The AES Corporation (AES) Q1 2015 Earnings Report, Transcript and Summary

Good morning. My name is Angel, I will be your conference operator today. At this time, I would like to welcome everyone to the AES Corporation’s First Quarter 2015 Financial Review Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Ahmed Pasha, Vice President of Investor Relations. You may begin your conference.

Thank you, Angel. Good morning, and welcome to AES’s First Quarter 2015 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 financial results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andres Gluski, our President and Chief Executive Officer; Tom O’Flynn, our Chief Financial Officer; and other senior members of our management team. With that, I will now turn the call over to. Andres. Andres?

Good morning, everyone. And thank you for joining our first quarter 2015 earnings call. I am pleased to report that with our first quarter results we’re reaffirming our 2015 guidance for all metrics. Since our previous quarterly call less than three months ago, we have achieved several significant milestones on our strategic objectives and our priorities for 2015. We continue to leverage our platforms, our $9 billion construction program is advancing on schedule and will be the major contributor to our cash and earnings growth over the next four years. This quarter, we commissioned the largest power plant that AES has ever constructed. We also signed agreements for two additional asset sales, totaling a $105 million in equity proceeds and invested $345 million to prepay and refinance debt. This year, we have also repurchased $42 million of our shares and we made substantial progress and addressing short-term issues affecting our businesses in Bulgaria and India. I will discuss some of these achievements in detail. But first, I’d like to provide the highlights of our financial results. In the first quarter, we generated proportional fee cash flow of $265 million doubled a results of year ago. Due to the recovery of working capital and a couple of significant businesses, we are in $0.25 of adjusted earnings per share, which was a $0.01 increase from our first quarter of 2014. We improved operating performance at our U.S. and Andes strategic business units although; we continue to experience headwinds from poor hydrology in Brazil and unfavorable foreign exchange in Latin America and Europe. During the quarter, our earnings benefited from our previous capital allocation decisions to pay down debt and buyback our shares. As we’ve discussed in the past, we have taken steps to mitigate the impact of adverse hydrology in Latin America and this year that risk is mostly limited to Brazil. We also have a rolling 12 months hedging strategy to help mitigate the impact of fluctuations in foreign currencies especially the Brazil real, the Colombian peso and the euro. Although these currencies have weakened against the U.S. dollar, energy demand has remained robust at 3% to 10% our markets except in the U.S., while we are experiencing flat demand and in Brazil where demand growth is slightly negative. Now I’ll discuss our significant accomplishment since our last call. Starting with our progress and resolving a couple of business specific issues beginning on slide four. In Bulgaria with the Maritza Plant sole customer, the National Electricity Company or NEK had fallen significantly behind on its payment; we’re now seeing positive momentum. Last month, Maritza signed an MOU with NEK to received full payment of all arrears which as of March 30th were $236 million in exchange for a decrease in the capacity price of the long-term PPA. We expect to sign a binding agreement by the third quarter of this year. The 14% capacity price reduction is already reflected in our 2015 guidance as well as our longer term expectations. This agreement is part of a broad set of initiatives; the Government of Bulgaria is taking to help restore NEK’s financial position. One of these initiatives is the introduction of energy sector reforms to reduce the volume of energy that NEK purchases from coal generators and compensating NEK through existing environmental taxes. Already Maritza’s collections during the first four months of the year have improved by 40% and our receivable balance has remained flat as of the end of December. Turning now to our 1,320 megawatts OPGC 2 project, under construction in India on slide 5. As you may know late last year, the Supreme Court of India overturned the allocations of 214 coal blocks, including those for OPGC 2. I am pleased to report that the project through a new joint venture between OPGC and the Government of Odisha has re-secured the rights to the same coal blocks, which can support 2,640 megawatts of new capacity. Construction on OPGC 2 is on schedule with this plant expected to come online in 2018. Now turning to slide six, I’ll discuss our construction program and develop and pipeline in more detail. Our construction program is a most significant driver of our 