Good day, and welcome to the AES Corporation Third Quarter 2016 Financial Review Conference Call. All participants will be in listen-only mode [Operator Instructions]. After today's presentation there will be an opportunity to ask questions [Operator Instructions]. Also please note that this event is being recorded. I would now like to turn the conference over to Ahmed Pasha, Vice President of Investor Relations. Please go ahead.

Thanks, Nicole. Good morning and welcome to our third quarter 2016 financial review call. Our press release, presentation and related financial information are available on our Web site at aes.com. Today, we will be making forward-looking statements during the call. There're many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andrés 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 Andrés. Andrés. Andrés Gluski: Good morning, everyone and thank you for joining our third quarter 2016 financial review call. Today, I will provide an update on our year-to-date performance, key market trends and our long-term strategy in the context of those trends. Tom, will then review positive regulatory developments at DPL and Ohio, and our financial results, as well as provide color on our curtain guidance. Year-to-date we generated proportional free cash flow of $1.1 billion, representing 91% of the mid-point of our full-year guidance, and reflecting the collection of outstanding receivables in Bulgaria during the second quarter. Our year-to-date adjusted EPS was $0.64, representing 64% of our full-year guidance, consistent with expectations that we communicated to you previously. These results keep us on track to achieve our full-year guidance, which Tom will address in detail. Now turning to key market trends on slide five. At a high level, we're seeing changes in some of our markets due to the entry of natural gas and low cost renewables. However, we're generally well positioned to take advantages of these changes, because we have already begun to invest in these technologies, and because most of our largely contracted portfolio…

Thanks Andrés, and good morning. Today, I will review our results, including adjusted EPS proportional free cash flow and adjusted pre-tax contribution, or PTC, by Strategic Business Unit or SBU. Then I’ll cover our 2016 capital allocation, as well as our guidance and expectations. Before I get started, I’ll remind you of a couple of items that helped our results in the third quarter of last year, one was the restructuring of Guacolda in Chile that generated $0.06 in equity and earnings. And the other was a large receivables collection in the Dominican Republic, which led to higher than normal proportional free cash flow. Now turning to slide 16, third quarter adjusted EPS of $0.32 was $0.06 lower than 2015. This decline is in line with our expectations that we communicated in our last call. Specifically, our third quarter results reflect positive contribution from our businesses, particularly in the U.S. where we benefited from rate based growth at our utility IPL in Indiana, and improved availability at DPL in Ohio. The impact of the Guacolda restructuring in 2015 and also the $0.02 impact from the devaluation of foreign currencies as expected particularly in Andes and Europe. Now to slide 17, proportional free cash flow and adjusted PTC for the quarter. We generated $400 million of proportional free cash flow, a decrease of $221 million from last year. This reflects slightly lower margins and the impact of working capital in the MCAC SBU specifically to DR, where although collections remained strong, we have the large receivable settlement last year. We also earned $272 million in adjusted PTC during the quarter, a decrease of $43 million largely driven by the Guacolda restructuring. Next I’ll cover our SBUs in more detail over the next six slides, beginning on slide 18. In the U.S.,…

Thank you. We will now begin the question-and-answer session [Operator Instructions]. And our first question comes from Greg Gordon of Evercore ISI. Please go ahead.

So, on slide -- couple of things, slide 26, is that compared to the second quarter, so the comparable slide. I see that the only adjustment is that you're assuming that you articulated this in your script. I just wanted to be clear that some of the sales proceeds are slipping into 2017 from '16 otherwise, this slide is demonstrably unchanged?

That's right Greg.

So, on the unallocated discretionary cash, you talked about one of the things you didn't talk about was significant further share repurchases, that was notably absent from the script. Is there -- was that on purpose? Andrés Gluski: Well, as Tom said, we see dividend as our primary way of getting cash back to our shareholders. On the other hand, we do have an approval. And we have shown in the past that if we think that's the best use of our cash, we will go ahead and buyback our shares. So, we're not taking it off the table, but we're saying our primary focus will be on paying and increasing, and growing dividend.

It's just, it's a very luxurious position you're in, and you don't have any maturities for a few years. And you're already growing the dividend at a pretty high articulated rate, and yet you still have all this unallocated cash. So, if I just, capital allocation is going to be top of mind when we quiz you at EI? Andrés Gluski: They’ll be good and it's great to be in a luxurious position. What I'm very glad is that, yes, we've been working on this for a long time because in terms of getting our debt in better shape. And we are in very good shape. And not only that, in terms of terms, length of the debt in terms of -- the majority of the debt is fixed and also it's in the currency of the operating business. So yes we will be talking about that, but that does give us options.

