The AES Corporation (AES) Q2 2012 Earnings Report, Transcript and Summary

Welcome and thank you all for standing by. [Operator Instructions] Today's conference is being recorded and if you have objections, please disconnect. I'll be turning the conference call over now to your first speaker for today, Ahmed Pasha. Sir, you may begin.

Thank you, Kelly. Good morning, and welcome to our Second Quarter 2012 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 to this morning are Andres Gluski, our President and Chief Executive Officer; Mary Wood, our Interim Chief Financial Officer; and other senior members of our management team. With that, I will now turn the call over to Andres.

Thanks, Ahmed, and good morning, everyone. Thank you for joining our Second Quarter Earnings Call. Let me start by saying that I'm very pleased to announce that Tom O'Flynn will be joining us as our new CFO in September. Tom is a great addition to our management team and brings a strong combination of financial skills, senior corporate experience and extensive knowledge of the energy and infrastructure sectors. I'm looking forward to working with Tom to execute on our plans to deliver long-term value to our shareholders. I would also like to take a moment to thank Mary Wood for doing a great job as Interim CFO over the past 90 days. Once Tom is on board, Mary will resume her prior position in the finance organization as our Controller. Now as you might have seen in our press release, we earned $0.18 of adjusted EPS for the second quarter. And although this is below last year's level, our result, year-to-date, of $0.55 are in line with our commitment to our full year guidance. Mary will walk you through the specific drivers later in this call. Turning to Slide 3. I will provide you with an update on the strategic plan that we laid out late last year to unlock shareholder value. I will then discuss some of the key macro trends affecting the portfolio, as well as recent developments at our more significant businesses. And following Mary's review of our financial results, I will discuss our capital allocation planned for the remainder of the year. Moving to Slide 4. And just as a reminder, our 3 strategic objectives for unlocking shareholder value are: one, optimizing capital allocation; two, growing the profitability of the existing portfolio; and three, narrowing our geographic and business focus by selling nonstrategic assets. We feel we're making good progress on executing on the strategic plans we laid out. Regarding the narrowing of our geographic focus, we have raised $800 million through asset sales, exited several non-core markets and invested most of these proceeds to strengthen our balance sheet. At the same time, we're improving the profitability of our business by cutting cost, exploiting scale in synergies and making high return investments based on our existing platforms. Now turning to Slide 5. Let me provide some color on how we're optimizing our capital allocation and considering all uses of discretionary tax, including delevering, share repurchases, growth project and increases in our dividend to improve our total shareholder return. Over the last 9 months, we have made early repayment on approximately $500 million of debt between repaying the corporate revolver and paying down the expensive debt at our Brasiliana subsidiary in Brazil. With respect to share repurchases, since our last call, we have bought back more than 20 million shares for a total investment of $252 million. This brings our cumulative share repurchases since September to 29 million shares or about 4% of those outstanding. Our total investment in our stock since September is more than $341 million, implying an average purchase price of $11.57 per share. Additionally, last week, the board approved a quarterly dividend of $0.04 per share, our first cash dividend payment in almost 20 years. We expect to grow the dividend over time in accordance with the performance of the company and market conditions. The dividend is and will remain an integral part of our total value proposition. Now please turn to Slide 6. And let's discuss our actions to improve our profitability. We've committed to achieving $50 million of cost savings at the parent level in 2012 and a total of $100 million in cost savings per year by the end of 2013. For 2012, we expect to exceed our target and are now projecting at least $65 million in savings this year as we've already reduced SG&A by $31 million during the first 6 months. Moving to Slide 7. Let us review our progress in terms of narrowing our geographic and business focus through the asset sale program. Despite a challenging market, we have closed or signed additional deals, such as our French win and China portfolios for additional proceeds of $176 million. To date, we've closed our ninth asset sale since September for cumulative proceeds to AES of $932 million. Thus far, we've achieved attractive valuations for these assets with an average P/E multiple of more than 20x 2011 adjusted earnings. In summary, we believe that we're consistently executing on the plan that we laid out last November. Next, on Slide 8, I'd like to briefly discuss important macroeconomic trends affecting our portfolio. We have seen a weakening of GDP growth in some of our markets, including Brazil, where the current year GDP growth rate is expected to be about 2% versus prior expectations of 4%. This is also reflected in a 19% year-over-year depreciation of the Brazilian real. Demand for electric power at Eletropaulo in Brazil this year is expected to grow only about 1%. Nonetheless, over the medium term, we expect growth in Brazil to recover to closer to 4% level and demand for power to grow in line with GDP. In many of our other markets, we are seeing more robust economic growth. For example, Chile and Colombia's economies are growing at nearly 5%, with power demand increasing at up to 7% on some of the grids. Regarding our key markets in the U.S., Ohio's economy is expected to grow in line with the overall U.S. economy at about 2%, while Indiana is slightly lower at about 1%. This year, power demand is increasing at roughly 1% to 1.5% at our Midwestern utilities and most forecasts expect a slight pickup next year. Generally speaking, weaker commodity prices have negatively affected our results year-to-date. On the natural gas front, while we have seen a modest supply side correction and a fall in the gas-only rig count, prices remain near the $3 per million BTU range, a result at both of our utilities in the U.S. but much more so at DP&L or positively correlated to U.S. natural gas price. Regarding oil and coal prices, both have weakened over the past quarter. In broad brush strokes, although our portfolio is roughly 1/3 hydro and