愛依斯電力 (AES) 2009 Q4 法說會逐字稿

Welcome to The AES Corporation's fourth-quarter and full-year earnings conference call. All lines have been placed in a listen-only mode until the question and answer session. (Operator Instructions). Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to turn the call over to over to Mr. Ahmed Pasha, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good morning everyone, and welcome to our fourth-quarter 2009 earnings conference call and webcast. Joining me today are Paul Hanrahan, our President and Chief Executive Officer; Victoria Harker, our Chief Financial Officer; and Andres Gluski, our Chief Operating Officer; and other senior members of our management.

Before we begin this morning, I would like to remind you that any statements made herein about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. Our discussion of factors that could cause actual results or events to vary is contained in the filings and in our investor section of our website at www.AES.com.

And now I would like to turn the call over to Paul.

Okay. Thanks, Ahmed. Thanks to all of you for joining us this morning to review our performance for 2009 and also to talk about our plans going forward.

When we held our call just about one year ago, I outlined three priorities that would drive our actions throughout 2009. As you may remember, at the time we held the call we were facing pretty volatile financial markets, and our ability to raise new capital for the markets was unclear.

Therefore our first priority was to manage our liquidity and the cash flow generation from our operating businesses throughout the year so as to be able to meet the investment needs for our construction pipeline, as well as to selectively invest in new opportunities in our pipeline of advanced development projects.

The second priority was to manage our construction program effectively so as to bring new plants online that would start generating additional cash flows for our portfolio going forward.

Our third priority was to pursue development projects selectively that represented low-cost options to invest in value accretive transactions. While the construction pipeline would deliver good growth through 2012, we wanted to create the opportunities to deliver attractive growth in the value of our stock beyond 2012.

As I look back at what we achieved in 2009, I think we did a reasonably good job in terms of achieving the results that we targeted. As in the past, we have benefited from our geographic diversity, but more importantly, we benefited from the commitment of the 27,000 people in AES businesses around the globe who rallied to hit our targets in a very difficult economic environment.

Starting with liquidity at the AES parent level, we funded approximately $400 million of equity in our growth investments in 2009, reduced our debt by approximately $200 million, and ended 2009 with a liquidity balance of $1.26 billion.

Going into 2010 we expect to fund the already approved equity investments of approximately $400 million and repay approximately $200 million of maturing debt. We also expect committed asset sales to generate approximately $350 million in additional cash at the parent, although a bit less than half of this would be used to pay down debt to maintain credit neutrality.

Adding to that the expected proceeds of $1.58 billion from the CIC transaction plus free cash flow to AES, we would have approximately $2 billion of cash available at the parent level for new investments in 2010.

In terms of our performance in construction, we brought 11 projects with a combined capacity of 1300 megawatts into commercial operation to date. These included wind projects in the US, Europe and China, coal fired plants in Chile, and gas and oil fired plants in Europe, the Middle East and Africa.

There was one major disappointment for us on the construction front, however, with our Campiche coal fired plant in Chile having its construction suspended in issues associated with zoning. I'll provide more detail on that later in the call.

I'll also talk more about our development activities after Victoria covers the financial results, but we did add a significant number of megawatts to our pipeline during this year, particularly with respect to renewable energy projects.

Many of you will also recall that we held an investor day in May of last year where we introduced the proportional free cash flow metric, which many of you had encouraged us to do. This is basically a measure of our share of the free cash flows generated by our businesses, less the associated maintenance CapEx. This is metrics that we believe is a good indicator of value and one on which we place an intense focus.

As you can see from our published financial results, we saw the proportional free cash flow increase to $899 million in 2009 from $466 million in 2008. In addition, our cash distributions from subsidiaries reached a record level of $1.25 billion for 2009. We saw both of these measures increase despite some of the challenges we faced in the global economic environment.

I would also like to note that providing this proportional cash flow metric provides additional visibility into our financial performance as we continue to see many one-time, noncash items that are captured by GAAP EPS, and in many cases our adjusted EPS numbers. As Victoria reviews our results for the year, she will discuss some of these items.

At this point I'll turn the call over to Victoria, who will review the results in detail for the last year and provide guidance looking forward. Following her comments I'll talk more about our construction and development pipelines as well as our outlook of priorities looking forward. Victoria?

Thanks, Paul, and good morning, everyone. As Paul has already discussed, 2009 was a good year. We met or exceeded guidance metrics with all of our key cash flow measures closing the year at the high end of the range. We also exceeded our guidance for proportional free cash flow as well as adjusted EPS, particularly when adjusted for our businesses in Oman and Pakistan, which have been moved into discontinued operations, as we expect to close these asset sales later this spring.

We are also pleased with subsidiary distributions of $1.25 billion, the highest level we have ever achieved, a true testament to the renewed focus on improving days sales outstanding, or DSO, efficiency efforts, and expense reductions across all functions and businesses.

These results not only help generate increased cash to the bottom line but also helped us to offset foreign currency headwinds and depressed demand in many geographies impacted by the recession, particularly in North America.

Before I address the numbers specifically, let me provide some context for the types of operational improvement initiatives through which we continued to maximize value and improve margins this past year. Here are some specifics.

In the Philippines our 660 megawatt Masinloc facility focused this year on building value in three key areas -- increased production, reduced exposure to the spot market, and improved plant operations.

During 2009 improved plant and grid availability helped to increase the plant's production by 62%.