Two more quick questions, one I think you -- in reiterating your guidance, you've indicated that you're using curves for commodities and currencies from the middle of the year. If I add up all those, and how much they change over the course of since the middle of the year, I think the dollars moved in your favor, but commodities have moved against you. Net-net, it doesn't look like a big negative if anything, it might be a push. Can you comment on how those changes, how those curves have changed since June 30th? Andrés Gluski: Greg, you're basically right. They're basically flat. I don't know if Tom, you want to add something to that, but the net is flat.

Yes, that’s fair.

And then in terms of the earnings drag associated with the Chile construction project, should we think about the earnings impact, as you’re seeing the incremental cost of the debt on the cost overrun? Andrés Gluski: This project will be coming-in in 2019, so it currently has no impact prior to that. We have to see again where we’re negotiating now with lenders, how much is from the sponsors, how much is from the lenders and what are the conditions. So it really doesn’t have any impacts through the 2018 window. And I would add to that Hahn Air has its earnings call later today, I think at 11 O’clock, but they come out with their press release. And they had, I think, the best quarter in the last five years. So, Hahn Air is in strong position. But we have to address the issue at Alto Maipo. And as I said, we’re working very constructively with our lenders and also with the construction company.

Our next question comes from Ali Agha of SunTrust. Please go ahead.

First question I just wanted to clarify this comments you have made. When we look at the next couple of years, you have put out you said you reiterated the growth numbers well over 16% EPS growth, but this point about this being greater in ’18 versus ‘17. Just wanted to understand that a little bit better, is the implication that ’17 perhaps is lower than the 12% to 16%, but then you catch-up in ’18 or that ’17 is 12%, but ’18 is 16%. I just wanted to understand what you were saying on that ’17 versus ’18 growth number?

Ali, that’s maybe little more fine tuning than we want to get to. At this point, we’re clearly comfortable with the 12% to 16%. We think that ’18 will be stronger than ’17 we still think that ’16 to ’17 growth rate is going to be stronger and attractive. But I don’t want to get into too much fine-tuning we’ll certainly do that in Feb when we give formal guidance.

But Tom, just to be clear, we should not assume that each year is 12% to 16%, we should assume that that’s a cumulative ’16 to ’18 number?

Yes, cumulative or average, however you want to the math, yes.

Okay.

But there was growth just between ’16 and ’17 we’ll put a fine point on growth each year in Feb.

And then on Ohio, how concerned are you that there will be an evitable legal challenges to any approval you get, even for this distribution rider. What’s kind of the basis on which you guys are confident that this thing will be sustained? Andrés Gluski: Ali, you always have a process and you have interveners. Having said that, we have the case of FirstEnergy, we just moved forward, we think our case is even more robust. So, we have a high degree of confidence of this moving forward.

I’d just say as it’s a distribution monetization rider, we’re very focused on doing it for the health of DP&L and for the T&E business. We think having a strong credit profile there is important and this will give us a trajectory to do that. And also, we do think that there is investment in the DP&L T&E business that would be good for customers and would also require capital. And that’s one of the major components of and frankly uses of cash as we talk with the commission.

And just to clarify the timing, you alluded to December 5th, the hearings, but you also have discussions. So is this something that potentially we could hear about a settlement before year-end, or should we expect Q1 when decisions and settlements and those kinds of things happen? Andrés Gluski: Ali, I think it's most likely Q1.

Last question, Andrés. You talked about contracts that are rolling off post '18. You've got stuff that's coming on at that time, as well. I know you'll provide more granularity in February, but just at a high level, when you look at your business over the next, call it four-five years, or 2021. You don't have much visibility and confidence in terms of -- can you sustain the growth rate that you've promised us through '18, or just high level? Or are you seeing more headwinds to slow things down? Andrés Gluski: Ali, we'll provide more color when we have our fourth quarter call in terms of expanding. But we feel confident of the growth rates that we have given, and we see continued growth rate pass that. We will get more specific into the future. But if you look at our construction programs, you have a lot of things coming online in '19 and '20. And also more discreet items like some of the renewables, such as solar, which we’ll be growing and are quite frankly fully incorporated in some of the construction numbers we give, because they're much shorter periods between development and construction.

Okay, thank you.

Just to clarify one thing I'd said on DP&L, it's a distribution modernization rider. I think I said something other than monetization. It's a big word for me.

Our next question comes from Julien Dumoulin-Smith from UBS. Please go ahead.

