愛依斯電力 (AES) 2013 Q2 法說會逐字稿

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

(Operator Instructions)

Today's call is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the meeting over to Ahmed Pasha. Sir, you may begin.

Thank you, Tim. Good morning, and welcome to the second-quarter 2013 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. Andres?

Thanks, Ahmed, and good morning, everyone. Today I will focus my comments on three areas -- our operating performance and progress on our strategic objectives during the second quarter; an update on a couple of our key businesses; and a review of our most important initiatives to maximize the value of our portfolio.

Turning to slide 4, our financial results for the quarter were in line with our expectations. We increased our adjusted earnings per share by $0.14 to $0.32. Our continued focus on improving operational performance and reducing corporate overhead contributed significantly to our results for the quarter. We achieved these results despite a $0.05 impact from the worst hydrology in Latin America in many decades. With our year-to-date results, we are on track to achieve our full-year guidance on all metrics. Tom will discuss our financial performance and guidance in more detail.

In addition to solid financial results, we made continued progress towards our three main strategic objectives. Turning to slide 5, our first strategic objective is to improve profitability. As you may remember, we committed to a reduction of $145 million in overhead costs by 2014 relative to 2011. During the quarter, we reduced our G&A expense by another $15 million from last year. Based on our progress so far, I am pleased to report that we have accelerated our efforts, and expect to achieve $135 million this year, which is $15 million higher than our prior forecast. Over the last two years, we have reduced our G&A by more than one-third.

Our second strategic objective is to narrow our geographic and business focus. As you can see on slide 6, since May we have sold two additional assets for net equity proceeds of $56 million. We sold our 10% stake in the gas-fired plant in Trinidad, which was not an attractive market for us given its small size and lack of growth opportunities. The sale of 48 megawatts of wind turbines, which we had held in storage, was purely a commercial decision, as we did not find an attractive project for these older technology machines. These two transactions bring our total sale proceeds year to date to approximately $230 million, just under 50% of our 2013 target of $500 million, which we expect to achieve.

Since September 2011, we have closed the sale of 16 businesses for total proceeds of $1.1 billion. We have exited seven countries, and are now present in 21, down from 28 two years ago. We are working hard to further simplify our portfolio by continuing to exit those markets and businesses where we do not have a compelling competitive advantage. We will keep you posted as soon as we are able to disclose specific additional transactions.

Turning to slide 7, our third strategic objective is to optimize capital allocation, aiming to maximize risk-adjusted returns for our shareholders. As we have said in previous calls, when making investment decisions we require the various uses of discretionary cash to compete against one another, including delevering, returning cash to shareholders, and investing in platform expansions.

Earlier this year when we discussed our 2013 capital allocation plan, we indicated that debt reduction was a significant priority for us. To that end, during the second quarter we successfully completed $1.8 billion in parent debt refinancing and delevering, including $300 million of recourse debt prepayment. As a result of these transactions, we have extended the average term of our recourse debt to about seven years, and lowered our interest expense by $50 million. Overall, we have prepaid more than $1 billion of debt in the last two years.

With respect to the stock buyback, we have been indicating that our discretionary cash would be back-end loaded this year. However, when our stock price recently softened, we bought back 5.3 million shares at an average price of $11.81, for a total investment of $63 million. At present we have a remaining share buyback authorization for $237 million. Since September 2011, we have repurchased 39 million shares, or approximately 5% of our shares outstanding, at an average price of $11.58, for a total investment of $453 million. As well as share repurchases, we have implemented an annual dividend of $0.16 per share. We remain committed to returning cash to our shareholders through dividends and buybacks, in addition to creating long-term value by investing in select platform expansion opportunities. Later on this call, Tom will update you on our capital allocation plans for the rest of the year.

Now I'd like to give you a brief update on two of our businesses to address some of the questions we're hearing from investors. Turning to slide 8, in Bulgaria, a new government was put in place following the election in May. As some of you may know, the prior government was forced out due to social unrest, partly driven by protests over the perception of high energy prices. We continue to honor all of our obligations under our PPA, and expect other parties to do the same. Maritza is an important business for us, and we are closely monitoring the situation in Bulgaria.

We have also been in constructive discussions with our offtaker, NEK, and the new Bulgarian government. Our objective is to preserve the value of our contract, and we will keep you informed if there are any further developments.

Next, turning to slide 9 and DP&L's ESP proceeding, we have not yet received the final [tariff] approval. All of the key milestones in the process have been completed, including pre-filed testimony, the hearing and the post-hearing briefing. The only remaining item is for the commission to issue its decision. We don't believe that there are any significant issues pending with the commission, and expect that we will receive our new tariff in the near future.

