愛依斯電力 (AES) 2010 Q2 法說會逐字稿

Welcome, and thank you for standing by. At this time, all participants are in a listen-only mode until the question-and-answer session of today's conference. (Operator Instructions). I would also like to remind parties that this call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Paul Hanrahan. Thank you. You may begin.

Okay, thanks. Thanks, operator. Ahmed, why don't you go ahead and open up the call?

Thank you, Paul. Thank you, and welcome to AES Corporation's second-quarter earnings call. We appreciate you being with us this morning. Joining me today are Paul Hanrahan, our President and CEO; Victoria Harker, our Chief Financial Officer; Andres Gluski, our Chief Operating Officer; and other senior members of our management.

Before we begin our presentation, let me remind you that our comments today will include forward-looking statements which are subject to certain risks and uncertainties. For a complete discussion of these risks, we encourage you to read our documents on file with the SEC. Our presentation is being webcast and slides are available on our website, which you can access at www.AES.com under Investor Relations.

With that, I would like to turn the call over to Paul Hanrahan, our President and CEO.

Okay. Thanks, Ahmed, and good morning to all of you joining us for our call today. This morning, I would like to focus my comments in three areas -- first, the performance for the quarter; second, an update on our construction program; and third, an update on our growth opportunities and a discussion about our general approach to capital allocation, which I want to be sure we continue to communicate to investors on a regular basis.

First, our operating performance for the quarter -- in line with our performance last quarter, our focus on operations resulted in improvements in nearly all of our financial metrics. For example, our proportional gross margin increased 19% while proportional operating cash flow also increased 14%. These improvements were reflected in our adjusted earnings per share of $0.23, despite a $0.04 impact of a higher share count associated with raising capital to invest in value accretive opportunities.

This quarter, we benefited from stronger economic growth and increased demand for electrical power in Asia and parts of Latin America such as Brazil. This was partially offset, however, in the US; we saw moderate demand growth and lower pricing and dark spreads for the merchant portion of our generating fleet.

Now I will turn the call over to Victoria to provide a more detailed review of our financial performance, and then I'll talk about the construction and development which will be driving our future earnings growth. Victoria?

Thanks, Paul, and good morning, everyone. As you've already heard, the second quarter of 2010 continued to reflect the favorable operating results and higher demand in several key markets.

Proportional gross margin improved quarter over quarter on higher volume and rates in Latin America and Asia, as well as favorable foreign exchange, primarily in Brazil. This growth in gross margin translated into higher proportional operating cash flow, which increased by 14% compared to the second quarter of 2009.

Adjusted EPS of $0.23, while down $0.01 compared to the same quarter last year, is actually relatively strong, reflecting the strength of business operations, particularly in light of this quarter's higher share count and higher effective tax rate, as well as the fact that there was a $0.05 one-time gain in the same quarter of 2009 due to a construction claim settlement that contributed to earnings then.

Now, let's discuss results for the second quarter in greater detail. From a macroeconomic perspective, our trends this quarter are similar to what we saw in first quarter. Volume growth continued unabated in key markets in Asia and Latin America. For example, demand in the Philippines as well as Brazil continued their upward trajectory with 12% and 5% year-over-year improvements, respectively, with GDP growth driving both power demand and new construction starts in these markets.

Volume also increased in Colombia due to higher water inflows at [Chivors] Reservoir, while Panama experienced higher dispatch volumes as water conservation measures there eased during the same period.

In addition, higher prices due to the final tariff settlement in July of 2009 continued to increase earnings at our Latin American utilities. Our generation plants and other geographies also benefited from higher prices due to factors such as system-wide supply constraints in the Philippines and Panama, and the dry season in Colombia. These beneficial trends more than offset challenges from our compressed margins in North America, where our coal-fired merchant plants were impacted by lower gas prices again this quarter, leading to a 36% decrease in energy margins there.

Foreign currency exchange rates, while somewhat mixed, also moved overall in our favor when compared to the second quarter of 2009. For example, the Brazilian real and Colombian peso appreciated 16% and 15%, respectively, while the euro and the Argentine peso declined to 6% and 5%, respectively.

Our consolidated gross margin was $982 million, an increase of $179 million or 22% relative to 2009 with favorable foreign currency exchange rates accounting for $54 million of the uptick. Even excluding foreign exchange impacts, these results were considerably higher than the second quarter of 2009 by $125 million, driven by favorable volume and rate in both Asia and Latin America. On a proportional basis, we earned $572 million of gross margin, an increase of $93 million or 19% over 2009, driven by Asia generation and Latin America.

During the second quarter, tax expense was unfavorable as our effective tax rate increased from 19% in the second quarter of 2009 to 48% in the second quarter of 2010. The quarterly effective rate this year is unusually high, due in part to the increased tax expense associated with the $115 million gain on the sale of our equity investment in CEMIG, a Brazilian utility.

In addition, the year-over-year rate has been negatively impacted throughout the year by the 12/31/09 expiration of a favorable US tax law related to the treatment of certain non-US transactions.