10% to 15% average annual growth and free cash flow over the next few years. This strong growth is a foundation for a commitment to 10% annual dividend growth as well as other capital allocation decisions. From 2015 through 2018, we expect the commission 7,131 megawatts of new capacity, which is a high multiple of the roughly 600 megawatts we’ve brought online in the three previous years from 2012 to 2014. In fact, already this year, we’ve brought online 1,312 megawatts, which is 87% of the capacity we expect to commission this year. Moving onto slide 7, remaining 5,118 megawatts under constructions, progressing well and remain on-time and on-budget. As a reminder, the total CapEx for our projects currently under construction is $7 billion, but AES’s equity commitment is only 1.3 billion of which all but 400 million has already been funded. As you can see roughly 80% of this new capacity is in the America, we expect our return on equity from these projects of more than 15%. Turning to slide 8, I’m very happy to report that we have achieved commercial operation on our 1,240 megawatts Mong Duong project in Vietnam six months early. Additionally, the project reached 18 million man-hours without a lost time incident. This project provides us with solid platform from which to grow our presence in Vietnam where we see a number of future platform expansion opportunities. Moving to slide 9, to help mitigate our hydrology risk in Panama we’ve recently inaugurated a 72 MW thermal power barge. The plant's output is contracted under five year PBA. We're also looking at similar opportunities in other countries in Latin America to decrease our exposure to fluctuations in hydrology. Finally, looking at our growth opportunities beyond the projects currently under construction; beginning on slide 10. We see compelling platform expansion opportunities in a number of growing markets such as Chile, Mexico, Panama and the Philippines. In more mature markets like California and the United Kingdom, we see opportunity to replace older, less efficient or noncompliant capacity. Generally, we expect our future project mix to be heavily weighted towards of natural gas, renewables, and energy storage as we seek to match the right offering on the future needs of each market. As we have said in the past we will continue to compete all investments in growth projects against share repurchases, in order to ensure that we are maximizing risk-adjusted per share returns for our shareholders. Based on the opportunities we see across our portfolio beyond 2018, we believe we could invest $300 million to $400 million of AES equity in the attractive growth projects each year which is consistent with the amount of equity we are currently contributing annually to our growth projects. This level of annual equity commitment is quite moderate considering the expected growth in our free cash flow and continued recycling of capital from additional asset sales. We also plan to bring in financial partners on all of our larger projects as a means of improving our returns, fine-tuning our portfolio's risk exposures and having our project bided by other investors. Now, I’d like to highlight a couple of more significant projects in our development pipeline, beginning on slight 11. Our Southline Repowering Project in California with 1400 MW of gas-fired and energy storage capacity is on track to begin construction in 2017. We expect to select our EPC contractor and file final permitting amendments in the next six months. Our development pipeline is not limited to power generation projects as we seek to realize the full value of our existing market platforms through adjacent business lines such as enhanced LNG services, desalinization, and energy storage. Turning to slide 12 for example, in the Dominican Republic, we are working on opportunities to expand our existing LNG infrastructure. We are developing a second gas pipeline which would transport natural gas from our regasification terminal to other power generators so they can convert up to the 1000 MW of diesel and oil fired generations to cheaper, cleaner natural gas. We are also advancing in the development of an upgrade of our LNG import terminal to allow for the reshipment of LNG. The ability to reship LNG will be an extension of our successful gas distribution business in the Dominican Republic, which supplies third-party trucks with liquefied natural gas. Both of these attractive projects will require only modest equity investments as we expect to largely fund them with leverage capacity at the local business. In terms of desalinization, on slide 13, we currently have one 200 cubic meter per hour project under construction at our Angamos power plant in Chile. Although this project is largely a modernization of our existing diesel facilities at that plant, there are a number of potential diesel projects in Chile to supply our mining and industrial customers. We see diesel as a timely and significant opportunity in Chile and possibly longer term in