愛依斯電力 (AES) 2017 Q1 法說會逐字稿

Good day, and welcome to The AES Corporation Quarter 1 Financial Review Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ahmed Pasha, Vice President, Investor Relations. Please go ahead.

Thank you, Ryan. Good morning, and welcome to AES' First Quarter 2017 Financial Review Call. Our press release, presentation and related financial information are available on our website at aes.com.

Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors.

Joining me this morning are Andrés Gluski, our President and Chief Executive Officer; Tom O'Flynn, our Chief Financial Officer; and other senior members of our management team.

With that, I will now turn the call to Andrés.

Good morning, everyone, and thank you for joining our first quarter 2017 financial review call. Today, I will discuss our financial results and provide updates on our strategy to deliver attractive risk-adjusted returns to our shareholders.

Since our most recent call in late February, we have made significant progress on a number of key objectives for 2017. We advanced our construction program, which will be the major contributor to our cash flow and earnings growth over the next 4 years. We capitalized on our existing platforms to further enhance future growth by targeting long-term U.S. dollar-denominated contracts. We have taken steps to decrease our covenant intensity and merchant exposure. These steps will reduce our financial and operational risk.

We continued our efforts to strengthen our credit profile by prepaying $300 million of parent debt. This also increases parent free cash flow by lowering interest expense. We are on track to achieve our $400 million per year cost reduction and revenue enhancement program.

I will discuss these achievements in more detail in a moment. But first, I'd like to summarize our financial results on Slide 4. In the first quarter, we earned $0.17 of adjusted EPS versus the $0.15 we earned in the same period last year. We generated $546 million of consolidated free cash flow, $56 million higher than last year. Based on our first quarter performance and our outlook for the remainder of the year, we are reaffirming our full year guidance for all metrics.

Now I'd like to turn to our strategic accomplishments. As you can see on Slide 5, we have 3.4 gigawatts under construction and expected to come online through 2019. Overall, we have achieved significant progress on all of these projects.

Turning to Alto Maipo on Slide 6. As you may recall, Alto Maipo is an expansion of our existing Alfalfal plant in Chile. As we discussed on our last call, the project has been experiencing tunneling challenges, resulting in cost overruns estimated in the range of 10% to 20%.

Over the past couple of months, we have made significant progress on this project. First, we have secured additional financing commitments for up to 22% of the project cost, equivalent to $460 million, including contingency, of which $117 million will be funded by AES Gener, and the remaining $343 million will be funded by the project lenders, main contractor and minority partner. Second, Alto Maipo is now about 52% complete, and we remain on track to reach COD in 2019.

Turning to Slide 7, at our Eagle Valley CCGT in Indiana. The EPC contractor is subcontracting some of the work in an effort to accelerate the recovery plan. On our February call, we revised the completion date for this project to the first half of 2018. However, the EPC contractor is projecting substantial completion before year-end 2017. Although any delay is unfortunate, we have a fixed-price contract with the EPC contractor, under which they are incentivized to finish the project in a timely manner. The CCGT has achieved several important EPC milestones, and we expect first fire to occur in the third quarter.

Turning to Slide 8 and our 1,320-megawatt OPGC 2 project in India. We continue to make steady progress on construction, and the project is expected to come online by the end of 2018.

Finally, turning to Slide 9 and Colón in Panama. I am pleased to report that we have reached a number of milestones on our Colón CCGT and LNG regasification facility in Panama. The LNG facility is efficient to handle 80 tera Btus annually. Our CCGT will use about 1/4 of the tank's capacity, leaving substantial upside potential to meet the fuel needs of additional power plants, ship bunkering services and downstream commercial and industrial customers. We will continue to focus on providing a cleaner, more cost-effective alternative to oil-fueled power generation while, at the same time, satisfying a growing need for natural gas in Central America and the Caribbean.

