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TransAlta's Report on Sustainability

describes how we manage our

policies, programs and performance

across a wide range of social,

environmental and economic issues.

This report covers the calendar year

ending December 31, 2004.

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Contents TransAlta’s Report on Sustainability describes how we manage our policies, programs

and performance across a wide range of social, environmental and economic issues. This

report covers the calendar year ending December 31, 2004.

Introduction to Report

Management Review

Governance and Management Systems

Environmental Performance

Economic Performance

Corporate Social Responsibility

The Numbers

GRI Indicators

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Introduction to Report

Reclaiming and reseeding distributed land.

When you understand how we operate and how we tackle environmental, economic and

social challenges and opportunities, our approach to business becomes much clearer —

and what drives our success as a sustainability leader becomes more obvious.

TransAlta is well known as a supplier of electricity and related products and services. But

our value to the communities we serve is far greater than our capacity to generate power.

Our success is also determined by the way we use resources, manage our impacts on the

land, invest in communities and protect the safety of our employees and our neighbours.

These measures of sustainability — of balancing environmental, economic and social

needs in everything we do — are core principles of our company.

Through our commitment to sustainability, we are not only improving our performance —

we are gaining an international reputation. TransAlta has been named one of the world’s

100 most sustainable companies, in a new global business ranking launched in early 2005

at the World Economic Forum. We are among six Canadian representatives on the list.

The top 100 companies were selected from a pool of more than 2,000 firms representing

large global indexes. These include the S&P 500, MSCI World, FTSE 350 and Eurostoxx.

Companies were rated on a range of criteria that included strategic governance,

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environmental initiatives and human capital/labour relations practices and selected on

their ability to manage strategic opportunities in new environmental and social markets.

The following pages walk you through some of the achievements that have earned the

company a worldwide reputation as a sustainability leader. We encourage you to use this

report as a tool to understand and measure our performance.

STEPHEN G. SNYDER ROBERT J.D. PAGE

president & chief executive officer vice-president sustainable development

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We operate in four countries: Canada (66 per cent of TransAlta’s total generating capacity), United States (25 per cent), Mexico (six per cent), and Australia (three per cent).

What We Do TransAlta is a power generation and wholesale marketing

company based in Calgary, Alberta.

We generate electricity fuelled by coal, natural gas, hydro,

wind and geothermal resources, and sell it to wholesale

customers in various regions of Canada, the United States,

Mexico and Australia. Our focus is to provide our customers

with a reliable, low-cost source of power. For more than 90

years, we’ve been a responsible operator and a proud

contributor to the communities where we work and live.

In 2004, our net generation capacity in operation, under

construction or development was 8,337 MW, and we

employed more than 2,500 people.

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How We Measure Sustainability at TransAlta A GUIDE TO OUR KEY PERFORM ANCE INDICATORS

Environmental

Improve emission intensity As a company that uses fossil fuels to generate most of our electricity, one of our biggest environmental challenges is greenhouse gases. Gross emission intensity, the primary indicator of our company's greenhouse gas performance, shows how much we emit into the global atmosphere for each unit of electricity we produce. This indicator measures our environmental efficiency and enables us to compare our performance with peer companies in Canada and internationally.

Details

Reclaimed mined land Much of the land disturbed by TransAlta’s activities is associated with surface mining of coal to fuel our power plants. By restoring and reclaiming mined land, we return this land to productive use after the coal has been removed. We track our progress in reclaiming mined land as a percentage of reclaimed land to total disturbed land.

Details

Manage water use Efficiently and responsibly managing our water use is a priority for TransAlta. One of the ways we measure water use is through water consumption intensity. This measure tells us how much water (in cubic metres) is required to produce each megawatt hour of electricity from our coal and gas plants.

Details

Economic

Increase production We are in business to deliver our product — electricity — to our various wholesale customers. We measure our success in growing our business by the electricity production (in gigawatt hours) we deliver each year to our customers.

Details

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Maintain healthy balance sheet A healthy balance sheet remains a cornerstone of our strategic approach to long-term sustainability. We need it to weather the volatile conditions in our industry and to keep our cost of capital low and maintain our credit rating. Our cash flow from operating activities is a critical indicator of our financial strength and our ability to invest in new innovative technologies.

Details

Social

Eliminate injuries TransAlta’s goal is to eliminate injuries to workers. We use the injury frequency rate (IFR) to benchmark our safety performance against industry leaders and to measure our progress to our goal of zero injuries. IFR is based on the number of work-related medical aid and lost-time injuries per 200,000 hours worked (about 100 person years of work).

Details

Strive to be a good corporate citizen We strive to be a good neighbour and good corporate citizen in the communities where we live and work. Our commitment to corporate social responsibility inspires us to invest in community initiatives and broader social objectives. We track and report on our corporate donations and sponsorships to not-for-profit organizations and community initiatives.

Details

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Management Review

D ISCUSSION WITH STEVE SNYDER, PRESIDENT AND CHIEF EXECUTIVE OFFICER

What is TransAlta’s sustainability goal?

We want to continually improve our ability as a power generation company to respond to

different economic, environmental and social needs, while ensuring all our shareholders

and stakeholders benefit from our efforts. How we operate our plants productively and

safely, improve revenues and margins, meet or exceed environmental standards,

strengthen the communities where our employees live and work — all creates long-term

value through a responsible sustainable business model.

In terms of carrying out this sustainability approach at TransAlta, what were some significant events in 2004?

All in all, we had a good year, with continued progress. Our environmental and social

activities continued to be highly recognized among our peers and the investment

community. In early 2005, TransAlta was named one of the world’s most sustainable

companies in a global business ranking launched at the World Economic Forum. And, for

the sixth year in a row, we were selected to the Dow Jones Sustainability World Index, a

prestigious investor index which tracks the performance of top sustainability leaders

worldwide.

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We also continued to make progress in reducing our emissions. For example, we’ve cut

our sulphur dioxide emissions company-wide by over 55 per cent since 2000. In the

United States especially, we’re at the forefront of industry in dealing with this issue. At

Centralia, Washington, we’ve invested about $400 million in scrubber equipment to make

sure we not only meet today’s emission targets but foreseeable targets over the next 20

years.

Our Target Zero safety initiative has been embraced across our fleet and has given us

some tremendous results in safety performance. Hazard and near miss reporting

frequency across the company over the past three years has increased from 3,000 in

2003 to 17,300 in 2004. This increase is positive — the more near misses reported, the

more improvements are made. This, in turn, drives improved safety performance and

reduced costs.

What is the company’s greatest environmental challenge?

Finding cost-effective environmental solutions for the use of coal. This is a great challenge

not only for TransAlta but for our electricity industry and our economy, since coal provides

more than half of the electricity needed by consumers in North America.

At this point, there’s no cost-effective, long-term alternative to the use of coal. So, we

need to find a solution. Finding this solution is not going to happen overnight — it’s going

to take time. As an industry, we’re working hard to deal with this issue. And TransAlta has

been at the forefront of this effort.

In the short-term, TransAlta is investing in advanced generation technology that provides

operating and environmental efficiencies (our new Genesee 3 plant, which we own along

with EPCOR, uses the best available coal generation technology in Canada). Every time

we look at maintenance of our plants, we’re trying to add the best environmental

technology possible. We’re also growing renewables as a percentage of our energy

portfolio, as quickly as we can. As a result, we’re now one of the largest owners of wind

power in Canada. And over the long term, we will continue to work with industry and

government partners to pursue the development of clean coal technology. With incentives,

this revolutionary technology could virtually eliminate all air emissions, including

greenhouse gases, from coal-fired power generation in 20 to 30 years. The environmental

ramifications of this work are vast.

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Another issue that remains challenging for our company and our industry is mercury,

which is present in coal in small amounts. Our challenge as an industry is to find and

remove these very small amounts cost-effectively and reliably. So far, there are no clear

cut technological solutions. It’s a challenge we’re working hard to address by supporting

research into technologies to measure and control these emissions. Our hope is that any

timetable that is set by government will give us enough time to ensure the proper

technology is developed.

As CEO, what’s your role in promoting sustainability?

As CEO, I try to set the right tone, the right emphasis — by reminding people where we

are doing things right, and where we need to improve. It’s my job to make sure there is the

proper awareness of sustainability issues, starting at the Board of Directors and on down

through the organization. And we do that in different ways. Each year our Board has a

major strategic review session, which examines corporate strategy and direction including

sustainability issues. I also prepare a weekly email update to all employees that

summarizes how our company is performing on different issues. In that newsletter, I

frequently discuss our commitments to sustainability.

Outside our company, we’re also getting out our sustainability messages to our

stakeholders and the public. That’s something that I strongly believe in and encourage as

a CEO. As a company, we share information on our sustainability activities and issues,

through a variety of communication vehicles, including our website, our annual

sustainability report, investor tours and regular meetings with government and regulatory

bodies.

How are shareholders responding to TransAlta’s sustainability approach?

From our shareholder meetings and correspondence, we know our shareholders have an

increased interest in the issue of sustainability at TransAlta. Their message to TransAlta is

a simple and challenging one: “We want you to be socially responsible. We want you to

reduce your environmental footprint. But do it as cost-effectively as you can.”

And that’s what we’re working hard to do. A good example is our approach on climate

change. For the last 10 years, TransAlta has been carefully building a climate change

strategy that has allowed us to understand what the least cost options available to us are,

and how to prudently take action. As a result, we believe our company has a balanced,

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comprehensive climate change strategy in place, and is well positioned to address this

issue over the long term, despite the changing policy environment.

Is there more to be done in terms of promoting sustainability at TransAlta?

There’s always more to be done. For us, the big challenge is to find the resources to carry

out our sustainability programs and initiatives in a time of market uncertainty, price

constraints and escalating fuel costs, such as we’re experiencing today in our electricity

industry. We have to carefully consider where we are going to put our resources, how

much we put in, how we execute our plans, to always make sure we get the very best

results for the dollars spent — to the benefit of our company, our stakeholders and the

environment. Because in the end, pursuing long-term sustainability is not just a business

proposition — it’s an effectiveness issue.

Corporate Highlights

2004 2003 2002

Environmental

Gross greenhouse gas emission intensity (kg CO2E/MWh) 895 927 964

Sulphur dioxide emission intensity (kg/MWh) 1.25 1.26 1.71

Mercury emission intensity (g/MWh) 0.0129 0.0147 0.0181

Water consumption intensity in fossil fuel plants (m3 water/MWh) 1.95 2.11 2.41

By-product use (% coal ash sold) 51 30 30

Land reclamation (% mined land reclaimed) 36 38 37

Economic

Net earnings ($ millions) 170.2 234.2 199.6

Net earnings per share ($) 0.88 1.26 1.17

Cash flow from operating activities ($ millions) 613.4 526.9 398.6

Production (GWh) 54,560 53,134 46,877

Social

Recordable injury frequency (employee medical aid and lost-time injuries/200,000 hours worked)

1.69 1.47 1.60

Community investment ($ millions in corporate donations and sponsorships)

3.0 5.0 5.2

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Our Outlook and Focus

Environmental Performance

Profile Industry Outlook Our Focus

Fuel mix of coal (58%), natural gas (29%) and hydro and renewables (13%)

21.9 million tonnes of coal mined

122.1 million gigajoules (GJ) of gas consumed

Significant emitter of carbon dioxide

Large regional emitter of sulphur dioxide, nitrogen oxides and mercury

Environmental pressures continue to drive industry focus toward natural gas, renewables and clean coal technology

With Kyoto implementation deadline in 2008, industry faces carbon-constrained business environment

Mercury emissions from coal-fired generation pose scientific and environmental challenges for industry

Greater demand from stakeholders for corporate accountability for environmental and social performance

Reduce exposure to energy input prices and climate change risks by continuing to diversify our fuel mix

Grow our renewable capacity to 10% of our portfolio by 2010, with a short-term focus on wind power

Partner with other utilities to develop clean coal technology, which has the potential to eliminate all emissions from coal-fired electricity

Partner with other utilities to support development and testing of mercury emission control technologies

Continue to be a leader in the use of market-based approaches such as emissions trading to meet greenhouse gas goals

Economic Performance

Profile Industry Outlook Our Focus

8,337 MW of capacity

54,560 gigawatt hours produced at average plant availability of 89%

$1 per share dividend

Cash flow to debt ratio: 18.5%

Regional economic benefits in Alberta, Ontario, Mexico, Washington state, and Western Australia

Current conditions continue to favour low-cost producers with strong balance sheets

Industry-wide focus on improving financial strength by reducing debt

Prudent fiscal management continues to be critical in medium term and long term

Maximize cash flow from operating activities

Continue to concentrate on achieving operational excellence while integrating new capacity

Upgrade plants to improve economic performance and environmental impacts

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Social Performance

Profile Industry Outlook Our Focus

2,505 employees

Seven unions and 12 bargaining units in Canada, United States and Mexico

Injury frequency rate for employees and workers of 1.69 per 200,000 hours worked

$3 million in corporate donations and sponsorships

A million dollar plus contributor to United Way

Strong competition among corporations for highly qualified workers

Local stakeholders expect to be involved in business plans and activities that affect their communities

Increasingly stakeholders base their impressions of companies on environmental impacts, labour practices, business ethics and social contributions

Create work environment that attracts and retains the best available talent and skills

Set the highest standards (zero injuries) for ourselves on safety

Support our employees’ health and wellness needs

Develop long-term, mutually supportive relationships with key not-for-profit organizations

Encourage employees to be active contributors to their communities

Engage with stakeholders through open and regular two-way communication and consultation

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Governance and Management Systems

EHS training for new employees.

TransAlta sets rigorous standards for EH&S performance. These standards begin with

compliance with operating permits and all EH&S regulations. This section provides an

overview of those structures and systems, and our compliance record.

Policies The following policies set out our commitments to meet the electricity needs of our

customers in a safe, environmentally and socially responsible manner:

Our environment, health and safety policy guides TransAlta in meeting or surpassing industry standards and government regulations for environment, health and safety (EH&S)

Our corporate code of conduct highlights our commitment to the highest standards of professional integrity and ethical business conduct

Our community investment policy provides guidance for corporate donations in communities where we operate

Our privacy policy governs the collection, use and disclosure of personal information by our company

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We continually review our policies to keep them current and to reflect best practices. In

2004, our environment and health and safety policies were updated and merged into one

policy. The new EH&S policy sets out strict accountabilities for managers and employees

for EH&S responsibilities and aligns with our integrated approach to managing EH&S risks

and opportunities.

TransAlta has developed EH&S performance standards that apply to all our sites and

guide the actions of our employees. In 2004, we updated standards to support our Target

Zero safety initiative, adding standards for site orientation (educating new employees and

contractors on job site safety risks and procedures), control of work (safely planning and

managing equipment maintenance work) and workplace inspections (inspecting worksites

for potential hazards).

Corporate Governance We have long been committed to good corporate governance and disclosure practices.

These practices promote independent, ethical and accurate corporate decision-making

and public disclosure. Strong corporate governance is essential to our long-term

sustainability and business success.

We continually evaluate and adapt our governance and disclosure practices to fully

comply with changing legal requirements. Our corporate governance practices are posted

on our website www.transalta.com, along with information on the mandates of our Board

committees.

Board of Directors The Board of Directors’ role is to govern TransAlta to ensure its shareholders and other

stakeholders, including employees, customers and the communities in which we work and

live, benefit from our activities.

TransAlta’s Board has 12 members, with John Ferguson, an independent director, serving

as chair. Our Board members focus on assessing strategy, management performance,

compensation plans, financial results, internal controls, risk profile and environmental

issues. They also ensure the company maintains a culture of the highest ethical and

professional standards. All members of the Board, except president and CEO Steve

Snyder, are independent of management.

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Board Committees Board committees are responsible for review and oversight of the company’s strategies

and practices. These include the Audit and Environment Committee, Human Resources

Committee and Nominating and Corporate Governance Committee. All members of the

Board committees are independent.

The Audit and Environment Committee’s role is to review performance, assess financial

risks and environmental risks and identify emerging regulations affecting our company’s

activities. Committee members receive quarterly reports, covering our EH&S performance,

audit findings and emerging issues and trends. This committee met four times in 2004.

Governance Practices During the past year, we continued to support strong corporate governance practices

through our reporting framework, which ensures our Board has timely and detailed

information on key risks to our business.

At its annual two-day strategic planning session, the Board discusses environmental risks

and opportunities, as part of a detailed review of our assets. In 2004, special attention was

focused on climate change and mercury emissions from our coal plants, two areas where

our company faces significant environmental challenges.

LEADERSHIP FROM TARGET ZERO IM PLEM ENTATION TEAM

Since 2003, an implementation team,

consisting of directors and senior plant

managers from across the company,

has coordinated Target Zero, a long-

term initiative to reduce our safety

incidents to zero. Chaired by the

director of EH&S, the Target Zero

Implementation Team provides further

leadership on EH&S issues. Every

month this team meets to discuss

EH&S risks, share best practices and

make decisions on measures designed

to improve EH&S performance.

In 2004, the team endorsed new

EH&S standards and helped to ensure

Organization Our approach to delivering EH&S services in our

organization is central coordination but local

delivery.

We have restructured EH&S staff responsibilities

to provide a regional focus throughout our

operations. EH&S staff are located at Centralia,

the coal plants in Alberta, and our gas plants at

Sarnia, Ontario, and Fort McMurray, Alberta.

These employees have responsibility for delivering

EH&S services to help operations meet EH&S

performance objectives.

Additional support to our business operations is

provided by our Calgary-based EH&S staff, who

provide expertise on safety and environmental

matters, such as permitting, auditing and

implementation of our management systems. Our

Sustainable Development department, also in

Calgary, works closely with EH&S staff to

contribute to government policy development and

to promote consistent sustainability practices and

strategies company-wide.

cutive vice-president, Legal,

Ken Stickland, exe

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they were implemented in our

operations. They also endorsed an

ambitious campaign to address the

increasing occurrence of

musculoskeletal injuries (sprains and

strains) in our workplace.

oversees the delivery of EH&S services. Reporting

to Mr. Stickland is Dr. Bob Page, vice-president,

Sustainable Development; Mike Kelly, director,

Environment, Health and Safety (EH&S); and Don

Wharton, director, Sustainable Development.

Management Systems TransAlta’s integrated EH&S management systems consist of formal, documented

processes for managing environmental risks, and ensuring high standards for employee

safety at our facilities. They provide the framework for all our sites to meet our EH&S legal

obligations and corporate standards, and to promote continuous improvement.

During the year, we applied our integrated management systems to our Vision Quest wind

power division.

Operating effective management systems in our business requires that our workers

clearly understand their EH&S roles and responsibilities. In 2004, we carried out

awareness training at our Alberta coal plants. More than 600 employees, including

operators, maintenance staff and administrative employees, took part in the two-hour

sessions.

FIND OUT M ORE

Our Framework for Managing EH&S

We use a common framework for managing EH&S and apply two internationally

recognized standards: ISO 14001 (environmental management systems) and OHSAS

18001 (occupational health and safety management systems). Central to these

management systems is a five-stage process for setting policy, planning,

implementing, checking progress and taking corrective action, and undertaking senior

level review.

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FIND OUT M ORE

Our Approach to Internal EH&S Audits

Our audits are carried out primarily by internal teams of EH&S professionals and

employees trained in audit techniques. After completing each audit, the audit team

meets with the facility’s management to discuss the results and any significant areas

of concern. Management then prepares a corrective action plan within one month.

s are entered into a database that tracks progress toward correction.

EH&S Audits Audits of our facilities provide assurance that our EH&S systems, policies and standards

are being carried out company-wide, and that we are meeting applicable EH&S legal

requirements.

We conduct two types of audits: compliance audits carried out at each facility every three years to assess our

performance against EH&S regulations, permits and operating approvals

management system audits that assess our management systems each year against ISO 14001 and OHSAS 18001 standards and other corporate requirements

In 2004, we conducted six compliance and 18 management system audits. These covered

18 sites, including our Australian power plants, our Alberta coal plants, our Vision Quest

wind farms and our Centralia coal plant and mine.

We also developed a database tool to analyze past audit findings. This tool will help us to

better understand recurring issues at specific plants, and strengthen and focus our audit

activities.

The audit finding

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Our target is to correct audit findings within four months. Audit findings that are not

corrected within this period are reported to the Board’s Audit and Environment

Committee on a quarterly basis.

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Regulatory Compliance Our ultimate goal is to have no EH&S regulatory

contraventions or enforcement actions. When regulatory

contraventions do occur, we investigate and take

corrective actions to prevent recurrence.

In 2004, there were 48 environmental contraventions

across the company, 22 more than in the previous year.

These included five spills to land. The most significant

was the release of 900 litres (200 gallons) of oil into a

coal seam from a leaking hydraulic cylinder at our

Highvale mine. The oil was contained in the coal seam

and reclaimed.

We are concerned about the increase in contraventions

and are taking steps to promote preventive measures.

In late 2004, we developed a new database tool to track

investigations of EH&S incidents in terms of

completeness, recommendations and follow-up actions.

This tool will enable us to better capture information

related to EH&S incidents, share learnings among

employees, and track performance trends.

We continued to improve our record for health and safety enforcement actions. In 2004,

we reported six enforcement actions, or 12 fewer actions than in the previous year. We

remain optimistic that our continued emphasis on near miss and hazard reporting and

other fundamental safety practices will further improve our performance, which is already

highly rated for companies in our industry.

Fines and penalties Our goal is to achieve full EH&S compliance with no fines or penalties. We did not achieve

this in 2004 as we received EH&S fines amounting to $60,000, compared with $3,700 in

2003.

During the year, we agreed to pay a $50,000 penalty resulting from a 2002 charge under

the Alberta Occupational Health and Safety Act. The charge was for failing to install an

In 2004, TransAlta’s environment-related capital investments and operating investments totalled $13.1 million, compared with $15.1 million in 2003. These investments included costs for land reclamation, environmental monitoring and pollution abatement activities.

