it would eliminate 239 jobs — saw its stock climb 16 cents Thursday to $ 6.36 on the Toronto Stock Exchange, even as Moody’s Investor Services said it put the Calgarybased company on watch with the potential to downgrade its credit rating after it negotiated the record settlement.
The negative outlook from the bond rating agency was in contrast to a number of analysts’ reports.
“We view this as a modest positive to TransAlta as it removes one of the uncertainties facing the companies,” CIBC World Markets analyst Paul Lechem said in a research note Thursday that pointed out the penalty could have ranged from $ 10 million to $ 138 million given evidence presented to the Alberta Utilities Commission.
“The agreed amount falls into the middle of the range.”
TransAlta CEO Dawn Farrell said in July that the company would look at negotiating a “mutually acceptable” settlement with regulators.
After the agreement was announced Wednesday, CIBC maintained its $ 10 a share target price for TransAlta but rival Scotiabank raised its outlook for shares in the century- old company with power generations operations in Canada, the United States and Australia to $ 13 in the next 12 to 18 months.
Amid falling power prices in the stuttering Alberta economy and the uncertainty surrounding the future of its coal- fired power plants as the NDP government seeks to implement a new climate change policy, TransAlta has seen its share price fall in the past year from a high of $ 12.50 to a low of $ 5.58 in September.
TransAlta, which must pay a $ 30- million instalment for the penalty within 30 days, reported a $ 131- million loss for the second quarter in July. It said the layoffs announced Tuesday would help it adjust to “ongoing economic and regulatory uncertainty” and save the company about $ 47 million this year.
The company, which had about 2,000 employees at one point, laid off 247 workers earlier this year. TransAlta most recently lowered its dividend from 27 cents to 18 cents a share in early 2014.
Moody’s wants it to do much more.
“TransAlta continues to generate weak financial metrics for an investment grade rating,” Moody’s senior analyst Gavin MacFarlane said in a statement Thursday. “Management has been implementing its strategy to de- lever TransAlta; however, it increasingly looks like too little, too late.”
In response, TransAlta noted it maintains a “stable” outlooks from other major credit rating agencies but added “it will continue to focus on strengthening its balance sheet.”
The company has said it wants to cut between $ 300 million and $ 500 million from its $ 4.2 billion in long- term debt this year to preserve its investment grade credit rating.”
Farrell has said TransAlta changed its procedures in 2011 — when she was chief operating officer — but the Alberta Utilities Commission’s decision to uphold an earlier ruling by the Market Surveillance Administrator prompted her to bring in consultants to assess its practices around trading compliance and forced outages of power plants.
The company has a market capitalization of $ 1.7 billion and more than 70 facilities with the capacity to produce 8,700 megawatts of power from coal, natural gas, wind and hydro plants.
TransAlta paid $ 370,000 for manipulating Alberta’s power market in 2012 but maintained it misinterpreted rules that it called confusing. In July, Farrell said she was “surprised” by the AUC’s ruling and estimated TransAlta earned between $ 5 million and $ 10 million when it took six coal- fired power plants out of service during the winter months 2010 and 2011.
The settlement reached with the MSA estimated the profit at $ 27 million. There was also a $ 25- million administrative penalty and $ 4 million to cover the cost of the investigation. TransAlta, which was highly critical of the MSA throughout the investigation, has agreed not to appeal the regulatory ruling through the courts.
It will pay the money to the Alberta government and isn’t obliged to return any funds to its aggrieved customers.
After the AUC ruling in July, Farrell said Alberta’s largest power supplier was intent on “rebuilding trust” trust with Albertans but she — and her entire executive team — also need to do the same with their long- suffering investors.
It will pay the money to the Alberta government and isn’t obliged to return any funds to its aggrieved customers.