So, can I just, maybe starting in on Ohio, following from the last question. Can you elaborate a little bit, is the structure analogous to what FirstEnergy recently approved? And then separately you talked about maintaining investment quality. What metrics that you saw going forward with the DMR and ultimately to get to those IG metrics?

Just on DP&L, yes, it's similar. FE had some FFO ratios I think it was in 14.5%, it's similar to what we're using, so that's what gets us the $145 million of revenue requirements, or DMR I'll call it that we've requested. We are focused on seven years. They were shorter with an ability to extend, but we do think it's helpful to have a defined longer period, but that's certainly a matter of our discussions right now.

Turning to your longer term guidance, you talked about '18 being still intact. Can you reiterate your confidence in OPG C2, and maybe a just big uptime, as well as also just curious, Alto Maipo. I suppose it indicates back-half of '18. Is that a material contribution to '18 in terms of your confidence to hit that number? Andrés Gluski: Taking the first one, in terms of Alto Maipo, as I said, it has really no impact on 2018. So, I think the key thing is reaching an agreement with lenders and completing the project. Regarding OPG C2, we will give more information into the future. I think if we look at it as a project in India, that’s overall going quite well. It's a complex project, it does have a rail tracks and coal mine. We’ve got all the coal permits. We’ve got most of the land permits. So in general it’s proceeding well for project in India.

So, you’re confident in first half of ‘18? Andrés Gluski: We will update that and OPG C2. We’re making overall good progress.

And then coming back to Chile and just real quickly. Can you comment a little bit more about what you think -- I think your term was an appropriate level for new entry, and how you think that evolves here overtime. Obviously, the use of blocks rather than conventional PPAs really shifts the market dynamic there. Can you comment? Andrés Gluski: Well, I think what happened in Chile, it's two things. First, you have to realize that there were about $50 billion in mining projects in Chile. I’d say we were looking back three-four years ago. And of those I think probably about $40 billion have been suspended. So, the growth and demand from the mining sector did not materialize, and those projects are on hold. So that really change the dynamics to give you a much higher reserve ratio in Chile than certainly any of the projections had been. So that’s I think the most important thing to understand. So, when there was this auction came in and there have been some changes to the auction process. What we saw was it was below, certainly, I think, consensus estimates. And basically came in on two sides. One was a new entrance on the renewable side. And also we believe on the hydro side, people bid lower than expected. I would say of the thermal bids, we were probably, we believe, the lowest. So we had I think a better view of that. What do we think is a sustainable level? Well, if you go to the market research in Chile today, so the sustainable level is north of $60, $60 a megawatt hour. If you look at where this auction cleared, it's more or like $47. There’re issues here because you have to follow the load with intermittent renewables, and you have to put packages together. So, we think that some of these assumptions, obviously, people are bidding for future prices of the capital investment future prices for other things. And there is a lot of assumptions here. So, we think that more in line with the consensus view overall. And one thing I would say is if these mining projects get reactivated, maybe even a third of them then the situation in Chile will change. Because you also should remember that the very high reserve margin that market had a lot of that is very old, is very old coal plant than other ones that are not efficient. So, we think that that’s reasonable. And that anyway the market moves though, I think that we are in a very good position having that existing thermal and hydro base to combine it with renewables, to be able to offer more secure load following supply.

And then can you comment briefly on the Philippines and after market and this decision to pursue the expansion given, call it, broader pricing pressures that we’ve seen in Chile, et cetera? Andrés Gluski: Well, different market. In the case of the Philippines, we saw that there was demand for our plant Masinloc and that we could add basically another unit to Masinloc and 325 megawatt is going to be super critical. And we could contract that at attractive prices. So, we started this. It's under-construction today. And Philippine market will change. What you have today is basically a lot of gas plants that are using domestic gas, which are basically first to be dispatched. So, there're base load. When these contracts burn-off in the next couple of years, they go to mid merit. And quite frankly they may have to search for new sources of gas. So, given that this plant will be very well positioned. And basically I think that perhaps where you're going is that the new contracts we're signing for 10 and 20 years PPAs are at the same similar prices. And we basically have an extension on existing Masinloc at the same price with the off-taker. And it is pending regulatory approval, but we expect that to get approved.

Well, how contracted in the second year that you're building? Andrés Gluski: The second year to-date is about 50%. But we expect to have it much more contracted by the time it's completed because it's not going to just one big distribution company, it's going to multiple.

Our next question comes from Lasan Johong of Auvila Research. Please go ahead.