renewables, 1/3 natural gas and 1/3 coal, our results are positively correlated to oil price directly in those markets where fuel oil or diesel set the marginal price and in others where it is set by natural gas or LNG linked to oil prices. On the other hand, AES' results are negatively correlated to coal prices, and we're starting to see the benefit from recent price declines. Today, we're in a buyer's market, and we are leveraging our aggregated annual spend of nearly $2 billion on solid fuels to lock in attractive prices for the remainder of the year. To summarize, while both currency and commodity prices have rebounded slightly as of late, current forward curves still imply a negative EPS impact of around $0.04 relative to where forward curves were as of March 31. Despite this, we've taken the necessary actions to maintain our adjusted earnings per share forecast within our original guidance range. Now I would like to give you an update on some of recent developments at our more prominent businesses. Let's start with Eletropaulo on Slide 9. ANEEL, the electricity regulator in Brazil, issued the final ruling on Eletropaulo's tariff reset on July 2. The final tariff reset represented a larger decline than the April preliminary proposal and is thus more negative than we had expected. The variance in the final ruling compared to the April proposal was mainly attributable to the change in the benchmark used to determine the level of non-technical energy losses included in the tariff. It is important to mention that we have a positive track record of improving Eletropaulo's operation through reduced energy losses, cost management and revenue enhancement. Since 2010, AES Brazil has implemented the creating value program, which has contributed approximately BRL 325 million or about $160 million to the bottom line through greater productivity and efficiency. Although we are disappointed with the regulatory outcome at Eletropaulo, I would like to point out that our 2 other Brazilian businesses, Tietê and Sul, are performing in line with expectations. These 2 businesses represent more than 80% of our earnings from Brazil as we only own 16% of Eletropaulo. Now turning to Slide 10. I'd like to give you an update on DP&L. The business continues to perform this year in line with our expectations. In terms of customer switching, at the end of June, 56% of the load had switched to competitive providers, up 3% from the end of March. I would like to highlight that DPLER, our retail arm, captured more than 78% of the switched load through the second quarter. As you know, DP&L's current rate plan is set to expire on December 31, 2012. In March, DP&L filed for approval of its next standard service offering in the form of a market rate offer, or MRO, to determine its tariff for 2013 and beyond. At this point, we're in the midst of settlement discussion. The process is constructive but complex given the number of interveners and the diversity of positions. Combined with continued low natural gas prices, some of the potential regulatory outcome that have been proposed by various interveners could result in lower medium-term earnings and cash flows from this business. We continue to work towards an outcome that is fair and reasonable for all stakeholders, and we remain hopeful that we will have a resolution in the third quarter or early in the fourth quarter. Overall contributions from this business will depend heavily on the final outcome of the MRO. In the meantime, we're positioning this business for our success in the competitive marketplace by expanding our retail capabilities and enhancing the efficiency of our North American portfolio. DP&L's retail power marketing business, DPLER and MC Squared, are rapidly expanding in markets beyond DP&L's service territory. We are now serving more than 140,000 customers outside of our service area in Dayton, representing annual usage of about 2.5 million megawatt hours. This growth more than offsets 70,000 customers and 2.1 million megawatt hours that have switched to unaffiliated third parties on DP&L's system. Overall, for 2012, we're projecting that DP&L's retail business will serve approximately 200,000 customers, with combined annual retail sales of 8 million megawatt hours. In terms of reducing cost, AES is on track to achieve nearly $10 million in synergy savings across its North American portfolio businesses this year, and we are aggressively pursuing additional opportunities. Moving to Slide 11. We're seeing positive momentum at some of our other businesses in the portfolio. For example, in the Philippines, our Masinloc plant achieved record performance in May and June. We have seen similar trends at our Kilroot plant in Northern Ireland, where we have benefited from lower coal prices. Overall, while the last -- while in the last quarter we faced headwinds at some of our businesses, given the results of our portfolio, year-to-date, we are confident that we can deliver on our adjusted EPS and proportional cash flow guidance for 2012, which, as you know, represents a roughly 20% increase over 2011. Looking beyond 2012, as I discussed on our last call, we faced some challenges in 2013, including low capacity and natural gas prices at DP&L. In 2014 and '15, we see favorable trends, including improved capacity prices in PJM, greater demand growth in key markets such as Brazil, Chile and Colombia, improved earnings from our wind portfolio, contributions from our current construction projects and value creation through our capital allocation decisions. Over the medium term, we remain optimistic about our earnings trajectory and business prospects. The new capital allocation strategy has improved returns on new projects by focusing on utilizing trapped cash and local leverage capacity and expanding on existing platform. We're focusing on those platform expansion projects that require little equity from AES, have shorter lead times and make the greatest contribution to the bottom line. Some near-term examples of these types of projects include Tunhita [ph], a 20-megawatt small hydro facility related to our 1,000-megawatt Chivor hydro plant in Colombia, and the 52 megawatts of lithium ion battery facilities colocated with the Angamos and Deepwater plants. Another potential project is the closing of the open cycle at the Los Mina plant and making greater use of our Andres regassification facility in the Dominican Republic. All of these projects could be constructed relatively quickly, require less equity from AES and would generate earnings faster than greenfield construction. As far as 2013 is concerned, we will issue guidance no later than the fourth quarter earnings call. Now Mary will review the drivers of our quarterly results and our 2012 guidance in more detail. Mary?

