愛依斯電力 (AES) 2014 Q1 法說會逐字稿

Good morning, and thank you for standing by.

(Operator Instructions)

Today's conference is being recorded. If you have any objections, you may disconnect at this time. And I would now like to turn the call over to your host, Ahmad Pasha, Vice President of Investor Relations. Mr. Pasha, you may begin.

Thank you, Angela. Good morning, and welcome to our first-quarter 2014 earnings call. 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 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?

Good morning, everyone. And welcome to our first-quarter earnings call. Today, I will discuss our first-quarter results, current hydrological conditions in Latin America and the steps we are taken in response, our 2014 guidance and longer-term expectations, and an update on how our strategy is continuing to yield opportunities to create shareholder value. Then, Tom will provide a detailed discussion of our results and our capital allocation plans.

Turning first to our results on slide 4. This year, hydrology in much of Latin America is proving to be drier than expected. However, we're pulling all levers in our control to meet our commitments, and we are reaffirming our guidance on all metrics, although we now expect to be in the lower end of our adjusted EPS range.

In the first quarter, we earned $0.24 of adjusted EPS, down $0.03 from the first quarter of 2013. And our proportional free cash flow was $129 million, down $232 million. The former traces largely to outages and gas curtailments at DPL. And the latter, to temporary working capital needs due to the severe weather in Indiana, Ohio, and Brazil.

Turning to slide 5. Before Tom discusses our first-quarter results and capital allocation plan in more detail, let me address some recent developments at some of our businesses. So far this year, hydrology in Chile, Colombia, Argentina has been in line with our expectations.

However, we are seeing conditions in Panama and Brazil that are even drier than last year's, which could have an adverse impact of between $0.07 and $0.10 on earnings per share this year, relative to our original assumptions. The actual impact will ultimately depend upon the strength of a potential El Niño developing in the Pacific, which could improve hydrology conditions at some of our facilities in Latin America.

Given that this is the second consecutive year of poor hydrology in Latin America, we are aggressively taking steps to mitigate this year's impact and develop real options to decrease future volatility. Specifically, in Panama, where we have seen the greatest exposure, we converted 175 megawatts PPA from financial to physical, capping our exposure to actual production levels.

We successfully executed an agreement with the government of Panama where the government agreed to reduce the financial impact of spot electricity purchases by up to $100 million over the next three years for AES Panama. And, in order to diversify the fuel mix of our generation fleet in Panama while supporting the country, we will bring in a 72 megawatt oil-fired power barge.

We're entering into a five-year PPA with a government-owned distribution company, and expect to earn attractive returns, beginning in [2015]. We're also evaluating similar real option opportunities in other parts of Latin America.

In Brazil, our revised outlook indicates that forecasted hydrological conditions will have a negative impact on our earnings this year. However, they've also contributed to a 60% increase in power prices for 2016, nearing the level of Tiete's current contract with Eletropaulo, which expires late 2015.

Tiete has roughly two-thirds of its capacity contracted for 2016 at BRL119 per megawatt hour. One-third of its firm capacity has not been contracted, and this grows to two-thirds in 2018. Tiete may be able to capture additional upside if power prices remain at 2016 levels through 2018.

These same market conditions are also favorable for Uruguaiana, our 640 megawatt gas-fired plant, for which we were able to secure gas supply for 60 days. We're leveraging our presence in Argentina, Brazil and Chile to find solutions that take advantage of underutilized infrastructure in those countries to quickly address current energy shortfalls while we work towards long-term solutions.

Before turning to our 2014 guidance, let me touch on the status of DPL's generation [assets]. We continue to work on parallel paths, exploring options to transfer to an affiliate or to sell to a third party. The sale process is well underway. We're in the second round of discussions with potential buyers, and the sale could be announced later this year.

We're also monitoring alternative proposals for commercial strategies in Ohio, which may have an impact on the long-term value of these businesses. Keep in mind, we will only sell if the price offered is reasonable and represents the best outcome for investors.

Now, I'd like to review our guidance on slide 6. The impact of hydrology I mentioned earlier is the most significant change since our last conference call. And we now see in estimated impact for the year of $0.07 to $0.10 per share. However, in a portfolio as large and diverse as AES's, we're able to mitigate this impact through additional cost management efforts, targeted capital allocation, strategic initiatives. Therefore, we are reaffirming our adjusted EPS guidance of $1.30 to $1.38, but we now expect to be in the low end of the range.

Our earnings and cash expectations beyond 2014 remain unchanged. Although we reported only $129 million of proportional free cash flow in the first quarter, we're reaffirming our guidance range of $1 billion to $1.3 billion.

We expect to achieve our range as we recoup our working capital in the Brazil and US as well as implement other liquidity-enhancing initiatives that Tom will discuss in a moment. Based on our current stock price, that level of free cash flow represents a 10% to 13% free cash flow yield.

Now, turning to slide 7. We remain focused on executing on our strategy, which aims to maximize total shareholder returns. As a reminder, our strategy is based on the following four pillars -- performance excellence, reducing our geographic complexity, expanding access to capital, and leveraging our platform.

Beginning with performance excellence -- we're on track to achieve our 2015 goal of reducing global G&A by $200 million, making progress towards reducing our proportional O&M by $185 million by 2018.

Since our last call, we move forward with several opportunities that are examples of the other two pillars -- expanding access to capital and leveraging our platforms. The four examples I will describe in a moment all came together in the last few months, demonstrating our commitment to execute on value accretive transactions that require shorter lead times. In aggregate, we believe that these new projects will result in $200 million to $300 million of NPV creation and adjusted EPS contributions of between $0.10 and $0.12 per year, once they are fully operational.

