OT/ TransAlta
This article was in Kerm's newsletter today:
Alberta gives TransAlta 'punitive' rate of return
Board grants 9 1/4% in each of two years, wants more power
TransAlta Corp. accused Alberta's utilities regulator yesterday of handing it a "punitive rate of return" for 1999 and 2000, and said it will severely affect the electric company's earnings.
In a decision late last week, the Alberta Energy and Utilities Board agreed to allow TransAlta a rate of return of 9 1/4% for its regulated electricity generation business this year and next, one of the lowest rates of return set by any regulator in the country.
"Not only has the board set a punitive rate of return, they've directed us to increase the output from our generating units and at the same time reduced the amount of money we have to operate the plants," said Ian Bourne, executive vice-president and chief financial officer. "This decision will have a significant impact on our business."
Mr. Bourne said TransAlta expects to see only $1 a share in earnings for each of 1999 and 2000, before non-recurring items. That's substantially lower than estimates of about $1.30 from analysts who just recently revised their figures downward.
"It's very ugly," said one analyst. "I can't imagine anyone having a 'buy' on this."
Mr. Bourne said the allowed rate of return, tied to interest rates, is lower than most industry observers expected. For the previous two years, TransAlta had negotiated its rate of return with customers, but this year couldn't get them to the table.
"We will do our best to minimize the damage," said Mr. Bourne, noting TransAlta has no plans to cut its dividend of $1.
However, the analyst, who asked not to be named, said the AEUB decision was not so much punitive as realistic.
TransAlta wants protection against high costs to generate electricity on its regulated side, but the benefits of selling higher-cost electricity from its non-regulated business, said the analyst.
The 850-page decision also calls for TransAlta, with $6-billion in assets, to increase its generation output in power-strapped Alberta, a move Mr. Bourne said concerns the company because the plants have been running hard. |
