Welcome to the TransAlta Corporation 2013 Fourth Quarter and Year-End Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions) At this time, I would like to turn the conference over to Brent Ward, Director, Corporate Finance and Investor Relations. Please go ahead, Mr. Ward.

Thank you, Brock. Good morning everyone and welcome to the TransAlta fourth quarter 2013 conference call. My name is Brent Ward, Director of Corporate Finance and Investor Relations. With me today are Dawn Farrell, President and Chief Executive Officer; Brett Gellner, Chief Financial and Investment Officer; John Kousinioris, Chief Legal and Compliance Officer; and Todd Stack, Vice President and Treasurer. Our call today is webcast, and I encourage those listening on the phone lines to view the supporting slides which are available on our website. A replay of the call will be available later today and the transcript will be posted to our website shortly thereafter. We will refer to the presentation during the call. All information provided during this conference call is subject to the forward-looking qualification, which is detailed in the MD&A and incorporated in full for the purposes of today's call. The amounts referenced are in Canadian currency unless otherwise stated. The non-IFRS terminology used, including comparable gross margin, comparable EBITDA, funds from operations, free cash flow, and comparable earnings are reconciled in the MD&A. On today's call, we will review the strategic and financial objectives related to today's announcement, followed by a review of 2013. Dawn and Brett will end our formal remarks by providing an outlook for 2014 and outlining our key priorities before going to the Q&A period. With that, let me turn the call over to Dawn.

Thanks, Brent, and welcome everyone. It's an important day for our shareholders and we very much appreciate the time that you're all going to take to really understand our announcements and where we're taking the company. So thank you for being on the call with us. Before we start into the formal presentation, I will make a few comments to set the context for announcements today. To build value for TransAlta shareholders it is a fact that we must continue to aggressively grow this company. We are one of Canada's premier generation companies and one of the few where investors can participate in powering infrastructure investments here in Canada, in the United States, and in Western Australia. We're positioned in markets that are growing and that need power for their growing economies and we're competitive in the fuels and the technologies that customers are demanding. You will see today in our presentation that our team has delivered significant growth in megawatts over the past five years in the markets where we have competitive advantage. In fact, almost 45% of our EBITDA today is due to those efforts. However, over the past three years we also faced a number of headwinds in our legacy coal assets. These headwinds prevented us from growing overall cash per share and have resulted in reduced value for shareholders. Our overall FFO per share growth targets have not been met due to the declining cash from our legacy assets, particularly Centralia, and before today we found ourselves paying out all of the excess cash for capital reinvestment and the dividend. Despite all our efforts to offset these decline, efforts that both improved the base business and grew the company to-date we have not been able to create the excess cash that is required to both grow…

Okay. Thanks, Dawn. So as you can see form this chart in the disclosure we released today, we're going to be providing comparable EBITDA along with other information for each of our businesses, will believe this will provide you with a better view of the performance of each of them going forward. So for the year our comparable EBITDA was just over a billion at $1,023 million, which was up slightly from 2012. The improvements in our gas, renewables, and trading, more than offset the reductions we saw at Centralia due to the higher price contracts expiring, but also we were impacted by the higher planned outages at Alberta Thermal as Dawn spoke about. So on the next slide, comparable EBITDA in the fourth quarter was down relative to the same period in 2012, mainly due to four key factors. First, Centralia was impacted by the high price contract growing up. Second, the high unplanned outages at Canadian Coal. Third, lower power prices in Alberta impacted our merchant open positions in the province. And finally, icing events in Eastern Canada in December impacted the wind business. Now some of these declines were partially offset by the corporate restructuring we did in late 2012 and the addition of the New Richmond wind farm earlier in 2013. On this next slide, we bridge comparable EBITDA to FFO and free cash flow. So as you can see although comparable EBITDA was slightly higher this year compared to 2012, FFO was lower and this was due to higher interest costs, higher cash taxes, and timing differences associated with cash settlement at certain hedges. The cash taxes were higher this year due to the fact that although we began collecting capacity payments at our Solomon plant starting in late 2012, we did not receive full…