As we've indicated in prior calls, while renewal of this legislation has been pending for some time, we remain uncertain about it at this time. Although we have had positive operating results help to offset this for the first half of the year, if not renewed, this would create an $0.11 drag on earnings for the full year. We will continue to monitor the legislation as well as continue to work on mitigating its potential impact and update you accordingly.

Given the number of other one-time items in the quarter, we've provided a bridge from our second quarter of 2009 adjusted EPS of $0.24 to this quarter's $0.23 to help identify the drivers between years on slide 6 of the earnings presentation available online.

As a reminder, during the same quarter last year, we booked a $0.05 after-tax gain as a result of a construction claim settlement at one of our European subsidiaries. In addition, that same period last year benefited from a tax restructuring at a subsidiary, which lowered our effective tax rate for the $0.06 per share impact when compared to the second quarter of this year.

Similarly, there were several other significant transactions recorded during the second quarter of this year which largely offset each other. These include a negative $0.03 realized foreign exchange transaction loss triggered upon the repatriation of our euro-denominated Brazil wind loan; a $0.02 loss on the write-off of previously capitalized costs that were incurred in connection with a potential transaction involving our wind business; and a $0.06 gain, net of tax, from the sale of our equity investment in a Brazilian utility, CEMIG. None of these items impacted operating cash flow for 2010, however.

In summary, when you consider all of these factors, the take-away for the quarter is that there was a favorable trend again this quarter in earnings that is consistent with the growth in gross margin and cash flow, driven by continued contributions from the Latin American and Asian components of our portfolio of businesses.

Now, to address cash flow, on a consolidated basis, our operating cash flow increased $210 million over last year to $747 million. This increase was the result of higher gross margin and favorable working capital in Latin America and Asia. On a proportional basis, our operating cash flow also increased $44 million over last year to $349 million.

Likewise, free cash flow has increased too, up $180 million to $588 million, driven by higher operating cash flow, offset partially by higher maintenance CapEx. On a proportional basis, our free cash flow increased $21 million to $232 million, driven primarily by our Asian businesses.

Now, turning to our full-year guidance, our financial and operational performance in the second quarter was very similar to the first quarter. The key macroeconomic and business drivers remain relatively consistent between quarters, and are building toward our full-year guidance expectations. Through the second quarter, we've already achieved 50% or more for each of our guidance metrics.

We expect to remain on pace for the remainder of the year and have updated the commodity price and foreign currency forward curves as of June 30.

Diluted EPS from continuing operations has been negatively impacted by $0.03 to $0.80 to $0.85 range to reflect the unrealized foreign currency losses from the second quarter. Given the non-cash nature of these charges, there is no impact on operating cash flow or to our adjusted EPS metrics.

Before I hand the call back to Paul to discuss our progress on our pipeline of investments, let me first touch briefly on our overall liquidity, which will allow us to pursue those options. Our parent liquidity remains at historically high levels, at $2.2 billion, as compared to $1.3 billion as of June 30 of last year. [With] $232 million from the subsidiaries during the quarter, net of corporate overhead and interest expense, as well as $60 million in net proceeds from the sale of our Pakistan assets.

These cash contributions set us up well to make sound capital allocations during the quarter. For example, as previously mentioned, we prepaid $500 million of debt as a temporary use of liquidity. We also funded $166 million of investments related to our ongoing construction and growth initiatives. Finally, in June, we also announced a $500 million share buyback program.

As you saw referenced in the 10-Q, during the quarter, our revolver commitments stepped down by $180 million as anticipated under the terms of our existing credit agreements. However, also during the quarter, we refinanced our revolver, and increased the overall credit capacity from $605 million to $800 million as of July 29.

Under the terms of the new revolver, we also extended the maturity date from July 2011 to January 2015 and lowered pricing by 50 basis points.

Beyond these economic terms, we also obtained amendments to certain covenant provisions which will provide additional business flexibility. Some of the major benefits of those changes include an increase in the allowable first lien debt at AES Corp. from $1.75 billion to $3 billion, and an increase in the measure which allows restricted payments to grow as parent cash (multiple speakers) grows. We were very pleased with the terms of the revolver refinancing and for the ongoing confidence in AES provided by our banks.

Many investors have asked us about the possible uses of this cash. We continue to exercise the capital allocation strategy focused on the greatest return of shareholder value. In addition to the share repurchase program just discussed, we also prepaid $500 million of debt during the second quarter, including $400 million of second-lien parent debt and $95 million of non-recourse debt at one of our subsidiaries in China. This discretionary payment not only adds more debt capacity, but also saves approximately $45 million in annualized interest expense.

During the quarter, we also announced the acquisition of the 1,246 MW natural gas-fired Ballylumford plant in Northern Ireland for $150 million, which will generate earnings for us beginning in 2011.

We're also considering the pay-down of parent debt of $214 million, which is maturing through 2011. Having said that, if other value accretive opportunities present themselves, we may refinance.