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alarm system to give effective warning of moving machinery in connection with an Aug.

13, 2002 incident at the Keephills plant where a contract worker was injured on a

conveyer. Our company was fined $25,000 and agreed to make a $25,000 donation to the

Parkland Ambulance Authority, a local emergency response agency.

COM PLIANCE SUM M ARY

2000 2001 2002 2003 2004

Environmental contraventions (#) 56 48 37 26 48

Environmental enforcement actions (#) 2 4 7 8 10

Environmental fines ($ thousands) 3.9 0 76.3 2.2 10.0

Health and safety incidents (#) n/a 71 79 57 88

Health and safety enforcement actions (#) 1 1 43 18 6

Health and safety fines ($ thousands) 0 0 0 1.5 50.1

n/a = not available Environmental contraventions include events that contravene our company’s permit conditions or environmental regulations. Environmental enforcement actions are contraventions that result in fines, orders or citations. Health and safety incidents include employee and contractor incidents resulting in medical aid and lost-time injuries. Health and safety enforcement actions include employee and contractor incidents that contravene health and safety regulations and result in fines, orders or citations.

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Environmental Performance

Treated water discharge into Wabamun Lake from the water treatment plant.

We aim to reduce the impact of our activities on the environment, wherever possible, by

reducing emissions and wastes, protecting wildlife habitat and using natural resources

responsibly. This section describes our key successes and challenges in improving our

environmental performance during the year

Greenhouse Gases (GHGs)

Performance Carbon dioxide emissions from the burning of fossil fuels at our power plants are the main

source of TransAlta’s greenhouse gas (GHG) emissions.

The metrics we use are gross emissions measured in tonnes of carbon dioxide (CO2)

equivalent and emission intensity (kilograms of CO2 equivalent per megawatt hour). Gross

emissions measure our total GHG emissions impact on the global atmosphere. Emission

intensity measures TransAlta’s environmental efficiency in terms of the product we

generate, and enables us to compare our performance with peer companies in Canada

and internationally.

Our facilities released 42.6 million tonnes of gross GHG emissions, compared with 41.9

million tonnes. This slight increase shows the impact of additional generation from our gas

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plants in Sarnia, Ontario, and Campeche and Chihuahua, Mexico. During the year, we

also maintained high production levels from our coal plants to meet consumer demand,

contributing to a higher GHG emissions profile.

GHG emission intensity improves 3% In 2004, our GHG emission intensity improved three per cent due to increased power

generation from less carbon-intensive fuel sources such as wind and gas. Since 1990, we

have cut the emission intensity of our worldwide operations by more than 10 per cent

while raising generation capacity by more than 82 per cent.

Strategic approach to climate change World governments have increasingly singled out GHG emissions as a priority. Although

the scientific evidence remains controversial, the concern is that GHG emissions,

particularly carbon dioxide, are contributors to global warming.

The nature of TransAlta’s business means that climate change will have a significant

impact on our business. We burn nearly 21 million tonnes of coal in our operations each

year. We burn coal because it’s abundant and, therefore, an economical way to produce

electricity. We also contribute about four per cent of the total GHG emissions in Canada.

In 2004, TransAlta’s gross emissions were 42.6 million tonnes of CO2 equivalent.

Since 1990, we have cut the emission intensity of our worldwide operations by more than 10 per cent while raising generation capacity by more than 82 per cent.

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Our challenge is to economically and efficiently meet consumer demand for reliable, low

cost energy while continuing to find new and innovative ways to reduce GHG emissions.

TransAlta believes that there is a risk of global climate change, and recognizes, with the

Kyoto Protocol coming into force, that society is moving toward a more carbon-

constrained world. We have established a strategic approach to managing our company’s

GHG risks. This approach includes:

increasing internal efficiencies

diversifying TransAlta’s fuel mix to include renewables such as wind and geothermal energy

promoting sustainable technologies for coal

acquiring GHG offsets (emission reductions produced by projects outside TransAlta and supported by our company through commercial purchase contracts)

contributing input to climate change policy

Increasing internal efficiencies Efficient energy use is a company-wide priority for

TransAlta. By focusing on energy efficiency in our

fossil fuel plants, we identify opportunities to

produce more electricity for each unit of energy

consumed. This activity improves our emission

intensity. One of the ways we measure these

improvements is through production efficiency —

the amount of electricity we produce for each unit

of energy consumed. This rate is influenced by

many factors, such as fuel type, equipment

efficiencies, combustion characteristics of the fuel

mix and the operating patterns of generation units.

We are always on the lookout for new ways to

improve our energy use, but we pay particular

attention to this objective whenever we plan major

maintenance operations and equipment

replacements.

Over the last five years, we improved production efficiency by eight per cent by 104 kilowatt hours per unit of energy consumed to 112 kilowatt hours through greater use of energy efficient cogeneration.

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Diversifying fuel mix A variety of power plants, using coal, natural gas, hydro and wind, means we do not rely

on one source of fuel. This approach, called fuel diversification, improves the reliability

and security of our electricity supply. Also, the more energy that we can put into the grid

that comes from less carbon-intensive sources, the less GHGs we emit per unit of

production.

Our company is committed to achieving long-term fuel diversification — that is, to achieve

one third coal, one third gas and one third hydro and renewables.

The portion of our fuel mix that comes from natural gas and renewable energy sources is

growing steadily. Last year, we had the first full year of operation from our gas plants in

Campeche and Chihuahua, Mexico. We also commissioned the Summerview wind farm, a

68-MW wind project near Pincher Creek, Alberta.

In 2004, the percentage contribution from coal plants to our fuel mix increased only

slightly, from 57 per cent in 2003 to 58 per cent. This contribution is expected to decrease

in the future, with the continued decommissioning of the Wabamun plant, our oldest coal

plant. In late 2004, we shut down Wabamun units 1 and 2, which together produced 119

MW of power. These closures will result in a projected yearly reduction of 1.2 million

tonnes of CO2 equivalent and are part of our long-term plan, prompted by economic and

environmental factors, to phase out all four units of the 537-MW coal plant. A 139-MW

unit was retired in 2002. The remaining unit, which produces 279-MW of power, will

operate until 2010 when its licence expires.

The above graphs show a breakdown of our company’s generating capacity in operation by fuel source from 2002 to 2004. In 2004, coal continued to be the major type of energy fuel consumed, accounting for about 58 per cent of TransAlta’s generation capacity, with natural gas the next highest consumed fuel at 29 per cent. Renewable energy sources such as hydropower and wind provide the rest of our capacity.

TransAlta 26

Promoting sustainable technologies for coal We take the view that coal will continue as an important fuel source for many years, and,

therefore, have invested considerable time and dollars in exploring new technologies that

will use coal in an environmentally sustainable manner.

TransAlta is a founding member of the Canadian Clean Power Coalition, an association of

Canadian utilities and coal producers, the U.S. Electric Power Research Institute and the

International Energy Agency Clean Coal Centre. The Coalition seeks to demonstrate

clean coal-based electricity generation and believes this can be achieved through coal

gasification, which turns coal into natural gas and captures by-products that otherwise

would be released as pollutants.

Since 2001, engineering and feasibility studies have been under way for the construction

of a clean coal demonstration plant in Western Canada by 2012. In 2004, the Coalition

evaluated technology options for the plant, and will select a gasification technology in

early 2005. As a next step, the group plans to complete a detailed business case in late

2005 to determine the appropriate site, fuel choices and end products for the plant.

We continue to evaluate opportunities to store and use CO2, a by-product of coal

combustion. In the future, coal power plants could feasibly pipe CO2 for injection in

oilfields for enhanced oil recovery. With the growing number of maturing oilfields in

Alberta, pumping and storing CO2 underground offers potential opportunities to create

added economic value while providing an innovative solution to GHG emissions.

TransAlta is a funding partner, along with industry and government, of the Weyburn CO2

Monitoring Project, an international research project studying the effectiveness of storing

CO2 in underground geological structures. The four-year, $40-million research project is

being carried out near Weyburn, Saskatchewan, using EnCana’s CO2 enhanced oil

recovery project as a field laboratory. We are monitoring this project to better understand

the science and business opportunities of CO2 capture and storage.

FIND OUT M ORE

Why Coal Gasification?

Coal gasification is the conversion of coal into a

gaseous product which has useable levels of

hydrogen and carbon monoxide. To do the

conversion, coal is combined with oxygen and

water under extreme conditions of pressure (1000 psig or more) and temperature (2600

degrees Fahrenheit). The resulting chemical reaction produces carbon monoxide and

hydrogen that can then be used as a fuel for electricity generation or in various chemical

processes. The benefit for electricity generators is that this process produces less CO2

emissions than if coal is used directly as a fuel. It also provides more efficient and

economic capture of CO2.

This gasification process involves three conversion steps (coal to gas, gas to heat, heat

to electricity), instead of two for conventional coal generation (coal to heat, heat to

electricity). As a result, coal gasification has historically been regarded as a more

expensive generation alternative.

But the business case for coal gasification is rapidly improving. Natural gas prices are up

substantially from historical levels, as supplies dwindle and demand for natural gas

continues to climb. This makes the economics of coal gasification more attractive. And

as greater demands and costs are put on electrical generators to reduce CO2 emissions,

coal gasification increasingly makes sense as part of a long-term strategic approach to

reducing GHG emissions.

TransAlta 27

Acquiring offsets Our portfolio of offset investments covers a variety of projects, including agricultural

emission reductions, energy efficiency, ruminant methane, and landfill and coal mine gas

to electricity.

In developing our offsets portfolio, we actively pursue opportunities for emissions trading,

a market-based approach that allows operators to buy and sell verified emission

reductions to meet GHG goals. We view the development of this innovative tool as

essential to enabling companies, such as ours, to meet their climate change commitments

more cost effectively.

In 2004, we became the first Canadian company to buy certified emission reductions

under the Clean Development Mechanism of the Kyoto Protocol. We signed a deal with

Agrosuper, a Chilean agricultural company, to buy 1.75 million tonnes of GHG reductions

over the next 10 years. This purchase is the environmental equivalent of eliminating the

GHG emissions of 62,000 cars or a 240-MW coal plant for one year.

FIND OUT M ORE

What is Emissions Trading?

A growing number of companies, like TransAlta,

are turning to emissions trading as an essential

strategic tool for managing their climate change

commitments.

Emissions trading typically occurs when a company,

e its emissions, purchases emission reduction credits from a company

Sundance Plant/Highvale Mine

seeking to reduc

TransAlta 28

that has reduced its emissions beyond its requirements to do so. This transaction can

benefit both participants. Purchasers are able to reach reduction goals more cost-

effectively than is possible through their own operational efficiencies. And sellers are

rewarded financially for their investments in reducing emissions.

The field of emissions trading is rapidly taking shape against a background of

international activity. The Kyoto Protocol has approved the Clean Development

Mechanism, which allows companies to acquire reductions in developing countries and

get credit for them. TransAlta’s recent emission reduction deal with Agrosuper was

carried out under the Protocol’s Clean Development Mechanism.

FIND OUT M ORE

Update on Kyoto Protocol

On February 16, 2005, the Kyoto Protocol

officially entered into force, creating renewed

impetus for the various signatories of the

Protocol, such as Canada, to implement

detailed action plans to meet their climate change obligations. Developing these

plans and taking action must be done quickly as the international community

approaches the 2008 to 2012 deadline for implementing Kyoto targets.

To date, the absence of a national GHG plan has created much uncertainty for our

industry. Answers to key questions such as by when and by how much Canadian

companies will have to reduce GHG emissions remain unclear.

Meanwhile, our company continues to take prudent and cost-efficient measures that

will prepare our business for a more carbon-constrained environment. We expect

emission reduction credits to play an essential role in Canada’s future carbon

reduction framework. We are also working on other strategies, including our

increasing use of renewable energy, making our current operations more efficient

and supporting the long-term development of clean coal technology, which promises

to virtually eliminate emissions. Through our long-term strategic approach, our

company continues to be well positioned to meet the climate change challenge.

TransAlta 29

CASE STUDY

TransAlta buys international GHG credits

In August 2004, TransAlta signed a deal to purchase

1.75 million tonnes of certified emission reduction

credits. The supplier of the credits is Chilean food

producer Agricola Super Limitada (Agrosuper), which has installed innovative

technology to reduce the GHG emissions of their industrial pork operations.

TransAlta plans to use the credits in the period from 2008 to 2012, as part of

Canada’s anticipated climate change program. The deal is a first for a Canadian

company under Kyoto’s Clean Development Mechanism program, whereby

companies in nations with emission reduction obligations can buy credits from

companies in the developing world that have created projects to cut their GHG

emissions.

“With emission trades such as the Agrosuper deal,

TransAlta is able to cost-effectively take action now to

reduce GHG emissions,” says Don Wharton, director,

Sustainable Development. “Emissions trading is one

of several tools we’ll need to meet the Kyoto challenge.”

CO2e.com LLC, a subsidiary of the New York financial

house Cantor Fitzgerald, brokered the deal. Independent

ductions will guarantee they meet

Steve Snyder, President and CEO

Signing of the emission trades deal between Agrosuper and

TransAlta

auditing of the re

TransAlta 30

standards for accuracy and validity.

TransAlta 31

Contributing to climate change policy Alberta’s Clean Air Strategic Alliance (CASA) brings together government, industry and

non-government organizations to develop cooperative strategies to deal with air emissions

issues in the province. In 2003 and early 2004, TransAlta participated in the CASA

Electricity Project Team’s work on climate change, examining a management framework

to reduce GHG emissions from Alberta’s coal and gas plants. In 2004, the team

developed least-cost options, including emissions trading and reduction methodologies,

for reaching provincial GHG emission targets. These findings were accepted by the CASA

Board of Directors and presented to the Alberta government for review. This information

has been essential to supporting informed policy decisions as the Alberta and Canadian

governments decide on industry targets and actions.

Reporting and tracking emissions We have been estimating and reporting our GHG emissions since 1995, and regularly

review our reporting practices against best practices, global standards and government

requirements. By applying the latest and most rigorous standards, we continually improve

TransAlta’s GHG reporting systems and practices.

In 2004, we reported GHG emissions from our Alberta coal plants to Alberta Environment,

under a reporting program for large emitters (facilities emitting more than 100,000 tonnes

of CO2). We also reviewed our reporting methods against guidelines for a national GHG

reporting program for large industrial emitters, scheduled to start June 2005. Results of

our review show we are well positioned to meet the new national reporting requirements.

In November 2004, we commissioned CH2M HILL Canada to audit emission

methodologies we use to measure the GHG benefits of decommissioning units 1 and 2 of

our Wabamun coal plant. This report will be finished in early 2005. We plan to apply the

report’s findings to further improve GHG reporting practices at our different coal plants.

TransAlta 32

Renewable Energy There are many reasons why we continue to invest

in and grow TransAlta’s renewable energy portfolio.

Renewables offer strong investment opportunities.

They help to diversify our portfolio of energy

sources. And they contribute to the continued

reduction of our emission intensity.

TransAlta’s renewable energy portfolio includes 150

MW of wind energy operated by Vision Quest

Windelectric and 185 MW of geothermal energy in

California through a 50 per cent interest in CE

Generation LLC. Our renewable energy portfolio

represents four per cent of generation capacity

owned and operated by TransAlta, and our long-term

target is to increase this to 10 per cent.

Wind power Wind power is part of our answer to climate change

and represents significant opportunities for economic

growth and fuel diversification. Through Vision Quest, we are a leading developer of wind

power, operating nearly 50 per cent of Canada’s installed wind power capacity.

Vision Quest operates 220 wind turbine power plants in Alberta. Output from our facilities

is enough energy to supply more than 120,000 homes. Our wind facilities are EcoLogo™

certified under Environment Canada’s Environmental Choice Program, a designation

granted to green power sources that demonstrate environmental performance and meet,

or exceed, all government, industrial and performance standards.

New wind farm at Summerview In 2004, we added a fifth wind farm to our wind power business when we launched

commercial operation of the Summerview wind farm, near Pincher Creek in southern

Alberta. It has a capacity of 68 MW and represents the first phase of a 130-MW project.

The $100 million wind farm uses 39 turbines to produce enough power to light up over

28,000 homes.

Fred Gallagher, Vision Quest’s chief executive officer and managing director, was honoured in 2004 by the Canadian Wind Energy Association when he was presented with the association’s prestigious Individual Leadership Award. The award is given each year “in recognition of exceptional achievements in furthering the wind energy industry, and the development of wind energy technology in Canada.”

TransAlta 33

Exploring other wind markets Building on our successful track record in Alberta, we are interested in developing a

stronger foothold for our wind power business in other Canadian markets. In 2004, we

opened a Vision Quest office in Toronto. We are also working on two proposed wind

farms near Kincardine, Ontario. In 2004, land preparation, project evaluation and

equipment selection were completed for the projects, which will be able to produce up to

75 MW, once approved and built.

We have also procured wind resource properties in wind basins in Alberta, Saskatchewan,

Ontario and Nova Scotia. More than 20,000 hectares (50,000 acres) of land are under

lease, option or negotiation, holding the potential for more than 750 MW of future wind

energy development.

Expanding green tag sales Renewable energy facilities produce two distinct products. One is electricity. The other is

the “bundle” of environmental benefits that result from producing renewable energy.

Vision Quest sells the benefits of renewable energy from our wind turbines in the form of

“green tags,” a marketable product that businesses and individuals can use to offset the

environmental impacts of their electricity use. Selling this green energy product enables

Vision Quest to expand its market beyond the borders of the traditional electricity system.

In 2004, we completed several sales of green tags in the U.S. and across Canada. These

included a cross-border deal to supply green tags to Bonneville Environmental

Foundation, a Washington state non-profit organization dedicated to the development and

use of new renewable energy resources. We also signed a three-year agreement with the

Pembina Institute for Appropriate Development, an Alberta-based environmental

organization, to supply wind-generated green tags for sale to consumers across Canada.

TransAlta 34

Summerview Windfarm

Helping to power PCs by wind Vision Quest is working in partnership with

the Pembina Institute to offer the

environmental group’s Wind Power PCs

Program. Launched in late 2004, the PCs

Program aims to power some 20,000

computers by wind by 2005. The program

focuses on computers because the devices

are among the fastest-growing users of

electricity in Canada, with Canadians turning

on about 14 million computers each day.

Under the program, PC users buy green tags that “green” the electricity used by

computers and help grow wind energy. Pembina purchases the certificates from Vision

Quest and in turn sells them directly to the public on its website. Profits from certificate

sales will be used to help offset the costs of producing wind power, eventually enabling

Vision Quest to invest in new wind power projects across Canada.

Studying wind farm impacts on bats Bats occasionally collide with wind turbines, as they do with other tall structures. In 2004,

we completed several bat studies at our Vision Quest wind farm sites in Alberta and our

prospective sites in Ontario. The studies focused on how and when bats migrate, and the

impact of wind power sites on migratory patterns. Our studies will contribute to scientific

knowledge about bats and enable our company to continue to site our wind farms so as to

minimize wildlife impacts.

Geothermal TransAlta has a mix of geothermal assets — 164 MW comprised of 10 facilities — which

our company acquired in 2003 when we purchased a 50 per cent interest in CE

Generation LLC. MidAmerican is our partner and the manager and operator of the

geothermal power plants in the Imperial Valley region of southern California. These assets

are unique in our generation fleet, tapping heat from deep underground hot reservoirs,

between 900 and 2,100 metres (3,000 and 7,000 feet), to create steam that powers

turbines to produce electricity. Geothermal energy is considered renewable because it is

constantly replenished without fuel consumption.

TransAlta 35

Regional Air Quality We manage emissions from our coal and gas plants that can affect local air quality.

These include sulphur dioxide, nitrogen oxides, mercury emissions and particulate matter.

Sulphur dioxide (SO2) emissions The level of sulphur dioxide (SO2) emissions from our operations is largely a function of

coal-fired generation and depends on various factors, including the amount of fuel

consumed, fuel sulphur content and the use of emission control technologies. SO2, along

with nitrogen oxides, can contribute to acidification of the atmosphere and soils.

SO2 emissions up 3% In 2004, our company-wide SO2 emissions increased three per cent to 59,400 tonnes,

from 57,500 tonnes the previous year. Although we shut down one unit at Wabamun, we

continued to produce high levels of production from our coal plants. This resulted in our

company-wide SO2 emissions staying largely the same over the 2003 to 2004 period.

Our SO2 emission intensity, however, continued to improve, due mostly to SO2 scrubbers

(emission control equipment) and lower sulphur coal blends at our Centralia coal plant. At

year-end, we reported 1.26 kilograms of SO2 per megawatt hour, which was consistent

with our 2003 performance.

TransAlta 36

SO2 allowance trading Under the U.S. Acid Rain Program, utilities participate in a market-based allowance

trading system. The system allows utilities to adopt the most cost-effective strategies to

lower SO2 emissions at units in their power systems. Power companies that reduce their

emissions below the number of allowances they hold may sell them to other utilities on the

open market or bank them to cover emissions in future years.

Because of our flue gas desulphurization plant in Centralia, installed in 2002, we continue

to get significant SO2 reductions at the coal plant. This has enabled our company to sell

emission reduction allowances to other power companies under the program. In 2004, we

had our most successful year yet in the allowance market, selling 4,990 tonnes of

emission reduction allowances.

Photo centralia power plant

More than 95 per cent of SO2 emissions from our Centralia coal plant is scrubbed out of the flue gas and used to produce a marketable by-product. At year-end, Centralia’s SO2 emission rate was 81 per cent below the U.S. national average for coal plants.

Nitrogen oxide (NOx) emissions Our NOx emissions are mainly a function of the ratio of coal to gas-fired generation and

different operating factors (for example, the temperature at which fuel is burned, how

much time is required to burn the fuel and the amount of oxygen in the combustion flame).

