愛依斯電力 (AES) 2011 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. After today's presentation, we will conduct a question-and-answer session. (Operator Instructions). Today's conference is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Mr. Joel Abramson. Sir, you may begin.

Thank you, Carissa. And welcome to the 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 Securities and Exchange Commission.

Our presentation is being webcast and the 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 CEO.

Thanks, Joel and good morning. Today, I will briefly comment on our financial performance during the second quarter of 2011. After Victoria reviews the second-quarter results in more detail, I will give an update on several of our other significant projects under construction, as well as our progress on the development pipeline.

In the second quarter, we achieved the growth versus the first quarter we were expecting, putting us on a trajectory to hit our full-year guidance. Excluding costs associated with our pending DPL acquisition, we earned $0.32 of adjusted EPS during the quarter and proportional free cash flow of $181 million. Year-to-date, we have earned $0.54 of adjusted EPS, which is approximately 50% of the midpoint of our full-year guidance of $1.08 to $1.14 prior to the impact of DPL.

This strong quarter was driven by volume growth in Chile from both existing plants, as well as contributions from Unit 1 at our new coal-fired plants in the northern grid of Angamos, which came online in April. Of course, as we indicated last quarter, we did see unfavorable year-over-year trends at our generation businesses in the Philippines and Hungary.

Also, our previously disclosed repair efforts in Panama where we had a partial tunnel collapse at one of our hydroelectric plants continued to impact both earnings and free cash flow. These negative impacts were anticipated, however and the repairs to the tunnel for our Panama hydro plant will be completed during the second half of 2012. Thus, we remain on track to achieve our 2011 guidance. At this point, I will turn the call over to Victoria who will discuss the results for the quarter and update you on our cost-cutting program, which, as we mentioned during our Investor Day, will be one of our key drivers of earnings growth in addition to bringing our construction pipeline into operation. Victoria?

Thanks, Paul and good morning, everyone. I will begin with an update on the performance of key operating drivers that impacted our earnings and cash flow results for the quarter. Then I will walk through our gross margin, EPS and cash flow results, as well as our parent liquidity status. Finally, I will provide an update on our efficiency efforts to date.

First, our key operating drivers. Foreign exchange rates largely moved in our favor during the quarter. As a reminder, many of our businesses operate in currencies other than the dollar and therefore benefit when those currencies appreciate relative to the dollar.

Compared to the second quarter of 2010, the Brazilian real and the euro both appreciated by almost 13%, while the Philippine peso rose approximately 5%. As a result, favorable foreign exchange contributed to improved earnings. Likewise, volume was favorable as most growth trends in Latin America continued.

Our Brazilian utilities had growth of 3% while our generation businesses in Argentina and Chile had volume growth of 7% and 26% respectively. In Asia and Europe, the volume trends were consistent with our expectations.

You may recall that our generation businesses in the Philippines, Masinloc, benefited from higher-than-expected demand growth of 10% last year, which, coupled with low availability at competitors' baseload plants, benefited us through very favorable spot prices.

This year, by comparison, lower demand driven by relatively cooler weather and better system availability did not provide the same favorability. In Europe, our merchant generation business in Hungary also felt the impact of lower volumes due to lower market demand.

In addition, we have seen challenging pricing in certain markets where we are no longer benefiting from long-term contract pricing. I have mentioned on past calls that the PPA at Kilroot in Northern Ireland came to the end of its term in the fourth quarter of 2010. Since then, we have been operating under less favorable merchant prices. In addition, annual tariff adjustments in Brazil have suppressed the earnings of our utilities there.

Beyond these base business drivers in the second quarter, we began to realize the material contribution from two of our major projects coming online this year. At our Maritza plant in Bulgaria, revenue generated from the partial COD achieved in June helped gross margin. At Angamos in Chile, the early COD of Unit 1 also contributed incrementally for the first time this year. Together, these two businesses had a positive impact on proportional gross margin of over $30 million relative to the second quarter of 2010 and relative to the first quarter of 2011.

A significant offset to these positive trends was the previously disclosed outage at Esti, our hydroelectric plant in Panama. A partial tunnel collapse in late 2010 and the subsequent repair work has exposed the plant to very high spot pricing as it must purchase power to satisfy its contractual obligations.