Other examples of these other types of opportunities include the $1.4 billion of the advanced development pipeline we've discussed previously, as well as M&A and the remainder of the 9,000 MW advanced development project.

In summary, operations continue to improve over last year and we are delivering on our guidance metrics. Our credit metrics remain strong and we are investing our increasing liquidity in the best available options, ranging from stock repurchase, debt retirement, M&A, or greenfield development.

With that, let me turn it back to Paul to provide additional commentary on our development pipeline.

Okay, thanks, Victoria. Now what I'd like to do is, before talking about development, turn to the progress we are making on our construction program.

And we're making good progress with construction. In the second quarter, we completed two wind projects with combined capacity of just under 100 MW in China. Both of these projects in which we own 49% stakes, were completed on time and on budget. That leaves approximately 1900 MW in aggregate in construction. Of this amount, 1,676 MW is expected to come online through 2011, in line with our previous estimates.

We expect 793 MW to come online before the end of this year, including the 670 MW Maritza East coal plant in Bulgaria. This plant has already achieved full-load operation on the first unit, generating over 330 MW. And we have successfully fired the second unit on oil with current schedule for both units projecting to be completed by year end.

We also have another 883 MW of capacity in aggregate projected to come online during 2011. This includes our 520 MW Angamos coal plant in the mining region in the north of Chile, where we successfully hydro-tested the boilers and are on schedule to fire coal in the coming months, and will meet our commitment of finishing the project during the second half of 2011.

Additionally, our 220 MW Changuinola hydroelectric project in Panama has completed approximately 80% of the tunneling required for the powerhouse. Hydro-testing of the turbines has been completed, and progress continues with construction of the damn. We expect the Changuinola project to be completed by the first half 2011, as scheduled.

I'm also pleased to report that we have reached the significant milestone in resuming construction of our 270 MW Campiche coal plant in Chile. As you recall, construction was suspended following a court ruling against the Chilean environmental authorities, which invalidated the project's environmental permit. The new environmental permit was subsequently issued and recently [Hadar] reached an agreement with the local municipality and other groups opposed to the project. While final construction approvals are still pending, we believe construction will resume later this year with completion expected in the second half of 2012.

Next, I'd like to talk about our capital allocation program. As you know, we raised $1.6 billion from CIC, China Investment Corporation, in March of this year. We enter 2010 with a strong development pipeline of 9,000 MW of advanced greenfield development projects, which could require more than $2.5 billion of equity buildout.

In addition to having capital available for our greenfield development pipeline, we felt that having access to ready capital might also allow us to capitalize on opportunistic acquisitions, very much like we did this quarter with our acquisitions of plants in Northern Ireland and the hydro plants in China. Having access to this capital also allowed us to buy back stock as we did this past month, when our stock price dropped to levels far below what we believe represent the true value of the Company, representing an opportunity to create additional value for shareholders.

When I meet with investors, I get a lot of questions about capital allocation and how we at AES think about that. Very simply, we look to create the most value per share that we can by deploying capital where we can create the greatest net present value per dollar invested. In some cases, that will mean investing in new greenfield plants or in acquisitions, where we can earn a meaningful spread above our cost of capital. In other cases it may involve buying back AES stock or even possibly some of our public subsidiaries, where we can buy at substantial discount to what we project to be the underlying value of these shares.

We may also sell some of our businesses when we see that the market values exceed what we believe to be the under -- value -- of the underlying value of these businesses. So while we see NPV positive growth as one very significant way to increase value per share, it isn't the only way to do so. For example, we have recently sold assets in Pakistan in the Middle East around the same time that we announced $500 million of stock buyback.

For us, this is a good trade to sell assets at attractive prices and buy back AES shares at a discount to intrinsic value, and, therefore, increase the underlying value per share of our stock.

As Victoria mentioned earlier, we currently have cash at the parent of approximately $2.1 billion, counting the $300 million of asset sales proceeds we are forecasting to receive in the third quarter.

This liquidity, when supplemented by our internally generated cash flow to the parent over the next 18 months, could be used to fund up to $2.5 billion of uses of cash over that same time frame. Those potential uses include the $500 million stock repurchase program approved by the Board in June; $200 million of debt maturities in 2010 if we choose not to refinance them; $300 million for projects currently in construction; and a very visible and tangible near-term development pipeline, which we have already shared with you of approximately $1.5 billion. This does not include any opportunistic value-accretive acquisitions, such as we just completed in China and Northern Ireland that I mentioned earlier.

This very visible and tangible near-term development pipeline includes the recently announced Ballylumford gas facility in the UK; the 1200 MW Mong Duong coal-fired plant in Vietnam; the Alto Maipo hydro plant in Chile; and a 1200 MW expansion of our 420 MW coal-fired plant in Orissa, India.

As I mentioned, we see stock repurchases as a way that we can create value in today's market also. Accordingly, in July, we launched a $500 million stock buyback program. To date, we've only purchased about $15 million worth of shares at an average price of just slightly under $10 per share. To the extent we can continue to create value by buying back stock at a substantial discount to fair value, we will likely do so.

