Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Trans-Alta Corporation Second Quarter 2026 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1-1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 1-1 again. Thank you. Ms. Parrish, you may begin your conference.

Thank you, Michelle. Good morning, everyone. My name is Stephanie Parrish, and I am the Vice President of Investor Relations and Corporate Strategy of Transalta. Welcome to Transalta's second quarter 2026 conference call. With me today are Joel Hunter, President and Chief Executive Officer, Mike Politesky, EVP Finance and Chief Financial Officer, and Chris Freilich, EVP Generation and Chief Operating Officer. Today's call is being webcast and I invite those listening on the phone lines to view the supporting slides that are posted on our website. A replay of the call will be made available later today and the transcript will be posted to our website shortly thereafter. All the information provided during this conference call is subject to the forward-looking statement qualification set out here on slide two, detailed further in our MD&A and incorporated in full for purposes of today's call. All amounts referenced are in Canadian dollars unless otherwise noted. The non-IFRS terminology used, including adjusted EBITDA and free cash flow, are reconciled in the MD&A for your reference. On today's call, Joel and Mike will provide an overview of TransAltas quarterly results. After these remarks, we will open the call for questions.

With that, I will turn the call over to Joel. Thanks, Stephanie. Good morning, everyone, and thank you for joining our second quarter conference call. Transelda delivered solid operational financial performance during the second quarter of 2026, demonstrating our fleet's continued resilience during challenging market conditions. During the quarter, we delivered adjusted EBITDA of $291 million, free cash flow of $143 million, or 47 cents per share, and average fleet availability of 90.2%. While our Alberta merchant portfolio continues to be impacted by softer prices, our hedging strategy and active asset optimization generated realized prices that were well above spot prices during the quarter, along with our hydro and wind assets providing significant environmental offsets to our gas fleet's 2025 carbon compliance obligation. We remain confident in achieving our 2026 guidance range, which Mike will talk about later. In the quarter, we continue to advance our data center strategy with CPP investments in Brookfield. More broadly in Alberta, positive recent developments reinforce the momentum and collective commitment across government and industry to develop AI infrastructure. In particular, in June, the Government of Alberta published their data center regulations, giving authority to the ASO to proceed with the next phase of their large load integration plan. The regulation includes provisions that permit the ASO to determine underutilized capacity that can be used to serve incremental data center load. Consistent with our messaging and investor day, we believe that our gas-fired steam units constitute underutilized generation that can support both grid reliability and the continued build-out of AI infrastructure in the province. Our gas-fired steam units are designed to operate as baseload and can produce at capacity factors greater than 90%. Their recent performance and lower capacity factors, averaging around 20% in 2025, have been driven by economic decisions, not capability. speed to power is critical and we view the data center regulations as an important step towards framework clarity. The determination on how underutilized assets will be incorporated into the build out of AI infrastructure will be made by the ASO and we remain actively engaged with them. Also in the quarter we fully integrated the four gas fire facilities in connection with the acquisition of Far North. In June the U.S. Department of Energy issued its third temporary order requiring that Centralia Unit 2 remain available for operation, if needed, for a period of 90 days. Transelta is adhering to the order, and we plan to submit a request for reimbursement to the FERC for costs related to the second order. Progress continues with the conversion of the unit to natural gas, and I am pleased to report that our timeline for a final investment decision in the first quarter of 2027 remains on schedule. Last month, we announced that Transelta has entered into an agreement to acquire two natural gas-fired peaking facilities in Colorado for U.S. $1 billion, paired with a common share offering for $350 million. Both assets are fully contracted to investment-grade counterparties under long-term tolling agreements that include full-cost pass-through of all operations and maintenance, fuel, and capital expenses, which meaningfully reduce the risk profile of the acquired assets. The acquisition is expected to deliver $110 million per year in low-risk, high-quality adjusted EBITDA to our portfolio is immediately accretive to free cash flow per share. We expect closing to occur in the fourth quarter following receipt of all regulatory approvals as well as canning peak power achieving commercial operations. Adding stable operating assets like this delivers immediate cash flow that can be redeployed into our most compelling growth initiatives including the centrally coal-to-gas conversion and Alberta data center projects. And finally we realigned our executive management team, adding Mike Politesky as our EVP finance and chief financial officer, and Grant Arnold as our EVP growth and chief commercial officer. In addition, Nancy Brennan assumed an expanded role as chief legal, people, and corporate affairs officer, and Chris Fralick's new title is EVP generation and chief operating officer. Supported by an exceptional team across the organization, I am confident that we have the right people and structure to execute our strategy and realize long-term value creation for TransAlta. I'll now turn Nicole over to Mike to talk more about our financial performance in the second quarter of 2026.