Lastly, now on slide 10, I would like to share a few thoughts on how we are creating more value for our shareholders. First, we're engaging partners for both our existing businesses and new growth projects to tailor our risk exposure, reduce capital requirements, leverage strategic relationships and maximize our return. This approach allows us to undertake larger projects to extract greater synergies and economies of scale while managing the equity exposure we have on any particular project, technology or market. Partners provide an additional market test, and can pay [or promote] our management fee, which further increases our returns by up to 200 basis points.

We have already closed several partnerships of this type. Cochrane in Chile, Mong Duong in Vietnam, and we recently signed a similar agreement with the Antofagasta Minerals Mining Company to take a 40% stake in the 531-megawatt Alto Maipo hydro project. Antofagasta Minerals also signed a 20-year power purchase agreement for 160 megawatts. We are now in the process of raising non-recourse financing for Alto Maipo, and expect construction to begin later this year. For the same reasons, we are also looking more broadly at opportunities in our portfolio to monetize the value of certain assets through partial sell downs and contract optimizations.

Second, asset sales are an important component of our plan to reposition our portfolio, to improve returns, and reduce overall risk. We will continue to exit markets and businesses where we do not have or cannot develop a compelling competitive advantage. In addition to the $1.1 billion in asset sales we have already completed, we see the potential for another $900 million in asset sales within the next two years. Any net proceeds from portfolio rationalization will be deployed in a manner consistent with our capital allocation framework.

Third, we see additional opportunities to optimize our assets, and further streamline our cost structure. For example, we are improving the efficiency of our operations through our continuous improvement program, Apex, and further leveraging our global scale in procuring equipment, chemicals, insurance and fuel. We're also evaluating opportunities across our fleet to standardize equipment and processes, and to improve the cost effectiveness of our operations. These opportunities include closing the cycle at Los Mina in the Dominican Republic, adding fogging technology where appropriate to our CCGTs, studying ways to reduce inventories and lower business interruption costs through our transformer loss control program. For this program we have designed and built a multi-use transformer, which can be ready for quick deployment should a transformer failure occur at a key facility.

It is important to note that despite all of our cost-saving initiatives, the Company's safety and operational indicators are the best they have ever been, and this year we won our third consecutive EEI International Edison Award for operational innovation and improvement.

Finally, in my view, AES has an unmatched footprint in many key markets where demand for electricity is expected to grow for the foreseeable future. Our growth is largely focused on expanding our platforms in such markets. In Chile, where we are seeing some of the highest levels of power demand growth in our portfolio, there is a limited pipeline of permitted new projects. We recently started construction on the 532-megawatt Cochrane coal-fired plant, and as I previously explained, we are making good progress on the 531-megawatt Alto Maipo hydro project.

In the Philippines, where GDP growth continues in the 5% range, we are advancing on the development of Masinloc 2. We are securing the necessary permits and EPC contracts, while working to secure a long-term PPA for 300 to 600 megawatts to support the expansion.

In India, GDP growth is still expected to be more than 5%. We believe that the 1,320-megawatt OPGC 2 expansion project with its own dedicated source of low-cost coal, will be a competitive plant in the Indian power market. We continue to work closely with our partner, the state government of Odisha, to complete the remaining development milestones.

In Vietnam, construction on our 1,240 Mong Duong project remains on budget and on time for a 2015 commissioning.

Although it is not one of our rapidly growing markets, at IPL in Indiana we will upgrade 2,400 megawatts of base load coal-fired generation to comply with MATS, and we are developing a 600-megawatt CCGT power plant. Approximately 55% of this $1.1-billion future [increase in] rate base will be financed with non-recourse debt at the IPL level.

In addition to these large development projects, we also see opportunities to leverage our existing infrastructure by offering adjacent services. For example, in California, Chile and the Dominican Republic we are assessing leveraging our platform to provide de-sal capabilities at our existing plant to deliver water to local industrials. While these programs are individually fairly small, such projects can be leveraged across our businesses, and completed fairly quickly, as they utilize existing infrastructure and do not require significant development spend.

In summary, I am pleased that we are making good progress on a number of fronts that will result in sustainable earnings growth and improved returns on our invested capital. With that, let me turn the call over to Tom who will discuss our financial performance and 2013 outlook in more detail.

Thanks, Andres, and good morning, everyone. We are on track for the year, and we are reaffirming our guidance on all metrics. Today I would like to review our second-quarter results, including adjusted EPS, results by SBU, and proportional free cash flow. Then I'll discuss our 2013 guidance and capital allocation updates.