Additionally, in line with our strategy to reduce price volatility at the plant, we decreased our reliance on the spot market by selling more power through medium-term contracts, with contracted volume increasing 66% to 2 gigawatt hours in 2009.

Finally, we were able to improve the plant heat rate by 13% due to higher dispatch as well as a series of technical improvements we implemented over the past year. As a result, Masinloc's gross margin improved by approximately $100 million during 2009.

Another example of the financial benefits we have derived from operational improvements this year is at TEG, our 230 megawatt petroleum coke fired plant in Mexico. Within two years of the acquisition, we have demonstrably improved the operations of the plant. By year-end 2009 availability increased from 73% to 93%, and overall generation output increased by 36% to almost 2 gigawatt hours. Plant heat rate also improved by 7%.

These improvements collectively represent more than $25 million of annualized returns that have now been unlocked there.

With these kinds of improvements in place, we were able to produce strong cash flows throughout 2009. Effective working capital management and our continued efforts to reduce our permanent cost structure by $150 million versus the prior year also contributed to cash flow.

Reductions include the benefits of our centralization of functions through hubbing as well as creation of procurement and fuel purchasing synergies.

Improvements in working capital were primarily driven by faster collection of receivables, particularly at our generation businesses in Chile and Pakistan, as well as lower investment in fuel inventories as a result of the decline in fuel prices.

As Paul stated earlier, our global diversity stabilized our financial results in a period of extreme market volatility. Although we experienced lower demand in certain markets, we benefited from positive trends in certain businesses outside the US.

For example, in Brazil where demand for the first nine months of the year was down 1%, we saw a volume increase of 3.6% in the first quarter, as that economy emerged more quickly from the recession, led by the growth in the industrial and commercial sectors. In fact, early indicators on 2010 follow a similar upward trajectory as evidenced by the year-over-year increase of energy sold in Brazil for the month of January of over 4%.

Likewise, in northern Chile where the copper mining industry is a large power consumer, we a saw 3% -- 3.6% increase in demand. There, our TermoAndes gas fired plant was able to increase its production by 45% compared to prior year as demand grew.

In central Chile, profitability also improved due to a significant decline in fuel prices combined with the benefits of our new, more efficient plants, such as Guacolda 3 and Santa Lidia, coming online, which helped to reduce the marginal cost of production by 40%.

By contrast, and consistent with what the industry has seen across North America for much of the past 12 to 18 months, our operations in New York were adversely affected by lower natural gas prices throughout the year, which declined by more than 50% from 2008. The decline in gas prices resulted in lower demand for coal-based generation. As a result, volume at our New York plants declined by 20% compared to 2008.

During the second half of 2009, when gas prices were higher than today, we were able to increase forward sales to nearly 50% of expected generation in 2010, hedging somewhat against future price volatility. Likewise, our utility in Indiana experienced a decrease in volume of 6%, similar to what was experienced by other US utilities during the recession.

Now let's discuss some specific results for the fourth quarter.

On a consolidated basis our operating cash flow was $316 million versus $609 million in 2008, which was essentially flat on a year-over-year basis when excluding the Brazilian [receipts] payment acceleration. As you may recall, last quarter we mentioned a one-time tax payment in Brazil during the quarter. This payment of $331 million was made in the fourth quarter and is the primary driver of the lower year-over-year cash flow, but -- which will be offset in 2010.

Subsidiary distributions were $296 million in the fourth quarter. This was in line with our expectations, which puts us at the midpoint of our full-year guidance range for this metric.

Now turning to several other key cash metrics which we believe continue to demonstrate the health and stability of the business overall.

At the parent level our capital structure worked to pay down and refinance debt over the prior several quarters, has put us in a very comfortable position as we now have only $214 million in parent debt maturing in 2010. This is very manageable, given our parent liquidity of $1.3 billion, including $677 million in cash.

We see similar trends at our subsidiaries, where we have $2.7 billion of liquidity; including $1.1 billion in cash, sufficient to pay down about $1.8 billion of nonrecourse debt maturities due within the next 12 months, should we determine refinancings there are not cost effective.

Now turning to earnings. For the quarter, EPS was benefited from improved operating performance at our businesses in the Philippines, a lower effective tax rate due to non-taxable earnings at our Brazilian businesses, and favorable foreign currency, especially the Brazilian real, which appreciated 24% in the fourth quarter of 2009 relative to the same quarter of 2008.

Our consolidated gross margin increased $163 million, or 24% relative to 2008.

Favorable foreign currency exchange rates benefited the quarter by $90 million.

Additionally, our Masinloc plant in the Philippines continued to realize the benefits of performance improvements initiatives. These gains were partially offset by lower energy sales at our merchant plants in New York, as I just discussed.

On a proportional basis we earned $481 million of gross margin, an increase of $112 million or fully 30% over 2008.

Adjusted EPS increased $0.01 to $0.22 due to the favorable gross margins as well as lower effective tax rate. These gains were offset in the quarter by a noncash charge related to hypothetical liquidation costs in our non-controlling interest calculations at several US wind businesses of approximately $0.04.

These accounting estimate changes do not have an impact over the life of the projects, as they will reverse in 2012 and beyond.

The quarter also achieved a lower effective tax rate of 23% versus 37% in the same quarter of 2008, due in part to non-taxable earnings at our Brazilian businesses.