To that end, on Friday, we announced that we have entered into a joint venture with ENGIE to market and sell LNG from our Panamanian LNG terminal to third parties in Central America. This joint venture will help us monetize the tank's remaining capacity as additional LNG is sold using our terminal. It also further strengthens the agreement we signed last year to jointly market LNG in the Caribbean from our Andres regasification facility in the Dominican Republic. With ENGIE as our partner and both Colón and Andres online in 2019, we will have the leading position in Central America and the Caribbean's LNG regasification market.

Turning to Slide 10. As you know, we are the world leader in battery-based energy storage. We currently have 394 megawatts in operation, under construction or in late-stage development, not including the 82 megawatts of our advanced energy storage platform that we have sold to third parties. Since February, we have delivered 37.5 megawatts of full-hour (sic) [4-hour] duration storage, the largest lithium ion energy storage installation in the world, the San Diego Gas & Electric. Following our successful commissioning of this project, San Diego Gas & Electric has awarded us another 40-megawatt 4-hour duration project. Although energy storage has significant potential for growth, at this point, we have not assumed any material contributions in our outlook.

Turning now to Slide 11 and our cost savings and revenue enhancement initiative. This year, we are merging our Europe and Asia strategic business units, which will drive significant savings. We're also continuing the work we began last year on standardization and improved sourcing and reliability. These initiatives put us on track to achieve $50 million of incremental annual benefit in 2017 and to hit our $400 million annual savings target by 2020.

Now turning now to our continuing efforts to reshape our portfolio, beginning on Slide 12. As we have discussed on our recent calls, we have been repositioning our portfolio towards businesses that are less carbon intensive and have long-term U.S. dollar-denominated contracts. This repositioning is a key element to our -- of our strategy to reduce the risk of our portfolio. This year, we have already announced our plans to sell or shut down 3.7 gigawatts of merchant coal-fired generation in Kazakhstan and Ohio. This is 26% of our total coal-fired capacity and 70% of our merchant coal-fired capacity. Specifically, we divested 1.5 gigawatts of coal-fired generation in Kazakhstan

for net proceeds of $24 million. With this sale, our only remaining assets in Kazakhstan are 2 plants with 1 gigawatt of hydro capacity, which are under a concession that expires in the fourth quarter of this year. We expect to exit Kazakhstan following the expiration of this concession.

We have already announced the shutdown of 1.3 gigawatts of merchant coal-fired capacity at DPL. Subsequently, we've also agreed to sell an additional 739 megawatts of DPL-owned generation for $50 million in net proceeds. Although the Kazakhstan and Ohio merchant coal sales appear to have low value on a per kilowatt basis, on a P/E basis, we managed to achieve a multiple of roughly 9x. We will continue to update you as we make progress on additional asset sales to further reshape our portfolio.

Turning to new businesses. Slide 13 provides an update on our Southland repowering project in California. As a reminder, we were awarded 20-year PPAs by Southern California Edison for 1,384 megawatts of capacity, which includes 100 megawatts of energy storage and 1,284 megawatts of combined-cycle gas capacity.

Last month, we received final environmental approvals for the projects. We are on track for financial close and to begin construction by mid-2017, with completion of the gas-fired capacity in 2020 and the energy storage capacity in 2021. We anticipate funding the $2.3 billion in total project cost with a combination of nonrecourse debt and approximately $400 million in equity proceeds from AES.

Turning to Slide 14 and our pending acquisition of sPower. We continue to see the potential for adding 500 megawatts to 1 gigawatt of renewable contracted power annually with attractive, low double-digit IRRs. Furthermore, we see an opportunity to capitalize on the development skills of the sPower team to tap into the growing market for renewable PPAs for large corporates and incorporating energy storage on their platform. We received FERC approval for the transaction last month and expect to receive the remaining approvals and close no later than the third quarter.

As you can see on Slide 15, we are also making progress on renewables in Mexico and Brazil. In Mexico, we were awarded exclusivity to negotiate 25-year U.S. dollar-denominated PPAs with private offtakers to build a 306-megawatt wind project and a 60-megawatt cogeneration plant. These are our first greenfield developments in Mexico in many years, and we see a number of other good growth opportunities in light of the market reforms implemented by the Mexican government.