Thanks, Andres, and good morning, everyone. This morning, beginning on Slide 12, I will cover the following topics: first, our second quarter results and key drivers of proportional gross margin, adjusted earnings per share, cash flow from operations and free cash flow; second, parent liquidity; and finally, our 2012 guidance. As Andres mentioned, we reported $0.18 of adjusted earnings per share for the second quarter and $0.55 for the first half of 2012. With our first half results, we are still in line with our internal expectations for the full year. Later in my remarks, I will walk through what we see as the key drivers of adjusted EPS for the second half of this year and why we believe that full year results will still be in line with our guidance range of $1.22 to $1.30 although at the lower end. Before covering the results in more detail, I would like to provide some perspective on the year-over-year decline in adjusted EPS we experienced this quarter. First, during the second quarter of 2011, Gener in Chile had a strong quarter due to significant spot sales at favorable prices. We did not expect that opportunity to reoccur in 2012 so we projected lower results from this business in the second quarter of this year. Gener also had some planned and unplanned outages at its coal-fired facilities during the second quarter of this year. The lower volume also contributed to the year-over-year trend. All affected plants are back on line and performing in line with our expectation. Second, our quarterly results include an additional and final adjustment to the new tariff for Eletropaulo recently approved by the regulator, which was a tougher outcome than anticipated and required a catch-up accrual. These factors affecting 2 of our more significant businesses explain much of the year-over-year decline. These headwinds were partially offset by contributions from our new businesses, which are expected to continue to make significant year-over-year contributions in the second half of 2012. Now turning to Slide 13. Our proportional gross margin decreased by $56 million compared to the second quarter of 2011. Gener recorded a reduction of $60 million, approximately half due to lower spot sales and half due to lower plant availability. The proportional gross margin impact of the Eletropaulo tariff reset was $35 million for the quarter, including a catch-up accrual of $12 million. This represents the final adjustment for the tariff decision as we have been accruing for the outcome since the third quarter of 2011. In addition, unfavorable foreign currency exchange rates had an impact of $20 million. These trends were partially offset by the contributions of new businesses in the United States, Bulgaria and Latin America. Turning to adjusted earnings per share on Slide 14. Second quarter results decreased by $0.11 to $0.18. Gener in Chile accounted for $0.07 of the decline. Eletropaolo, primarily due to the final tariff reset, represented $0.04 of the reduction. Offsetting these declines, new businesses contributed $0.04 during the quarter. A reduction in SG&A also added $0.02 for the quarter. Foreign exchange headwinds reduced adjusted EPS by $0.02 for the quarter, primarily driven by the Brazilian real, which has depreciated by 19%. Together, the operating drivers accounted for $0.07 of the decline. In terms of non-operating drivers, the quarterly effective tax rate was higher than the rate from a year earlier due in part to a change in the book income mix, which resulted in a $0.03 reduction year-over-year. We expect a reduction in the effective tax rate on a full year basis. Now turning to cash flow on Slide 15. On a proportional basis, our free cash flow has increased 44% compared to the second quarter of 2011. This was driven by contributions from new businesses and a higher cash flow from Latin American generation due to improved working capital, partially offset by a decline at Eletropaulo adjusted for a 16% ownership stake. Now I will review our parent liquidity as of the end of June on Slide 16. During the quarter, we benefited from $677 million of inflows from our asset sales and cash from our subsidiaries. During the quarter, we invested $230 million in share repurchases. After $323 million of corporate interest, overhead and investment, we ended the second quarter with more than $1 billion of parent liquidity, up from $911 million at the end of the first quarter. We are pleased with our operating performance that provides us ample liquidity to increase value for our shareholders. Turning to Slide 17. I'd like to discuss our outlook for the remainder of the year. Although we have faced significant headwinds, we expect to offset most of these with new businesses, operational improvement, cost reductions and capital allocation initiatives that we have been discussing for the last few quarters. Accordingly, we are reaffirming our 2012 adjusted EPS and proportional free cash flow guidance although we now expect to come in at the lower end of the range. Next, I will review the specific drivers of our second half 2012 performance and how we expect to achieve our adjusted EPS target, through year-over-year changes in our businesses, as well as proactive steps that we have taken to improve our earnings. Turning to Slide 18. Our pro forma adjusted EPS was $0.56 in the second half of 2011, excluding the pre-closing interest cost on the $2 billion of parent debt that we issued to fund the acquisition of DP&L. We believe that the performance of our businesses will be largely consistent with the second half of 2011. Beyond this, we expect to generate an additional $0.11 to $0.15 of earnings, with approximately 70% or $0.09 of this expected increase, driven by contributions from new businesses. As a reminder, Maritza, Changuinola and Angamos achieved full commercial operations late in the second half of 2011 and DP&L was acquired in late November. In addition, our key initiatives, such as cost cutting, operational improvements and capital allocation, are expected to contribute roughly $0.06. These gains are partially offset by year-over-year commodity and foreign exchange headwinds of approximately $0.03 to $0.04. The $0.11 to $0.15 of improvement that we are targeting in the second half of this year versus the second half of 2011 should put us in the lower end of our adjusted EPS guidance range of $1.22 to $1.30 for the year. Although we expect both the third and fourth quarters of 2012 to record gains year-over-year, the second half increase is more weighted towards the fourth quarter. As discussed on our last call, our guidance assumes the extension of the controlled foreign corporation, or CFC, look-through provision, originally enacted under TIPRA. As in prior years, we expect Congress will retroactively extend this tax legislation later this year. Based on actions taken last Thursday by the Senate Finance Committee, which voted for a 2-year extension, we continue to expect that this will occur. If the CFC look-through rule is not extended before year end, we estimate an impact of $0.02 to $0.03 this year. Recall that this would be a noncash impact as we have an outstanding net operating loss balance of approximately $2.1 billion. Overall, we continue to project the tax rate in the low 30% range, generally in line with the rate we recorded in 2011. Turning to our cash flow guidance on Slide 19. As we discussed on our last call, we expect our full year results to achieve the lower end of our range on proportional free cash flow primarily as the result of working capital changes and assets sold this year. We are also now guiding to the lower end of our range on subsidiary distributions as we may elect to retain some operating cash at our key platform businesses, such as Gener, for tax-efficient investment purposes. In summary, we are pulling all the levers available to us to meet our guidance despite the headwinds that we experienced in the last quarter. Andres will now address our plans for capital allocation for the second half of 2012.