These particular projects have several characteristics in common. They require relatively small equity investments from AES, and they will earn strong returns.

Turning to the first example on slide 8. In Chile, we recently had the opportunity to both expand our access to capital through a creative partnership arrangement as well as leverage our existing presence in the market.

By exercising our right of first offer, we bought the remaining 50% stake in AES Gener's Guacolda generation business for $728 million and then sold to 50% stake, less one share, at the same price to another investor. By doing so, we increased our operating role in the project, allowing us to extract synergies from operations and create $50 million to $100 million in present value for our shareholders.

Another example is the integration of fogging technology at our Parana CCTG plant in Argentina, were increased the output by as much as 45 megawatts through an investment of less than $1 million. This project is also an example of our adjacencies and enhancements program, which includes energy storage, fogging, and water desalinization. As I mentioned on our last call, in aggregate, we expect the enhancements and adjacencies program to add $40 million of pretax contribution, or PTC, in 2015.

The power barge in Panama I discussed earlier is another example and will produce approximately $20 million in PTC, beginning next year.

Now, turning to slide 9. We plan to convert the DPP gas-fired plant in the Dominican Republic from open cycle to combined cycle, increasing its output by 120 megawatts to 360 megawatts without using any additional fuel. All required permits are in place, and we are working on PPAs for approximately 85% of the capacity. We expect to finance [no] more than $200 million investment in this project, with leverage capacity at our existing businesses in the Dominican Republic.

These four initiatives are examples of actions we are taking to create value for our shareholders with minimal AES equity. We're working similar projects across our portfolio, which will result in an improved return on our invested capital. We're also seeing electricity demand growth of most of our markets, such as Chile, Central America, and Asia, that is four times higher than the US, which will provide us with many good investment opportunities.

Now, regarding the project on our construction project. Since our last call, we completed construction of our 266 megawatt mount signal solar project in California on time and on budget. It is one of the largest single-axis tracker PV plants in the world. We expect this project to contribute almost $10 million of distributive cash in 2014.

Additionally, as you can see on slide 10, we currently have 4,100 megawatts of new capacity under construction. This includes the 1,320 megawatt, coal-fired OPGC II project in India and the 531 megawatt hydroelectric Alto Maipo project in Chile.

Both of these projects broke ground during the first quarter on our expansions of existing plants. We also have 2,400 megawatts of environmental upgrades underway at IPL Indiana, which will bring our IPL generation capacity into full MATS compliance by 2016. All of our construction projects are progressing well and are expected to come online over the next five years.

Total AES equity required for these projects is $1.25 billion, of which 70% is already funded. All necessary financings are in place. On average, we are expecting an attractive 14% return on these investments.

With that, I will turn the call over to Tom.

Thanks, Andres. And good morning, all.

As Andre said, hydrology for this year is challenging. We're taking steps to offset these issues. While we're reaffirming our guidance for cash flow and adjusted EPS, we now expect to be in the lower half of the range for adjusted EPS. Today, I'll go through our first quarter, including adjusted EPS; adjusted PTC by strategic business unit, or SBU; proportional free cash flow; and our 2014 capital allocation plan.

Turning to slide 12. First quarter 2014 adjusted EPS of $0.24 was $0.03 below first quarter 2013. I will give more details in a moment, but at a high level, we benefited from the following: our SBUs contributed an increase of $0.02, despite a $0.04 impact from hydrology and a one-time spot price adjustment in the Philippines; we also added $0.03 in capital allocation actions, which resulted in reduced Parent interest expense and a 3% lower share count.

On the negative side, we were affected by the absence of last year's $0.04 Beaver Valley PPA termination payment, a $0.03 impact from forced outages and lack of gas availability at DPL during the extreme winter weather, and returned to a roughly 30% normalized tax rate this year versus 26% for first quarter 2013, which has an impact of a penny.

On a GAAP basis, we reported a loss of $0.07. This included $0.17of impairments as a result of our annual review, largely DPL, where we impaired the goodwill associated with our retail business, reflecting continued margin compression and lower expected future retail growth. After this impairment, the remaining goodwill at DPL is $317 million. GAAP results also reflect $0.13 of expenses associated with the refinancing of near-term Parent debt maturities with longer-term, lower-coupon debt.

Before I review our businesses in more detail, I'd like to comment on hydrology on slide 13. Hydrology has been a challenge across Latin America. When we provided guidance at the end of February, it was largely based on a return to normal hydro conditions for 2014. However in the first quarter of 2014, we had a $0.02 impact from below average hydrology, versus a $0.03 impact last year.

As Andres discussed, we've taken actions to reduce the full year impact by $0.04. Accordingly, we expect an impact of between $0.07 and $0.10 this year, compared to $0.13 last year. About two-thirds of this is from Panama, and the remainder from Brazil. In Chile, Colombia, and Argentina, hydro has been very much in line with our expectations.

I'll now cover Panama and then Brazil. As we noted on our last call inflows were below average in Panama, but the rainy season had not yet started. We're now entering that rainy season, and the forecast is for inflows to be significantly below average. Also adding pressure to the tight supply, a competitor's large thermal plant went off-line in March, further increasing spot prices.

As I mentioned on the fourth quarter call, in Brazil, system reservoir levels were low at 39%. But there were still two months left in the rainy season. Since then, the rainy season has ended. And system reservoir levels have only improved to 43%, versus 62% last year.