Lastly, we signed the acquisition of the 386-megawatt Alto de Sertão wind farm in Brazil that we announced on our last call. This project will help diversify Tietê's fuel and hydrological risk. With an average remaining contract life of 18 years, the project will also help to reduce future exposure to short-term price movements. This BRL 600 million acquisition is being funded entirely with debt capacity at Tietê, demonstrating once again our ability to utilize local debt capacity in order to grow our business and improve returns.

Turning to Slide 16. This brings us to our portfolio, which we expect to generate 8% to 10% average annual growth in all of our key financial metrics to 2020. This growth is largely driven by the completion of our projects under construction, our cost savings and revenue enhancement initiatives, lower interest expense as we continue to delever and attractive returns from recent acquisitions and our development pipeline. We see further upside potential if we're able to capitalize on the LNG and energy storage opportunities I discussed earlier.

Turning to Slide 17. Our portfolio will generate $3.8 billion in discretionary cash through 2020. This is largely driven by parent free cash flow and the proceeds from asset sales. This internally generated discretionary cash is sufficient for us to meet our dividend growth commitments to fund our growth platform and reduce our corporate debt to achieve our strategic objectives.

Overall, we remain confident that we can deliver attractive growth to our shareholders through 2020 and beyond.

With that, I'll turn the call over to Tom to discuss our first quarter results, capital allocation and guidance in more detail.

Thanks, Andrés. Good morning. Today, I'll review our first quarter results and 2017 capital allocation. Overall, we had a solid quarter, benefiting from higher margins at many of our SBUs and a lower tax rate. We also generated strong free cash flow and made good progress on parent debt reduction.

Turning to adjusted EPS on Slide 19. First quarter results were $0.17, a $0.02 increase from '16. The increase was primarily driven by the tax rate, which was lower than first quarter 2016's rate but higher than our expectation for full year 2017. Operations were relatively steady as benefits from a legal settlement in Brazil and foreign currency appreciation were largely offset by lower contributions at DPL in Ohio.

Before moving on, I want to touch on $168 million impairment charges that again this quarter that are not included in adjusted EPS. Almost all of this is related to the exit of merchant coal assets that Andrés has mentioned, namely, the 1.7-gigawatt sale in Kazakhstan and the planned shutdown of our 1.2-gigawatt Killen and Stuart plants at DPL in Ohio.

Now Slide 20 and our consolidated free cash flow and adjusted PTC. We generated $546 million of consolidated free cash flow, an increase of $56 million from the first quarter of 2016. Our results are largely driven by higher margins as well as lower tax payments in the Andes and MCAC SBUs. We also earned $190 million in adjusted PTC during the quarter, an increase of $5 million, largely driven by higher margins.

Now I'll cover SBUs in more detail over the next 6 slides, beginning on Slide 21. In the U.S., our results reflect slightly lower margins primarily due to the impact of major planned maintenance at Hawaii and lower contributions from DPL due to lower regulated ESP rates. Adjusted PTC also decreased due to gain on a contract termination that occurred in 2016 at DPL related to its competitive retail business. Lower consolidated free cash flow also reflects higher purchase power and fuel cost at DPL.

At Andes, our results reflect higher margins, primarily due to higher reservoir levels and generating volume in Colombia. Consolidated free cash flow also reflects lower tax payments at Gener in Chile.

In Brazil, our results reflect higher margins, primarily driven by higher spot sales and energy prices at Tietê. Adjusted PTC also benefited from the settlement of a legal dispute at our CCGT, Uruguaiana. Consolidated free cash flow benefited from these impacts but was partially offset by the recovery of high purchase power costs in '16 from prior droughts at our distribution business, Eletropaulo.

It's worth mentioning that while we're expecting the low hydro conditions this year in Brazil, the impact will be much less than it's been in prior years due to changes we've made to our hedging strategy. We're now 83% contracted in 2017, which leaves us well positioned to absorb hydro shortfalls.