Let me now touch upon the progress we are making on our development pipeline, which we think of as our pipeline of options to invest and create net present value.

We are seeing some real momentum across all regions and lines of businesses. For example, in Vietnam, we've signed a 25-year power purchase and fuel supply agreements for our 1200 MW coal plant. The EPC or construction contract negotiations are progressing well, and we expect to execute a definitive construction agreement during this quarter, which would allow us to close financing for this project in the first half of 2011.

With regards to solar, this quarter, we began construction of 27.5 MW in Italy, which brings our total solar PV capacity to 115 MW. In addition, AES solar raised $38 million of nonrecourse financing for a solar PV project in Italy, and executed a 15 MW PPA in India. We expect to have approximately 250 MW of additional solar projects commencing construction between now and the end of 2011.

In terms of wind, we feel good about the prospects for wind generation globally. We are currently focused on markets with favorable regulatory incentives for renewables, particularly in attractive markets outside the United States, such as Europe and Asia.

In Europe, we acquired a 353 MW development pipeline in Poland, of which 158 MW is expected to begin construction in 2011.

We view Poland as a strong growth market for wind due to its wind resources and its mandate to add renewable energy in order to diversify away from coal generation.

To meet its 15% renewable target, Poland needs to add approximately 10,000 MW of wind capacity. The first project in this pipeline is a 34 MW [Linievo] project, which is on track to close and begin construction by the end of this year.

We also have one of the development projects, the 29 MW [Drone Hill] wind project, which was part of the Your Energy UK development pipeline acquired this year, also expecting to close in 2010. And another project in the UK also received its final clearance to construct.

We also feel good about the prospects for wind in the US, but currently only in selective locations, such as California and PJM. We intend to continue to build portfolios in those states that have renewable portfolio standards.

For example, in West Virginia, we started construction on our 92 MW Laurel Mountain wind project, which is integrated with the 32 MW energy storage system. This project is expected to sell electricity into the PJM market. The integrated energy storage system will both enable the wind facility to meet emerging ramp rate control standards and generate additional revenue by providing ancillary services into the PJM market.

We are building this project with turbines we already had on order, and the plan is to fund the majority of the remaining construction costs by way of the 30% treasury ITC cash grant, which will be received shortly after COD. The project will be fully operational by the second quarter of 2011.

And in California, our 49 MW Mountain View [IV] project has all its permits and interconnection agreements in place and is targeting a closing by year end.

While many of these wind and solar projects are smaller in size, they do add up when aggregated. And we also like the fact that they can be constructed quickly and start generating earnings within a year of closing.

M&A also continues to be something of very high interest to us. We believe that there will be attractive opportunities to acquire assets or even portfolios of assets in various parts of the world at prices that are value accretive to AES. In many of these cases, we can take advantage of the synergies and our platform, as well as our demonstrated ability to upgrade and turn around certain businesses.

One good example is our recently announced acquisition of the 1246 MW Ballylumford natural gas-fired plant in Northern Ireland for $150 million. We expect this deal to close in the second half of 2010, once we have obtained the necessary regulatory approvals.

This acquisition demonstrates how we can leverage our existing local presence in Northern Ireland with our nearby Kilroot plant and the strengths of our liquidity and use this to deliver near-term accretive results.

In China, we also recently acquired a 35% interest in a 241 MW portfolio of operating Hydro facilities in China with an additional 14% interest that expected to close by the end of 2010, for a total of approximately $50 million of investment.

The added attraction on this transaction is the extensive experience of our joint venture partner, China 3 Gorges New Energy, in developing, constructing, and operating small hydro plants in the region. We're already working together on additional opportunities in China to grow our Asian hydro business.

Overall, we're making very good progress in deploying capital. The acquisitions described earlier, Ballylumford and China hydros, are consistent with our M&A strategy to focus on regions with higher growth prospects and/or areas where we have local knowledge and relationships from our existing operations.

We will continue to invest our cash where we can make the highest risk-adjusted returns and create the greatest NPV per share, whether that be in buying back our stock at attractive prices, investing in greenfield projects, pursuing M&A opportunities, or in buying back that to create financial flexibility.

In summary, we are hitting our financial targets and completing our construction pipeline. We also have a sound capital allocation program and a strong liquidity position with which to execute it.

Thanks for joining us today and for your attention this morning. We look forward to your questions and comments. Diane, could you please open up the line for questions now?

(Operator Instructions). Lasan Johong.

Thank you. Paul, Vietnam is now headed down the road of nuclear development, and it sounds like a lot more other countries are going to join the fray. A, does it have an effect on Mong Duong in any way? And B, are you rethinking potentially your strategy for nuclear development, particularly if it's small-scale and in countries like Vietnam?