Because natural gas is burned in a pressurized chamber, with minimal air and lower

temperatures than what is needed for coal, less NOx emissions are formed. The result: the

more gas-fuelled electricity we generate, the less NOx emissions we produce per unit of

electricity.

NOx emissions down slightly In 2004, we reported a slight decrease in NOx emissions, from 68,000 tonnes in 2003 to

66,400 tonnes. Similarly, our NOx emission intensity improved eight per cent to 1.42

kilograms per megawatt hour, from 1.50 kilograms the previous year. The main contributor

to this improvement was our growing use of low emission, gas-fired electricity generation.

TransAlta 37

Genesee 3 plant

Genesee 3 plant advances emission controls In March 2005, TransAlta and EPCOR began commercial operation of the Genesee 3

generation plant, west of Edmonton. The 450-MW facility is the most advanced coal

power plant ever built in Canada.

A joint venture between the two companies,

Genesee 3 is Canada’s first generation

facility to use a supercritical pressure

boiler. In a supercritical boiler higher

temperatures and steam pressures,

together with a high efficiency steam

turbine, create a more efficient process for

converting thermal energy into electricity.

The process uses less coal per megawatt

hour of electrical energy than conventional

processes, thereby reducing emissions.

The plant will produce half the NOx emissions of existing coal-fired generation, and will

prevent 99.8 per cent of fine particulate matter from reaching the atmosphere. It will also

cut SO2 emissions to 70 per cent below existing emissions.

TransAlta 38

The plant’s supercritical combustion and clean air technologies will reduce total CO2

emissions to 18 per cent below the average Alberta coal plant. GHG emissions will be

further offset down to the level of a natural gas combined cycle plant — a 52 per cent

reduction in emissions.

Monitoring impacts of coal plants In 2004, TransAlta and EPCOR launched regional ambient air quality monitoring

programs and regional bio-monitoring programs. These programs are designed to

determine if there are any long-term impacts on the environment from coal plants in the

Wabamun-Genesee area.

The air emission programs will gather information about power plant impacts related to

acid and mercury deposition and typical air pollutants such as SO2, NOx, ozone and

particulate matter. The monitoring is being carried out by the West Central Air Shed

Society, an environmental non-profit organization which is led by a multi-stakeholder

Board and ensures third-party validation of data. At year-end, four new state-of-the-art

ambient air monitoring stations were up and running and collecting valuable air quality

data in the region.

Particulate matter The burning of coal produces two types of particulate matter: fly ash (fine ash) and bottom

ash (coarse material that drops to the bottom of the boilers during combustion).

Particulate emissions up TransAlta controls these emissions through emission control equipment and operating

practices. Our electrostatic precipitators safely remove more than 99 per cent of the fly

ash from power plant stacks before it can be released into the atmosphere. In 2004, this

equipment enabled TransAlta to collect about 1.5 million tonnes of particulate matter.

About 5,660 tonnes, or 0.4 per cent of our particulate matter, were emitted from our plant

stacks in Alberta and Washington. This amount was about nine per cent above 2003

levels.

Starting in 2005, Wabamun unit 4 must meet new operating limits, required by the

regulator, that will reduce approval limits of particulate emissions by 50 per cent. For

several years, plant employees, working with an outside consultant, have reviewed new

technology and enhanced maintenance and operating practices to reduce particulate

TransAlta 39

emissions. Their recommendations, together with improvements in precipitator equipment,

have allowed the Wabamun unit to meet the new operating limits.

Mercury emissions Mercury occurs naturally in coal and a portion of it is released into the air when coal is

burned to fuel power plants. Mercury emissions are a concern because biological

processes convert some of the mercury into a toxic form that can enter soil, lakes, rivers

and streams and accumulate in fish tissue. Mercury can present a health risk to wildlife

and humans when there is exposure to high enough levels.

Mercury emissions down 13% In 2004, our company-wide mercury emissions were 610 kilograms, a 13 per cent

decrease from 2003 levels. This decrease was largely the result of the Wabamun unit 3

shutdown in 2002.

As a large point source emitter of mercury, we recognize the need to manage these

emissions and to contribute to science-based solutions. Addressing this issue, however,

presents significant scientific and environmental challenges for our company and our

industry. There remain uncertainties related to the transportation of mercury into the

environment. Also, there are no proven, commercially available mercury control

technologies for utility boilers.

TransAlta 40

In 2004, we continued to partner with other utilities and organizations to support the

development and testing of mercury control technology. Through the Canadian Electricity

Association (CEA) and U.S. Electric Power Research Institute (EPRI), we monitored

research from government and university laboratories. We also collaborated with other

power companies in the Canadian Clean Power Coalition to research new technologies to

control mercury and other emissions from coal-fired boilers.

Since 2002, we have been an active participant in the CEA’s mercury monitoring program,

a national initiative involving the sampling, analysis and reporting of coal and ash for

mercury content and testing for mercury in flue gas. In 2004, we tested and measured

mercury emissions levels from Sundance units 5 and 6. We are now reviewing the results

of our tests and evaluating methodologies to better estimate TransAlta’s mercury

emissions. These and other studies will provide critical information to help TransAlta find

cost-effective and efficient options for managing mercury emissions over the long term.

TransAlta 41

Land Use and Protection TransAlta affects land and wildlife through surface

mining of coal and the presence of our hydro

developments and wind farms.

Surface mining involves removing earth and rock

layers to extract coal. TransAlta owns the

Whitewood and Highvale surface coal mines near

Wabamun, Alberta, and a surface coal mine at

Centralia, Washington. These mines cover about

9,112 hectares (22,516 acres).

Our 13 hydro developments, which include plants,

reservoirs and canal systems, are in the foothills and

mountain areas of central and southern Alberta. Of

these, nine developments are in or close to

protected areas or national and provincial parks,

where we work closely with parks officials to

manage the environmental impacts of our

operations.

Our five wind farms consist of 220 turbines and directly occupy less than eight hectares

(20 acres), sharing the use of the land with agriculture and ranching in southwest Alberta.

Mine reclamation We fully incorporate land reclamation into our long-term plans for all our mines. Mine

activities are designed to prevent erosion, conserve topsoil, where possible, and restore

the area in a way that allows the previous land use to be continued. The reclamation

process is closely monitored and reported against regulations and our own standards.

Our programs to reclaim and improve mined land are adapted to local ecosystems and

stakeholders needs. At our mines around Wabamun Lake much of the reclaimed land is

used for agriculture and recreation, while at Centralia reclaimed land is used for

timberland and wetlands development.

The total footprint of land owned, leased or managed by TransAlta’s operations, including mining operations and building and plant buildings, is 20,190 hectares (49,870 acres).

TransAlta 42

Opening of Whitewood Conservation Properties

36% of land reclaimed There are 9,112 hectares (22,516 acres) of land at the Whitewood, Highvale and Centralia

mine sites. At the end of 2004, 36 per cent, or 3,256 hectares (8,046 acres), of this land

was reclaimed.

Creating wetlands at Centralia At Centralia, we finished the first phase of converting a former mining pit to a permanent

wetland. The shoreline surrounding the 33-hectare (81-acre) pit was contoured and topsoil

applied. We plan to replant the area with native vegetation in 2005. In converting the area

to a natural wetland ecosystem, we consulted with a leading environmental consultant to

determine the appropriate characteristics of the landscape.

During the year, we also submitted a revised mining and land reclamation plan for our

Centralia mine to the U.S. Office of Surface Mining. The new plan is designed to improve

operating efficiencies while reducing environmental risks. The plan’s recommendations

include improved storage of mine tailings and designing the post-mine landscape to

closely emulate natural conditions so as to reduce erosion and other environmental risks.

Parts of the plan, including tailings storage, have been approved by the regulator for

construction in 2005.

Whitewood Conservation Properties opened We partner with local conservation groups to

create lasting environmental legacies.

In 2004, we participated, along with the

Alberta Fish and Game Association, in the

official opening of the Wabamun Whitewood

Conservation Properties, at Wabamun,

Alberta.

The properties have been established for

wildlife and habitat conservation, education

and recreation, and include over 170

hectares (420 acres) of reclaimed land from

our Whitewood coal mine, and nearly 200

hectares (490 acres) of untouched native parkland. The area is home to white-tail deer,

TransAlta 43

mule deer, moose, elk, ruffed grouse, ducks, geese, woodpeckers and songbirds, as well

as a variety of fish in East Pit Lake.

Protecting habitat at Centralia In 2004, TransAlta purchased the Skookumchuck Dam. This dam and reservoir complex

supplies water to our power plant and mine operation at Centralia, Washington state. As

part of this purchase, we acquired a 380-hectare (960-acre) wildlife area downstream from

the dam. Working in cooperation with the state Department of Fish and Wildlife, we

manage this area, a mix of forests, meadows and wetlands, which provides protective

cover and nesting habitat for many species of wildlife, including deer, elk, waterfowl and

upland game birds.

TransAlta 44

CASE STUDY

Grazing management project at Highvale

In 2004, at our Highvale mine near Wabamun, our land reclamation team worked

closely with the Prairie Farm Rehabilitation Administration (PFRA) and a local

leaseholder beef producer to develop a rotational grazing project on an area of

mined land. Half of the 40-hectare (100-acre) site was left for cattle to continuously

graze. Another 20 hectares (50 acres) were divided into paddocks, and the cattle

rotated through the paddocks.

The four-year project will evaluate the impacts of conventional grazing versus

rotational grazing or managed grazing on reclaimed land. Through the project, the

participants expect to see higher levels of forage and beef production, greater grass

species diversity and an increase in levels of organic matter and soil moisture

retention on the managed grazing pastures.

Gavin Miller, supervisor, TransAlta’s Reclamation Centre at Keephills, says

TransAlta is participating in the project to help demonstrate the potential for high

yields on reclaimed land and to promote improved land use management techniques

throughout the agricultural industry.

First-year results are encouraging: a 10 per cent increase

in available forage in the managed grazing area has

led to a 15 per cent overall weight gain in yearling calves.

“Projects of this kind not only contribute to agricultural

knowledge, they also demonstrate successful land

reclamation in action,” says Miller.

Gavin Miller (far left) with leaseholder Kim Bamber (centre)

and Curtis Sneil of the Prairie Farm Rehabilitation

Administration

TransAlta 45

Waste We focus on waste reduction as a way to improve our processes, cut costs and manage

our environmental and safety risks.

Our non-hazardous waste includes:

fly ash, a fine dust-like substance produced from burning coal and collected by electrostatic precipitators

bottom ash, sand-like ash produced from burning coal and collected from the base of plant boilers

water treatment chemicals used at our Wabamun Lake water treatment plant

coal refuse from our coal washing facility at Centralia, Washington state

scrubber sludge, predominantly gypsum, from our flue gas desulphurization plant at Centralia

paper, tires, cardboard and building and construction material

In 2004, our operations generated 2.3 million tonnes of non-hazardous waste, of which 34

per cent was recycled or reused, and 66 per cent was sent to landfills or disposal facilities.

Typical hazardous waste in our operations consists of used hydrocarbon liquids and

vehicle antifreeze and waste oil. During the year, our operations generated 204 tonnes of

hazardous waste.

Marketing Waste By-Products

CASE STUDY

TransAlta and wallboard manufacturer develop win-win situation

At our coal plant in Centralia, Washington state, our

company has installed two flue gas desulphurization

(FGD) units that filter out more than 94 per cent of the sulphur dioxide (SO2), a

contributor to acid deposition. This equates to about 110,000 tons each year.

The FGD units mix flue gas with a water slurry containing limestone. The mixture

absorbs the sulphur and other trace amounts of impurities like mercury. The

emissions coming out of chamber are nearly sulphur-free and the FGD units, along

with other improvements, make the Centralia plant one of the cleanest coal plants in

the United States.

As a bonus, the scrubbing process results in tons of excess commercial grade

synthetic gypsum, which is highly desired by wallboard (drywall) manufacturers.

Normally, manufacturers have to sort, test and crush the gypsum to a uniform sand

size. However, with synthetic gypsum, the power plant does all this, producing a

consistently high quality substance. The gypsum is so highly sought after that

regional wallboard manufacturers compete for the TransAlta contract.

In 1999, GP Gypsum of Tacoma, Washington state was awarded a 20-year contract.

FGD unit at Centralia

TransAlta 46

With its primary source for natural gypsum in Mexico starting to run out, the company

needed a more reliable source. Securing the contract, the company invested $7.5

million to handle the synthetic gypsum. Now the plant uses 35 truckloads of the

synthetic product a day.

In 2004, the Association of Washington Business awarded TransAlta and GP

Gypsum its Environmental Excellence Award for their combined projects.

TransAlta 47

At TransAlta, we seek innovative market opportunities where we can conserve the

resources we use and benefit the company’s financial bottom line by creating new

revenues and avoiding the costs of disposal in our mines.

In 2004, we continued to develop commercial markets for the major by-products of our

fossil fuel generation: coal fly ash, coal bottom ash and gypsum. Fly ash is used in

manufacturing cement and concrete. Bottom ash is used as granular fill in roadbeds, and

gypsum from our flue gas desulphurization plant at Centralia is used for the manufacture

of wallboard. At the Whitewood mine, we also mine through gravel deposits, which we

collect and sell for use in road construction.

In 2004, we sold almost 1.3 million tonnes, or 51 per cent, of our by-products. Sales of fly

ash and bottom ash from our coal plants to cement and concrete manufacturers in Alberta

and the western United States reached 768,000 tonnes, slightly lower than our 2003 sales

of 783,000 tonnes. We also achieved our most successful year yet for the sale of gypsum

from our Centralia power plant. By year-end, gypsum sales totalled 416,000 tonnes, about

156,000 more tonnes, or 60 per cent, than the previous year.

In 2004, we sold 51 per cent of waste by-products, or 1.3 million tonnes, that would otherwise have been sent to landfills or stored at our mines. The percentage of waste by-products sold has increased from 27 per cent in 2000.

TransAlta 48

CASE STUDY

New team expands by-product business

TransAlta is achieving record revenues from the sale of

waste by-products from coal plant operations. And working

behind the scenes to deliver this success is a cross-

functional team of employees from Alberta and Centralia,

Washington state, dedicated to exploring by-product

markets and sales.

“Our team’s goal is to improve overall profitability by bringing increased focus to by-

product sales in our business,” says Tony Smith, manager, Mine Operations. “It’s an

exciting area of growth — and one that is becoming more significant to our business.”

In 2004, the team created a new reporting and management process to more clearly

identify the costs, revenues and opportunities of by-product sales. The team also found

new markets and developed new sales agreements for waste by-products like bottom

ash.

In 2004, the team oversaw the sale of 200,000 tonnes of bottom ash from our Alberta

power plants for use in construction of a large road project in Edmonton. Smith says the

unique thermal qualities of bottom ash, which helps road beds withstand tough freezing

and thawing cycles, makes this commodity a valuable material for road construction,

especially in northern areas. “We’re anticipating a continued increase in the consumption

of bottom ash,” says Smith.

The team also developed a business case to expand the sale of fly ash, another by-

product of coal combustion, used to replace cement in concrete manufacturing. Based on

this work, the company plans to invest $4 million in 2005 in a new classifier machine,

used to process ash before it is shipped to market. Smith predicts the new equipment, to

be installed at the Sundance coal plant near Wabamun, Alberta, will help TransAlta to

double its fly ash sales in five years.

A key to this investment and the associated growth opportunities is the quality control

associated with processing and shipping Sundance fly ash. "Sundance fly ash is

recognized for its excellent properties, and the consistent, high quality control

associated with processing the fly ash. It is considered a premium fly ash within

Luong Du (left), Ron Lehay, Tony Smith and others helped

to expand TransAlta’s by-product business

TransAlta 49

CASE STUDY …continued

North America and is in great demand by the concrete industry," says Ron Lehay, Production

Area Coordinator at Sundance. "Luong Du and his team at the ash farm have made the

Sundance fly ash a valuable commodity."

Looking forward, the team is anticipating the first sales of another by-product — cenospheres,

which are found in large quantities in fly ash at TransAlta’s Keephills coal plant. The small

hollow spherical particles can be used to improve the manufacture of drilling muds and down

hole cement used in the oil and gas business. In 2004, the company signed a one-year

agreement to supply the product for marketing, primarily to Alberta’s oil patch.

TransAlta 50

Water Resources

Water management in our fossil fuel plants Our coal-fired and gas-fired plants draw water directly from lakes and rivers, such as the

St. Clair River in Ontario, the Skookumchuck River in Washington, and Wabamun Lake

and the North Saskatchewan River in Alberta. As well, some gas-fired plants draw water

from deep wells and municipal water systems.

Our plants process water in different ways. In our coal-fired plants, purified water is either

returned to its source under regulated temperatures (Wabamun) or recirculated through

cooling ponds (Keephills and Sundance). In our gas-fired plants, most of the water is

recirculated in operations, keeping discharge volumes low. Wherever possible, we look for

opportunities to minimize our water consumption through advanced plant design.

Our statistics for water consumption show the difference between our water intake and discharge. In 2004, our coal and gas plants used about 92.4 million cubic metres (3,263 million cubic feet) of water, compared with 99.2 million cubic metres (3,503 million cubic feet) in 2003. This decrease was due mainly to the shutdown of our Wabamun unit 3 at the end of 2002. Similarly, our water consumption intensity (cubic metres of water consumed per megawatt hour) improved nearly 11 per cent over the previous year.

TransAlta 51

Managing water discharge In our coal and gas plants, we discharge primarily cooling water. At our Wabamun coal

plant, we also use some water to transport ash through a series of settling ponds as part

of an ash treatment system. Once the ash settles out, the water is returned to the lake.

Before discharge, the water is monitored to ensure it meets environmental standards.

Water treatment plant exceeds requirements TransAlta’s operations are one of many factors that affect the water level of Wabamun

Lake. Warm water from the Wabamun plant causes some evaporation, the Highvale mine

diverts surface water as part of its operations and the Sundance plant uses water for

boiler makeup and domestic purposes. Our company’s average impact on the lake level is

about 11.5 million cubic metres or 11.4 centimetres (4.5 inches) each year. Other impacts

to the lake include precipitation, surface run-off, ground water flows and natural

evaporation.

In 1997, we built the Wabamun Lake water treatment plant to mitigate our operations’ past

and ongoing impacts on lake levels. In response to requests from our neighbours, we

expanded our output of water with the construction of an additional plant, which began

operating in May 2002. The facility treats water from the Sundance plant’s cooling pond

and pumps high purity water to the lake. Water taken from the cooling pond is replaced by

water from the North Saskatchewan River. Water released into the lake is designed to

meet stringent government guidelines to protect the ecology of the lake.

TransAlta plans to repay 20 million cubic metres per year from 2004 to 2006 and another

8 million in 2007. In 2004, we continued to make progress against our annual commitment

to repay our historic debt to the lake. At year-end, the water treatment plant returned over

21 million cubic metres of water to the lake, exceeding our commitment for the second

year in a row.

TransAlta 52

At the end of 2004, the Wabamun Lake water treatment plant’s cumulative water production was 44.3 million cubic metres, about 10 per cent better than the license requirement.

CASE STUDY

Long-term plan for water treatment plant

Our company plans to continue to operate the Wabamun

water treatment plant after we have repaid our historic

debt requirements at Wabumun Lake, Alberta. We have

developed an operational plan detailing how the facility

will operate after that milestone is reached.

“We’re making good progress against the water debt and are on target to repay it by

July 2007,” says Ken Omotani, senior environmental engineer at TransAlta. “With

this in mind, we’ve now begun to look closely at what makes the most sense in terms

of offsetting our annual operating impact on the lake.”

In 2004, Omotani worked with a TransAlta team and an engineering consultant to

develop four different operating scenarios, which will enable our company to offset its

annual impacts and meet regulatory requirements. These were discussed with

Alberta Environment, Wabamun Watch and other community groups.

Omotani says, based on the consultation, TransAlta is now focusing on a proposed

option that will result in an annual pumping rate, calculated each year based on the

previous five years’ operational impacts.

“Our stakeholders thought this particular option was reasonable and made the most

it puts the most water back into the lake, and the constant pumping

Ken Omotani, senior environmental engineer at

TransAlta

sense, because

TransAlta 53

rate tends to mimic the natural ebb and flow of the lake more closely than the other

options. Plus, it’s the easiest one to manage, because we know exactly how much

water we need to pump back into the lake each year and can plan maintenance in

advance.”

After further consultation with stakeholders on the proposed option, TransAlta will

submit the final long-term operational plan for the water treatment plant to Alberta

Environment for approval later in 2005. Omotani says the company will recommend

that the operational plan be reviewed every five years.

TransAlta 54

Scientific review of Wabamun Lake released TransAlta continued to work with government and local stakeholders to evaluate potential

environmental and health impacts from our Wabamun power plant and other local

activities on the watershed. These studies have been under way since 2001 when

complaints were first raised about murky water in Wabamun Lake near our Wabamun

plant’s ash lagoon.

In early 2004, we completed a detailed risk assessment report to determine the

contributions of the power plant to trace metal concentrations and the risk to people and

the lake’s ecosystem. Our findings show no additional health risks to people, wildlife or

aquatic life.

In 2004, a task force of Alberta scientists, under the direction of Dr. David Schindler, a

University of Alberta ecology professor, reviewed all available information on water quality

in Wabamun Lake, including TransAlta’s report, to find out if further studies were needed.

Their review covered various impacts to the health of the lake, including TransAlta’s

operations.

In early 2005, the scientific team concluded that the lake is in “moderately good condition,”

despite recreational activity and industrial use. Their study also confirmed that TransAlta

employees have applied good environmental management practices for many years.

Alberta Environment will study their report before deciding on the recommendations.