In Mexico, Central America and the Caribbean, higher margins were driven primarily by higher availability in Mexico. Consolidated free cash flow also reflects lower tax payments in the DR. I'd also like to note that in the first quarter, the DR was awarded new 5-year PPAs to recontract 470 megawatts of existing capacity. The PPAs were awarded in a competitive auction, and our cost-efficient plants were the only capacity to clear. Pricing is in line with our existing PPAs and prior expectations, and we're now 95% contracted through 2018 and 85% contracted through 2022.

In Europe, our results reflect lower margins, largely due to restructuring of the PPA at Maritza in Bulgaria in the second quarter of 2016. Consolidated free cash flow increased due to lower CapEx for environmental projects completed in '16 and higher collections in the United Kingdom.

Finally, in Asia, our results reflect steady margins and slightly higher working capital requirements at Mong Duong in Vietnam.

Now to Slide 27 and an update on our filing at DP&L in Ohio. As you may know, last month, we reached a settlement agreement with commission staff and certain interveners in our ESP case. The agreement includes a distribution modernization rider totaling $105 million per year over 3 years, with a 2-year extension earmarked for debt reduction. The ultimate goal is to transform DPL into a stable and growing T&D business. To that end, DPL has already announced plans to sell or exit all of its 2.1 gigawatts of coal-fired capacity by mid-2018 and is exploring strategic options for the remaining 1 gigawatt of peaking capacity.

Evidentiary hearings in the ESP case concluded April 11, with a final decision likely by late second quarter or early third quarter. We expect a ruling that will help DPL continue to reduce leverage and transition to investment-grade rating.

Now to Slide 28 and our improving credit profile. Since February, we have prepaid $300 million of parent debt, charging our largest maturity with some of our highest coupons. This brings our total parent debt to $4.4 billion, which is a $2.1 billion or about 1/3 reduction since September of 2011.

Our parent leverage ratio continues to improve, dropping from 6.5x in 2011 to 5x last year and to an expected 4.6x by year-end. Through disciplined debt reduction and strong growth in parent free cash flow, we expect to obtain investment-grade credit metrics by 2020. We continue to believe this will help us to not only reduce our cost of debt and improve our financial flexibility but also enhance our equity valuation.

Now to our 2017 parent capital allocation on Slide 29, which is materially in line with prior disclosure. Sources on the left-hand side reflect $1.5 billion of total available discretionary cash, which includes roughly $625 million of parent free cash flow. As we discussed last quarter, in addition to the $300 million we received from the sale of Sul in Brazil, we're targeting $500 million in asset sale proceeds. We continue to make progress on this target, although much of it may occur later in the year.

Moving to uses on the right-hand side of the slide. Including the dividend increase we announced in December, we'll be returning almost $320 million to shareholders this year. We've allocated $340 million to prepay parent debt, as I just discussed. We've allocated $382 million to our acquisition of sPower and plan to invest $350 million in our subs, the majority of which for new projects under construction and in late-stage development. After considering these investments in our subs, debt prepayment and our current dividend, we're left with roughly $100 million of discretionary cash.

Now on guidance beginning on Slide 30. Based on our performance year-to-date and foreign currency and commodity forward curves as of March 31, we are reaffirming our 2017 guidance and expectations for 8% to 10% average annual growth through 2020 for all metrics.

As we've discussed previously, EPS growth in 2018 is expected to be higher than the average annual growth we're projecting through 2020. In fact, we're forecasting approximately $0.20 of EPS growth in 2018. About 1/3 of this growth is related to the 2.5 gigawatts or 75% of construction capacity coming online where our invested equity is approximately $700 million. These projects include the 3 CCGTs in the Dominican Republic, Indiana and Panama. About 1/3 of this growth is being driven by our cost savings and revenue enhancement initiatives and operating improvements at our businesses. The remaining growth in 2018 is largely driven by contributions from growth in renewables, including sPower and the benefits of lower interest expense.

With that, I'll now turn it back to Andrés.

