愛依斯電力 (AES) 2012 Q1 法說會逐字稿

Good morning and thank you for standing by. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session.

(Operator Instructions)

Today's conference is being record. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host, Ahmed Pasha, Head of Investor Relations.

Thank you, Effie. Good morning and welcome to the first quarter 2012 earnings call of the AES Corporation.

Our earnings release presentation and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors.

Joining me today this morning are Andres Gluski, our President and Chief Executive Officer; Victoria Harker, our Chief Financial Officer; and other senior members of our management team. With that, I will now turn the call over to Andres.

Thanks, Ahmed, and good morning, everyone. And welcome to our first quarter 2012 earnings call.

Since our last earnings call in February, we have continued to meet with many of our investors as we visited Baltimore, New York, and London. We had some great meetings and I appreciate the direct feedback on our plans and strategy.

Today, I would like to highlight some of the progress that we've made since our fourth quarter call. First, we're off to a good start with our results, and despite some headwinds, we are reaffirming our adjusted EPS guidance for the full year. Second, we're encouraged with the progress we are making at DP&L, including their market rate option filing and the likelihood of reaching a constructed outcome in a timely manner.

Third, we have closed two more asset sales, Red Oak and Ironwood, for a total of $227 million in proceeds to AES. We have also signed an agreement to sell our interest in 379 megawatts of hydro assets in China, subject to the customary approvals. This represents additional equity proceeds of approximately $48 million. And fourth, we remain committed to using a balanced approach to capital allocation in order to deliver on our 2013 to 2015 total return goals. To that end, we have increased our current share repurchase authorization by $180 million. So we now have authorization of $302 million.

Now, turning to our first quarter 2012 financial results. As you may have seen in our press release this morning, we reported $0.37 in adjusted earnings per share for the first quarter, a 54% increase over the first quarter of last year. Similarly, proportional free cash flow grew 51% during the first quarter. Victoria will discuss the drivers of our performance in more detail, but I am pleased with our results, which put us in a strong position for the year. We delivered this healthy performance despite having had an extremely mild winter in the US, one of the warmest in recent history, which affected us doubly through low natural gas and energy prices, as well as lower demand.

The second topic I'd like to address is DP&L. During the first quarter, we continued with our plans to integrate DP&L with the rest of AES' portfolio. We named a new President and CEO of DP&L, Phil Herrington. Phil has more than 20 years of industry experience which includes managing a competitive power business. His experience and skills are well suited for today's dynamic Ohio marketplace. At DP&L, our focus is threefold; obtaining a constructive outcome in the rate proceedings for 2013, executing on our retail strategy, and achieving operating efficiencies at the business.

As you may recall, DP&L's current generation rates expire in December of 2012. To establish the tariff for 2013 and beyond, DP&L filed a market rate option, or MRO, with the Public Utilities Commission of Ohio at the end of March. Under the proposed terms of the MRO, DP&L would transition customers to market prices for generation over the next five years. We are working closely with the Ohio Commission, customers, and other interested parties to arrive at a constructive outcome for all stakeholders in a timely manner. The staff's comments were issued last Friday and they were very productive. We are where we expected to be at this stage of the process.

The team at DP&L is also focused on enhancing their retail capabilities. Customer switching trends at DP&L for the first quarter of 2012 were in line with our guidance for the year as 3% of the load switched during the quarter. As of the end of March, 53% of the total retail load had switched to alternate suppliers, but DP&L's retail arm was able to capture 78% of the switched loads.

The reduction in DP&L's gross margin in the quarter as a result of customer switching is approximately $27 million, up $18 million from the first quarter of 2011. DP&L's retail arm is now not only aggressively working to retain customers in its service territory, but it is also branching out to track new customers in Illinois and other areas of Ohio. DP&L's retail subsidiary, MC Squared, recently won a competitive bid auction to supply several North Shore Illinois communities with electricity for up to three years.

We are also taking a careful look at ways to improve our operating margin at DP&L and our North American portfolio in general. Due to current low natural gas prices, the near-term outlook for DP&L is challenging and admittedly disappointing relative to our expectations at the time we announced the acquisition. However, forecasts for DP&L are still within our guidance range for this year and consistent with our earnings growth rate targets for 2013 to 2015.