Fish management system at Wabamun During spawning seasons, fish sometimes come into contact and are injured by our intake

screens at the Wabamun coal plant. Fish species at greatest risk are pike during the

spring and whitefish during the fall.

We have put in place a comprehensive fish management system to minimize the risk of

fish injuries at the site. Our program consists of specially designed screens, fish return

systems, acoustical and strobe lighting deterrents and staffing the plant screen house 24

hours a day, seven days a week, during high risk periods, with employees trained by

fisheries biologists. Wherever possible, we plan plant outages to coincide with spawning

times, thereby reducing water flow near the screens and lowering risks to fish.

Since installing the system in 2002, we have significantly lowered the number of fish

entering our intake screens and now report very few fish mortalities.

TransAlta 55

Essential fish habitat evaluations Whenever we develop growth plans for our plant and mine operations, we conduct

extensive assessments to understand the potential effects of our proposed activities to

water bodies and sensitive environmental areas. Essential fish habitat evaluations are

required of many projects that affect streams and wetlands.

In 2004, as part of our revised mining and land reclamation plan for our Centralia mine,

we carried out essential fish habitat evaluations. These identified the temporary loss of

some streams and wetlands as a result of our proposed plans to expand the mine. To

offset these impacts, we developed plans for fish alcoves (backwater areas) along a creek

on our property to create new fish rearing areas for coho salmon. We also are developing

plans to restore a section of the Big Hanaford Creek, long ago drained by agricultural

activities, to its natural stream channels, thereby enhancing wetlands and habitat for coho

salmon.

Water use in our hydro system Our hydro operations are part of Alberta’s North Saskatchewan and Bow River systems

and are “non-consumptive” users of water resources. In other words, they divert or store

water to generate electricity, later discharging it back to its natural source, with little loss of

water to downstream users. Plus, by managing reservoirs to meet the needs of our hydro

developments, we maintain consistent water flow through the spring and winter seasons

for downstream users in Edmonton, Calgary and southern Alberta.

TransAlta appointed to water council We believe that an ecosystem approach, combined with a collaborative process, is the

best way to find a balance between human activities and watershed integrity. We support

this approach by participating on various watershed planning and advisory councils in

Alberta.

In 2004, TransAlta was appointed to Alberta’s Water Advisory Council, a multi-stakeholder

group with representatives from government, industry and non-government organizations.

The council will report on the implementation of Alberta’s water strategy, released in late

2003, and make recommendations to the government, stakeholders and the public on

water issues affecting the province. Mike Kelly, TransAlta’s director, EH&S, represents our

company on the 24-member committee.

TransAlta 56

During the year, we also contributed to a government-led process to develop a water

management plan for the South Saskatchewan River Basin, of which the Bow River is a

part. Using a phased approach, the process collects input from several advisory

committees and the public to find the best balance between water use and environmental

protection in the basin. In 2004, our primary focus was to recommend water conservation

objectives for major rivers in the system.

We are also a member of the North Saskatchewan Watershed Alliance, a grassroots

umbrella organization comprising communities, industry, governments and other interest

groups. The Alliance is in the early stages of creating an integrated watershed

management plan for the river system. In early 2005, we joined the Alliance’s steering

committee, which will provide oversight for the plan’s development.

Aquatic environments The Bow River, the North Saskatchewan and the Skookumchuck rivers support diverse

fish populations. We look for opportunities to collaborate with our neighbours on projects

near our hydro plants to protect these aquatic environments.

Protecting fish on Skookumchuck River In 2004, TransAlta purchased the Skookumchuck dam from PacifiCorp. This dam, on the

Skookumchuck River in southwest Washington state, stores water to provide an

uninterrupted supply of water to TransAlta’s coal plant and mine at Centralia. The water is

used for many purposes, including process water, drinking water and cooling water.

TransAlta carries out fisheries and wildlife programs and manages impacts that result

from operation of the dam and reservoir. Working closely with the state Department of

Fish and Wildlife, we operate a fish trap that collects adult steelhead and coho salmon.

We transport and release steelhead and coho salmon upstream of the dam, spawn some

of the fish collected in the fish trap and raise the young — between 90,000 and 100,000

each year — and then release the young into the river each spring. We also supply water

to the state-owned salmon fish hatchery downstream of the dam.

TransAlta 57

Restoring fish habitats in Alberta We work with conservation groups, such as Trout Unlimited, to promote environmental

and fish habitat conservation in Alberta. We sponsor the organization’s Coldwater

Conservation Fund, which is dedicated to fish habitat restoration projects. In 2004, we

funded projects carried out by biologists and Trout Unlimited members in river areas

where we have operations.

TransAlta 58

Economic Performance Electricity contributes to a better quality of life in our homes, schools, institutions and

businesses. In generating this product, TransAlta fuels economic growth, creates jobs and

supports communities and governments through taxes, investments and donations. Many

aspects of our modern society, like lighting, heating, air conditioning, water treatment and

the use of computers, depend on electricity for their existence.

This section gives key figures and examples from 2004 of the economic impact

TransAlta’s business has on our stakeholders and surrounding society. Full details on our

financial information are found in TransAlta’s Annual Report and at www.transalta.com.

FINANCIAL H IGHLIGHTS

($Cdn millions except common share data)

2004 2003 2002

Revenues 2,838.3 2,520.9 1,814.9

Earnings from continuing operations1 160.6 234.2 66.8

Net earnings1 170.2 234.2 199.6

Cash flow from operating activities 613.4 526.9 398.6

Ratios

– Return on common shareholders’ equity (%) 6.5 10.3 3.9

– Debt to invested capital (%) 47.4 47.7 50.4

– Cash flow to interest coverage 4.1 3.3 3.8

Per common share data

– Earnings from continuing operations ($) 0.83 1.26 0.39

– Net earnings ($) 0.88 1.26 1.17

– Dividends ($) 1.00 1.00 1.00

1 Applicable to common shareholders

TransAlta 59

In 2004, our plant availability was 89 per cent. This is top quartile in our industry.

Creating Shareholder Value We create shareholder value by growing our business and efficiently operating our assets

to provide our customers with a reliable, competitive source of power. To do that, we

must:

operate our assets productively and safely

deliver excellent cash generation and selectively invest in new profitable capacity

maintain our business risk profile at the low end of the risk scale

Financial Performance In 2004, we delivered $0.70 in comparable

earnings per share, roughly the same as we

earned in 2003. Our reported earnings were

$0.88 per share, compared with $1.26 in 2003.

The main reasons were higher than normal

ongoing cycle maintenance expenses for our

plants, lower than anticipated sales from two of

our gas plants (our Sarnia plant in Ontario and

our Centralia plant in Washington state) and the

impact of increased interest expenses as new

generating plants have been placed into service.

We maintained a $1.00 per share dividend for

the sixth consecutive year.

Improving Cash Flow In 2004, our cash flow from operations continued

to improve, increasing 16 per cent from $527

million in 2003 to $613 million. This allowed us to

meet all our requirements for ongoing

reinvestments in our assets, dividends and debt

repayments.

TransAlta 60

Healthy Balance Sheet A strong balance sheet is important to us. We have set medium-term targets for key

financial ratios to improve our investment-grade credit rating. For our debt to capital ratio,

our goal is to reach 45 per cent. In 2004, TransAlta was at 47.4 per cent — a slight

improvement over 2003 but still short of our goal. Our cash flow to interest ratio target is

4.5 times. We are on track, coming in at 4.1 times in 2004, a marked improvement over

the 3.3 times we posted in 2003.

Focus on Productivity and Safety Our plants performed well in 2004. Overall, they

were available to dispatch power 89 per cent of

the time. High plant availability directly impacts our

bottom line. In fact, 81 per cent of our expected

power production is tied to long-term contracts

where revenues are based on meeting availability

targets and on the actual power dispatched.

This availability was driven by a series of

productivity improvements in 2004. Here are some

highlights:

A special task force carried out detailed benchmarking analysis of each of our plants. Our plant operating teams then used these studies to drive productivity improvements, ranging from streamlining parts management to fuelling our trucks more quickly to improving the efficiency of our equipment.

Our engineering and technology teams performed major outage work on 12 plants, finishing these with fewer outage days, less expense and less capital than budgeted.

Each of our plants have been assigned a multi-functional asset team whose sole purpose is to get the most production they can out of our facilities — safely, reliably and profitably. They deal with daily issues, determine when it is best to ramp up or ramp down our generators, help decide

Overall, it cost $40 for TransAlta to produce a megawatt hour of electricity in 2004, versus $37 in 2003. These amounts include all the costs of fuel, people and depreciation. Our mix of plants and the rising prices of natural gas and coal were the biggest cost drivers. Reducing this cost per megawatt hour remains a key priority for both business and social reasons. By managing the costs of electricity — an essential product, we benefit all consumers, especially low income Canadians who spend a higher percentage of their disposable income for energy purchases.

TransAlta 61

what major maintenance work needs to be done and the best time to do it, and develop the business case for future investments for their facility.

Our Target Zero initiative has been embraced across our fleet. Hazard and near miss reporting, an important feature of Target Zero, has grown from 3,000 in 2003 to 17,300. This change is positive — the more hazards and near misses reported, the more improvements are made, driving improved safety performance and reduced costs.

Risk Management As a responsible corporation, TransAlta has well established structures and processes in

place to identify and manage risks which may materially affect our business and, in turn,

the interests of our shareholders and other stakeholders. Each year we carry out a life of

asset review which produces an asset business plan. These plans consider the broad

range of environmental, economic and social risks and opportunities facing our company

— everything that affects our ability to sustain our business and create long-term

shareholder value.

We follow a two-stage approach to creating this strategic document:

First, each of our asset teams develops a business plan that identifies commercial and operational risks and opportunities for their plant. These plans consider different issues, including — but not limited to — maintenance, fuel pricing, emerging regulations, the costs of environmental improvements and changes in regional electricity pricing and infrastructure.

Second, we combine this information with a review of our financial activities, including financing and debt and equity transactions, to develop TransAlta’s five-year financial plan.

In preparing the business plan in early 2005, we put greater emphasis on better

understanding the impact of interest groups and potential emission reduction obligations

on our long-term profitability.

TransAlta 62

Direct Benefits TransAlta’s direct economic impacts can be measured

with traditional financial indicators, such as dividends,

employee costs, taxes paid and what we spend in

supplier goods and services. These measures show

how different stakeholder groups benefit economically

from our operations and activities.

Customers The bulk of our power is sold to three large customer

groups — utilities (60 per cent), government entities

(25 per cent) and industrial customers (10 per cent) —

with the balance going to various other companies. By

providing these customers with a reliable, cost-

effective supply of electricity and heat, we contribute to

their ongoing business success. In 2004, we produced

54,560 gigawatt hours, three per cent more power than

in 2003.

Investors and founders Through pension funds, mutual funds and direct

investments, Canadians invest in companies like

TransAlta. Our shareholders include many thousands

of senior citizens, who are attracted to our rate of

dividend per dollar invested. Our economic

performance affects their retirement income and social

well being.

In 2004, we provided investors and founders with a

secure place for their investment dollars, paying more

than $135.4 million in dividends to investors and

providing shareowners with an excellent yield on their

investment.

In 2004, our electricity production increased three per cent to 54,560 gigawatt hours — the equivalent of supplying power to 7.6 million homes.

TransAlta 63

Employees The dollars we pay our employees in wages and

incentive pay is a measure of our capacity to directly

benefit their quality of life. In 2004, we paid $142

million in wages and salaries to employees. Our staff

also earned over $352 million in employee benefits.

Governments In addition to our investments in communities, we

benefit local infrastructure by making tax payments

to governments in all the countries in which we

operate. These dollars are used by government to

fund public services ranging from schools to law

enforcement to roads and sewers. In 2004, we paid

over $20.8 million in property taxes to governments

in Canada, the U.S., Mexico and Australia. We paid

$4.6 million in income tax, payable to federal,

provincial and state authorities.

Suppliers Suppliers and contractors are a key part of our

business, which requires a diverse supply of

materials and services for construction, operation

and maintenance of our plants and facilities.

In 2004, we spent about $108 million for goods,

materials and services with suppliers on capital

projects and about $370 million for goods, materials

and services with suppliers in support of operations.

Local communities We benefit local communities in several ways. We inject roughly $1.6 billion each year

into local economies through capital and operating spending. We also provide corporate

donations and sponsorships to local community initiatives. In 2004, we invested more than

$3 million in these initiatives.

TransAlta 64

Investor Ratings A number of corporate social responsibility ratings agencies provide indexes that rate a

company’s social, ethical and environmental policies and practices. These indexes

provide socially responsible investors with the opportunity to gain exposure to companies

like TransAlta that meet globally recognized social responsibility standards.

Our main ratings are:

Dow Jones Sustainability World Index (DJSI World) TransAlta has been listed on the DJSI World for six years in a row. TransAlta is one of 13 Canadian companies on the index, which tracks the performance of sustainability leaders worldwide, selecting the top 10 per cent of companies leading each industry on economic, environmental and social performance.

World FTSE4Good Index TransAlta is a member of the World FTSE4Good Index, an international corporate social responsibility index, which identifies companies working toward environmental sustainability, developing positive relationships with stakeholders and upholding and supporting human rights.

Jantzi Social Index (JSI) TransAlta is included on the JSI, a socially screened common stock index. The JSI consists of 60 Canadian companies that pass a set of broadly based social and environmental screens.

Benefits To Regional Economies

Alberta For more than 90 years, our company has contributed to Alberta’s economy through jobs,

taxes and electricity production. We provide full-time jobs to about 1,500 people in the

province. Nearly $12 million in taxes were paid to regional and provincial governments in

2004. Besides our contribution to the provincial economy, we have the potential to

stimulate economic activity in different areas of the province.

TransAlta 65

Northern Alberta There is a direct link between the availability of electricity and steam and the province’s

capabilities to develop its abundant oil sands deposits. We own and operate the Poplar

Creek gas plant near Fort McMurray, supplying electricity to the region’s rapidly growing

oil sands development.

Central Alberta Since the 1950s, we have been a major part of the economic life of the Wabamun Lake

region west of Edmonton. In 2004, we provided more than 480 full-time equivalent jobs at

three coal plants in the region. Luscar, which operates our Highvale and Whitewood

mines, provides another 502 full-time equivalent jobs.

We are also a 50 per cent owner of the Genesee 3 generating facility, in partnership with

EPCOR. In 2004, the plant’s construction site was one of the largest and busiest in

Alberta. At peak construction, 2,100 tradespeople and contractors worked to complete the

450-MW plant. In March 2005, the plant began commercial operation. The addition of the

plant further increases the reliability of Alberta’s power supply.

Southern Alberta We employ over 500 people at our Calgary head office. We also contribute to the quality

of life in Calgary through the volunteer efforts of our employees and our community

investments. In 2004, our employees, retirees and company raised $546,000 for the

Calgary and Area’s United Way campaign, about 45 per cent of our total contribution to

the United Way worldwide.

In southern Alberta, our investments in wind farms benefit the regional economy,

contributing to jobs, municipal tax revenues and local purchases and services. In 2004,

we commissioned a wind farm at Summerview near Pincher Creek. This project, our fifth

wind farm in the region, is expected to inject about $20 million into the local economy over

its 30-year life.

Our power facilities benefit the regional economy in other ways. Our hydro dams are now

an essential part of Alberta’s water management, providing irrigation for agriculture in

southern regions.

TransAlta 66

Ontario We have operated in Ontario since the 1990s when we built our first gas plants at Ottawa

and Mississauga. These were followed by our Windsor plant and, most recently, by our

gas plant at Sarnia. To date, we have invested over $750 million to build and operate

these plants. The Ottawa, Windsor and Mississauga plants are owned 50 per cent by

TransAlta Power L.P.

We employ 160 people at the plants and

each year contribute to the Ontario

economy about $15 million in wages and

benefits, about $25 million through the

purchase of supplies and services, and

about $2 million in provincial taxes.

Our plants in Ottawa, Windsor and

Mississauga have long-term contracts at

prices that allow reasonable returns. Our

575-MW Sarnia plant, despite being one of

the most efficient gas plants in the province,

is operating below capacity, because of

market conditions and recent government

policy changes. We are discussing

opportunities with the Ontario government to

allow Sarnia to operate as intended and to sell more power into the province’s wholesale

electricity market.

Washington State We are the largest regional industrial employer in Centralia, Washington. We directly

employ 800 people at two power plants and one mine, and spend US$56 million each

year on payroll at Centralia.

Our power plant and mine generate about 10 per cent of the total property tax collected in

Lewis County and 30 per cent of the Centralia school district property tax. Each year our

facilities contribute nearly US$7 million in municipal and state government taxes. We are

also an important donor in the community. In 2004, our employees and company donated

US$330,000 to help fund local charitable initiatives.

In 2004, we invited 50 investor analysts to tour our facility in Sarnia, Ontario, and learn about our cogeneration plant. Employees manned displays throughout the plant to give analysts a hands-on demonstration

about how we deal with safety, environment,power dispatch and other aspects of our

business.

TransAlta 67

Goldfields Region, Western Australia Operating our two natural gas/diesel simple cycle plants in the Goldfields region of

Western Australia benefits the local economy. The plants provide low cost electricity for

mining operations and reinforce electricity supply in the region. We spend more than $5

million each year on employee pay and about $8 million in contractor services and

material purchases. We employ more than 50 staff at our plants and head office in Perth.

Mexico TransAlta operates two gas plants in Mexico,

one in Campeche and the other in the state of

Chihuahua. Together these plants supply 511

MW of reliable, affordable generation to the

Mexican electricity market, which, at projected

growth rates of between five and six per cent

over the next decade, is one of the fastest

growing in the Americas. TransAlta has a

long-term sales contract for both plants to

provide power to the Comisión Federal de

Electricidad, Mexico’s state-owned electricity

company, over the next 25 years.

Our investments in Mexico of approximately

US$450 million help to sustain infrastructure

for industry and services and introduce high

technology jobs into traditional agricultural regions, helping to diversify the local job

market and contributing to local well-being. Overall, we employ 78 people at the plants

and our TransAlta Mexico head office in Mexico City, and only two are expatriates.

Yearly operating expenses for our Mexican operations include about US$2 million for

employee pay and more than US$3 million for contractor supplies and services.

Mexican President Vincente Fox Quesada (second from left) and TransAlta CEO Steve Snyder (far left) inaugurated new plants in Mexico from TransAlta’s Campeche gas

plant on August 12, 2004. The plants were dedicated as part of 67th anniversary

celebrations for the Comisión Federal de Electricidad, Mexico’s state-owned

electricity company.

TransAlta 68

Corporate Social Responsibility

Corporate social responsibility is a growing focus for TransAlta. We aim to create and

maintain a safe, satisfying and fair working environment for our employees. We strive to

be a good neighbour, improving the quality of life in the communities where we operate.

We are also sensitive to the cultural environment in the areas in which we work. In

working toward these objectives, we are guided by policies, including but not limited to our

health and safety policy, our community investment policy and our corporate code of

conduct.

Workplace Health and Safety The business of producing electricity, by nature of our product and the work required to

produce it, presents safety risks and hazards. We take very seriously the job of managing

risks and eliminating hazards.

That is why we established our Target Zero initiative, with a vision to have a workplace

where people do not get injured doing their work. Key values that guide the actions on our

journey to achieve this vision are: All incidents are preventable. No job is so urgent that

we cannot do it safely. Good safety is good business. Each employee and contractor can

make a difference to our overall safety performance.

TransAlta 69

Performance

IFR for employees and contractors up Our employee safety performance has improved substantially since first implementing our

Target Zero initiative two years ago. In 2004, however, our employee injury frequency rate

(IFR) worsened. At year-end, it was 1.69 injuries per 200,000 hours worked, compared

with 1.47 in 2003. A major contributor to this increase was the higher number of

musculoskeletal (soft tissue) injuries in our plants and head office.

We also recorded a higher IFR for our contractors, from 0.93 in 2003 to 4.50. This

increase was mainly due to increased eye injuries during the year. The higher number of

contractor injuries in 2004 was a reminder that we must continually maintain our focus on

safety, especially during intense periods of plant maintenance activities, as was the case

last year. A new standard for contractor safety management has been developed, and will

be introduced throughout our organization in 2005.

In 2004, more than half the lost-time and medical aid injuries reported by our workers were musculoskeletal conditions. These were typically muscle strains or pain caused by repetitive motion, heavy lifting or general work practices. We are developing a major awareness campaign, to be launched in 2005, that will help our employees to identify musculoskeletal injury hazards and take early preventive action.

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17,000 near misses reported Much of our success can be attributed to the active participation of all our facilities, which

has led to increased hazard identification and near miss reporting. At year-end, all of our

locations had identified these conditions, in total reporting 17,300 hazardous conditions

and near miss incidents. This is almost six times the number reported in 2003. This

increase is positive. Once a hazardous condition or near miss situation is identified,

actions are taken to eliminate the hazard or the causes of the near miss to prevent future

occurrences. The more near misses and hazards are reported and acted on, the safer the

workplace.

Report card against leading indicators To keep improving our safety performance, it is essential we monitor the execution of key

elements of our safety management systems. Our company tracks a set of leading

indicators that tell us how we are doing in carrying out these activities to prevent EH&S

incidents. These consist of:

mandatory training

planned inspections

near miss and hazard reporting

incident investigation quality

All the indicators are focused on prevention. For example, conducting effective incident

investigations and promptly correcting the causes will help to prevent recurrence of

incidents in our worksites.

LEADING INDICATORS OF SAFETY PERFORM ANCE

03 04

Mandatory EHS training % complete 60 80

Planned EHS inspections % complete n/r 60

Near miss/hazardous conditions reporting number of reports 2,900 17,300

Incident investigation quality % 35 45

* n/r = not reported

TransAlta 71

TransAlta received the Canadian Electricity Association’s (CEA) gold award for safety in 2004. Derek Goodmanson, director, Eastern

Canada Operations (right), received the award from CEA President and CEO Hans

Konow at a ceremony in Ottawa.

