The AES Corporation (AES) Q1 2018 Earnings Report, Transcript and Summary

Good morning, and welcome to The AES Corporation's First Quarter 2018 Financial Review Conference Call. [Operator Instructions]. Please note, 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.

Thank you, Austin. Good morning, and welcome to AES' First Quarter 2018 Financial Review Call. Our press release, presentation and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are 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 Weilert: Thank you, Ahmed. Good morning, everyone, and thank you for joining our first quarter 2018 financial review call. Since our last call, we have made significant progress on a number of fronts. We delivered first quarter adjusted EPS of $0.28 and remain confident in our full year outlook. We continue to transform the company, simplifying and streamlining our businesses, reducing costs and improving our overall risk profile. Since our last call, AES Gener has significantly derisked the Alto Maipo hydro project in Chile by signing a new fixed-price construction contract. We implemented the $100 million annual cost reduction program that we announced on our last call. We closed the sales of 2 gigawatts of merchant generation, including 1 gigawatt of coal-fired capacity in the Philippines, and allocated $1 billion to reduce our parent debt, which was rewarded by the rating agencies. We also advanced our profitable growth projects, including signing long-term U.S. dollar-denominated PPAs for more than 800 megawatts of renewable projects and signing a major long-term contract to provide storage and transportation capacity from our LNG terminal in the Dominican Republic. Finally, we're excited about being a leader in applying new technologies to reduce our operating costs and deliver innovative solutions to our customers. With these advancements and trends, I am very optimistic about the future of the company. I will now discuss these in more detail. Beginning with Alto Maipo on Slide 4. AES Gener entered into a new contract with Strabag, the principal contractor, and is securing additional funding from project lenders and Strabag for its Alto Maipo hydroelectric project in Chile. The new contract is fixed-price and lump sum, transfers all geological risk to Strabag and provides a date certain for completion, with very strong performance and completion guarantees. The restructuring agreements with Strabag and the lenders have been signed and are expected to close this week. AES Gener, our subsidiary in which we own 67%, will be committing up to $200 million, which will be contributed to the project on a 50-50 basis upon meeting milestones along with additional nonrecourse debt. AES Gener will also commit to contribute up to another $200 million near the completion of the project in 2020, which can be used either to pay down project debt or fund any remaining project costs. On an ownership-adjusted basis, AES' maximum additional exposure will be up to $270 million. I would like to point out that all of AES Gener's Alto Maipo commitment will be funded entirely from its own cash flow and that the maximum amounts have already been factored into our cash flow forecast. By executing a fixed-price contract with a firm completion date, AES Gener has significantly reduced the risk associated with Alto Maipo. When completed in 2020, the Las Lajas, Alfalfal and Alto Maipo complex will give AES Gener 802 megawatts of hydroelectric capacity near the country's load center in Santiago and will significantly diversify AES Gener's generation mix in Chile, reducing its coal weighting from 72% to 64%. Turning to Slide 5. To improve AES' competitiveness and achieve our goal of $100 million of additional annual cost savings, we restructured our strategic business units and reduced our global workforce by 12%, including eliminating 30% of management positions. This leaner, simpler corporate structure will improve our agility, and the related cost savings will strengthen our ability to deliver on our long-term financial commitments. Turning to Slide 6. As you know, our success in asset sales has allowed us to meaningfully derisk our portfolio while, at the same time, unlocking value. A good example is the recent sale of our Masinloc business in the Philippines, which we closed at an attractive P/E multiple of 20. With this sale, we reduced our exposure to merchant coal and also exited the Philippines. Today, approximately 90% of our earnings are from just 8 countries. Next, beginning on Slide 7, I will provide you with an update on our profitable growth initiatives, starting with our projects under construction. Last month, our 671-megawatt Eagle Valley combined-cycle plant in Indiana became operational. With Eagle Valley, we have replaced nearly half of IPL's coal-fired generation with cleaner and more efficient natural gas. Now turning to our 1.3-gigawatt Southland combined-cycle project on Slide 8, which is a redevelopment of our existing gas generation in Southern California. Construction is proceeding as planned and is on track to be operational by the first half of 2020. Turning now to Slide 9 and our 380-megawatt Colón combined-cycle project in Panama. In April, we achieved first synchronization and completed the steam blow of one unit. The project is on track, and we project the commissioning of the plant early in the second half of this year. As you may remember, we're also building an LNG regasification and storage facility on the same site. The regasification facility is complete and will receive Panama's first LNG