[System] operator has increased thermal dispatch to preserve reservoir levels, causing higher spot prices. These higher spot prices do not affect our utility earnings, due to the [pass-through] nature of energy purchases. However, there's certainly been an impact on working capital needs. To assist the distribution companies with their working capital, the government of Brazil has announced an BRL11 billion funding plan, of which, Eletropaulo and Sul will receive about $1 billion this year.

Regarding Tiete, our generation business in Brazil, we ended the first quarter with higher results from spot sales at favorable prices, due to lower contract levels. However, we expect Tiete to be a net buyer in spot market during the second half of the year. If the dry conditions persist, we have some exposure in the second half of 2014.

I'll note that this estimate does not include potential rationing in Brazil. Since current reservoir levels are at 43% and given the level of thermal generation in the system, we do not believe that rationing is likely this year.

Turning now to slide 14 and the newly proposed tax reforms in Chile, which are expected to be approved by the third quarter of this year. The tax reforms include a phased-in increase of the corporate income tax rate from 20% to 25% by 2017.

In addition, beginning in 2017, the law would require 10% withholding tax to be paid when profits are earned, rather than when they're paid out as dividends. Beyond a one-time increase in our deferred tax balance in 2014, which was factored into our guidance, we don't expect a material impact from these changes in the near term.

The Chilean government has also proposed new emissions taxes, including a carbon tax of $5 per ton, to be imposed on stationary boilers and turbines, beginning in 2017. The proposal has an impact on our thermal plants, primarily for the period from 2017 to 2022. We believe that the impact of these green taxes is around $0.02 to $0.03 per share in 2017, declining thereafter, as we expect an uplift in power prices that benefit our hydro capacity and our efforts to re-contract our thermal capacity. As a reminder, the average life of our PPAs in Chile is about seven years.

Now, I'll go through each SBU. Turn to slide 15. In the US, we reported a decline of $58 million in adjusted PTC, year over year, which includes the one-time effect of $49 million on 2013 PTC from Beaver Valley PPA termination payment.

Although we benefited from higher profitability at our wind businesses and better availability in Hawaii as compared to last year, results were negatively affected by a $33 million decline at DPL. This was largely driven by DPL having to cover some of [its load] obligations from the spot market during January's extremely cold weather, due to forced outages and gas curtailment.

Then at Andes, we reported a decrease of $28 million in PTC, half of which is the result of planned maintenance in Chile, and the remaining amount is related to foreign exchange.

In Brazil, PTC increased $27 million for the quarter. Despite a 15% currency devaluation, profitability improved across all of our businesses. Tiete benefited from higher spot prices, as I described earlier. We also saw some improvements on Eletropaulo and Sul from higher demand due to hot weather.

In Mexico, Central America, and the Caribbean, we saw a 16% adjusted PTC growth to $65 million. This was largely driven by higher availability and higher contract prices in the Dominican Republic. These favorable contributions were somewhat offset by lower hydrology in Panama.

Turning to Europe, Middle East, and Africa on slide 16. PTC increased 20% to $115 million. This was largely driven by higher operating performance in Bulgaria and Northern Ireland, as well as contributions from our new wind businesses in the UK.

Now, I'd like to provide a quick update on Maritza. The plant has been running well with excellent availability. And the government of Bulgaria continues to support the agreement -- the agreed-upon payment plans.

We've received $61 million in payment since our last call, and current outstanding receivables are about the same level, which is $167 million. Of which, $40 million is due in installments over the next eight months, and the majority of the remaining amount is less than 90 days outstanding.

Finally, turning to Asia, where PTC declined by $23 million to $8 million. About a third of this decline relates to the planned and unplanned outages in our Masinloc facility in the Philippines. The plant is now back online, as of mid-April. Also in the Philippines, we expensed $14 million this quarter as a result of a market spot price adjustment for November and December, when the system experienced unprecedented high spot prices due to significant system outages.

Now turning to cash flow on slide 17. We generated $129 million of proportional free cash flow this quarter. Excluding the $60 million PPA termination payment related to Beaver Valley, this represents a decline of $172 million versus last year's first quarter.

During the quarter, we benefited from lower maintenance CapEx at our US and Brazil utilities, higher collections at our businesses in the Dominican Republic, and lower tax payments in Colombia. These gains were offset by higher working capital needs in Brazil and DPL related to higher sales, which we expect to recover during the remainder of the year.

On a full year basis, as Andres mentioned, we expect to generate $1 billion to $1.3 billion in proportional free cash flow. In addition to the recovery of working capital that I just mentioned, we're focused on improving liquidity and cash flow.

As an example, we're reassessing minimum cash balances required to support operations at key businesses. With excess cash balances being distributed to AES, we'll use more efficiently at the business level, such as [debt repayment].

We also have a review of existing project financing arrangements to identify areas where restricted cash balances may be distributed to AES without adversely affecting the underlying credit. Overall, we believe these initiatives will help us to achieve our full-year cash flow guidance.

Now to slide 18, our capital allocation plan for the year. We continue to project roughly $900 million of discretionary cash, including $500 million of Parent free cash flow as well as about $200 million of announced asset sales. In addition to dividend and debt repayments, we plan to use $270 million for investments, largely in platform expansions at IPL and Gener, including our $108 million participation in Gener's recently equity raise.

This leaves about $200 million to $300 million of discretionary cash to be allocated this year. Plus, as we announced additional asset sales of roughly $500 million to $700 million in 2015, the amount of discretionary cash available will increase.

