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TransAlta Announces 2002 Results and Declares Dividend, Part 2 of 2.

Part 2

CALGARY, Alberta--(BUSINESS WIRE)--Jan. 31, 2003

On Jan. 1, 2002, the corporation retroactively adopted the new CICA standard for stock-based compensation. The new standard requires that stock-based payments to non-employees, direct awards of stock and awards that call for settlement in cash or other assets be accounted for using the fair value method of accounting. The fair value method is encouraged for other stock-based compensation plans, but other methods of accounting, such as the intrinsic value method, are permitted. Under the fair value method, compensation expense is measured at the grant date and recognized over the service period. Under the intrinsic value method, compensation expense is determined as the difference between the market price of the underlying stock and the exercise price of the equity instrument granted. If the intrinsic value method is used, disclosure is made of earnings and per share amounts as if the fair value method had been used. The corporation has elected to use the intrinsic value method of accounting for its fixed stock option plans and its performance stock option plan. Accordingly, no compensation cost has been recognized for these plans. The following table provides pro forma measures of net earnings (loss) and earnings (loss) per share had compensation expense been recognized based on the estimated fair value of the options on the grant date in accordance with the fair value method of accounting for stock-based compensation:


 3 months ended Dec. 31 Year ended Dec. 31
 2002 2001 2002 2001
--------------------------------------------------------------------
Reported net earnings
 (loss) applicable to
 common shareholders $ (54.3 ) $ 46.5 $ 189.9 $ 214.6
Compensation expense 1.0 0.5 3.7 2.0
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Pro forma net earnings
 (loss) applicable to
 common shareholders $ (55.3 ) $ 46.0 $ 186.2 $ 212.6
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Reported basic earnings
 (loss) per share $ (0.32 ) $ 0.27 $ 1.12 $ 1.27
Compensation expense per
 share 0.01 - 0.02 0.01
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Pro forma basic earnings
 (loss) per share $ (0.33 ) $ 0.27 $ 1.10 $ 1.26
--------------------------------------------------------------------
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Reported diluted earnings
 (loss) per share $ (0.32 ) $ 0.27 $ 1.12 $ 1.25
Compensation expense per
 share 0.01 - 0.02 0.01
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Pro forma diluted earnings
 (loss) per share $ (0.33 ) $ 0.27 $ 1.10 $ 1.24
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Options were granted only in the first quarter of 2002. The estimated fair value of these stock options was determined using the binomial model using the following assumptions, resulting in a weighted-average fair value of $4.25 per option (2001 - $4.35):



 2002 2001
--------------------------------------------------------------------
Risk-free interest rate 5.9% 5.4%
Expected hold period to exercise (years) 7.0 7.0
Volatility in the price of the corporation's shares 28.3% 28.2%
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The accounting treatment for the corporation's performance share ownership plan remains unchanged from the year ended Dec. 31, 2001. Under this plan, compensation expense recognized in the three and twelve months ended Dec. 31, 2002 was $1.0 million and $5.3 million, respectively (2001 - $1.2 million and $6.6 million, respectively). Compensation expense is included in operations, maintenance and administration (OM&A) in the statements of earnings. Effective Jan. 1, 2003, TransAlta has elected to account for stock-based compensation in accordance with the fair value method, and will expense stock-based compensation in respect of stock options on a prospective basis.

The CICA amended its standard on foreign currency translation effective Jan. 1, 2002. The changes require that translation gains and losses arising on long-term foreign currency denominated monetary items be included in income in the current period. Previously, these gains and losses were to be amortized over the life of the related item. As TransAlta designates long-term foreign currency denominated items as hedges of net investments in foreign operations, all gains and losses arising on the translation of these items are deferred and included in the cumulative translation adjustment account in shareholders' equity, therefore this amendment has no impact on TransAlta.