Thanks, Joel. Good morning, everyone. During the quarter, we generated adjusted EBITDA of $291 million, despite challenging market pricing in Alberta. Our hydro segment adjusted EBITDA was $87 million, down $39 million from the same quarter in 2025 due to lower Alberta spot and hedge prices, as well as lower intercompany sales of emissions credits. Our wind and solar segment reported adjusted EBITDA of 90 million, consistent with the prior year as higher U.S. wind resource mitigated lower Alberta pricing and reduced wind resource in eastern Canada. Within our gas segment, adjusted EBITDA was 14 million higher than the prior year, did a strong optimization of our Alberta fleet and positive contributions from our Far North acquisition. Consistent with prior years, our second quarter results benefited from the realization of emissions credits against our prior year carbon obligation. For the balance of 2026, we expect additional contributions to our segments from the realization of carbon credits against in-year carbon compliance costs. Our energy marketing adjusted EBITDA decreased by $16 million, primarily due to subdued market volatility in Western power markets and lower realized gains within the quarter. We expect to have more gains realized by year-end as favorable trade positions settle. In our corporate segment, costs were 8% lower than the prior year due to initiatives to control spend. And finally, our energy transition segment adjusted EBITDA was lower than the prior year due to the Centralia contract expiry at the end of 2025. We also generated strong free cash flow during the second quarter, totaling $143 million. Our sustaining capital expenditures were down $18 million year-over-year. However, this was primarily timing-related, and we continue to expect sustaining capital of $140 to $160 million in 2026. Turning to the Alberta portfolio, spot prices averaged $29 per megawatt hour in the second quarter, notably lower than the $40 per megawatt hour in the second quarter of 2025. The decline was primarily due to seasonally lower demand and continued strong supply in the market. Although prices were low, we enhanced our margins by meeting portions of our higher price hedge commitments through power purchases when market prices were below our variable production costs. We benefited from approximately 2,400 gigawatt hours of hedges at an average price of $63 per megawatt hour, which was $34 per megawatt higher than the average spot price. Our gas fleet realized an average price of $68 per megawatt hour, a significant 134% premium to the average spot price, largely due to our dispatch optimization during high price hours, which materially raised our realized price. The hydro fleet also continued to capture merchant upside, delivering an average realized price of $36 per megawatt hour, a 24% premium to the average spot price. Our merchant wind fleet realized an average price of $14 per megawatt hour, which was impacted by increased thermal production and intermittent wind and solar generation. During the quarter, we also delivered approximately 900 gigawatt hours of ancillary service volumes at a 14% premium to the average spot price. Through effective fleet optimization and meeting hedge obligations with purchase power, we consistently addressed the ASO's need for reliability products. We continue to have a strong hedge book to support our Alberta cash flows. For the balance of the year, we have approximately 4,500 gigawatt hours of our Alberta generation hedge at an average price of $64 per megawatt hour, well above current forward pricing. For 2027, we have approximately 6,600 gigawatt hours hedged at an average price of $64 per megawatt hour, also well above current forward levels. Looking ahead, we continue to expect the Alberta supply and demand imbalance will correct later this decade with anticipated load growth. We believe we are well positioned to manage through the current pricing environment and to capture growth opportunities to drive long-term value creation for our shareholders. Turning to the balance sheet, in June, Moody's reaffirmed our BA1 credit rating with a stable outlook, And last week, S&P reaffirmed our BB plus rating while shifting the outlook to negative. We remain committed to strengthening our balance sheet through multiple levers, including asset recycling. In addition, the forecast tightening of the Alberta market and recovery of power prices, along with expected cash flows from Centralia after conversion, will provide cash flow growth to further strengthen our financial position. overall we are pleased with our year-to-date operational and financial performance across all our business segments and we remain confident in our ability to meet our 2026 guidance range our contracted fleet strong hedge position and consistent optimization provide us with core cash flows even in a low merchant power pricing environment the colorado acquisition is not factored into our reaffirmation of guidance and upon closing which is expected in the fourth