Receipt of insurance proceeds covering both the repair and the business interruption are anticipated in the second half of this year. The plant is expected to be back online during the second half of 2012.

All of these key drivers contributed to a second-quarter consolidated gross margin of just over $1 billion, an increase of $17 million, or 2%, compared to 2010. On a proportional basis, we earned $619 million of gross margin, an increase of 4% relative to 2010.

You'll note that this increase in gross margin of 2% is well below the rate of increase in revenue which accelerated by 16%. I would like to take a moment to provide some context for this dynamic. Revenue increased at a higher rate than gross margin, partially as a result of the pass-through of fuel costs and purchased energy, which increased revenue, but did not have a corresponding impact on gross margin.

Gross margin was also negatively impacted by the forced outage in Panama due to the tunnel work there. In addition, there were some one-time charges such as regulatory penalties at Sul in Brazil and a bad debt reversal at Gener in Chile in 2010.

In some cases, these higher fixed costs are compensated for in the tariff process. Meaning we will see offsetting benefits in future billing periods. Examples of this include higher people costs in Ukraine and contract services relative to demand management systems at IPL.

That said, managing fixed costs is a top priority for management and through the initiatives we outlined previously, we expect to reverse this trend wherever possible.

In the second quarter, adjusted EPS was $0.32, excluding $0.04 of costs related to the pending DPL acquisition. This represents an increase of $0.08 from the second quarter of 2010. In addition to the gross margin drivers I have just reviewed, we continue to benefit from an implied effective tax rate due to the renewal of TIPRA, a US tax law, in the fourth quarter of 2010, which impacts distributions from certain non-US subsidiaries.

Diluted EPS from continuing operations was $0.24, an increase of $0.05 from second quarter of 2010. In addition to the factors I just described for adjusted EPS, diluted EPS was also affected by an increase of $0.07 in unrealized foreign currency transaction gains in the second quarter of 2011 versus the second quarter of 2010. These non-cash gains are primarily due to an increase in the valuation of foreign-denominated receivables and cash balances given the strengthening of the euro and British pound since the end of 2010. This is partially offset by the $0.04 loss from the impairment of Kelanitissa, our generation business in Sri Lanka.

Now let's discuss cash flow. The cash flow results reflect some of the same trends that impacted earnings. On a consolidated basis, we saw growth in operating cash flow from Latin America, which was offset by declines in Asia and North America. Although our Eastern Energy businesses in New York are now accounted for in discontinued operations as we work through the terms of their sale, they will still negatively affect net consolidated cash flow.

Additionally, Eastern was negatively impacted year-over-year by the expiration of hedges, which it benefited from in 2010. In addition, we lost the contributions from the businesses in Oman, Pakistan and Qatar subsequent to their sale in 2010. As a result, our operating cash flow of $675 million was $72 million lower year-over-year on a consolidated basis and lower by $72 million to $294 million on a proportional basis.

Consolidated free cash flow decreased by $128 million to $460 million for the quarter. This decrease was driven by lower operating cash flow, as well as higher maintenance CapEx primarily at its utilities in North America and Cameroon.

It is important to note that we expect the free cash flow trend at Panama to improve in the second half by the receipt of the insurance proceeds. On a proportional basis, our free cash flow decreased $101 million to $148 million.

Now turning to parent company liquidity, during the quarter, parent company liquidity benefited from the $2 billion debt offerings we completed, which are earmarked to fund the acquisition of DPL at close. In addition, we received $167 million from subsidiary distributions net of corporate overhead and cash and interest expense during the quarter.

Also, during the quarter, we retired $200 million of senior secured term loans due in August. Additionally, we spent $145 million for several construction and development projects such as Maritza in Bulgaria, Laurel Mountain in the US, Mong Duong, our coal project in Vietnam and completed our partnership with Koc in Turkey in advance of the privatization there.

Finally, we repurchased approximately $36 million of shares during the quarter. Including the proceeds of the DPL acquisition financing, our parent liquidity at quarter-end is now $3.1 billion, up $1.8 billion versus the first quarter of 2011. Without the DPL infusion, liquidity would be $1.1 billion, a decrease of $200 million versus the first quarter of 2011.