The CICA has amended its standard on the recognition, measurement, and disclosure of the impairment of long-lived assets. This standard is effective April 1, 2003 and requires that an impairment loss be recognized when the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected from its use and eventual disposition. The impairment loss is measured as the amount that the long-lived asset's carrying value exceeds its fair value. TransAlta early adopted this standard in the fourth quarter of 2002. In accordance with the standard, the impairment calculation for the Wabamun plant resulted in the recognition of an impairment loss of $110.0 million, which is included in asset impairment and equipment cancellation charges in the statements of earnings.

In the third quarter of 2002, in response to changes in accounting standards in the U.S. with respect to energy trading activities, the corporation has adopted a policy that all gains and losses on energy trading contracts be shown in the statement of earnings. Consistent with these recommendations, the corporation has chosen to disclose the gross transaction volumes of those energy trading contracts that are physically settled.

TransAlta's results are seasonal in nature due to the nature of the electricity market and related fuel costs.

2. ACQUISITIONS

On Dec. 6, 2002, the corporation completed a step acquisition of Vision Quest Windelectric Inc. (Vision Quest). The initial steps resulted in 41 per cent ownership of Vision Quest for $13.5 million, accounted for using the equity method. Book values approximated fair values. The final step brought TransAlta's ownership to 100 per cent and TransAlta's total investment in Vision Quest to $68.8 million. The results of Vision Quest's operations have been included in the corporate segment of the consolidated financial statements since the date of acquisition. Vision Quest owns and operates 67 wind power turbine power plants with a total capacity of 44 MW and a further 37.5 MW under construction.

The aggregate purchase price includes the previous investments of $13.5 million, plus $21.3 million of cash and 745,791 common shares valued at $14.2 million. In addition, a loan of $19.8 million was previously advanced to Vision Quest. The value of the common shares issued was determined based on the average market price of TransAlta's common shares for the five days before and after the terms of the acquisition were agreed to and announced. 136,287 of the shares will be issued over the next three years.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. Due to the timing of the purchase, it was impractical to complete the allocations process satisfactory without causing undue delay in issuing the financial statements for the period in which the combination occurred. Therefore, the purchase price allocation was prepared based on the best allocations that could be made in the time available and, if necessary, the allocations in the purchase equation may be adjusted when the process is completed in the first quarter of 2003.


Net assets acquired at assigned values:

 Working capital, including cash of $8.2 million $ 6.5
 Property, plant and equipment 70.1
 Goodwill 27.2
 Power Purchase Arrangement 2.5
 Short-term debt (32.2)
 Future income tax liability (4.7)
 Interest rate swaps (0.6)
--------------------------------------------------------------------
Total $ 68.8
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Consideration:
 Initial investment $ 13.5
 Cash, including previous advances of $19.8 million 41.1
 Common shares 14.2
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Total $ 68.8
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On Dec. 6, 2002, the corporation purchased the remaining 15 per cent interest in the Southern Cross Energy Partnership, located in western Australia, for AUD$8.5 million (Cdn$7.2 million). At the time of acquisition, book values approximated fair values.

3. DISCONTINUED OPERATIONS

On July 4, 2001, the corporation signed a purchase and sale agreement for the disposal of its Transmission operation. Regulatory approval was received on March 28, 2002. On April 29, 2002, the Transmission operation was sold for proceeds of $820.7 million, of which $818.0 million has been collected. The proceeds excluded accounts receivable of $31.7 million, which were retained and collected by TransAlta, and accounts payable of $4.4 million. The disposal resulted in a final gain on sale of $120.0 million ($0.71 per common share), net of income taxes of $32.9 million. The previously reported gain included a number of estimates, therefore the gain was adjusted in the fourth quarter of 2002 to reflect agreed working capital adjustments and actual amounts paid and received.

For reporting purposes, the results of the Transmission operation have been presented as discontinued operations in the statement of earnings.


