愛依斯電力 (AES) 2012 Q4 法說會逐字稿

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

(Operator Instructions)

I would like to inform participants that today's call is being recorded. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to your conference host today, Mr. Ahmed Pasha. Sir, you may begin.

Thank you. Good morning, and welcome to the fourth-quarter and full-year 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 this morning are Andres Gluski, our President and Chief Executive Officer; Tom O'Flynn, our Chief Financial Officer; and other senior members of our management team. With that, I will now turn the call over to Andres.

Thanks, Ahmed. Good morning, everyone. We appreciate your joining us today. I will begin with a quick review of our 2012 and then update you on our longer-term strategy. Tom will then discuss our results and 2013 guidance in more detail.

On slide 4, we finished 2012 with strong operating and financial results, with adjusted EPS of $1.24. This represents a 22% increase relative to 2011 and is the highest adjusted EPS that we have achieved in the last 10 years. Similarly, we recorded a 33% increase in proportional free cash flow. These results were achieved despite headwinds at three of our larger businesses -- AES Gener, Eletropaulo, and DPL -- and reflect our commitment to pull multiple levers, including share repurchases and cost reductions, to deliver results. Also in 2012, we made significant progress in executing on our strategic plan, which we laid out in September of 2011.

At that time, we identified three primary objectives for enhancing shareholder value, as described on slide 5 -- first, improving the profitability of our existing portfolio; second, narrowing our geographic and business focus through asset sales to simplify our story, reduce risk, and enhance our returns; and, third, optimizing capital allocation. I will review our progress on each of these three objectives since we started to implement the plan.

First, with respect to improving the profitability of our portfolio, we are focused on three key areas. As you can see on slide 6, by rationalizing corporate overhead and development costs, we have reduced G&A expenses by $90 million. I am pleased to report that this is 38% more than our updated 2012 target of $65 million in savings. We are also looking hard at lowering the operating costs of our businesses, as discussed on slide 7. To that end, we have reorganized into six market-facing strategic business units, or SBUs. This reorg will allow us to better align the businesses within each region, extract synergies across the portfolio, and be more responsive to changes in the marketplace. Building on our 2012 cost-reduction efforts, we are on track to realize $145 million of recurring annual cost savings by 2014.

The next area of focus is achieving positive regulatory outcomes and leveraging our commercial skill set and portfolio. I would like to provide a brief update on regulatory proceedings in Ohio, Brazil, and El Salvador on slide 8. At DP&L, our Electric Security Plan, or ESP application, is designed to balance DP&L's need to maintain its financial integrity with the Public Utilities Commission of Ohio, or PUCO's, desire for more rapid evolution to market-based rates. If approved, the proposed ESP will allow DP&L to collect a non-bypassable stability rider, which, along with other aspects of our filing, will enable the Company to earn a reasonable return on equity.

In terms of the next milestones, we are currently in a settlement negotiations with various interested parties. In parallel, the formal ESP approval process is moving forward and the hearing in the case is scheduled to begin March 11. If we do not reach a settlement, we expect the PUCO to rule on our ESP filing through the formal process by July 6. In the interim, we are operating under our prior rate plan, which was extended by the Commission in December of last year.

In Brazil, we are making progress on the tariff reset for Sul. The review process commenced in December of 2012 and a public hearing is currently under way. The national regulator, ANEEL, recently released a preliminary proposal which suggests a slight reduction in the tariff for Sul using the lower-weighted average cost of capital used in all recent tariff cases. ANEEL is still reviewing other aspects of the rate filing. Once implemented in April 2013, the tariff would be effective for the next five years. Finally, our distribution business in El Salvador received regulatory approval for their tariff for the next five years. The process in El Salvador resulted in a fair and reasonable outcome, and is in line with our expectations.

Now, turning to slide 9, I would like to comment on an example of how we are leveraging our footprint and commercial skills. Our 640-megawatt Uruguaiana combined cycle gas-fired plant is well positioned to respond to the increased need for thermal power in Brazil. As some of you may recall, back in 2008, we suspended operations of this relatively new plant, which was built around 2000. The suspension was driven by the lack of gas supply from Argentina. With the efforts of our commercial and operational teams in Brazil and Argentina earlier this month, we were able to secure gas to run this plant through the end of March. Our team in Brazil is currently working on various alternatives to return Uruguaiana to permanent service.

Now, turning to slide 10 and the second objective of our overall strategy, which is narrowing our geographic and business focus, we are executing on a plan that will not only result in a lower overall risk profile, but it will also help us to shape a more focused and efficient Company. I am pleased to report that, since September 2011, we have executed diligently and we are on track to exit five countries, including the Czech Republic, France, Hungary, China, and Ukraine. We have announced or closed the sale of 14 businesses for total proceeds of more than $1 billion at an average PE multiple of more than 20 times 2011 earnings. For 2013, we are targeting $500 million in equity proceeds from additional asset sales.

Earlier this month, we announced our plan to sell our two distribution businesses in the Ukraine. The price of the sale is $113 million, so we're looking to sign another $400 million or so in asset sales over the balance of the year. We will be using the proceeds in line with our capital allocation framework. These actions demonstrate our commitment to streamline our portfolio so that we can focus on creating value in the markets where we have a compelling competitive advantage.