We'll continue to work on maximizing cash flow to improved operations, optimize working capital, and additional asset sales. And we'll deploy in a disciplined way to maximize returns for our shareholders.

I'll now pass it back to Andres.

Thanks, Tom. In summary, although hydrology is once again extremely dry in some of our markets, we're taking steps to minimize the impact, including increased cost management efforts, accelerated capital allocation, and strategic initiatives. At the same time, we're taking advantage of the opportunities our presence in attractive markets offers us to create value, while being mindful of the amount of AES equitably we invest.

Going forward, and in line with our capital allocation framework, we will continue to invest our discretionary cash to maximize value for our shareholders. As we've demonstrated through the repurchase of 8% of our outstanding shares over the last two years, buybacks will remain a key component of our capital allocation plan. To that end, we have $190 million of our repurchase authorization outstanding in conjunction with strong liquidity.

The bottom line is that we still expect our annual total return to grow from a range of 6% to 8% to a range of 8% to 10%. And expect our free cash flow to grow at a rate of 10% to 15% annually, on average, over the next five years.

With that, I'd like to open up the call for Q&A.

(Operator Instructions)

Ali Agha, SunTrust.

Couple of quick clarifications. First off, on DPL -- I know that you folks have been trying to get clarity from the commission on the status of the non-bypassable charge if you were to sell those assets. I heard you say your second rounds in [the Bay is good]. And the sales transaction could occur by the end of this year. So where are you in that process from hearing back from the commission? And what bearing, if any, will that have on the timeline of the sale that you were talking about?

Yes, Ali. It's Tom. I'll just say that we're on a parallel path there, to either separate to an affiliate, keep it in the affiliate or, of course, to look at separating and selling to a non-affiliate. We believe that the [NBC] and the other pieces of the ESP from last year are a fair and reasonable treatment. Whether we continue to own the assets or not, it is essentially to provide stability for the DPL utility to manage through the transition pieces. And we think that's very reasonable.

So we're continuing on a path -- the team has made their -- a substantial filing before our last call. And they continue to move forward on that process. And we would expect to have the separation, perhaps, in the third quarter of this year. And then, have the flexibility to sell, as Andres said, by the end of the year.

Okay. Secondly, Andres, if I was hearing you right, you mentioned these expansion opportunities that you are now capitalizing on represent $0.10 to $0.12 of earnings. Sounded from your timeline that, that's starting to flow 2015 onwards on these. Plus, the pick up in the forward pricing in Brazil, particularly the 2016 pricing. So, have we raised our 2015 and 2016 outlook to reflect this? And if not, why not? What's offsetting at least the $0.10 to $0.12 of pickup that you highlighted for us?

Certainly. As I mentioned in previous calls, this was a very important initiative for us, which is really to use those adjacent spaces to add to our existing platforms to increase the profitability of the businesses. At this time, Ali, we are sticking to our guidance for 2014. What we're saying in terms of beyond that is that, we're doing everything possible to accelerate our total return growth from 6% to 8%, to 8% to 10%. At this point, I really have nothing further to say, but that we're going to do everything possible to accelerate this as soon as possible.

But did I hear you right that the $0.10 to $0.12 of earnings -- this is incremental -- was not in your original budget that you were laying out for us? Is that correct?

I would say some of that was because, as I mentioned when I first came out with the initiatives, I said that we really were in the process of quantifying it. That we had these ideas that we thought were very promising. But we really had to see how they would pan out in reality. So, what I am very pleased with the developments in the last couple months is that we're seeing that they are panning out very well.

Got it. My final question -- as far as capital allocation is concerned, Tom, the $200 million to $300 million bucket that you highlighted unallocated -- when will you allocate that? It's almost getting to the halfway point in the year. And share buybacks -- you clearly have not had any so far this year. How should we think about that in terms of priority of that $200 million to $300 million that you plan to use this year?

Yes. I'd say, Ali, our cash flow does tend to be a little bit more third, fourth quarter driven. We're obviously doing work to try to accelerate some of that. But as Andres said, we do have an authorization for little short of $200 million. We do have good liquidity. So it is something that we look at. As we look at some of the opportunities that Andres has mentioned, despite the -- let's say, thin on capital. Because we're trying to be miserly, let's say, with our investments -- so we've got good availability for other alternatives. We do compete those, very much, against share repurchase.

So, we do look at it on a regular basis. And I would say that -- I'd remind you that we did buy back 20 million shares in mid-December. We bought back, I think, about 8% of our shares since Andres stepped in as CEO. It is something that we look at on a regular basis.

Okay. A final comment, more than a question -- as you know, given your evaluation multiple, share buybacks seem like a no-brainer at these price levels.

We definitely think that current share prices are at attractive value for us. So yes, I agree with you.

Thank you.

Gregg Orrill, Barclays.

Just a follow up on the Tiete contracting strategy -- 2016 and beyond -- how you're looking to fill that position through purchases or options. But are there other options coming up that might help you to fill that?

Okay. I will make a general comment. Our strategy there has been gradual re-contracting. I think, if you go back a couple calls people were saying -- why hadn't we contracted more. Partly, one of the reasons -- of course, we couldn't foresee the degree of drought -- but we did foresee that, with MP 579 and other ending of the concessions, that we thought supply would be a bit tighter. So we really, essentially, hedged our bets. Instead, we contracted over time.