Top rated by CEA for safety progress Each year the Canadian Electricity Association

honors Canada’s best performing member

companies in employee safety with an award of

excellence. In 2004, TransAlta’s Canadian

operations qualified as one of eight member

companies from across Canada to receive the

President’s Award of Excellence for employee

safety, with a gold award recognizing three or

more consecutive years of industry-leading

safety performance. This was the fifth year in a

row that TransAlta has been ranked in the top

quartile for low injury frequency and severity

rates.

Safety training and education

Strong focus on office safety Our near miss, hazard and injury reports show that safety issues exist everywhere we

work. One of the top causes of lost-time injuries across TransAlta in 2004 — slips, trips

and falls — applied to our offices as well as our plant and mine locations. Late in the year,

we took steps to raise more safety awareness in our offices, starting with our corporate

office in Calgary, where we held a series of two-hour safety training sessions. More than

350 head office employees took part in the sessions. In 2005, we plan to extend this

training to office employees outside of Calgary.

Expanding online education We continued to develop our e-learning system to provide flexible learning opportunities

for all our workers globally. Using the integrated computer-based system, employees can

select course content that applies to their roles, participate in online learning and monitor

their progress and record completions.

In 2004, we upgraded the system to improve ease of use and to better track course

completions. Tracking course completions is extremely important to TransAlta in

monitoring conformance to training requirements set out in our management systems.

Also, following employee skill development and career progress supports human

resources initiatives across the company.

During the year, about 1,200 employees completed EH&S training courses through our e-

learning system. In 2005, we plan to expand the system to incorporate new courses

promoting the use of our new EH&S incident management system, as well as assist with

our internal operating training progression systems for our Alberta coal plants and our

Sarnia gas plant. These will serve as pilots for the rest of the fleet.

CASE STUDY

Centralia mine improves safety, lowers costs

Identifying a hazard before it leads to an injury is a

focus of our Target Zero safety initiative. Following

this proactive approach, a group of millwrights at our

Centralia mine in Washington state identified a serious hazard and developed a

solution to address it.

Periodically, the plates and lifters on the mine’s rotary breaker, a large piece of

equipment which breaks up and processes raw coal, need to be replaced.

Previously, the heavy steel plates required extensive manual handling to move them

in and out of the machine. This method of changing plates can put workers at risk for

pinched hands and back injuries.

In 2004, the group proposed installing a three-ton winch to replace the old plates with

several manual steps in the process. After the winch was installed

Vehicle maintenance at Centralia mine

new, cutting out

TransAlta 72

and put into operation, employees were able to do their work more safely and

quickly. The result: reduced man-hours while increasing production, leading to

operating savings of $100,000 each year.

“This team works in a very demanding environment and always takes safety

seriously,” says Jeff Tornow, processing plant superintendent, Centralia. “It’s very

rewarding when employees recognize potential hazards and develop plans that not

only keep everyone safe but improve efficiencies as well.”

TransAlta 73

Health and wellness programs TransAlta is committed to the protection of employee health. We coordinate the delivery

of diverse occupational health and hygiene programs aimed at developing and sustaining

a healthy workplace. Such programs include:

health/wellness promotion initiatives We promote preventive health care through different programs: ergonomics, health hazards, pre-employment medicals, occupational hygiene services and international travel health services.

hazard identification, evaluation and control Through occupational hygiene assessments, including air monitoring for contaminants and noise monitoring, we assess and evaluate these types of workplace hazards. Engineering, administrative or personal protective equipment controls are applied, as needed, to manage risk to employees.

health surveillance Medical monitoring of employees for symptoms of potential exposure to hazards is carried out to confirm that workplace controls are effective and employees will not experience any adverse health effects.

disability case management and fitness for work Through disability case management, we manage the return to work of ill or injured workers in a manner designed to prevent adverse health impacts from their injury or condition. Fitness for work assessments are completed to ensure employees are fit to do the job they have been employed to do.

employee and family assistance program This confidential counselling and information service helps employees and their families in dealing with work and non-work related issues.

Emergency Preparedness Well-developed emergency response plans are in place at all our facilities worldwide.

Describing the roles and responsibilities of our employees, these plans help our plant

managers to respond quickly to natural and man-made emergencies. We also carry out

regular emergency response exercises that test our procedures, and provide opportunities

to continually strengthen the emergency readiness of our people and facilities.

In 2004, we carried out two table top emergency exercises. One of these exercises,

simulating a bomb threat, was conducted at our Calgary head office. Focusing on

notification and search procedures, the exercise validated the emergency preparedness

and knowledge of our frontline employees.

The Alberta government, through Emergency Management Alberta, has developed an

emergency plan to deal with terrorist threats for critical infrastructure in the province,

including power plants. In consultation with this agency, we wrote an emergency response

plan, using the threat levels defined by the U.S. Department of Homeland Security, to deal

with the potential of terrorist threats at our Alberta facilities.

We also conducted internal security vulnerability assessments at our Calgary head office,

our gas plants in Ottawa and Mexico, and our coal plant in Centralia, Washington. As part

of these reviews, we provided security training, covering security risks and procedures, to

employees responsible for local plant security.

CASE STUDY

Rapid response to Sundance fire

At TransAlta, we have employees, backed by strong

procedures and constant training, that believe a safe

working environment is a top priority and can react

quickly and effectively in the unfortunate case when

emergency incidents do occur.

On July 8, 2004, our Operations team evacuated the Sundance plant as a result of a fire

detected in a boiler house wall. The team immediately realized that additional firefighting

help would be required and contacted local fire departments, who responded quickly to

the situation, sending fire trucks and personnel to the site. The team also switched the

generating units to minimum production levels until the extent of the damage could be

determined.

Sundance team

TransAlta 74

Once the fire was completely extinguished, Operations staff carefully assessed damage

to electrical cables and our options for bringing the generating units back to full load

production. Our repair crews then worked around the clock to restore power supplies and

electrical cabling. Throughout, the Operations team stayed calm, stuck to their training

and drills to quickly resolve the situation.

“The Sundance team’s first priority was to keep employees safe,” says Martin van

Huyssteen, director, Alberta Thermal Operations. “I’m proud to say there were no injuries.

They responded in a very professional manner, following all procedures and drills.”

TransAlta 75

Employees Our more than 2,500 employees are a highly qualified, dedicated

group of people who can respond to complex challenges in a

dynamic energy business. At TransAlta, we expect a lot from our

workers, and they deliver, with hard work and dedication that

creates real results. Their efforts improve our productivity, maintain

our environmental and safety excellence, build our reputation in the

community and make it possible to deliver our product reliably

every day. Simply, they are our most important asset.

Work environment

Policies and initiatives Building on the strong foundation of our employees and making

TransAlta a great place to work can only happen when a work

environment is created in which everyone is encouraged to reach

their full potential and is treated with dignity and respect. TransAlta

has policies and initiatives to help foster this environment and to

ensure we create a workplace that attracts and retains the best

available talent and skills. Some of these policies and initiatives

include:

equal opportunity TransAlta is an Equal Opportunity Employer, supporting the fair and equitable treatment of all employees. All qualified employees seeking job opportunities in the company will receive consideration for employment without regard to race, religion, national origin, gender, age, physical disability or political affiliation.

flexible work arrangements As our business permits, we strive to be flexible in our work arrangements to address work-life balance issues. We offer policies for different flexible work arrangements for salaried employees and union staff who work shifts in mines and plants. We also have various leave programs, paid and unpaid, to address family and personal needs.

TransAlta 76

fairness and anti-harassment policies Our policies promote equality in the workplace and commit TransAlta to provide a workplace that is free of harassment, including racism, sexism, intimidation or sexual harassment. We have documented harassment investigation procedures that provide guidance to managers and employees in identifying harassment and providing employees with the means to report harassment and seek solutions. There are also clear policies to prevent violence in the workplace.

Pay and benefits At TransAlta, we recognize employee performance through many

types of rewards. Our strategy is to provide a mix of base pay,

annual incentives, benefits and retirement programs that reflect the

value of our jobs in the marketplace and the performance of our

employees and our business. To do this, we regularly participate in

many surveys to gather and analyze compensation data submitted

by comparable employers in each of our markets.

As well as a market-tested base salary for employees, we offer a

range of incentives and benefits to our employees. We provide

annual incentive bonus payments to non-unionized employees and

some bargaining units, based on the achievement of corporate and

departmental goals. Our incentive compensation recognizes

performance at the corporate, business unit, team and, for some

people, at the individual level. Our medium-term incentive program,

introduced in 2003, rewards managers and other selected

individuals for successfully carrying out corporate strategies that

contribute to longer-term shareholder value.

Providing opportunities for employee ownership in the company is a

priority for us. All regular and part-time employees, except senior

management, have the opportunity to purchase common shares

through the employee share purchase plan. This plan offers

employees an interest-free loan for up to 30 per cent of their base

TransAlta 77

salary. Senior managers and executives are eligible to receive shares under the

performance share ownership plan. Awards under this plan reflect the value we create for

shareholders, with shareholder return being the key measure.

We offer benefits programs to all employees. These programs vary from country to

country and reflect the availability and level of government-sponsored medical programs,

employment legislation and competitive market practices. In most locations, they include

life insurance, retirement programs and short-term and long-term disability coverage.

Employee recognition The Above & Beyond Program allows managers the opportunity to recognize employees

for their on-the-job accomplishments. Established in 2003, the program pays tribute to the

outstanding contributions of individuals and groups with cash rewards, merchandise and

other forms of recognition. Contributions can vary widely from identifying a safety hazard

to creating process improvements to showing leadership on the job.

Employee development We provide employees opportunities for personal and professional growth, focusing on

the development of core competencies such as business knowledge, decision-making,

technical skills, teamwork and leadership. We do this through a comprehensive

performance management process and our training and education programs.

We have redesigned our company’s performance management process for our out-of-

scope (non-union) employees. The new process improves how we assess and recognize

performance, as well as coach and develop employees to improve their performance. As

part of this process, employees are asked to complete self-reviews. Based on these

reviews, employees and leaders discuss competencies and development plans. These

discussions help to guide salary planning, internal recruitment and succession planning.

Special development programs identify employees with high potential and assist them in

expanding their leadership skills. In 2004, nearly 80 employees participated in our

leadership training programs. We also use job rotation as further means of professional

development. Employees being considered for broader managerial responsibilities are

rotated through different roles to broaden their experience.

Our online education program provides a one-stop shop for training and development and

enables employees to review and register for online courses. In 2004, nearly 300

TransAlta 78

employees took online courses covering technical skills, personal development and

understanding desktop software. Late in the year, we also launched Books 24X7, an

online reference tool that allows employees to have access to thousands of business-

related books.

Corporate Code of Conduct TransAlta’s Corporate Code of Conduct outlines our core commitment to the highest

standards of professional integrity. This document, which is available to all employees on

our website, highlights key principles dealing with respect in the workplace, conflicts of

interest, competition, insider trading, ethical business conduct, compliance with laws,

accounting issues, protecting TransAlta’s assets, health and safety, social responsibility,

and environment and sustainable development.

Employees are required to comply with the Code of Conduct and its underlying policies

and procedures. Employee with questions or concerns about the Code and potential

violations are expected to contact their supervisors or the Corporate Secretary, Internal

Audit or Legal Services. Each year, through a letter or email reminder from the CEO,

employees are asked to acknowledge the letter and spirit of the Code and its associated

corporate policies and to sign a paper or electronic acknowledgement indicating

compliance with the Code. Newly recruited employees sign the acknowledgement when

they start work at TransAlta.

Labour Relations TransAlta has seven unions and 12 different bargaining units in Canada, the U.S and

Mexico, and maintains positive working relations with these organizations. About 1,480, or

59 per cent, of TransAlta’s employees are covered by collective bargaining units. These

include many of our frontline people who operate our power plants and coal mines.

In 2004, our company reached collective bargaining agreements with seven bargaining

units, affecting 1,300 employees. These units included:

Communications, Energy and Paperworkers Union of Canada (CEP), Local 672 in Sarnia, Ontario, and Local 707 at Poplar Creek near Fort McMurray, Alberta

Sole Union of Electrical Workers of the Mexican Republic (SUTERM) in Campeche, Mexico

Canadian Auto Workers (CAW), Local 1967 in Mississauga, Ontario

TransAlta 79

International Brotherhood of Electrical Workers (IBEW), Local 125 in Centralia, Washington state, and Local 254 for our Alberta thermal and hydro facilities

International Union of Operating Engineers (IUOE), Local 612 in Centralia, Washington state

Under their agreements, union employees may use a set grievance procedure to raise job

issues. In 2004, there were about 80 formal grievances filed, involving issues about hours

of work, overtime, contracting out, terminations and disciplinary action taken by the

company. Only three of these disputes went to grievance arbitration.

Our union agreements also provide for occupational health and safety committees, which

provide a forum where management and union representatives can discuss potential

EH&S incidents and share ideas for promoting safe work practices as part of our daily

business activities. Through these committees, we are working together to advance our

Target Zero vision of no injuries in the workplace.

COLLECTIVE BARGAINING AGREEMENTS IN 2004

Union Jurisdictional area % of TransAlta’s workforce

Canadian Auto Workers (CAW) Mississauga and Windsor, Ontario

1%

Communications, Energy and Paperworkers (CEP) Union of Canada

Fort McMurray, Alberta, and Sarnia, Ontario

7%

International Brotherhood of Electrical Workers (IBEW)

Alberta and Centralia, Washington

23%

International Union of Operating Engineers (IUOE)

Centralia, Washington 19%

Power Workers’ Union (PWU) Ottawa 0.4%

United Utility Workers’ Association (UUWA) Alberta 4%

Sole Union of Electrical Workers of the Mexican Republic (SUTERM)

Campeche and Chihuahua, Mexico

2%

TransAlta 80

Corporate Citizenship

Community investment TransAlta seeks to develop long-term and mutually supportive relationships with not-for-

profit organizations that serve the needs of the communities where our employees live

and work. We provide financial, in-kind and volunteer support to these organizations in our

different geographies.

In 2004, our company provided more than $3 million in corporate donations and

sponsorships in our communities. We continued to leverage key partnerships with not-for-

profit organizations, including:

Calgary Exhibition and Stampede, Hull Child and Family Services, and SAIT Polytechnic in Calgary

Fringe Theatre Adventures and TransAlta Tri-Leisure Centre in the Edmonton region

interPLAY Festival in Fort McMurray, Alberta

Lambton College in Sarnia, Ontario

Centralia College in Centralia, Washington state

As we grow our presence in new areas of operation, we are increasing our involvement in

community activities. In Mexico, in conjunction with the Canadian Chamber of Commerce

and the Terry Fox Foundation, we support the Hospital Infantil de México Dr. Frederico

Gómez, a children’s cancer hospital in Mexico City. In partnership with the Canadian

Embassy, our Mexico City employees also support the Terry Fox Foundation through the

annual Terry Fox Run to raise money for cancer research.

Partnering with Hull Child and Family Services Our multi-dimensional partnership with Hull Child and Family Services grew with the 2004

opening of the Hull TransAlta Community Connections facility. This building provides

much-needed services for children and families in Calgary. Whether it was assembling

office furniture for Hull’s new building or knitting sweaters for children or providing

assistance at the grand opening, our employees and retirees got involved in a big way.

They contributed more than 500 hours in volunteer time.

TransAlta 81

We also partnered with the agency on a number of

community-related initiatives. In 2004, we hosted

an arts show and sale at our Calgary head office,

raising $2,200 for Hull’s mentorship programs. We

supported Hull’s HOPE program by providing work

experience opportunities for their young adult

clients. And we drew on the expertise of Hull’s

aboriginal relations consultants to pilot a new

aboriginal awareness training session for our

employees.

Our commitment to children and youth qualified us

as a Promise Builder program, an initiative of the

Government of Alberta.

Tara Reum was one of 48 members of TransAlta’s Corporate Finance group who demonstrated their caring spirit, painting

hallways, bedrooms and a training room at Hull Child and Family Services in Calgary.

TransAlta 82

TransAlta rated leading corporate citizen TransAlta was listed as one of 2004’s Best

50 Corporate Citizens in Canada, according

to a survey of large Canadian corporations

ranking the best corporate citizens in the

country. TransAlta was ranked eighth

overall, with a score of 75.2, in the third

annual survey published by Corporate

Knights, a quarterly Canadian business

magazine that reports on the role of

business in society. We also ranked number

one in the utility sector category.

To make the best 50 corporate citizens list, a

company must score better than its peers

across seven categories, including

community relations, employee

relations/diversity, environment, international stakeholder relations/human rights, business

practices/product safety, and corporate governance and share performance. Innovest

Strategic Value Advisors, known for sustainability evaluation, provided the source data.

Each year our company helps to fund environmental initiatives such as the

G.R.O.W. (Greening and Renewing Our World) program at the Keephills Elementary

School near Wabamun Lake, Alberta. In 2004, this outdoor education program

received a financial boost from TransAlta through Project Planet, our grassroots

environmental granting program for youth.

TransAlta 83

Volunteerism In addition to providing financial and in-kind

contributions, we encourage employees to

be active members of the communities

where they work and live, by providing them

avenues to volunteer. Four TACT

(TransAlta Community Transformers) teams

are active in different regions, reviewing

applications and allocating funds to local

community initiatives, and POWER

(Projects Organized With Energetic

Retirees), a group of retirees, volunteers

time and energy on community projects in

Alberta.

In 2004, volunteer employees in our TACT programs contributed more than 1,500 hours

to a wide range of projects. Here are examples from the various TACT teams:

Our Wabamun team near Wabamun Lake donated funding to Duffield School for upgrading the school’s playground to create a safer and wheelchair accessible environment for children. Funds were also distributed to Camp HeHoHa to adapt canoes to serve clients with disabilities.

Our Centralia team in Washington state donated funding to the America Red Cross in Chehalis to purchase first aid and CPR training for local Boy Scouts. As well, funds were designated to Kids Kloset to help purchase school clothes for youth in need.

Our Poplar Creek team in Fort McMurray, Alberta donated funding to the city’s Children’s Centre for the purchase of games, toys and books for its Literacy Library and Resource Centre. Employees were also active volunteers and helped serve at a fund-raising dinner for the Children’s Centre.

Our Sarnia team, in its first year of operation, organized a food drive for the city’s Inn of the Good Shepherd, donating funds and food from employees. The team also designated funds to Rebound, an organization that supports high-risk youth, and to Pathways, an organization that supports children with high-risk medical needs.

Our employees get directly involved in local community initiatives through our TACT

(TransAlta Community Transformers) teams. Here members of our Centralia TACT team

present a cheque to the Hands On Children’s Museum in Olympia, Washington.

Several years ago the POWER retirees developed an idea to convert available land into a

one-acre garden to grow vegetable produce and donate the harvest to the Calgary Inter-

Faith Food Bank. In 2004, they planted, tended and harvested a record crop of more than

14,400 kilograms of vegetables.

TransAlta employees are actively involved on non-profit boards and committees. Their

participation benefits community organizations by providing expertise and business

perspective. In return, our company benefits by learning new perspectives and better

ways to relate to external stakeholders. Our employees gain valuable experience and

build external relationships which, in turn, benefit the company many times over.

CASE STUDY

TransAlta employees energize Alberta high school through Project Planet

In 2004, our Hydro Operations employees volunteered

their time and technical expertise to staff and students

at Cochrane High School in making the school’s solar

and wind energy project a reality.

The project, driven by students and teachers, was

aimed at helping the Cochrane, Alberta school, west of

Calgary, become one of the first in Canada to run part of its building using

sustainable energy.

ed in-kind and financial support through our Project Planet granting

Hydro Operations Volunteers At High School in Cochrane,

Alberta, Bryan Aiton, supervisor, Hydro Operations(second from left), presents a

cheque to students at the Cochrane High School, who developed an idea to power their school with renewable

sources of energy.

TransAlta provid

TransAlta 84

program to purchase a wind turbine and 30 solar panels, which will generate 330

kilowatts for the school. TransAlta employees also helped to install the equipment

and gave a safety orientation to teachers, students and other workers involved in the

project.

“Our employees live and work in this community, so we felt it was important to lend a

hand,” says Bryan Aiton, supervisor, Hydro Operations, and one of six Hydro

employees who participated in the project. “It was great to see the energy of

everyone involved in the project.”

TransAlta 85

United Way Our company’s largest employee-driven community partnership is with the United Way.

We believe supporting this broad community agency is one of the most effective ways to

strengthen communities where our employees and retirees live and work.

Our 2004 United Way campaign theme, “Open Your Eyes, Open Your Heart,” captured

the minds of our employees and retirees. Our company exceeded our million dollar goal,

with employees and retirees raising $600,000 for the United Way. This was matched

dollar by dollar by the company, bringing our total contribution to the United Way to $1.2

miillion.

During a United Way Day of Caring, 13 employees from our Hydro operations paintedand spruced up buildings at Camp Adventure,

an outdoor recreation facility in Kananaskis Country operated by the Boys and Girls Club

of Calgary.

Employees from our Sarnia, Ontario gas plant cleaned eavestroughs and built a new fence

during a United Way Day of Caring at a home for adults with severe disabilities.

CASE STUDY

TransAlta employees embrace United Way

Organizing a United Way campaign takes time, dedication and energy of many

employees working together toward one goal — to raise donations for a worthy cause.

Coordinating successful campaigns year after year across TransAlta’s global

environment demands strong leadership from our employee volunteers.

Our 2004 campaign was no different.