Now let's recap our results for the full year and how they compared to 2009 guidance.

As I mentioned earlier, I am pleased to report our full-year results met or beat our key guidance metrics. In particular, I was very pleased at the cash results for both the consolidated and proportional metrics.

Our consolidated operating cash flow of $2.2 billion placed us at the top of our 2009 guidance range of $2.1 billion to $2.2 billion.

Maintenance CapEx of $622 million was near the low end of our guidance of $600 million to $700 million.

As a result, our consolidated free cash flow exceeded our guidance by approximately $40 million.

Likewise, our proportional cash flow metrics reflect similar results. Proportional operating cash flow of $1.3 billion was also within our guidance range.

After adjusting for proportional maintenance CapEx of $438 million, our proportional free cash flow was $899 million for the year, exceeding our guidance by approximately $25 million.

Subsidiary distributions to the parent for the year were $1.25 billion. This is consistent with our expectations and an increase of almost $200 million versus 2008.

Consolidated gross margin of $3.5 billion fell just shy of our guidance of $3.55 billion to $3.65 billion. However, adjusting for the Oman and Pakistan asset sales, which have been moved to discontinued operations, we were well within the guidance range.

On the same basis, proportional gross margin of $2 billion was also within the guidance range of $2.1 billion to $2.15 billion.

Now turning to adjusted EPS. Adjusted earnings per share of $1.08 was within the range of $1.07 to $1.11. However, adjusting for the $0.05 negative impact to EPS associated with discontinued operations as well as the $0.04 negative noncash charge for the change in hypothetical liquidation calculations for wind; we were actually above the range.

In closing, we are very pleased with the results for 2009, particularly in the context of a very challenging macroeconomic environment.

Now I'll spend a few minutes reviewing our outlook for 2010 and '11. Before I begin, please keep in mind that the following discussion does not reflect the impacts of the pending CIC equity transaction nor the wind joint venture, either with respect to the receipt of cash or the issuance of shares.

That said, our guidance does assume that our Pakistan and Oman asset sale transactions close in the first half of 2010, and they are on track to do so.

In addition, we will also receive a $102 million payment from our Kazakhstan termination agreement and approximately $150 million of proceeds from our Brazil wind investment, both of which will add to our liquidity in 2010.

All of these items will be reflected in our investing cash flows but will not -- but not in operating cash, so will have no impact on adjusted EPS or proportional free cash flow.

Overall, our 2010 cash flow metrics are at or above our previous guidance, while adjusted earnings per share and subsidiary distributions are lower, due to a number of drivers we've already seen in 2009. While we've experienced favorable foreign currency movement since the May 2009 guidance update, there are several offsetting factors I will outline in a moment.

Let me provide a little more detail around the 2010 guidance first and how it trends relative to 2009.

Our proportional operating cash flow guidance of $1.5 billion to $1.7 billion is an increase over 2009 actuals of $1.3 billion. Likewise, guidance on proportional free cash flow of $900 million to $1.1 billion is also an increase when compared to 2009.

For subsidiary distributions we have lowered the high end of the range by $100 million to a range of $1.1 billion to $1.2 billion. This decrease reflects our anticipation of lower dividends from Hungary and New York as well as the loss of dividends from Pakistan and Oman. These decreases are expected to be partially offset by improved operations in Chile and Brazil.

Our current 2010 adjusted EPS guidance range is $1.00 to $1.05, which is lower than our prior guidance by approximately $0.08. As I previously discussed, a portion of this is driven by the noncash hypothetical liquidation tax revision at certain US wind businesses, and the pending sale of our Oman and Pakistan assets, whose earnings are now reported in discontinued operations.

In addition, lower demand in the US wholesale market, the effective stock prices on Hungary's operations, and rising business development costs all negatively impact earnings as well. These items are somewhat offset by favorable foreign currency impacts and the early stages of contributions from 1500 megawatts coming online in new projects by year-end.

When compared to 2009, the outlook for this year from an operational perspective is roughly in line with prior trends. That said, certain benefits that we realized in 2009 will not recur this year, which by definition negatively impact year over year comparables.

For example, the earnings of $0.12 from our Kazakhstan performance bonus will not recur in 2010 or '11.

Likewise, the significantly lower effective tax rate we saw in 2009 of approximately 26% is expected to return to a more normalized mid range of 30 -- in the 30s in 2010.

We also believe that the merchant plants in New York and Hungary will continue to be impacted by lower demand and spot prices.

In addition, we expect weaker demand for our North American utility, IPL, through 2011, leading to negative growth rates.

Finally, we will spend more on business development as our efforts to advance our development pipeline accelerate.

Now turning to 2011. Continuing the trend of stable and growing cash flows, our cash flow metrics are at or above the prior guidance. That said, adjusted EPS is expected to be similarly impacted by nearly the same set of drivers as 2010 but offset to a greater degree by 800 additional megawatts coming online by year-end. As a result, 2011 adjusted EPS expectations decreased by $0.05, from a range of $1.20 to $1.30, to a new range of $1.15 to $1.25.

Barring any significant macroeconomic shift, what we would have projected to be favorable currency and commodity moves in 2011 are expected to be largely offset by $0.12 headwinds related to lower capacity fees and lower demand at several of our generation plants worldwide, particularly in Hungary.