shipment this month. We will utilize a floating storage unit until the storage tank is completed next year. LNG is going to play an important role in Panama as it does today in the Dominican Republic. I will discuss our overall LNG strategy shortly. Finally, turning to Slide 10. In Hawaii, we're delivering 2 solar-plus-storage facilities for a total of 47 megawatts of solar and 34 megawatts of 5-hour-duration energy storage on the island of Kaua'i. The first of these pioneering projects is under construction and will satisfy energy demand during peak hours as well as the rest of the day. Once both of these projects are completed, they will represent the largest solar-plus-storage installation in the world. Our remaining construction projects are proceeding as planned, including our 1.3-gigawatt thermal plant, OPGC 2, in India. These projects under construction will be key contributors to our earnings and cash flow growth through 2020. Now on to Slide 11. We have been reshaping our portfolio to deliver attractive returns to our shareholders while reducing our carbon exposure. Our focus is on natural gas and renewable projects with long-term U.S. dollar-denominated contracts. On a blended basis, these investments are projected to produce low to mid-teen IRRs, assuming conservative terminal values. For example, the renewable investments we made in 2017 are earning a weighted average 10% after-tax return in the U.S. and more than 16% in Brazil and Mexico. Looking forward, we expect to earn low double-digit returns in the U.S. as we focus on new development at sPower and AES Distributed Energy. These compelling returns are driven by several factors, including, using our business platforms and global scale to lower costs such as PV panel and wind turbine purchases; utilizing local debt capacity in the businesses to fund these investments; bringing in partners to reduce our equity commitments while providing management and development fees; and about half of our investments are in markets with lower renewable penetration and faster electricity demand growth than the U.S. Turning to Slide 12. Year-to-date, we have achieved significant milestones on the 838 megawatts of renewable projects in our development pipeline. Specifically in the U.S., sPower signed long-term PPAs for a total of 618 megawatts of solar and wind, and AES Distributed Energy signed long-term PPAs for 120 megawatts of solar. This capacity will come online between 2018 and 2020. In Argentina, the government has implemented profound reforms to improve the long-term sustainability of the power sector. Electricity tariffs have been raised and are now denominated in U.S. dollars. The government also established a public bidding process for 25 gigawatts of additional capacity through 2025. As part of this process, AES Argentina agreed to acquire a 100-megawatt wind development project, which has a 20-year U.S. dollar-denominated PPA. The project will be funded 100% by AES Argentina. In summary, as you can see on Slide 13, we will be adding 6.6 gigawatts of new capacity by 2020, which is the equivalent of 20% of our current installed capacity. Of the new capacity being added, 5 gigawatts are projects either under construction or recently acquired. The remaining 1.6 gigawatts are projects in advanced-stage development, 80% of which are under signed contracts. These additions will help us to significantly extend our average contract life, which Tom will discuss shortly. Next, I'd like to discuss the opportunities to expand our LNG business in Central America and the Caribbean on Slide 14. We see ourselves as well positioned to take advantage of the growth of low-cost U.S. LNG exports due to our existing platforms, market knowledge and marketing partnership with ENGIE. As you may know, we own the only 2 LNG storage terminals in the Caribbean with reexport capability. We have annual storage capacity of 150 tera Btus, only half of which is contracted. Our remaining capacity is available to meet customer demand in the region, which has the potential to grow sixfold to 800 tera Btus per year. As we discussed on our last call, in the Dominican Republic, we will build another gas pipeline to connect our LNG terminal with the East, where there is significant demand from generators and transportation. To that end, yesterday, we signed a long-term gas supply contract with an anchor client. We expect to earn attractive returns on the sale of our excess LNG capacity as it does not require any new investment. The Eastern pipeline will not require any cash from corp either as it will be funded locally. We're also excited about our leadership in applying new technologies, such as drones and digitalization, to reduce operating costs and deliver innovative solution to our customers. Our most mature example is lithium-ion-based energy storage on Slide 15. Fluence, our recently launched joint venture with Siemens, has contracts that will double its current installed capacity from 259 megawatts to 514 megawatts, and they're pursuing an additional 2.5 gigawatts of sales opportunity. Turning to Slide 16. AES has made a modest strategic investment in Simple Energy. Simple Energy has a digital platform that serves 29 utilities in the U.S., including IPL and DPL, with access to over 35 million end customers. Simple Energy's digital platform allows utilities to accelerate energy efficiency and demand response programs while improving customer experience. With that, I'll turn the call over to Tom to discuss our financial results, capital allocation, guidance and expectations in more detail.