Thanks, Brett. And now I would like to talk about our top three priorities going forward. First, operationally our Canadian coal business did not meet our expectations in 2013 and ensuring this business meets its target on unplanned outages is my number one operational priority for the year. The answer is a matter of additional discipline, not additional capital. We will return our unplanned outage rates to industry norms and deliver four major planned outages on time and on budget. These coal plants represent a lot of value to TransAlta shareholders today and as well once the PPAs expire and we will work to ensure that they are setup to capture that market upside post-2017 and post-2020. Second, we will continue to pursue long-term contracts both at Centralia and we will begin the process of securing contract extension at our Windsor and Mississauga gas facilities in Ontario and our Parkeston facility in Australia, which expire in a few years time. Our third priority is growth. Our goal is unchanged and we will continue to target EBIDTA growth of $40 million to $60 million per year as a goal. Alberta continues to be one of strongest economies in North America and we expect considerable generation growth over the next several years, on top of the coal units that are scheduled for retirement. We have a team dedicated to look in at gas fire coal generation to support development in Alberta and British Columbia and we have our two channel partnership, which I will talk about in more detail and finally we're growing our business in Western Australia. One important thing to notice, there are two timeframes for our growth strategy. The first phase is 2014 to 2016 where most of our growth will come from acquisitions or assets that can be…

Okay, thanks. So this slide outlines some of the key metrics that we used to run our business and evaluate our performance and many of you have seen these before, so I'm not going to go into them into detail, but you can refer to this slide going forward in terms of how we're looking at our business. On the next slide, the key assumptions for outlook in 2014 are shown here. For our open positions in Alberta, we're assuming a price range of approximately $50 per megawatt hour to $55 per megawatt hour, which is in line with where the forward market is. In Alberta we have approximately 35% of our merchant position on a capacity adjusted basis unhedged. The rest is hedged at an average price of approximately $55 per megawatt hour. For Centralia, we're using a price range of $35 per megawatt hour to $40 per megawatt hour on the open portion, which is about 20% of the output. The rest is hedged or under other contracts at an average price of $40. We have four outages planned for the coal fleet this year, one of which is currently underway and Centralia will also take an outage on one of its units in spring. Overall, our fleet availability target is in the 88% to 90% for the year and finally we assume like previous year's average wind and water years in our outlook. On the next page, slide based on these assumptions our outlook for comparable EBIDTA is $1,015 million to $1,065 million. Then after the deduction of interest, cash taxes, and other items, we have an FFO range of $743 million to $793 million. Our sustaining capital is expected to be in the range of $335 million to $365 million. So we've used the midpoint here…

Thanks, Brett. I will end my formal remarks today by reiterating that TransAlta's strategy is unchanged and our ability to execute is enhanced. Our value proposition is that we offer an integrated approach to driving long-term shareholder value that is a mix of giving some cash back to shareholders in a dividend and reinvesting the rest on behalf of shareholders in good projects and market fields and technologies that we have a competitive advantage in. We have a track record in growth and that is the most important consideration as we go forward from today. We're focused on maintaining a strong balance sheet and solid excess cash flows. And we are well-positioned in our core markets to utilize our balance sheet and redeploy our cash into projects with strong returns, while maintaining an investment grade credit rating. I believe the actions today set us up to deliver that return. Also, don't forget that our company still offers unique cash flow once our Alberta PPAs roll off in the 2017 and 2020 timeframe. With that, I will turn it back to Brent Ward for questions.

Thanks, Dawn. The Q&A format will be the same as always. We will answer questions from the investment community first and then open the call to the media. Lastly, I will remind you that myself and my team will be available after the call for any follow-up questions that you may have. Operator we will now take questions.

Thank you. (Operator Instructions) Our first question today comes from Juan Plessis of Canaccord Genuity. Please go ahead.