Thank you, Mary. Now moving to Slide 20, I would like to discuss our plans for capital allocation for the balance of 2012. This year, we expect to generate $1.6 billion of discretionary cash. Year-to-date, we've already allocated 61% to strengthening our balance sheet. We have used another $145 million or 9% towards our joint venture in Turkey and wind projects in the U.K. and Poland to realize the value of recent pipeline acquisitions. We expect to invest an additional $132 million in other growth opportunities during the second half of the year. This leaves us with roughly $350 million of discretionary cash that we have not yet allocated. We will continue to update you on our capital allocation plan as we receive the cash later this year. Turning to Slide 21. In terms of future growth, our construction program remains on schedule. Construction work at our 270-megawatt Campiche project in Chile is progressing well, and it's expected to commence operations in early 2013. The Kribi project, a 216-megawatt power plant in Cameroon, is also expected to come online in 2013. Additionally, the 1,200-megawatt Mong Duong project in Vietnam is scheduled for commercial operations in 2015, and civil and construction works are underway at the site. As a reminder, we have already made the necessary equity contributions and have committed nonrecourse debt financing for all of these construction projects. In terms of future value creation, we will continue to focus on those markets and platforms where we have a significant presence and a compelling competitive advantage. To that end, we're making progress on our advanced development pipelines in Chile, Colombia and the U.S. In Chile, we have the Cochrane project, a 532-megawatt expansion adjacent to our newly commissioned and successful Angamos plant. We're also progressing on Alto Maipo, a 531-megawatt run of the river hydro near Santiago that builds upon our existing Alpalpal [ph] facility. In the U.S., we will grow our platform at Indianapolis Power & Light with investments in environmental controls at some of our coal-fired generation units that will earn regulated returns. Outside of the 3 biggest markets, we also see growth opportunities in the Philippines and India. We are working on Masinloc 2, a brownfield expansion of our very successful Masinloc plant in the Philippines. In India, we're pursuing an expansion of our OPGC facility and expect to be able to fund a substantial portion of our equity with local liquidity. For all development projects, we will utilize the most capital-efficient funding sources, including local cash generation and leverage capacity wherever possible to reduce the required AES equity contribution and improve AES' capital efficiency. In closing, we believe that the successful execution of our strategy, consisting of disciplined capital allocation, platform expansions, cost cutting and efficiency initiatives, will allow us to create more value for our shareholders. With respect to the second half of 2012, we expect the contributions from our new plants and businesses, which came online late last year, plus better plant availability in Chile, will deliver strong growth this year. In summary, we expect to meet our commitment and achieve our adjusted EPS and proportional free cash flow guidance for 2012. I look forward to visiting many of you with our newly appointed CFO, Tom O'Flynn, in the near future. Operator, we will now open the line for questions.

[Operator Instructions] Our first question comes from Jon Cohen.