Similar to 2010, we also lowered our expectations by $0.04 again, due to the impact of the noncash charge related to taxes for the hypothetical liquidation of non-controlling interest at several of our US wind businesses, as well as lower production at our wind facilities in Texas, due to curtailment and lower wind resources.

We also anticipate $0.03 higher spending for business development costs.

And finally, we are excluding for now the previously projected $0.03 earnings uptick from Campiche, our 270 megawatt project in Chile, where we have temporarily suspended construction pending resolution of a dispute over the environmental permit there.

As I mentioned earlier, our guidance does not include any dilution or benefit related to the CIC equity transaction. Our plan is to deploy these proceeds into value accretive development projects or acquisitions once the transaction is closed.

While this will not all occur overnight, the expected dilution in 2010 ranges from $0.07 to $0.09. The low end of this range assumes either a $1.5 billion debt pay-down or a midyear investment of $500 million in a mid-teens return project, with the remaining $1 billion split evenly between cash and debt pay-down.

The upper end of the range assumes to only pay down $500 million in debt in the near term and retain the remainder in cash for investment in our pipeline of development projects or strategic acquisitions.

In summary, 2009 was a good year. We achieved our financial goals while at the same time laying the foundations for continued growth in 2010 with a stable and cost-effective platform on which to scale. We are comfortable that we have the right people and plans in place to ensure the highest levels of execution as we pursue these investments.

With that let me turn it back over to Paul.

Thanks, Victoria. As we look out into 2010, our priorities remain similar to those that we outlined a year ago.

One, strengthen liquidity and cash flow generation so as to be able to execute on investment opportunities.

Two, successfully build out our remaining construction pipeline.

And three, deploy our liquidity to value accretive M&A and greenfield development opportunities.

Let me now talk a bit about our construction program. As I mentioned earlier, we've already completed 1300 megawatts of our construction pipeline, but we also have another 2,000 megawatts that will come online by the end of 2011. This capacity includes wind projects in Europe and China, solar projects in Europe, coal projects in Chile and Bulgaria, and hydro projects in Latin America and Turkey.

One project that is not included in the above numbers is our 270 megawatt Campiche project in Chile. Work on this project remains suspended as we continue to seek resolution of the permitting issues that we discussed during previous calls. Since our last report the government of Chile has resolved the zoning issue related to the project. We subsequently applied for a new environmental permit in January, which was approved on February 22.

While we are encouraged by developments, there are a few additional conditions to resolve before we can restart construction. These include an appeal period, as well as securing final construction permits. Once we have all the permits, we intend to recommence construction.

Now I'd like to give you an update on our view of the growth opportunities and some related points. It's worth noting that many of the markets where we have been developing greenfield projects have continued to see increased demand for power, unlike here in the United States. We also continue to see high growth rates in demand for renewable projects globally. Because of this we continue developing projects in both renewable energy and in geographic areas with continued needs for new thermal generating capacity.

For example in Asia we have a pipeline of more than 4,000 megawatts, including two 1200 megawatt coal fired projects in India, a 1200 megawatt coal fired project in Vietnam, and an expansion of our 600 megawatt Masinloc facility in the Philippines. We are also pursuing wind, hydro, and solar projects in Asia, which is becoming an increasingly robust market for renewable energy.

We also continue development of other renewable projects globally due to the various incentives in different countries.

In wind, we grew our pipeline to 1200 megawatts of projects in advanced stages of development in the US, Europe and China. And AES Solar Energy, our joint venture with Riverstone, which has an advanced pipeline of 600 megawatts focused on Europe, and now to an increasing extent is looking towards the United States and India, where markets are improving due to increased levels of government support.

We currently have a total of over 9,000 megawatts of greenfield projects, both renewables and thermal power, in advanced stages of development. Of this, the majority of the opportunities are in Asia in terms of location, and 42% are in renewable energy sectors, in terms of fuel types.

In addition, once we have the capital available from our asset sales and the CIC transaction, we will be positioned to pursue select M&A opportunities, where the cash flows and earnings will be more immediate than greenfield construction projects.

In terms of our pending equity transaction with CIC, in which it will invest $1.58 billion in exchange for an approximate 15% interest in AES, we are making good progress with securing the required regulatory approvals. We will keep you posted as we -- on our progress in the coming weeks.

And regarding the letter of intent with CIC to purchase an interest in our wind business, we are also making good progress. Our expectation is that a transaction could close during the second quarter of 2010. If successfully executed this transaction would result in an investment of $571 million, in exchange for a 35% interest in AES Wind Generation.

I do want to point out, however, that the LOI is nonbinding and subject to due diligence, which is currently ongoing.

In closing, we had a good year in 2009. We did what we set out to do and have positioned ourselves to capitalize on attractive opportunities in our industry globally. We have a strong pipeline of projects in construction and in development. We'll also have the capital needed to execute our greenfield program and selectively pursue attractive M&A opportunities. And we will be keeping you updated as the various opportunities progress over time.

Thanks again for joining us today, and now I'll open up the call for questions and answers. Julie, would you please open up the line for questions?

(Operator Instructions). Lasan Johong, RBC Capital Markets.

On the guidance, Victoria, I'm a little puzzled. The adjusted EPS, it looks like there's a little bit of apples and oranges going on here. It looks like the new guidance contains the wind write-off and Oman, Pakistan asset sales, while the old guidance at least did not contain the wind write-off. Is that right?