Can you take us through in a bit more detail the process with respect to the dividend cut? In previous conference calls Dawn you had stated that the two key priorities were to maintain the company's investment grade credit rating and to maintain the then $1.16 level of the dividend, which you had indicated was supported by a free cash flow and still seems to indicate it supported by free cash flow. Was the dividend cut also a reaction from any pressure from credit rating agencies?

So no it wasn't. There was no pressure from credit rating agencies. But as we came out of 2013 and we came into 2014 and we looked at our balance sheet, I mean, Juan, that as we go forward to be able to grow in the markets that we're in we have to have a very solid balance sheet. So we wanted to make sure that we had that well under our belt and well taking care of, so that was our one of our first concerns. And then our second one was trying to figure out given that all of the work that we've done really has us in a position where there isn't very much free cash flow, we're trying to figure out how to grow given all the growth opportunities that we have. And I guess the third was to look at the market, which was showing us an 8% dividend yield and wasn't giving us the confidence, the market itself didn't have the confidence that our dividend was sustainable. So we looked at our growth very, very closely, looked at our track record on growth and our ability to grow going forward, looked at a number of options for how we could finance that growth and fund that growth so that we could add value to shareholders. And we determined at the end of the day that retaining some of the cash in the business to be able to reinvest in growth would in fact provide the best returns for shareholders over the longer-term.

So with respect to growth then, aside from the Fortescue pipeline what other near-term growth projects are you pursuing that necessitated today's dividend cut?

Well when we looked at -- and so if you look at the various regions that we're positioned in here in Alberta we've got a number of projects that we're working on now. I just want to be clear. We don't announce our projects until we're ready to invest. So you might see others that announce projects that they're chasing or projects that they're developing. Our teams develop the projects and when they're ready to go like you saw with the pipeline we then announce them. So we've got some gas projects we're working on, on the development side, in Western Australia and here in Alberta. And then we've got a number of acquisitions that we're also working on here in Canada and the United States.

The next question comes from Ben Pham of BMO Capital Markets. Please go ahead.

You guys talked about EBITDA growth guidance over the next little bps. Can you talk about your free cash flow growth per share expectations going forward?

Yes. When we look at our growth per share we tend to look at what we believe would grow shareholder value over time ensuring that we pay a good dividend to our shareholders and they have a good yield on the dividend. And then in order to get them to the, I think, the kind of shareholder return expectations that they would have we need to be growing our FFO per share in that 3 to 4 range. 3 would be a minimum, 4 is kind of the target and if we hit it out of the target you start to see 4.5, 5.

Okay. Secondly, can you talk about the degree in which you would consider bringing back NC norm offshore a bit?

Yes. I think as we move forward clearly we'll evaluate the cash flow. And if that's something we think is the right decision to do and put in place we'll do that if we think that's where the best use of proceeds are from the excess cash flow.

The next question comes from Charles Fishman of Morningstar. Please go ahead.

Brett, you mentioned in the release that the new dividend is 67% of 2014 expected free cash flow. Is that going to be the dividend policy for the board going forward?

Yes, we don't -- our dividend policy, you can refer to our documents, does not state a specific payout ratio if that's what you're referring to. We think based on other companies and where the amount of cash flow we believe is the right level plus the right level of dividend for our shareholders that's what it looks like on the current level for our outlook for 2014.

So going beyond 2014 do you think, for analysts out there, modeling at 60% of free cash flow would be reasonable?

Again, we don't have a fixed percentage in our dividend policy, but certainly I think the way to think about is how we compare to other companies, and right now we feel that's the right level.

And then on the CE Gen transaction capital gain capital loss on that? At this time do you have a number?

Yes. It will be relatively neutral from an accounting.

And did you consider, I'm just curious, did you consider a dropdown to try and help the Renewables since one of the principal assets of CE Gen is geothermal. Would that have been an option that was considered?

Yes, we definitely looked at a range of those and certainly dropdowns are something that are still things we can consider for growth. The CE Gen asset just the cash flow profile of it at this time did not meet with TransAlta's objectives nor would they meet TransAlta Renewables objectives. So that asset at this time didn't make sense and so that's why we felt this decision would be resizing of the dividend were the two right initiatives.