So as we mentioned, we're about 68% contracted today -- post the ending of the contract with the Eletropaulo at BRL119 per megawatt hour. Our latest have been closing around BRL125, BRL135. And current prices are higher. But I'll pass it on to Andy, so he can talk about some of the auctions that we've seen recently.

Angie Storozynski, Macquarie.

I just wanted a clarification. So, this $0.07 to $0.10 of an impact -- is this before the $0.04 mitigation? Or is this inclusive of the $0.04?

Yes. That number is net of the mitigation actions that we've taken. And, of course, we're going to try for more. And as I also mentioned, to some extent, where we'll be in that range will depend on how the potential El Nino develops. If it's very strong, it could help mitigate this. I would say that, essentially, El Nino will help us in Colombia if it is a strong one. And if it's a very strong one, it could also help rains in Brazil. And typically, it will make things worse in Panama.

So there are a lot of moving pieces here. But what I think is very important -- this is the second year that we've seen this occur, so we're taking actions to mitigate this risk, going forward. We had taken some actions, but we're taking additional actions, such as the barge into Panama.

Okay. About DPL -- so, we've had quite an impressive move in solar power curves. [AD Hub] is stronger than we probably have ever expected. Now, is this, in any way, impacting your decision-making about the disposing of merchant assets or maybe restarting the sale process, given the fact that the value of these assets has clearly increased?

Angie, it's Tom. Yes. We've certainly seen that with gas coming up in some -- also some retirements. We've seen that. We would -- I think our plan continues to be the same. We're on a parallel path. We would hope and expect that those higher -- those improved outlooks on the forward market would translate into higher value from the folks looking at our assets.

And we're also, [obviously going to see an RPM] in the next few months, and I think there's a lot of -- the next few weeks, I'm sorry. We think there's a lot of helpful things that will bring the RPM back into a more attractive number that would also help values that we expect to see.

And lastly, you mentioned that there were some gas curtailments of some of the assets in Ohio. Is this a real curtailment, or is this simply that the prices are prohibitively high?

Angie, this is Andy Vesey. Let me respond to that. This is the first time, at least in operating memory at DPL, there'd been, basically, shortages of gas. What happened with the extremely cold weather -- there were two effects. One was that, literally, there was no gas available because it was prioritized to residential customers.

The second issue is that the pricing went very high. I think on average we see gas at about $8 a dekatherm. We were buying at $25, and we were refusing at $45. So it was both. It was periods -- just no gas available because it was prioritized to residential customers. And the second impact that we saw is that, when there was gas availability, the pricing was extremely high.

I think this is something we have to recognize and be cognizant of. And as a result of the performance that we had during the polar vortex, we have made a number of changes. And one is that we have recognized that the commercial strategy we had in place was sub-optimal, if not fragile. And we're currently reviewing that and reorienting that so we do not have these issues, going forward.

Could you say which gas hubs had this issue with curtailment of gas?

Angie, that I just do not know. We can get back to you on that.

Okay. Thank you.

Julien Dumoulin-Smith, UBS.

Just quick clarification on the hydrology, if you would. Is there any way to break up this $0.07 to $0.10 by quarter or by region a little bit more granularly? Just so as we think through the next few quarters here, what the expected impacts could be, respectively?

Sure. We had $0.02, as we said, in the first quarter. And then, we're thinking of $0.07 to $0.10 for the remainder. Now again, this range will depend, again, on -- it looks, more likely than not, that we'll have an El Nino effect. And the question will be the strength of El Nino. If it's a very strong one, then it's, of course, more positive for us.

Now the main effects would be -- one, is Panama will get worse. If you have a strong El Nino, that's where we have the biggest exposure. And then second, it would be Brazil where we have, basically, the Tiete. And then, on the positive side, you'd basically have Columbia. So I would say that, in terms of quarters, maybe 60% will be in the second half of the year. And we'll have 40% in the first half of the year.

Again, we are cognizant of this and what we're really trying to do is reshape our commercial strategy and create real options to cut off the extreme ends here.

Okay. And then, on the Chilean tax situation -- if you could talk about that briefly. I was wondering -- so, you have an increase by year, but also, I suppose, a 2017 increase -- step up potential. What do you estimate that to be? And also, what are some mitigating strategies the best you see it, as well?

Okay. I was in Chile last week. And I met with key ministers. I met with leading congressmen and leading senators. So first, we have to say that this is a tax proposal, and what we really have is a discussion about it. What is key is that President Bachelet has said that they want 3% additional revenue -- 3% of GDP additional revenues -- which most of that would go for educational reform. Making higher education free at all levels. That's the design outcome.

It has different components. The first is the increase of the corporate income tax of 25%. And, quite frankly, we were expecting that. And that has always been as part of our guidance. And we've taken the appropriate steps in time for that. And they're doing it in a gradual fashion, as should be the case. The second part of that is the withholding tax. They're doing it on an accrual basis, rather than on a cash basis. And that was not as expected, but again, we had to pay that anyway when paid a dividend. And we have been paying -- for example, this year -- a high proportion of our disposable cash.

Then the third issue, which is the green tax. This is interesting because what we heard was, basically, this was a revenue measure more than having -- because of the -- it's not extensive to all sources of CO2. So it was very specific. It was a revenue measure. They're looking at raising $180 million when fully implemented. So this one is also being debated at this point. Do you make it a wider tax, rather than just boilers and turbines? And we will have to see how this one turns out.