Now, turning to slide 11, I will cover our third strategic objective, optimizing capital allocation. Growth in shareholder value remains the number one priority for our management team, and I am encouraged by the progress we have made to date. In 2012, 82% of our discretionary investments were allocated to debt repayments, dividends, and share buybacks. More specifically, since September 2011, we have prepaid more than $700 million of debt, which not only reduced our leverage and our financial risk, but decreased our annual interest expense by approximately $40 million, which benefits both earnings and cash flow. We remain committed to reducing our leverage and achieving a strong BB credit metric over time.

Another lever to create first share value is to invest in our stock. To that end, we have bought back 34 million shares since December of 2011, or approximately 4% of our outstanding shares, or $390 million at an average price of $11.55. Today, we are announcing an increase in our share buyback authorization by $300 million, all of which is currently available. We also initiated a cash dividend for the first time in almost 20 years, at an annual rate of $0.16 per share, and we now have made two quarterly payments. From its current level, we expect to grow it modestly over time, as we achieve our business and financial objectives.

The third level of our capital allocation program is an investment in our platforms. Before I highlight some of the growth opportunities that we are focused on, I would like to mention that, as we've discussed in the past, we have implemented a very rigorous investment review process where each investment is evaluated against all other alternatives on a risk-adjusted basis. Additionally, our growth plans are focused on expanding from our existing platforms, where we have a competitive advantage and where we can benefit from enhanced capital efficiency by deploying cash generated at the businesses or by using local capital markets. We can earn attractive risk-adjusted returns with our platform expansions, as these projects are more efficient to develop, construct, and operate than traditional greenfield projects in a new location.

Turning to slide 12, we have a -- we have 790 megawatts of platform expansions coming online in 2013 and 2014. AES's equity investment in these projects is approximately $280 million. All of these projects are expected to achieve commercial operations by the end of 2014 or earlier, so they will contribute to a full year of earnings in 2015. Based on our current forecasts, we are estimating equity and cash returns of around 14% from these projects in 2015. We see many similar opportunities to leverage our footprint. Here are some examples of potential platform expansion projects.

At IPL, our integrated utility business in Indiana, we're upgrading our baseload coal-fired plants to comply with the Mercury and Air Toxic Standards, or MATS, as shown in slide 13. This would require approximately $500 million of investments, from 2013 to 2016, which will be funded by a combination of IPL debt and equity. We expect to earn regulated returns under IPL's environmental tracker, approval of which is expected by the second quarter of this year. We like this kind of predictable earnings profile, particularly when investments start earning cash returns during the construction phase. In addition, also at IPL, we are looking to replace some of our small peaking plants, where we cannot justify the additional investment required to comply with environmental regulations. One of the options is to build a 650-megawatt combined-cycle gas-fired plant which would commence construction in 2014 and be operational by 2017. If this option is approved by the regulator, we would start accruing earnings during construction.

On slide 14, we have listed two near-term potential projects. The first is our 532-megawatt coal-fired Cochrane project in Northern Chile. This project capitalizes on our existing platform and the continued expansion of Chile's mining and industrial sectors, where power demand has grown by more than 5% per year over the last 10 years. We brought in Mitsubishi as a 40% partner and we expect to reach financial close later this year. Immediately adjacent to our successful Angamos plant, the two projects will share some of the existing infrastructure, such as coal-handling and water-intake facility, which help improve the return profile of this proposed project.

The 531-megawatt Alta Maipo hydro electric project in central Chile is another advanced development project. It is largely an expansion of our existing run-of-the-river Alfalfal facility. We have all major permits and contracts in place. And the project is not only well positioned to take advantage of significant capacity constraints, but it would also diversify our generation mix in Chile, which is currently 87% thermal. We could begin construction later this year, and we are strongly considering partners for the project. For both projects, after non-recourse debt and partner equity, AES Gener would invest roughly $600 million and AES' share of that investment is approximately $425 million. Half of our investment would be funded by reduced dividends from AES Gener over the next few years, which we have included in our guidance. The other half of the investment could be funded with AES Gener corporate debt, a local equity issuance in Chile, or by additional equity from AES.

Turning to slide 15, we have included details on two other development opportunities in our pipeline. In the Philippines, we are currently developing a 300- to 600-megawatt expansion of our existing 660-megawatt Masinloc facility. This proposed project is well positioned to capitalize on the robust electricity demand growth in the Philippines, which has been growing at 3.5% annually over the last decade. Projected equity requirements from AES range up to $200 million and, once again, we may consider bringing in a partner.

Finally, in India, we are making good progress on the development of a 1,300-megawatt expansion of our existing 420-megawatt OPGC plant. With low-cost, mine-mouth coal, this project is expected to be a competitive supplier in a high-growth, fuel-short, and capacity-short power market. The state government of Odisha is our partner, with a 51% interest in this business. The project has financing in place and is currently in the process of finalizing the remaining necessary land permits. We do not expect any significant amount of equity commitments in the near term, as most of the capital costs will be funded through non-recourse debt and cash being held or generated by the existing business.

In summary, there are significant platform expansion projects in our portfolio that will help grow the earnings power of our Company. We will evaluate these potential investments against all other alternatives, such as deleveraging and returning cash to shareholders. Now, I will turn the call over to Tom, who will review our financial results for 2012, discuss our business drivers in more detail, and provide 2013 guidance.