 2002 2001
3 months ended Dec. 31 Transmission Transmission
--------------------------------------------------------------------
Revenues $ - $ 42.8
Operating expenses - (19.1)
--------------------------------------------------------------------
Operating income - 23.7
Net interest expense - (0.6)
--------------------------------------------------------------------
Earnings before income taxes - 23.1
Income taxes - 9.8
--------------------------------------------------------------------
Earnings before gain on disposal - 13.3
Gain on disposal 10.0 -
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Earnings from discontinued operations $ 10.0 $ 13.3
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--------------------------------------------------------------------


 2002 2001
 Edmonton
Year ended Dec. 31 Transmission Transmission Composter Total
--------------------------------------------------------------------
Revenues $ 55.8 $ 171.1 $ 6.6 $ 177.7
Operating expenses (30.8) (84.6) (5.4) (90.0)
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Operating income 25.0 86.5 1.2 87.7
Net interest expense (2.4) (9.7) - (9.7)
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Earnings before income
 taxes 22.6 76.8 1.2 78.0
Income taxes 9.8 32.4 0.5 32.9
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Earnings before gain on
 disposal 12.8 44.4 0.7 45.1
Gain on disposal 120.0 - - -
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Earnings from discontinued
 operations $ 132.8 $ 44.4 $ 0.7 $ 45.1
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At Dec. 31, 2002, all of the corporation's discontinued operations had been sold. At Dec. 31, 2001, all of the corporation's discontinued operations had been sold with the exception of the Transmission operation. Balance sheet amounts are as follows:



 Dec. 31, 2002 Dec. 31, 2001
--------------------------------------------------------------------
Current assets $ - $ 36.1
Capital assets - 637.5
Other assets - 3.3
Current liabilities - (15.5)
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Net assets $ - $ 661.4
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4. PRICE RISK MANAGEMENT ASSETS AND LIABILITIES

The Energy Marketing group uses energy derivatives, including physical and financial swaps, forwards and options to optimize returns from assets, earn trading revenues and gain market information. Energy contracts that meet the definition of a derivative in FASB Statement 133, Accounting for Derivative Instruments and Hedging Activities, are accounted for at fair value in accordance with Canadian and U.S. generally accepted accounting principles (GAAP). Derivatives are used to hedge the corporation's exposure to changes in electricity and natural gas prices. Under Canadian GAAP, settlement accounting is used for hedging activities if certain criteria are met. Under U.S. GAAP, hedging activities are accounted for in accordance with FASB Statement 133.

Energy Marketing's price risk management assets and liabilities represent the fair value of unsettled (unrealized) trading transactions. With the exception of transmission contracts, the fair value of all energy trading activities is based on quoted market prices. The fair value of physical transmission contracts is based on quoted market prices and a spread option valuation model. The fair value of financial transmission contracts is based upon statistical analysis of historical data.


 Dec. 31, 2002 Dec. 31, 2001
--------------------------------------------------------------------
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Price risk management assets
- Current $ 157.8 $ 137.6
- Long-term 60.7 71.3
Price risk management liabilities
- Current (173.8) (114.1)
- Long-term (50.6) (69.0)
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 $ (5.9) $ 25.8
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The following table illustrates movements in the fair value of the corporation's price risk assets and liabilities during the year ended Dec. 31, 2002:


--------------------------------------------------------------------
Fair value of net price risk management assets
 outstanding at Dec. 31, 2001 $ 25.8
Fair value of new contracts entered into during
 the period (2.7)
Changes in fair values attributable to market
 price and other market changes 7.6
Contracts realized or settled during the period (36.6)
Changes in fair values attributable to changes in
 valuation techniques and assumptions -
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Fair value of net price risk management liabilities
 outstanding at Dec. 31, 2002 $ (5.9)
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--------------------------------------------------------------------



The source of the valuations of the above contracts and maturities over each of the next five calendar years and thereafter is as follows:


 2008
 and
 2003 2004 2005 2006 2007 there- Total
 after
Prices actively quoted $(17.6) $ 3.3 $ 3.2 $ 2.1 $ 1.5 $ - $(7.5)
Prices based on models 1.6 - - - - - 1.6
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Asset (liability) $(16.0) $ 3.3 $ 3.2 $ 2.1 $ 1.5 $ - $(5.9)
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5. INVESTMENTS

In January 2002, an additional $2.9 million was invested in Vision Quest. In December 2002, the corporation purchased the remaining interest in Vision Quest as described in Note 2.