But in all cases, I think we are well positioned for it. We started Alto Maipo, which is 500 megawatts of hydro, thinking that this could be an eventuality in Chile. And we do have a pipeline potential from the Alto Maipo of making additional hydro run-of-the-river investments if we see this tax come forward. Julian, this is one thing we'll have to continue to monitor because this is not in place. But what I feel very certain is that you will have this tax increase. And they will have additional funds for the educational system. The corporate income tax of 25% -- that's a given. Some sort of a green tax is also very likely. And there's a lot of discussion about the withholding.

Great. And then, just in Bulgaria, quickly. It seems like NEK recalculated some prices retroactively. How is collection? How is the political situation stand there?

Okay. We haven't -- I'm sorry -- recalculated any prices retroactively. What Tom said in his script was, basically, that if you look at the level of receivables, they remain basically unchanged. I don't know. Tom, do want to add to that?

So I'd just say, Julien, maybe -- the recalc was in the Philippines. And it was about $14 million from very high prices last November, December. There was a large number of outages -- I believe it was 2,000 megawatts of outages. So prices really spiked, and the market to some recalculation. So some spot pricing that we'd taken in income last November, December, we've reversed out this quarter. That's the only market recalc.

Bulgaria and Maritza -- there hasn't been any recalc. And we continue to move forward. And I gave the stats on receivables and payments.

Great. Excellent. Let me just clarify one last comment you made, Andres, with regards to Ohio. Some of the other dynamics around, I suppose, getting involved with recon PPAs, potentially. I'm curious, is that something on the radar screen? And could you talk about how that timeline for that process might mesh with your own decision to move forward with the sale? And maybe also, how it might relate to the pending ESP as well -- I suppose, the rehearing on the ESP.

We're aware of some of the other proposals that have been made in state, regarding the commercial strategy, which will help assure supply. And I think that's a serious concern, given what happened in the polar vortex, to keep sufficient plants online. And if there's a commercial strategy that helps make this happen, we'd support it. And we'd certainly look at this before making any final decision on a sale. As we said in the text, we're pursuing both PPAs. We're looking at what's occurring in Ohio, and we will make the decision that we feel is in our shareholders' interest.

Okay. But the timeline -- is there a certain period of time with which you would need to wait for the ESP and PPAs to get resolved? Or are you moving forward, regardless, with the sale? And if it's not resolved by then, then you move forward with the sale?

Obviously, if you transfer to an affiliate or you sell -- they're sort of mutually exclusive -- I don't see any hard timeline that we have to make a decision in any specific period of time. This will be more of a, I believe, a Q3 -- Q2, Q3 -- late Q2, Q3 issue.

Excellent. Well, thank you, very much.

Brian Chin, Merrill Lynch.

Just going back to the Philippines question. I thought I heard in your prepared remarks that there were unprecedented high spot prices in this quarter. But then in your response to Julien's question, I thought you made a reference that it was in the prior period. Could you clarify that? And hopefully, I didn't hear this wrong.

I'll pass this one on to Andy. No. Basically, there was one period where there were high prices, and that's what it refers to.

Yes. Brian, this is Andy Vesey. This period of time -- of the recalc -- was last November, December. As Tom had mentioned, there were over 2,000 megawatts off the system. And the way to think about it is that, on an average in 2013, you saw spot prices about $88 a megawatt hour. During this period in November, December, they climbed to $296 a megawatt hour. And that really stressed the system.

You also have to remember this was immediately after the typhoon. So this was a big stress on the economy. The government stepped in to recalc, based on what they thought it should have been. That is over now. We have no indication that, that will go on. And quite honestly, most of the generators are discussing that decision by the government. We are -- right now, we do not anticipate that this is a trend or that the government, in the future, would step in again, given that we don't see that kind of amazing spike in prices.

If you look at the Philippines, it is in a market that's going to be short. So we think it's an attractive market, and we're looking at the opportunity of expanding our Masinloc plant there. So this decision by the ERC, as Andy mentioned, is being, let's say, contested because it interferes with the pricing mechanism. But again, it was a very particular, short period of time when prices really did spike.

Okay. Got it. And then, going back to DPL and gas deliverability -- you've made comments about the fact that you're looking at solutions for gas deliverability in the future. Would you just going to little more color on what does that mean? Are we talking real changes? Are you talking changes to some of your current contracts? Just a little bit more flavor of what we're looking at there.

Brian, this is Andy. I really don't think we're looking at a gas option. One thing we're really looking at is the commercial strategy. And how close to the edge are we operating with our base load. And how we view the need for our gas turbine facilities to help meet our obligations. So this is really a re-examination of the commercial strategy to give us more flexibility in times of stress and potentially, looking at the different uses of hedges in our hedging strategy in Ohio.

Got you. And then, last one for me, the Tiete comments about how power prices are now higher. Is there a rough sense of what the incremental year-over-year EPS impact would be for that contractual rollover now?

The year-over-year impact of the contractual rollover -- the current contract is at BRL195 per megawatt hour. It expires in late 2015. It's a contract between Tiete and Eletropaulo. There are contracts being signed now -- that was an A-0 auction. But it had to be energy that was available now -- that's what the A-0 means. Close to those levels. Actually, higher than those levels.

So again, our strategy of having a not permitted all of this energy early and having done it over time, I think, is playing favorably. And if those continue, we could see a potential upside. What's in our forecast is an average price of around BRL125 per megawatt hour. And currently, be 68% that we have is 119 megawatts -- sorry, BRL119 per megawatt hour. So this could be for every $0.10 above an average price of BRL10 -- that's about $0.01 for us, in terms of adjusted EPS.