Thanks, Andrés. Good morning. Today, I'll review our first quarter results, improving credit profile and capital allocation. We started 2018 well, with higher contributions from all of our SBUs. As shown on Slide 18, adjusted EPS was $0.28 for the first quarter, putting us on track to achieve our full year guidance of $1.15 to $1.25. Much of our growth in the quarter was driven by higher margins in the U.S. and South America, reflecting higher regulated pricing and lower maintenance costs. We also benefited from a lower tax rate and debt paydown at the parent. Now Slide 19. We earned $288 million in adjusted PTC during the first quarter, an increase of $98 million. As part of our cost reduction program, we've streamlined our structure and will be reporting our financial results in 4 segments down from 5. US and Utilities includes the U.S. and Puerto Rico plus the utilities in El Salvador. South America combines our previous Andes and Brazil SBUs and includes Chile, Colombia, Argentina and Brazil. MCAC is comprised of Mexico, Panama and the Dominican Republic. And the Eurasia segment remains unchanged. Now I'll cover our results in more detail over the next 4 slides, beginning on Slide 20. In the US and Utilities, PTC improved due to lower maintenance costs and higher regulated rates at DPL in Ohio following the resolution of ESP last November. Results also reflect higher availability in Hawaii and lower maintenance expense in Puerto Rico. In South America, improved results reflect higher tariffs in Argentina following market reforms enacted in early 2017 as well as higher contract pricing in Chile and Colombia. This was partially offset by the favorable settlement of a legal dispute at Uruguaiana in Brazil in 2017. In MCAC, higher PTC was largely driven by Panama, where we've seen a return to more normal hydro conditions. We've also benefited from higher availability and the completion of the combined cycle last year in the Dominican Republic. Finally, in Eurasia, our results primarily reflect higher energy prices in the United Kingdom, offset by the sale of our businesses in Kazakhstan. Over the last few years, we've taken a number of steps to reposition our portfolio towards markets with attractive risk-return profiles. We've also been extending the contract lives of our generation businesses, as seen on Slide 24. We've been reducing volatility by selling assets with merchant exposure and investing in new businesses with long-term contracts and sustainable, competitive positions. This has increased our average remaining contract life to 8 years. Looking forward to 2020, we expect this to increase to 10 years as we bring online the growth projects in our pipeline. It's also important to keep in mind that about 15% of our PTC is from stable regulated T&D or integrated utilities, which are not reflected in this average contract life. Using 30 years as a proxy for regulated businesses would imply a blended average life of about 13 years in 2020. I'd also note that most of our PPAs are in line with the market so that future recontracting should be at similar prices and margins. One exemption is the Gener in Chile where the average remaining contract term is around 10 years. Contract prices are above market, but we believe that is more than fully reflected in Gener's current stock price. In fact, accounting only for the present value of Gener's PPAs and our hydro assets in Chile and Colombia, we believe the net equity value of Gener is well in excess of its current market cap. Now to Slide 25 and our improving credit profile. In the first quarter, we made significant progress towards achieving our investment-grade goals. After closing the Masinloc sale, we allocated $1 billion to pay down parent debt. We also refinanced nearly $1 billion of high coupon bonds, with new notes averaging 4.25% for annualized interest savings of $25 million. As a result, net of transaction costs, we expect to end the year with roughly $3.8 billion of parent debt. This puts us well on our way towards achieving investment-grade metrics in 2019 and ratings by 2020. We believe this will help us to not only reduce our cost of debt and improve our financial