Turning to slide 12, hydrology has been a challenge across several of our SBUs. On a proportional basis, 12% of our installed [base] is hydro. We have seen very dry conditions in many of our markets. During the second quarter, we had a $0.05 drag from poor hydrology across our portfolio, including in Panama, Colombia, Chile, Brazil and Turkey. This brings our year-to-date impact from poor hydrology to $0.08 per share. The situation is improved, but based upon current reservoir levels, we expect another $0.04 impact in the second half, bringing the full-year hydrology impact to $0.12 a share. This is an increase of $0.06 relative to our expectations as of the end of the first quarter.

We are, however, seeing some recovery. Hydrology and reservoir levels in Brazil are nearing a normal range at this point. It's currently the rainy season in both Panama and Colombia; the water inflows are roughly 20% to 30% below historical levels, but we have seen some improvement in Colombia over the last few weeks. The critical point is that we are offsetting these impacts with other opportunities in our portfolio, and reaffirming our guidance. I'll touch on the specifics in a moment.

Now to slide 13. Adjusted EPS increased $0.14 for the second quarter. Net of the $0.05 impact from dry conditions, operational improvements at the SBUs contributed $0.05, driven by Gener in Andes, Uruguaiana in Brazil and the Dominican Republic, and El Salvador businesses in MCAC. I will cover the specifics of each SBU, but first let me touch on taxes.

As you may recall, we anticipated some tax favorability this year as we assumed a full-year tax rate of roughly 27%. This rate implied about $0.03 of favorability for the second quarter. However, our year-to-date rate is 20%, benefiting from geographic income mix, and timing within the year of certain tax benefits and expenses. Further, we favorably resolved some outstanding tax [odds] during the quarter. Collectively, these items added another $0.03, bringing the total quarterly tax benefit to $0.06 a share. Finally, for the quarter, we saw a $0.03 benefit from lower G&A [to parent] and lower share count.

Now I'd like to review the operating drivers of adjusted pre-tax contribution, or PTC, for each of our SBUs during the quarter. As a reminder, PTC is essentially pre-tax earnings adjusted for one-time gains or losses on unrealized derivatives in foreign currency, dispositions and losses on retirements of debt, and impairments. We currently don't make these adjustments for our small number of equity-method investments, but expect to begin making these adjustments in the third quarter.

Turning to slide 14, in the US, we reported a modest decline of $9 million in PTC, mostly our utilities. This is consistent with our expectations for the year. At DPL, we experienced continued pressure on margins from lower capacity prices and customer switching, as 65% of the load at DP&L has switched to competitive providers. At IPL, retail demand was down due to milder weather during the early summer months.

Turning to Andes, we reported an increase for the quarter of $36 million in PTC, despite the impact of low hydrology in Chile and Colombia. The growth was driven by our new Ventanas IV facility, a 270-megawatt coal-fired project in central Chile which achieved COD in March of this year. Additionally, we benefited from higher availability in Chile in contrast with significant outages at Gener last year.

In Brazil, PTC increased $23 million for the quarter, largely due to a favorable reversal of a provision at Uruguaiana. As you may remember, when Uruguaiana's gas supply was curtailed several years ago, we brought an arbitration against YPF, the former gas supplier now controlled by the government of Argentina. This quarter we won the arbitration on the merits, and reversed the provision we had previously recorded. This development was worth $26 million in PTC, or about $0.03, and was consistent with our expectations. We believe this step in the arbitration process will help us resolve the dispute with YPF, and bring this plant back into permanent service.

[PTA] was flat for the quarter. On the utility side, eletropaolo improved for the quarter as a result of the tariff reset catch-up provision recorded in the second quarter of last year. So it will decrease for the quarter as a result of its tariff reset, which was finalized in April of this year.

Now MCAC on slide 15. We had an increase of $10 million in PTC for the quarter, despite the impact of low water inflows in Panama. We recorded higher spot volumes in the Dominican Republic, and a higher tariff in El Salvador as a result of the tariff reset approved by the regulator in late 2012.

At EMEA during the quarter, PTC increased modestly by $7 million. This was a result of higher margins in the United Kingdom due to improved availability at Ballylumford, and higher dark spreads at Kilroot. These were partially offset by the impact of an unrealized derivative loss of $0.02 in Turkey, which, as I mentioned earlier, as of the second quarter is not excluded from adjusted EPS because Turkey is one of our few equity-method investments.

Finally, turning to Asia, PTC declined $15 million for the quarter, consistent with our expectations. As you may remember, Masinloc has a long-term contract starting this year at prices moderately below last year's spot levels to reduce earnings and cash flow volatility.