Yes. And that's a -- it's the charge that we took in the fourth quarter and that we have also now applied to '10 and '11, which will reverse in '12 and beyond. It's a noncash impacting adjustment that we were not aware of at the time we gave the guidance in May.

So then is it safe to say, adjusted for these kind of one-times on an apples and apples basis, that your guidance is either flat to maybe even being slightly up?

Yes.

Okay. That's what I thought.

Second, strategically -- Paul, you'd mentioned a while ago that you would like to see a measured growth balance between the US, or developed countries in general, versus emerging markets in developing countries. And we agreed that it would be very difficult to do greenfield projects in the US or in developed countries that would keep pace with that balance in emerging markets growth. So we concluded that you'd be looking at an acquisition in developing -- developed countries. Is that still the case? And are you looking for something in the US or Europe?

Well, I think the -- I mean the way I think about it is, we've got a pretty strong balance in the US and Latin America. And the places where we could probably add more to get a better balance geographically would be in Asia, that part of the world.

I think we are looking for M&A opportunities wherever we think we can see good value, whether that be the United States or Asia or somewhere else. But I do think also what -- as I see us developing, what's really happening is, the real opportunities for us are in renewable energy in the developed markets, Europe and the US. We are seeing that with wind and solar.

And we are seeing, in terms of thermal power, the traditional coal fired, gas fired power plants, the biggest demand for that is coming in the developing markets, particularly in places like Asia.

We are also seeing in Asia the ability to get some -- and Latin America -- to get some small, medium-sized hydro plants done, which are renewables.

So I think you're going to continue to see us do more in the developed markets in the renewables sector. We are seeing a lot of good growth in wind. That's one of the reasons why we wanted to pursue additional capital from CIC for that investment, because there's just a -- it's going to be a big consumer of capital for us -- in addition to solar.

In solar we are just seeing a lot of opportunities, and the US market has really picked up to where we believe there are attractive deals out there now with utility scale PV projects in the United States. We are already seeing that in Europe, and we have projects in construction there.

The renewables sector, I think the other thing we saw over the last year was how that has now expanded beyond the borders of the developed world. So we're seeing the platforms we set up here in the US and Europe with respect to renewables are now -- we are able to expand those to the other countries. I think it's very small right now, but I would expect over the next five years you're going to see that expand considerably. So I think that's going to help us with respect to growth also.

But I do think we are looking at a -- just in terms of the greenfield versus M&A, it's probably going to be a balance, I would say 50/50, between greenfield and M&A opportunities. Again, it's going to depend on the returns we can get, but that's how I would see it playing out, so it'll probably about half and half in terms of deploying new capital.

So you're suggesting maybe you will forget the balance for a while and just accelerate where you can; is that kind of what I'm hearing?

Well, I think the balance is going to drive us to do a little bit more in Asia anyway. I think the markets are -- and where the opportunities are will be probably growing more rapidly in Asia than the other parts of the world.

And in terms of -- it's going to depend more on the opportunities. I don't feel a need to go out there and buy something in the United States to maintain the balance, for example. It's more going to be determined by -- are there good deals out there? Are there good returns? And is there a strategic benefit in doing something? But if we don't see the returns and risk profile matching, I don't think we have a need to go out and pick up more in the United States in the near-term.

Oh excellent. One last question. There's a big push in Chile to go -- particularly in the northern grid -- to go toward geothermal. They've been handing out licenses it seems like left, right and center. Are you at all concerned that your investments in Chile would be diluted from this geothermal opportunity? And would you be looking to participate in that boom?

No, we are not (multiple speakers) we are not concerned about the geothermal expansion in the [thing] in northern Chile. We are, as you know, looking at geothermal as a potential area in the future.

But I think one of the things we're finding is because we -- our platform there, which is thermal generation, but we have a good portfolio of contracts and customers. There could be a nice fit for some of the geothermal plays to team up with us to sell some power. But they need more power in Chile, and I think the geothermal will not be a major force in terms of changing the dynamics of that market.

I see. Thank you very much.

Maura Shaughnessy, MFS.

Just in terms of the CIC deal, as I recall -- and maybe I am incorrect on this -- that it was supposed to close in the first quarter. Can you talk about if that is delayed, and more importantly, in terms of the places that you could actually put that cash?

The expectation was, in Brazil for example, that the Brasiliana situation wouldn't likely come up in an election year. But now I'm hearing otherwise, and that that actually may be addressed this fall -- this spring. So maybe just talking about the use of cash there?

And then my second question is, the Maritza plant is supposed to be up and running the second half of this year. Can you just give us an update on the progress there? Thanks.

Okay, in terms of CIC, I still think it's going to close in the first quarter. My expectation would be it would close sometime next month. We don't see anything out there that should cause it to go beyond that, but that would still be our current thinking.

I'll have Andres respond to you on Brasiliana, because he's actually been down in Brazil recently.

I think on Maritza, the construction there, we've continued to have some construction delays. We still think it's going to be brought online the second half of 2010, but it's probably the latter half of 2010 -- I'm sorry -- the latter part, maybe the last quarter of 2010 before that comes online. But we factored that into our guidance. But we've continued to have some construction delays there, which have been overcome in terms of getting things back on track and getting the thing built. But it's been a challenging place to get the project built.

Let me have Andres just answer your question about Brasiliana.