The next question comes from Jeremy Rosenfield of Desjardins Capital Markets. Please go ahead.

Just a question first on sort of acquisition based growth strategy in the near-term that you outlined, Dawn. Can you talk a little bit about what are the sizes of acquisitions that you might consider in terms of dollar amounts? Is there any minimum size that is too smaller, any maximum size that would be too large at this point?

I think there's a range of answer to that. I mean, first of all, I don't mind some of the smaller acquisitions like we've done with Wyoming Wind. We kind of look at those as singles and in our company two or three singles is you add them together and you kind of get a nice double or a close to a homerun. So we don't mind doing those and we're set up to do those. So something in the $150 million range is not out of the question. We're seeing projects right now in the range of $500 million or $600 million and those are good sights for us to actually get ahead to gain significantly on our growth but they will have to meet our return expectations to do that. So we're pretty tough on, we've looked at a lot of projects and we've been involved in a lot of processes. So we're pretty disciplined around our return expectations. Larger transactions we see as something that we can do because there's a number of custodians that we can pull together to just bring the number of financial players together with us to be able to take on larger pieces of assets. So right now, size can be smaller and it can be bigger, I think the key is that over time as they accumulate they are competitive assets. They are assets that we can add value to, we get a concentration of assets in the regions that we are like, because we fundamentally believe there is more competitive advantage to having a concentration of assets rather than one-off and then if they're too big there's lots of people around, lots of money around that we can partner with.

Just following on that last point though, do you feel like there may be sort of a valuation gap when you acquire assets with a joint venture partner rather than consolidating assets on a 100% ownership basis?

I mean, I think we found that we're pretty good at partnerships and I think that we found that in the partnerships that we're in, I mean, we've got partnerships with CKI and Capital Power and with others. We find that those deals tend to do as well and as seems well we have a 100% ownership. So I don't find that there is a difference there. I think the key thing on the acquisition side is to not just take the cash where you're potentially turning four quarters into a dollar. You got to find a way to $1.10 or $1.20 out of the investments. So that's our key consideration as we're looking at those assets.

And just moving on to asset sales, do you see any other sort of non-core or otherwise obvious assets that that might be attractive to sell at this point?

Right now, in terms of our portfolio, everything is performing well and I mean, even our Canadian Coal is performing well. It just needs to perform better. It's got a good cost base and we just want to find a way to get that extra $0.50 or $1 margin out of those assets. What's key for us is assets that are cash positive today and that are creating EBITDA and creating cash for our shareholders. And so right now, there aren't any other assets that have finance where they don't have the cash or where we have to inject cash. So at this point, I think we're kind of through looking at our portfolio and thinking about asset sales, but certainly every asset and transaction is reviewed every single year for its ability to generate to the returns that are expected at the corporate level.

And may be just one final question for Brett, I guess, the -- in terms of capital structure going forward with the sort of new strategy and the new dividend, are there any changes planned for the target capital structure or sort of keep the same as it is right now with an eye obviously on the investment grade credit rating?

Yes, it's pretty much unchanged. The metrics we laid out in the presentation are really more cash flow type metrics versus debt-to-cap, and we're focused on the same levels, and just ensuring we have that strong balance sheet and financial flexibility, so that when these opportunities come our way we are well-positioned. So yes, no change clearly when we look at any opportunity, we look at the whole risk profile not just the returns, but the risk profile. The length of the contracts and et cetera and we evaluate that against the whole company in the portfolio. So that's an analysis we go through and the credit metrics are part of that analysis when we think about it.

The next question comes from Andrew Kuske of Credit Suisse. Please go ahead.

I guess just with the disposition of CE Gen and with the other corporate actions, is this a little bit of a refocusing and just looking at the Alberta Power market over the next say 5, 10, 15 years and beyond that that's really where you want to allocate the bulk of your capital just because the opportunities that exists and really didn't have the balance sheet to do that prior to today's actions?

