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TransAlta earns upgrade after IPO announcement, coal power deal

Published: 19:35 27 Jun 2013 BST

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Shares of TransAlta Corporation (TSE:TA) are surging more than nine per cent after analysts at TD Securities upgraded the stock. 

TD now has a "buy" rating and a $16.00 price target, up from $15.00.

On Wednesday, TransAlta announced that it was spinning off renewable assets into a new company and filed a preliminary prospectus for the initial public offering. The company will be called TransAlta Renewables. 

TransAlta expects to get between $200 to $250 million from the offering, which will mostly go toward debt reduction. 

TransAlta will transfer wind and hydro power assets to TransAlta Renewables after the IPO and will broaden its portfolio organically and through acquisitions. The Calgary-based company, whose renewable holdings represent a quarter of total assets, plans to hold a stake in TransAlta Renewables of somewhere between 80 to 85 per cent and handle all management, administrative and operational requirements. 

Seperately, TransAlta announced yesterday that it has received regulatory approval to sell coal power to the largest energy utility in Washington state. 

The company struck an 11-year agreement to sell coal power from its Centralia Power Plant to Puget Sound Energy.

“PSE is now our largest customer for Centralia coal transition power,” said president and CEO Dawn Farrell in a statement. 

Under the purchase agreement, Puget Sound will acquire 180MW of coal transition power starting in December 2014. One year later that volume ramps up to 280MW and from December 2016 to December 2024, to 380MW before dropping to 300MW in the final year. 

The transaction means approximately 35 per cent of Centralia’s total available production will be contracted from 2014 until the end of 2020, and approximately 65 per cent will be contracted from 2021 through 2025.

The deal dates back to 2011, when Washington's state legislature passed a bill agreeing to use cleaner fuels by 2025, while keeping the Centralia plant in operation. Last July, TransAlta and Puget Sound layed out the contract and waited for review process to take its course.

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