Mexico and California, given the challenges of water supply in those markets and our many years of experience operating diesel plants. Moving on to slide 14. We are the world leaders in battery-based energy storage 86 MW of installed capacity. Although this is likely to remain relatively small in the near term, we see the potential for much larger opportunity over the next 4 to 5 years. We are encouraged by ongoing regulatory support and growing acceptance by power systems and utilities in some of the AES' market. To that end, as you may have seen we have recently announced that we have 50 MW under construction including the first energy storage unit in the Netherlands and Northern Ireland. These projects under construction are all additions to our existing platforms. We are well-positioned to take advantage of this emerging business opportunity given AES' international portfolio in eight years of successful and profitable experience operating battery-based energy storage. With that I'll turn the call over to Tom to discuss our first quarter results and full year guidance in more detail. Thomas O’Flynn: Thanks Andre's and good morning everyone. This quarter we continued to benefit from our capital allocation decisions in operational improvements despite some macro headwinds. Further, as anticipated, our cash flow improved as a result of lower working capital requirements. We also made substantial progress toward a key financial goal of improving our credit profile by reducing parent debt, lowering interest expense and extending maturities. Today, I’ll review our first quarter results, including adjusted EPS, adjusted pretax contribution or PTC by strategic business unit or SBU and for the first time proportional free cash flow by SBU which we’ve also included in our 10-Q. Now I’ll cover our 2015 capital allocation plan and our 2015 guidance. Turning to slide 16, first quarter adjusted EPS of $0.25 was a penny higher than first quarter 2014. At a high level, we benefited from the following. $0.03 from capital allocation which resulted in 13% lower parent debt and a 3% lower share count relative to last year and a $0.01 net increase from the performance of our businesses with improvements in the U.S. and Andes partially offset by lower contributions from Brazil, Europe and Mexico, Central America and the Caribbean or MCAC. On the negative side, we are affected by a $0.02 impact from a stronger U.S. dollar which appreciated 18% against the Brazilian real, Colombian peso and euro any once an impact from a slightly higher tax rate of 33% this year versus 30% in the first quarter of last year. Now I’ll cover our SBU’s financial performance in more detail on the six slides beginning on slide 17. In the U.S. adjusted PTC increased by 31 million driven by better availability at DPL compared to the first quarter of last year when a couple of DPL generations plants were not available during the polar vortex. Proportional free cash flow increased 74 million, reflecting a lower working capital requirements this year compared to during the extreme cold of last year. In Andes, PTC increased 38 million primarily due to better availability at our plants in Chile, however proportional free cash flow declined by 6 million due to timing of collections and higher maintenance capital expenditures. In Brazil, PTC decreased 48 million driven by FX and operating performance, perhaps the decline is driven by our generation business Tietê, you may recall that last year Tietê benefited from spot sales at favorable prices due to lower contract levels during the first half of the year. This benefit was more of the timing issue of Tietê at the purchase and spot market in the second half.This year Tietê’s contracts levels are flat in the first and second so we expect contributions to be evenly distributed. Additionally, Sul one of our utilities had lower results due to lower sales volume and higher fixed cost proportional free cash flow increased 15 million primarily driven by higher collections pass through energy purchases built during 2014 offset by lower operating performance. In MCAC, PTC declined 15 million largely driven by lower margins in the Dominican Republic, where revenues are partially indexed to oil prices as well as lower availability. This impact was partially offset by improved hydrology in Panama, proportional free cash flow improved by 55 million primarily driven by improved working capital in El Salvador and Puerto Rico. In Europe, adjusted PTC decreased by 30 million half which is due to lower contributions from the sales of Ebute in Nigeria and our UK win businesses, remaining half is largely from unfavorable foreign currency impacts. Proportional free cash flow increased by 21 million driven by higher collections at Maritza which was 60% higher than the first quarter of 2014. Finally in Asia, PTC was essentially flat after taking into account the impact from the sale of 41% of Masinloc in the third quarter of last year offset by the onetime charge recorded