In April 2002, an additional $2.5 million was invested in a distributed generation company. This investment is accounted for using the equity method.

In April 2002, an initial $0.2 million was invested in a biomass generation company. An additional $0.5 million was invested in September 2002. The investment is accounted for using the cost method.

A foreign exchange revaluation of $1.9 million occurred during the twelve months ended Dec. 31, 2002 on the investment in the Australian gas transmission pipeline.

6. ASSET IMPAIRMENT AND EQUIPMENT CANCELLATION CHARGES

After a detailed engineering assessment, a review of environmental issues, and a review of short- and long-term market forecasts, the corporation decided to implement a phased decommissioning of its 569 MW coal-fired Wabamun facility in November 2002. As a result of this decision, the corporation recorded an impairment charge of $110.0 million during the quarter. The impairment charge was calculated as the excess of carrying value over fair value. The fair value of the facility was determined by estimating the present value of future cash flows.

In November 2002, the corporation cancelled orders for four natural gas turbines and as a result recorded a cancellation charge of $42.5 million for contract termination costs. The costs consist of progress payments made to date.

In September 2001, the corporation monetized its investment in the 154 MW Pierce Power plant, resulting in the recognition of revenue of $121.8 million, an impairment charge of $66.5 million and $52.3 million in anticipated future operating costs.

7. LONG-TERM RECEIVABLES

In August 2002, the remaining $180.3 million due from Aquila Networks Canada (formerly UtiliCorp Networks Canada) that arose from the August 2000 sale of the discontinued Alberta Distribution and Retail operation was collected in full.

The net California accounts receivable of US$24.2 million has been reclassified to long-term receivables, as collection is no longer expected in 2003, although ultimate collection of the net receivable is expected.

On Dec. 12, 2002, a U.S. Federal Energy Regulatory Commission (FERC) Administrative Law Judge issued proposed findings of fact that TransAlta be entitled to receive approximately US$44.0 million for electricity sales to California. However, FERC has proposed further adjustments in respect of power and gas prices, which could result in further adjustments to the amount to be received by TransAlta. Until a final ruling is made with respect to these issues, TransAlta will maintain the provision for these receivables.

8. LONG-TERM DEBT

On June 20, 2002, the corporation issued debt of US$300.0 million under a US$1.0 billion shelf prospectus filed May 14, 2002. The notes are unsecured and bear interest at 6.75 per cent, and mature on July 15, 2012. Net proceeds on the issuance were $456.9 million.

9. COMMON SHARES ISSUED AND OUTSTANDING

TransAlta Corporation is authorized to issue an unlimited number of voting common shares without nominal or par value. At Dec. 31, 2002, the corporation had 169.8 million (Dec. 31, 2001 - 168.3 million) common shares issued and outstanding plus outstanding employee stock options to purchase an additional 3.2 million shares (Dec. 31, 2001 - 2.8 million).

In February 2002, TransAlta announced a normal course issuer bid to repurchase up to 3.0 million common shares for cancellation. For the year ended Dec. 31, 2002, 2.0 million common shares had been repurchased under the normal course issuer bid.

On Dec. 6, 2002, the corporation issued 609,504 common shares as a portion of the aggregate purchase price of Vision Quest (Note 2).

10. PRIOR PERIOD REGULATORY DECISIONS

Financial results for 2002 were affected by Alberta Energy and Utilities Board (EUB) decisions related to other reporting periods. The impact of such regulatory decisions is recorded when the effect of such decisions is known, without adjustment to the financial statements of prior periods.

On April 16, 2002, the EUB rendered a negative decision of $3.3 million (pre-tax) with respect to TransAlta's hydro bidding strategy in 2000.

In December 2001, the EUB ruled that the Wabamun unit four outage qualified for relief under the Temporary Suspension Regulation (TSR) and ordered that TransAlta would receive $11.0 million ($7.0 million after-tax) to compensate the corporation for obligation payments incurred in 2000 as a result of the outage.