Right now if you look at the valuation on AES, even if you ignored all the utilities, generation is trading at a $1,000 of KW, or that's what the market is telling us. Andrés would you say this is enough, I'm going private, I'm going to take out AES and turn it into private company? Andrés Gluski: Well, I think that if you look at AES today, it's certainly been significantly de-risked, and certainly, I think, has a very attractive future growth profile. And I think that we're very well positioned. I think in terms of our valuation, I mean, we've had, quite frankly, a lot of headwinds over the last five years. Some external, whether it was droughts or commodity prices or FX. Now what we've done is take-out I think a lot of that risk as we go forward. So I think as we deliver on the growth prospects, and deliver on our construction program and certainly deliver on our cost cuts. Because, one of the things, we're today at a run-rate of $250 million less of overhead and general expenses that we were five years ago. So, I think all the trends are right. I certainly think that it's an issue of delivering on it and we should see valuations, which are more in line with our peers.

Tom, you mentioned that by 2020 AES should be in the investment grade metric area. Is the ambition for AES to try become an investment grade company? And if so, does that change the way AES looks at financing its business?

I think we'll have a better idea of what the metrics will translate to from the agencies. We want to be careful. I don't want to be presume what their judgment would be, that's why we're trying to control, we can control. It's basically move our -- our ratios have gone from 6.5% to about 5%, and we to go to 4% or low 4s depending upon our business mix, the stability of the business. I don't think it'll materially change our business or financing strategy. I will say that we've done a lot, continue to do a lot to look ahead and refinance, take advantage of market windows, be at the parent, or really all throughout our subs. The project finances or subsidiary finances that would be bundles. But one thing I’d say is that we probably look to do bundles more than one-off deals where we can, and it still fits with the strategy. So, we’re doing that in some places we’ve got expansion right now in the Dominican Republic. But $250 million to close this cycle make a project thermal efficient on its gas usage. And that’s being done. It's basically being bundled with our Andres plant. It’s a very efficient plant. So, we’re bundling those two together. So it means we don’t put in equity, we basically use the equity value of the Andrés to bundle that and alleviate equity requirements, and I’ll suggest upgrade the credit packages. We’re doing the same thing in the Philippines where new Masinloc is part of the credit package of the Philippines. So, we’ll look to do more of that. And I think especially as we go and look at some smaller renewables, we’re doing some smaller renewables in the U.S. This year we’ll do about almost 100. And those are the things that you really do bundled financing as opposed to project-by-project.

Last question, Andrés. AES is going very deep and long into battery storage power. I’m just wondering, because I’m assuming battery power could be useful backup to renewables mostly, and to make sure good stability remains in place. But my understanding is that backup power is typically required for six to eight hour periods, and batteries generally don’t give out too much more output than two to four hours. Is there a disconnect between what the objective of the battery is trying to do, and what actual reality is? Andrés Gluski: What we’re seeing, first, is this market is growing very quickly. So, we believe I think its next year we’ll have about installations around the world around 1 gigawatt, and we’re starting maybe two years ago at 200. So first it's growing very rapidly. And it’s a technology that has many applications. I mean it has applications for capacity release. Those were some of our first project ancillary services. And you’re right so the substituting taking plants where you have a lot of renewables. That’s our big project in California. But it also has applications to the T&E business in terms of alleviating transmission constraint. Now, part of the lithium-ion battery energy storage solutions, batteries are one component. So, we’ve seen, over the last five years, battery prices were up by 65%. There is no technical reason you couldn’t make it an eight hour if you wanted to. It’s just a question that you have to put on more batteries and it becomes more expensive. So, we expect battery prices to continue to drop because these are the same batteries you use in electric vehicles. So, as that becomes massive fight, it should drop continually. So, we’re projecting a continued drop in those prices. So, the duration is really a function of your battery price. So, we are seeing that it’s a many places the applications are more in the two to four hour today at today’s battery prices, but you could extend those for a longer. And I think that, again, we’re seeing a very rapid growth of demand. And again this year alone, we’ve already closed $70 million in growth revenues from sales to third-parties that is sales to other people to play it on our grade. So, I’m certain that this will continue to grow very quickly. I’m also certain that price will drop. And what we’re really trying to see is our two pronged approach where we put our Advancion product on our own platforms and use them to enhance our renewables or even enhance our thermal plant, and selling it to third-parties. Now that third-party sales we're using channel partners who have sales forces. And finally I would say that the combination of the two, whether we're driving it, we want to be the low cost provider and also quite frankly the best provider of this service. So, third party sales are helpful over the cost to us.

Our next question comes from Angie Storozynski of Macquarie. Please go ahead.