in the Masinloc in first quarter of ’14 related to the market spot price adjustment. Proportional free cash flow decreased 37 million due to Masinloc sale and higher working capital requirements. Turning to slide 23, in summary overall we earned 252 million in adjusted PTC during the quarter and an increase of 9 million from last year and we generated 265 million a proportional free cash flow, representing a doubling from 129 million in last year’s first quarter. As you may recall, working capital was a drag on our results last year and as reflected in our first quarter results, we’re seeing recovery. Now to Slide 24 and our parent capital allocation plan for the year. Regarding sources on the left hand side, the only update from our last call is an increase of 100 million in equity proceeds from asset sales from the sale of the Armenia Mountain Wind project in Pennsylvania and the sale of 40% of our interest in the IPP4 Plant in Jordan. This brings our total available discretionary cash for 2015 to roughly 1.6 billion. We continue to expect parent free-cash-flow of 525 million this year with 10% to 15% average annual growth through 2018. Turning to the uses on the right hand side of the slide, in addition to the dividend, we also plan to invest about 350 million in our subsidiaries, 60% of which is IPL and has already been funded. We’ve invested 345 million in prepayment and refinancing of parent debt to balance asset sales and planned share buybacks. And finally, we repurchased 42 million of shares year-to-date and expect to invest at least 324 million this year, which assumes that we use 300 million of the 400 million we purchased, authorized in February. This leaves 200 million of discretionary cash to be allocated this year. Turning to our parent debt profile on Slide 25. Since our last call, we prepaid 315 million of parent debt, bringing our total parent debt reduction since the end of 2011 to 1.5 billion or a 25% reduction. In early April, we also refinanced another 500 million in near term parent debt maturities. These transactions resulted in a reduction in our near term maturities to only a 180 million over the next four years and reduced the average interest rate from 6.3% to 5.6%. We also continue to optimize the capital structure of certain subsidiaries and affiliates such as Guacolda in Chile, where 830 million in long term debt was refinanced in April at about 4.5% demonstrating the strong credit quality and market access of our businesses. Now beginning on Slide 26, I’ll discuss our adjusted EPS guidance for this year, which is based on the following assumptions. Currency forward curves as of March 31st, which reflect roughly 10% appreciation versus the U.S. dollar compared to year-end curves for the Brazilian Real, Colombian Peso and the Euro, commodity forward curves as of March 31st, which reflects roughly a 5% to 10% decline for oil and gas, and the current outlook for hydro in Latin America, which is in line with our expectations except in Brazil. In the rainy season there was drawing to close and reservoir levels are currently at about 35% and are expected to be about 37% at the end of May. We believe that the government is unlikely to call for rationing this year, given these levels. That said, the system continues to face a hydro generation shortfall, which has a financial impact on Tiete, it previously had built a $0.05 impact into our guidance, based on having to cover 15% to 17% of our contract in the spot market. We now expect the shortfall to be 17% to 19% due to continued high thermal dispatch. We expect this will add another $0.02 to the hydro impact this year. We’ve also incorporated a modest decline in demand at Sul in Brazil resulting in an incremental impact of another penny. Now turning to Slide 27, as we discussed on our last call, our adjusted EPS guidance is $1.25 per share to $1.35 per share, which when we provided in late February was based on currency and commodity curves as of December 31st. The impact of updating these curves based on the sensitivities we’ve disclosed $0.05. However, we’ve been proactive in hedging our downside which reduced the FX and commodity impact by $0.03. Further as I just discussed, we’re incorporating an additional $0.03 impact from poor hydrology and demand in Brazil. We’ve also included a penny benefit from the completion of the Vietnam project, slightly ahead of our internal projection. Bottom-line is that although we’re facing some headwinds, we’re managing the impacts and therefore reaffirming our EPS guidance range. At the same time as you can see on Slide 27, we remain confident on our portfolio visibility to generate strong cash flow. We’re affirming our proportional free cash flow guidance of 1 billion to 1.35 billion which after subsidiary debt period provides us with about 525 million in parent free cash flow. We’ll continue to create value by investing in this strong and growing cash flow to maximize returns to share holders. With that I’ll now pass it back to Andrés.