11. CONTINGENCIES

In August 2000, a single thermal generating unit at the Wabamun plant was shut down due to safety concerns related to possible corrosion fatigue cracks within the waterwall tubing of its boiler. Repairs were completed late in the second quarter of 2001 and the unit returned to service in June 2001.

Since Jan. 1, 2001, the unit has been subject to the terms of a power purchase arrangement (PPA). Under the PPA's force majeure article, the corporation is not obligated to supply electricity during the period of repair, subject to confirmation by the administrator of the PPAs. Had such confirmation not occurred, the corporation would have been obligated to pay a penalty equal to the cost of obtaining an alternative source of electricity to fulfill its PPA supply obligations during the affected period. The force majeure decision went to arbitration in July 2001. On May 23, 2002, the arbitrators confirmed in their ruling that the outage qualified as a force majeure event, but also ruled that the corporation should have returned the unit to service more quickly. As a result of the decision, the corporation was required to pay $38.9 million plus interest of $2.7 million, all pre-tax. The payment was recorded as an offset to revenues.

On May 8, 2002, FERC requested that 150 sellers of wholesale electricity and ancillary services to the California electricity market, including TransAlta, respond to questions regarding their trading strategies in California during 2000 and 2001. TransAlta has responded to the FERC request and believes it operated in accordance with all applicable laws, rules, regulations and tariffs.

On May 21 and 22, 2002, FERC issued two additional requests for information regarding 'round-trip' trading activities, to which TransAlta responded, stating that the corporation does not believe it participated in any round-trip trades during 2000 and 2001. In addition, Reliant Energy Inc. issued a statement that it engaged in round-trip trades in 1999 with Merchant Energy Group of the Americas, Inc. (MEGA). TransAlta acquired an initial 50 per cent interest in MEGA in June 2000, and acquired the remaining 50 per cent in June 2001. TransAlta contends that no round-trip trading occurred between Reliant Energy Inc. and MEGA during any period in which TransAlta had an ownership interest in MEGA. TransAlta will continue to cooperate with the regulators and supply all information requested.

On May 30, 2002, the California Attorney General's Office (CAGO) filed civil complaints in the state court of California against eight additional wholesale power companies, including TransAlta. The complaint alleges violations of California's unfair business practices law in connection with rates charged for wholesale electricity sales. TransAlta believes that it has complied with applicable laws in regard to this complaint. In particular, the company is of the view that the basis of the complaint is a matter of federal rather than state jurisdiction. FERC has previously rejected allegations made by CAGO that TransAlta's subsidiaries violated rate filing requirements. On June 26, 2002, TransAlta filed a Notice of Motion to dismiss the complaint.

On Sept. 9, 2002, the Commodities Futures Trading Commission requested information on similar issues. TransAlta has provided the requested information.

On Dec. 16 and 20, 2002, two class action lawsuits on behalf of all persons and businesses in the states of Oregon and Washington were initiated in respect of alleged unlawful practices in the purchase and sale of wholesale energy. TransAlta believes these are without merit and will vigorously defend its actions. No amount has been accrued in these financial statements as neither the amount of the claim nor the outcome was determinable at the reporting date.

On Dec. 16, 2002, the Canadian government ratified the Kyoto Protocol. The Kyoto Protocol will have no impact on TransAlta's U.S., Mexican or Australian operations as these countries have not ratified the Protocol. TransAlta is not able to estimate the full impact the Protocol will have on its Canadian operations, as the Canadian government has not yet established an implementation plan. However, the PPAs for TransAlta's coal-fired plants in Alberta contain 'Change in Law' provisions that provide an opportunity to recover compliance costs from the PPA customers. As a member of the Canadian Clean Power Coalition, TransAlta, along with its peers, is exploring other means to reduce greenhouse gas emissions, including the purchase of offset credits. The acquisition of Vision Quest and its prospects for further development has resulted in additional amounts of zero-emissions facilities consistent with the strategy of the corporation. Since 1990, the corporation has reduced net emissions in Canada by 18 per cent and is on track to reach zero net emissions by 2024.

12. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform with the current period's presentation.