Yes; in terms of the -- looking at nuclear capacity, this would not affect Mong Duong. Mong Duong has got a PPA, which will be, you know, our standard long-term contract with pricing already set. And Vietnam really does need a lot of capacity. They're already short of capacity. They are seeing high growth in their economy as they continue to pick up -- as a country that's got low-cost manufacturing capacity, they are growing quite rapidly.

I think in terms of our getting into nuclear, we've decided not to move in that direction. We just don't see enough opportunities for that to justify the investment we would have to put in place to build up that capability. So I think we're interested in our core power business, gas and coal plants, renewable business, wind and solar. I think those -- there's plenty of opportunities that we see around the world just to be focusing on those opportunities. But we don't see getting into nuclear.

And I think the other part is, just the development -- the length of time it takes to develop nuclear and to construct nuclear really makes it tough to justify putting a lot of money into those projects for us. But thanks for the question.

Makes sense. Could you give us also an economic trend in Latin America and Asia? Are you seeing the trend going up, flat, or down?

Well, I think we're seeing -- we've seen really strong growth in Asia and Latin America. I think [electro probably] has been seeing growth rates in the 5% range, so their demand growth -- 6%; I've just been corrected. You know, in Asia, we're seeing -- in Philippines I believe the number, it's over 10%; I think it's 12% in terms of their electricity demand growth.

So throughout Asia, we are continuing to see high growth rates as the domestic demand, domestic consumption in those countries, continues to pick up. So I think in terms of trending, we think that's a good sign and something we're focused on. Because that really is the market where we have invested a lot of time and money and where we think we're going to see really interesting opportunities over the next five to 10 years.

Great. Any update on the Brasiliana sale?

Let me -- Andres Gluski, our Chief Operating Officer, is the one most familiar with it. Maybe I'll have him comment on that.

Hi, Lasan. Really there's no update in terms of the Brasiliana sale. BNDS has not indicated anything in terms of moving forward to the auction which had been suspended about a year ago.

Okay.

I will just reiterate, though, that we have a right of first refusal for any auction that might take place if and when BNDES, the Development Bank of Brazil, decides to sell its interest.

And that's one of the reasons why we think having the liquidity that we have at the parent company is really important. I mean what we're finding is having liquidity to be able to transact really does allow us to be selective about where we put our capital, where we see good opportunities. And again, I point to the Ballylumford case, where we could move quickly. We had the local knowledge. We think that really did give us a leg up on our competition and allowed us to execute that transaction very quickly.

Last question for Victoria. I'm not sure why you had to take a write-off when CIC and AES came to an agreement that it would no longer invest at this time into the wind project pipeline for AES. What was that write-off about?

The -- and it wasn't just the CIC transaction. It's actually an accumulation of a number of -- a couple of different transactions we would be looking -- we had been looking at, all of which required us to put together historical financial statements. So it was the cost involved of getting ready for a potential transaction that required external three-year prior historical audited financials. Which, of course, we're going to continue to keep current now, but since we have no current transaction to justify keeping those costs hung up, we had to go ahead and trigger that and take the write-down in the period.

Let me just comment on that because I think it's important. We still look at wind as the business that we might eventually go out and do an IPO. We took all the steps necessary to get it ready to go, and it will -- as Victoria mentioned, it's going to remain ready to go.

In terms of accounting though, because we didn't have a transaction out there where we could take it public or sell it right away, we decided just to go ahead and write that off, which is the appropriate accounting treatment. But in terms of the investment we made, we will be ready to go if and when the market comes back to where it would be an attractive opportunity.

So I talk about portfolio management. I could see us doing more things like that where we could take some of our assets and take them public as a way to do portfolio management. But it's going to depend on the markets. Our solar business would be, for example, another one, where we in Riverstone will continue to look at the opportunities to monetize that asset potentially or monetize a part of that business because we are seeing tremendous growth; we're seeing a lot of good projects there; but we will look for ways that we can do some portfolio management down the road. So doing this kind of accounting is something we wanted to do, we have it ready to do, but it's more of the accounting treatment.

I should also comment on the CIC; I know I got a lot of questions when I was on the road as to why didn't CIC proceed with the investment in the wind business? And I think -- I was out there meeting with them, and I think there were a number of issues going on at the time with respect to the US regulatory environment. Questions about what's going to happen with our US policy to renewables that I think gave them and, of course, others, pause about what's the future renewables policy in the United States.

What we agrees was that we set an artificial deadline out there to get this done by a certain date, and we agreed that it really wasn't critical for us to do it now. We don't need the capital today. They didn't feel the need to invest, but we have agreed that we would continue discussions. And it's very possible at some point down the road they would come back into that business prior to us doing an IPO. I think they still see the renewables business globally as being attractive, but the urgency wasn't there to do it right away, and we felt the same way. It was -- quite frankly, it would have added more capital; it would have caused more dilution to us. And we felt it's probably not the appropriate time to be taking on more capital.

So that's the reason why we decided to just let the LOI elapse, but it doesn't mean they don't continue to have an interest on a longer-term basis.