quarter of 2026 will add to our financial results i'll now turn the call back over to joel thanks mike this year we remain focused on the following priorities improving our leading and lagging safety performance indicators while achieving strong fleet availability delivering adjusted ebitda and free cash flow within our 2026 guidance regions maximizing the value of our legacy thermal sites by advancing our Alberta data center strategy, as well as advancing our coal-to-gas conversion toward a final investment decision, pursuing strategic M&A opportunities, and enhancing our financial strength and flexibility through disciplined capital allocation and cost control. I believe Transelta offers a compelling investment opportunity. We have operated a safe and reliable power generation fleet for over 115 years, providing strong and consistent cash flows. This strength is grounded in a diversified portfolio of hydro, wind, solar, storage, and thermal assets across three countries. It is enhanced by our industry-leading asset optimization and energy marketing capabilities. Our legacy sites continue to represent considerable and increasing value. We are proactively pursuing repurposing initiatives at these facilities to address the growing demand for reliable power in our operating markets. Concurrently, we maintain a leadership position across multiple technologies, consistently prioritizing responsible and reliable generation. We are disciplined in how we grow. Our priority is creating shareholder value as we diversify our portfolio within our core geographies and continue to increase the stability and contract nature of our cash flows. This strategy is supported by a strong financial foundation. We have a flexible balance sheet and ample liquidity, giving us the ability to pursue and deliver multiple growth opportunities while continuing to return capital to shareholders. And finally, and most importantly, we have our people. Everything we achieve is powered by the dedication and expertise of our employees and contractors. I want to thank them for their commitment and for positioning TransAlta for community success in 2026 and beyond. Thank you, and I'll now turn the call back over to Stephanie.

Thank you, Joel. Michelle, would you please open the call for questions from the analyst?

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In fairness to all, we ask that you please limit yourself to one question, one follow-up. One moment as we compile our Q&A roster. Our first question is going to come from the line of Mark Jarvie with CIBC. Your line is open. Please go ahead.

Good morning, everyone. Just in terms of those discussions with the ASO and the unrealized assets, do you have any sense of when you might have clarity and just how that's impacting anything about getting from the MOU to a definitive agreement with Brookfield and CPP?

Yeah, thanks, Mark. And good morning. It's Joel here. I would say there's ongoing discussions with ASO. And again, we are very encouraged. As mentioned, our prepared remarks by the data center regulations that really turn over to the ASO to determine what is underutilized capacity here as it relates to our gas-fired steam units. So, again, we're working with them very collaboratively here as we move forward. I would say with the MOU and the definitive agreements that we have with CPPI investments in Brookfield, those continue to advance, as we highlighted when we announced the MOU back in February. So, again, working alongside those two parties, and we continue to remain very confident in our ability to bring forward our data center option here later in the year.

So, is the expectation, is it a matter of months? Could it be a couple quarters before you have clarity on the energy-utilized assets?

Hard to say. We can't really speak for the ASO, Mark, but we are actively engaged with them. So, you know, we're hopeful it will be, you know, in the next quarter or so, but we can't speak on behalf of them as to the timing.

And then, you know, obviously that might influence how you think about scaling beyond the 230 megawatts. So if that drags on a little bit, hopefully it doesn't, would you look at maybe moving to like FID on the first phase of the 230 megawatts from phase one allocation and then subsequent scale up after that through a follow on agreement? Or is there a way to sequence sort of, I guess, moving through FID?

I think that's very possible here, Mark, that we would look to that again. And it's really up to, you know, us along with Brookfield and CPPI to determine that. But as we said before, you know, 2.30, we were very pleased with that in the phase one allocation. And I'm looking forward to how we can build upon that. So I'd say that there's a possibility here that that could advance the 2.30 before, you know, the remaining here with the underutilized capacity.

Okay, I'll leave it there for now.

Thanks, Mark.