Last year, we officially launched our 2004 campaign with the theme “Open Your Eyes,

Open Your Heart.” Linda Chambers, executive vice-president, Technology, and Tom

Rainwater, executive vice-president, Corporate Development and Marketing, co-chaired

the company-wide campaign. Supporting them were two employee co-chairs — Pam

Cook, coordinator, Community Investment, and Edith Shaw, executive assistant,

Operations, who headed up a team of 15 area campaign coordinators representing the

different plants and operating regions.

To map out the campaign strategy, Cook and Shaw met with the executive co-chairs and

set aggressive goals for the campaign. This year’s target was to be a “million dollar plus”

contributor to our communities. The campaign’s success was measured by actual

employee donations rather than participation.

Next, the two employee co-chairs organized a one-day training session in Calgary for

area campaign coordinators, where they shared their vision for the campaign.

“Our focus was for employees to have fun and at the same time open their eyes and

hearts to the different charitable causes in our communities,” says Shaw. “Each area

TransAlta 86

campaign was separate yet connected to the overall campaign. To bring a common focus

to this campaign, the executive co-chairs participated in as many area kick-off events as

possible. We also raised employee awareness about the different United Way events

through the TransAlta intranet website.”

What followed were various events over the fall, with each TransAlta location celebrating

United Way in its own unique way.

…continued

CASE STUDY …continued

In Mexico, local employee volunteers handed out pins with the United Way slogan in

Spanish and hosted “doughnut days” to explain the United Way (Fondo Unido) to plant

staff. Employees at our Australia plants created United Way T-shirts to raise awareness,

while our Western Canada plant employees sold cookbooks specially created for the

campaign. At Centralia, Washington and Sarnia, Ontario, volunteers organized

barbecues, with representatives from non-profit agencies on hand to talk with employees.

One of the many highlights at the Calgary head office included a three-day street hockey

tournament, dubbed the UWHL (United Way Hockey League), where eight teams of

executives and employees battled for hockey supremacy.

Thanks to these and other events, TransAlta reached its campaign goal of “one million

plus.” Employee donations at Calgary head office rose to 80 per cent from 76 per cent the

previous year, while company-wide donations increased to 54 percent from 52 per cent.

Once again, donations from employees at the Ottawa cogeneration plant reached 100

per cent.

Cook says the success of the 2004 campaign exceeded even her expectations. “The

2004 campaign was such a positive experience for our employees. They really enjoyed

themselves and, at the same time, became more aware of charitable causes close to

home.”

Adds Shaw: “With most regions exceeding their goals, it is clear they see the value of

supporting the United Way and there is a direct link between their efforts and the benefit

to their community.”

TransAlta 87

TransAlta 88

Stakeholder Relations TransAlta’s stakeholders are drawn from all sectors of society affected by our operations.

They include employees, regulators, government agencies, investors, local communities

and environmental non-government organizations. The quality of our relationships with

these diverse stakeholders is critical to the long-term success of our business. By

engaging with stakeholders through open and regular communication and consultation,

we deepen our understanding of what they expect from us and how we can meet their

expectations.

Public consultation We carry out public consultation practices that

are designed to address areas of shared

concern, and build strong relationships between

TransAlta and our stakeholders. These practices

cover a wide range: open houses, face-to-face

meetings, plant and mine tours and

presentations to citizen groups are but a few

examples. Not only are these events an

opportunity for us to share information about

TransAlta’s activities and impacts, they also help

us to demonstrate our commitment as a caring

corporate citizen.

Here are some examples of how we engaged with stakeholders in 2004:

We met monthly with Wabamun Watch, a stakeholder group consisting of mostly property owners around Wabamun Lake. The group’s role is to disseminate accurate and unbiased information about TransAlta’s operations and to ensure local citizens can provide input into decisions about TransAlta’s activities and proposed developments in the Wabamun Lake area. In 2004, the group provided feedback on various options in our long-term operational plan for the Wabamum Lake water treatment plant. During discussions of our license renewal application for the Highvale Mine, the group raised questions about the mine’s impact on local groundwater. We carried out detailed studies to address these questions.

More than 200 people attended TransAlta’s August open house at Wabamun Lake,

Alberta.

TransAlta 89

We surveyed readers of Kilowatt Connection, our quarterly newsletter to residents in the Wabamun Lake area, to find out whether our efforts to communicate with them were “hitting the mark.” Comments regarding the publication were largely positive, with 93 per cent of survey respondents saying that Kilowatt Connection is their preferred method for receiving information from TransAlta. Based on their feedback, we included updates on stakeholder committees and articles from external sources to bring more balance to the news and information we report.

We held an open house near Seba Beach, Alberta. This meeting with residents, cottagers and other members of the public encouraged dialogue about our operations in the area, including our long-term plans for the Wabamun Lake water treatment facility and decommissioning of the Wabamun plant.

We met with residents near our Alberta coal mines and used stakeholder input to improve our license renewable application for the Highvale mine. Measures for managing groundwater, dust and noise were incorporated in the application.

We held open houses and consulted with individual landowners to discuss different aspects of our Summerview wind farm, which began operation in 2004. We followed up questions about potential noise levels from the wind farm by providing information on our various sound modeling tests.

CASE STUDY

Wabamun Watch

When TransAlta looks for feedback on how it communicates to the local community at

Wabamun Lake on environmental issues, it regularly turns to Wabamun Watch, an

environmental group consisting mostly of stakeholders from around the lake.

“We act as a sounding board for what people around the lake are looking for in terms of

accurate information on TransAlta’s activities and the environmental health of the lake,”

says Rob Dickie, an environmental consultant who chairs the eight-person group, formed

in 2002 to disseminate accurate information from TransAlta as it relates to the lake.

To carry out its role, Wabamun Watch reviews reports by TransAlta, Alberta Environment

and other groups, and shares information through public meetings, displays at the local

farmer’s market and its website www.wabamun.watch. In 2004, Wabamun Watch met 10

times to discuss studies on water and sediment quality, water levels, local mercury

emissions and updates on decommissioning of TransAlta’s Wabamun coal plant.

“The meetings provide an important forum for TransAlta to update us on their operating

plans and environmental impacts,” says Dickie.

In 2004, when discussing TransAlta’s license renewal application for the Highvale mine,

the group raised questions about the mine’s impact on local groundwater. TransAlta in

turn provided detailed studies to address these questions.

“If we see data that is missing, we ask for it,” explains Dickie. “In the case of the mine

application, our members wanted to better understand if deeper excavations can affect

TransAlta 90

the groundwater in an adjacent community. So we asked for additional information and

we got it. TransAlta has been very responsive for any information that we’ve asked for.”

After three years of chairing the organization, Dickie reports that he’s noticed a significant

shift in local environmental concerns in the community.

“We’re starting to see decreased concerns from local stakeholders about the lake’s

environment,” says Dickie. “Four years ago water levels in the lake were a hot issue. But

today this is much less so. In fact, water levels are starting to come up significantly

because of TransAlta’s water treatment plant.”

…continued

Aboriginal relations Our operations are close to aboriginal

communities in Alberta and Ontario. In

Alberta, 380 kilometres (235 miles) of

transmission facilities cross 11 First Nations

lands, four hydro facilities border on lands

belonging to the Stoney (Nakoda) First

Nation and our coal plants and mines at

Wabamun are located near the Paul and

CASE STUDY …continued

“Also, concerns about water quality are gradually being put to rest because of recent

studies,” adds Dickie, referring to the work of an independent committee of scientists

which spent much of 2004 reviewing scientific studies of Wabamun Lake. In early 2005,

the committee, headed by Dr. David Schindler, reported its findings at a public meeting in

Stony Plain, Alberta. Wabamun Watch members attended the meeting as an

environmental “spokesperson” for area residents.

“Their findings concluded that with a few exceptions that the lake environment is in

relatively good shape. This is positive and supports what TransAlta and Alberta

Environment had said in the past. Today people are much happier with the condition of

the lake.”

TransAlta 91

Alexis First Nations. In Ontario, our Sarnia

gas plant is close to the Aamjiwnaang First

Nation.

We are committed to building positive

relationships based on mutual

understanding and respect with our aboriginal neighbours.

In late 2004, we initiated a review of our aboriginal relations policy, with the intention of

clarifying how we deal with aboriginal people and ensuring we remain consistent with

industry best practices. This will be completed in 2005.

Hull Child & Family Services hosted an Aboriginal Awareness Training session in

November, 2004 for TransAlta employees whowork closely with First Nations.

TransAlta 92

We also formed a cross-functional team to assess our areas of contact with aboriginal

communities, our current aboriginal relations practices and develop recommendations for

future interactions. And we renewed our aboriginal cultural awareness program for

employees. Hull Child and Family Services, one of our community investment partners,

offered this one-day training program on a pilot basis to select Calgary-based employees.

We plan to offer this course to other employees across our organization in 2005.

Supporting traditional land use study TransAlta participated in the Paul Band’s traditional land use study, along with

government and industry partners. The Paul Band is interested in documenting traditional

land use to preserve its cultural history and to assist in local economic and resource

development. The band’s oral history, passed down by elders, is being documented

through tape-recorded interviews. Global positioning systems and other information

technology will also be used to capture data.

The multi-phased project is expected to take about two years, resulting in education and

employment opportunities for band members. TransAlta has lent financial and in-kind

support to the project, and is participating in community advisory meetings.

TransAlta 93

Supplier Relationships We purchase a variety of materials and services from suppliers in our different

geographies. Materials range from basic items, such as gloves and safety supplies, to

specialized chemicals for water treatment. Services range from craft labour, such as pipe

fitters and welders, to highly specialized services.

In 2004, we continued to develop strategic relationships with suppliers. Developing these

relationships is a critical element of our major maintenance plan to reduce our long-term

costs, increase the efficiency and reliability of our equipment, and ensure that TransAlta

maintains technological leadership in all our assets.

For example, we entered into a new strategic contractor alliance in 2004 for outage work

on our boilers. In selecting our contractor partner, cross-functional teams examined

companies for a variety of performance indicators, including financial capability, risk

exposure, pricing, safety performance and their alignment with TransAlta’s culture and

values. Companies were required to complete detailed surveys on their safety

management and performance.

We use our strategic relationships to identify collaborative opportunities that help to

improve our operating and EH&S performance. In 2004, TransAlta and our boiler

contractor partner developed a joint safety plan for plant turnarounds, focusing on near

miss reporting to prevent safety incidents. Our strategic relationship with our

transportation supplier also helped us to improve how we track and manage the

movement of dangerous goods.

TransAlta 94

Leadership for Sustainable Development Our company has been actively involved in various industry associations and multi-

stakeholder organizations in Canada and worldwide for decades. The energy and ideas

we bring to these organizations help to advance industry leadership on sustainability and

contribute to positive economic, environmental and social impacts at local, provincial,

national and global levels.

In 2004, we continued to take important roles with many organizations:

Alberta Water Advisory Council Multi-stakeholder group with representatives from government, industry and non-government organizations. The council will report on the implementation of Alberta’s water strategy, released in late 2003, and make recommendations to the government, stakeholders and the public on water issues affecting the province. Mike Kelly, TransAlta’s director, EH&S, represents the electric power generation sector on the council.

BIOCAP Canada Foundation Canadian research and information partnership of organizations, universities and the private sector, funds and communicates national research efforts to explore how biological systems can help address climate change. Our membership provides learning and expertise that supports our search for least-cost, credible offset options. Dr. Bob Page, TransAlta’s vice-president, Sustainable Development, chairs the BIOCAP Board of Directors.

Canadian Electricity Association (CEA) Association of Canada’s major electricity producers. TransAlta provides leadership to diverse CEA working groups, including climate change and the Generation Council.

Canadian Chamber of Commerce in Mexico Network of Canadian companies doing business in Mexico. JoAnne Butler, Country Manager, Mexico, is First Vice-President of the Canadian Chamber of Commerce in Mexico. In 2004, TransAlta and other Chamber members organized a one-day conference to recognize the 10th anniversary of NAFTA (North American Free Trade Agreement). The event was attended by key Mexican leaders from government and industry, including Mexican president Vicente Fox Quesada.

Canadian Clean Power Coalition (CCPC) Industry-government consortium that plans to build and operate a full-scale clean coal demonstration plant by 2012.

TransAlta 95

Canadian Wind Energy Association (CanWEA) Association of wind energy developers and manfacturers across Canada. Starting in 2005, Theresa Howland, Vision Quest’s manager, Green Energy Marketing, will chair CanWEA, becoming the fourth Vision Quest employee to chair this prestigious national organization.

Clean Air Strategic Alliance (CASA) Partnership of Alberta industry, government and non-government organizations that develops strategies and action plants to manage the province’s air quality. Dr. Page represents the Alberta utilities and Theresa Howland, Vision Quest’s manager, Green Energy Marketing, represents alternate energy producers on CASA’s Board of Directors. Mike Kelly, director, EH&S, co-chairs CASA’s Electricity Project Team, and Theresa Howland is a member of CASA’s Renewable and Alternative Energy Working Group.

Environmental Law Centre Organization providing Albertans with an objective source of information about environmental and natural resources law. Ken Stickland, executive vice-president, Legal, serves on the Centre’s Board of Directors.

Industry Steering Committee on Climate Change Coalition of industry associations and individual companies working together to influence Canadian government policy on climate change.

International Emissions Trading Association (IETA) Geneva-based organization working with governments and industry to set up an international framework for trading GHG emission reductions. IETA is a principal advisor to the Canadian government on the establishment of a future Canadian emission reduction trading system. Dr. Page is past chair and a member of IETA’s executive committee.

International Institute for Sustainable Development (IISD) Non-profit organization that works with global partners to advance policy recommendations and share information on different economic and environmental issues. Dr. Page is a member of the IISD’s Board executive.

Pew Center on Global Climate Change U.S.-based non-profit organization that educates the public and policy-makers on challenges and opportunities to address climate change. TransAlta is a member of the centre’s Business Environmental Leadership Council, which consists of the leading North American companies on environmental and climate management.

TransAlta 96

West Central Air Shed Society Environmental non-profit organization that carries out monitoring and public reporting of air emissions in the west central region of Alberta near Wabamun Lake. Jim Bolton, TransAlta manager, EH&S Services, Alberta Thermal, is a member of the society’s multi-stakeholder Board.

West Coast Regional Carbon Sequestration Partnership U.S. consortium of industry sources and local, state and federal government agencies that plans to identify CO2 sources in the western U.S. states and determine cost-effective methods to capture and store emissions over the long term. Richard DeBolt, Communications and Community Relations Manager, TransAlta Centralia, represents our company in this partnership.

World Business Council for Sustainable Development (WBCSD) Organization of some 170 companies committed to mobilizing industry change toward sustainable development. Through the WBCSD, TransAlta provides leadership on energy and climate change issues and exchanges best practices with the world’s leading sustainability companies.

Policy Development We can contribute to our long-term sustainability by being able to influence public policy

that will affect our economic, environmental and social performance. To do that, we

monitor government thinking about our industry and look for opportunities to participate in

public dialogue where we can make a relevant and meaningful contribution. We regularly

make submissions to government on proposed legislation, and participate in numerous

industry forums on climate change, economic development and energy industry policy.

Some highlights from our activities in 2004 include:

Our company was appointed to the Stakeholder Advisory Committee on Reporting for the mandatory Canadian national GHG reporting process, which becomes effective June 2005. TransAlta is representing the Canadian Electricity Association.

We met with officials in the Ontario Minister of Energy’s office to resolve issues around our Sarnia gas plant, which is currently operating under capacity due to market conditions and recent government policy changes. We discussed opportunities that would allow the plant to operate as intended and sell more power into the province’s wholesale electricity market.

Vision Quest met with policy-makers in Ottawa to encourage expansion of the Canadian government’s Wind Power Production Incentive.

TransAlta 97

Along with other members of the Canadian Clean Power Coalition, we met with senior federal government policy-makers to create awareness of clean coal technology as an important climate change solution.

TransAlta, in conjunction with other companies in the Industry Steering Committee on Climate Change, delivered several presentations on climate change to government agencies, including the Canadian Prime Minister’s Office. Our presentations recommended taking a long-term technology-based approach to this major environmental issue.

We continued to take an active leadership role in Alberta’s Clean Air Strategic Alliance. In 2004, we advised the Alberta government on the development of regulations to meet air emission targets for the electricity industry.

Through the Asociación Mexicana de Energía Eléctrica, a group of leaders from Mexico’s major independent electricity producers, TransAlta provided input to a proposed federal law designed to promote renewable energy in Mexico. During the year, members of Vision Quest Windelectric also met with Mexican government leaders, including the Subsecretary of Electricity and the Undersecretary of Environmental Regulation, to discuss opportunities for wind power.

TransAlta 98

The Numbers Throughout this report we have quantified our sustainable development performance with

statistics collected over the last year. This section is a summary of those statistics.

TransAlta's economic performance is outlined in detail in our 2004 Annual Report.

Reporting Principles We have used the following criteria to prepare and compile data in this report:

Inclusion principles This report covers the calendar year ending Dec. 31, 2004. In some cases in our text, we

have also reported on significant items in early 2005.

We report EH&S data for generating facilities for which TransAlta holds the operating

permit, regardless of financial ownership. We do not report data from facilities or

operations discontinued during the calendar year. For facilities or operations purchased

during the calendar year, we report the entire year’s performance.

The following facilities will not be reported in this statistical summary but may be reported

in TransAlta’s 2004 Annual Report:

Genesee 3 expansion, Alberta (under construction in 2004; permit to be held by EPCOR and TransAlta)

Imperial Valley geothermal assets, California (operating permit not held by TransAlta)

Poplar Creek plant, Alberta (operating permit not held by TransAlta)

Power Resources Inc., Texas (operating permit not held by TransAlta)

Saranac plant, New York (operating permit not held by TransAlta)

Sheerness plant, Alberta (operating permit not held by TransAlta)

Yuma plant, Arizona (operating permit not held by TransAlta)

TransAlta 99

Reporting of financial performance is based on the proportion of financial ownership.

Megawatt hours used to calculate EH&S data in this report differ slightly from electricity

production reported in our 2004 Annual Report.

Reporting entity We report our activities corporately and by country. We cover direct operational impacts

and do not include supply chain impacts such as emissions from product suppliers.

Reporting scope We discuss achievements that result directly from our actions. We report performance

frequently through totals and ratios. We use total emissions to show environmental

impacts. We use emission intensity rates (for example, emissions per megawatt hour) to

measure our operations’ efficiency in controlling emissions.

TransAlta 100

Statistics

Corporate

2000 2001 2002 2003 2004

MANAGEMENT SYSTEMS

Facilities with ISO 14001 and/or OHSAS 18001-based management systems

20 26 27 30 31

Generation capacity with ISO 14001 and OHSAS 18001-based management systems (%)

69 92 92 94 95

Management system audits1 20 26 26 26 30

Compliance audits 8 10 11 14 16 ENVIRONMENTAL PERFORMANCE

Air emissions2

Sulphur dioxide (tonnes) 128,000 110,600 72,800 57,500 59,500

Sulphur dioxide emission intensity (kg/MWh) 3.12 2.78 1.71 1.26 1.26

Nitrogen oxide (tonnes) 66,800 65,500 67,400 68,000 66,400

Nitrogen oxide emission intensity (kg/MWh) 1.64 1.64 1.59 1.50 1.40

Particulate matter (tonnes) 5,600 7,000 7,400 6,200 6,300

Particulate matter emission intensity (kg/MWh) 0.14 0.18 0.17 0.14 0.13

Mercury (kilograms) 520 550 770 670 610

Mercury emission intensity (mg/MWh) 12.66 13.81 18.10 14.73 12.87

Greenhouse gas emissions3

Carbon dioxide (CO2E tonnes) 37,710,100 37,393,700 40,230,700 41,476,200 42,173,200

Methane (CO2E tonnes)4 174,800 168,200 197,000 192,700 191,000

Nitrous oxide (CO2E tonnes) 212,100 219,100 264,400 253,200 249,000

CFC-11 (CO2E tonnes) 0 1,040 0 0 0

Sulphur hexafluoride (CO2E tonnes) 0 0 194 0 0

Gross emissions (CO2E tonnes) 38,096,800 37,782,000 40,692,300 41,922,100 42,613,200

Emission reductions (CO2E tonnes)5 6,865,400 6,650,600 6,945,800 0 0

Net emissions (CO2E tonnes)5 31,231,700 31,138,300 33,753,900 41,922,100 42,613,200

TransAlta 101

2000 2001 2002 2003 2004

Gross emission intensity (kg CO2E/MWh) 928 949 957 922 899

Net emission intensity (kg CO2E/MWh)5 760 782 793 922 899

Land and materials management

Land used in mining activities (hectares) 18,170 17,880 18,610 16,920 17,100

Land used by plants, offices and equipment (hectares)6 4,140 4,150 2,490 3,040 3,090

Non-hazardous waste disposed (tonnes)7 1,610 2,570 4,050 2,700 1,440

Hazardous waste disposed (tonnes)8 0 20 286 7,927 638

Paper used (tonnes) 116 90 47 38 88

Paper recycled (tonnes)9 148 146 92 67 65

Water10

Total water intake (million m3) 574 595 732 603 571

Total water discharge (million m3) 484 509 630 504 478

Water consumption (million m3)11 90 86 102 99 92

Water consumption intensity (m3/MWh) 2.19 2.16 2.41 2.18 1.95

Regulatory performance31

Stack regulatory contraventions 13 11 8 0 0

General air regulatory contraventions 15 5 3 4 14

Spills to land regulatory contraventions 5 5 6 7 13

Spills to water regulatory contraventions 6 15 12 6 11

Other regulatory contraventions12 17 12 8 9 8

Administrative regulatory contraventions 0 0 0 3 4

Environmental enforcement actions13 5 5 7 8 10

PRODUCTION

Coal generation net capacity (MW) 4,629 4,674 4,674 4,589 4,488

TransAlta 102

2000 2001 2002 2003 2004

Natural gas generation net capacity (MW) 898 1,054 1,836 2,307 2,307

Hydro generation net capacity (MW) 801 801 801 801 801

Wind generation net capacity (MW) 0 0 44 82 150

Total net capacity (MW) 6,328 6,529 7,311 7,697 7,596

Coal net generation (MWh) 33,481,000 32,627,000 34,207,000 34,691,000 34,467,000

Natural gas net generation (MWh) 6,098,000 5,933,000 6,753,000 9,128,000 11,018,000