No, actually not. I mean, there was nothing. I mean, in terms of the California market and in terms of geothermal we like both of those markets and we like that particular fuel. It was really more the profile the cash flows for that assets that caused us to exit there. There is a lot of opportunity in Alberta, but remember in Alberta TransAlta any generator in Alberta can only be up to 30% of the market and if you get higher than that you get into issues with competition. So we don't fundamentally believe that being overly focused in one market is a good strategy for our shareholders, which is why we're very aggressive in Western Australia and why the team continues to look at asset packages in the U.S., if anything I'd like to over the next couple of years find a good concentration and a good front in one of the U.S. market. So I'd say that. I'd say the other thing is the operative market is very quickly going towards fully merchant market as the PPAs roll off. So we -- there's some ability to hedge in the operative market but fairly limited at this point. We don't know how good that's going to be. Our value proposition is to have more stable cash flows. So although we see good opportunities in Alberta and we see some good opportunities in CE Gen where you can attract long-term contracts. We want to be careful about how concentrated we get in that market.

And then I guess just given your comments on Australia and the U.S. would your buyers be towards Australia right now and then I ask this in a couple of context but obviously the CAD is devalued against the USD and then the Aussie Dollar is also devalued, but there's pretty interesting dynamics happening in Western Australia. So would your buyers be putting into more capital into Australia -- Western Australia, into those kinds of contracted opportunities rather than in the U.S. at this time?

Yes I would -- I would say that's probably right. I mean I think the Australian market; we've been there for a long time. We've got a good reputation in that market. We've got competitive advantage there. We like the returns in that market. We like the players and the partnerships that we have there. So to the extent that, if we had to make a choice to the extent that those conditions continue in Western Australia, they would edge ahead. I'm fairly ambitious so about the U.S. over the medium-term because I fundamentally believe U.S. is going to grow faster than people believe it is. I think there is a lot of reinvestment going on and a lot of restructuring and retooling of the economy there. There is a lot of energy efficiency going on and there is quite a huge uptick in rooftop solar and they're starting to be a market there for storage. So I think it's a restructuring market and I think it's a market where you have to be more cautious in terms of how you position there. And so that's the kind of work we'll be thinking about as we think about trying to open our front in the U.S.

The next question is from Robert Kwan of RBC Capital Markets. Please go ahead.

Just with the increased cash flow that you've got. How you're thinking then about taking on may be a little bit more merchant exposure. Certainly you've mentioned you don't have a major change in strategy. But when that comes to something like the contracting goals for Sun 7, or for acquisitions, may be taking on a bit of a shorter contract?

Yes, so it's Brett, Robert. We look at it, back to my earlier comment a couple of ways. I mean clearly whenever we look at any opportunity in terms of its contractiveness, mix, and merchant mix, is we evaluate what's the right returns we need from that asset. If it has more merchant clearly we're going to expect higher returns. And then, secondly, the balance sheet. And so we will factor that in as we think through how we would, the returns we expect and also the funding we expect or how we're going to fund it. If it gets to a big enough size, back to Dawn's point, that's where we would consider partners to lay off some of that risk and share that risk. Also in the partners, when we think about a partner, quite often we find that they bring something else to the table so together we're more competitive. A good example was the Australian pipeline. We joined forces with a local pipeline company and what we had was a very strong relationship with the counterparty and also just being in that market. So together that was a winning bid from our perspective. And so that's how we'd look at any kind of situation even in Alberta. So could have more merchants. We'd still continue to look for contracts. Some might shorter, some might be longer. The CE Gen side as Dawn mentioned tends to, we'll have a good contracting component to it by default with the steam and the power. There might be some merchant, depends how you size it. But again we evaluate all that before we make a decision whether or not to invest in that situation, whether or not to bring partners in.

So just to be clear, kind of all things be equal cutting the dividend, thus strengthen the balance sheet and increased cash flows. So directionally there is may be a little bit more appetite for risk and I guess just specifically the Sun 7 you have a new contracting target before you want forward with it?