Thanks, Tom. To summarize, we are encouraged by the continued successful execution of our strategy and with the resilience of our platform and the opportunities that it provides increased shareholder value. As we laid out on our last call for 2015, our priorities are to pull all levers to achieve our financial objectives despite headwinds from poor hydrology in Brazil and lower foreign exchange and commodity prices, complete the 1,240-megawatt Mong Duong project in Vietnam, which will be a major contributor to our growth. We have already brought this plan online six months ahead of schedules. Resolve Maritza's outstanding receivables issue, we’ve signed an MOU with NEK and expect to execute a binding agreement by the third quarter. Continued to execute on our platform expansion opportunities and bringing financial partners, we expect to have financial partners on all of our large projects. Reduced parent debt and improved our credit profile by prepaying and refinancing shorter term maturities. And as always allocate our discretionary capital in such a way as to maximize share holder returns by competing growth projects against share repurchases. Now, I would like to open up the call for questions.

[Operator instructions] Your first question comes from the line of Julien Dumoulin-Smith from UBS. Your line is open.

So first quick question, more at a high level; in terms of future growth opportunities, you talked about $300 million to $400 million in equity investment potential. Where do you expect those dollars to trend towards? I suppose A, as you think about buybacks as shares at Tiete would be more in that direction? And then B, in the context of growth investment, obviously, you've heard a lot in the media around storage [indiscernible] as well as your own efforts in DG in the latest quarter. I'd be curious if you could talk to opportunities there, as well as Puerto Rico, in terms of where those respectively fit within the growth buckets?

Okay. Thanks Julien. Well, all as I said, we expect to have allocated about $300 million to $400 million to the future growth project. Of course this would be leveraged by bringing in financial partners. Now, the exact amount will depend on the projected return of those projects and value we create by buying back our shares. So, they will be competing. This is just to give us sort of the range where we see those projects. We also said that compared to what is currently under construction we see a heavier weighting towards natural gas, renewables and energy storage. Now, our energy storage business I think is quite different from -- and quite unique actually that we have been at this for 8 years. We make money at it. We’ve been successful, and we have a product that integrates several different usage. So, we have sort of the complete package sort of plug and play. I think that’s one of the reasons we were successful in Southern California bid last year. So, we see this as a growing market in the U.S. California is taking the lead by requiring utilities to have 1,325-megawatts of energy storage by 2020. And we see this trend going across the country in different place. So, again we’re very well positioned to take advantage of it and we have been successful. We’re also opening up new markets. In the latest ones, we’re already in Chile; we’re looking at Northern island and Netherland. So, it’s one, let's say technology has three different uses. On the one hand you can use it for capacity release like we do Chile which allows you -- you don’t have to hold back 5% of thermal generation because you have a battery. You can use it for ancillary services as we use it in PJM with Tiete. And you can also use it at the Peaking facility which will be the main use in California. So, the different markets, we see it developing, but we’re a big company. So, to really be a needle mover we see it a couple years out. What we really want to be here is not too far ahead of the curve, but we want to be sort of somewhat ahead of the curve and that’s really our strategy here and we think we’re well positioned. So just like in the past when I talked about bringing in partners and said this was an idea, we’ll see how this develops before giving any sort of guidance about say larger numbers of three years to five years out.

And then just running here more specifically at the quarter, I suppose why not more repurchases just as what about the timing here just as you execute on the authorization this year. And then subsequently in terms of the 2015 guidance, would it be fair to say the lower half just to be clear in terms of I think there’s a net $0.04 negative if you add up all those items?

Well, I’d take the second question first. I think it’s a little early in the year to give guidance within the guidance. We've reaffirmed all of our metrics and as you know we guide on cash flow metrics as well as earnings metrics. So again overall, we feel we had a good quarter. In terms of the amount of buybacks, we just did a major re-financings and used $345 million for that and so we’re committed to use as Tom said in his speech around $300 million this year towards share repurchases and we maintain that.

Your next question comes from the line of Ali Agha from SunTrust. Your line is open.

Andrés my first question relates to Brazil. For the last several years now it’s been a source of disappointment for you and not only we’re dealing with the hydro situation, but it looks like there is a upheaval or regarding the political outlook, the economic outlook at least under the current administration. I’m just curious, what is your view on Brazil? Why is it still a core market for you? And wouldn’t it be better for the AES platform if you would either substantially reduce or maybe even out of Brazil, given all these other growth opportunities you’ve been telling us about?