Thirdly, I'd like to update you on our asset sales program. We continue to make good progress on narrowing our geographic and business focus by selling select non-strategic businesses. Since our last call, we closed the sales of our Ironwood and Red Oak plants for a total of $227 million. In addition, today we announced that we signed an agreement to sell 100% of our interest in the 379 megawatt small hydro assets in China. On a proportional basis, we will sell 72 megawatts.

Proceeds are expected to be approximately $48 million and we believe this transaction will close in the second half of 2012. Including the transaction announced today, we have closed and signed asset sales totaling $804 million, about 40% of the potential $2 billion universe of non-strategic assets that could be sold. The average P/E multiple realized on these sales was more than 20 times 2011 adjusted earnings. These sales have also led to the deconsolidation of $1.7 billion of nonrecourse debt from our balance sheet.

Finally, as we laid out in our fourth quarter earnings call. We are executing a balanced approach to capital allocation, which aims to balance strong total shareholder returns with profitable growth. Now let me review the primary sources of available cash that we will allocate this year. In addition to our asset sale proceeds, we expect to generate approximately $600 million of parent-free cash flow. This would bring our total net discretionary cash for the year to approximately $1.3 billion.

Now, let me lay out how we plan to use our available cash. We intend to use approximately two-thirds, or $920 million, to delever the Company and buy back stock. To date, we have already paid down $197 million of expensive nonrecourse debt in Brazil, and we have used another $285 million to repay borrowings on our corporate revolver which we drew on to fund the acquisition of DP&L.

As I mentioned previously, our board of directors has increased the outstanding authorization for share buybacks from $122 million to $302 million. We have not repurchased any shares since the fourth quarter of 2011, because we used our liquidity to fund the acquisition of DP&L, and then in the first quarter to pay down associated borrowings under the revolver. Nonetheless, at current prices we see share buyback as a value accretive investment. In addition, starting in Q4, we will paying a $30 million quarterly dividend.

With respect to the remaining one-third of our discretionary free cash, or approximately $360 million, we intend to utilize this sum to grow our portfolio or to further invest in our balance sheet. Before making any final determination, we will apply the capital allocation framework we discussed in our last call with the goal of maximizing risk adjusted total returns for our shareholders. To that end, we will provide you with an update on our capital allocation plans as we make progress on asset sales and realize the free cash flow being generated by our existing businesses.

Now, let me provide you with an update on our development projects. We are only proceeding with those projects that meet our investment criteria in markets where we believe we have a compelling competitive advantage. We are giving preference to those projects that expand upon existing platforms and use pools of local liquidity, be they debt or cash. Our goal is to significantly improve on our overall capital efficiency and return on invested capital.

In Chile, we are making good progress on our two most advanced development products, Cochrane and Alto Maipo. Cochrane is 532-megawatt coal fired plant adjacent to our newly commissioned and successful Angamos project in the northern grid. And Alto Maipo is a 531-megawatt run of the river hydro plant near the low center in Santiago.

Alto Maipo is an expansion of our existing 209 Alfalfal run of the river hydro facility. We have already received a number of critical milestones on both projects including securing the necessary environmental permits. We are currently working on the power offtake agreements, construction contracts, and financing. Given our large position in Chile, we expect the equity needs of the two projects to be supplied through the local Chilean market or through cash being generated at AES Gener level.

We are also making good progress in the Philippines where we have a 630-megawatt coal-fired expansion project adjacent to our existing 660-megawatt Masinloc facility. Recently, the Philippine government approved this project for various investment incentives such as an income tax holiday. The project team is focused on offtake agreements, EPC contracts, and nonrecourse financing with the view to close in 2013. In India, where we have trapped cash in our joint venture with the State Government of Orissa, we are making progress in deploying that cash towards the tripling of capacity at our OPGC facility. Our initial equity contributions to the platform expansions in India and the Philippines are unlikely occur before 2013 as the projects can self-fund early stage development activities.

In addition to these platform expansion projects we're making steady progress on building out our wind development pipeline in Poland and the UK, and the development of two thermal projects. One in Colombia via Chivor, a 1,000-megawatt hydro owned by AES Gener. And one in turkey via our joint venture with Koc. We are also moving forward with smaller but highly profitable platform expansions like a 20-megawatt lithium ion battery facility related to the Angamos facility in Chile, Tunjita, a 20-megawatt expansion of our hydro plant at Chivor in Colombia, and closing our open cycle Los Mina gas plant in the Dominican Republic. We expect our equity investments in all of these projects in 2012 to be modest.