Thank you. And our next question is going to come from the line of Maurice Choi with RBC Capital Markets. Your line is open. Please go ahead.

Thank you. And good morning, everyone. Just wanted to touch on any updates you have on the asset recycling initiatives that was mentioned earlier to reduce debt. What are some of the things that are influencing the timing and perhaps selection of some of these assets for sale?

Yeah, thanks, Maurice. You know, we are very active. We have a few that are well underway. Obviously, we can't give everything away here as we're in processes, if you will. I think what you'll see going forward here, Maurice, just given the amount of opportunities that we see going forward, whether it's a centrality called a gas conversion, AI data centers, M&A opportunities, and further kind of organic growth in our portfolio that we're seeing that in portfolio rotation will become more active here. So we do have a few processes underway. I can't say anything more, but we are certainly very active in that space right now.

Looking forward to hear more of that. And if I could just finish off with just a more broad discussion about for power prices. I think over the last few weeks, since all these announcements were made. We've seen forward prices move up a little bit, particularly for 2029, yet it still is below the 80 to 120 range that you laid out in Invested Day. You mentioned at the start of the call that you've seen a lot of positive developments in the province thus far. So just curious as to what else you're expecting to hear in the coming months that would prompt the forwards to rise into your projected range.

You know, first of all, Maurice, When you look out further like to Cal-28 and Cal-29, you know, there isn't a lot of liquidity. Generally, when you look at kind of forward pricing, you're out, you know, 12 to maybe 18 months at best. And when I look at Cal-29 today, I think it's marked around $81. So it is actually in the range of that 80 to 120, you know, that we highlighted at Investor Day. And certainly we've seen an improvement in those forward prices since, you know, even an announcement with Meta around their data center project with Kineticore and Pemida. So we remain very encouraged by that. I think for the market, as we move forward here, just getting further kind of clarity around the ramping of the load growth will certainly support further the forward pricing. So, again, when I look at where we are today for Cal 29 from where we were packing to invest today at the end of March, we've certainly seen an improvement there.

But I would expect that over time, as the market sees or has better visibility behind kind of the load ramp, if you will, that will then further support these forward prices and could even go higher. maybe on on that last note and a quick follow up here um obviously we know where cone is in the province um but also historically when we had you know i think it was 2021 to 2023 when we had triple digit power prices that led to the regulator looking more into the industry In this world of affordability, like, is there such thing as a balance number where, you know, pretty much everyone's happy?

You know, yeah, when you look at the, again, the cone or the cost of new entry that you referred to, and I know that that was something that was highlighted with the recent announcement from Pemberton Kineticore, you know, kind of in the low 100s, if you will, which completely makes sense, right? given the cost of new build that we're seeing today relative to even where we were back in 2021 and 2023 as a reference where we saw triple-digit pricing. Again, this I think is where it's really important to have kind of legacy generation like we have with our gas-fired steam units to help support the infrastructure build-out that we've talked about that you know that pricing would be you know below cone. But what you're seeing here you know going forward is the market will continue to tighten. We're not seeing much by way of new supply, but we're also seeing load growth coming, whether it's organically in the province, as we highlighted our investor day back in March, along with phase one here. So we can't say exactly where that price point would be. But I think when you look at Alberta relative to other jurisdictions in North America, we remain very cheap given the surplus generation that we see here. And again, I think it really supports why legacy generation should be utilized, just given that it is at a price that is below cone that we're seeing today. But going forward, it'll be what it'll be, if you will, as it relates to if there's new generation required, and given the cost of that new generation to ensure that the generation provider is earning a full return on capital, the price will be what it is. And so, So, again, I can't say exactly where that price point would be, where there was maybe some kind of, I think, concern around, you know, power prices overall for consumers. That thing to remind yourself of is that when you look at Alberta, when you look at the average power bill, roughly a third is really the price of the electron and two thirds is really through the transmission distribution costs. So to the extent that you see additional load come, what you'd hope to see is that the transmission distribution costs are kind of outspread more evenly given the additional load here. So that has to be taken into factor. It's just not the cost of power at the end of the day that impacts consumers. It's all these other costs as well. That's a really good point.

Thank you very much for the call, Joe. Thanks, Maurice.