No, we continue to have a similar contracting target. But I think as we move towards our decision on Sun 7, we'll have to -- we'll have to continue to reevaluate what we think profitability will be in the Alberta market and how the Alberta market will hold that. Currently the market does deliver both variable cost and a capacity payment. So those are the kinds of things that we can look at. But I'd say generally the people who look at TransAlta we've got a long history in more stable cash flows. So all of being equal, we would tend to favor projects that created stable cash flows over projects that had merchant exposure unless we can get a really good price on those merchant assets. It's very good.

Last question, if I can just shift to the Pac Northwest and contracting. Correct me if I'm wrong, but it doesn't look like the contracted price at least as at December 31, has materially changed nor does it look like the amount contracted has materially changed. Can you just talk about any activity you had since the end of the year. Fourth curve seems to be fairly attractive right now.

Yes, so a couple of things. So remember on the future contract the volume, that doesn't kick until late this year and remember the volumes increase over time. So that's helpful as we kind of move into '15, '16, '17 and we will report and give you updates on that going forward in terms of the contractiveness. The team works very closely with the plant in terms of optimizing in that market especially in light of as you pointed out seeing prices come up that affects whether we -- how much we take down in the hydro months and how much we run. But also, we haven't seen the forward curve in 2015 move as much clearly because there's still a question whether the increasing gas is going to hold. And also, this year is a little bit impacted by the expectation for hydro levels. They're slightly below average in the Pac Northwest. But clearly as you probably know in California very, very dry play weather right now and so that's impacting a little bit that tends not to flow as much into the 2015 periods but we'll see as we go through the year.

Mr. Brett, I was actually just referring to hedging up 2014?

Like in terms of --

In terms of something occur?

Yes that's factored in -- as I gave you the guidance of where we're at. Like I say each -- they work with plant daily though, if there's incremental opportunities where prices spike, they will take that off the table.

So sorry has there been material contracting since the December 31, date, which is I think what was in the specific outlook in the MD&A?

Oh, no sorry, Robert, no.

No material, okay.

Yes, sorry.

The next question comes from Catherine Morse of PMO. Please go ahead.

Hi. Most of my questions have already been answered. I just have one quick one. What percentage of your the shareholders are enrolled in the DRIP program, the dividend reinvestment program?

Yes, it's we got about 30% to 35% participation level. At the current we provided the 3% discount on that program and so it's been in around that level.

Okay. And are you likely to entertain an issue bid at any point?

Yes, I think that is referred back to an earlier question on the normal course issuer. And clearly as we go through time in terms of our growth prospects, if buying back shares is the right thing to do we would consider that. But right now we are not contemplating that.

The next question comes from Mitchell Moss of Lord Abbett. Please go ahead.

Just wondering on the timing of proceeds for the CE Gen sale, when might that go through?

Yes, it goes through regulatory approval, it varies by jurisdiction. But we think kind in that 60 to 120 days kind of timeframe on average, some may take a little longer, it may -- some might come faster but that's kind of the timeframe.

So sometime in I guess roughly the second quarter you guys should be getting the $193 million?

Yes, like I said that's clearly a target but it's really up to the regulator in terms of getting final approval. We don't see any issues at all but it's just a process that one has to go through.

And then looking at the savings where you mentioned $120 million that seems to be of the dividend cut. How should I be thinking about some of the puts and takes from your cash flow as result of the CE Gen sale itself?

Yes, so if you look at our financials for the last couple years you'll see that not a lot of cash if any came out of CE Gen. So really the benefit, immediate benefit is we get the interest savings from the proceeds of paying down debt to no reduction in cash flow as a result. And so that component, the $120 million to your point is due to the dividend. But certainly there's an incremental benefit from lower interest cost going forward.

And that's related to the debt at CE Gen?

No, we don't. There is debt at CE Gen but we don't pull that on our balance sheet, we acquire the account. And so our proceeds will go to pay down debt at TransAlta corporate level.

The next question comes from Linda Ezergailis of TD Securities. Please go ahead.