Our larger construction projects are also progressing well. In Chile, we expect the 270-megawatt coal fired plant Campiche plant to be commissioned in early 2013. And in Vietnam, our 1,200-megawatt coal fired Manjung plant remains on track for commissioning in 2015.

Overall, I am pleased with the growth prospects we have across our portfolio. We have not seen any negative effects from our reduction in business development expenditures. Our greater focus on platform expansions has lowered development costs and is yielding projects with higher average returns and greater capital efficiency, which we define as net present value over AES equity investors.

Even so, in all cases the value created by development projects must beat the value creation opportunity we have through share buybacks and debt repayments. As I mentioned on the last quarterly call, we will implement our capital allocation framework with the goal of achieving an average three-year total return of 8% to 10% from 2013 through 2015.

With that, I would like to turn the call over to Victoria to discuss our strong results in the first quarter in greater detail.

Thanks, Andres, and good morning, everyone.

Today I will cover the following topics. Our first quarter results and key drivers of gross margin, earnings per share, cash from operations and free cash flow, parent liquidity, and finally our 2012 guidance.

First, let's review our financial results for the quarter. Our proportional gross margin increased by $172 million compared to the first quarter of 2011. This was driven by the contributions of our new businesses including Dayton Power and Light in the US, Maritsa in Bulgaria, Angamos in Chile, and Changuinola in Panama, as well as strong volume growth in Latin America. In addition, gross margin benefited from settlement of several prior period claims at Cartagena in Spain. These disputes were resolved earlier this quarter, allowing us to record a proportional pre-tax benefit of approximately $67 million.

However, we also experienced some headwinds during the quarter. At AES Gener, lower spot pricing reduced margins in the SING in the northern part of Chile. This is a significant trend we are experiencing this year, which I will cover in more detail when I discuss our full year 2012 guidance expectations. Beyond this, as many of you know the tariff reset process for Eletropaulo in Brazil is still underway. However, on April 19 the regulator there issued a preliminary tariff proposal which is lower than previously expected.

To reflect our updated projections of the tariff reset outcome on AES, we increased our pre-tax regulatory liability to $162 million for the quarter which includes a catch-up liability of $29 million for the second half of 2011. Relative to our previous expectations, this equates to an incremental ongoing $5 million impact to proportional gross margin per quarter as AES owns 16% of Eletropaulo.

Turning to adjusted earnings per share, first quarter results increased by $0.13 to $0.37. The new businesses contributed $0.06 during the quarter, and higher volumes in Latin America added $0.05. Lower prices, primarily related to the tariff reset expectation in Electropaulo in Brazil and spot prices in Chile reduced earnings per share by $0.04. Beyond this, outages at our plants in Northern Ireland and Panama impacted the quarter by $0.02. Repairs in those locations are nearing completion and most of those plants will be back online later this quarter.

In addition, our Esti plant in Panama is also scheduled to be back online early in the second half of 2012. Finally, the settlement at Cartagena added $0.06 for the quarter. In total, the trends affecting gross margin added $0.11. Lower G&A costs and other factors contributed $0.02 for the quarter compared to the same quarter last year. When compared to a year earlier, diluted or GAAP earnings per share from continuing operations increased $0.14 to $0.44 for the quarter driven by an increase in gross margin and a gain on the sale Cartagena, but offset by impairment losses which are excluded from adjusted earnings per share.

Now, turning to cash flow. These same operating trends also drove our cash flow performance for the quarter. We recorded year-over-year gains on both a consolidated and a proportional basis. On a consolidated basis, our net cash from operating activities increased 6% year-over-year. Our proportion of free cash flow increased 51% to $235 million for the quarter. These positive cash flow trends also benefited parent liquidity during the quarter. Not only did we generate $229 million from the close of the sale of our business in Cartagena in Spain, but we also realized $176 million in subsidiary distributions from ongoing operations.

