Commitments and Contingencies

In addition to commitments disclosed elsewhere in the financial statements, the Corporation has other contractual commitments, either directly or through its interests in joint operations. Approximate future payments under these agreements are as follows:



	2018	2019	2020	2021	2022	2023 and thereafter	Total
Natural gas, transportation, and other purchase contracts	48	7	5	5	4	29	98
Transmission	9	6	6	3	—	—	24
Coal supply and mining agreements	155	159	161	23	14	96	608
Long-term service agreements	108	50	41	31	15	35	280
Non-cancellable operating leases⁽¹⁾	9	9	9	9	9	111	156
Growth	27	—	—	—	—	—	27
TransAlta Energy Transition Bill	6	6	6	6	6	6	36
Total	362	237	228	77	48	277	1,229

(1) Includes amounts under certain evergreen contracts on the assumption of the Corporation’s continued operations.

A. Natural Gas, Transportation, and Other Purchase Contracts

Several of the Corporation’s plants have fixed price natural gas purchase and related transportation contracts in place. Other purchase contracts relate to commitments for goods and services.

B. Transmission

The Corporation has several agreements to purchase transmission network capacity in the Pacific Northwest. Provided certain conditions for delivering the service are met, the Corporation is committed to the transmission at the supplier’s tariff rate whether it is awarded immediately or delivered in the future after additional facilities are constructed.

C. Coal Supply and Mining Agreements

Various coal supply and associated rail transport contracts are in place to provide coal for use in production at the Centralia coal plant. The coal supply agreements allow TransAlta to take delivery of coal at fixed volumes with dates extending to 2020.

Commitments related to mining agreements include the Corporation’s share of commitments for mining agreements related to its Sheerness and Genesee Unit 3 joint operations, and certain other mining royalty agreements. Some of these commitments have been reduced, due to the cessation of coal-fired emissions from the Genesee 3 and Sheerness coal-fired plants on or before Dec. 31, 2030.

D. Long-Term Service Agreements

TransAlta has various service agreements in place, primarily for inspections and repairs and maintenance that may be required on natural gas facilities, coal facilities, and turbines at various wind facilities.

E. Non-Cancellable Operating Leases

TransAlta has operating leases in place for buildings, vehicles, and various types of equipment and commitments for water rights and transmission tower right of ways.

During the year ended Dec. 31, 2017, $7 million (2016 - $9 million, 2015 - $9 million) was recognized as an expense in respect of these operating leases. Sublease payments received during 2017 and 2016 were less than $1 million (2015 - less than $1 million). No contingent rental payments were made in respect of these operating leases.

F. Growth

Commitments for growth relate to the construction of the Kent Hills 3 wind project.

G. TransAlta Energy Transition Bill Commitments

On July 30, 2015, the Corporation announced that it would formalize its commitment to invest US$55 million over the remaining 9 year life of the Centralia coal plant to support energy efficiency, economic and community development, and education and retraining initiatives in Washington State by waiving its right to terminate the commitment on the basis of the level of contract sales of the Centralia plant. As of Dec. 31, 2017, the Corporation has funded approximately US$28 million of the commitment, which is recognized in other assets in the Consolidated Statements of Financial Position.

H. Other

A significant portion of the Corporation’s electricity and thermal production are subject to PPAs and long-term contracts. The majority of these contracts include terms and conditions customary to the industry in which the Corporation operates. The nature of commitments related to these contracts includes: electricity and thermal capacity, availability, and production targets; reliability and other plant-specific performance measures; specified payments for deliveries during peak and off-peak time periods; specified prices per MWh; risk sharing of fuel costs; and retention of heat rate risk.

I. Contingencies

TransAlta is occasionally named as a party in various claims and legal and regulatory proceedings that arise during the normal course of its business. TransAlta reviews each of these claims, including the nature of the claim, the amount in dispute or claimed, and the availability of insurance coverage. There can be no assurance that any particular claim will be resolved in the Corporation’s favour or that such claims may not have a material adverse effect on TransAlta. Inquiries from regulatory bodies may also arise in the normal course of business, to which the Corporation responds as required.

I. Line Loss Rule Proceeding

The Corporation has been participating in a line loss rule proceeding (the “LLRP”) before the AUC. The AUC determined that it has the ability to retroactively adjust line loss charges going back to 2006 and directed the Alberta Electric System Operator to, among other things, perform such retroactive calculations. The various decisions by the AUC are, however, subject to appeal and challenge. A recent decision by the AUC determined the methodology to be used retroactively and it is now possible to estimate the total retroactive potential exposure faced by the Corporation for its non-PPA MWs. The estimate of the maximum exposure is $15 million; however, if the Corporation and others are successful on the appeal of legal and jurisdictional questions regarding retroactivity, the amount owing will be nil. The Corporation has therefore recorded a provision of $7.5 million.

II. FMG Disputes

The Corporation is currently engaged in litigation with FMG as a result of their purported termination of the South Hedland PPA. In addition, FMG withheld approximately AUD$58.2 million, including AUD$43 million in tax applicable to the repurchase of the Solomon Power Station. TransAlta is seeking payment of all withheld amounts, and has currently commenced proceedings to recover approximately AUD$54.1 million by filing and serving FMG with a Writ and Statement of Claim on Nov. 17, 2017, and also applied for summary judgment for this amount. The hearing is scheduled for March 23, 2018.