Hydro net generation (MWh) 1,492,000 1,267,000 1,464,000 1,471,000 1,614,000

Wind net generation (MWh) 0 0 117,000 190,000 305,000

Total net generation (MWh) 41,071,000 39,827,000 42,541,000 45,480,000 47,404,000

FINANCIAL PERFORMANCE

Earnings before regulatory decisions, income tax and non-controlling interest ($ millions)

279.80 214.60 189.90 234.2 160.6

Cash flow from operating activities ($ millions)14 188.70 715.60 437.70 756.5 613.4

Net earnings per share ($/share) 1.66 1.27 1.12 1.26 0.88

Income tax expense ($ millions) 128.50 89.90 9.40 64.60 50.10

Performance stock option shares (share options)15 600,000 400,000 200,000 200,000 200,000

Performance stock option shares (weighted average exercise price) 21.87 22.31 22.44 22.44 22.44

Employee future benefits ($ millions)16 423.5 403.4 353.3 351.9 352

Investment in wind generation ($ millions)17 68.50 10.00 82.00 0 0

Investment in distributed generation ($ millions) - 7.90 10.30 0.5 0.3

Investment in research and technology ($ millions) 3.50 1.20 0.50 0.68 0.20

Capital expenditures on environmental monitoring and pollution abatement ($ millions)18

n/r 74.1 69.2 3.4 1.3

Operations and maintenance expenditures on environmental monitoring and pollution abatement ($ millions)19

n/r 7.2 18.2 38.9 44.1

TransAlta 103

2000 2001 2002 2003 2004

SOCIAL PERFORMANCE

Health and safety

Health and safety enforcement actions20 1 1 43 18 5

Full-time equivalent employees21 2,343 2,550 2,373 2,546 2,517

EH&S full-time equivalent employees22 61 54 34 44 38

Injuries to employees 55 49 42 39 43

Employee injuries requiring absence from work 16 14 11 12 11

Employee recordable injury frequency rate (injuries/200,000 hours)23

2.30 1.84 1.60 1.47 1.69

Employee disabling injury frequency rate (injuries/200,000 hours)24 0.67 0.53 0.42 0.45 0.43

Injuries to contractors25 n/r n/r 37 18 45

Contractor injuries requiring absence from work25 n/r n/r 12 1 9

Contractor recordable injury frequency rate (injuries/200,000 hours)25

n/r n/r 2.00 0.93 4.50

Contractor disabling injury frequency rate (injuries/200,000 hours)25

n/r n/r 0.65 0.05 0.90

Short-term disability rate (days/1,000 employees)26 729 936 478 895 1,144

Long-term disability rate (cases/1,000 employees)27 1.28 2.35 2.72 1.03 2.07

Reportable vehicle incidents28 24 17 13 15 1

Health and safety training per employee (hours/employee) 7 10 6 6 8

Environmental training per employee (hours/employee) 1 1 <1 <1 <1

Community relations

Community investments ($ millions)29 5.3 5.0 5.2 5.0 3.4

Community investments per employee ($/employee) 2,280 1,960 1,910 1,720 1,160

Company-initiated volunteer hours per employee30 4.6 4.1 2.8 2.2 2.9

Please see discussion and notes section for explanation.

* n/r= not reported

TransAlta 104

Canadian Operations

2000 2001 2002 2003 2004

MANAGEMENT SYSTEMS

Facilities with ISO 14001 and/or OHSAS 18001-based management systems

20 19 19 20 21

Generation capacity with ISO 14001 and OHSAS 18001-based management systems (%)

92 93 92 92 94

Management system audits1 20 19 19 20 20

Compliance audits 6 5 9 13 7 ENVIRONMENTAL PERFORMANCE

Air emissions2

Sulphur dioxide (tonnes) 52,200 50,900 55,600 50,300 53,200

Sulphur dioxide emission intensity (kg/MWh) 1.73 1.74 1.77 1.63 1.48

Nitrogen oxide (tonnes) 44,900 43,900 48,398 46,306 46,247

Nitrogen oxide emission intensity (kg/MWh) 1.49 1.50 1.54 1.50 1.29

Particulate matter (tonnes) 4,380 5,960 6,222 4,827 4,958

Particulate matter emission intensity (kg/MWh) 0.15 0.21 0.21 0.16 0.14

Mercury (kilograms) 440 490 710 620 560

Mercury emission intensity (mg/MWh) 14.62 16.78 22.63 20.11 15.58

Greenhouse gas emissions3

Carbon dioxide (CO2E tonnes) 27,386,800 27,116,600 29,540,500 28,467,100 29,007,800

Methane (CO2E tonnes)4 134,200 124,400 137,200 133,500 136,000

Nitrous oxide (CO2E tonnes) 164,400 163,600 177,000 173,200 174,800

CFC-11 (CO2E tonnes) 0 1,040 0 0 0

Sulphur hexafluoride (CO2E tonnes) 0 0 194 0 0

Gross emissions (CO2E tonnes) 27,685,400 27,405,600 29,854,900 28,773,800 29,318,600

Emission reductions (CO2E tonnes)5 6,450,500 6,549,600 6,748,300 0 0

Net emissions (CO2E tonnes)5 21,234,900 20,856,000 23,106,600 28,773,800 29,318,600

Gross emission intensity (kg CO2E/MWh) 920 939 951 933 816

TransAlta 105

2000 2001 2002 2003 2004

Net emission intensity (kg CO2E/MWh)5 706 714 736 933 816

Land and materials management

Land used in mining activities (hectares) 12,810 12,460 13,290 11,590 11,770

Land used by plants, offices and equipment (hectares)6 4,000 4,020 2,350 2,900 2,930

Non-hazardous waste disposed (tonnes)7 1,320 1,040 1,140 900 670

Hazardous waste disposed (tonnes)8 80 1,190 100 10 200

Paper used (tonnes) 108 80 36 25 71

Paper recycled (tonnes)9 120 114 61 61 57

Water10

Total water intake (million m3) 555 577 709 568 535

Total water discharge (million m3) 483 508 628 502 477

Water consumption (million m3)11 72 69 81 66 58

Water consumption intensity (m3/MWh) 2.41 2.37 2.59 2.14 1.62

Regulatory performance31

Stack regulatory contraventions 11 10 5 0 0

General air regulatory contraventions 13 5 3 4 7

Spills to land regulatory contraventions 5 2 3 6 7

Spills to water regulatory contraventions 5 11 9 3 17

Other regulatory contraventions12 16 12 5 8 6

Administrative regulatory contraventions 0 0 0 0 0

Environmental enforcement actions13 2 4 0 1 0

PRODUCTION

Coal generation net capacity (MW) 3,289 3,334 3,334 3,184 3,184

Natural gas generation net capacity (MW) 628 583 1,164 1,124 1,124

TransAlta 106

2000 2001 2002 2003 2004

Hydro generation net capacity (MW) 795 795 795 795 802

Wind generation net capacity (MW) 0 0 44 82 150

Total net capacity (MW) 4,712 4,712 5,337 5,185 5,260

Coal net generation (MWh) 23,927,000 23,577,000 24,932,000 23,654,000 24,071,000

Natural gas net generation (MWh) 4,667,000 4,357,000 4,864,000 5,513,000 9,946,000

Hydro net generation (MWh) 1,492,000 1,267,000 1,464,000 1,471,000 1,614,000

Wind net generation (MWh) 0 0 117,000 190,000 305,000

Total net generation (MWh) 30,086,000 29,201,000 31,377,000 30,828,000 35,936,000

Capital expenditures on environmental monitoring and pollution abatement ($ millions)18

n/r 6.10 14.30 3.10 1.10

Operations and maintenance expenditures on environmental monitoring and pollution abatement ($ millions)19

n/r 4.30 7.80 11.60 11.50

SOCIAL PERFORMANCE

Health and safety

Health and safety enforcement actions20 1 1 39 10 1

Full-time equivalent employees21 1,535 1,700 1,600 1,847 1,561

EH&S full-time equivalent employees22 43 37 22 24 20

Injuries to employees 33 19 19 20 56

Employee injuries requiring absence from work 14 7 6 9 7

Employee recordable injury frequency rate (injuries/200,000 hours)23

2.13 1.07 1.45 0.58 1.06

Employee disabling injury frequency rate (injuries/200,000 hours)24 0.90 0.39 0.21 0.26 0.13

Injuries to contractors n/r n/r 14 16 16

Contractor injuries requiring absence from work n/r n/r 5 1 1

Contractor recordable injury frequency rate (injuries/200,000 hours)23

n/r n/r 3.29 2.10 2.10

Contractor disabling injury frequency rate (injuries/200,000 hours)24

n/r n/r 1.17 0.13 0.13

TransAlta 107

2000 2001 2002 2003 2004

Short-term disability rate (days/1,000 employees)26 1,107 1,202 769 1,081 1,787

Long-term disability rate (cases/1,000 employees)27 1.94 3.53 3.75 1.08 1.92

Reportable vehicle incidents28 15 17 12 12 1

Health and safety training per employee (hours/employee) 5 11 5 <1 <1

Environmental training per employee (hours/employee) 1 1 <1 <1 <1

Community relations

Community investments ($ millions)29 5.28 4.94 4.91 4.44 3.30

Community investments per employee ($/employee) 3,440 2,910 3,070 2,410 2,110

Company-initiated volunteer hours per employee30 6.4 5.6 3.7 2.5 4.6

Please see discussion and notes section for explanation.

* n/r= not reported

TransAlta 108

U.S. Operations

2000 2001 2002 2003 2004

MANAGEMENT SYSTEMS

Facilities with ISO 14001 and/or OHSAS 18001-based management systems

0 2 3 3 3

Generation capacity with ISO 14001 and OHSAS 18001-based management systems (%)

0 87 89 97 97

Management system audits1 2 2 2 0 3

Compliance audits 2 0 2 0 3 ENVIRONMENTAL PERFORMANCE

Air emissions2

Sulphur dioxide (tonnes) 75,800 59,700 17,300 7,200 6,200

Sulphur dioxide emission intensity (kg/MWh) 7.93 6.56 1.81 0.63 0.58

Nitrogen oxide (tonnes) 18,100 16,500 13,420 16,320 13,940

Nitrogen oxide emission intensity (kg/MWh) 1.89 1.81 1.41 1.43 1.31

Particulate matter (tonnes) 1,230 1,030 1,140 1,310 1,290

Particulate matter emission intensity (kg/MWh) 0.13 0.11 0.12 0.11 0.12

Mercury (kilograms) 77 55 55 51 50

Mercury emission intensity (mg/MWh) 8.05 6.01 5.74 4.48 4.70

Greenhouse gas emissions3

Carbon dioxide (CO2E tonnes) 9,474,000 9,395,000 9,740,000 11,468,000 11,179,000

Methane (CO2E tonnes)4 38,000 41,000 57,000 55,000 50,000

Nitrous oxide (CO2E tonnes) 41,000 49,000 81,000 68,000 64,000

CFC-11 (CO2E tonnes) 0 0 0 0 0

Sulphur hexafluoride (CO2E tonnes) 0 0 0 0 0

Gross emissions (CO2E tonnes) 9,553,000 9,485,000 9,878,000 11,591,000 11,293,000

Emission reductions (CO2E tonnes)5 48,800 73,300 189,100 241,000 192,000

Net emissions (CO2E tonnes)5 9,504,000 9,412,000 9,688,900 11,350,000 11,101,000

Gross emission intensity (kg CO2E/MWh) 1,000 1,043 1,036 1,012 1,062

TransAlta 109

2000 2001 2002 2003 2004

Net emission intensity (kg CO2E/MWh)5 995 1,035 1,016 991 1,044

Land and materials management

Land used in mining activities (hectares) 5,370 5,420 5,330 5,330 5,330

Land used by plants, offices and equipment (hectares)6 130 130 130 130 130

Non-hazardous waste disposed (tonnes)7 270 1,510 2,890 1,810 740

Hazardous waste disposed (tonnes)8 10 10 20 20 0

Paper used (tonnes) 4 8 8 10 10

Paper recycled (tonnes)9 28 32 32 6 8

Water10

Total water intake (million m3) 19 18 23 34 18

Total water discharge (million m3) 1 1 2 1 1

Water consumption (million m3)11 17 17 21 33 18

Water consumption intensity (m3/MWh) 1.82 1.86 2.22 2.89 1.68

Regulatory performance31

Stack regulatory contraventions 2 1 3 0 0

General air regulatory contraventions 2 0 0 0 7

Spills to land regulatory contraventions 0 1 3 1 6

Spills to water regulatory contraventions 1 4 3 3 0

Other regulatory contraventions12 1 0 3 1 2

Administrative regulatory contraventions 0 0 0 0 0

Environmental enforcement actions13 3 1 7 7 10

PRODUCTION

Coal generation net capacity (MW) 1,340 1,340 1,340 1,405 1,304

Natural gas generation net capacity (MW) 0 201 457 303 303

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2000 2001 2002 2003 2004

Hydro generation net capacity (MW) 0 0 0 0 0

Wind generation net capacity (MW) 0 0 0 0 0

Total net capacity (MW) 1,340 1,541 1,797 1,708 1,607

Coal net generation (MWh) 9,554,000 9,050,000 9,274,000 11,037,000 10,396,000

Natural gas net generation (MWh) 0 47,000 258,000 415,000 239,000

Hydro net generation (MWh) 0 0 0 0 0

Wind net generation (MWh) 0 0 0 0 0

Total net generation (MWh) 9,554,000 9,097,000 9,532,000 11,452,000 10,635,000

Capital expenditures on environmental monitoring and pollution abatement ($ millions)18

n/r 68.00 54.90 0.30 0.00

Operations and maintenance expenditures on environmental monitoring and pollution abatement ($ millions)19

n/r 2.80 5.70 22.40 26.90

SOCIAL PERFORMANCE

Health and safety

Health and safety enforcement actions20 0 0 4 8 4

Full-time equivalent employees21 739 783 824 882 819

EH&S full-time equivalent employees22 18 17 12 20 18

Injuries to employees 20 30 23 18 15

Employee injuries requiring absence from work 2 7 5 3 3

Employee recordable injury frequency rate (injuries/200,000 hours)23

2.79 3.56 2.61 2.05 1.86

Employee disabling injury frequency rate (injuries/200,000 hours)24 0.28 0.83 0.57 0.34 0.37

Injuries to contractors25 n/r n/r 7 0 0

Contractor injuries requiring absence from work25 n/r n/r 0 0 0

Contractor recordable injury frequency rate (injuries/200,000 hours)23, 25

n/r n/r 4.30 0.00 0.00

Contractor disabling injury frequency rate (injuries/200,000 hours)24, 25

n/r n/r 0.00 0.00 0.00

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2000 2001 2002 2003 2004

Short-term disability rate (days/1,000 employees)26 9 438 n/r 621 648

Long-term disability rate (cases/1,000 employees)27 0 0 1.21 1.13 3.66

Reportable vehicle incidents28 3 0 1 3 0

Health and safety training per employee (hours/employee) 10 10 9 7 9

Environmental training per employee (hours/employee) 1 2 1 1 1

Community relations

Community investments ($ millions)29 0.06 0.06 0.05 0.55 0.40

Community investments per employee ($/employee) 77 72 57 626 484

Company-initiated volunteer hours per employee30 1.3 1.2 1.6 2.0 1.6

Please see discussion and notes section for explanation.

* n/r= not reported

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Mexican Operations

2000 2001 2002 2003 2004

MANAGEMENT SYSTEMS

Facilities with ISO 14001 and/or OHSAS 18001-based management systems

- - - 2 2

Generation capacity with ISO 14001 and OHSAS 18001-based management systems (%)

- - - 100 100

Management system audits1 - - - 1 2

Compliance audits - - - 1 1 ENVIRONMENTAL PERFORMANCE

Air emissions2

Sulphur dioxide (tonnes) - - - 20 40

Sulphur dioxide emission intensity (kg/MWh) - - - 0.01 0.01

Nitrogen oxide (tonnes) - - - 500 1,000

Nitrogen oxide emission intensity (kg/MWh) - - - 0.31 0.31

Particulate matter (tonnes) - - - 500 1,000

Particulate matter emission intensity (kg/MWh) - - - 0.31 0.31

Mercury (kilograms) - - - 10 20

Mercury emission intensity (mg/MWh) - - - 0.01 0.01

Greenhouse gas emissions3

Carbon dioxide (CO2E tonnes) - - - 608,120 1,225,850

Methane (CO2E tonnes)4 - - - 1,000 2,010

Nitrous oxide (CO2E tonnes) - - - 5,250 10,610

CFC-11 (CO2E tonnes) - - - 0 0

Sulphur hexafluoride (CO2E tonnes) - - - 0 0

Gross emissions (CO2E tonnes) - - - 614,400 1,238,500

Emission reductions (CO2E tonnes)5 - - - 166,270 241,140

Net emissions (CO2E tonnes)5 - - - 448,130 997,360

Gross emission intensity (kg CO2E/MWh) - - - 380 390

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2000 2001 2002 2003 2004

Net emission intensity (kg CO2E/MWh)5 277 314

Land and materials management

Land used in mining activities (hectares) - - - - -

Land used by plants, offices and equipment (hectares)6 - - - - -

Non-hazardous waste disposed (tonnes)7 - - - - -

Hazardous waste disposed (tonnes)8 - - - - -

Paper used (tonnes) - - - - -

Paper recycled (tonnes)9 - - - - -

Water10

Total water intake (million m3) - - - 0.55 1.82

Total water discharge (million m3) - - - 0.44 0.39

Water consumption (million m3)11 - - - 0.11 1.43

Water consumption intensity (m3/MWh) - - - 0.07 0.45

Regulatory performance31

Stack regulatory contraventions - - - 0 0

General air regulatory contraventions - - - 0 0

Spills to land regulatory contraventions - - - 0 0

Spills to water regulatory contraventions - - - 0 0

Other regulatory contraventions12 - - - 0 0

Administrative regulatory contraventions - - - 0 0

Environmental enforcement actions13 - - - 0 0

PRODUCTION

Coal generation net capacity (MW) - - - 0 0

Natural gas generation net capacity (MW) - - - 511 761

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2000 2001 2002 2003 2004

Hydro generation net capacity (MW) - - - 0 0

Wind generation net capacity (MW) - - - 0 0

Total net capacity (MW) - - - 0 0

Coal net generation (MWh) - - - 0 0

Natural gas net generation (MWh) - - - 1,615,000 3,179,000

Hydro net generation (MWh) - - - 0 0

Wind net generation (MWh) - - - 0 0

Total net generation (MWh) - - - 1,615,000 3,179,000

Capital expenditures on environmental monitoring and pollution abatement ($ millions)18

- - - 0.000 0.244

Operations and maintenance expenditures on environmental monitoring and pollution abatement ($ millions)19

- - - 0.129 1.068

SOCIAL PERFORMANCE

Health and safety

Health and safety enforcement actions20 - - - 0 0

Full-time equivalent employees21 6 15 97 117 75

EH&S full-time equivalent employees22 - - - 0 0

Injuries to employees - - - 0 0

Employee injuries requiring absence from work - - - 0 0

Employee recordable injury frequency rate (injuries/200,000 hours)23

- - - 0.00 0.00

Employee disabling injury frequency rate (injuries/200,000 hours)24 - - - 0.00 0.00

Injuries to contractors25 - - 16 2 0

Contractor injuries requiring absence from work25 - - 7 0 0

Contractor recordable injury frequency rate (injuries/200,000 hours)25

- - 1.28 0.17 0.00

Contractor disabling injury frequency rate (injuries/200,000 hours)25

- - 0.56 0.00 0.00

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2000 2001 2002 2003 2004

Short-term disability rate (days/1,000 employees)26 - - - - -

Long-term disability rate (cases/1,000 employees)27 - - - - -

Reportable vehicle incidents28 - - - - -

Health and safety training per employee (hours/employee) - - - - -

Environmental training per employee (hours/employee) - - - - -

Community relations

Community investments ($ millions)29 - - - 0 3,000

Community investments per employee ($/employee) - - - 0 40

Company-initiated volunteer hours per employee30 - - 0.3 0.0 0.6

Please see discussion and notes section for explanation.