Paul, I lied; there is one follow-up question. You just surprised me with this comment of potentially IPO-ing a bunch of subsidiaries to project management to manage your portfolio. But that also implies an escalating G&A cost at the parent company. Are you scaled up for that? Are you prepared for that? Is there enough people that you can bring on to make that actually work in a fluid manner?

Thank you for asking that question. I think Victoria is pulling back here a little bit. The answer to that is, very simply, we've built up a big infrastructure. Our G&A costs are high. The advantage we have with that though is we are really geared up to do a lot with respect to financial statements, financial reporting. So as I see it, if we can do some things like IPOs, we should be able to do that very cost effectively.

I do feel like, though, that in terms of G&A, this is going to be a major effort for us in the second half of the year. It's becoming leaner. We had to go through a period of time where we had, as you know, restatements. We had to build up the infrastructure.

We now need to get to the point where we can do this more efficiently, and I think we are now at a great point to do that. But it's going to be a combination of having the capabilities available to us where we could do more, and also starting to skinny it down a little bit. If we don't wind up doing IPOs, we probably have the ability to tighten down a little bit even more on that G&A cost.

Thank you.

Brian Russo.

Hi, good morning. Just to touch on the IPO discussion, was the IPO you were considering with CIC just your US wind assets, or your entire global portfolio?

Well, it would have been for the entire global wind portfolio or the majority of it anyway. There's some places, like Chile, where we might have to leave that with our Chilean business.

But they were going to buy into the global portfolio for wind, and the intent was -- we both looked at as if the IPO market ever became attractive, we would always want to have the option to go do that. And I think that's true with -- if you took any collection of our assets, if we saw an opportunity to do an IPO down the road where we had the critical mass, where the markets offered attractive pricing, it might be a way to take advantage of either local markets or particular markets for types of assets that would allow us to raise more capital cheaply than we might at the parent.

If you look at where our parent stock is today, it's painfully obvious that there are better places to raise capital than in the US markets for the kind of assets we have. And that's something that is going on in the back of our minds about our strategy going forward as to how we raise capital as we continue to grow in particular areas.

All right, great. And just a reminder; I think that original wind agreement with CIC was -- they were going to pay $570 million for 35% stake of your entire portfolio?

Yes, that's right.

Okay. And then in terms of 2011 drivers, I know you haven't updated your 2011 guidance in quite a while, but it looks like this Northern Ireland acquisition, you meant some near-term accretion. Could you just give us some kind of background on the 1246 MW? Is all of that operational, or does a lot of that need refurbishment and so forth?

Well, I'll have Victoria talk about some of the drivers for 2011, but let me start with the Ballylumford plant.

It's -- I don't remember the exact numbers, but it's about 500 MW of peaking capacity, 560 or so. But it's got a peaking plant which will come off line in 2015. So that -- we expect that would be shut down.

The other piece of that, which is abruptly 600 something MW, is a combined cycle plant, which we'd continue operating and is contracted through 2018. So that would be the piece that we'd continue operating; we think has the long-term potential, but the peaker would be shut down.

In terms of the value from that plant, earnings accretion from that unit is probably in the range of about $0.04 a share coming from Ballylumford in 2011. That's partly because it's frontloaded. But we have -- and if we talk about our hurdle rate as being 15% and this exceeded that hurdle rate for us.

And again I think it's because we have a plant not too far away. We know the market. We can operate it probably more efficiently by sharing resources, having some shared procurement between the facilities.

But, given that we knew the market and we could move quickly because we had the liquidity, we think it was -- enabled us to get an attractive deal on that asset.

Maybe, Victoria, you could talk a little bit about how we're thinking about the 2011. We're not going to give guidance right now, but we could just give you some thinking about it.

All right; and we have not updated yet; in part, we're still looking at sort of post the CIC transaction and the dilution there as well as some of the actions we've taken over the last quarter or so in terms of debt pay down. We had originally been at about $1.20, so we are -- just post those two sets of transactions, we're sort of in the $1.07 to $1.10 range.

Some of these new acquisitions add back to that, and then we're also looking at some of the macro economic drivers relative to New York and the commodity prices. But that range, I think, is probably where we are looking right now. We're not through our budget cycle, and we would look to update I think probably in the end of -- in the November end of your timeframe.

Okay. Then just on eastern energy, what type of margin contribution is that providing to AES in 2010? Meaning, I mean with gas prices where they are, is this generating any meaningful amount of cash? And what kind of utilization rates do you have on that? And then so it seems like in '11, there's very little downside there and more upside.

Yes, this will be just Ned Hall, our Head of North America and also heads our Wind business. He's closest to that. He could comment.

Yes, I think you stated it accurately. We did get a dividend out the first half of this year (technical difficulty) million dollars. And, going forward, we have hedged through the end of this year about 85% of the economic value now, given the current operating profile with gas hedges.