I think first, I think we’ve been very good sellers and managers of our portfolio. If you look at the close to $3 billion that we’ve raised in our asset sales since 2011 and the prices we got out of. If you think of Brazil, I think starting in 2006, we started to reduce our position in Eletropaulo and we also spun-off the telecom and sold that as well I think right at the right timing of the market. So actually if you take a longer term perspective. I think our performance in Brazil over this period has been good. Now there’s no question, that it has been affected by economics and political factors but most of the hydrology, quite frankly. So thinking about our position in Brazil, we have 2,600 megawatts of hydro in Tiete. We also have about $500 million of leverage capacity which we’ve not used at Tiete, so it provides us with an opportunity. And yes, there are droughts and they are cyclical. I mean this year we’re entering into mild -- actually it’s been declared already a mild to medium El Nino which means going back to more sort of normal weather patterns as we’ve seen in the other countries. So that will pass. Now politically Brazil I think it’s shown on the one hand significant institutional strength given the -- as everybody is aware the issues around Petrobras and the tax authorities and the independence of the judiciary. I think they’ve also named the very strong Minister of Economy Joaquim Levy and we’ve had some -- been able in some small meetings with him and seen what his plans are and we feel very encouraged by it. So I think everybody feels that 2015 will be a difficult year in Brazil. The economy is in contraction. Tom mentioned it in his comments that we see a contraction especially in Sul in terms of demand. But having said that, I think that as they take the right measures and move towards a primary surplus, Brazil is a country with a tremendous opportunity and you can’t sort of come in and come out of large massive capital intensive projects like us. So you have to have a footprint there. So I think we’ve reduced it appropriately and we’re well positioned to look at opportunities going forward.

Secondly the $200 million of cash that you have not yet allocated; can you just give us a sense of from a priority point of view, what would be the priority for that use of cash? And you talked about using up 300 million out of the 400 million of the authorization, but just curious the incremental 200 million, where do you think that’s going to be spent?

Quite practical, that will depend. We’ve laid out what our strategy is and what our considerations are and we have restated our commitment to buy back $300 million of shares. And so we’ll see where that -- we allocated, but we’re going to follow our strict capital allocation or procedures which we’ve done today. But I really can't give you more color than that early.

Last question, the two assets sales that you announced today. Can you just remind us or let us know, what’s roughly the annual net income that goes away as a result of those sales?

It’s a modest amount Ali. The Armenia Mountain wind project was the second part of the wind that we did earlier. And that would have a relatively attractive I guess PE from our standpoint. And then the Jordan project was a partial sell-down. I think if you add them together the PE’s around 13 -- so what said it is 7 million to 8 million, they got to take -- you'd flip that versus a 100.

Your next question comes from the line of Stephen Byrd from Morgan Stanley. Your line is open.

I wanted to follow-up just on Julien’s question on storage. You’ve been very active for a number of years in storage. As you think about ways that you can monetize that advantage, do you envision that would be more in the form of continuing to win RFPs or are there ways that others might want to utilize the expertise that you’ve developed either through joint ventures or effectively selling the sort of energy management capabilities you’ve developed?

Thank you for the question. Today, we've basically put the energy storage units on our platform. And this has given us several advantages. First is that we knew markets well. Then we also had a ongoing dialogue with the regulator, because one of the bigger issues with energy storage is to get regulatory approval. We know the benefits that it has for stabilizing the grid, but it’s a question of how you’re going to get paid for sometimes for those services, if there is not a sort of active ancillary market. So at the first steps, we put it on Chile, we put it in DP&L, we’re also looking at putting on our California platforms, possibly in the future IPL and other places. But there are two steps, one is really identifying the use of the energy of the batteries and the second is getting the regulatory approval. So we see opening up markets where we’re present like the Netherlands, like Northern Ireland and continue with that successful strategy. Now in terms of how to monetize that beyond our platforms and it really would be to the situations where we could actually install the advancing product as we call it, which includes our IP, includes the batteries, includes how to operate it. In the market where we’re present, we could put it on somebody else's platform. Essentially, for example let’s say we’re selling energy to a utility and they would like to rate these assets, we can do that as well. So that’s one way that we could grow more quickly than just let's say putting it in operating ourselves. And we’re looking at -- there we’re now talking to people. So again we’re well positioned. We just think that, this is a market that has to develop. And one of the big challenge is again is to get the appropriate regulatory approvals and also have to demonstrate how to choose. Once you put a unit into a market and people see that it functions very well, then we expect to have an increase in demand. So that’s how we see going about it. Now, if we put it on a platform, where we have a partner, for example say in Chile, or in IPL that will participate in that asset that we’re putting on. And we really managing from a center of excellence here at Corp, but pushing out the implementations into the businesses. So again you know this has worked very well. And we think this is an idea of whose time has come. But we see that the U.S. market is most immediate one. We see this is going -- and works particularly well for example on smaller grids islands and we’re located in a lot of islands and smaller grids, from the Philippines to Puerto Rico, Hawaii, Northern Ireland, Dominican Republic. There are a lot of places you can use it or places for example like Chile which due to the nature of the grid look like islands. You have certain constraints. So for all those reasons again we’re optimistic where we think we’re in the leading edge and we’ll continue to push this product forward in numerous markets.