Now to cash flow on slide 16. We generated $148 million of proportional free cash flow this quarter. Year to date, we are at about $500 million or 56% of our 2013 guidance midpoint. A quarter-over-quarter decline of $65 million was largely driven by lower operating cash at Gener, which had a value-added tax refund last year. In addition, we recorded higher environmental capital expenditures at IPL and Gener, consistent with our expectations for the year.

Now I'll cover guidance on slide 17. As I said, we are reaffirming 2013 guidance. Year to date, we have earned about 45% of our adjusted EPS, midpoint of $1.28, which is consistent with our expectations that earnings would be somewhat more weighted towards the second half. Relative to our last call in early May, we have incorporated foreign currency in commodity forward curves as of June 30, resulting in a reduction of about $0.01. Also we have included the additional $0.06 impact from hydrology I touched on earlier.

On the positive side, we have had some favorability on our full-year tax rate, which we now expect to be roughly 24% compared to our prior assumption of 27%. This improvement added $0.05 for the year. Finally, as Andres mentioned, we accelerated our cost cutting, refinanced recourse debt at lower rates, repurchased some shares. Together, these actions added $0.02 for the year compared to our prior guidance.

You may remember that we provided some PTC modeling assumptions for our SBUs with our prior guidance. We generally don't expect to update these ranges on a quarterly basis. That said, our SBUs are generally still in those ranges, though some at the lower end, primarily as a result of hydrology and lower power demand growth in Brazil. As a result, we have narrowed our range for total PTC by reducing the top end, which brings the midpoint down by $50 million. Again, we've offset the unfavorable PTC impact at the SBUs with favorability on tax, and accelerated cost management.

Finally, turning to slide 18, our capital allocation plan for the year. Since last quarter, our equity proceeds from asset sales have increased by nearly $60 million as a result of the Trinidad and wind turbine asset sales that Andres discussed. We expect to be in the higher end of our $400 million to $500 million range for parent free cash flow, which, as you know, is an important driver of our dividend policy. Therefore, based upon announced transactions, we're projecting discretionary cash of roughly $1.1 billion to $1.2 billion.

Turning to uses. As Andres mentioned, we refinanced $750 million of parent debt, and prepaid another $300 million. Including the premiums, we used $464 million of parent cash to complete these transactions. In addition, we refinanced our $800 million revolver, extending its maturity to June 2018, and reducing the margin by 75 basis points. Also, we repurchased 5.3 million shares for a total investment of $63 million.

Our current forecast includes $195 million for investment in our subsidiaries, and year to date we have invested $87 million. This leaves discretionary cash to be allocated of approximately $100 million to $250 million for the year. I would like to highlight that it only includes asset sale proceeds received to date. We expect this to increase based on additional transactions in the pipeline. We'll continue to use our discretionary cash as a tool to maximize value for our shareholders.

Last quarter we talked about using up to $200 million of our discretionary cash to fund the equity requirements for platform expansions at Gener. Since then, we have explored other funding alternatives for these investments. As we see it today, our participation in a potential equity issuance at Gener in Chile should be no more than $100 million. We will keep you updated as our plans progress.

In summary, we are on track for the year, and our continued execution of our strategy will help us deliver on our commitments to shareholders. Now back to Andres.

Thanks, Tom. Operator, we will now open up the line for questions.

(Operator Instructions)

Jon Cohen from the ISI Group.

Thanks. Good morning, guys.

Hi, Jon.

A couple of things. First of all, there has been some reports in the press about you looking to exit your stake in Cameroon, SONEL. I am sure you don't want to talk too much about it. But can you give us a sense of just some of the high-level financial metrics there? Maybe like book value and contribution of PTC?

Yes. Of course, I can't comment and I haven't on none of our possible asset sales, how we look at businesses and how we sell them. I would say that contribution -- that is within the EMEA region and it's a relatively modest contributor to earnings and a very small contributor to parent operating cash flow or dividends back to Corp.

Okay. Then my other question, so it looks like you're at $500 million for proportional free cash flow for the year, which is almost half of the top end of your range. And you said that most of your earnings and cash flow from ops are going to be back-end loaded. Can we infer from that that you will do -- you could do better than the top end of the range for your proportional free cash flow and what would that mean to the parent free cash flow?

I would say the parent free cash flow -- no, we are not going to -- as we're saying, we are staying within our guidance at this point. But as Tom indicated, we were doing better on the cash metric.