Finally, as Andres mentioned we repaid $285 million of borrowings under our corporate revolver that have previously drawn during our acquisition of DP&L in late 2011. As a result, we ended the first quarter with more than $900 million of parent liquidity, up from $693 million at year end 2011 significantly strengthening the Parent balance sheet.

In summary, we reported a strong quarter across most financial metrics. Further, we're on track with our cost cutting initiatives as we expect to achieve $50 million of savings in 2012 and cumulative cost savings of $100 million by the end of 2013. With all of these levers in hand, we are well-positioned to deliver on our financial commitments in 2012 and beyond.

Now, let me give you an update on our 2012 guidance. We are reaffirming our full year guidance for adjusted earnings per share and all cash flow metrics based on the trends we currently see. However, we are lowering US GAAP earnings per share guidance at this time from a range of $1.28 to $1.36 to 1.22 to $1.30, reflecting $0.06 of non-cash impairments recorded during the quarter.

Now, let me discuss trends impacting our guidance metrics in greater detail. Since our last call, there have been both positive and negative developments that have had an impact on our 2012 forecast. Starting with earnings per share. As I mentioned earlier, relative to our budget we experienced a decline in spot market pricing in Chile during the quarter. Lower spot prices in Northern Chile were primarily driven by the temporary market pricing impacts of fuel supply dynamics at competitor plants.

AES Gener's exposure to lower spot prices in Northern Chile reduced adjusted earnings per share by approximately $0.04. However, in June contracted capacity at AES Gener's new Angamos facility will increase from 65% to 90%. So, the exposure to this market pricing factor will be reduced during the second half of the year.

In addition, the Eletropaulo tariff reset is still pending and is expected to be finalized by June of this year. Relative to our previous 2012 guidance, we now have to absorb a $0.02 reduction in adjusted earnings per share consistent with our Q1 regulatory liability accruals. We will, of course, update you once the important tariff change is finalized.

Another factor affecting our 2012 operational outlook is the loss of earnings from the Red Oak and Ironwood plants due to their sales which is approximately $0.01. As these asset sales are now closed, we have reflected this in our full year adjusted earnings per share guidance range. On the positive side, since December 2011, foreign exchange and commodity price forward curves have moved in our favor. We've updated our guidance to reflect the forward curves as of March 31, 2012. This resulted in a positive impact of $0.06 in adjusted earnings per share. Finally, we are projecting a $0.01 benefit from investing our discretionary cash in planned debt pay-down and share repurchases in the second half of 2012.

Further, as previously noted on our last call, our adjusted earnings per share guidance assumes the extension of the US income tax deferral benefits originally enacted under TIPRA. This is reflected in an effective tax rate for 2012 which remains generally in line with our 29% tax rate for 2011. As in prior years, we expect Congress will retroactively extend this tax legislation later this year, but it has not as yet been passed. As a result, we've been hard at work this quarter developing tax mitigation strategies to reduce the full year estimated earnings impact from approximately $0.12 to $0.02 to $0.03 this year should TIPRA not be extended before year end. Recall that this is non-cash impact, as we have an outstanding net operating loss balance of approximately $2.1 billion.

Considering all of these factors we are reaffirming our adjusted earnings per share guidance range of $1.22 to $1.30 for 2012. In terms of our cash flow guidance, we expect 2012 to come in near the lower end of our range for both consolidated and proportional measures. This is largely due to higher working capital requirements in Brazil, higher environmental CapEx anticipated at AES Gener, as well as the loss of cash flow from asset sales.

Note that our current guidance includes only the impacts of asset sales that have closed as of April 2012 including Red Oak and Ironwood. We have not yet included the impact of our China asset sale in our guidance, but we expect it to be minimal, as this business was not expected to be a significant contributor to our 2012 financials.

With that, let me turn the call back over to Andres.

Thanks, Victoria.

In closing, we were executing on our commitments to our shareholders. A strong first quarter puts us on track for our 2012 target. We continue to sign and close asset sales and we are achieving good valuations for shareholders while we simplify and streamline our operations. We are well on our way to achieve $50 million in cost reductions for this year and a total of $100 million by the end of next year.

We have increased our authorization for share buybacks for $302 million and remain committed to an average three year total return of 8% to 10% from 2013 through 2015. I look forward to continuing our dialogue with investors and analysts and we will be providing timely updates on our progress.