flexibility but also enhance our equity valuation. We're pleased that the commitment to improve our credit profile continues to be recognized by the rating agencies, as shown on Slide 26. In March, S&P upgraded us to BB+, and Moody's revised our outlook to positive. In addition to improvement at the parent, DPL received an upgrade from S&P and is now investment grade. This is a result of our actions to significantly derisk DPL by exiting 3 gigawatts of merchant generation and paying down $1 billion in debt since 2011. Now to 2018 parent capital allocation on Slide 27, which is in line with prior disclosure. Staying on the left-hand side, sources reflect $1.9 billion of total available discretionary cash, including $600 million to $675 million of parent free cash flow. Sources also reflect $1.25 billion in asset sale proceeds, including the $1 billion from Masinloc and a $250 million placeholder for additional asset sales this year. As you may be aware, there are competing tenders right now for Eletropaulo in Brazil, with an auction scheduled for June 4. We're assessing options for our stake, which is currently valued at about $265 million. Now to uses on the right-hand side of the slide. Including the 8.3% dividend increase we announced in December, we'll be returning $345 million to shareholders this year. We'll use over $1 billion to reduce parent debt, including revolver drawings. And we plan to invest at least $250 million on our subsidiaries, primarily for projects under construction, leaving us with about $100 million of unallocated cash. Finally, moving to our capital allocation from 2018 through 2020 on Slide 28. We expect our portfolio to generate $4.2 billion in discretionary cash or over half of our current equity market cap. More than half of this has been allocated to the current shareholder dividend and completed debt reduction. About $750 million is allocated to identified investments in our subsidiaries, including projects under construction in late-stage development. Taking into account the additional $750 million in asset sales, we're factoring in about $450 million in additional parent debt reduction. The remaining $800 million, which is largely weighted to 2019 and 2020, is available to create additional shareholder value. As Andrés mentioned, we believe we have a strong set of opportunities and expect to continue to invest in some of these in 2019 and '20. As you know, since 2011, we've invested $4.2 billion to reduce our balance sheet, with almost 40% going towards share repurchases. We'll continue to compete new investment opportunities against share buybacks. Regarding dividend growth, we've grown our dividend at an annualized rate of 9% over the last 3 years and 27% over the last 4. We believe that as our credit ratings continue to improve, we'll achieve better valuation for attractive dividend. We'll evaluate the potential level of dividend growth with our board going forward and will be influenced by the extent to which the dividend is reflected in our share price. With that, I'll turn it back to Andrés. Andrés Weilert: Thanks, Tom. Before we take your questions, let me summarize today's call. We have delivered strong results during the quarter and implemented the $100 million cost savings program. We remain on track to achieve investment-grade credit metrics in 2019. We're making progress on our 4 gigawatts of projects under construction. We have continued to transform, simplify and derisk our portfolio while delivering attractive, long-term growth by reshaping our portfolio through selective asset sales; adding profitable investments in renewables, natural gas and LNG with long-term U.S. dollar-denominated contracts; using partnerships, management contracts and our local platforms to improve our returns; and exploiting our leadership in applying new technologies to lower expenses and grow revenues. We expect to generate substantial amounts of discretionary cash from 2018 through 2020, which we'll deploy consistent with our capital allocation framework. And we are therefore reaffirming our full year 2018 guidance and 8% to 10% growth rate target through 2020. With that, we will now take your questions.