I think Jon said it's a proportional free cash flow. I think I'd would say the proportional free cash flow, we just stay with the ranges we have. I think the parent free cash perhaps we are more conservative with that range going out at the start of the year. So we're now focused towards the top end of that range. And as we consider dividend policy later in the year, that's an important baseline.

Lastly, could you just give us a sense of what the rate -- long-term effective tax rate is? It looks like this year your earnings are going to benefit about $0.11 versus last year from tax. Is that something that should reverse over time or can we assume that your tax rate is going to stay close to where it was in --?

What we have in our long-term projections is low 30%s, you know. And so, yes, this year is particularly -- this is very much effected from where the earnings comes. So the earnings, for example, Brazil is having lower earnings. That is a high tax jurisdiction. If you have more earnings, for example, coming from Chile, that's a low tax jurisdiction.

Jon, you're right. I think as we look at a run rate cutting through the differences, if next year is a normalized year on a similar path of earnings, we would be about $0.10 to $0.12 higher in taxes.

Okay. Great. Thanks very much.

Thank you.

Ali Agha from SunTrust.

Thank you. Good morning.

Ali, good morning.

Good morning. Andres, listening to your comments, particularly on the cost reduction front, the fact that you will be running ahead of plan this year, how should we think about the fact that that $145 million target through 2014 could end up being conservative? What's your confidence level that would go up? And related to that in the past you have talked about the fact that even though you're officially looking at 4% to 6% EPS growth, your aspiration would be to get it back up to 6% to 8%. What's your confidence level on doing that? And when could we start to see signs of that happening?

Okay. Taking the first part of the question, how do we feel about our overhead cost reduction targets. First I want to say this is our overhead cost reduction targets. We are doing a lot of other things in the businesses. First, yes. We are -- we feel confident that we will exceed the $145 million. We will give you more exact indication how far we think that will go when we update our guidance for next year in the fourth quarter after we have finished our budget. And regarding the second question, as we said, we'll work very hard to exceed the sort of total return we set out at 6% to 8%. But we are facing significant headwinds. The dry hydrology this year in many cases is the worst a country has experienced in 70 years. And what's been very unusual is that the north of Latin America and the south of Latin America were correlated, which is usually they are not correlated. They go in opposite directions as well as FX and commodities. But we remain committed to try to exceed this goal.

Okay. Second question. I know you guys had looked at this potentially [IP-ing] your solar assets in Toronto, pulled back on that. Since then there has been excitement about this so-called yield co structure. Other companies have tried it and that seems to have been accepted well by investors. What would be your appetite for a structure like that and what's your thinking on your portfolio in a yield co type format?

We think, again, the process that we're in now of bringing in partners on our projects and our businesses, especially financial partners, we're allowed to operate and really extract the synergies in economies of scale is the way to go. Now, regarding the solar, we did look at a yield base, a yield co on solar. We still have Mount Signal in construction, which is 260 megawatts of solar in Imperial Valley in California. So really it was not completed. We were not happy with the price and wait until there is less construction risk and revisit this.

So what I can say is that we are looking at all possible ways of getting the most value out of our footprint and out of our assets. That's really what we think it's all about. This is a capital-intensive business. What we want do is at each -- and we have an unmatched footprint. We have a very good brand names. We have very good contracts, very good assets. It's really how can we maximize the returns from that invested capital. I don't know, Tom, if you want to add something?

No, I think you said it well, Andres. We do look at ways that we can attract capital at more attractive levels. We certainly do at the project level, partnerships that Andres has touched on. We did look at the solar situation in the north and thought it was a good concept. We just weren't comfortable with the value. It may look better in the future once Mount Signal gets online, but --.

Okay. Last question. Just to be clear on the asset sale goals you've talked about. So you've done about $234 million year-to-date. Did I hear you right that you still expect to do $500 million by the end of this year? And then the $900 million number you talked about, is that incremental to the $500 million or does that incorporate the remaining portion of that $500 million?

Two parts to the question. First, yes, we remain optimistic that we can reach the $500 million in net proceeds to AES this year. And when you talk about the $900 million, that is up and above the $230 million that was already been closed this year.

Okay. So the starting point is after what has been done so far this year?

That's correct. And if you remember when we first started talking -- we always said there was a universe around $2 billion. What we're saying at this stage is that we'll feel -- we feel confident the we can reach that -- from now to the next two years complete this and hit the $2 billion figure.

Thank you.

Julien Dumoulin-Smith from UBS. Your line is open.

Hi. Good morning.

Good morning, Julien.

Hey, so quick first question here on the Gener funding for the equity later -- I suppose later this year. Is that really due to the at Alto Maipo sale and just kind of keeping your stake at a comparable level as it is today?