Can you give us an update view on how you might continue to use TransAlta Renewables, if there's been any changes either in timing or type of investments that you would put in there?

I will start and Brett can also add in here. I mean I think we continue to want to grow that vehicle as aggressively as we can. And what we're looking at is that, as different growth projects come in some could potentially go into Renewables directly, some could come to TransAlta first and then go to Renewables, some would just be for TransAlta. And for the ones that are for TransAlta, we can use the cash that we have now retained in the company and we can also -- we have additional assets that potentially could be filled into Renewables in order to give us -- to optimize our financing. So we're seeing it as a vehicle that can both grow on its own and that also provides additional financial capability for our strategies. And Brett may be you can add in to that.

Yes. Linda, really no change from why we set it up before, we still see it as a very good vehicle and having both companies as we pointed out. And using it, as Dawn pointed -- as mentioned, certain assets might fit first coming into TransAlta where we take a bit of risk off the table and then drop them in, some go direct, and then we also have some potential dropdowns if they make sense for both companies.

Okay. And just a follow-up question with some of the drip questions. At what point -- I did not see any commentary but I have not fully gone through your release. Are you planning to turn that off at any point when your share price is down, I mean it is moving around the $1.70 today, when might you consider turning that off?

Yes, we are not going to change the discounts as of yet, Linda. I think it really -- as the growth projects materialize we will determine whether that is a good source of funding we need or not. If we have sufficient cash flow and do not have the right use of proceeds and not, it is not adding its -- to cash flow per share then we will definitely consider scaling that back.

Okay. And just with respect to the debt rating agencies have you already discussed this dividend cut with them and how comfortable are they with your growth strategy and your financing plan?

Yes, there we have very good relationship with all the agencies. We meet with them frequently to layout how we are thinking about growth, how we are thinking about our risks in merchant. They are aware of these two initiatives in terms of that, but certainly as we said in the past having a strong balance sheet is very important and having good relationships with the rating agency is paramount for us. And so, yes, every growth we do our own internal analysis. Like I said, from both a shareholder accretion basis but also from a balance sheet perspective in terms of the returns, cash flow profile and the merchant/contracted mix, and that is what we take into consideration when we are doing it.

Okay. And then just with respect to your operations, Alberta coal it's comforting here, you don't expect a requirement of significant capital, but can you give us a sense of how you might improve performances there in specific actions and how long that might take?

I think it is -- I mean as kind of the bread and butter of what we do, so it is not a rocket science. I mean a lot of it is just making sure that the teams we set up properly out there, that they have access to the right people resources and expertise as things happen. And we have the right incentives in place for people and that effectively -- people can react quickly when things do happen. So we've been working on that for -- since we put the capital into business in 2012. We had a lot of work in 2013 with the return of the sunny units and force majeure Keephills. And so we see now that with that work behind us and with the teams having the proper resources that they will have the ability to put discipline in place that we see in all our other fleets.

Do they have the proper resources that are part of your cost restructuring which kind of centralize some of the engineering and other capability? I mean might you reverse that? Was that part of the challenge in 2013?

No, it was actually to decentralize those resources. And I am looking at further decentralization of those resources so that it's crystal clear that they have the accountability and have the total ability to control all of the resources that they need to make decision. So we wouldn't reverse, we would actually reinforce what we took on at the end of 2012.

And is that going to add more net operating cost?

No, I think it is a transfer of accountability. But no we do not see additions of our operating cost or capital cost. It's just more making sure that the decision making is crystal clear and that people have the true accountability that they need to make the decisions.

We have a follow-up question from Charles Fishman of Morningstar. Please go ahead.

Yes, just quick follow-up on the DRIP question. Those will be incremental shares, you are not planning at this time to go into the market and purchase share to make it up again, are you?

No, we are not. Those are incremental. But yes, no we are not planning, the fact that the normal course issuer bid questions. No change in what we are doing.

Our next question comes from (inaudible) of Scotiabank. Please go ahead.