[Operator Instructions]. And our first question will come from Ali Agha with SunTrust.

Andrés, first question, coming back to Alto Maipo. Can you tell us now, when you look at this project and the increased equity investment going in, how should we look at the returns for this project for AES? And what does it do for sort of your overall merchant exposure, if you will, in that market? And how did you look at this decision versus the abandonment decision, which I know was one of the things you had been looking at in terms of deciding what to do with Alto Maipo? Andrés Weilert: Sure, great question. I would say the first is that we have to look at this project in the light of AES Gener. So I think what's very important about this project is that it diversifies AES Gener from being very reliant on, say, coal generation to have a more diversified mix. As you know, there's a $5 a ton carbon tax in Chile, and having Alto Maipo will give the Gener a lot of options. And as you can see also that Gener has a very good portfolio of long-term contracts, so this gives us, the company, a lot more flexibility. The second one, thinking of the project itself, we had to really think of the returns on the marginal investments that we would make. So we are -- besides derisking the project, derisking Gener, are achieving reasonable rates of return on these additional investments. And I think also stay tuned because there are also opportunities to improve the returns on Alto Maipo. I would say, first, there is the possibility again of using it to diversify away from coal. There's also the opportunity, and this is very early stage, to apply new technologies, whether it be energy storage, for example, to have the world's first hydro project with energy storage because in Chile, you've had a big buildout of renewables, but you haven't had a big buildout of capacity. So having this capacity near the load center of Santiago, we think, will be very valuable over time.

And so in the context of looking at the incremental return, in the past, in your slides, you had assumed zero return for Alto Maipo in terms of the equity that has gone in. So for the incremental investment, how should we think about -- is it low single-digit? Or roughly how should we be thinking about that? Andrés Weilert: Well, look, well, we said that there would be no returns, nothing in our forecast through 2020. So we have assumed, and you will notice that we used the word up to because there's the possibility of having partners come into this project. So we have up to. We have said that there were no returns for the 2020 period, and we have very modest projections going forward from the project. But we do think again that having 800 megawatts of hydro capacity near the load center, thinking of AES Gener and thinking of the whole complex, remember, this is an expansion of an existing facility, which was built in 1985, we'll have better returns. So stay tuned. I think this is an important step to reduce the risk, get dates certain and the -- getting the contractor to step up, put in significant completion guarantees and provide part of the financing.

Yes. Separately, on the asset sale front, I just wanted to clarify, the Eletropaulo stake, assuming the auction goes, and as you mentioned, it's currently $265 million for you, that would go as part of the asset sale program that you laid out. So in other words, Eletropaulo alone gets you to the $1.25 billion rough target that you have for the year. And related to that, if you do another $750 million on top of that, are you then done, and is your portfolio where you would like it to be? Or are there more opportunities even beyond that extra billion? Andrés Weilert: Okay, let me take the multipart question. The first, the answer is yes. Eletropaulo would get us to the amounts that we talked about this year. That is $250 million. Then the remaining $750 million that we had identified, well, that could be selldowns. That could be selling out of some businesses. I think we'll continue to optimize our portfolio. So there is no hard limit on this. To the extent that we can get partnerships in places where we could sell down and improve our returns on invested capital, we will do so. So again, we are, I think, in a strong position. All of our businesses are making money and that we have this opportunity going forward. So as you'll note, the numbers that Tom gave are quite conservative in terms of sales and what we can achieve this year.

Right. Lastly, you didn't mention it this time, so I thought I'd ask. Any updates on Maritza given what you told us last quarter? Andrés Weilert: Yes. We had identified that in Bulgaria, we were in talks with the Bulgarian government regarding, let's say, the claim of illegal state aid on the PPA of Maritza. I would say those discussions continue underway. I don't think anything will happen in the very short term. They are up-to-date on their payments. We're getting paid regularly. The plant is performing well. The plant is necessary for the Bulgarian system. So it's really a question of, how will we resolve this issue for the -- for a win-win situation for the Bulgarian energy system and us? So stay tuned. And again, the -- I would say we're progressing constructively.

And our next question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch.

Can you hear me? Andrés Weilert: We can hear you loud and clear.