Operator, we will now open the line for questions.

(Operator Instructions)

Julien Dumoulin-Smith, UBS.

So first question here, if I heard you right, Victoria, you mentioned a reduction in the TIPRA impact. I'd just be curious, what happened there to drive that?

Without going into a huge amount of detail on the call, we effectively looked at a number of the countries that generate the TIPRA-related tax impacts for us and we've looked at changing some of the treatment relative to that from a reporting standpoint. It's not recurring in terms of the benefit, but we do believe if we don't get the extension we can effectuate that in year, taking the impact from $0.12 to about $0.02 to $0.03.

Great, thank you. And on the DPL side, first question, MRO versus ESP, it seems like the staff or PUCO broadly wanted to -- it seems to desire an ESP, Can you still settle the case even though you have an MRO in front of you and how would that work just logistically?

Julien, I'd like Andy to answer that.

Thank you, Andres. Julien, good morning, it's Andy Vesey. As you know, we did file the MRO because we believed that it was the best way to get a good consolidation of a lot of the interest. Our MRO will deliver lower tariff rate to all our tariff customers over time including in 2013. It aligns with the statutes in Ohio and advances the public policy towards competition, and for us it really protects the financial integrity of the Company. And more importantly, it allows us to emerge in this transition period as a viable competitor in the market. That said, staff comments basically have indicated that they believe we could get all those outcomes with an ESP and in fact advised that we consider. And I think their words and their comments would strongly advise that we consider it because it had more advantages to us.

We're entering the technical conference -- excuse me, the pre-conference hearings next week. We've had a very open engagement with interveners and with staff. I think our view is that there is enough commonality of interest that settlement is a possibility. And my sense is that, as we move towards the evidentiary hearing in June, it will probably be the best time to find some common ground. So we are open to the comments. We're open to proposals. Our view is that if we were to consider moving forward from an MRO to an ESP, we would only do so if it gave us the same benefits as the MRO does. And if the staff is correct that there are greater advantages, we surely would consider heading down the road of a settlement, and our view is that the settlement could be done in a timely way and within the schedule laid out by the commission. So I think that's the way we're seeing it.

Great. And then, looking at the SG&A and integration of DP&L, just on the cost front, clearly executing on that. But, for the balance of the year and as you look into 2013, how does that pan out for you guys -- maybe Victoria?

Julien, it's Andy again. When we announced the acquisition, I think we said that we were looking somewhere around $40 million over time for that. We're making progress. I have to say, since November since we've got it, we've done a lot of work looking at all the costs, analyzing the opportunities, and we've started to pull out some synergies. I think what will be helpful to us as we get through the case and we see how we come out, it will give us a better sense of the platform that we'll have and where we're going to drive. My view is that within the next two years, we'll make some substantial progress on that.

As Andres had said, the approach at DPL is three pronged and they're almost in series. The first thing we have to do is we have to get the case completed so we have clarity on a lot of the issues. At the same time, the next thing is to really continue to drive on the regulatory strategy. We've made a lot of changes. The adding of Phil Herrington is a very important step to us. With his competitive experience, we've integrated MC Squared into the retail function broadly at DP&L. We're doing a lot of operational sharing between our other businesses, and that will lead us then to such really drive costs after two reasons. One, is because I think across the business we should do that because we have the capability at AES to do that. But secondly, because it will make us a much more able competitor in the marketplace. So the answer to your question, I think we're on track with the synergies, as we're looking at them, and they will materialize over the next 24 to 36 months.

Yes, and Julien, as we said, we're really looking at it from a portfolio point of view. So a dollar saved is a dollar saved regardless of where it comes from. So we really want to bring to bear our synergies, economies to scale, and operating know-how, but we really think of it from a portfolio point of view.

Great. And just quick last one here. Argentina, there have been some clear news events about nationalization. Just first with regards to any read-throughs, and secondly from a distribution perspective, the expectation had been fairly minimal regardless, right?

Yes. First, regarding Argentina, we have good relations with the government. We've done a number of high-profile projects such as burning biodiesel -- the president came to see it -- and the CCGT, and certain other high tech. We have exited our distribution businesses, which is the most regulated. As you know, we sold three distribution businesses over time. So, I think our situation is different from that of YPF, which has caused a lot of the news and has some particular circumstances around it. Now, regarding the importance of Argentina to our portfolio from -- the distribution from Argentina this year are $25 million, and to put that in perspective that's about 2% of our total. So, we don't expect the material impact of any possible developments in Argentina. But, as I said, we have a very productive relationship with the government.