I would like to take a moment now to update you on our overhead transformation program. Back in May, at our investor conference, I introduced AES's transformation program to improve cost effectiveness and efficiencies across AES. We expect this initiative to yield $100 million in run rate savings by the end of 2014.

During the second quarter, we gained momentum on these initiatives, including outsourcing high-volume financial transaction processes such as accounts payable and general accounting. We expect to implement outsourcing in Asia and portions of Europe by year-end. In addition, we are in the beginning stages of enhancing and expanding our utilization of financial systems. This provides flexibility to meet multiple reporting needs, streamlining data collection and increasing automation.

In summary, the quarter was in line with our expectations. Looking ahead to the full year, we are reaffirming our adjusted EPS guidance of $1.08 to $1.14, excluding the DPL acquisition costs. I would note, excluding DPL costs, we are trending towards the higher end of this range of earnings.

That said, our estimate for the DPL acquisition costs may move up to $0.13 relative to the $0.11 previously discussed due to additional interest costs in 2011. Given projected trends in interest rates, we decided to access the capital markets early to lock in long-term financing attractive rates consistent with our assumptions. In total, this leaves us squarely within the range of our adjusted EPS guidance, inclusive of DPL costs, of $0.97 to $1.03. With that, let me turn it back over to Paul who will provide an update on our construction projects and development pipeline.

Thanks, Victoria. Before I give an update on the construction and development projects, I would like to take a moment and review the recent announcement of the proposed sale of our telecom business in Brazil. I think the sale is a good example of how we think about portfolio management and how it can add value to the Company. In early July, our Brazilian affiliate, Brasiliana, entered into an agreement to sell two telecommunication businesses for 1.6 billion reais or approximately $1 billion US. A portion of the proceeds will accrue to the shareholders of Eletropaulo with the remainder flowing to Brasiliana, of which we own approximately 46%.

Although a final decision has not been made, one possible use of these proceeds would be to pay down some very expensive debt at Brasiliana, which carries a 14% interest rate. For our share of Brasiliana, we anticipate recording a one-time gain in excess of $200 million from the transaction in 2011. And on an ongoing basis, we expect it to be accretive to our earnings beginning in 2012 due to the reduction of debt.

Now let me turn to our construction program. We continued to make good progress during the second quarter with approximately 950 megawatts expected to come on line by the end of 2011. On June 3, our 670 megawatt Maritza coal-fired power plant in Bulgaria was placed in a commercial operation at an initial capacity of 494 megawatts on a gross megawatt basis. As of July 21, the capacity has been tested at 630 megawatts, in line with our plan to reach design capacity of 670 megawatts gross by year-end.

In addition, as you may recall, we terminated the contractor for the Maritza project, Alstom, on March 21. We had also requested payment for the performance security posted by the contractor and on July 6, we received a positive ruling from the Court of Versailles and therefore, thereafter, received payment of the full amount of demands made under the performance security in the amount of approximately EUR155 million.

Now turning to Latin America, we continue to make good progress towards our schedule to commission approximately 720 megawatts of capacity in 2011. Our 518 megawatt Angamos coal-fired plant in Northern Chile has fully commissioned Unit 1 ahead of schedule. More importantly for the bottom line, Unit 1 achieved a 12% higher output and 6% better efficiency than was guaranteed by the EPC contract. Unit 2 has reached full-load operation and is on schedule to reach its commercial operation date by the middle of September, which is ahead of its scheduled completion date.

During the second quarter, we also continued making progress with the Changuinola hydro project in Panama, [filling] the reservoir for 223 megawatt hydro project start and starting early commissioning activities. Our current forecast is to have the first [Tiger] unit in operation in mid-September and the second unit in operation by October.

Campeche, our 270 megawatt coal-fired project in Chile, also continued progressing well towards its scheduled completion in early 2013. In addition, we have 262 megawatts of wind generation capacity in the United States, China, Europe and India under construction and targeted for completion by the end of 2011.

Finally, AES Solar continues to successfully develop and construct projects. We have 127 megawatts in operation, 31 megawatts under construction and expect another 118 to enter construction by the end of the year. Including the 32 megawatts that came online during the quarter, this will bring the total megawatts online to 277 megawatts by the end of 2012. It is worth noting that of these projects under construction, all but 98 megawatts benefit from long-term power purchase agreements and are expected to deliver meaningful earnings in 2012 and beyond.