Thanks, Tom. We have made significant progress in executing on our strategy by advancing our construction program, which is the key driver of our earnings and cash flow growth; capitalizing on the advantages from our existing platform in markets where we have a strong position to make investments to ensure growth beyond 2020; rebalancing our portfolio to reduce risk and complexity by exiting noncore businesses and redeploying the proceeds consistent with our capital allocation framework; prepaying parent debt to improve our credit profile and achieve investment-grade metrics; and optimizing our cost structure to improve operational efficiency and achieve our $400 million in annual savings target by 2020.

With these actions, we are positioned to deliver average annual growth of 8% to 10% in all key metrics, including free cash flow, earnings and our dividend. Combining this growth and our current dividend yield will result in a total return of greater than 12%. We believe our attractive total return proposition will be better reflected in our share price as we continue to make progress on our strategic objectives and guidance.

Now we will be happy to take your questions.

(Operator Instructions) Our first question today comes from Ali Agha with SunTrust.

First, just a housekeeping item. Perhaps, Tom, you had a 41% effective tax rate in the first quarter. Are you still targeting 31% to 33% for the year? Any reason why Q1 was so much higher than that?

Yes, we are still targeting 31% to 33%. First quarter was just the timing of certain events, but 31% to 33% is still where we expect to be for the year.

I see. And then second, on the asset sale front. The $500 million target that you have for the year, the Ohio sale of $50 million and this Kazakhstan sale of $24 million, do they count against that or are they separate from that? And related to that, in the past, you told us that you assumed about a $0.03 earnings dilution from the asset sale, primarily from the timing. Given your comments that the timing may be later in the year, is that $0.03 dilution still valid for '17?

So Ali, as we talk about asset sale proceeds, those are -- that's cash to corp. So the DPL money will all be used within DPL to retire debt. So that would not count into that. The Kazakhstan $24 million would. And yes, you're right, we had said $0.03 to $0.04 from dilution. We now expect that to be later in the year, so maybe it's $0.02 or somewhat less. That'll be a bit of a help from a timing perspective.

Okay. And thirdly, in terms of mapping out your 4-year growth profile, and as you point out, there's a fair amount of free cash flow that you generate over that period as well, can you remind us, for the cash that's unallocated at this point, what kind of return are you assuming on that cash that kind of gets you to that 8% to 10% overall annual growth rate CAGR?

Yes. We're assuming cash in the -- cash return in the high single digits on that, which is consistent with our -- at the lower end of our return on investments. Obviously, we can look at other things, such as paying down debt or repurchasing stock.

Okay. And last question on the Colón project, with this ENGIE LNG contract, does that change your expected economics, the ROE that you assumed on that plant? Or was this already factored in into your overall ROE for that project?

Yes. Ali, we have assumed quite, say, a modest use of the tank and regasification facility in our numbers. So to the extent that we can use -- make more use of what's basically existing capacity in the tank and in the terminal, that will be upside. So with ENGIE in the Dominican Republic, where we're using about 50% of the tank's capacity, and in Panama, where we have basically 25% of the tank's capacity being used, the sooner we fill this up, the better we'll be. What is the upside potential? Well, if we utilized all of the existing tanks, say, by 2020 and 2021, that's between -- depends a little bit on the timing, but somewhere between, say, $0.03 and $0.05 of upside. Furthermore, we have the land that we could -- and capacity at the terminals that we could, in each location, build a second tank. And that would be further upside potential. So we're very excited about this opportunity. We've been quite successful on our own selling gas in the Dominican Republic for transportation and for industry. We've done our first shipments in thermal tanks or really containers of LNG to other -- another island in the Caribbean. So this is an upside. We see that in the future, certainly, ship bunkering will be important. We also see, again, more conversion of plants, industry, transportation in the Caribbean and in Central America. And with a strong partner like ENGIE that can provide structured products to offtakers, we are very well positioned. But we're just starting, and that's why we have very modest assumptions in our numbers.

Our next question today comes from Julien Dumoulin-Smith with UBS.