Great, thank you very much.

Gregg Orrill, Barclays Capital.

I was wondering if you could hit TIPRA again just in terms of the offsets that you found? What happens to the potential offsets if TIPRA is extended? Would you use those in later years or -- and I think you also said it was a one-time benefit, if I heard you right?

Yes, and I think we can -- it's probably not worth going through a huge amount of detail on this call, but it's relative to our tax filings relative to those particular countries that tend to generate the income for us that are TIPRA-related in terms of the tax effects. So, once we move down the path of doing that it's not a duplicative set of benefits that we get if the TIPRA legislation is enacted later this year, but we don't have it on a recurring basis. It just would occur in this year. And, again, it would take the full-year impact to about $0.02 to $0.03 from about $0.12 that we had anticipated before.

I think -- this is Ahmed -- these are tax strategies, Gregg, that our tax group has implemented and they always do that. This is tax planning at the end of the day that has helped us to avoid $0.06 or $0.07 in potential impact.

What I think is important, we expect TIPRA to be extended. And what we're doing in no way affects if it does get extended. There's nothing that we have lost as a result of these actions. Do realize that if it weren't to be extended, we could change the way we upstream cash from these big businesses, and mainly the big businesses in Chile and Brazil as a result of this. But it's a -- as I said, we said from the very beginning that we expected it to be extended, and we also said that we were working on offsetting strategies if -- just in case it wasn't extended. So we're fulfilling I think exactly what we said, and we still think it's going to be extended just like it was in 2010.

That's good to find. In terms of the buyback, if you could, Andres, just kind of clarify what you were saying there about coming back to us on capital allocation later in the year. I wasn't sure if you were meaning to say that you weren't going to be buying back stock in the quarter for one reason or another because the cash wasn't available.

No, not at all. What I said is that -- as you know, in the fourth quarter of 2011 we were quite aggressive on our buybacks. We did not do any buybacks in the first quarter of this year. And the reason for that, as we said, is that we had to complete the acquisition of DP&L and then we wanted to pay the outstanding balances on our revolver. Going forward, as I said, we believe that at these prices it's good value for us to do buyback. What I did mention there is that all of the available cash that I had mentioned, the $1.3 billion, does not include any additional asset sales. If we do additional asset sales and as we see the new projects progress that one-third of the total amount, which is approximately $360 million without additional asset sales, that it will be coming back and giving you a greater clarity in terms of where we will be using that money. So I hope that answers it. I'm not saying at all that going forward that we would not be doing any stock buybacks at this point in time.

Great, thank you.

Ali Agha, SunTrust.

Andres, or Victoria, wanted to be clear on your 2012 guidance updated. And in your updated slide, I did not see any mention of the $0.06 that you picked up for Cartagena this quarter. So to be clear, are you excluding that from your guidance? Had that only been budgeted in the original? Because I don't recall that. So, how should we be thinking about that? And, should we look at $0.37 as kind of the starting point to get to the $1.26? Or, should we really be looking at $0.31?

Okay, no. Let's start back. First, the Cartagena $0.06, that was part of our guidance from the start. We've also had some one-time costs associated with the acquisition of DP&L. So it's not just -- our run rate, I don't think it's fair to say it's just the whole $0.06. There were some offsetting couple cents in the opposite direction. So, no, that has been part of our guidance from the beginning. And then the numbers that we're giving, you're starting from the $0.37 for the numbers that we have given for the full year.

Okay. I will follow that offline as well. Second question, with regards to the projects in development that you laid out, can you remind us for the big one that you laid out, what is the equity contribution in total from AES? When would those projects start contributing if they follow the schedule you plan? And what kind of return on that equity should we be thinking of in terms of potential earnings power from those projects?

Okay, that's a big question. Let me see -- I'll put it in pieces. I think when you're referring to the big projects, you're not referring to Manjung and Campiche because those are fully funded, right?

I'm talking about the projects in your slides that you have laid out as in the development pocket.