So, first going back to the Alto Maipo project. Could you tell us how much of the capacity is going to be contracted? And if there's been any impact on your ability to contract the remainder of the project given the outcome of this August solar power auction? Andrés Gluski: Yes, Angie. I think about 40% of the project is contracted today in long-term contract. And in terms of our ability to re-contract, I would say that obviously it will affect the price of any future contracts. When it was being built, the forecast for Chile quite frankly we’re like a $100 a megawatt hour. And what we're seeing is more likely somewhere in the mid-60s, we think is probably a long-term price. So, you're right, the auction, but I think more than the auction, quite frankly, the dynamics in the market. Because, quite frankly, if you did have a rapid pick-up in the mining sector, I think that the prices would reverse.

And now, you're assuming that the lenders basically cover the cost overruns. I mean, I am concerned here because it seems like you have fully committed your equity stake here. You've an increase in the cost of construction, and a reduction in revenues, because of the drop in power prices. So is there a scenario where you would actually consider walking away from this project? Andrés Gluski: You're right. Certainly, the project looks less attractive today with the cost of overruns and the lower prices that it had initially. It was a very robust project to begin with. And in terms of our commitment to the project, we will look at this as in terms of what we think is the best decision for AES Gener. And obviously we have to reach the right agreement with the lenders to make this project better than not proceeding with the project. So that always remains an option and we're looking into that. But I think that mostly likely outcome is that we do complete the project.

And then my second question is on capital allocation. So you aim at investment grade FFO to debt by 2020. So why not use the spare cash that you have, or the capital that is unallocated to actually reduce that debt in order to get to those investment grade metrics earlier? I mean, this is always an issue with the strength of your dividends that is somewhat undermined by this below investment grade rating. Andrés Gluski: I think that's a great comment, Angie, something we discussed. We've been paying down the debt consistently try to take advantages of windows in the market. We also have the options of transforming our portfolio for the future, and so taking advantage of the platform. So, we have to balance those two. So obviously that’s something that we’ve looked at, what is the speed of the debt pay-downs that we should do. And what we think is important is to have a very clear north where we’re going and to deliver on that. And as we do asset sales and as we see opportunities to add to our platform, we’ll take that into consideration. But again, I think, we have a good track record in terms of consistently improving our credit profile, de-risking and cutting our cost.

Our next question comes from Brian Russo of Ladenburg Thalmann. Please go ahead.

And so 25 you guys outline the debt parent free cash flow plus interest ratios, I’m just curious what kind of your 2020 target and to get to an investment grade like ratings? And are there other ratios that we should be tracking? Andrés Gluski: This is the primary one. The target would be around 4%, but it's depending upon, obviously, business mix and those kind of things. But generally it's around 4%, it should be a combination of parent free cash flow growth, which will be the strongest contributor, as well as some continued debt pay-down.

And I think you mentioned earlier to offset some of the first-half ’16 headwinds, your effective tax rate is a little bit lower. Is that accurate, and then what’s driving that? Andrés Gluski: Yeah, that’s what we’re -- there were two things I mentioned that would be offsets. One is a specific tax matter that would cause our tax rate to be lower. I think we had a range of 29 to 32, and the tax would be at the lower end of the range. And then the other would be specific settlement of a commercial issue.

And then with your portfolio management initiatives, what regions should we consider non-core or some countries or assets that you’re currently evaluating? Andrés Gluski: Brian, that’s always a very delicate question for us, because we’re operating in these markets. I think in the case of Brazil, when we I think foreshadowed that we had a lot of hydrology risk in Brazil. So, with the sale of AES Sul, we think it’s better balances our portfolio. You may ask, why the hydrology risk, or regulatory risk at AES Sul, quite frankly, when you have droughts and you have an increase in energy prices, because they’re running more thermal, there isn’t an immediate pass-through to the distribution company. So quite frankly that puts pressure on our distribution companies in terms of cash. So, we think there’re main drivers of our value creations as strong cash flow, having less assets in distribution in Brazil, would make our cash flow more stable as we redeploy that cash. So, I’d say it’s clear with our core markets, which we’re going after, I mean, the markets we’re most interested in. And again, those markets where we can get long-term U.S. dollar denominated contracts will have preference. I mean, we can’t get it everywhere. But we want to shift the portfolio again more contracted and with a lower carbon footprint. And that’s what you can see going forward.

This concludes our question-and-answer session. I would like to turn the conference back over to Andrés Gluski for any closing remarks.

Thanks. This is Ahmed. We thank everybody for joining us on today’s call. We look forward to seeing many of you next week at the EEI Conference. As always, the IR team will be available to answer any questions you may have. Thank you, and have a nice day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.