Thanks, Andres. Good morning, all. As you may have noticed from the revised format of our press release and slides, we are now presenting our results by SBU, consistent with how we manage the businesses. If you have had time to look at our 10-K, you'll also see that we've tried to provide an overview of the key drivers of each SBU. We hope you'll find these changes and additional disclosures useful and obviously welcome your feedback. This morning, I would like to review our 2012 results, including our performance against our guidance, earnings by SBU, proportional free cash flow, and, finally, the execution of our 2012 capital allocation plan. Then I'll discuss our 2013 guidance and plans for capital allocation, as well as a brief update on our expected earnings trajectory through 2015.

On slide 17, as Andres mentioned, we achieved our 2012 guidance on key metrics and delivered significant growth in earnings and cash flow. Turning to slide 18, we've included an analysis of our adjusted pretax contribution, or adjusted PTC, in 2012. Adjusted PTC is essentially our pretax earnings, adjusted in the same way as adjusted EPS. The pie chart displays the contribution of each SBU. As you can see, our earnings are fairly evenly distributed among our SBUs. Further, our listed subsidiaries, AES Gener, Tiete, and Eletropaulo, and public filers in the US, namely DPL and IPL, account for our third of our adjusted PTC in 2012.

I would like to point out that to make our financial disclosures more user friendly, on slide 36, we provide US GAAP earnings, adjusted earnings, and more relevant market values for our interests in our publicly listed subsidiaries. We now have these businesses file their quarterly financial results in advance of us so we can disclose their earnings contributions along with our results. For example, as of yesterday, the public market value of our interest in Gener was about $3.9 billion, and our share of their 2012 adjusted earnings was about $200 million. Our adjusted PTC increased roughly $300 million in 2012, largely due to our new businesses. We also had strong operating performance at our generation facilities in US and Asia, which I'll discuss in a moment. Partially offsetting this growth, we faced challenges at our Andes and Brazil SBUs due to lower spot margins and second-quarter outages at Gener, and the impact of the Eletropaulo tariff reset.

Now, I would like to walk through the key year-over-year trends for each SBU. Given this is the first time we're discussing our results by SBU, I'll remind you the key businesses in each. On slide 19, the US SBU includes our two utilities in the Midwest, IPL and DP&L, as well as our US generation business, with 6,300 megawatts of capacity across the country. Overall, adjusted PTC grew by $229 million. Of this, $125 million was due to DP&L's first full year of operations as part of our portfolio. In addition, we saw growth at our plant in Hawaii and also at Southland through the temporary restart of Huntington Beach Units 3 and 4. In 2013, consistent with earlier comments, we expect a decline in US adjusted PTC, due in part to lower capacity prices and increased customer switching at DP&L, and also we have planned outages at IPL.

Next, the Andes SBU, on slide 20, includes our Gener platform, which owns more than 4,700 megawatts. In addition, we have our businesses in Argentina. In 2012, Andes recorded a reduction in adjusted PTC of $139 million. In Chile, Gener was impacted by lower spot margins due to lower energy exports from Argentina to Chile. In addition, partially due to outages in the second quarter, Gener covered some of its contracted sales with higher-cost replacement energy. These outages did not continue in the second half of 2012, as we successfully addressed the operating issues. These negative impacts were partially offset by the addition of our Angamos plant, with an adjusted PTC of $11 million, and also efficient reservoir management at Chivor in Colombia.

Despite the shortfalls of 2012, Andes is positioned for growth in 2013, driven by Chile. Campiche, or Ventanas IV, reached full load in February and should achieve commercial operations in the next few weeks. In addition, we expect to benefit from higher availability due to the maintenance performed in 2012. Going forward, Gener's contracts are aligned with its efficient generation capacity, so it's less exposed to the volatility in spot prices.

Now to slide 21, our Brazil SBU includes two generation companies and two utilities. In terms of generation, Tiete has roughly 2,600 megawatts of hydro and Uruguaiana has over 600 megawatts of gas-fired capacity. On the utilities side, Eletropaulo and Sul distributed power to Sao Paulo and Rio Grande do Sul respectively. In 2012, adjusted PTC from Brazil declined $94 million, with the largest impacts from the tariff reset at Eletropaulo and the depreciation of the real. We expect growth in '13 with the initial restart of operations at Uruguaiana and recovery at Eletropaulo.

Next, in MCAC on slide 22, we have our generation businesses in Mexico, Central America, and the Caribbean. A key driver for adjusted PTC growth of $82 million in '12 was our new contracted hydro plant, Changuinola, in Panama, with an adjusted PTC increase of $80 million. We expect adjusted PTC from this SBU to modestly increase in 2013, reflecting the five-year tariff reset Andres mentioned in El Salvador.

In EMEA, on slide 23, we primarily have our generation businesses in Europe, the Middle East, and Africa. Again, our new business, Maritza, in Bulgaria, accounted for most of the growth, with an adjusted PTC contribution of $90 million. One-time arbitration settlement at Cartagena in Spain also drove some results, as did higher dispatch at Kilroot in the United Kingdom. In 2013, we expect a decline in this SBU due to the non-recurrence of the Cartagena transaction and the impact of the sale of the Ukraine utilities.

