The sunny climes of Mexico are warmly inviting these days for TransAlta Corp., as this country’s largest unregulated power generator moves to take advantage of Mexico’s economic revival to grow new, long-term market opportunities.

Five years ago, the Calgary-based utility may not have given a second thought to staking a claim in Mexico’s state-controlled energy industry. A comparatively small Alberta-centric electricity player, TransAlta was a vertically integrated company operating within its own regulated environment, with just a couple of international projects under its belt.

Today, “we’re certainly a long way from Kansas,” says TransAlta president and CEO Steve Snyder. “And a lot has happened in the past four years to get us there.”

Dave Olecko, Business Edge
TransAlta CEO Steve Snyder is bullish on doing business in Mexico – the power generator has two projects on the go there.

More than half the company’s assets are now outside Alberta, none of its assets are regulated as of April 29 when its transmission sale was finalized, and half of its employees work outside Alberta.

And on the Mexican front, the peso is shaping up to be almost a better gamble than the Canadian dollar.

Mexico has quickly developed into an important market “and a very important growth platform,” for TransAlta, Snyder told an audience in Calgary last week during the Calgary Chamber of Commerce’s International Business Week.

“It’s emerged as a lot better fit than we ever thought.

“One of the reasons we’re expanding is that there’s not a lot of room for us to grow in our home market. At the end of the day, I love Alberta,” Snyder said, “but it’s pretty small.”

Sizing up this potential market fiesta is enough to make the hair stand up on the necks of any competitive electricity provider. Snyder said demand for electricity in Mexico is growing at least double or triple the rate of North America.

“It’s big – 35,000 megawatts, compared to Alberta’s eight (thousand),” he observed. “There’s a lot of room to grow.”

As the Mexican government moves to deregulate its industry and liberalize its economy, it’s offering long-term contracts for electricity – priced in lucrative U.S. dollars.

“In our industry, you can’t get those anymore. And as we look to mitigate our risks, because we’re not regulated, we can find very few customers in the world that can give us a 20-year contract in U.S. dollars . . . we jump at that opportunity.”

TransAlta has two projects under way in Mexico, a $192-million US, 259-megawatt (MW) power plant being built in the state of Chihuahua; and a 252-MW gas-fired facility in Campeche.

The company plans to increase its equity value in the country from its current seven or eight per cent up to 20 per cent – and Snyder believes building new plants in Mexico may be less risky than building in Alberta’s uncertain market.

But Snyder said doing business in Mexico can still be a “multi-edged sword.”

While contracts are transparent in nature, it’s difficult to get any terms changed after signing, and the process is extremely precise and rule-driven, he noted.

“Number a page wrong in the bidding process, and it will be rejected,” remarked Snyder wryly. “The name of the game is not to be the lowest bid, it’s to be the last person standing at the end of the bidding process.”

Meanwhile, Snyder said TransAlta is still on track with the $1.8-billion expansion of its Keephills plant in the Lake Wabamun region west of Edmonton, despite some uncertainty as environmental standards evolve.

Current permits for Keephills expire in 2005, and the EUB has indicated it’s not favourable to grandfathering current standards.

“We don’t disagree with that, but the challenge for us is what technology do you build into a plant today at what cost, to ensure you’re flexible seven or eight years from now,” said Snyder.

A final decision on how much the plant will be expanded, and when, will be made in the second half of the year.

TransAlta’s overall goal is to hold a third of its assets in Alberta, a third in the U.S. and a third in Mexico over the long term.

“Over time, we either have to grow the others faster, or downsize some in Alberta. I don’t see us particularly downsizing in Alberta. We will still grow here, but maybe not as fast as we will in Mexico or in the U.S.”