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TransAlta starts meetings with ex-PJM boss Boston on coal transition plan

TransAlta Corp.has started talks with Alberta provincial negotiator and former head Terry Bostonon plans to shut the independent power producer's giant coal-fired plants by 2030.

Preliminary talkswith Boston began in early April, TransAlta CEO Dawn Farrell said May 3 on the Calgary,Alberta-based company's earnings call. TransAlta, which operates five coal-firedplants in Alberta with a combined capacity of 3,591 MW, is one of the generatorswith the most at stake in the provincial government's plan to move toward less-emittingforms of electricity.

Farrell, who was working in the Canadian power sector when Albertaderegulated its wholesale electricity market near the turn of the century, saidthe planned coal-to-green power transition has rocked the industry in the province.

"We could have not known back then how the pressures tonegate climate change impact would rapidly accelerate and force us, and everyonein Alberta, to face the prospect of eliminating all coal out of the system by 2030,"Farrell said. "Our top priority in 2016 is to reach a mutually beneficial coaltransition arrangement with the Alberta government."

Boston has a six-month mandate from the Alberta government toreach compensation and closure agreements with companies that own the coal-firedplants. The generators draw fuel from adjacent strip mines, and the negotiationsalso include mitigation efforts for the loss of jobs in the mining industry.

"This seems like a pretty short period for completing whatis a very historic and very significant process," Farrell said. "Nevertheless,we're all incented to achieve the best solution which will give investors the bestconfidence to invest capital in Alberta and TransAlta, and will ensure that powerproviders in this province can continue to generate and transmit the energy neededto power our economy and our business."

Negotiations have been productive so far, even though the processis in its early stages. "At the beginning of April we did begin discussionswith Mr. Boston and his team and he is a very talented man," Farrell said."He knows the power industry well and I don't think it will take him much timeto really understand the Alberta power industry. At these early sessions, we'vebeen setting ground rules and creating a framework for how these discussions willbest proceed."

In an issue related to Alberta's climate change initiatives,Farrell said the fate of power purchase agreements, or PPAs, that were sold by the government as part of its deregulationstrategy is still unresolved. CapitalPower Corp., ENMAX Corp.,AltaGas Ltd. and have all informedthe Balancing Pool, a provincial entity that administers unsold PPAs, that theyare abandoning the contracts. The companies have cited a clause in the contractsthat allows them to drop the PPAs if changes in government legislation make themunprofitable. The PPA owners claim that Alberta's recently increased carbon levytriggered their actions.

"We know that the Balancing Pool is currently reviewingthese notices and has not yet announced if these actions are, in their view, permittedpursuant to the PPA," Farrell said. "Should the Balancing Pool concludethat the transfer is permitted, it will cause them to step into the shoes of thePPA buyer. Then all of our transaction rights under the PPA will be maintained bythe balancing pool. So in other words, this would be business as usual from ourperspective with respect to our Alberta coal asset."