The Asia SBU, on slide 24, is primarily comprised of our 660-megawatt Masinloc facility in the Philippines, our 1,240-megawatt Mong Duong II project under construction in Vietnam, as well as modest contributions from our 420-megawatt OPGC plant in India. We recorded an adjusted PTC increase of $102 million, primarily due to higher demand and favorable spot prices at Masinloc. At the end of last year, Masinloc entered into a seven-year contract, which effectively hedges 85% of its output. The contract includes a fuel pass-through and the revenue is denominated in local currency, but is indexed to the US dollar. It should reduce the volatility from selling the spot market, but at somewhat lower prices. With the decline due to our China asset sales, we therefore expect a reduction in adjusted PTC from Asia in 2013.

Turning now to slide 25, we've covered each of the SBUs, representing $2.1 billion of adjusted PTC. Offsetting this, we have corporate charges, including interest expense on our $6 billion of AES debt and most of our G&A expense. Year-over-year corporate charges increased slightly due to increased interest expense, which was partially offset by G&A reductions. In 2013, we expect a decline in interest expense, as we continue to repay debt. In addition, through our SBUs, we're driving cost reductions as we achieve our $145 million in annual savings by 2014.

After adjusting for corporate charges, our total AES adjusted PTC came in at $1.4 billion. Adjusted EPS benefited from lower share count, as a result of our 2011 and 2012 share buybacks. However, our adjusted effective tax rate in 2012 was higher than in 2011. Importantly, the 2012 tax benefit applicable to the retroactive extension of the CFC look-through rule will be recorded in 2013 results, in line with the early January 2013 enactment date of the legislation. This benefit is about a $0.015 for the first quarter of 2013.

Now, turning to slide 26, our trends in proportional free cash flow were similar for the year, with the result of $1.2 billion, a roughly one-third increase over 2011. The US SBU accounted for most of this increase, due to DP&L's first year of contributions as well as improved operating performance and lower environmental CapEx at IPL. The Asia SBU also increased due to the strong performance at Masinloc. Offsetting these trends, cash flow from Brazil declined as a result of higher working capital requirements and the impact of the Eletropaulo tariff reset.

Turning to slide 27, capital allocation, I'm pleased to report that we delivered on the capital allocation commitments we made last year. First, on the sources side, we collected $600 million of asset sales proceeds during the year. We also generated $500 million impaired free cash flow. During the year, 82% of our discretionary investments were allocated to debt repayment, share buybacks, and dividends. In addition, we invested $195 million in our subsidiaries, which is $67 million less than we projected on our last call.

Now, I'll address our 2013 guidance on slide 28. We're narrowing our guidance to three metrics -- adjusted EPS; proportional free cash flow; and, consolidated net cash provided by operating activities. We believe adjusted EPS is the most useful indicator of the ongoing earnings power of the Company. On the cash flow side, proportional free cash flow is the most relevant cash metric, as it measures AES' ownership in operating cash flow after maintenance and environmental capital expenditures. Proportional free cash flow could be utilized for debt paydown, share repurchases, growth investments, or other purposes at the subsidiaries and the parent. In addition, we are providing consolidating net cash provided by operating activities to reconcile with US GAAP. We hope this simplifies our targets for investors.

In 2013, we're projecting an adjusted EPS range of $1.24 to $1.32 per share. I would like to point out a couple factors to consider when looking at this guidance. It includes about $0.05 of dilution from the $500 million of potential asset sales that we're targeting this year, including the $113 million Ukraine sale, which was already announced. The impact of specific transactions could obviously vary, but we thought it was appropriate to include an estimate in our guidance.

In addition, we've taken a closer look at the hydrology situation in Brazil and included a modest impact in this guidance range. While we do not provide quarterly guidance, we do expect to show a year-over-year decline in the first quarter, due to the $0.06 one-time benefit in Spain during the first quarter of last year. Therefore, we're anticipating earnings growth the rest of the year more weighted towards the second half of the year. Bottom line, adjusted PTC at the SBU level is growing modestly, but is offset by assumed asset sales. In terms of other EPS impacts, we expect a benefit of about $0.03 from the impact of our capital allocation efforts. In addition, we expect a lower effective tax rate this year as the CFC look-through rule was extended for '13. Further, our 2014 exposure to this rule is about $0.01 to $0.02.

For proportional free cash flow, we're forecasting a decline of $300 million, of which roughly $200 million is due to increased environmental CapEx at IPL and Gener. The decline is also driven by lower operating performance at DP&L and increased capital working requirements at Gener. We would expect this trend to reverse in 2014 and beyond as operating cash flow increases due to capacity additions and operational improvements.

Turning to our parent capital allocation plan for 2013, on slide 29, we had approximately $300 million of cash on hand at year end. The slide reflects proceeds from announced asset sales of about $180 million, primarily Ukraine. Again, we expect to see almost $400 million more in asset sales this year to reach our $500 million target that Andres referenced. But we won't add them to the plan on this page until specific transactions are announced.

In addition, we expect to generate approximately $400 million to $500 million of parent free cash flow. Therefore, based on announced transactions, we're projecting discretionary cash of roughly $1 billion to $1.1 billion. In terms of uses, we plan to use $350 million for debt reduction and about $200 million for investments in our subsidiaries. That leaves about $220 million to $370 million to be allocated later in the year. Our deployment of this cash will likely be a combination of debt repayment, growth investments, and share buybacks. As Andres noted, we currently have $300 million of the share repurchase authorization fully available.