Regarding Brasiliana, there's been some noise in the Brazilian press regarding what would happen to BNDES' stake. There is nothing official happening at this point, and as you know, we have a line of credit, a local line of credit in reais, should this -- something occur like the auction itself. But I think there's been a lot of noise in the press, and coming from all angles. I think basically we have a -- Brasiliana is doing very well. It's been a very interesting asset.

One thing I will say more about that is that the -- with the CIC proceeds there is a strong desire on the part of the government to expand generating capacity in the country. And one of the things we've committed to say yes and through Brasiliana is that we would like to be doing more investments in the country and turn that back into a growth platform. So we've communicated an interest in helping to get that resolved as quickly as possible. We now have the capital that makes it a lot easier for us to do that also.

And are there any other things that you could think of that may show up as -- this year that -- like that aren't obvious to me right now? In (multiple speakers) [terms] of putting that cash to work quicker than (multiple speakers)

That's our -- our goal is to put it to work as quickly as we can but to do it sensibly. And we are looking at a number of opportunities, but I wouldn't highlight anything at this point until we get a little bit further down the road.

We do have -- in terms of the greenfield opportunities, we've got a handful. I think we've got some additional wind projects, some more solar projects that are going to be some significant uses of capital, but they are greenfield deals.

We have the Vietnam project and the India project, but they probably don't go into construction -- my guess is very optimistically, end of the year. More likely it's the first quarter of 2011, but they would consume some capital.

And then it's M&A opportunities, but those are really just difficult to pin down and to make much progress on until we can get a little bit further down the road. But we will keep you posted as we -- obviously as we can get to the point we can disclose that.

Okay. My last question -- sorry for the elongated questions. The IPALCO situation. Could you just give us an update as to what's been going on with IPALCO and the outlook for that asset and the returns that IPALCO has been generating recently?

Sure. Ned Hall is here. He heads up our North American business as well as the wind business. But he is most familiar with IPALCO. I'll have him comment on that.

We -- as Victoria highlighted in her statement, on a gross basis we were down about 6% in 2009. Weather-adjusted, that's about 4%. And we anticipate that will stay flat for this year and have some optimism that will come back over time.

What sort of trailing returns are you -- trailing ROE are you getting out of IPALCO right now?

We don't have that information right here. It's lower than it has been in the past. I know that just because of the decline in the economy.

And I -- this is Ahmed. I think in -- as you may know, in IPALCO we have a cap on net operating income, which is about $190 million, and we were below that cap.

I'm sorry, what did you earn in '09?

It was well below $190 million. I think it was about $171 million to $180 million. So we were below that cap (multiple speakers)

Great, thank you very much.

Brian Russo, Ladenburg Thalmann.

Could you just talk a little bit more if you know about your project financing market and especially with the instability of global markets, is that impacting your development pipeline of projects? Maybe if you'd just elaborate on what you're seeing out there.

Yes. I think we -- and we've seen this really over the past year, what we are finding is for good quality projects the market is still there. It's more expensive; the terms are more difficult, but generally it's there. It's harder, but for good projects it's there.

Also we are finding for renewable projects it's strong. I think there's a strong desire, particularly in places like Europe and the US, for banks to get involved in renewable projects, so that's been fairly robust.

But I would say we've just seen -- it's a more -- more difficult in terms of pricing and terms, which has affected returns slightly, but not in a major way for the larger projects. So for -- I think it's more difficult for non-established players getting into the business, and it's probably -- the people like us that have been around and have substantial scale are probably doing better, just because of the banking relationships we've set up over time.

Okay. And then can you just comment a little bit more maybe on your EPC contracts, or just kind of like the general construction risk you have for cost overruns or time and budget overruns? Is the risk switched to the contractor? Or what kind of inherent risk does AES have?

It's going to vary by project, but generally we set up these contracts to have a fixed price and fixed schedule right off the bat. So we transfer all the risk in terms of that to the contractor.

The -- you also will put in place some limits on those damages that you might have with respect to schedule and performance. Those damages might be, I don't know, anywhere from 20% to 25%, 30%. It depends on the contracts. But typically we will pass that on.

Once you get beyond that point, however, there is a limit on the cap, so you start to get to a situation where that is not a very effective motivating tool.

What we have seen in the EPC market though is, if you go back two, three years ago, it was a very competitive market, competitive for people like us, but the contractors had more of the power. I think what we've seen with the slowdown is, there's a much stronger desire for contractors to get back into the business, and the terms are shifting a little bit more back to what we consider to be reasonable and more balanced terms. So that's been one positive impact of the slowdown here is it's put that back into balance a little bit for us.

Okay. So for example the Maritza project, you mentioned some construction delays. That has minimal financial impact to AES? The risks are all pushed to the contractor?

I think that's one where we have seen the delays have gone beyond the liquidated damages, so we've -- the liquidated damages caps. So we've had to go out and renegotiate that to keep the incentive on the contractor to keep that one moving forward. So we've lost a little bit of the net present value, but it's an attractive project, and it's still very NPV positive.

But we've factored all that into our guidance going forward. But I would say we've -- on -- around the edges we've lost a little bit of value, but not anything that I consider to be material.

All right. Just would you mind repeating the impact of the CIC dilution? I believe you said $0.07 to $0.09, and that kind of translates into a variety of near-term debt reduction possibilities. Would you mind just reiterating what you said earlier?

Sure. The -- what we had given, and essentially was the same range we had provided with our 8-K at the time we announced it in November. And what we're trying to do is to give a view into the short-term uses as we look out into where we might invest, and/or through acquisitions.

