Transalta Corp. (TAC) Issues 2017 Outlook

TransAlta Corporation (NYSE: TAC) announced today that it is confirming its 2016 outlook and releasing its outlook for 2017. Although the Alberta power market is expected to remain over supplied in 2017, the Corporation expects to deliver Comparable FCF(1) in the range of $300 million to $365 million which is expected to be approximately $50 million to $65 million better than its 2016 guidance.

The Corporation will release its fourth quarter and annual 2016 results on March 3, 2017 but is confirming today that its 2016 Comparable FCF(1) will be within the range of $250 to $300 million, in line with the expectations that were communicated in October during the third quarter conference call. Comparable EBITDA(1), before any adjustment to reflect the reduction in the arbitration provision relating to the Keephills 1 force majeure outage, and Comparable FFO(1) are expected to be at the low end of our range due to lower power prices impacting our generating assets in the Pacific North West and Alberta, as well as lower than expected availability from our Canadian Coal assets. It is anticipated that the lower Comparable EBITDA(1) (excluding the arbitration provision adjustment), and Comparable FFO(1), will be offset by lower sustaining capital expenditures.

For 2017, we expect our results to be better given the positive contribution from South Hedland, which is expected to be operational by mid-2017, and the receipt of the first coal transition payment from the Government of Alberta. The outlook also accounts for expected continuing weak power prices in Alberta and the impact of lower priced power hedges in 2017. Approximately 85% of our capacity in Alberta is contracted, either through power purchase arrangements ("PPAs") or financial contracts at an average price of $45 to $50. Our performance next year will also be impacted by an increase in our fuel cost caused by a major outage to one of the large draglines at the Highvale Mine.

The following table outlines TransAlta's financial targets for 2017:

Measure                Target

----------------------------------------------------------------------------

Comparable EBITDA(1)   $1,025 million to $1,135 million

Comparable FFO(1)      $765 million to $855 million

Comparable FCF(1)      $300 million to $365 million

Dividend               $0.16 per share, 13 to 15 per cent payout of

                       Comparable FCF



(1) These items are not defined under IFRS. Presenting these items provides

management and investors with the ability to evaluate earnings trends more

readily in comparison with prior periods' results. Refer to the Comparable

Funds from Operations and Comparable Free Cash Flow, Discussion of Segmented

Comparable Results, and Earnings and Other Measures on a Comparable Basis

sections of TransAlta's 2016 third quarter management discussion and

analysis for additional information.

Net debt at the end of 2016 is expected to be in the range of $3.9 billion to $4.0 billion, $400 million lower than at the beginning of 2016. The Corporation expects to invest $200 to $250 million to complete the construction of South Hedland and position the company for success in growing its renewables platform in 2017. The Corporation also expects to raise between $400 and $600 million of debt secured by our portfolio of contracted assets in 2017. This is in addition to closing project level financing of approximately $360 million in 2016 and approximately $440 million in 2015.

"The 2017 outlook follows a successful year for TransAlta in 2016. While there are varying views on the outlook for power prices in 2017, we have chosen to take a conservative view for purposes of our budgeting and forecasting," commented Dawn Farrell, President and Chief Executive Officer.

"In 2017, the corporation intends to continue its actions toward the repositioning of its capital structure," noted Donald Tremblay, Chief Financial Officer of the Corporation. "We closed $360 million in financing in 2016 and are in final stages of completing a financing secured by another project which, once completed, will place us well within our goal of raising $400 million to $600 million in 2016. With strong operating performance in 2016, our liquidity position is strong and we are sitting on more than $350 million in cash. We are well positioned to address the upcoming debt maturity in May 2017. We are now focusing on our 2018 debt maturities and we will continue our plan of reducing the total amount of debt on our balance sheet. The recent announcement by the Government of Alberta on coal transition and the market redesign is giving us additional confidence in our ability to be successful in achieving our goals," added Mr. Tremblay.

Range of key power price assumptions:

Market                   Power Prices ($/MWh)

----------------------------------------------------------------------------

Alberta Spot             $24 to $30

Alberta Contracted       $45 to $50

Mid-C Spot (US$)         $23 to $28

Mid-C Contracted (US$)   $45 to $50

TransAlta expects that power prices in Alberta and the Pacific Northwest will continue to be low in 2017. Generally, TransAlta's strategy is to be highly contracted via Alberta PPAs, long-term contracts, and other short-term physical and financial contracts.

Other assumptions relevant to 2017 outlook:

Sustaining Capital            $260 million to $280 million

Fleet Availability            88% to 90%

Coal Availability             86% to 88%

Hydro/Wind Resource           Long term average

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