So a quick couple of questions here to follow up. First, on the SG&A reductions, you announced sort of an acceleration. Is that already reflected in your guidance as you see it for this year? Just to clarify that. And then separate, just a distinction, so as you think about the 2018 uplift of $0.20 you discussed, can you discuss some of the other puts and takes? I'm curious as to what the net EPS impact is of the divestment and/or sale and/or retirement of the DPL assets.

Okay. Let me take the first one. In terms of the first, this is what we have announced before. I mean, I think we've delivered -- actually, more than delivered every year in terms of the guidance we set out. So what we're saying is we feel very comfortable with the $50 million that we announced and is in our guidance for 2017 and an additional $50 million in 2018. And last time, we also announced that we -- the program will continue -- this sort of productivity improvements will continue in '19 and '20, although somewhat at a decelerated pace. So basically, this is just a reaffirmation of what we announced before. Now I'm sorry, the second question is it in terms of -- were you talking about the dilution from the sale of the DP&L assets?

Yes. I was thinking -- oh, sorry, go for it.

Yes. Julien, it's probably a couple of cents. When you're looking at DPL, it's probably about $0.01 and obviously depends upon terms, et cetera, but maybe it's about $0.01 in terms of the -- what we're looking at. But that was all contemplated when we gave our guidance in February. I would say, on a cash flow basis, DPL will be pretty neutral to cash flow. EBITDA minus CapEx is pretty much breakeven as we see it through our forecast period, even for other indirect owned end cost.

Got it, excellent. And then can I just clarify, because I thought I heard you talk about an acceleration in SG&A, how does the collapse of the European and the Asian business together fit within the context of the SG&A? Is that still part of the 50 or is that actually going to potentially see some more of that 100 biased towards '17?

No. Julien, that is part of the 50 for this year and part of the 100 for the end of next year. So we'll continue to take steps. Obviously, as we divest of assets, that also helps us to accelerate this process.

Got it. And to clarify, for '18, you talked about $0.20 of uplifts. Obviously, DPL is not a huge impact there in terms of offsets. What are some of the other known factors that we should just be aware of, if you will?

Well, I think as both Tom and I said, I mean, the main is our construction program. So we have 3 CCGTs and it will be online in 2018. And we have the cost-cutting program that we have announced, and we've had the continued delevering. So those are the 3 main items that are going to contribute to the increase in our earnings and cash flow in 2018.

Right, absolutely. Any other offsets there? And so -- I suppose the $0.20 contemplates the construction program and does it include the cost-cutting?

Yes, it does. It includes all the elements.

Okay. So that's a net number year-over-year inclusive of balance sheet, SG&A and net contract degradation against growth.

Yes, that's correct. And like all of our numbers, that's based on currency and commodity forward curves as of today.

Our next question comes from Greg Gordon with Evercore ISI.

I think most of the -- most of my questions have been asked. But when I'm looking at Slide 53 and I'm comparing it to your capital allocation slide, your investments in subsidiaries is up $100 million versus the Q4 disclosure, and it looks like your investment in Alto Maipo is up from 400 -- from $335 million of AES equity to $413 million. So that looks like it represents the majority of that increase. So am I correlating that correctly? And if so, does that, in fact, take into account the cost overrun or not because the footnote still says it excludes the cost overrun?

Yes, that does take in account the full 20% cost overrun in Alto Maipo. And in fact...

Okay. So the -- actually, the footnote should have been excluded then as that was just kind of a typo?

Well, it's an additional $117 million from Gener, and we own 67% of Gener. Most of the financing, again, is coming from the lender and the minority partner.

Well, I understand that. I'm just asking a very simple question. In the Q4 deck, you have $335 million invested, but the footnote is saying excluding overrun.

You're right, this includes the cost overruns. So there's a typo there, as you mentioned.

Okay, so that typo should have been removed. Great. I just wanted to clarify that. And then -- but overall...

Greg, it's Tom. First of all, it's impressive you found a typo on Page 53. But just going back to your first question on the up $100 million, you're right, in terms of investment subs, it's some smaller pieces. We do have a modest acceleration of our investment in Colón from '18 to '17. So that's a part of it. And then the other large part is an investment in renewables, including sPower. That's the biggest of the diff in that $100 million.