I was just wondering if you could talk a little bit about what you're seeing in the global credit environment and whether or not it's becoming more difficult to finance some of your growth and also refinance some of the amortizations of the project that's coming due.

Yes. I think that in general, we could say that we see tighter financial conditions especially in the project finance area. In our case, it can be, in some markets, an advantage, where we have strong platforms that we can get nonrecourse financing from those platforms. We also have very strong relations with multilaterals, such as the IFC and with bilateral credit agency. So what we're doing now is changing from our project financing model to include more bilateral, multilateral financing and making greater use of the platforms. But really, this is playing to our strength and playing to our strong local presence and our strong relationship with these entities.

Okay. But is the -- so the decision to retain more cash at certain of these subsidiaries, is that in any way related to what you're seeing in the credit markets?

No, no. What -- in the sense that as the subs -- most of our -- a lot of these big subs are investment grade, we see that we don't have any issues with the refinancing. It's basically a decision given that if we have sufficient liquidity at corp, it's much more efficient from a tax perspective not to bring money out of the country, pay a tax and put money back in. So it's basically given that they have very attractive investment opportunities, we're saying that we'd leave some cash in them. In other cases, in some of the other ones, we do have trapped cash, for example, in India, where we have not been able to dividend the money out. So between us and our partner, which is the state government of Orissa, we have about $180 million. So we're going to deploy that in an expansion of the facility. So there is a differentiation.

Okay. And just one last question. If the tax extenders package does not get done, is that $0.02 to $0.03 headwind that you've mentioned before enough to sort of knock you out of the bottom end of that guidance range? Or do you have enough cushion in there to account for that?

We -- this is Mary. We have not built the $0.02 into our guidance although about $0.01 of it is already reflected in our first half results. So it's something that we will have to address although we feel very confident that it will get extended.

Our next question comes from Angie Storozynski.

So I wanted to first talk about the long-term growth earnings guidance, so 7% to 9% in EPS growth of 2012. Do you -- I mean, I haven't heard you really reiterating that target. And do you think it's still achievable given the macroeconomic backdrop that you're facing?

What we are committed to is an 8% to 10% total return over the next 3 years. What we have said is there wouldn't be a straight line growth. And what we see is more challenges in '13. We see a lot of big tailwinds helping us in '14 and '15. So we will manage to that 8% to 10% total return, which, of course, includes our dividend. And, of course, we will update you once we have more information, for example, on what's happening in the various markets. But I think given our portfolio and given the diversity of fuels that we have, one of the things we will come back to you, if need be, is after the settlement of the MRO, for example, in DP&L. But we remain committed to that 8% to 10% total return, which is earnings growth plus dividends.

Okay. Secondly, I was a little bit surprised to see share buybacks during the quarter because I thought that you were not planning to have any share buybacks up until the end of the year. And secondly, it seems like you are becoming a little bit more aggressive with your retail strategy in Ohio. It's also something that I didn't think was a focus. Could you comment on both?

Sure. Regarding the share buybacks, we have said that we would look at share buybacks as one of the uses of our cash and if we felt that there was a compelling valuation that, that would compete with new projects. And in the past, we've said that we would ask for an additional approval to have a bigger program. So we've been very much, I think, executing on what we said we would do. Regarding the retail market in the Midwest, perhaps Andy Vesey can comment on it but that's really part of our strategy of building off our platforms in specific markets.

Yes. This is Andy Vesey. In terms of your question on retail, it's one of the 3 levers we have at Dayton Power & Light, and one has always been to defend our current service territory, the customers there, and also go off system to attract customers. The whole theory behind our retail operations is really the placement of our generation at DP&L. It's the most collaterally efficient way to do that. So our strategy in retail is to continue to gain customers so we could play a strong generation. We have to be aggressive because it's a very intense competitive environment, and it's a game that we're going to play in very hard.

And our next question comes from Ali Agha.

Some little questions, Andres. If I do the math right, based on the share buyback which you have completed so far, I believe there's only about $50 million left in your current authorization. Should we assume that authorization is going to get expanded? Or how should we be thinking about the future buybacks from this level?

You're right, Ali. There's about $48 million left in the authorization. We intend to use that and, again, depending as we see the -- our cash coming in and we see our growth prospects, we'll again evaluate what is the best use of that cash. And as I've said in the past, that hasn't been a restriction for us. In terms of -- if we need to get more approvals, we will. But we will again have a balanced approach to capital allocation. We have growth projects. We've also delevered to strengthen our balance sheet. And we also have declared a dividend. And we have some growth prospects as well. So it's very much of a balanced approach.

Yes. And going back, Andres, to your 8% to 10% target annual return over the next 3 years or so, you take the earnings component of that -- as you pointed out, DPL will be a challenge certainly in '13. There is not much in terms of new projects coming on until '15 when 1,200 megawatts comes on. So when we look at that trajectory, '12 through '15 -- I want to get a sense from you. To me, buyback and debt reduction seem to be the biggest tool available in your arsenal to achieve that. And I'm just wondering how you think about that and how aggressively should we be thinking about that buyback and debt reduction program for you over the next 3 years.