Thank you. And one moment for our next question. Our next question is going to come from the line of Robert Hope with Scotiabank. Your line is open. Please go ahead.

Morning, everyone. So, I appreciate the commentary on the asset sales potentially strengthening the balance sheet with and acknowledge that you may be limited on what you can say. But that being said, how do you think about an asset sale program when you have quite large uncertainty out there regarding the Brookfield hydro option and the potential for it to top up and provide what could be a significant amount of capital for TA?

Yeah, Rob, I think it's both. When we look at how we further strengthen the balance sheet here, we certainly factor at some point in time, we can't predict when, but the option that Brookfield has to convert into the hydro here in Alberta, that's one piece of it. and certainly would not only get the cash infusion that would come in from a potential top-up, but also $750 million of debt that would essentially come off the balance sheet as it relates to the rating agencies. So that's one important factor or lever, if you will, to strengthen the balance sheet. But I think it's all of it. It's also doing additional asset sales because what we're seeing here is just tremendous opportunities for our company. As I mentioned earlier, you know, you think about the central coal to gas conversion as being one, the M&A opportunities that we're seeing out there, like we did with the Colorado acquisition here just over a month ago, along with just other kind of greenfield opportunities that we're seeing in our portfolio that might be further down in the decade, if you will, that will require capital. So certainly there's no shortage of uses of capital, if you will. So as we look at how we can strengthen our balance sheet, provide incremental cash to the balance sheet, It's obviously Brookfield's conversion is factored there on top of asset recycling.

All right. Appreciate that. And then maybe just going back to some prior commentary on the BYOG process, as well as the commentary on repurposing some assets. You know, when you think about your asset fleet in Alberta, you know, how do you think about the decision tree of, you know, using, we'll call it your steam conversions on an interim basis as a bridge to, we'll call it a larger brownfield expansion of your project? And how do you work through the uncertainty of, you know, you don't quite know what the, you know, what the ASA will ultimately land on?

Yeah, I think, you know, part of this is, you know, first is really landing on, you know, how much capacity, as you said, of the gas-fired steam units that we can use or would constitute underutilized or bring your own generation, if you will. That's the first part here, then, is part of that decision tree. And so, obviously, there can be a wide range there, given that we have a very sizable gas-fired steam fleet here. And as I mentioned in my remarks, the capacity factor has been around 20% as it relates to 2025. So we do see excess capacity there that could be used as bring your own generation. And what I really like about that is, you know, for the data center or AI infrastructure build out is, as you know, the cost of new build is just so expensive today. and the supply chain constraints are so challenging that using these units to support the AI infrastructure build out will then lead to new build sometime next decade because these units won't run forever. So it is in a way kind of like a bridge. I don't like to use that term, but that's kind of what this would be is that you get the AI infrastructure built in the province supported by our existing gas-fired steam units. And then at some point in time, we would look to then repower those units so they can run for decades after that. Again, I see this is where it's very compelling for Alberta as it relates to the fact that we do have surplus generation. The supply chain constraints that we see that this fits really nicely that we could use this could be gas-fired steam units, but then there would be a new build down the road that would be underpinned by long-term contracts with our customers.

Thank you. Thanks, Rob.

Thank you. And one moment for our next question. Our next question will come from the line of John Mould with TD Securities. Your line is open.

Hi. Morning, everybody. Maybe just to follow on on that last question. And, you know, on the repowering projects that you have, and, you know, I guess Flippi as well on the greenfield side, I guess, how active are you, you know, on those in terms of costing activities, you know, planning just to be, you know, in a position to proceed rapidly with those if there is, you know, some kind of meaningful low growth that drives the need for those. Or should investors, you know, really think of those as, you know, more of a longer dated option into the next decade, you know, depending on how, like, possibly well into the next decade, you know, you flag the timeline of the coal gas retirements in the past, like, just in terms of maybe meeting the provinces, you know, low growth more on a long-term basis.