Okay, the new ones. So you're talking about Cochrane. You're talking about Alto Maipo, and we're talking about Masinloc II.

Yes.

Okay. Cochrane, the way to think about it is sort of cookie cutter, it's another Angamos. It would be right next door. It probably has the same equipment, same EPC contractor, a similar off-take agreement with the mining company, one or more. So just think of it as a repetition of Angamos. In terms of the NPV created for example at Angamos to give you an idea -- and again, I can't give you an exact number. We have targets for Cochrane that until we sign PPAs and finalize the contract. But the NPV created at Angamos was about $300 million. And we're also expanding on the Angamos facility by putting a 20-megawatt battery -- lithium ion battery facility there. Alto Maipo will be a very profitable project. It's a large project. Even though it's run of the river, there's a lot of construction involved. So that would -- if we're starting now, this is a project which would come on-stream around '15, '16.

And so those are the three main projects. I think when you look at them -- the other one of course is Masinloc II. Just let me go back a little bit. Thinking of two Gener projects, you're talking about probably equity needs of around $400 million over the next three years. And that would come from, locally, through Gener's cash flow and other means. And then if we look at Masinloc. Masinloc doesn't have the same sort of support, but you're basically looking at a 630-megawatt expansion of the existing current Masinloc facility. So you're probably talking about maybe half that amount, about $200 million. And that's a little bit less advanced than the two projects are in Chile.

Okay. And then, given your comments on the share buyback and capital allocation, Andres, and if I heard you right, we should be looking for more share buybacks over the course of this year and beyond. In the past you talked about some headwinds and the timing of projects coming on that may cause '13 to perhaps not be on the same path as the '12 to '15 guidance you've been talking about. Should we now see that not necessarily to be the case and perhaps share buybacks could be one way for you to keep '13 on that same path that keeps you going -- the 8% to 10% total return, '12 through '15?

What I would say, if you look at this year 2012, it's about a 20% increase in adjusted EPS from 2011. And that's obviously due to acquisitions plus new plants that were commissioned. When we look at '13, we obviously don't have that amount of new plants coming online. So it's not going to have the same sort of growth rate, and nor have we said that our target is 8% to 10% every single year. Now we do think that if we -- executing on the share buybacks will help smooth that path, but there is some inherent lumpiness in this business in terms when the projects come online or when you execute on acquisitions. And also how quickly we can reinvest, through the capital allocation process, additional funds from the asset sales. So what I would say here is that we are on track for 2012. And we're on track for the average growth rates from '13 to '15, and we'll update you as time passes. But, we're not committing to an exact 8% to 10% every single year. And, of course, that also includes our dividend payments. So that's a -- we're really looking at a compounded annual growth rate in earnings, excluding dividends of 7% to 9%.

Understood. Thank you.

Charles Fishman, Morningstar.

If you could explain some comments you made on the DPL switching. The $27 million, was that year over year in the quarters due to switching? Or was -- I didn't understand that $27 million.

That is in the quarter. That's a year-over-year comparison. That was -- looking had there been no additional switching what it would have been. So we look at a year-ago quarter then we're saying it's up $18 million from the reduction that we had from switching a year ago.

Okay, thank you for that clarification. Then if you are recapturing 78%, I believe I heard you say.

That's correct.

And if memory serves me, you were up in the high 80% level end of 4Q. If those numbers are right, is there an explanation for that? Is the competition tougher? Can you add any color about what's going on?

I can, again, I think that in general there is more competition today than there was in the past and there's also aggregation. I think Andy can add some color on that.

Charles, Andy Vesey. You're right. When we think about it, what you're dealing with now is residential customers. And looking at a large commercial industrial customers initially, we had a higher capture rate because we had a much tighter relationship, they were in franchise. We had relationships ongoing, so we had a higher rate. Not significantly high, we're still doing pretty good.

So what you see is two things. One is, you're seeing different classes of customers now. Now the competition is fully over at residential customers and they're coming either into markets where aggregation or sort of one off knocking on a door and getting an opt-in customer. The competition is increasing. So that's why our numbers have dropped slightly in the recapture. So, our overall capture rate, if you work off the numbers that Andres has given us, it's about 87% are still affiliated with the DP&L brand which is critically important because having that brand affiliation will help us with being able to place our generation going forward. So that's why it's very important for us to actually capture customers.