Well, I think if you look at -- as I mentioned, in '14, '15, we have a number of headwinds besides just the new projects. First, we do have some of the investments we're making in the smaller platform expansions, whether it be at Tunhita [ph], whether it be battery storage, whether it be closing a site. Those things will come on much faster than -- will come online in that period. Also, realize that from an earnings perspective, due to the nature of the tax equity financing at our U.S. wind businesses, we have a substantial pickup in '14 and '15 in terms of earnings. So we do have those things coming on. We also expect more, say, demand growth in some of the markets. We know that there are better capacity prices in PJM, which will also be a big pickup. So it's not that we're just going to be relying on share buyback. I also think that we will have full years of the earning -- of the, sorry, cost savings from the programs that we implemented this year and next in terms of becoming more efficient, in terms of SG&A and other factors of cost. Because we are really looking at cost across our portfolio. So in the $65 million that we're talking about, that's really at the parent level. That does not include, for example, the efficiency initiatives on our North American portfolio. That does not include initiatives in Brazil, in other markets. And so we do have -- in a lot of those areas, we are, I'd say, about halfway through some of those programs and we'll plan to accelerate them in the remainder of this year and next.

And one other thing, on the asset sale program, can you just give us an update on what your current thoughts are relative to your original goal? There was some news, as I'm sure you're aware, about you guys talking to the Chinese about the U.S. wind asset sale that seems to have stalled down now. And so just give us a sense of where you are. And again, from a priority perspective, I know in the past you've talked about trying to monetize your renewables portfolio because you're not getting much in terms of equity value for that. Have you continued to believe that? Or what your current thinking is on the asset sales?

We remain committed to our initial program. What we had said at the beginning was that we had a universe of about $2 billion that we were looking at. We've executed about almost 50% of it. And I think we've executed it very well because we sold at good prices and good earnings multiple. Going forward, what we will be looking at is those things that really help us have a more focused portfolio, as well as help us reduce the cost of some of the support services that we have. And there are also businesses from which we think we cannot grow. So you're correct in the sense that we had looked at renewables because they were low on earnings as we said that -- but, for example, if we look at U.S. wind today, we do really have that pickup in '14, '15, that's in terms of our earnings. We also do have our solar joint venture with Riverstone, and we'll be looking together ways of monetizing that over the future. So I wouldn't like to get into give specific cases prior to really having something concrete. But we are not really changing from our original position. I think we're executing well, but we're not going to do fire sales. We're going to make sure that we sell the assets in the right form to maximize price. For example, our China asset, there's one case where we did receive bids for it as one package and we realized we could do much better by selling it apart. And the difference is not trivial, it's like $30 million. So we'll continue to execute, but we're going to do it in a prudent fashion.

Last question, I apologize. Given your commodity currency exposure, every quarter, these are moving targets. And so just given the nature of your business, are you going to be comfortable putting guidance out there because there's going to be movements every quarter? Or are there other offsets that you have at your disposal so we're comfortable that when you put a guidance number out, it's going to be achieved regardless of the currency commodity moves that are inevitable every few months?

Yes. I think that's the reason we give a range. And we don't move the range every quarter with the commodity prices. That's one of the drivers of our performance within that range. Now AES is a portfolio. And so generally, we do have offsets. Sometimes, the stars align a little bit so we -- on a quarter basis. That's why we don't quite frankly give quarterly guidance because of that, but we do give yearly guidance. We are very conscious now of the portfolio exposures to the various commodities, and we are taking steps to try to mitigate that over time. So we -- again, those are good questions. That's why we give yearly guidance and we don't give quarterly guidance. And if you actually look at what we're executing on, we are looking at a 20%-plus increase in our adjusted EPS this year, and we've taken a lot of steps. And yes, we've had some headwinds, but that's to be expected.

Our next question comes from Charles Fishman.

On Eletropaulo, when you indicate the decision from ANEEL is final, in other words, you cannot appeal that subsequent to their final decision.

Yes. I'd like Andy to answer that one.

Yes. Charles, it's Andy Vesey. There are some things that can be done. And we've actually taken the first step, which is to file for an administrative appeal and review. This is a normal process in Brazil after a tap [ph] -- really, to review things of errors or administrative procedural that may have gone wrong. In our administrative filing, which was filed shortly after the case came out, we basically raised 2 key points: One was the removal from the shielded asset -- excuse me, the shielded rate asset base of 2007 to 2011, of these particular cables. We believe that's a procedural and administrative violation to go in and take things out of a shielded asset -- shielded rate asset base, as well as the loss benchmark that Andres had referred to earlier. In Brazil, this loss benchmark is used for over 40% of the distribution businesses and our analysis shows that statistically, the benchmark was an outlier. And therefore, we're appealing both of those. The process for that is if there were to be a change or any benefit that would come out of that, it probably would be applied at the time of the next half adjustment, which would be July 2013 and be retroactive back to July 2011. We have done this in the past and we have had some movement. But given the size of the issues here, I don't want to raise false expectations but we've already taken that action. Finally, at the end of that, should we still be concerned about the outcome, we always have the right, as any Brazilian company would, to appeal it to the Supreme Court. But in Brazil, that could be a process that could take many, many years.