Now I would like to turn to development, but before I do, I'd like to caveat my comments in light of what has happened to the equity markets, as well as AES stock over the past few days. As we have explained before, we are constantly thinking about how to best allocate capital amongst the various options. Those being to pay down debt, invest in growth opportunities or buy back stock. Our objective is to allocate money to those uses that create the most value on a per share basis. And given where our stock closed yesterday at $10.75, buybacks at that level are obviously very attractive.

And one of the benefits of our current position is that we do have the ability to pace a portion of our growth pipeline and to defer certain investments creating flexibility to repurchase shares when the prices fall to absurdly low levels as they did yesterday. Of course, we will do this while maintaining sufficient liquidity to meet our committed funding obligations such as the acquisition of DPL.

So with that context, let me turn to our development pipeline and some of the opportunities that we have to invest that will deliver growth beyond 2012 and those areas that we identified as areas of strategic focus.

Looking at Southeast Asia, we entered into nonrecourse financing agreements for our 1200 megawatt greenfield coal plant, Mong Duong, in Vietnam. As a reminder, this is a $1.95 billion project and we have $1.46 billion of debt committed, as well as equity from our partners leaving us with a $235 million commitment approximately.

Funding of these agreements is subject to satisfaction of conditions precedent, but we expect construction to begin in the next few months and commercial operations for both units to be completed in 2015.

In Turkey, the government has initiated the privatization process with over 1000 megawatts of natural gas-fired assets for which bids were submitted at the end of July. Although we passed on this round as we were more interested in a group of [late-night] coal-fired projects of 600 megawatts coming up for bid around year-end, we take the initiation of this first wave of sales as a good sign. Ultimately, the privatization process is anticipated to put 16,000 megawatts of generation capacity on the market.

Now turning to our wind pipeline, in Europe, we continued to pursue renewable energy projects. Last quarter, we reached [financial] close and started construction on 30 megawatts in the UK and could close another 36 megawatts by year-end. We have a pipeline of over 1000 megawatts in Europe and expect that we could put another 175 megawatts into construction with attractive returns by the end of 2012, subject of course to whether these would be more attractive than stock buybacks.

In the US, our pending acquisition of DPL continues to make progress. Regarding financing for DPL, per our previously stated plan, in the second quarter, we raised approximately $2 billion in AES recourse debt through two separate transactions. We moved quickly to access strong high-yield market securing pricing and terms consistent with our expectations. Subject to market and other conditions, we anticipate raising the remaining $1.25 billion of nonrecourse debt at the DPL holding company level sometime in late third quarter or early fourth quarter.

On the regulatory approval front, in June, we received early termination of Hart-Scott-Rodino Act waiting period. This is the first of three significant regulatory hurdles. The next two are FERC and the Public Utilities Commission of Ohio, or PUCO. With respect to the PUCO approval, the staff and public comment period ended on July 18, and we will begin filing our response by August 18. At that time, the PUCO will set the schedule for the remainder of the approval process.

And finally, DPL received SEC approval to distribute its proxy statement. The DPL shareholder vote on the merger is scheduled for September 23.

I would say overall we are pleased with the progress to date. We still expect to close the deal sometime in the fourth quarter of this year or the first quarter of 2012. With that, I will turn the call back over to our operator, Carissa, who will open up the call for your questions. Carissa, do you want to open up the lines for questions from the investors?

Sure. (Operator Instructions). Brian Russo, your line is open.

Hi, good morning. I was hoping you could comment just a little bit more on the Panama plant outage and replacement power cost. It looks like your net ownership in Esti is 59 megawatts. Why is the hit on the fuel so large?

Andres Gluski, our Chief Operating Officer, can (inaudible).

Sure, hi, Brian. Firstly, the replacement power costs have been very high in Panama, with the oil high oil prices. And basically, as you know, we have AES Panama, which is a -- as you correctly point out, is half owned by the Panamanian government and half owned by us.

So basically, you have two things. One, you have the Esti power plant. You had a collapse in the tunnel and we stopped -- we had to stop using the hydro plant while repairs were made, which will conclude early next year and then also we had a certain contract for Changuinola as well. So basically both are not in operations and we are having to buy power in the market.