And those are -- the heat rate, there's been heat rate expansion in the market recently, so those are coming in above budget at this point. We're about 16% ahead of budget. So we're in pretty good shape for this year, but that $20 million is all we expect to get out. And next year, we're not hedged, and looking at forwards, we're not anticipating a dividend. But, it's -- you know, that -- so the $20 million would be the difference between this year and next year.

And we had previously, I think, and when we had issued our guidance for this year, we had cited the fact that we had taken that out. So anything now would be upside to the guidance that had been previously provided.

Yes, I think, Brian -- this is Ahmed. I think that in terms of earning -- that is your question, I think probably the margins we're expecting this year because of the lower hedging pricing as compared to '09 is [one $80 million] less contribution as compared to 2009, which is roughly $20 million to $30 million this year. And, in '11, I think it's even neutral if not negative given we have not hedged anything in '11.

Okay, great. And then, just lastly, on your buyback program, what kind of confidence can you give us regarding your ability or desire to complete that before it expires by year end? If I recall, you had a previous 400 million share buyback, I think in '08 maybe or early '09, and you completed less than half. Any thoughts on that?

Yes. It's hard to predict because a lot is going to depend on what the stock price does. We -- we're not committed to spending $500 million at any price. We think we want to get it -- a meaningful discount to the implicit value. So, we're not eager to go out there and just put the money into buying the stock unless we can get it at good prices. And we will continue to evaluate what that price is as we go forward -- we and the Board will.

We started this program when the stock was under $9. It's jumped up a little bit. As you can see, we didn't buy very much back, but we had some restrictions because of the earnings. Once we had certain knowledge, we were restricted as to what we could actually go do. So, but we will continue to evaluate that depending on how the stock price moves.

Obviously, we don't want to be chasing it all the way up because we do see some good opportunities for investments and acquisitions, and we wouldn't want to lose the ability to do that also. But we're going to balance that. When the stock is attractively priced, we'll do that, but we will do it at levels that enable us to get that benefit. But that's something that we and the Board will continue to evaluate; what's the right limit price to do that?

Just in 2009, the reason we stopped there, and I think it's relevant, was that we started to get -- this is back -- it was actually 2008 I believe we did this -- August 2008. But we saw our price dropping and we thought well this is great; we're getting stock at a fantastic price. But then, when the world was falling apart for us and everybody else, we started to get concerned about liquidity, and we just held back. And that's why when we looked at the CIC transaction, we began to realize that if you've got liquidity, if you've got cash, there's a lot you can do, and you can take advantage of things.

Quite frankly, if we hadn't raised the money from CIC, we would not have been able to buy back stock at prices that were just under $10. That wasn't our intention at the time, but at the same time, it's important to have the flexibility, the financial flexibility to go do things that are value accretive for shareholders.

So there we didn't stop it because we didn't like the price. We stopped it because we were worried about liquidity. We are beyond that point now, and I think we've got the financial flexibility to do many things.

Great. Thank you very much.

You're welcome.

Ali Agha.

Thank you. Good morning. One -- first off, Victoria, I just wanted to clarify a couple of numbers from the quarter, and from your prepared remarks, making sure that I heard those correctly. I thought you had mentioned that FX was a positive in the quarter, but in that slide, waterfall slide, I believe slide 6, did not see that other than the FX transaction losses that you broke out. What was the FX impact in the quarter for you?

About $0.03 impact.

Positive?

Yes.

Okay. And then on the tax rate question, I guess two parts, one is that 47% or 48% tax rate you alluded to, is that the same tax rate we should think about when we think about adjusted earnings? Does that move around?

And then the other part, I think you mentioned something about a potential $0.11 earnings hit. I wasn't quite sure, could you just elaborate a little more on that issue?

Sure. And to answer your first point relative to the 48%, that was the comment -- that's where the effective tax rate was for the combination of the CEMIG gain and the transactional gain that we recognized in the quarter, as well as the lack of that legislation having been enacted. So the 48% on an adjusted basis would still be sort of at the mid-35%, 36%.

What I was referring to in terms of just the legislative piece of this alone, which would be recurring in nature, obviously, if not extended, which would have had an $0.11 impact on EPS for a full year -- we've had enough operating benefits that we've offset some portion of that throughout the year so far. I was flagging the fact that obviously the legislation still has not been enacted. We flagged that I think in our MD&A both quarters now.

And so we will continue to look for offsetting opportunities as the year goes on, but it had been an underlying assumption going into this year that that would have been reenacted and that it was at about an $0.11 full-year impact. So that's just context for those moving parts. If we do not get it, for example, though, we would be higher than we had projected on an effective tax rate probably in the -- closer to the mid-30s than the low-30s on a percentage basis. And all of that, of course, is non-cash impacting.

Right. But to be clear, right now, you're booking income with the assumption that the law does not change.

Correct. But that has already come out that we're not expecting an extension of -- which would have gotten us to the lower tax rate.

Yes, I think -- I mean, very simply, the way to think about it is everything we reported to date is reflecting the fact that the legislation has not been extended. If it were not to be extended, then it's probably a $0.06 hit relative to our guidance -- the net impact where we think we would end up. So that's -- as you think about it, that's the potential exposure to the Company.