And our next question then comes from Julien Dumoulin-Smith.

Actually, this is Andrew Gay [ph] stepping in for Julien. Given the increase in the G&A savings for 2012, what are you thinking for 2013? You left the guidance unchanged so might there be further savings there? And then how does that play into your 8% to 10% total return target?

That's a good question. The savings that we expect from the more focused strategy and the simplification of our portfolio are substantial. And we expect to achieve at least $65 million this year, at least $100 million by the end of next year. Before we would, say, raise the number, we would really like to have more time and more concrete -- part of that will depend on the number of markets, quite frankly, that we exit in terms of going forward, additional markets that we would exit. So to -- in summary, we expect at least $65 million this year, at least $100 million, and this is a run rate going forwards by the end of next year.

Okay. And then on the Indianapolis RFP, what's the timing on that and how might you get rate recovery on any rate base build and how does that play into any potential future rate cases?

I will ask Andy to answer that one.

Okay. Andrew, this is Andy Vesey. The process is that we're receiving the interest and the competitive bids. It's my understanding that these will be opened in, I think, mid-September, if not late September. We will also be proposing our own, hopefully, cost-competitive option for that. To the degree that we were to be making capital investments, those most likely would be recovered at our next rate case. And prior to that, we would be getting AFUDC treatment. So if we were to be building this project and I want to say the following is that it's a competitive process at this point in time. So there are many opportunities. One, we could build -- somebody else can build or we could buy the capacity. We could buy the energy. There's many ways to go through this. But if we were to build this project, it most likely would wind up going into rates at our next rate case.

Our next question comes from Gregg Orrill.

You touched on the Eletropaulo decision and the fact that at 16% ownership, it's a smaller part of the company's earnings. I was wondering if you could touch on it in the context of the Brazil platform and whether you'd consider selling Eletropaulo.

That's a good question. I mean, we have -- in terms of the large markets where we're present, Brazil is a market with a rapidly growing energy demand and where we had a very substantial footprint. We still have a lot of unlevered capacity -- or leveraged capacity at Tietê, which is a contracted 3,000 megawatts of hydro. When we look at what Eletropaulo -- we do own 16%. We did develop the telecoms outside of Eletropaulo. And we also have the footprint in the south in the business of Sul. So our footprint in Brazil is more than just Eletropaulo. We are one of the players there. And we do have the capacity to grow. And we do have now very good relations with BNDES and can finance new projects. We will do projects, of course, that are good projects. So that's -- we have the capacity for growth, but we're making sure that we grow from good projects. Regarding Eletropaulo, we have in effect been in a process of reducing our position there since 2006. We sold down half of our holdings and we took out the telco. So the important thing for us is Eletropaulo is more -- it had, we felt, more regulatory challenges than our other businesses there. And that given -- we have, I think, given what we could do, we've managed it as well as possible. So right now, what we're focusing on is making sure that we make it as profitable a business as possible within the new guidelines. And this is our second major cost efficiency program that we're doing and that's creating value. We had done one prior to that. So I guess, in a nutshell, we still see Brazil as an interesting market. We still have the critical footprint. And we still have the unused leverage at Tietê, which are the things that we'd be focusing on. Eletropaulo has been challenging, and we've done everything we can to restore profitability of that business.

The next caller is Brian Russo. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Could you just clarify the statement you mentioned earlier on the DPL outlook? You said that '13 results would be worse than expected. Is that your original expectations? Or is that based on the MRO and the ongoing settlement? Just hoping to get some more clarification on that.

Basically, what I was referring to is low natural gas prices and low capacity prices, so looking at today's forward curves for gas and looking at what we know for capacity prices in '13, they're low. So those are 2 factors that are affecting DP&L. And we also, of course, know the switching rates that we've experienced to date. So -- what we wanted to be, as transparent as possible regarding what we see for '13 for DP&L just like we do see a much better capacity prices in '14 and '15 at DP&L. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay, understood. And then also, you mentioned a few negative headwinds on 2013, including DPL and the commodity sensitivity throughout the portfolio. Could you talk specifically at some of the positive drivers that you see in 2013?

Sure. So the positive drivers that we have is: first, the cost cuts that we've done this year. The second, the projects that have come online fully. So we do have projects, for example Angamos for the -- in Chile, which, for the first half of the year, were contracted at about 65% or now 90% contracted for the second half of the year. So we'll enjoy the benefit of a full year for that. So on '13, we'll have the full benefit of a lot of the construction projects, which were inaugurated at the end of last year. We also see cost cuts coming in and as well as -- we have Campiche, Kribi, some wind projects coming on as well. So there are a number of positive things coming on for 2013, but we also -- we've always pointed it out that '13, given -- we're coming off a base of a 20% growth in 2012. So given that our projects are lumpy, it's not going to be a similar year to 2012. And we have now the issue of what will the MRO filing look like for 2013 in DP&L. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Okay. We should still expect growth in '13 just not quite at the rate we saw in '12 over '11. Is that accurate?