Hi, it is Matthew Akman actually. My first question is on plant operations. And Dawn, I guess in the last year or two you've kind of got out of limb and talked about how you believe that the operations will improve or have improved. Obviously, we had another disappointing quarter in that regard. I guess, how do you explain that? And having been in charge of operations yourself, I mean what are your thoughts on how that might play out over the next couple of years?

Yes, I mean it's a tough one, right. I mean, we don't expect to see as many forced outages that we are seeing those parts. And I think at the end of the day what it comes down to is it always comes down to accountability. And so as I said to Linda prior to your question here, I think the most important thing that operational people need and what we seem to be able to do in our other operations is any total accountability to make the decisions and so that they can hit the targets that have been set. So I don't think our targets are too high. I don't think that we need more capital. I think really what it is, is we just need to make sure that those teams have to have the capability and the confidence to deliver on their target. So I will be adding some resources at the senior level out there to help with that. I will be making a couple of changes potentially internally to help with that and all of that I think will align you guys to what they can do. I think the other fact here is just the pressure coming off from teams having to divert resources to get done 1 and 2 back running and some of the extra work that we had on Keephills and some of the other smaller outages that we have to take on the boilers. I think a lot of that is behind them. So I think that is already in the picture as we go forward here in the first quarter and we are seeing good performances as we get into the first quarter, but it is about accountability.

Okay. My follow up question is I guess on the dividend and I know it's obviously asking you to project a little bit, but do you think that the board would take a view that the dividend might start growing gradually or just with some of the cash flow growth you have talked about going forward? Or do you think the board will more take a view that this is kind of the dividend level until the PPAs expire when there is that significant cash flow upside and we will kind of look at it again towards that timeframe?

Yes, I think we don't really have an answer to that. I think to the extent that the cash flow or the FFO per share grows more aggressively, I think that can bring about confidence potentially earlier than when the PPA starts to roll off. I think for sure when the PPA roll off, there is a lot of extra cash there that would lead to a re-examination of dividends. So I think it's up to the management team here to create a performance that then allows the board to reassess the dividends. So I don't think this is an actual answer to that, but I do know, in my own mind, if we get the FFO per share growing it gives the board more flexibility around the dividends.

Okay. Maybe I could just one final one related to this. Just with the lower divided I guess volatility isn't as big an issue in paying it or covering it. I'm just wondering why Centralia is so heavily hedged going into this year. I mean, that's kind of unfortunate because it looks like you guys left some money on the table here, with a lower dividend level you could have probably hedged less. I'm just wondering what the rationale is between the hedging policy and the dividend policy.

Well, I mean, let me talk about how we do the analysis on the hedging policy as we do it relative to thinking about what the volatility that we can withstand in terms of our earnings per share or cash per share. So as you know, dividend is just a payout of return. So really what we do is we say, how much will you want around cash per share? Then we look and say, okay, which market do we think are potentially -- we allow the guys to have flexibility between the two markets Alberta and the Pacific Northwest, and then we also know in the Pacific Northwest that there is a lot of opportunity to re-optimize as you go forward. So you can hedge and then you can also trade around at the plant and the hedges. So as we -- and remember our strategy as a four year ladder and we are clear about that in our disclosures and as we are coming up to the period, we will be hedging. So as you look at Centralia coming into this year, we would have been disciplined to hedge that plant as we were going forward, because you never know what you are going to end up in a year with a lot of water or no water, and I guess if there had been a lot of water this year we would have been right and then because there is no water then some of those hedges look like there will be a little bit too low. But my view is so for that all the analytics we have done on our four-year ladder strategy have been cracked in terms of keeping our cash flows in line and now what we are doing is exposing both side of the equations to you, we have never done that before to you so you can kind of see what our performance is there. But I mean, you hedge or you speculate and we hedge so.

This concludes the analyst Q&A portion of today's call. We will now take questions from members of the media. (Operator Instructions) There appears to be no questions from the media. This concludes today's conference call. You may disconnect your lines. Thank you for participating. And have a pleasant day.