No, Julien. It's Tom. It's really more Alto Maipo is on track. The partnership is very consistent with our expectations. And what we have been working on for the last six months it's really how Gener funds their equity piece into Alto. And we are looking at some scenarios that would have some non-equity -- basically, we do the Gener new issue common into the market.

Ultimately, would you keep the existing stake that you have in Gener with the $100 million?

Exactly. Yes, that's our expectation. So when you said up to $100 million, that would be roughly 70% of a deal. That would assume that Gener would do an equity deal of $150 million, $175 million, something like that. Appreciate it's still a work in process. But it's also impacts how we see relative values. And so even if Gener went a little larger than we can subscribe to up to 70%, we can also dial it back if we want.

Yes. And I'll like to add there the way we are looking at the portfolio is that we really target in the sense that through something like this emission of shares at Gener, we can target the exact amount that we want, also by some of the sell downs, partial sell downs. So what we're doing is really optimizing our portfolio and seeing where we get the -- we feel the best returns. Of course it's a strategic objective of controlling these companies so that we can really extract the synergies from having this global portfolio.

Great. Excellent. So perhaps the next question, just going back to the discussion on asset sales and partnerships, just if you could provide some sense of magnitude for what these potential partnerships could yield and any kind of metrics, if you will, but just a little more detail there?

Well, that's a little bit -- a little bit tough. As you know --

Could you give a target maybe or anything like that that you want to throw out there?

What I would say in the number I gave you, the $900 million, some of that could be a partial sell downs. The $200 million that we're -- the $900 million that we're going to do over the next two years. Part of that could be partial sell downs. We could sell down at various levels. Again the basic idea is to be able to tailor the risks that we want in markets that we want in technologies. For example, take something like Alto Maipo. We want half of that project because that's what we feel would be optimal for Gener and for us. And the same thing is the decision between Cochrane and Alto Maipo is to be able to do both projects. As Tom mentioned, we will look at what's the optimal mix of partnerships and new equity, for example, into Gener.

Great. And then, lastly, on Bulgaria, you talk about preserving the contract value. I know it's a little tough to talk about it right now, but what are those potential avenues, if you can talk about it at all, frankly?

Just give it sort of -- we have a great asset there. It's the only major plant in Bulgaria which is EU16 compliant. Very good contract. There are some things going on in Bulgaria. We are on top of that. I think Andy can comment a little bit more on the specific actions.

I really don't want to talk about all kinds of options. (technical difficulty).

Andy, I am not sure we can quite hear you.

Excuse me. Sorry, Julien. It's Andy Vesey. In terms of what's going on in Bulgaria, as you know, what's driving all of these issues are the perception of the high energy prices, and that's retail energy prices. As you may be following when the new government came in they reduced distribution tariffs by 7%. And that was done by impacting the distribution companies, distribution value added. August 1 they have come out with a new regime, basically reducing energy prices again by 5%. And that is going to other generators, not those who have PPAs like AES. The real issue that we're focusing on the moment is with our off taker NEK and their liquidity because the primary focus for us right now is making sure our accounts are current.

We are in constant discussions. We have had very productive discussions. They are working very hard to find ways of continuing to meet their obligations to us. At the moment that's where our discussions are. It's a changing situation. The Bulgarian government is taking a lot of steps in this sector, a lot of focus on NEK and how it's structured. So at this point it's our relationship with NEK which is in front of us and the most immediate issue is to make sure that they continue to meet their obligation in paying for the energy that we provide them. That's where we are at the moment. And as this goes forward we will be happy to update.

Great. It actually is just -- a quick one on Uruguaiana in Brazil. Any updates on re-contracting there?

On Uruguaiana in terms of the actual operations of the plant, we operated it for two months and we expect to probably get it back up in September. This has do with the Brazilian, as you know, because of the drought, they have managed their reservoirs very well and have been requesting a lot more thermal into the system. Some of that, of course, has been socialized, if you will, across all the generators including [J pen] that has affected somewhat the results. Yes, we do expect to be operating it once again probably in September.

And that would be on a go-forward basis just from a modeling perspective? Would that be --

Well, we're not ready to say that yet. The real issue becomes right now in Brazil, as you know, they are still using a lot of thermal generation. So the ability to have Uruguaiana to provide supply to help rebuild the reservoir levels is essential. Naturally the Brazilian government had said that. The real issue becomes the relationship between Brazil and Argentina and getting the gas. As you remember the last time when we started the plant it was Brazilian gas transported through Argentina. So there are a few pieces that have to work. Those conversations are ongoing. They're active and we are very hopeful that we will not only be able to get the plant back, as Andres said, in an emergency situation later this year, but that as we resolve the YPF situation we will have a long-term commitment.