That's accurate. That's accurate.

In certain markets.

The aggregate, yes.

Yes. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: And then one last question, the IPL environmental spend. Can you remind us how much -- how many dollars is to be spent? And then also, when we might expect the next general rate case?

Okay. We don't have an answer to the second one in terms of what we would expect the general rate case. But in terms of the environmental spend, it's around $500 million.

$500 million to $700 million.

Yes. $500 million to $700 million.

And since the -- Brian, this is Andy Vesey -- potentially, we expect probably over 90% of the cost associated with that environmental spend to be covered in the Senate Bill 29. We're going to track a recovery and that expenditure will not drive us any closer to needing to go to a rate case. So it's not -- they're not connected. Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division: Understood. And over what time period is the $500 million to $700 million spent?

Well, we have to be compliant by law by April 2015. We're making an extension. So that project will probably start up in earnest, the environmental control project, in the first quarter of next year, with construction probably starting in the third quarter. And we're dealing with our 5 Petersburg plants and Harding 7, and we're going to match the outage schedule going forward to complete it by 2016.

And our next question comes from Angie Storozynski.

[Audio Gap] waiting for a potential settlement, you keep calling it a procedural MRO? I mean, it's based on the other utilities in Ohio. It feels like it's going to be an ESB [ph]. But if you could comment about why it's taking so long. Is it somewhat linked to the other regulatory procedures pending? And also, you mentioned that power prices in Ohio are positively correlated with natural gas prices. But we have seen a pickup in natural gas prices over the last couple of weeks. And yet, Ohio power prices are actually flat to slightly down. And how that ties into your visibility about profitability of the business?

Okay, let's take one at a time. I think, in terms of the timing, there are 26 interveners in the process and there's a wide range of interveners. So that's one thing that's taking some time. Regarding the second, in terms of power prices in Ohio and the relationship to natural gas, what we're saying is that basically, DP&L's fleet is coal for the most part -- and it's scrap coal for the most part. But nonetheless, it's competing with gas on the margin. So that is one of the things that's affecting the profitability of those plants going forward. It's the same case, for example, due to a much lesser extent at IPL in the sense that we do sell into the wholesale market and we do have coal plants which are competing with coal. I don't know if Andy would like to add some color to some of the questions that were asked.

Yes. The only thing that I would -- to the first part about why it's taking so long. I think you probably all are aware that the procedural schedule was put on hold. Today would have been the date that interveners would have had to file testimony, and August 27 was the last date for the evidentiary hearing, which would have signaled the end of the settlement process. By petition of the parties, the schedule has been suspended because -- the fact is everybody is working very hard to bring this to settlement. So I would probably say that there's still a desire by all parties, all 26 parties, some of whom are our competitors, that a settlement be reached and we are still hopeful, as Andres said in his opening remarks, end of the third quarter or early fourth quarter. And I think the suspension of the settlement -- I mean, of the schedule is a signal that, no, there is no new schedule. And the only time a new schedule will be put into place if the parties basically say they cannot get to a settlement. So we're still on the settlement path. I think on the other side, going into 2013, the forward curves with 2013 on average are about $2.50-plus. That's still low for that business given the range of outcomes. We're hopeful as we get into 2014, with the pickup of capacity prices and continuing strengthening of the gas curves, we'll see this business start to take a much more positive trend as we've said in the past calls.

Okay. And my last question, about Gener. What happened exactly in the second quarter, the lower availability of one of the plants? And should we read into any long-term issues with that business from the results from the second quarter?

I'd like Ned to answer that one. But basically, no. We don't have any systemic issues there.

Angie, the -- we had outages at several of our large coal plants that have now been repaired. So we were out where we had budgeted to be in service. As a result of taking the units offline, we also moved forward planned outages for later in the year. So we will have the opportunity to make that up in the volume and depending on what prices look like over the rest of the year. So we anticipate recovery.

And our next question comes from Brian Chin.

I know you guys have changed around the authorizations for share buybacks earlier this year, but can we just get a tally of how much in your share buyback program you've got left? If I remember right, you had upped the number to $680 million earlier this year. I just want to make sure I understand sort of where we're at and how much is left to go.

Under our current authorizations right now, we have $48 million. We had $302 million that we mentioned on our prior call. But as I said, the share buyback is part of our capital allocation process. We will look at, if we have compelling valuations, where we allocate the additional $350 million that we have coming in later this year.

Prior to you doing more share backs, I guess it's safe to assume that we should see another authorization for an uplift provided that, that $48 million isn't all that you want to do, right?

If you want to answer that, Brian, I don't think we would have to -- we would mention it on the next call if we have authorization, an increase in authorization for buybacks. Thank you all very much for participating in this call.

Yes, thanks, everyone, for joining us on today's call. As always, the IR team will be available to answer any questions you may have. Thank you, and have a nice day.

Thank you. And that does conclude today's conference call. You may all disconnect at this time.