Finally, I would like to briefly discuss our total return expectations for 2012 to 2015. We continue to be comfortable with the 6% to 8% expectations we discussed last quarter. This includes annual EPS growth of about 4% to 6% and a dividend yield of about 1% to 2%. The midpoint of our 2013 adjusted EPS guidance reflects about 3% growth, which is slightly below the three-year trend, consistent with our communications last fall.

One of the drivers of our earnings growth in this period is projects currently under construction, listed on slide 30. Andres addressed the returns from the platform expansion projects that will complete construction in time to contribute a full year of earnings in 2015. Collectively, we expect that these will add approximately $0.05 per share in 2015. The Mong Duong project comes in line in late 2015. In addition, Mong Duong will be subject to lease accounting, so cash returns are better than book income in the early years. We do expect significant cash distributions beginning in 2016 and throughout the life of the project, with a cash return in 2016 of about 19%.

In summary, we had a number of good achievements in '12 that provide a strong foundation for the future. I'm very encouraged by the commitment of AES people to deliver value to our shareholders. And, with that, I would now turn it back over to Andres.

Thanks, Tom. Let me summarize our key messages on this call. Despite the significant headwinds we faced in 2012, we delivered 22% adjusted EPS growth and 33% higher proportional free cash flow. We are well positioned to deliver on our financial objectives in 2013 and will continue executing on our strategy. To that end, we will continue to cut costs and improve the profitability of our portfolio, derisk the Company through deleveraging and narrowing our geographic and business focus through asset sales, and allocate capital in the manner which maximizes shareholder value creation. Before taking any questions, I would like to announce that we will be holding an investor day on Thursday, May 9, in New York. We look forward to seeing you there and in the coming weeks. Operator, we will now open the line for questions.

(Operator Instructions)

Jon Cohen, ISI Group.

Hey, good morning. Just a couple quick questions. The $400 million of targeted asset sales, have you identified yet what those might be, or is that something that you want to talk about?

Sure, Jon. I would say that in the past, we have not given, talked about specific assets until the deal is signed. And the reason for that obviously, it affects the morale of the people or could also affect certain other things that are undergoing. What I would say is that what we will be selling are those where we give priority to those where we have sort of one-off assets in a country or where we don't really see that we have a strong, competitive advantage or the opportunity for profitable expansion. The other thing is that we will be looking at really the total cost of running those businesses. So in terms of -- is it a business that drives a lot of overhead here for the particular characteristics of that business? So I can't say much more than that, but that we've been continuing to work on that, and what we will do will be very much aligned with our strategy, as we've outlined. As we've done today. Now, we're not going to do any sort of fire sales. I think we've been very judicious to make sure that we got the best value possible from these sales.

Okay, thanks. One other question, I was wondering if there is any way if you could frame for us the sort of swing factor in DPL based on what you filed and what the sort of status quo could be. So what's the sort of plus or minus in terms of EPS estimate in 2013 and beyond?

Yes. As I said in my talk we're in the midst of the filings right now. We also have interveners, so I really can't give you any color at this stage beyond what I've already mentioned.

Okay, thanks. Just one last question. I also wanted to thank you, Tom, for these new disclosures. I think this is exactly what we needed. But the -- there's a place holder for $200 million of additional investments and subsidiaries. I think in the past, I presume a lot of that is going to Chile and into the Gener expansions. You had talked about equity, raising equity at the subsidiary level. How do you think about that, just given where the AES stock is trading relative to Gener,

Yes, it's a fair question, Jon. A lot of good work by the accounting team, the IR team, and people in the businesses to try to help our disclosures be more user friendly, so thanks for that. The $200 million that's on the chart, the capital allocation chart that I touched on, that does not include Gener, that's really spread out amongst a number of businesses. I think 80% of it's in the top five. A little bit to Palko. We do have an energy storage project we expect to do, but has not closed yet. And then we do an investment in Turkey and probably the largest one is the Jordan project that started construction last year, that's about $60 million. So the $200 million is pieces of a number of things.

With respect to Gener, Gener may do an equity offering. They would do that from -- may need to do that if they do both Cochrane and Alta Maipo and both those close this year, just the size of those two projects may have them do that. I should point out that Gener has not made any plans. They are still in consideration of doing that. I don't want to get too specific because they are a public company and I don't want to front run their own dialogue down in Chile with their public investors. That being said, to the extent they do an equity offering, our pro rata piece, which would be 71% could be up to $200 million. It could be less than that, but our pro rata piece of that could be in the $150 million to $200 million range.

So we'll essentially assess the value of us participating in that versus the, versus our own stock. We're bullish on both stocks, so it's a relative bullishness analysis. Obviously, our stock trades, trades cheap. At the same time the Gener business has very good growth. So those are the kind of economic trade-offs we'll say that we'll go through. The other thing I would say is that we own 71% and for some various governance issues, it's beneficial for us to stay above two-thirds. It's not a requirement. But there's some modest benefit, so we'll take that into consideration as we do our thinking.

Got you. Thanks very much.