That's good to clarify. When I say September, on the month of September our goal is to have it long term available, constantly available, and receive capacity payments, et cetera. And we do have very good relations with both governments and we are in conversations and we are optimistic this will happen.

Great. Thank you for all the details.

All right. Thank you.

Charles Fishman from Morningstar.

Thank you. Just a follow-up on that last -- or one of the previous questions on Bulgaria. What is your total exposure right now to NEK?

Our total exposure. Bulgaria is about I would say 5% of our total PTC, pre-tax contribution, and I would say that our exposure, as you can see in the Q is about $80 million in terms of [let] the accounts receivable that are past due. I'd say that that's basically -- on book value I think it's somewhere around $590 million.

But we focused on the PTC numbers, so it's a little over $100 million, $110 million. Something like that.

To put it in context, as Andy said, right now our focus is really on making sure we maintain the receivables at this level. The plant is operating very well. The issues that the sector is facing in Bulgaria have a lot -- really aren't driven by this. It has to do with some of the legacy plants increasing their exports of energy and they are taking the right steps. That's a question of strengthening NEK's cash flow more than anything else.

You had a contractual issue with the contractor on that plant at one time. Is that still in arbitration?

We didn't -- well, we basically did have an issue with the contractor on that. I think Brian can comment on that.

You're correct. It's still in arbitration and a hearing is scheduled for later this year and the beginning of 2014.

Just roughly, what's your exposure on that?

Well, I would say our exposure, basically, it's we have, let's say, the funds that were put up for, let's say, losses caused by the contractor I think are about 100 -- well, about EUR90 million to EUR100 million and that we feel our exposure here is minimal in terms of -- if any because what happened is that we asked them to exit the construction site and we completed it ourselves with some assistance from some technical firms and we did get it up to name plate capacity. I don't know, Brian, you can -- you want to comment any more on that?

No, that's accurate. Obviously, it's in arbitration, so we need to be a little less talkative about the issue.

Okay. Thank you for the update. That's it.

Gregg Orrill from Barclays.

Thank you. I was wondering if you touch on parent free cash flow and how you see that trending into 2014 and ongoing. I know you said you were looking at the top end of the higher part of your guidance for this year. And then within that just a couple of drivers. I know you said the parent interest was on a run rate reduction of $50 million and how that compares to your expectation and whether you can increase those savings going forward. And then, lastly, on the MCAC region, you had some spot sales there, just how that's tracking relative to your PTC ranges from the Analyst Day and going forward.

Gregg, let me hit the -- try those from a -- parent free cash flow, I think our range for this year of $400 million to $500 million was conservative and as I said we are more comfortable at the higher end of the range. You may remember last year the number was about $520 million, $525 million. I think $500 million is a general -- generally a good run rate for us. We haven't got a specific number for next year and 2015, but that's generally a good number, maybe $450 million to $500 million. As we look out longer term with some new plants coming online, especially Mong Duong which comes on later in 2015, we do think 2016 and thereafter will have some good ability for us to grow off of that base, if you will. Certainly as it impacts dividends, as we talked, we think we can grow into our range and then grow the baseline on a longer term basis. Andy, I don't know if you want to touch on the spot deal?

Sorry, could you clarify the question? I didn't hear it very well. For Andy, the second part of the question regarding [SCAT]?

The second part of the question related to just how you were trending relative to the PTC guidance on MCAC and how you see that business going forward.

Yes. Greg, maybe I'll just say that I think MCAC was still in the range, trending towards the lower part of that meaningful offsets from Panama. But we have said it had some improved results out of the Dominican Republic. So we're still -- we're still below the midpoint in MCAC, but the DR has done well and I think benefited from some market conditions there.

And then on interest expense going forward, additional saving and how it's coming in versus expectations?

Yes, think we will have some -- the interest savings that we are seeing this year will have some continuation of that. I think it's in the 30-ish range. So maybe $0.03 to $0.04, Gregg, from a bottom-line EPS impact.

Thank you.

Brian Chin from Merrill Lynch.

Hi. Good morning.

Good morning, Brian.

Could you give us a little bit of update on Indianapolis Power and Light? Two things. One, I know that the CCGT decision is still early 2014, but any sort of color on updates on that. And then, secondly, could you give us an update on the environmental retrofit settlement agreement? Did the commission decide on that? What's the latest on that?