And, but that said, as we did with the first half of this year, we are assessing opportunities to offset that $0.06. So just for clarity, we wanted to pinpoint the fact that that's driving the tax rate. However, we're looking at other offsetting opportunities to make sure that we can hit the guidance we've previously announced.

Right. And the $0.06 gain from CEMIG, Victoria, to be clear, that is included in adjusted earnings, correct?

Yes. Yes.

Okay. And finally, Paul, coming back to you, when you look at your development project pipeline in your appendix, the three big projects, and you alluded to Vietnam, I believe India and perhaps there is another one in Chile, that require the largest amount of equity and presumably have the largest impact to your bottom line, are all scheduled to come on line 2014, '15 and beyond time period; and the bulk of your construction program, as you find out, gets completed next year.

When you're looking at other opportunities out there, are there opportunities of similar magnitude and have similar bottom-line implications that could potentially come in between the '11 and '15 time period?

Yes, I think you look at those as being primarily acquisitions, which they're going to be kind of lumpy and difficult to predict. But acquisitions are the kinds of things that you could get done in a matter of maybe six months.

You also have the renewables which are a big focus for us. And wind projects, typically, from the time you close until you bring them online, that's maybe a year. And then you're talking about solar projects, which might be less than a year.

And we have -- again, as I mentioned, these are small projects. There a lot of them going on. But, when you start to add up the total numbers, it gets to be a meaningful number. So I do see the renewables contributing to the growth here also in addition to acquisitions we may do.

But acquisitions would probably be the bulk of the -- if we're talking about anything meaningful, those will be probably bigger ticket items that would be coming online. Or coming in (technical difficulty)

Other than BNDS, which may or may not [utilize] next year, are there other sort of privatizations or other such actions that are sort of bottled up that you could point us to that may also be an opportunity for you?

BNDS will be one -- it's hard to go out there and talk about it. Many of these conversations are confidential. I think one place which I could mention that we do see some opportunities would be the privatization of generation plants in Turkey; we will be seeing some things come online there.

I think the other thing is we're seeing -- generally, there are private equity players that have -- or funds that have picked up some assets that are now beginning to look at ways to monetize those. We will be just hanging around looking for opportunities like that, but you've got to find the right value proposition.

And if we could find that, you would look for us to do those, but they're difficult to predict in advance. And once you start working on them, you generally can't say much about them.

I think the only other one would be -- which I mentioned, is the Campiche project, which is -- it's pushed out a little bit. But that's one that we were very concerned about. I think the good news there is we can reinitiate construction on that plant, which is partly built, and that's coming online I think we're saying, Ahmed, 2012. So 2012 you get a little bit of growth in that one also.

But, the M&A ones are just tough to predict and tough to communicate or telegraph in advance.

Understood. Thank you.

Gregg Orrill.

Thanks. I was wondering if you could talk a little bit about -- a little bit more about capital returns to shareholders as a regular idea, whether it's on your thought process, on the dividend, or in the event that you do complete the buyback this year, how would you think about that heading into next year?

Lee Cooper must have been talking to you. The -- on the dividend question really is, would we see a dividend in the future? I think, as we said in the past, we don't think it makes sense to be paying a dividend today, because we do have some growth opportunities. I think if you go out a couple years though, I think we start to generate a lot of cash. And whether or not we would see enough value accretive opportunities to deploy that cash, I think it's very possible you could see us start to look at a dividend as a meaningful way to do that.

Right now, our parent free cash flow is about $400 million. That's the cash we have on hand after paying interest and all the corporate charges. But, our objective is to really start to build that up so it's a meaningful amount that gives us plenty of cushion.

Once we get to a number that -- where we feel -- have more comfort there, I know it's something that we, at the Board level, have been talking about. So I don't think we're there today. We will clearly be at a point where we could do something like that in a couple or three years.

And the real question is, at what point in time would we actually want to go do that? So, we will keep looking at that, and we are open to it, but it's really our focus is generate more parent free cash flow so we've got the ability to comfortably put out a dividend that's meaningful.

One of the things that mechanically we've also done, Gregg, just to tell you about it relative to the revolver is we went and renegotiated the terms of that, we have allowed -- we were now allowed to, from a basket transactions, it will allow the cap to grow as parent free cash flow grows as well. So it does give us the capability once we get some of those projects online, parent cash flow is growing. It also raises the cap relative to the amount you could actually be paying out under, whether it's a stock buyback or a dividend distribution.

Yes, thank you.

You're welcome. Why don't we see -- maybe take one more question, and then we could end this up so people could get back to their day.

I show no questions at this time.

Okay. Well then, perfect.

Well, thank you all, again, for attending this morning. If you have any questions, please feel free to call either Chris Fitzgerald or myself. Thank you, and have a nice day.

That concludes today's conference. Thank you for participating. You may disconnect at this time.