Excellent. Well, just to follow up on Ali's question just real quickly, just to be perhaps exceptionally clear about the Alto Maipo situation. How does this change your financial forecast at the end of the day versus what you all had talked about last quarter? Because I know some of this had been -- potentially would be partially contemplated. So I just want to be very clear about that, and I got a follow-up. Andrés Weilert: Okay. The first question, it doesn't change it at all, zero.

Okay, excellent. Just wanted to be very clear about that. And then separately, if I can follow up here. Asset sales, how are you thinking about U.S. versus international and then gas versus coal selldowns? I mean, obviously, there's kind of a repositioning taking place here, but I'd be curious about priorities and opportunities. Andrés Weilert: Well, I would say that first, we were in 28 markets. We're down to 15. 5 years ago, I said somewhere between 15 and 12 was the optimal number. So again, stay tuned for that. Regarding -- our priority, quite frankly, has been to sell merchant and specialty coal assets. So if you think of the Philippines, you think of some of the DPL, you think of some of the assets we've sold, and that's just basically because as part of our derisking, I mean, we derisk the company from hydrology, we derisk it from a commodity point of view, from a currency point of view. We also think that derisking from a carbon intensity point of view is important for the long term. So of that, that would be really our priority. We can hit both carbon intensity and merchant, like the Philippines, that is ideal. Now regarding selldowns in the states, we have partnerships in the states, and we can sell down to the extent that, one, it improves our returns; and two, it gives us capital to redeploy. As I mentioned in my script, that to the extent we do more development and new projects with sPower, we will improve our average returns. So there's a lower price obviously for spinning assets than there is for developing greenfield projects. So we are focused on increasing our returns on invested capital. We're increasing on -- focused on, I'd say, continued derisking long-term dollar-denominated contracts. So you put that all together, our contract length will increase substantially by the end of this year.

Excellent. And can I follow up just real quickly? I think this may be more of a time question. You talked about the PV of the PPAs as well as the hydro asset in Chile and Colombia being, I think, well in excess of the current value. I just want to be very clear, can you elaborate on that a little bit? And is that net of the -- both the recourse and nonrecourse debt at those subsidiaries?

Yes, Julien, that's fair. That's how we looked at it. We just did an asset -- as we look at it, and we obviously do this on a regular basis, look at the major assets, which is the PPAs. And once again, they're average 10 years, but some of them are much longer. The average life of them is 10 years, including Alto Maipo. But you look at the value of the PPAs plus the value of the hydro at fairly conservative level zone dollar per kilowatt. And you look at the liabilities, which should be all of the debt, and we compare that to the value of the equity, and we think the equity value -- or that the net asset value, if you will, is well in excess of the current equity market cap.

Got it. And just to be clear, can you elaborate on discount rates or anything? I mean, I'd just be curious by how much you see that delta.

Yes. Probably want to stay away from the details and maybe some broader discussion, but it's probably better to take place at the higher level, I mean, a little sensitive given the higher -- public level. But it's asset and liabilities both, so it's not as discount rate sensitive as you might think.

Got it. All right, fair enough. And just lastly, very quickly, the LNG updates, how material is that in terms of your outlook for the Dominican Republic? Andrés Weilert: Well, we have one gas pipeline from the Andres facility to Los Mina. This would be significantly -- I'd say the potential is significantly larger than that. We cannot disclose the amount in the contract. But I would say that this -- once the pipeline is built to the East, there's significant upside. We have some of the upside of the current contract built in, but there's significant contract -- upside for more. So I think just the important message, I think, here is that we still have about more than 40% of this storage capacity at Andres under -- not utilized. So there's a -- anything to increase the utilization essentially comes to our bottom line. And the same will be true for Panama. We're only going to be -- we're going to be using less than 40% of that tank, and there's -- any additional clients that we put on would just make that project more attractive. So we always use our projections based on our own plant, but we expect additional usage. And in the DR, we have good experience with that. We're already selling 10% to -- not to ourselves but to third parties for transportation and commercial use.

And our next question comes from Greg Gordon with Evercore.