Julien Dumoulin-Smith, UBS.

Good morning. Can you hear me?

Yes.

Excellent. First question here, just talking about Ohio, how do you think about that business structurally beyond resolution of the ESP? I'm thinking '13, '14, '15. You have seen some of your peers in that state kind of reevaluate their ownership, et cetera, I know it may be too early to tell, but kind of wanted to throw that out there.

Okay. Hi, Julien. What I would say, there's not too much we can comment on. Maybe Andy can just talk a little bit of sort of the plans between generation and distribution down the road.

Julien, Andy Vesey, good morning. I think you're right. There's not much we can say because clearly we're in the middle of both the settlement discussions and preparing for a potential case. What you do know, and I think is quite clear, is that we have made a commitment in our initial filing to putting forward a plan for the separation of our generation assets in 2017. That said, once we either get a settlement stipulation or we get a rate order and we can evaluate where we stand, we will be very focused on how we're going to operate going forward.

As you remember, and I think we've said many times before, we sort of have three levers with Ohio. One is getting the right regulatory outcome, which we're close to being at the end of that. The second is making sure that we build our retail capabilities so that we can efficiently place our generation. I think we are doing that. And the third really is once we see where we land to make sure that we're optimizing around costs, and we'll be examining that once we get the outcome of the settlement or the case.

Great. And then if you could talk, broadly speaking, just timing on a potential settlement, like what window specifically here are we talking to?

I'm having trouble hearing the question. Were you asking about --

As to the Ohio ESP, what kind of time line are we thinking about here for a fully litigated case versus the settlement?

Yes, a couple of things are common to both. Let me say that actually today, we're actually having a settlement meeting, that's ongoing today. But regardless, the current procedural schedule, March 1st, this Friday, intervener testimony is due. We've actually put that back four days from the original schedule to give more time for settlement. The same with staff testimony, which is due on the 8th of March. The evidentiary hearing remains scheduled for the 11th.

Now, depending on where we go, if we have a stipulation to deliver by the 11th, then we could see a decision as early as the first half of May. If we go through a fully -- the full case, then we're really looking about most likely concluding the hearings by the middle of April and looking for a decision in the late June, early July timeframe. By statute, the Commission is required to make a ruling on a filed case 275 days after its filing. So we would be seeing a ruling by the Commission on the case no later than July 6th.

Great. Thank you. And then, Tom, going back to the potentials here, if you will, when you talk about debt paydown and you talk about a minimum level that you described in the slide deck, how do you think -- how do you weigh moving forward with the authorization that you have laid out today versus incremental debt paydown and particularly as that relates to asset sales in '13?

Yes, it's a balance. I think the minimum debt paydown that we have on that slide was really reflecting what we thought was reasonable to continue a steady improvement in our credit profile. So that -- based on our business outlook, we thought that was reasonable. In terms of going forward, we will look at -- first, as we sell assets, we do need to consider debt paydown as part of that. Obviously, some of the assets, really all the assets, generate cash. So to the extent if you were to sell an asset and not pay down debt, then that would be credit dilutive.

So, as a base case we tend to look at things as a starting point on a credit-neutral basis, i.e., what's the cash flow you generate, what's the debt you should pay down to be credit neutral without that asset? That doesn't say that's the rule of where you end up, but that's at least a starting point. That does, though, leave you with what we believe is still meaningful cash. And we will look at that maybe consistent with a question I got earlier on share repurchase versus investment in Gener, those are the things that we look at in terms of valuation of the stock, in terms of what the attractiveness on a risk-adjusted basis is of the investment, be it in a subsidiary or be it in a new asset. Kind of bottom line, I think we have room for all of them, especially if we load on more asset sales, I think we have room for increasing the debt paydown, increasing the growth investments above 200, if they meet the standards of being a good investment and also being able to implement some of our share repurchase.

Great. And just to be clear about this, when you think about asset sales and the breakdown, would you roughly think a 50/50 split between debt paydown and equity return?

That's fair. Yes, that's a fair approximation.

Okay. Thank you.

Ali Agha, SunTrust.

Thank you, good morning. Good morning, Andres. Perhaps firstly for you, Tom, the -- just to be clear, you mentioned I think that there was I think about $0.03 of accretion you resumed in your '13 guidance from capital allocation. Wanted to be clear, is that all assuming debt reduction or are you assuming any share buyback in your '13 guidance?

Ali, it's really a function of what we have done, as well as what we would expect to do. But it's frankly more a function of what we did in '11 and how that's already hitting us from the start of the year.

Okay. So no share buyback incremental out of the $300 million is assumed in your EPS range, is that fair?

Well, we do assume some capital allocation. Yes, we assume as we get cash, we're not going to put it in the mattress. So we do assume some balance of, that the cash is earning, either from paying down debt, some share repurchase and/or investments. I would say if we do share repurchase, it will be more back end loaded, as our cash, cash distributions we get tend to be more back end loaded, and obviously to the extent we're getting things with asset sales, those would close and cash coming in the door more in the latter part of the year.

And Andres, the news flow coming out of Brazil has generally been negative over the last several months. Apart from obviously the hydro, but just the government statements, the president's positions and statements, now you guys have been clear that your concessions are not impacted. But just in the sense of impacting the valuation of your holdings and enhance your own stock price, clearly every time something comes out of Brazil, your stock takes a hit here. I'm just wondering, are you really looking at Brazil? What's your view right now in Brazil under the current administration and is Brazil less attractive perhaps now given what we're hearing out there?