Okay, great. So we've got Alto Maipo, Colón and sPower, and that represents the change?

Yes. Alto Maipo is very modest for this year because, a, it's funded by Gener, so it's really lower dividends. But it's really not factoring into that because it's funded by Gener, and it's funded over the next couple of years.

Okay, I understand. Okay, so when I'm looking at Page 53 versus this year's capital allocation, 53 is total not just this year. It's happening over a period of time. That's the difference?

That's correct.

Correct.

Okay, got you. Perfect. And then also, your -- it looks like your total cash flow over the 2020 period, you've raised at the midpoint by about $100 million. Is that just because you're accelerating debt reduction and retaining more cash from interest savings? Or is it a combination of other small things?

Yes, it's a combination of small things.

Yes, probably -- maybe just rounding.

Yes.

Next question today comes from Chris Morgan with Macquarie.

It's actually Angie Storozynski. So I didn't hear any comments about Brazil. Could you say about -- anything about economic recovery and the future of your utility there?

Sure. In Brazil, what we're seeing is, last quarter, we saw a flattening of the decline. And this year, we might be seeing a slight pickup in demand, but more like 1%. Demand has decreased like 10%. So overall, we're modestly optimistic about Brazil. The president is taking a number -- on a number of the important reforms that if it goes through, bode very well for the country. But we expect a gradual oil recovery in Brazil. Now this year, they are having a drought. And so as Tom mentioned, I think it's a good example of how our change in commercial strategy and the level of contracting that we have has made it, quite frankly, a very small issue whereas 2 years ago, it was a very big issue for us. And so it's basically the same asset of Tietê, but it makes a very big difference. So with the acquisition of the wind, that will help provide Tietê with basically assets which are not correlated with hydrology, which are contracted at 18 years at good prices. Now regarding our utility, which is Eletropaulo, remember, we sold AES Sul, what we're doing is moving forward on listing it on the Novo Mercado, and that is going well. And so basically, being on the Novo Mercado means one share, one vote. And therefore, we would no longer consolidate Eletropaulo in our numbers. Now the company has had a significant recovery in its share price this year and is continuing to make improvements operationally.

Okay. And then in Chile, so thanks for the update on the construction progress on Alto Maipo. Is there -- have you managed to secure any more contracts for this asset? And also, any indication on pricing for power, especially ahead of the next forward power auction?

We have not secured any more contracts for Alto Maipo at this stage. It's part of the Gener portfolio. So they have -- basically, Gener is highly contracted through '21, '23. So we don't have any immediate issues at Gener. I mean, last year was a record year for Gener, both on earnings and cash flow. This year is also looking extremely good. So what we're seeing, again, is recontracting rates past that window. What we have seen on the -- we have signed some new contracts, especially at one of our subsidiaries of Gener, which is Guacolda. And these were rates at around $70. But we continue to see sort of a long-run pricing in the sort of the mid-60s of dollars per megawatt hour. And that's without assuming any sort of rebound in mining activity or more rapid growth of the economy. Chile is growing about 2%, 2.5%. And traditionally, it's been growing more sort of at 4%, 5%. So if we have a pickup in economic activity, we think these prices could improve further.

Our next question comes from Lasan Johong with Auvila Research Consulting.

I wanted to ask a strategic question in the sense that what -- is it fair to say 2.5 to 3 gigawatts of new construction projects per year would jump your growth rates from around 10% to 20% a year?

That will depend a little bit on to what extent we have partnerships in those deals. This year, with the acquisition of sPower and some of the new things we've commissioned, we'll be close to that number in terms of new projects and acquisitions. So -- but it will depend on how much of those projects we own, whether it's 50%, whether it's 80%. We continue to plan to basically include partners on most of our big projects.

Well, that makes sense, and I agree with you. So in terms of discretionary cash flow, you guys have about $1.4 billion through 2020. And right now, about, what, less than or around $400 million have been dedicated to new projects. So if all of that remaining discretionary cash flow would have been used for growth projects, is it correct to assume that you can reach that 20% type compound annual growth rate?