So looking at Slide 28, it seems fairly straightforward, just the update from Q4. You've just sliced -- there was a bucket of $1.25 billion of unallocated discretionary cash in Q4, which you've now sort of sliced into $450 million, which is essentially targeted for potential debt paydown and $800 million, which is still unallocated versus the $1.25 billion that was unallocated on the Q4 call. What's the math there, that the $450 million is what you need to get to the targeted credit metrics to tip you to investment grade, and then therefore there was $800 million left over? Or is there some other rationale there?

Yes. Greg, it's Tom. It's very consistent with what we had last time. Last time, I think we had $1.25 billion, and then we had a note to the side with about $400 million of debt -- of potential debt retirements And we just wanted to be more clear and break that into a separate wedge, ergo, the $450 million wedge. But it is looking at, yes, from our own -- from our standpoint, with $1.25 billion of asset sales, including Masinloc and the placeholder, $250 million, we think we just need to do another $100 million or -- $100 million, maybe $200 million debt paydown to get -- to do investment grade fast, to get to investment-grade stats. That said, we're going to sell another $750 million of assets. Depending upon the cash flow of those assets, we're putting a placeholder in for some more debt retirement as a part of use of proceeds from those asset sales. So the $800 million -- so that's an estimate. Obviously, it could change up or down based upon how rich the cash flow is of the assets we're selling, but we wanted to break it out to be more clear.

So the $800 million wedge is the use of that proceeds will flex based on the outcomes in terms of asset sale prices and cash flow, that sort of...

Yes, but we think that's a good number. I mean, we think -- we believe we'll get to the $2 billion. We're at $1.25 billion now. And I think we've shown a record of hitting our asset sale numbers earlier and with bigger numbers. So we're comfortable we'll get there in the $800 million. That's a big movement in the numbers.

Yes, no doubt. I'm not questioning that at all. I'm -- just sort of almost a rhetorical question that the $800 million -- where the $800 million gets consumed will be a function of the price you get and the cash flow that goes with those assets, correct?

Yes. Andrés Weilert: Yes.

Okay. And then my second question is just a cleanup question, too, on Slide 50. I know it's all the way in the back of the deck. But the slide that, that replaced used to have ROE and cash yield targets for the portfolio. Now I'm just wondering, obviously, the Alto Maipo returns are under pressure. But when we look at Colón, OPGC 2 and Southland repowering, are the expected returns on those investments the same as they were in the Q4 deck? Or has something also changed there?

Yes. Greg, this is Ahmed. Yes, you're right. I think, given that we have already included a slide on return, Slide 11, so we thought, I mean, the returns are pretty much in the same ballpark range. So yes, you don't need to read anything between the lines, but the returns are somewhere close to mid-teens.

Okay, that's actually what I thought. I just wanted to sort of confirm that.

Yes, yes.

And then my final question for the call anyway is always questions. But you talked about potentially bringing in third-party capital to, I mean, coinvest with you in certain types of projects. Have you seen any interest in coinvesting in things like the Fluence JV or sPower from third parties that would sort of help validate the potential growth -- the growth potential in those businesses and help you free up some of your discretionary cash? Andrés Weilert: Yes, I'd say that -- let's take the Fluence. We just launched it. Its cash needs are very modest as it gears up together with Siemens. So I mean, at this very first stage, clearly, I think we have to grow that business and really, let's say, get the market share that we're aiming for, which is around 20%, 25% of that market. First, I think it's way too early to think about bringing in third money for a validation here. This is -- it's a different business from the usual. And usually, when we think about partners, it's on more mature businesses. So if there are situations where we can bring in a partner for, say, spinning assets and then take that money and redeploy it at higher returns or bring in a partner and receive a management fee or a development fee, that's it. So Fluence would not be one of those, let's say, in -- certainly in the short term.

I think, Greg, regarding sPower, I think we've said maybe on the last call that we have had some incoming inquiries from some financial investors about taking an interest in some of the operating assets or pieces of the operating assets. And those are things that we are pursuing with our partnering co. We'll update you to the extent something specific unfolds, but those would be at valuations that would improve our all-in returns.