13. SEGMENTED DISCLOSURES

Effective Jan. 1, 2002, the Generation and Independent Power Projects business segments were combined into one Generation segment to reflect changes in TransAlta's organizational structure. Prior period amounts have been reclassified.


I. Earnings information
 Unaudited
3 months ended Energy
 Dec. 31, 2002 Generation Marketing Corporate Total
--------------------------------------------------------------------
Revenues $ 498.7 $ 992.4 $ 1.0 $ 1,492.1
Trading purchases - (974.5) - (974.5)
--------------------------------------------------------------------
Net segment revenues 498.7 17.9 1.0 517.6
Fuel and purchased power (226.9) - - (226.9)
--------------------------------------------------------------------
Gross margin 271.8 17.9 1.0 290.7
Operations, maintenance and
 administration 115.3 3.6 16.2 135.1
Depreciation and
 amortization 57.4 0.5 4.6 62.5
Asset impairment and
 equipment cancellation
 charges (Note 6) 152.5 - - 152.5
Taxes, other than income
 taxes 7.6 - - 7.6
--------------------------------------------------------------------
EBIT before corporate
 allocations (61.0) 13.8 (19.8) (67.0)
Corporate allocations (18.1) (2.3) 20.4 -
--------------------------------------------------------------------
EBIT $ (79.1) $ 11.5 $ 0.6 (67.0)
----------------------------------------------------------
Other income 1.0
Foreign exchange gain 0.9
Net interest expense (24.0)
--------------------------------------------------------------------
Earnings from continuing
 operations before income
 taxes and non-controlling
 interests $ (89.1)
--------------------------------------------------------------------
--------------------------------------------------------------------


 Unaudited
3 months ended Energy
 Dec. 31, 2001 Generation Marketing Corporate Total
--------------------------------------------------------------------
Revenues $ 431.8 $ 526.9 $ - $ 958.7
Trading purchases - (524.3) - (524.3)
--------------------------------------------------------------------
Net segment revenues 431.8 2.6 - 434.4
Fuel and purchased power (246.4) - - (246.4)
--------------------------------------------------------------------
Gross margin 185.4 2.6 - 188.0
Operations, maintenance and
 administration 68.7 1.6 19.1 89.4
Depreciation and
 amortization 41.4 4.0 6.4 51.8
Asset impairment and
 equipment cancellation
 charges (Note 6) 2.7 - - 2.7
Taxes, other than income
 taxes 4.6 - - 4.6
Prior period regulatory
 decisions (Note 10) (11.0) - - (11.0)
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EBIT before corporate
 allocations 79.0 (3.0) (25.5) 50.5
Corporate allocations (23.6) (1.9) 25.5 -
--------------------------------------------------------------------
EBIT $ 55.4 $ (4.9) $ - 50.5
----------------------------------------------------------
Other income 1.2
Foreign exchange gain 2.9
Net interest expense (12.4)
--------------------------------------------------------------------
Earnings from continuing
 operations before income
 taxes and non-controlling
 interests $ 42.2
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 Unaudited
--------------------------------------------------------------------
 Energy
Year ended Dec. 31, 2002 Generation Marketing Corporate Total
--------------------------------------------------------------------
Revenues $ 1,673.9 $ 3,703.8 $ 1.0 $ 5,378.7
Trading purchases - (3,654.8) - (3,654.8)
--------------------------------------------------------------------
Net segment revenues 1,673.9 49.0 1.0 1,723.9
Fuel and purchased power (703.6) - - (703.6)
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Gross margin 970.3 49.0 1.0 1,020.3
Operations, maintenance
 and administration 346.3 15.1 59.1 420.5
Depreciation and
 amortization 196.3 2.5 20.2 219.0
Asset impairment and
 equipment cancellation
 charges (Note 6) 152.5 - - 152.5
Taxes, other than income
 taxes 27.3 0.1 - 27.4
Prior period regulatory
 decisions (Note 10) 3.3 - - 3.3
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EBIT before corporate
 allocations 244.6 31.3 (78.3) 197.6
Corporate allocations (70.6) (8.3) 78.9 -
--------------------------------------------------------------------
EBIT $ 174.0 $ 23.0 $ 0.6 197.6
---------------------------------------------------------
Other income 0.1
Foreign exchange gain 1.2
Net interest expense (82.7)
--------------------------------------------------------------------
Earnings from continuing
 operations before income
 taxes and non-controlling
 interests $ 116.2
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--------------------------------------------------------------------