Yes, I think that -- put it this way. First, if you think of what we've done in terms of portfolio management in Brazil we have sold a significant portion of our holdings in Eletropaulo. We started in 2006. We spun off Telecom. So if you look at our holdings today in Brazil, the two largest components are quite frankly, first Tiete and the second one is Sul actually. We have a larger value, we believe, in Sul than we do in Eletropaulo. But we do get a lot of -- let's say we have react a lot to the news in Eletropaulo because it's a large, publicly-listed company. Of course we are trying to maximize the value for all shareholders, including those of Eletropaulo's shareholders. But having said that, I think that in Brazil we have 2,600-megawatts of contracted hydro.

We have a challenge in terms of what we do past 2015. We're working on a commercial strategy there. We also have the opportunity, for example, of restarting Uruguaiana and we've done that successfully. Now what we have to have is a permanent solution. So I do think there are opportunities for us in Brazil. I think Brazil, if you think over the medium term is going to be a growth market. Again, I think we're well positioned. If I think back, I think our strategy of focusing more on Tiete and trying to grow generation and reducing our position in Eletropaulo for various reasons was the correct one.

Okay, and last question, you seem to be on track for the 4% to 6% EPS growth you are now highlighting in '12 through '15 or '13 through '15. You've also said in the past that your goal would be to get you back to the 6% to 8% that you had previously been targeting. How confident are you of perhaps getting to that higher level, and where -- what would drive you to that higher level? What -- I mean, new projects that are not there? I mean, how would you get from the 4% to 6% to 6% to 8%, if indeed that is still an aspiration?

Well, certainly we're going to work very hard, as we've said in the past, to get back to the 6% to 8% growth. What are our levers? Well, some that I can talk about right now, we continue to have the cost cuts. We continue to have the efficiencies of a simplified portfolio, and that includes also better use of our synergies. And we also have our own sort of internal Six Sigma light apex programs, which are also contributing a lot. So I feel on the operational side, I feel we're doing a very good job and that will add additional profitability into the future.

The second, if you've noticed, when I talked about platform expansions, or new investments, we are basically expanding from our existing platforms. That takes less time. They have higher returns, and especially risk-adjusted returns. Again, we feel very good about what we're going to do going forward. However, we feel also that in terms of the guidance that we are committing to today, we're staying on that 4% to 6% rather than the 6% to 8%. But we're going to really push to get there.

But these things you talk about in expansions and maybe cost reductions, these are things that could actually help you in the '13 to '15 period, or are you really talking about longer term beyond '15?

It depends. When we talk about efficiency of the overall portfolio, includes our G&A and also includes our costs of goods sold, those are immediate. So -- and it depends on the type of extension we're doing to the platform. If it's a 20-megawatt battery storage, that's going to impact in 18 months. On the other hand, if it's building a significant addition to a new plant, well, that's more sort of in the '16, '17 framework. Realize we do have things like IPL's environmental CapEx where we do get a tracker and that's also short-term. So it is a mix of things. And as we said, we're going -- we really feel that we're hitting on all cylinders in terms of looking at all the levers that we do have to fulfill our commitments.

Thank you.

Charles Fishman, Morningstar.

Yes, I also wanted to thank you for the additional disclosure. Argentina, what got the additional gas there? Was it more supply? Was it better hydro conditions? What changed?

We've been doing a number of restructures at Uruguaiana in terms of the contracts that it had over the past couple years. But the main driver right now was the poor hydrology that they had, was in Brazil, which made it more of interest to get the plant up and running. So we've had the plant up and running now. But, as part of this, we are working on a long-term solution to receive capacity payments at Uruguaiana and again, we think we're well positioned. Again, we took advantage of our presence in both countries and our relationships in both countries to get this. So what we really came up with was a win-win-win solution. Which is a win for Argentina, win for the Brazilian electricity sector and a win for us and BNDS in Uruguaiana.

What I think I just heard is, it was also due to getting a better energy and capacity price, as well as the gas being available?

Again, it was partly driven by the situation that -- we took advantage of the drought situation in Brazil. Andy, do you want to add something to that?

Yes, just for clarity, there hasn't been a change in the gas situation in Argentina. This was an initiative between the Brazilian government and the Argentinian government to sort a near-term problem that Brazil was having from the drought. This is Brazilian gas being injected. It's LNG that's coming into Argentina. It belongs to Petrobras, the Brazilian company, and what the Argentineans are doing are facilitating its transmission. They are regassing it and they are sending it to Uruguaiana, so this is Brazilian gas using the regassing distribution and transmission network within Argentina. That's really the answer to the question that you asked. This is not Argentinian gas. This is Brazilian gas.

Okay. Thanks. Then the 650-megawatt CCGT in Indiana that you were talking about, would 100% of that be regulated and under IPL?

Yes.

Okay, and then Masinloc, the second unit you mentioned there that you'd potentially start on, would you look to get a PPA before you began construction on that based on the fact you just signed a seven-year hedge on Masinloc One?