Okay. So a slight uptick is embedded in the forecast from 2015 to 2016, based on where you think the contractual prices could go. Is that correct?

Well actually, I think that we're conservative, given where we're at today -- at today's prices -- because again, we have the BRL119 as our average price for 68%. And we still have to contract one-third more. And if we contracted those, say -- to get to our BRL125, you're probably talking about $1.30 up -- BRL135 per megawatt hour. Now, if we contract higher than that -- and realize that, if you go out to, say, 2018 we're two-thirds open. So I think there's a potential for upside. I certainly don't think that our numbers are high.

Thank you, very much. Appreciate it.

Charles Fishman, Morningstar.

Fourth quarter, you provided a long-term outlook for adjusted EPS. I just wanted to make sure I understood the comments today and how it impacts that. 2015 was 4% to 6% growth. I'm still assuming that's the case. 2016 -- flat. And then 2017, 2018, you're going from 6% to 8%, to 8% to 10%. Is that correct?

That's correct.

Okay. Then, the change in 2017 and 2018. You've got a $0.02 headwind because of the Chilean emissions tax. What's offsetting that, that gets you the 2% growth bump?

There are, of course, many moving pieces. And one, I'd say, is the Chilean green tax. We have to see the final form of that as a potential downside at this site. There are many things that could improve. Some of the adjacencies and enhancements -- not all of those -- were in our forecast. And you also have the potential for higher re-contracting prices, for example, at Tiete. We're not moving from those numbers. And we think that we have enough offsets to compensate for any green tax in Chile.

But going from 6% to 8% average annual growth in 2017, to 2018, 8% to 10% -- is it just an increase in your confidence, or is there a project specific?

No. There's a number of projects. You realize that we have 4,100 megawatts under construction today. You have enough Mong Duong coming online. You have -- in that time period, you'd have about -- besides Mong Duong, you'd have a number of other plants coming online at that time period. So this is not just an uptick in our confidence, it's basically plants that are coming online, including OPGC II. Including, in that time frame, you would have Alto Maipo as well. So it's really -- most of it is based on the construction projects coming our way.

So there's just been an acceleration of the commercial operations?

Charles, this is Ahmed. Just to be clear, there's no change in our outlook that we provided back in December. EPS growth rate -- we talked about 4% to 6% go to 6% to 8%. And then, we have a dividend yields. So the total return we are talking about is 8% to 10% -- for the EPS growth, just to be clear.

Okay. The 8% to 10% is total. So the (multiple speakers) 6% to 8% in 2017, 2018, still stands.

Yes, So the EPS growth rate remain intact. No change. So is the cash flow.

My confusion. Thank you, very much.

Alex Kania, Wolfe Research.

Just a quick question. Can you comment on the coal piles in Indiana and Ohio? How do they look, relative to how you like to usually have them going into the summer?

Yes, Alex. This is Andy Vesey, and we're okay. We're right where we think we need to be. We monitor that on a regular basis. We manage our coal procurement globally, so we're relatively comfortable with current inventory levels that we have.

Great. Thank you.

Jeff Gildersleeve, Millennium Partners.

I just wanted to ask Tom, on the -- you went over certain cash management efforts -- minimum cash balances and review of existing project finance structures. Could you repeat that and, maybe, explain how that's transforming? And is it just for this year, or is it something that would have an ongoing impact on the cash flow of the business? Thank you.

Yes, Jeff. Happy to cover it. I'd say, in general, we have unrestricted cash on a proportional basis. Year-end was about $1.3 billion -- a little over -- around $1.3 billion. And we have a target to bring that down to about $1 billion by year end.

That's different than the unrestricted cash you see in our financials because that's consolidated. So the number we focus more on is on proportional numbers, just as we do in everything. We are looking at working capital issues, looking at cash balances within our project finance structures, looking at seasonality of working capital. Also seeing, in some cases, whether we can pool, if you will, on a modest basis, some adjacent businesses that may have some offsetting working capital issues.

So it's a couple things. One, we do expect to make it press down this year. Some of this will be -- will not be classified as proportional free cash flow. Some of it may be return capital, but it's all cash, so it all helps. So, we think there'll be some benefits this year. But on an ongoing basis, we would expect to continue to make improvements from cash flow. And some of that goes into some of the structures as we -- Andres went through some of the growth that we're doing. We're very mindful of working capital requirements and restricted cash requirements in our growth. And I think, historically, perhaps we weren't as mindful. So we've got cash trapped in a lot of places. That is very fundamental to our investment decision and structural decisions.

We've taken, really, lessons learned and making sure that on our new contracts, that we really have the ability to send of the cash, unrestricted versus the past. We've also restructured a lot of our debt. We've had $8 billion of refinancing, over the last year, of subsidiary debt. All told, we are making structural changes to make it -- to reduce the amount of restricted cash that we have.

Great. Thank you.

Raymond Leung, Goldman Sachs.

Just a follow on Jeff's question, actually. He started to ask about what I wanted to talk about. But how do you -- how should we think about -- for you to work on working capital or just restructuring some of your project finance, what does that do to your subsidiary distributions? Do you think that -- or should we think this is more one time, in nature? And what's your timing or sustainability of getting cash out? Is it a more of an ongoing cash flow stream versus one time, in nature?

I guess it sounds like you're targeting $300 million for that. If you could address that. And also, are you guys still projecting $1.15 billion to $1.25 billion for subsidiary distributions through the year? If you could update us on that.