That’s very helpful color. I wanted to shift over to renewables growth. We're seeing, and I guess, what I perceive as some fairly aggressive competitors in the marketplace with -- many with yield of course. Could you just talk at a high level to the degree of competition you are seeing either for -- just on an absolute return level, or in terms of just business developments? Are you seeing a change at all, in terms of competition? Or do you feel that, given how long you have been in your core markets, you still see numerous advantages for AES, as you look at renewables growth?

Yes, I think you said it right. The big advantage we have is putting among to our existing businesses and understanding these markets. And I think that we’ve seen situations for example at certain time say wind in Brazil, where prices were very expensive, competition was very aggressive; and I think we’re very judicious about where to put our money in. Now we’ve sold part of our joint venture Silver Ridge to people who have impressive global plans for utility scale solar. And we did in part, because it’s not on our strategy of using our platforms. We are much more efficient, maybe you take all in costs which at the end of the day that’s what matters from development to operating, these plans, even financing and rather than doing sort of one-by-one project financings, really doing at under the umbrella of an existing business. So for example in Chile which is a very competitive market and it had about a 1000 megawatts of renewables that are coming on the grid. We’re building out the 20 megwatt solar. We have permits up to 200. And we’ll do it to the degree that we get PPAs. Of course, the issues with solar, that you only have energy 8 to 10 hours a day. So having the backup of an existing facility gives us a lot more levy in terms of what we can put together. And also technologically we can combine this as we do in Laurel Mountain, where we combined wind with energy storage. This makes a more attractive offering. So really that’s our strategies to put it together. Not to compete just on low returns for this project in many of the markets. And our strategy to date in terms of getting lower cost capital is really been in the partnerships and bringing on partners. And I think we’ve been quite effective in that to date. We have over $2.5 billion that we have raised which is quite a lot of money if you consider it in terms of increasing our ability to larger projects, our ability to fine-tune what our exposure is. And so we’ll continue to use that in renewables as well.

Your next question comes from the line of Greg Gordon from Evercore ISI. Your line is open.

Tom, the $0.01 of operating performance improvement you had in the quarter. You don’t have a commensurate assumed increase or decrease in earnings within the $1.25 to $1.35 guidance range associated with operating performances. Is that because sort of quarter specific, or is it just too early in the year to know how much you’re going to sort of gain from that as you annualizes the things you did in the first quarter? Thomas O’Flynn: It’s probably a little early Greg and obviously there is a lot of moving parts. We call that few, not all. I think the one thing that does jump out was DPL. It had improved performance. We didn’t have to pull out what’s actually, that was one thing that jumped off.

And then at what point during the year -- if you start to see yourselves potentially towards the midpoint or high-end of guidance, or sort of midpoint or low-end of guidance; do you pull the trigger on capital allocation on that 200 million that remains. Because obviously further in the year, you go, under a scenario where you’re getting behind and it's sort of too late to pull that lever. And in the flip side being, if you’re doing fine, you want to find out -- probably want to hold that money back and think more flexibly about it. So in the context of where you are, how you think things are trending, when do you think we’re getting update on that? Thomas O’Flynn: We’ll certainly do it quarter-to-quarter, we try to look ahead here and that’s what we felt very comfortable saying that we do 300 million of the 400 million that we authorized a couple of months ago, that would bring our share repurchase up to 3 and 340 whatever it would be. So, we’ll do it quarter-by-quarter. Also keep in my mind to the extend we see capital allocation opportunities, let’s say in early 2016 we may end up '15 with a higher balance than just working capital would require. So, we do look at this hard. We do compete all projects, all businesses whether it be a small storage or whether it be larger new build, we compete everything against share repurchase and we’ll continue to do that and keep you posted.