But I think, as has been pointed out, we have business interruption at Esti and we also have -- these insurance claims will come -- and also the claims for the repair work and after the close, we have already started receiving some insurance payments, which are not reflected in these results.

Okay. So what would you say kind of the net annualized impact that will be this year and then I guess next year until the plant is operational?

For this year, it is basically going to be awash in terms of all the insurance claims and business interruption and the cost of Esti.

Okay. So you incurred the replacement power costs in 2Q, but then that will be recouped in the insurance claims and business interruption later this year?

That's correct.

Okay, so next year, it is a wash as well?

Well, next year, you have Changuinola coming online. So next year is a different situation.

Okay. And maybe you could just address some of the challenges or risks that you guys noted in your 10-Q on the Eletropaulo rate reset and then maybe if you can just comment on Kilroot? Are you seeing better pricing next year than what you are seeing this year?

Let me go ahead and take first the Eletropaulo tariff reset. And what we are -- we don't have as much of an update today versus what we said in the past. They came out with a proposal, which was quite draconian and (inaudible) has therefore been negotiating with ANEEL and this has been moving in the direction we think that is more in the middle. So of course, as you know, the WAC was lowered (technical difficulty) 9.95. The proposal was 7.15. I think we will end up somewhere in the range around 7.5 to 7.8.

Other things is the X factor in terms of [how] volume growth, can the companies take advantage of that and then in terms of the regulatory asset base. Again, the issue is how much of the total forward-looking CapEx that you are going to spend can be included in that. So you have those different components. I would tell you that it is going to be not 100% where we were before, but less draconian than what the initial proposal had been.

Okay. And Kilroot?

Yes, just one thing I will mention on the Eletropaulo, the way things are ending up, as Andre said, it is consistent with how we are thinking about the world when we gave our guidance back in the Investor Day. So from that perspective, we don't see it coming out very differently than we had otherwise.

Oh, yes. I think basically, as you know, in Kilroot, the Irish authority, the [Electricity] Authority decided to end the PPA. It was in their power to do so and it was basically a capacity play and you have a seasonal adjustment on that in terms of Kilroot and Ballylumford is performing very well.

Okay. And on the portfolio management ongoing initiatives, there have been some recent news reports that AES Solar's partner, or AES as well, might be looking to divest AES Solar and I know you had also mentioned at the analyst conference potentially divesting the wind business as well. I was hoping you could give us some thoughts on that.

I really can't comment on the Solar process because it is something we and our partner are thinking through what we do with that business. But I would say generally, we are always going to be open to transact at values that make sense. And I think we have looked at wind in terms of, going back a couple of years, could we take that public, could we sell down to a partner. So we will continue to look at all those options, but it is really going to come from -- I mean there is no need to divest those. We think they are good businesses, but to the extent that there is strong interest and we can get good value for the businesses, we'd take a look at that.

I would say what we have seen though just generically is, if you look at any of those businesses, particularly in the renewable space, very little value being given to development, but yet high values being given to the operating assets. So if we were to look at something like this, it could also take the shape of us thinking about divesting some of the operating assets and getting some low cost capital there. In many cases, we are talking about people have expectations of single-digit rates of return and we keep the development and continue to move those forward because that is really -- if we can be investing it (inaudible) mid-teen returns and then selling them down at single-digit returns, that is not a bad business for us.

Got you. Okay, thank you very much.

Ali Agha.

Thank you, good morning. Paul, could you remind us -- I think you had mentioned you bought back about 36 million shares in the quarter. As of today, how much capacity do you currently have for buybacks under your authorization?

Yes, I think we -- with the Board, if I remember correctly, we had about $500 million. We bought back about $150 million. So we have got about $300 million left in that authorization and I think under our various debt restrictions, we have probably got a little bit more room than that, maybe another $200 million on top of that.

Okay, okay. And on DPL, I want to get a sense from you, the recent numbers laid out the customers' switching trends continue to be a factor. In fact, they have also seen switching now in the residential side, which originally they are not assumed in the numbers they put out in the proxy. I just wanted to get a sense from you, number one, on how you are seeing those trends versus your own expectations when you priced the transaction. And secondly the staff recommendations that came out for the merger approval process, what is your reaction to some of the conditions they talked about?