Yes. If you look at almost all of our projects, we're not building, with the exception of Turkey, any sort of merchant projects. And that's just the characteristics of the Turkish market. Other than that, all of our projects have PPAs and we do require very high levels of contracting before we start on the project.

Okay, and again, thank you for the additional disclosure.

Maura Shaughnessy, MFS Investment Management.

Good morning. Couple of questions. First, just on the IPL situation, in terms of the environmental spend, the $500 million fix up and the combined cycle plant that was just discussed, what is the -- you mentioned that the environmental filing looks to be done by the second quarter. Are these two discreet filings? What's the process in Indiana from here?

Yes, hi, Maura. These are discreet, separate.

And so when should we hear about the plants?

I -- Andy, do you want to give the details?

Sure. Maura, hi, it's Andy Vesey. Right now it's still a process and the process within Indiana requires us essentially to go out for an all-source competitive bid, who can give us the least cost solution. One of those is our own option that we're contributing, which is this combined cycle self build. There are a number of others. All those are under review right now. We will be providing testimony in the first half of '13, going along with our filing of the CPNC. So that's the new generation piece. But the typical process is you file an application for certificate of public convenience and need and once that's approved, you go ahead, because that's our certificate that requires that whatever costs we are in occurring, we're going to be allowed to recover under a regulatory process. So from that--

Okay, great. And so remind me again what IPL is earning on a regulated basis that both the environmental piece and potentially the gas plant would earn today, if they were approved.

Yes, Maura, it's Tom. How are you?

Good.

And the -- Andy may have said it, but the MATS would be a part of a tracker, so you get immediate recovery on it and the CC would be more traditional. The IPL current ROE is a product of a settlement that's more than 10 years old and it was--

Right. It's more the black, more the black box.

Yes, it's a package deal, exactly.

Okay. So we don't need to discuss that right here.

Right. So that would be -- the tracker does have a return.

Right.

Consistent with that package deal, or black box, as you say. The new plant, if approved, would then ultimately be subject to a rate proceeding closer or at the time it went in service, so that's out a number of years and that would then be at ROEs consistent with Indiana practice at that time. So you probably can see some of the standards. I would be cautious about pointing to a specific precedent, but it would be generally consistent with Indiana ROEs at that time.

Okay. Let me jump to Brazil. So we sort of had the hydrology freak show November, December, January. I guess spot prices averaged in the 400s in January and February and the 200s, so things have chilled out a little bit. But as I understand it, the government is trying to potentially continue to run some amount of thermal throughout the year, which given the amount of hydrology base, that probably makes some sense. So I was just wondering, is there a chance that this deal with Petrobras via the Argentineans gets extended, or you're -- or the hope is that you get this one-off capacity payment which, yes, so I'm just trying to understand that.

Sure, Maura. First, it is -- you're right, I think the government until the reservoir levels reach higher levels, I think are at 37% of capacity. They will run -- continue to sort of force more thermal production. In terms of Uruguaiana specifically, our intent here is to really have a long-term solution. And as Andy mentioned what we're really doing is tolling the gas through Argentina because that's where the pipeline reaches. Right now, Petrobras is delivering the LNG at Bahia Blanca, but then we have other options going forward. So what we really want is to have a long-term solution there and we're working on that, so we would have options to where to source the gas, what the Argentineans would get is a tolling agreement and the Brazilians would get the additional capacity, so that really is a long-term solution. There is a short-term component, which is the current hydrological conditions, which facilitated this. Then there's a secondary component, which is having a long-term solution to Uruguaiana, we're working on that. We aren't in a situation to announce that yet.

And so in terms of at least for February and March, do I assume that Uruguaiana, however you say that, is being sold at spot prices since you hadn't obviously contracted on that since it hadn't been operated for a while? Is that a fair--

No, no, we're not making the spot margins on Uruguaiana, we are basically getting capacity payments on it.

Okay. Oh, okay. Great. Thanks very much.

Okay. Thank you.

Operator, can we take one last question, please.

Brian Chin, Citigroup.

Hi. Thanks for taking my question. Just with regards to the situation down in Southern California and the situation, can you just get us a little bit more up to speed what's going on with Southland. Lot of headlines between yourselves, Edison, JPMorgan, just want to make sure we understand where we're at on that.

Okay. I would say first, some of the headlines are that we're trying to get the plant expansions permitted. We have a unique footprint there and we believe that there will have to be repowering of those plants sometime over the next 10 years, and that nobody's going to be able to permit new plants. Those locations are very valuable and very critical for stability. The second part of your question has to do with JPMorgan, right, and the tolling agreement. I don't know how much we can say there.

I'd say there is a smaller project, a synchronous condenser project that we're trying to put in place for this summer that would be quite constructive to the area, would provide some great stability, some additional power. We're working through waivers in process with our toller and also the utilities is also involved in that dialogue. I believe those discussions have been going quite constructively. We're hopeful that we can get that all tied up and then get our synchronous condenser project operating this summer.

Great. And then lastly, just latest thoughts on timing of when you're going to revisit the dividend again.

I would say that, again, as we get more results under our belt, we will look at it periodically. I don't want to really commit to anything at this point in time.

Understood.

Thanks, with that I would like to turn the call back to Ahmed.

Okay. We thank everyone for joining us 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.

Thank you. Today's conference has ended. All participants may disconnect at this time.