 Audited
--------------------------------------------------------------------
 Energy
Year ended Dec. 31, 2001 Generation Marketing Corporate Total
--------------------------------------------------------------------
Revenues $ 2,158.4 $ 2,694.7 $ - $ 4,853.1
Trading purchases - (2,533.7) - (2,533.7)
--------------------------------------------------------------------
Net segment revenues 2,158.4 161.0 - 2,319.4
Fuel and purchased power (1,230.6) - - (1,230.6)
--------------------------------------------------------------------
Gross margin 927.8 161.0 - 1,088.8
Operations, maintenance
 and administration 290.6 36.2 65.4 392.2
Depreciation and amortization 156.5 11.0 23.7 191.2
Asset impairment and
 equipment cancellation
 charges (Note 6) 118.8 - - 118.8
Taxes, other than income
 taxes 18.7 - - 18.7
Prior period regulatory
 decisions (Note 10) (11.0) - - (11.0)
--------------------------------------------------------------------
EBIT before corporate
 allocations 354.2 113.8 (89.1) 378.9
Corporate allocations (82.5) (6.6) 89.1 -
--------------------------------------------------------------------
EBIT $ 271.7 $ 107.2 $ - 378.9
--------------------------------------------------------
Other income 1.5
Foreign exchange gain 0.8
Net interest expense (88.1)
--------------------------------------------------------------------
Earnings from continuing
 operations before income
 taxes and non-controlling
 interests $ 293.1
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--------------------------------------------------------------------


II. Selected balance sheet information

Dec. 31, 2002 Energy Discontinued
(unaudited) Generation Marketing Corporate Operations Total
--------------------------------------------------------------------
Goodwill $ - $ 29.3 $ 27.2 $ - $ 56.5
Other assets 6,353.4 315.3 694.4 - 7,363.1
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Total segment
 assets $ 6,353.4 $ 344.6 $ 721.6 $ - $7,419.6
--------------------------------------------------------------------
--------------------------------------------------------------------
Dec. 31, 2001
(audited)
--------------------------------------------------------------------
Goodwill $ - $ 29.3 $ - $ - $ 29.3
Other assets 5,873.2 384.0 643.0 676.9 7,577.1
--------------------------------------------------------------------
Total segment
 assets $ 5,873.2 $ 413.3 $ 643.0 $ 676.9 $7,606.4
--------------------------------------------------------------------
--------------------------------------------------------------------

III. Selected cash flow information

3 months ended Energy Discontinued
Dec. 31, 2002 Generation Marketing Corporate Operations Total
--------------------------------------------------------------------
Capital
 expenditures $ 190.8 $ 2.1 $ 1.7 $ - $ 194.6

3 months ended
Dec. 31, 2001
--------------------------------------------------------------------
Capital
 expenditures $ 415.5 $ 2.0 $ (6.3)$ 7.8 $ 419.0

Year ended
Dec. 31, 2002
--------------------------------------------------------------------
Capital
 expenditures $ 909.1 $ 4.2 $ 10.7 $ 21.8 $ 945.8

Year ended
Dec. 31, 2001
--------------------------------------------------------------------
Capital
 expenditures $ 1,147.6 $ 43.8 $ 15.1 $ 40.0 $1,246.5


IV. Reconciliation

Depreciation and amortization (D&A) expense per statement of cash
 flows

 3 months ended 12 months ended
 Dec. 31 Dec. 31
 2002 2001 2002 2001
--------------------------------------------------------------------
D&A expense for reportable
 segments $ 62.5 $ 51.8 $ 219.0 $ 191.2
Discontinued operations - 12.9 15.6 46.5
Mining equipment depreciation,
 included in fuel and purchased
 power 9.3 7.0 37.1 31.8
Site restoration accrual,
 included in fuel and purchased
 power 7.7 9.1 38.9 37.3
Other 0.2 1.8 4.2 5.5
--------------------------------------------------------------------
 $ 79.7 $ 82.6 $ 314.8 $ 312.3
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14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

These interim consolidated financial statements have been prepared in accordance with Canadian GAAP and follow the same accounting policies and methods of computation as, and should be reading conjunction with, the most recent annual financial statements.