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Australian Operations

2000 2001 2002 2003 2004

MANAGEMENT SYSTEMS

Facilities with ISO 14001 and/or OHSAS 18001-based management systems

0 5 5 5 5

Generation capacity with ISO 14001 and OHSAS 18001-based management systems (%)

0 100 100 100 100

Management system audits1 0 5 5 5 5

Compliance audits 0 5 0 0 5 ENVIRONMENTAL PERFORMANCE

Air emissions2

Sulphur dioxide (tonnes) 0 0 0 0 0

Sulphur dioxide emission intensity (kg/MWh) 0.00 0.00 0.00 0.00 0.00

Nitrogen oxide (tonnes) 3,800 5,100 5,600 4,900 5,300

Nitrogen oxide emission intensity (kg/MWh) 2.66 3.34 3.43 3.09 3.15

Particulate matter (tonnes) 3,800 5,100 5,600 4,900 5,300

Particulate matter emission intensity (kg/MWh) 0.00 0.00 0.00 0.00 0.00

Mercury (kilograms) 0 0 0 0 0

Mercury emission intensity (mg/MWh) 0.00 0.00 0.00 0.00 0.00

Greenhouse gas emissions3

Carbon dioxide (CO2E tonnes) 852,000 882,000 932,000 933,000 760,000

Methane (CO2E tonnes)4 3,000 3,000 3,000 3,000 3,000

Nitrous oxide (CO2E tonnes) 6,000 7,000 7,000 7,000 7,000

CFC-11 (CO2E tonnes) 0 0 0 0 0

Sulphur hexafluoride (CO2E tonnes) 0 0 0 0 0

Gross emissions (CO2E tonnes) 861,000 892,000 942,000 943,000 770,000

Emission reductions (CO2E tonnes)5 0 0 0 0 0

Net emissions (CO2E tonnes)5 861,000 892,000 942,000 943,000 770,000

Gross emission intensity (kg CO2E/MWh) 602 584 578 595 458

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2000 2001 2002 2003 2004

Net emission intensity (kg CO2E/MWh)5 602 584 578 595 458

Land and materials management

Land used in mining activities (hectares) 0 0 0 0 0

Land used by plants, offices and equipment (hectares)6 10 10 10 10 10

Non-hazardous waste disposed (tonnes)7 20 20 20 20 30

Hazardous waste disposed (tonnes)8 0 0 0 0 0

Paper used (tonnes) 4 2 2 2 3

Paper recycled (tonnes)9 0 0 0 0 0

Water10

Total water intake (million m3) 0.12 0.17 0.10 0.10 0.04

Total water discharge (million m3) 0.00 0.00 0.00 0.00 0.01

Water consumption (million m3)11 0.12 0.17 0.10 0.10 0.03

Water consumption intensity (m3/MWh) 0.08 0.11 0.06 0.06 0.02

Regulatory performance 31

Stack regulatory contraventions 0 0 0 0 0

General air regulatory contraventions 1 0 0 0 0

Spills to land regulatory contraventions 0 2 0 0 0

Spills to water regulatory contraventions 0 0 0 0 0

Other regulatory contraventions12 0 0 0 0 0

Administrative regulatory contraventions 0 0 0 0 0

Environmental enforcement actions13 0 0 0 0 0

PRODUCTION

Coal generation net capacity (MW) 0 0 0 0 0

Natural gas generation net capacity (MW) 270 270 369 369 369

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2000 2001 2002 2003 2004

Hydro generation net capacity (MW) 0 0 0 0 0

Wind generation net capacity (MW) 0 0 0 0 0

Total net capacity (MW) 270 270 369 369 369

Coal net generation (MWh) 0 0 0 0 0

Natural gas net generation (MWh) 1,430,000 1,528,000 1,631,000 1,585,000 1,683,000

Hydro net generation (MWh) 0 0 0 0 0

Wind net generation (MWh) 0 0 0 0 0

Total net generation (MWh) 1,430,000 1,528,000 1,631,000 1,585,000 1,683,000

Capital expenditures on environmental monitoring and pollution abatement ($ millions)18

n/r 0.000 0.000 0.000 0.000

Operations and maintenance expenditures on environmental monitoring and pollution abatement ($ millions)19

n/r 0.090 0.107 0.089 0.042

SOCIAL PERFORMANCE

Health and safety

Health and safety enforcement actions20 0 0 0 0 0

Full-time equivalent employees21 63 52 52 55 51

EH&S full-time equivalent employees22 0 0 0 0 0

Injuries to employees 2 0 0 1 0

Employee injuries requiring absence from work 0 0 0 0 0

Employee recordable injury frequency rate (injuries/200,000 hours)23

1.56 0.00 0.00 1.80 0.00

Employee disabling injury frequency rate (injuries/200,000 hours)24 0.00 0.00 0.00 0.00 0.00

Injuries to contractors n/r n/r 0 0 1

Contractor injuries requiring absence from work n/r n/r 0 0 0

Contractor recordable injury frequency rate (injuries/200,000 hours)23

n/r n/r 0.00 0.00 10.01

Contractor disabling injury frequency rate (injuries/200,000 hours)24

n/r n/r 0.00 0.00 0.00

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2000 2001 2002 2003 2004

Short-term disability rate (days/1,000 employees)26 0 0 0 927 0

Long-term disability rate (cases/1,000 employees)27 0 0 0 0 0

Reportable vehicle incidents28 6 0 0 0 0

Health and safety training per employee (hours/employee) 4 0 0 3 1

Environmental training per employee (hours/employee) n/r n/r 0 1 <1

Community relations

Community investments ($ millions)29 0.005 n/r 0.005 0.000 0.005

Community investments per employee ($/employee) 79 n/r 100 0 98

Company-initiated volunteer hours per employee30 0.0 0.0 0.2 0.3 0.5

Please see discussion and notes section for explanation.

* n/r= not reported

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Discussion and notes on statistical summary 1. Represents the number of facilities that were audited during the year. In past

reports, we reported the number of audits conducted in the year. Several of our facilities in similar regions have one integrated EH&S management system due to their jurisdiction. As such, these facilities are audited simultaneously. The figures do not include audits that were conducted but were outside of the scope of this statistical summary.

The Mexican facilities were audited against ISO 14001 standards while under construction in 2002 and 2003, as required by the company's agreement with the Federal de Electricidad (CFE). During construction, internal management system audits were conducted but these audits are not reflected in these statistics as these facilities were not operational. Campeche was commissioned in May 2003 and Chihuahua was commissioned in September 2003.

2. Net generation and emissions statistics for 2001 from TransAlta's Canadian coal plants differ from the 2001 Sustainable Development Report and have been restated to reflect updated data.

Net generation and emissions statistics for 2003 from TransAlta’s Mexican gas plants have been updated from the 2003 Report on Sustainability due to a calculation error resulting in double counting. Nitrogen oxide emissions are expressed in tonnes of nitrogen dioxide (NO2). We have revised the 2003 total particulate matter estimates from the 2003 Report on Sustainability to reflect improved data. In 2004, the methodology used to estimate mercury emissions was reviewed and revised. As a result historic emissions have been updated.

3. In keeping with the reporting format recommended by the GHG Protocol, we have reported the impact of each GHG separately. GHGs have been converted into tonnes of carbon dioxide equivalent (CO2E), using global warming potential factors developed by the Intergovernmental Panel on Climate Change. We have also revised historical corporate emission intensities and emission totals. We have revised historical corporate emission intensities and emission totals as better emission factors have been applied to some sources. This improvement is the reason for discrepancies between the data in this report and previously reported data.

4. We have calculated methane emissions from coal mining, using the methodology described in the Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2001. All historical values have been recalculated. It has been assumed that the

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methodology used to calculate methane emissions from coal mines and coal combustion is discrete.

5. The corporate net emission rate is a result of TransAlta's emission reduction initiatives in Canada and purchased offsets from international projects. The U.S. net emission rate is only a result of reductions from the Centralia plant's fly ash sales. Gas-fired generation at Binghamton and Pierce Power do not have a lower emission rate than the grid average and, therefore, TransAlta claims no offsets from the operation of those facilities as they did not displace more CO2E-intensive power from the grid.

As there is no recognized Australian methodology for calculating potential offsets from independent power plants and due to the isolated location of TransAlta's Australian plants, we claim no offsets from the operation of these facilities.

With the implementation of mandatory GHG reporting in Canada and an anticipated Canadian climate change regulatory regime, as of 2003 TransAlta will no longer report offsets, credits, net GHG emissions or net GHG emission intensities. The concept of net emissions (direct emissions reduced by offsets and credits) has been subjective, and, while satisfactory in a voluntary reporting world, can be confusing in a regulatory one. Therefore, we will report our GHG gross emissions consistent with the requirements of federal and provincial reporting policies. We will continue to undertake emission reduction actions through such things as international and domestic offset purchases and internal projects that have GHG benefits. In a compliance regime, these will ultimately take the form of compliance instruments or credits used to meet reduction obligations and are, therefore, treated as proprietary information.

6. Decreased land use by plants, offices and equipment in 2002 was the result of the sale of the former transmission business unit in April 2002. 2003 does not include Sarnia, Campeche and Chihuahua land use.

7. Increased non-hazardous waste disposal in 2001 and 2002 reflected improved tracking and reporting of wastes. The 2001 U.S. non-hazardous waste totals have been restated to reflect improved tracking and reporting of waste at the Centralia mine.

8. Increased hazardous waste disposal in 2001 was the result of the removal of 1,162 tonnes of contaminated soil from a former transmission yard.

9. Due to the tracking process at our head office in Calgary, Alberta, the quantity of paper recycled by TransAlta cannot be determined separately from other building tenants. This results in a quantity of recycled paper that is greater than that used.

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10. In recent years, we have made changes in reporting methodologies to enhance reporting of TransAlta's impact on surrounding watersheds. In 2000, for example, mine water drainage was included in total water released. In 2001, the methodology to calculate water usage at the Wabamun plant was revised. In the 2002 report, we reviewed water statistics to ensure that consistent methodologies have been used and, based on our review, have restated statistics for historic water intake, release, consumption and intensity. In any year TransAlta's water use largely reflects the operation of our Wabamun plant at Wabamun, Alberta. In 2001, the decrease in water consumption and water consumption intensity was mainly because of limited plant operation. In 2002, the increase in water use reflected near-capacity power production at the plant.

11. This is the total water consumed by TransAlta's operations as measured by total water removed from the environment and total water returned to the environment. As such, the consumption intensity tends to be overstated as these figures do not account for evaporation losses from our cooling ponds, which is also water returned to the environment.

12. These are incidents that may impact the environment, but are out of the scope of air, land and water contraventions that require reporting to an external regulatory agency. Examples could include equipment failures and permit non-compliance.

13. These are contraventions reported to an external regulatory agency and resulting in a fine, penalty or corrective action.

14. This is cash flow from operating activities only and does not include cash flow from investing or financing activities.

15. This is one of three stock-based compensation programs offered to TransAlta employees. The company grants stock options to employees based on the market price of the shares as determined on the date of the grant.

16. This includes TransAlta's registered pension plan with defined benefits and defined contribution options and a supplemental defined benefits plan. All employees have a future benefits plan, although the defined benefit of the pension plan ceased for new employees on June 30, 1998.

17. This includes TransAlta's purchase of Vision Quest Windelectric in 2002. Investment in distributed generation companies is not included in 2002 totals as it has been in previous annual totals.

18. This includes capital expenditures for environmental protection, such as environmental monitoring, pollution abatement and administrative costs. The increase in capital expenditures in 2001 and 2002 is due to the installation of air

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emission control equipment at our Centralia plant and the construction of a water treatment facility at our Sundance plant.

19. This includes operating and maintenance expenditures for environmental protection, such as environmental monitoring, pollution abatement and administrative costs. The 2001 figures are not based on comprehensive accounting and do not include the costs associated with mine land reclamation, waste management and administrative costs. The 2002 and 2003 figures account for these expenditures. The increase in operating and maintenance expenditures in 2003 is a result of better accounting of these expenses at our plants and mines and an increase in mine reclamation work.

20. These are health and safety incidents resulting in a regulatory enforcement action. Enforcement actions could take the form of a warning letter, fine or non-financial reprimand or restriction on operations. This definition differs from previous TransAlta sustainable development reports. We have adjusted historic data to account for this change in methodology.

21. All TransAlta employees on December 31. Each non-full-time employee (part-time, contract or hourly) is the calculated equivalent of 0.70 full-time.

22. In 2002, TransAlta's corporate EH&S department was reorganized. Staffing resources were reallocated and relocated as part of a corporate-wide initiative to promote consistent practices.

23. The recordable injury frequency rate (IFR) measures work-related medical aid and lost-time injuries per 200,000 hours worked. During the course of the year, all work-related safety incidents are investigated. These investigations sometimes provide new information that results in an incident being reclassified. In this report, we have restated our 2002 injury frequency rate from that reported in our 2002 Fourth Quarter Sustainable Development Report due to a change in an incident classification.

24. The disabling injury frequency rate is based on the number of injuries requiring absence from work or lost-time incidents only.

25. The data presented for 2000 to 2003 does not include injuries from our Centralia plant and mine.

26. This reflects the number of days lost due to absenteeism from work, up to six months in duration. Absence may be due to work-related incidents or injuries incurred outside of work. In 2000, the number of days lost to short-term disability was not tracked at the Centralia mine and, therefore, is not included in aggregated totals. In 2001 and 2003, the number of days lost at the Centralia mine due to short-term disability was tracked and included in the indicator and is one reason for the

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resulting rate increase. In 2002, the number of days lost to short-term disability was not tracked at the Centralia plant and mine. This is one reason for the resulting rate decrease.

27. This reflects the number of employees absent from work for more than six months. Absence may be due to work-related incidents or injuries incurred outside of work.

28. In 2003, one vehicle accident resulted in a medical aid injury to an employee. All other accidents resulted in minor equipment or property damage.

29. Community investments include all community donations and community sponsorships and are aggregated based on budget allocation, not location of recipient.

30. This includes volunteer activities organized by TransAlta such as volunteering during work hours as part of United Way campaigns. This does not include volunteer activities that employees engage in outside of their employment at TransAlta.

31. In 2004, the classification of environmental incidents was reviewed and revised. The stack environmental contravention was eliminated and an administrative category was added. The stack incidents from 2003 and 2004 have been classified according to these new categories for comparison purposes between the two years.

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Systemic indicators Environmental performance Regional National

CO2 11.9 % of Alberta’s emissions

4.0 % of Canada’s emissions

1.1 % of Ontario’s emissions

SO2 10.7 % of Alberta’s emissions

2.3 % of Canada’s emissions

1.0 % of Ontario’s emissions

NOx 6.1 % of Alberta’s emissions

1.8 % of Canada’s emissions

2.8 % of Ontario’s emissions

Particulate matter 0.1 % of Alberta’s emissions

<0.1 % of Canada’s emissions

<0.1 % of Ontario’s emissions

Mercury 38.1 % of Alberta’s emissions

1.8 % of Canada’s emissions

14.5 % of Washington’s emissions

Economic performance Regional National

Electricity production 41.7 % of Alberta’s production

6.8 % of Canada’s production

2.3 % of Ontario’s production

0.3 % of U.S. production

4.7 % of Washington’s production

0.8 % of Australia’s production

1.5 % of Mexico’s production

Electricity workers 9.4 % of Alberta’s electricity workers

1.2 % of Canada’s utility workers

0.3 % of Ontario’s electricity workers

0.6 % of U.S. utility workers

Social performance Regional National

Alberta: 1.61 Mexico: 6.04 Ratio of TransAlta lowest wage to legal minimum wage Ontario: 2.69 Australia: 2.45 Washington: 1.38

* n/a = not available

The regional and national mercury indicator represent total on-site mercury releases.

Sources: Environment Canada, United States Environmental Protection Agency, United Nations Framework Convention on Climate Change Greenhouse Gas Database, Comisión Federal de Electricidad, North American Electric Reliability Council, Alberta Energy and Utilities Board, Statistics Canada, Canadian Electricity Association, United States Bureau of Labor Statistics, Ontario Ministry of Labour, Mexican National Commission for Minimum Wages, Australian Council of Trade Unions, Energy Supply Association of Australia Limited, Alberta Human Resources and Employment, Washington State Department of Labor and Industries

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GRI Content Index

Reclaimed land at Whitewood Mine

We recognize that some readers use the Global Reporting Initiative (GRI) in reviewing a

company’s economic, environmental and social performance. The following table provides

an index to the 2004 TransAlta Report on Sustainability based on the GRI reporting

elements and indicators, as defined in the GRI Sustainability Reporting Guidelines 2002.

fully covered

partially covered

not covered

Coverage in

this report Links/comments

TransAlta’s vision and strategy Management review, Our outlook and focus

Profile

Organizational profile What we do

Report scope and profile How we measure sustainability at TransAlta, Reporting principles

Structure and governance Organization

Governance structure Corporate governance

Organizational structure Organization

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Coverage in this report

Links/comments

Stakeholder engagement Stakeholder relations

Policies and management systems Policies, Management systems

Economic performance indicators

Customers Customers

Suppliers Suppliers

Employees Employees

Providers of capital Investors and founders

Public sector Governments

Indirect economic impacts Benefits to regional economies

Environmental performance indicators

Materials Most of the energy-related to materials is covered under energy. Marketing waste by-products

Energy Diversifying fuel mix, Renewable energy

Water Water resources

Biodiversity Land use and protection, Aquatic environments

Emissions, effluents and waste Greenhouse gases (GHGs), Air quality, Waste

Suppliers Supplier relationships

Products and services Primary energy and resource direct impacts are described in the environmental performance section. TransAlta's product is electricity and, as such, has minimal post-generation impacts in its use.

Compliance Regulatory compliance

Transport Greenhouse gas emissions from mining and fleet vehicles are included in our greenhouse gas inventory and represent 0.4% of total tonnes of CO2E.

Overall Environmental spending

Social performance indicators

Labour practices and decent work Work environment

Employment

Labour/management relations Labour relations

Health and safety Workplace health and safety, Health and wellness programs

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Coverage in this report

Links/comments

Training and education Safety training and education, Employee development

Diversity and opportunity Policies and initiatives

Human rights Policies and initiatives, Corporate Code of Conduct

Society

Community Community investment, Volunteerism, United Way

Bribery and corruption Corporate Code of Conduct TransAlta has a policy that requires all employees to adhere to the company's "Corruption of Foreign Officials" policy which states: “Employees are strictly prohibited from directly, or indirectly, offering officials of foreign government bribes for the company.” The policy recognizes the requirement of OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Political contributions TransAlta has a policy that governs contact with and contributions to political communities. The policy ensures that interactions with the political, regulatory and public sector are conducted to the highest standard of business ethics and in compliance with all applicable laws.

Competition and pricing Corporate Code of Conduct

Products and services

Customer health and safety TransAlta has only a few industrial customers and, therefore, has little opportunity to affect customer health.

Advertising We do not advertise our product.

Respect for privacy TransAlta has a policy that requires that “employees not disclose confidential information or conduct themselves in a way that would jeopardize the safety or security of information proprietary to the company, including information about customers.”

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Glossary Bottom ash

Heavier ash that collects in the bottom of the boiler after the coal is burned. This ash is

collected and stockpiled in approved disposal areas.

Carbon dioxide equivalent (CO2E)

Measure used to compare the emissions of various GHGs based on their global warming

potential. Expressed in CO2.

Climate change

Term used to describe the view that the Earth's temperature and climate will change, in

part, due to GHG emissions associated with human activities.

Chlorofluorocarbons (CFCs)

Various compounds consisting of carbon, hydrogen, chlorine and fluorine found in aerosol

spray products and refrigerants. CFCs contribute to the depletion of the Earth's ozone

layer and to the buildup of GHGs.

Cogeneration

Technology that simultaneously produces power and thermal energy (heat and steam)

from a single fuel source such as natural gas.

Combined cycle

Technology that captures waste heat from gas-fired turbines to produce more electricity.

Decommissioning

Safe and orderly permanent shutdown of a utility plant.

Emission intensity

Amount of emissions per megawatt hour produced. Emission intensity rates measure an

operation's efficiency in controlling emissions.

Emissions reduction trading

Innovative market-based approach that allows organizations to buy and sell emission

reductions. In an emissions trade, one company earns credits for emissions removed or

not released into the atmosphere. Companies that emit can purchase these credits to

reduce their emissions impact on the atmosphere.

Environmental contraventions

Include events that contravene our company's permit conditions or environmental

regulations. Examples may include releases (such as spills of engine oil), submitting late

reports and exceeding emission limits for operating permits.

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Fines

Amount payable as a result of an enforcement action.

Environmental enforcement actions

Include events that contravene our company's permit conditions or environmental

regulations and result in fines, penalties or citations.

Fly ash

Particulate matter from coal ash that exits boilers along with hot gases. Pollution control

equipment such as electrostatic precipitators remove more than 99 per cent of the fly ash

before it can be released into the atmosphere.

Geothermal energy

Electricity generated by using steam from below the Earth's surface.

Global Reporting Initiative (GRI)

Guidelines setting global standards for sustainability reporting by companies.

Greenhouse gases (GHGs)

Gases that trap heat near the Earth's surface, thereby potentially moderating our global

climate. They include CO2, methane and water vapour. These gases occur through

natural and human-influenced processes.

Health and safety enforcement actions

Include employee and contractor events that contravene our company's permit conditions

or health and safety regulations and result in fines, penalties, orders or citations.

Health and safety incidents

Include employee and contractor incidents resulting in medical aid and lost-time injuries.

Kyoto Protocol

International agreement created in December 1997 to address worldwide GHG emissions.

Under Kyoto, individual countries are obligated to reduce their GHGs by a specified

amount.

Megawatt (MW)

Measure of electric energy equal to one million watts.

Mercury

Trace heavy metal found in coal and emitted from oceans and land masses. Mercury

emissions from human activities are about a quarter of worldwide mercury emissions.

Nitrogen oxides (NOx)

Gas released in the burning of fossil fuels and a contributor to smog.

Offset

TransAlta 131

Emission reductions produced by projects outside TransAlta and supported by our

company through commercial purchase contracts. In most cases, these projects are less

expensive than internal reductions, thereby permitting TransAlta to achieve more GHG

reductions for the same investment. Also, these offsets often provide additional benefits in

terms of local development, employment and general environmental improvement.

Opacity

Amount of light obscured by particulate levels in the air. A measure of environmental

performance resulting from particulate emission control systems.

Particulate matter

Fine solid or liquid material released into the air from the burning of coal or other plant

processes.

Renewable energy

Naturally occurring energy resources that are continually replenished. Examples of

renewable energy sources are wind, solar and water.

Stakeholders

People that affect or are affected by company operations, including customers,

employees, media, regulators, community leaders, governments, and investors and

shareholders.

Sulphur dioxide (SO2)

Emission that results mainly from the burning of sulphur in fossil fuels and contributes to

acid deposition.

Watershed

Area of land that catches precipitation and drains it to water bodies such as lakes,

streams or rivers.