Okay. I think Andy can certainly can update you on the first part.

Brian, it's Andy Vesey. In terms of the CCGT, where we are in that process is we do expect -- as you know, we filed for the CPCN almost a year ago and we do anticipate getting a decision out of the commission on it this month and we expected to be on the last agenda and it wasn't. But we do anticipate it being at the end of this month. We don't anticipate any difficulty and we are not aware of any issues that will come up. So we believe we will be moving forward with that as per our schedule and as we've discussed before. In terms of the second part of your question, maybe if we're talking about -- are you talking about the MATS investment?

Yes. I was thinking of the retrofits and settlement agreement that had been reached between Indianapolis Power and Light and the consumer groups. I think I have in my notes here that a decision by the commission was expected sometime around the middle of this year, but maybe I've got my notes wrong. I just wanted to make sure I have the right update.

Brian, I'm going to have to say that I'm aware of those ongoing discussions. I know that there have been a lot of proposals put back and forth. I am not aware that we have a decision. So we'll have to update you because I don't have any new information on that.

Okay. Okay. Fair enough. And then the second topic. I believe you said in the prepared remarks that the share buyback that has been done so far leaves about $237 million left that has been authorized. Is that correct?

That's correct.

Okay. Based on the run rate of how much you guys have been buying back in terms of shares, that leaves about another year or so of share buybacks if you just use the same run rate. Should we expect to see at some point over the next, call it, two or three quarters an increase to the authorization amount just to give you guys the flexibility in the event the shares do decline?

Yes. As I've always said, the authorizations are really no issue in terms of us getting authorizations. The question is, as we make our capital allocation plans, as we decide to do different things. As I have said in the past, this is -- we have it. It's on the shelf. We can use it as we feel it's appropriate. If for any reason we wanted to exceed that amount and of course we could go back to the Board and discuss it.

Okay. Great. Thank you very much.

Thank you.

Paul Patterson from Glenrock Associates. Your line is open.

Hi. Good morning.

Good morning.

Most of my questions have been answered. But just back on the comments you guys made on Bulgaria in terms of aiding NEK's cash flow or liquidity, could you just elaborate a little bit more on that? I did notice that the receivables obviously rose and stuff, but what sort of -- how would you guys be -- what is actually contemplated with respect to that, if I understood that correctly?

Well, I think the most -- again, these are decisions of the Bulgarian government, but they're certainly -- one of the things that NEK has, it takes in some relative high export taxes and it's lowering some of those export taxes to let them export more energy into the area and get more revenues from that. And also it's a question of some of the legacy costs that they have from some of the less efficient old plants. I don't know if, Andy, if you have anything to add really to that?

Yes, Paul, Andy Vesey. The only thing I would say is that the liquidity issue in NEK is being worked by the governing sector and in a new regime they are looking for a lot of non-energy cash streams to go to NEK. They've also been changing some of the taxes on energy. But let me put -- and give you some perspective. I think the -- our accounts are about $84 million, of which 75% or less than 60 day age. We have been in this situation with them before and we have always been able to come to an arrangement. Without going into too much detail at the moment, we've received a letter from NEK basically with a proposal that would make them whole probably within the first quarter and a payment scheme. So everything seems very productive there.

Now of course it very much depends on a lot of these new -- this new regime coming into place. But the relationship we have with NEK is very positive, it's very open. We meet with them regularly. We have solved this type of issue in the past and we are trying to be as flexible as we can so we can have a long-term solution. They have an issue. Everybody's working on it. We want to be a part of that solution. And given the past performance of NEK and our contacts in the government, we feel we're back on the path to having a resolution. And as that becomes firm we will be able to update everybody on it.

Okay. That's great. And then just on the $587 million of net equity, that's the total exposure, is that right? There's no -- you guys don't have any parent guarantees or anything else with respect to the Maritza whatever? Is that --

Yes. No, that's correct. It's all non-recourse financing.

Right. Okay, great. Thanks so much.

No other questions are in queue at this time.

Okay. Well, thank you, operator. Before we conclude today's call let me reiterate that we are reaffirming our guidance, that we continue to execute on our strategic plan, that we will continue to reduce costs and rationalize our portfolio. As we previously laid out, we are maintaining a balanced approach to allocate capital towards deleveraging, returning cash to shareholders and investing in platform expansion to maximize risk-adjusted returns. We look forward to seeing you in the near future and with that I will now turn the call back to Ahmed.

Thanks, Andres. We thank everybody for joining us today. As always, the IR team will be available to answer any questions you may have. Thank you and have a nice day.

Today's call has ended. Please disconnect at this time.