Your next question comes from the line of Chris Turnure from JPMorgan. Your line is opened.

I wanted to get an update on California re-powering. You guys were obviously successful there, back in the fall, with both the gas units and the storage. But could you give us some color here, on the potential for future gas projects there and storage, as well, to some degree, and timing and next milestones around those?

I would say, of course additional gas units have to based on sort of RFBs and bids, which if they come we still have the capacity to compete on those but really have nothing to report there. In terms of energy storage as I said California has a goal of 1,325 megawatts. Our commitment southern California I think is 100 megawatts, so there is a lot of room there for more. So, we really have to see. But you know it’s 2020. We will be very active in California seeking to increase our footprint there and to the measure that we get, we on additional bids; of course we’ll keep you informed. So, I think short term, certainly energy storage I see significant possibilities for growth in California for the next couple of years.

And then going back to the re-securing of coal in India, and that's four projects, so it's not going to be online for a while. Could you talk to how the re-contracted situation compares to the original deal that you had, in terms of your growth plans? And if this is going to materially negatively affect any future projects that you were contemplating there?

Not really, there was this scandal, say in India, we call Coal Gate and when they looked at the coal allocations, we weren’t involved in any way in it. But they cancelled all 214 coal allocation [audio gap] OPGC has entered into a joint venture with the state government of Orissa. So, it's really JV of our JV, and so our holdings in this company will be like 25%; that would be the operator of the mine. No, we don’t see any issues at this time. It’s the same two coal blocks. It’s the same amount of 2,640 megawatts. So, it would support OPGC2 and could support, and again we’re not -- there is nothing specific. But it could support OPGC3. And we see nothing negative at this stage from the reallocation of the coal and the construction of the plant is proceeding according to plan. So, again, we sort of -- the plant was proceeding and as we straightened out the coal allocation issue, so, we’re back to where we were at the beginning. Actually the one difference is that it’s -- this joint venture is with the state government of Orissa.

Okay. And then regarding future expansion in India, the economics have not meaningfully changed for any projects versus what you were thinking before.

Nothing is changed to date.

Your next question comes from the line of Greg Orrill from Barclays. Your line is open.

So you reaffirmed the multi-year earnings guidance. You had some impacts in the quarter around in 2015 around the sensitivities that you were able to offset to some extent with hedging. As you look forward into 2016 and beyond, do you feel like these things you have to offset that or capital allocation and operations or maybe other things, other investments to offset those the negative move from sensitivities, so do you feel like you’re kind of in the same place?

Yes, I’d tell you again. We have nothing really new to report at this time. And as you sort of pointed out that sensitivities move, I mean certain FX and some of the commodities have actually improved since the closing date of March 30th, in the last couple of weeks, there’s been some strengthening of the currencies to help offset some of that. What we would see as you say operational improvements, some of the projects, shorter term projects, some of the sort of energy storage that we put online this year can come on by 2016; also if we do any additional fogging, which also increases megawatts at a very low cost. For us things like the in-and-out terminal; basically the ability to re-export LNG from the Dominican Republic that maybe late sort of 2016; so those are mainly the things that we see at present. And of course capital allocation would be another tool that we have.

Your final question comes from the line of Charles Fishman from Morningstar. Your line is opened.

First, congratulations to your contract at Mong Duong; that safety record is phenomenal. And second -- the only question I had left was on Slide 24, I just wanted to confirm on that the third bullet point about the 214 million from your partner IPALCO, the Canadian partner. That’s not an increase in their equity piece, that’s just consistent timing with respect to your original announcement of their equity contribution in IPALCO, correct?

Yes. That’s correct. And thank you for mentioning the sort of safety record at Mong Duong. We’re very proud of that and we do have a sort of lot of visitors who come to see us, how we were able to accomplish that in Vietnam.

Somebody that started out in the construction business; so I can tell you that that safety record is really strong. Thank you. That was the only question I had.

Okay. Well we thank everybody for joining us on this call today. As always the IR team will be available to answer any questions you may have. Thank you and have a nice day.

This concludes today’s conference call. You may now disconnect.