DBRS Confirms TransAlta Power, L.P. at STA-2 (middle)

Dominion Bond Rating Service (“DBRS”) has today confirmed the stability rating of TransAlta Power, L.P. (“TA Power” or the “Fund”) at STA-2 (middle).

The performance of TA Power’s portfolio of gas-fired and coal-fired electricity generating facilities continues to meet DBRS’s expectations and supports the Fund’s STA-2 (middle) stability rating. All of TA Power’s cash flows come from its 50% interest in TransAlta Cogeneration, LP (“TA Cogen”), which owns interests in six generating facilities.

Cash available for distribution at TA Cogen has more than doubled over the past two years, with the addition of 50% interest in the Sheerness coal-fired facility in June 2003 and 50% interest in the Meridian gas-fired plant in December 2004. These acquisitions (funded with the issuance of new units) have been accretive to cash available for distribution per unit at TA Power, which resulted in the Fund increasing distributions per unit by 2.5%.

With the support of long-term power purchase agreements (PPAs) and fuel supply contracts, DBRS expects that the Fund will continue to generate sufficient cash available for distribution to support the current level of distribution per unit with its existing portfolio of assets.

However, DBRS highlights the following challenges: (1) The Sheerness facility contributes the majority of the Fund’s cash flow. Hence, a long-term unplanned outage at one of its two generating units would have significant impact on cash flows. (2) The fuel supply and transportation contracts at the Fund’s three Ontario facilities expire several years before the PPAs, which could negatively impact margins at these facilities if gas prices are high at the time of expiry. However, DBRS views these risks as manageable due to the following factors: (1) The Fund’s insurance coverage and force majeure clauses in the PPA mitigate the risks associated with an extended outage at Sheerness facility. (2) With the addition of the Meridian and Sheerness facilities over the past two years, the Ontario plants comprise a smaller proportion of cash flow. Hence, the impact of the mismatch between the fuel supply contracts and the PPAs on aggregate cash flows is less significant. As such, cash available for distribution per unit is expected to remain relatively stable with the Fund’s existing asset base.