Yeah, John, when you reference Flippy and Key Pills 1 and Sun 5, the total is just over 2 gigawatts. I'd say there's still a lot of work going on today. It's still very early days. But again, you can see as part of our path forward here, first step is utilizing the underutilized capacity we have with our gas-fired steam units. That makes the most sense. and then look to potentially build out these sites, if you will, next decade. So it's not something that we'd look to be building tomorrow, because we don't need to. The most effective way is to use the gas-powered steam units. They're the most cost-effective, and it's all about speed to power, too, for AI infrastructure. The assets are there, as you know. The gas is there. The transmission's there. The water's there. Everything is there. So use those first. But knowing, again, as mentioned earlier, They're not going to run forever. And then look to these sites, like whether it's Flippy K1 or Sun 5, as we talked about, as to repower down the road. So that's kind of, you know, it's kind of a stage process here. So it's certainly something we're not looking at doing tomorrow. This would be next decade. But the work is underway now because these take a long time, right, to do all the planning, the stakeholder engagement, all those things that that's that's underway. way, but we do have a bit of time here because we view really repurposing our gas-fired steam units is the way to go.

Okay, thanks for that. Maybe just on your hedges, you layered on about 20% or so incrementally just in terms of volume for next year. What kind of appetite are you seeing from customers to contract at more normalized pricing levels versus holding on to, you know, something more like the spot exposure today and just in terms of how that contributes to your ability to, you know, add more meaningful length to your hedges, you know, between now and the end of the year?

Yeah, you know, we've, John, obviously, we always remain very active when it relates to our, you know, managing our hedge portfolio. You know, roughly half of the portfolio is our C&I business, which is, you know, think of those as almost like three-year contracts that continue to roll every year. Those tend to transact a bit of a premium over where you would see the forward pricing. The team looks for opportunities here where there's a nice spread that they see that they go, we're going to lock in these prices. I'm very encouraged by what the team has done so far if you look at you know one of our one of our slides and we show that for you know next year we have around sixty seven hundred gigawatt hours already hedged to sixty four dollars again well above where we're at today when we look at kind of spot pricing and that's doing large part to our C&I business along with adding financial hedges where we can so this is something that it's a real core competency, if you will, of TransHilta, that they look for these opportunities to kind of lock in when they can. And I expect that we'll continue to roll in hedges here going forward. And I can't say how much, but they will find opportunities. And again, a large part of that is due to the CNI book that we have.

Okay, I'll get back in the queue. thank you and one moment for our next question our next question is a follow-up question from the line of mark jervey with cibc your line is open please go ahead yeah thanks just following up on the on the unregulized assets um if you got a meaningful amount granted by the aso like a gigawatt or more would that likely be used to scale up increased opportunities around key pills or Are there conversations and opportunities to look at another site like Sundance?

You know, right now, Mark, we are focused around key pills that, you know, depending on what the ultimate number is, that we certainly have the land there. The gas supply is there. The transmission is there to support, you know, additional build outs. So if you talk about up to a gigawatt or even higher, certainly that could be supported at around the Key Pills facility. Okay, thanks.

Thank you. And one moment for our next question. Our next question is going to come from the line of Patrick Kennedy with National Bank Capital Markets. Your line is open. Please go ahead.

Yeah, good morning. I know you guys are still working on the Class 3 estimate for the Centralia Unit 2, but just wondering if perhaps there's been any progress with potentially tapping into more gas supply and looking at repowering Unit 1, how we should be thinking about the timing of that opportunity, and maybe a comment on how those brownfield returns might stack up to, say, Alberta Greenfield or other U.S. M&A opportunities.