I will have Andres cover that. But I would say generally -- I think we talked about it when we announced the acquisition that we probably had different expectations than possibly others did when we looked at it and I would say where we are overall. We feel -- we continue to feel it is in line with what we had expected. But we have been watching very closely those metrics you have been talking about and Andres, do you want to comment on those?

Sure. Basically the performance of DPL is in line with what we had in mind when we made the acquisition. It is true that there has been a 5% increase in the switching from people under the DSP to CRES. But they are capturing a portion of that.

On the other hand, the capacity auctions for '14 and '15 came in I think higher than the market expected and also energy prices, given the let's say more stringent cross-state pollution air rules that have come out in that area have also sort of pushed up prices. So I think that everything is within the ranges of our expectations. I don't know if, Ned, you want to comment on the (inaudible).

As Paul mentioned in his opening remarks, our comments are due August 18, so we are not going to elaborate with a lot of detail ahead of that on any of the specifics. Generally, I don't think there were any significant surprises, not anything different than we anticipated and not anything unusual. So I think we expect that we are on track and we will work through this in an orderly fashion and our comments will be filed by August 18.

And a different question, Paul. All of the news in the media right now on Brazil's economy, some political tension there as well. Just on a macro scale, how is Brazil looking for you guys going forward from the ground there? Any change in your overall expectations perhaps for Latin America in general versus what you were assuming in your guidance?

No, I mean I don't think so. But let me -- Andres, who spends a lot of time there and has been there recently, he might provide a perspective, his view.

Sure. Basically Brazil, the energy demand is growing at 3%. They have a lot of various infrastructure projects underway. Specifically the buildout of the oil and gas sector has been a big (inaudible). Given what we know today, we have no reason to change it. We continue to see good growth in the markets like Chile and Colombia. But I would say that the things that could change, that would be a drop in commodity prices to some extent, but that is true about most of the regions in the world. So basically I would say our views continue unchanged and as Victoria stated in her statements, we have seen strong growth in most of those markets.

Okay, and last question, on the cost reduction, the $100 million run rate by '14, can you remind us what is embedded in your '11 and '12 guidance for cost reductions?

The '11 guidance actually had -- we have severance costs that we are incurring so it was actually -- we are covering those in hitting our guidance as stated. And we only have about $10 million in '12 because we are still ramping up some of the activities. At this point, we look to be at least at if not above that just based on the actions so far.

Got it. Thank you.

Gregg Orrill.

Thanks. Maybe sticking with the cost-cutting program, as you have gotten into it, how do you feel about the $100 million target and kind of ability to raise that?

Victoria will shoot me for answering this, but I feel pretty good about it. I think there is probably some upside to that as we look into it. We are pushing really hard to get there. So I feel very confident that we can get to those levels and probably beat them.

Paul, on prior calls, you have talked about, as the business changes, initiating a dividend. What are your updated thoughts on that?

We have been talking about it at the Board level. I think what we feel pretty confident about now is, in today's environment with everything we have going on, we are probably not in a position with our debt levels, debt service in a position where we can start paying a dividend. But if we look out say by 2013, we are starting to get to levels where we probably have enough room or we could if we wanted to issue a dividend. We would have more flexibility then. I think we will keep talking about that. But the one thing we do sense is the investors today clearly value yield and we have some very high yielding assets and we are just trying to think about how do we take advantage of that.

Clearly a number of our investors have been pushing very hard for a dividend. I think we could be paying a dividend. I think as we get to 2013, we probably are generating enough cash where we can be investing in new projects, paying a dividend. So I think when we couple that with asset sales as we move out of the markets that aren't the focus markets, that will even give us greater capacity to be making growth investments and basically trading out of assets with -- and selling them to people who have lower yield requirements, then reinvesting it at higher returns.

So I think we will be talking about that a lot more next year, but you shouldn't expect anything clearly not this year and probably not next year. But I would say 2013 is a timeframe where it becomes very possible to do something.

Thanks.

[Moira Shaughnessy].

Good morning. Two questions actually. First of all, the concern with the Dayton -- the DPL acquisition was the potential cliff and once ESP ran off at going to market prices and now we have the CSAPR rules and can you just talk about the investment under the -- assuming that the EPA rules actually come to fruition?