But in the short term, when we look at 2010, the impact will be $0.07 to $0.09. The low end of that dilution range, the $0.07, would assume obviously either the $1.58 billion debt pay-down, or a midyear investment, so July/August, of $500 million in a mid-teens type return project. So sort of middle-of-the-road on an investment basis. But then we would also take the remaining $1 billion and split it between cash and debt pay-down.

On the upper end we would assume we would only pay down about $500 million and retain the remainder of cash, assuming we needed it for investments and/or strategic acquisitions in the short term. So that kind of [balances] (technical difficulty) the types of things in the 2010 time frame we would do with the cash.

Just one last question, just the return on invested capital, can you just kind of compare the wind projects and the renewable projects versus kind of solid fuel baseload type projects? And then maybe compare and contrast the length of development time and construction time?

Yes. It varies by project, but I think we've seen returns on wind projects that could be anywhere from 13% to 15% on our invested capital, our equity investments in a project. Some cases they've ended up being a little bit higher. A lot depends on where the wind resource turns out, how it turns out to be relative to projections, but I would say that's kind of the range that we've seen.

With solar projects, with our joint venture with Riverstone, we've set a hurdle rate of -- I believe it's north of 15%. We're looking for 15% to 17% type returns for those projects. We've been able to find those in Europe. We also think with the incentives in place, we may be able to get some solar projects that will come into that range in the United States.

What we've really focused on is, how can you reduce the costs of building those plants? What we've found is that the -- one, that the cost of panels has been coming down, but also the cost of constructing those plants has -- the actual construction costs, putting them together, there's a significant amount that we think could be optimized. So Bob Hemphill and his team have spent a lot of time trying to figure out, how do we do that? But we think those returns can be in the 15% to 17% range, at least for right now.

And in terms of development time, they're -- the wind projects are probably shorter development times than the thermal projects, but they can still take a long time with respect to wind studies and getting the environmental permits. Solar projects are a lot easier, they can get done more quickly in terms of permits, just because they don't have as much impact. Also in terms of getting them built, because you can get those things built in less than a year. So when you take that all into account, renewables have a big advantage in terms of the time you start spending money to the time you get it back. But particularly the solar projects, we're seeing that.

Great, thank you very much.

Ali Agha, SunTrust Robinson Humphrey.

(inaudible) Paul, just to be clear on CIC, when you talk about the short-term implications and you laid out the range, that factors in all the current opportunities that you're seeing on the table right now? Is that correct?

The range that was given is relative to what we would do in the short-term pre (multiple speakers) an investment in it. So we were trying to get from a 2010 perspective where the -- what uses of cash might be. Obviously, if we do a project or have an investment which was the $500 million midyear and the mid-teen return, the implications of that would be seen in '11 and '12 and beyond.

Right. But I guess what I was saying was, that's a hypothetical assumption. But is that also actually (technical difficulty) portraying what the opportunities currently are on your plate?

I think in terms of returns, it's an accurate reflection. In terms of the timing, it's a little bit uncertain.

Okay. And can you remind us, how much capital have you invested in renewables so far? And what is the bottom-line contribution from renewables in '09? And what are you expecting in '10 and '11 in that guidance that you've given us?

Let me have Ned talk about the wind piece, and we'll go with what he -- if you (multiple speakers) the numbers.

(multiple speakers) We have invested about $940 million in wind to date, in equity.

And the bottom line? How much of that was in your EPS in '09?

What was our earnings from wind in '09?

Yes.

I think it's about (multiple speakers) $[30] million.

On the EPS I think it's, given the tax penalty, it's more cash on cash returns. We are earning about over 12% return, because it's more -- the dividends that we get, it's about 12%, not (technical difficulty) the [12]% range, if you think about on wind.

Right. But I was thinking, factoring in the tax savings, if you flow it through the income statement, what was the EPS impact?

So why don't we do the -- just do the math, and so we don't give you the wrong number and give everybody else that wrong number, we can do that and get it to you.

In terms of solar, I believe the number is roughly -- we've committed about $340 million. It's not all operating now of our total $500 million commitment for the joint venture. In that business, because it's very development-intensive, is spending a lot of money in development, but that's something that's going to reverse itself as these projects come online. But right now we are in a -- like any other development company, it's mainly development spending, projects are coming online.

So the EPS contribution for solar is probably going to be breakeven this year, but as we get more projects coming online and then we scale back the development spend, that will become much more positive.

But we'll try and get that for you and to other people as we -- we'll just make sure we have that more accurately determined.

The other caveat just on that is that we don't currently run them as standalone businesses, so we don't have fully allocated P&Ls at this point. We will try to give you a rough guideline on that relative to how we look at it, but until we get to that point in terms of our segment reporting, it will not be as clean as the rest of it.

I was just thinking, with $1.2 billion plus invested, that's a pretty significant investment, and presumably hopefully we are going to start to see the bottom-line implications soon as well.

Yes, that's the plan, Ali. As Victoria mentioned, we will be disclosing that, and -- but one thing we have to -- I think you should keep in mind is, about 300 megawatts, is in construction, so you will not see that during 2010, but yes, going forward you'll see that, and we will be disclosing those numbers going forward.