Yeah, Pat, you know, when we look at with Centralia, as you highlighted, we are working toward the class three estimate. Everything is on schedule such that we'll be in a position to have that by the end of the year. It to be then on track to make the FID very early in 2027. Again, subject to the permits that are required both for ourselves and obviously with PSE that they get the WUTC approval. So that work is well underway there at the facility. It is, you know, when you look at the returns, I mean, hard to beat. You know, as we highlighted when we made the announcement for Centralia and we said, you know, kind of our estimate is a 600 million capital cost at a 5.5 times build multiple. So, obviously, very attractive. I wish we had, like any company, I wish we had more of those types of opportunities with those types of multiples. So, again, very, very attractive. And, again, just shows the value of having, you know, legacy assets where you can either repurpose, maybe extend a contract or what have you, that offer very compelling risk-adjusted returns. When you look at the gas supply, you know, just recall that the gas supply for Unit 2, that's on for PSE as the customer. to provide not only the gas, but obviously the transportation of that gas to the facility. And there is enough gas supply there. The gas line is around 1,500 feet away from the facility, so it is very close. As it relates to Unit 1, I think this is a longer-term option because we've been having discussions around that, but very, very early days that it would be very compelling given where the location, given the transmissions there, the water is there. You are 85 miles south of Seattle. So there's a lot of reasons why it'd be very good to to be able to expand that facility. It comes down to, again, gas supply. It's the Northwest Williams Northwest pipeline that is full today, but certainly something that we're talking to them on. And then also, you know, just trying to find, you know, a customer like a commercial arrangement. But again, very, very early days. And this would be kind of next decade. But, you know, we do see that there could be an option there. But I wouldn't put a high probability at this point in time. And the focus, again, is on getting Unit 2 to FID early next year and moving that project along to get it in service by the fourth quarter of 2028. Okay, that's perfect.

Thanks for that. And then maybe just on the M&A front, obviously, I know you can't comment on specific opportunities, but just curious, after the Colorado transaction closes, how you might describe your wish list in terms of geography, asset type, or technology, fuel supply, just how you're thinking about maximizing the value of the portfolio going forward through M&A. whether it's capturing synergies across the portfolio or otherwise.

Yeah, Pat, you know, again, we're very, very pleased with the Colorado acquisition. I think this is an acquisition that will serve our shareholders for decades to come, given the weighted average duration is 27 years. And as we've talked about before, the full cost pass through that we have there. So a very low risk investment for us that, again, in a core geography, that now we have a presence in Colorado with these two facilities. So we're very, very happy with that. You know, going forward, though, the M&A strategy remains the same, focused on our four-card geographies. So you've seen us transact, you know, the Heartland acquisition was here in Alberta, the HUD-8 acquisition was in Ontario, and then this most recent one, you know, in Colorado. I would say with technology, we remain agnostic. It's all about the highest risk-adjusted returns. That's the key for us. And so it just so happens, you know, recently it's been more on the gas-fired side of things. When you look at, you know, again, Hot 8, you look at Colorado, you look at Heartland. But if there's opportunities in renewables, we're certainly looking at those as well. But again, it comes down to the highest risk-adjusted returns in our four key geographies. So we remain very active there, but we're also conscious of our balance sheet and what we can do. And this is where, again, I think, as we talked about earlier, active asset optimization, if you are a portfolio rotation, certainly would support those opportunities going forward. So it's really kind of more the same, if you will, as it relates to how we look at M&A.

Okay, that's great. Thanks, Joel.

Thanks, Pat.

Thank you. And one moment for our next question. Our next question will come from the line of Benjamin Pham with BMO. Your line is open. Please go ahead.

Hi, thank you. Good morning. I want to follow up on our last question around your comments on risk-adjusted returns across the portfolio, including M&A. And can you parse that a little bit? Because it sounds like if you're going on different risk profiles with an energy infrastructure, that returns action does change quite a bit, i.e. the Colorado transaction where it's long-dated cash flows and the return may be different profiles and maybe some of their assets but can you maybe put the bookends of the returns and how you adjust for their risk differences?