In connection with the corporation's May 12, 2002 shelf debt prospectus, TransAlta is required to reconcile these interim consolidated financial statements to U.S. GAAP. This reconciliation will be included with the corporation's annual report, and it shall be deemed to be incorporated by reference into these interim consolidated financial statements.

15. SUBSEQUENT EVENTS

On Jan. 13, 2003, TransAlta and EPCOR Utilities Inc. (EPCOR) announced an agreement whereby TransAlta will acquire a 50 per cent interest in EPCOR's Genesee Phase 3 project for $395.0 million. On the same date, TransAlta made a $157.0 million payment to EPCOR for TransAlta's share of project costs incurred to date. A 450 MW addition to the existing Genesee Generating station is currently under construction and expected to commence commercial operations in early 2005. Included in the arrangement is an option for EPCOR to puchase a 50 per cent interest in TransAlta's Centennial one project, formerly referred to as Keephills three. The option expires Dec. 31, 2005. EPCOR also has the option to purchase a 50 per cent interest in TransAlta's Sarnia plant, which may be exercised between January 2003 and March 2004.

On Jan. 24, 2003 the corporation announced the acquisition of 50% of the membership interests in CE Generation LLC (CE Gen) for US$205.0 million (approximately Cdn$312 million) plus approximately US$35.0 million (approximately Cdn$53 million) and the assumption of debt of approximately US$500.0 million (approximately Cdn$762 million). The acquisition will be accounted for using the purchase method of accounting. CE Gen is controlled jointly by TransAlta and MidAmerican Energy Holdings Company. As such, the financial results of CE Gen will be proportionately consolidated with those of TransAlta. The transaction closed on Jan. 29, 2003.


SUPPLEMENTAL INFORMATION

Annualized Dec 31,2002 Dec. 31, 2001
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Closing market price $ 17.11 $ 21.60
Price range (last 12 months)
 High $ 23.95 $ 30.13
 Low $ 16.69 $ 19.15
Debt/invested capital 50.8% 52.3%
Return on common shareholders' equity 3.5% 10.9%
Return on invested capital 4.0% 8.7%
Book value per share $ 12.05 $ 11.82
Cash dividends per share $ 1.00 $ 1.00
Price/earnings ratio (times) 41.7 17.0
Dividend payout ratio 241.8% 78.5%
Interest coverage (times) 1.4 3.2
Interest coverage including preferred
 securities (times) 1.1 2.8
Dividend coverage (times) 2.4 4.1



GLOSSARY OF KEY TERMS

Availability - A measure of time, expressed as a percentage of continuous operation 24 hours a day, 365 days a year, that a generating unit is capable of generating electricity, whether or not it is actually generating electricity.

Btu - A standard unit for measuring the quantity of heat energy required to heat one pound of water one degree Fahrenheit.

Capacity - The rated continuous load-carrying ability, expressed in megawatts of generation equipment.

Gigawatt - A measure of electric energy equal to 1,000 megawatts.

Gigawatt hour (GWh) - A measure of electricity consumption equivalent to the use of 1,000 megawatts of power over a period of one hour.

Heat rate - A measure of conversion, expressed as Btu/MW, of the amount of thermal energy required to generate electrical energy.

Megawatt - A measure of electric energy equal to 1,000,000 watts.

Megawatt hour (MWh) - A measure of electricity consumption equivalent to the use of 1,000,000 watts of power over a period of one hour.

Spark spread - A measure of gross margin per MW, sales price less cost of fuel.
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Date:Jan 31, 2003
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