One other question, Paul. When you announced the CIC transaction back in November, obviously the goal is to put that cash to use in new projects, etc. As you look at the market today, understanding that it's only been a couple of months since the announcement, but has your view of the market opportunity changed any? Are you seeing more opportunities? Are you seeing better returns? Or has it been fairly consistent or constant with what you saw when you announced the deal?

I think what's surprised me is that the -- I would say with the deal flow that has come to us, now that people recognize we could have capital, is increased. I think the returns are consistent with what we had been expecting, because we've been out there looking at asset sales and seeing that prices, except in a few places like the Middle East, it didn't make sense to sell, so I think the returns are about where we expected.

But I think there are a number of opportunities out there where there are companies that need capital, and I wouldn't call them distressed, but they're going to have to get capital to grow, and I think the opportunities are attractive for us. We are seeing more of those just because now people recognize we have CIC's capital coming in.

Plus we also have CIC as a potential partner in some of these transactions if they have adequate size. They've indicated a strong interest in co-investing with us in transactions where there are opportunities.

So I do think there are going to be a lot of good opportunities out there, and it's just a matter of us being very selective, taking our time, and carefully deploying that money, because there are good opportunities out there that we can transact on.

Paul, just related to that, should we expect once the transaction closes that there will be some specific projects that you'll highlight for us in terms of where you think this money is going to go?

Yes. You should expect that, and of course, like any other development pipeline, you have a lot of uncertainty, so what we'll probably do is lay out the ones we think have the highest probability, particularly greenfield. The M&A stuff is a little bit trickier because you can't really talk about that too actively until you can disclose it to the whole world.

But our intent would be to go through and tell you a little bit more about what we are pursuing, what looks promising, and to handicap those for you so you can take a look at it and get a better sense as to where things may go.

I just want to remind you that if you think about this advanced pipeline of development projects, with 9,000 megawatts in advanced development, the nice thing is, we can be very choosy about where we put that capital. So we have a place for this capital to go, but that's over the next -- say the next 24 months. What the real upside here I think is in the ability to find some good M&A opportunities where we can maybe accelerate the deployment of the capital.

But like I said, we're just going to be extremely cautious and careful to make sure we are doing that where we can get good returns.

Gregg Orrill, Barclays Capital.

Great. Thanks a lot. I was wondering if you could come back to the guidance and the -- can you give the EPS impact of the change in guidance related to the New York and Hungary merchant power business?

We have actually -- I'm not sure that we've broken that out specifically, but do you have the (multiple speakers)

Sure. I think -- this is Ahmed, Gregg. Hungary is -- probably in 2010 is roughly $0.06, and in 2011 it's about $0.08.

How about New York? Do we have that number?

New York is slightly bigger than that. I think that you can think about I would say roughly $0.07 or $0.08 in 2010, and about $0.09 or $0.10 in 2011.

I'm sorry -- that's what they contribute? Or that's the change in (multiple speakers)

I thought you said from '09 to (multiple speakers)

The drag from (multiple speakers)

The drag.

What -- okay. That's the drag versus --

Yes.

-- previous --

Guidance.

Yes.

-- guidance. Got it, thank you.

(multiple speakers) Why don't we take one more question, and then we'll wrap up the call.

Dan Lifshitz, Fir Tree Partners.

Just some questions on I guess some of the growth opportunities. First thing is in terms of the increased expenditures on business development, does that indicate some more sort of tangible progress in accelerating the pipeline, the fact that you're spending more money on things?

And then also, as far as the Vietnam and India projects, what are the key hurdles, whether it's regulatory, whether it's financing, that you need to get past to move forward on those?

Okay. Yes, I think the -- well, let's just talk about the -- in terms of the -- with those two projects we've got the -- we are spending more money, and that's primarily because if you remember back to last year, we slowed down development because we weren't sure we could have capital. So we basically kept the -- I used to say we want to keep those projects moving forward, but they're somewhat on life support because we didn't want to rush them through. Now that we have the capital, we can move them more quickly.

The key things -- let me start with Vietnam -- we need to get, the critical things are to get the power purchase agreement signed with the government, which we believe should happen in the next couple of months. But the basic terms have been agreed. Then the next key item there will be getting the financing for the project, which we think will probably take into the early part of 2011.

I think with India, it's been a project -- it's a mine-mouth project. We -- the key items there are to get the final permits and land rights that we need and to get the coal allocations to cover coal we might need during the construction, early parts of the project before the coal mine is finally developed. And then it's going to be the financing of it.

We think in both cases the financing is doable. I think it's the one area that we've -- we are going to test out very quickly, but it's really getting -- probably in the second half of the year we will start that financing process in earnest as we start moving those projects forward.

The sense we get in India is that projects are getting financed and the domestic financial markets are very strong and should not be a problem getting the financing for India.

I think with Vietnam it's going to depend on the multilateral sources of capital that would be available for this project, or whether if we go with Chinese equipment there would be Chinese financing available for the project. So a couple of different ways we would be looking at that.

We are also expecting that Vietnam will take on a partner for that in Asia, somebody who would also -- that would probably help with getting the financing, either from the export credit agencies, whether it be Japan or Korea, or possibly China.

Great.

Okay.

Well, thank you everyone for participating in our earnings call today. If you have any follow-up questions, please don't hesitate to contact either Chris Fitzgerald or myself in the investor relations group. For any media inquiries please contact Meghan Dotter.

Thank you very much and have a nice day.

That concludes today's conference. You may disconnect at this time.