Okay. Let me take it backwards. On the first -- last one, yes. We are maintaining the same projection. I think, getting to your question again, when we are doing refinances, when we're doing restructurings, when we're doing new growth projects, what we're incorporating is the ability -- greatest ability possible to be able to upstream that cash. So we're making structural changes to that.

I don't know. Tom, do want to add something to that? It's really an ongoing process.

It's an ongoing process. I'd say it was factored in when we talked about our 10% to 15% proportional free cash flow growth for the next five years. It was very much factored into that. We continue to look at ways, obviously, to be at the higher end of the range. And some of this will be used within the businesses. Some of this will be used to pay down debt in the businesses or use money more effectively. Some of it may also be used for subsidiary distributions, which obviously helps Parent free cash flow.

Okay.

I think one of the things -- one of our great challenges is to take this very rapid cash flow growth and to turn it into earnings growth on a per share basis. So that's one of the big challenges that we're grappling with.

Okay. What would be the optimal number of this unrestricted cash? I think you said $1.3 billion at year-end. You'd like to get it down to $1 billion. What sort of -- any thoughts on where you'd like it to get to?

We're looking through that. I think $1 billion is a reasonable target for year-end 2014. We have objectives to, obviously, get lower. I'd be a little head of [the skis] if I put an objective down. Some of it, frankly, is restructuring some of our agreements. And also, trying to work some of the seasonality in the businesses. So we certainly think we can make more improvements to get lower than $1 billion in the future. Maybe I'll provide a target, but I'd probably be a little head of myself if I put one out right now.

Okay. Fair enough. On my last question -- just back to DPL. I guess you guys noted that you had operational challenges at DPL. And it sounded like it was more at gas plants. Could you talk about how the coal plants performed during the quarter -- during the vortex? Were your operational challenges there? And if so, what were the triggers there?

Raymond, this is Andy Vesey. It wasn't just gas. We had some baseload units out. Notably, in the first cold snap, one of these Zimmer units were out. And that's one that we are [co-tended] and we don't operate. But we also had outages at Stuart. So collectively, that represents almost 600 megawatts.

Now, these were very short outages -- from five to seven days. And actually, Zimmer was ready to come back, but we didn't have the gas for start up. So when you think about -- the major impact that we had from the gas was on our gas turbines, which we would have called in. We didn't have them. The performance in the baseload units were impacting this period. We don't view the performance of these major coal units as problematic. But as part of our overall review of our performance during January, we will be looking again as to whether there are things we can do to, basically, improve performance and bring that [e-flow] rate down. Because that will have to be a very important part of our commercial strategy, going forward.

Great. Thank you, very much, guys.

Angela, can we take one last question, please?

Yes. Andy Levi, Avon Capital Advisors.

I'm not really left with much. I guess, the only thing that I'm curious about -- and it goes around Jeff's question, as well -- is, obviously, you're trying very hard to unlock the value of the Company, whether it's through asset sales, stock buyback. But it does seem that you have an awful lot of cash available. Are there any other things that you guys are thinking about, as far as trying to unlock value for the shareholders? Something more radical? As I would assume you get frustrated with the stock, as far as its value and where it's stuck.

Yes. Well certainly, as I said, we think that we -- our stock is an attractive value. Now, I would say that, in terms of the things that we are doing, these do take some time. This is a big Company. But we feel very good about is how our strategy of thinking differently about our capital. About how we bring in partners. About how we do add-ons -- is, we think, making -- getting significant traction. And that is really how we'll create growth. People talk a lot about [yield cos]. But what we're doing is, quite frankly, bringing the partners in at the project level -- getting a promote or getting management fees and other ways of increasing our return on capital.

If we think about on the efficiency side -- by having a more focused geographic footprint, we've been able to cut -- we're getting to close to a third of our overhead. And we're starting, now, to look at O&M. And we have in our plans to cut about 11% of [addressable] O&M over the next -- through 2018. We feel very good about what's been under our control. We've had a difficult quarter -- part of that was some of the outages at DPL, which we discussed. Looking for the rest of the year -- second half -- we're looking at a difficult hydrological situation.

But if we think about the value that we've created by our active measures, we think these outweigh the one-time event of a drought. And we will emerge from the situation with a portfolio that is less vulnerable to droughts because we're creating the real options. Overall, I feel very optimistic about the path of the Company. And I think this will be recognized. And some of the things that we're doing is new -- how we're thinking about capital is new. And I think we have to prove ourselves, and that's what we're trying very hard to do.

There is no doubt that you are doing that. I guess, what I was thinking was, obviously, the DPL -- you have to sell those assets and see what you get as proceeds. And I guess, most of the proceeds are, at this point, scheduled to pay down debt, assuming you get those proceeds. But there is -- (multiple speakers).

That's correct.

But there is an awful lot of cash available to you. And with the stock where it is, trying to do something a little bit more radical -- whether it's a more immediate buyback, such as a Dutch auction or something like that -- to try to unlock the value there and reward the shareholders. I don't know if anything -- maybe not that specific, but you understand what I'm saying -- something more.

I understand completely. Count on us that we, as I said, we see one of our challenges to convert our strong free cash flow and our strong free cash flow growth into value for our shareholders. And certainly, we were open to any ideas. Of course, we have a plan that we're executing on. And, very clearly, our objective is really increasing value per share -- total return per share value. And that's what we are focused on. I think if you look at our track record, we've done that. And we will continue to do that.

Okay. Thank you, very much.

We're showing no additional questions at this time.

Thanks guys. Appreciate your help.

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