I think one of the issues of aggregation, what we've seen here is that it's going as we expected. There's been a little slowdown in the aggregation rate, meaning that actions haven't happened as quickly as we can, but we still think aggregation will move as we plan and as we expect. It's pretty much playing out the way we're seeing it.

Okay, thank you. Very helpful.

(Operator Instructions)

Brian Chin, Citigroup.

Just a question on slides 13, the AES Gener spot prices in Northern Chile. In prior Ks and Qs you guys have identified that for 2012 you guys were expecting extra generation units in Chile to come online and that would suppress power prices in Chile. I had kind of assumed that you had baked that into your guidance, but when I see slide 13 and you've got an extra $0.04 of ding there that suggests that the impact from those plants coming online was a little bit bigger than what you guys had expected. Is that right and is there further continued expected volatility in that, potential downside risk, or can you just give a little bit of extra color there?

That's not exactly right. What we're talking about was the fuel prices. I'll pass it onto Ned to provide more color, but that's really what's different from expectations.

Good morning, Brian, it's Ned Hall. The units did come online and they did impact the market as anticipated. And, as you know, we long-term contract the majority, somewhere between 70% and 90% of all of our capacity, our reliable capacity. As Victoria pointed out, in this year we have a step-up coming at Angamos from 65% to 90%. So we still have that market exposure. And what's changed in terms of the spot pricing in the northern grid is a number of people who are utilized gas signed up for take or pay L&G contracts. And they've modified their bidding behavior to reflect the fact that those are take or pay contracts which lowered the overall clearing price in the market as a result of that. Those -- our understanding is most of those take or pay contracts expire in the last quarter of this year, and we don't anticipate that people will make that decision going forward. So in addition to us stepping up into a higher contracted position to 90% at Angamos, we also think that spot market prices and exposure that we do have out over time will improve as well. But in this period where we were 65% contracted and the spot price came down reflecting that bidding behavior, it cost us the $0.04.

So I guess the right interpretation of that then is, if the bidding behavior has adjusted to a different level now and that stays through the remainder of the year, then your guidance would remain on track then at about $1.26?

Yes.

And then, I'm sorry to beat a dead horse on this TIPRA thing, but in the event that TIPRA is not extended and you guys are able to put in those mitigating treatment mechanisms, is that just a timing issue? Does that just push out the effect of TIPRA into 2013 or 2014 and avoid it having to hit in '12? Or is there more of a permanent effect that, that treatment has on long-term?

No, it's a temporary impact for 2012. If TIPRA is not extended we would, as Andres said earlier, need to be taking broader actions relative to the subsidiary dividends that we get from the countries that generate that tax impact. So it's a temporary measure relative to that it has a one-time in-year impact for us. And obviously if it's not extended, we will continue to look to ways to mitigate the $0.02 to $0.03 remaining, but it doesn't -- it's not a permanent solution to a lack of a TIPRA legislative approval by the Congress late this year or in the future.

Understood.

And the thing is if it wasn't extended permanently, then we'd have to take some other actions. But obviously we're not going to ever take a $0.10 to $0.12 hit.

Understood. Thank you very much.

Tom O'Neill, Green Arrow.

Just a question on DPL if I could. I was just wondering if you could decompose the switching by customer class that you saw this quarter? And I just wanted to clarify the absolute value of gross margin that you're talking about associated with that?

I think Andy can give you the breakout by customer class. I don't know if by the quarter though.

If you think about the customer class, a fundamental source of the C&I customers have switched and you're not going to see much more. That's pretty well saturated. So what you're seeing is that what's remaining is that, of our small commercial, about 62% have switched to date. And really where the action is really around the residential customers. As of the first quarter, only 21% -- or 21%, 22% of those customers had actually switched to an alternate supplier. So most of the competitive battle now is really for the residential customers and has been driven by this lack of aggregation. In terms of the second question you asked, I really don't have those numbers in my mind. And so what I suggest we do is that this is something we can talk about. Ahmed can get back to you with those after the call.

Sure. Thank you.

At this time, there are no further questions.

Okay. We thank you, everybody, for joining on today's call. As always, the IR team will be available to answer any questions you may have. Thank you, and have a nice day.

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