Yeah you know I would say you know Ben when we look at the various opportunities so I'll just give you some relevant examples here you look at the Heartland acquisition where not fully contracted but substantially contracted here in Alberta older vintage assets and we did that at around a 5.4 times multiple. When you look at HUD aids, again, older assets, shorter contracts, but we believe we'll be able to recontract those assets in five-year increments. Again, we were able to acquire those at a lower multiple. When you look at Colorado, and yes, it was a higher multiple, but it makes a lot of sense, right, that this is brand new generation, 27-year contracts. So we have to look at this on a kind of overall portfolio that, you know, you're going to get some at a lower multiple and there's reasons for that. And there's going to be some like Colorado where it's going to be at a higher multiple that is fair value given, you know, again, the advantage of the assets, given the contracts and the nature of those contracts and the like. So when we look at our opportunities here going forward, you have to take that all into consideration. I think what was important for Colorado is I know some folks looked at really the multiple. That's one way to look at it, but probably the best way to look at it is really the free cash flow yield. The free cash flow yield on that acquisition is approximately 13%, and our free cash flow yield on TA is around 7%. So it's free cash flow accretive at the end of the day. So, you know, for us, there's a number of ways we look at acquisitions, you know, whether it's an EBITDA multiple, it's a free cash flow yield multiple. We also have to look at the leverage that's, you know, on the acquired assets, if any. So there's kind of a wide range here, but I think, and, you know, and then you have to compare everything on a per share basis as well, too, right? So that, you know, we want to be accretive. at the end of the day we don't want to do anything that is dilutive and colorado was accretive as i mentioned uh so everything has to stack up you know against on a per share metric basis so hopefully it gives you some context of how we look at things uh here it's it really depends on the on the nature of the acquisition okay got it thanks for the color um and a key comment related to that with the some of the credit rating updates does that constrain your ability at all your balance sheet to add in more m&a over the next 12 months so i can just put a time frame to that oh hey hey ben it's mike here maybe i'll handle this one um yeah so the negative outlook from

smp we kind of view that as a a temporary hurdle for us when you look at the soft alberta uh power pricing market right now. And Centralia being offline here, as we progress that towards FID, our cash flows have come down. But we do see a glide path forward with recovery of the balance sheet. And when you look at the Alberta forward pricing market, you're starting to see that uplift in the back half of 2028 into 2029. If you look at the hedge book we've built here, 2027 sets up pretty nice with 6,600 gigawatts hedged at $64, quite a bit higher than the forward market. If you look at our optimization team and what they are able to do in tough markets, they have pretty amazing capabilities. And you saw that here in the second quarter with what they were able to do. If you look at the data center opportunity in Alberta, we are pursuing and the nature of our assets and the capital light nature of that opportunity, that's very credit positive for us. And Joel's earlier comments on Centralia and progressing that towards FID and that, you know, looking like a COD timing back half of 2028, that's a wave of cash flows coming. And then the final piece is the asset recycling program and, you know, doing that for multiple reasons. But one benefit of that is obviously proceeds in the door, helping the balance sheet. So we see a lot of incremental things that will progress the balance sheet to a position where we want it to be in. In the meantime, is it hampering our flexibility? I would say no, not really. The things we're pursuing right now, we have the flexibility to operate within the bounds of our balance sheet, but we are definitely conscious of the leverage levels and how the rating agencies are viewing it. And, you know, we see that improving here over the next while, and it's something we are actively working towards.

Okay, that's right. You can get a quick one for me to squeeze, and if I may, you mentioned the work on the focus on key pills with respect to the data center opportunity. Can you remind me when you went through the multi-phase process with that asset, was there community engagement involved in that? I know it's industrial site and there's a plant there. Did you do that and And more key is just the community feedback and support or lack of support for our site.

Yeah, Ben, you know, whenever we have any investment that we make, you know, we have community engagements or stakeholder engagement very early on, right at the development stage and really through the whole lifecycle of the asset. So once the asset is developed and then operating, we stay in the community. We remain very engaged with the community because, again, we're an important part of these communities in which we operate in. So when you look at Key Pills, we are, again, very actively engaged there within the community. There is certainly a lot of support there at Key Pills, just given the infrastructure is there today. It's been there for many decades. But, you know, we have to remain very active there and really bring our stakeholders along with us on this journey when we develop any project. And it's not only here in Alberta, it's anywhere in which we operate. Stakeholder engagement is just critical. And through, like I said, development and through the operating life of the assets. So, again, we are very engaged there. It's really important that we are very transparent with our stakeholders. We have transparent communication. It's really important that we have that because these are our stakeholders. And so we want to make sure that, you know, we are we are communicating with them. We're listening to them, understanding what their needs and their concerns are, because it really is almost like a partnership at the end of the day when you are putting infrastructure into into a community. And I would say with with key pills, we're certainly very, very actively engaged in that right now and have been for decades because we've been operating there for that long.

Okay, got it. Thank you.

Thank you. There are no further questions at this time, and I would like to hand the conference back over to Stephanie Parrish for closing remarks.

Thank you, everyone. That concludes our call for today. If you have any further questions, please contact the TransAlta Investor Relations team.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.