No, that seems awfully high, quite frankly. Now one thing is very important. We'll continue to be very disciplined in terms of our capital allocation. And we work to either grow the -- we're committed to growing the dividend, reaching investment grade and continuing to decrease our risk on this portfolio from all factors. So that seems high. I mean, to get there, I mean, if you had some dramatic improvements in some of the economies and commodity prices, perhaps. But we do have a significant upside, as I mentioned, on LNG, which we quantified, and on energy storage, we continue to work on that. We're making good progress. And when we feel confident that we can provide some numbers, we will do so. But again, this is our plan, to be very disciplined and ensure that when we grow, it's profitable growth. And all of our growth has to come on to our platform, really has to -- we have to be able to provide synergies or economies of scale or something like that before we do an acquisition.

So just to be clear, the $1.4 billion would not get you to the 20% growth rate?

Probably not. I mean, of course, it really isn't our goal. So what's more important for us is to be disciplined, decrease risk and hit those -- grow our dividend and improve our credit metrics. So with that in mind, yes, it will be -- I don't see it, quite frankly.

Okay. Then the flip side of the question is, once you get to a position where you think your risk is low enough and your debt payments have gotten you to an investment-grade credit metrics, what is going to be your forward-looking strategy from that point on? Is it going to be more concentrated on growth? Is it going to be maintaining the shift on course? How would you change that strategy?

Well, when I think of the new strategy that we announced based on the prior 5-year strategy, it would be an evolution of it. We think that the key elements are really having platforms, integrating renewables with existing capacity from thermal and hydros and also being a leader in new technology. So we are only about 3 months into the new strategy, and we'll update you next time.

The next question today comes from Charles Fishman with Morningstar.

Yes, I have the same question Greg did about the $100 million. But I can assure you, I never would have seen the footnote error on Slide 53. Here's my -- the other question that I got left. Andrés, you talked on Slide 6, Alto Maipo, the problem is with the tunnel. And tunnels on these type of projects can be -- certainly, you're not the first to experience tunneling challenges. Of the 52% complete right now, what percent of the tunnel is complete? Or is that -- are you talking about the tunnels? Is that the main part of the project? Or how should we look at that?

I think that's a very perceptive question. We -- it's 52% complete. That includes all of the works and all of the equipment. On the tunneling, we're more than 1/3 complete on the tunneling. And basically, what happened here is that the rock ended up being a lot softer than all of our projections. And that's what's really slowed us down because then you have to do more reinforcements, you have to go more slowly. And it was a bit surprising because this is an expansion of an existing facility, Alfalfal. So it's in the same mountain. It returbinates some of the same water. But that is what it is. And as you're right, we're not the first to have encountered different rock than what was expected once you start tunneling.

Okay. And then Slide 6, I assume, that's a tunnel boring machine we're looking at. Is that the machine that's actually in there now working?

That's exactly right. We have 3 of them in operation now, 3 TBMs and a fourth one on order that's coming down. So we'll have 4 TBMs operating on this site.

Okay. So you're -- it sounds like you're accelerating the thing to get it done. Okay, good. That was the only question I had left, Andrés.

And we have our last question today coming from Gregg Orrill with Barclays.

Can you walk through the details around the EBITDA guidance reduction for DP&L? I think it was -- obviously, you sold some of the generation assets, but it looked like it was down around $60 million from the fourth quarter.

Yes. So I think what you are referring to is about $50 million drop. I mean, part of this is, as you know, Gregg, we have announced the sale of our coal-fired generation that accounts for about $30 million to $40 million, the total shutdown plus sale. And then we also have incorporated updated nonbypassable, which is now $105 million versus what we were expecting, which was slightly higher than that. So net-net, I think that accounts for most of the change.

This concludes our question-and-answer session. I'd like to turn the conference back over to Ahmed Pasha for any closing remarks.

Thanks, everybody, for joining us on today's call. As always, the IR team will be available to answer any follow-up questions you may have. Thank you, and have a nice day.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.