Let's have (inaudible) cover that.

We are probably not in a position to offer any insight on DPL at this point. That is probably not appropriate and in terms of our own fleet on the rules, they are not that inconsistent with the (inaudible) and the historic expectations. There are obviously some allocation differences that still need to be sorted out.

IPL will have some level of CapEx it would require, but obviously we are going to balance ultimately what comes with the MACT rules at the end of the year in terms of investment needs and how to play that all out. So we are not prepared to put a CapEx number out today, but the regulation, as you are aware, in Indiana would allow us to recover those costs through rates.

The balance of our North America fleet is mostly already scrubbed and has NOx controls, so we don't anticipate any significant capital on the balance of our fleet. Obviously our O&M costs will change as a result of probably running scrubbers and SCRs harder than we have historically, but that should be reflected by higher prices in the market as well. So I think we feel overall like we are in pretty good shape and certainly didn't get any what we would consider to be significant surprises and I think anticipate that the MACT rules that come out will actually drive what the CapEx requirements will be.

Okay. And secondly, just again on the capital allocation discussion, it seems that it is a continuation of the trend of your Latin subs materially outperforming the parent company stock. As of last night, Eletropaulo, up 23; Tiete, up 2; Gener, up 4; your stock down 12 and that could be -- that could be done on almost any timeframe with the material outperformance on the Latin names and just trying to think through, you mentioned buying back some stocks, still not the dividend for a while. Any sense as to -- that the Latin stocks grow nothing in a huge way, but in a very defined moderate way and give some very good dividends and proven to have been pretty awesome stocks over time and yet parent company stock has been under so much pressure. And Eletropaulo stock materially benefited from the dividend announcement, a la via the asset sales, the Tacoa asset sale, which was materially above expectations and the parent company stock, all it does has been going down.

So in this venue, I mean it seems more aggressive and you have a major seller who has been dumping the stock for the last several months. So in this venue, it seems like something more aggressive needs to be done. And maybe that is a commentary or a question, I am not sure.

Well, I think it is pretty clear. All I would say to your question is that is -- everything you said we agree with completely, that -- I think what is clear is that because we are not paying a dividend, that is causing some people to not -- or I should say there is a high demand for dividend-paying stocks, particularly companies like us. And having the ability to do that is something we think would materially potentially increase the value of the Company. And we think we can get there.

The second part is because we have companies that are trading at a relatively good price relative to the parent, there is potential arbitrage there. Some of these are publicly traded. We have got the ability to do some things there. So that does give us the ability to think about, from a portfolio management standpoint, does that give us a source of funds that makes sense. So I think everything you said I would agree with.

No sense of change of pace in terms of either the share buyback or dividend or you mentioned the stock under $11 looks pretty compelling.

Yes, definitely a change of pace between the stock above $13 and the stock at $10.75, yes, a definite change of pace.

Thank you.

Brian Taddeo.

Hi, good morning. Just had a quick one. I was wondering if you could give us an update as to where things stand on AES Eastern. Any progress on an asset sale or any progress made there along those lines?

Yes, I think that is continuing. I don't know all the details, but the process continues with one of the bidders and I can't provide a lot more detail on that, but as we get to a certain point where we can, we will certainly disclose that to the market.

Can you give me a sense of kind of what the liquidity situation looks like at the project now? And then after the July payment, how much cash is there, etc.?

Ned, can you comment on that?

We are fine through the end of the year.

I'm sorry. Fine through the end of the year? So you can make the January payment as well?

I don't think we want to comment at this point. Ned's point was that we were fine through the year-end projections that we have given.

Okay. Thank you.

(Operator Instructions).

Okay, is that it for questions, operator?

At this time, we have no further questions.

Okay. Well, thanks, operator. Before ending the call, I would just like to reiterate a couple of the key points that we discussed. One, our second-quarter earnings grew over the first quarter. They were in line with our expectations and we are on track to achieve the full-year guidance. Our pending acquisition of DPL is progressing smoothly and we remain confident it is going to close in the fourth quarter of this year or in the first quarter of 2012.

I thank all of you for joining us on the call today and for your attention and we look forward to talking to you in the not-too-distant future. Thanks.