And our next question is from Christopher Turnure with JPMorgan.

I wanted to get a little bit better sense on your overall growth plan in the renewables business and get a sense for how much of that you'd expect to come from U.S. or North American contracts versus outside of North America, and within the U.S., maybe you could comment on the market that you're seeing for corporate counterparties versus utilities. Andrés Weilert: That's a good question. As we said, today, we're sort of half and half in terms of the new projects that we're signing. We do see increasing demand from corporates, and that is one of the most exciting areas for, say, sPower. We're also seeing sort of community solar for distributed energy in the U.S. In the case of outside of the U.S., which is basically Latin America, what we're seeing is more sort of auctions, be it in Argentina or be it in Brazil, for renewable power. We are making significant inroads, say, in Chile with commercial and industrial customer PPAs. So we're seeing this sort of blend and extend in a lot of our markets, and corporates are becoming more important. And I'd say the -- probably the majority of the corporates are looking for renewable energy. So regarding the sort of mix, the pipeline of sPower is quite large. We've talked about 10 gigawatts. And it's very solid, and we're seeing that they're having success on it. So that sort of 50-50 mix may shift a little bit towards the states. But we do have a lot of projects that will be coming online, Brazil, Argentina. We have El Salvador. And there are other markets that are also very interesting. So the key is that we have to get a PPA, which is either dollar denominated or inflation indexed.

Great. And then could you speak a little bit in more detail about the international contracts? Obviously, the returns that you detailed today are pretty good, and you mentioned that you used conservative terminal values there. But when we think about the overall package of risk that you're taking in order to get that return, is it fair to say that you're comfortable there that, whether it's FX or non-U.S. dollar-denominated contracts, capacity factor assumptions, et cetera, are all kind of where you maybe expected them to be or better versus when you entered into this JV and this investment a year plus ago? Andrés Weilert: Well, again, the projects outside of the U.S. are not with sPower. Those are with our platforms. So I think a key component on the, I think, compelling returns that we're seeing is using our platforms. So you really have the advantage of having everything from a commercial team to a management team to everything in place. Second, you can use local leverage to optimize it, optimize your returns from it, and your local relationships. So for example, in the MCAC bucket, that return is 100% dollar-denominated contracts. The only ones that we have that are nondollar denominated are in Brazil, and those are in reais. Those are indexed to inflation. And the debt is in reais. So we feel very comfortable with this -- with the risk that we're taking on these projects because the debt and the cash flows are in the same currency. They're inflation indexed or they're dollar denominated. So these -- we think these are very, very strong contracts.

Your next question comes from Steve Fleishman with Wolfe Research.

Just first, what is the date certain on Alto Maipo now? Andrés Weilert: The date certain, we're talking about 2020.

Yes. Is there a specific date with which we can kind of track it? Andrés Weilert: Well, here's the thing, with Alto Maipo, there are several, let's say, important milestones. So part of -- this is the -- you have the Las Lajas that's, let's say, lower down in the mountain and would be the first ones to come on. And then you'd have the Volcán, which is the -- say, higher up in the mountain. And so that would come on at somewhat later date. But we'll start earning money as soon as the first sections are completed.

Okay. And then just how is -- what's the plan at Gener to fund the equity commitment? Andrés Weilert: Well, Gener has sold some assets. It's strengthened its balance sheet. So Gener has the cash flow to make these investments as required.

They've also done a couple of asset sales, Steve. They've, with the asset sales, about $300 million that should close shortly. That's some older fossil plants. They had also said, it's public, that they're assessing the potential sale of some transmission assets. So that will be part of their -- the cash flow that would help them fund this. And also, they continue to pay a strong dividend.

Okay, great. And then on the sPower, its potential selldown, is there kind of a sense on timing of that?

There are discussions where -- that are ongoing. So it will be something we'd assess this year.

Okay. And then just in terms of, Tom, and, I guess, your comments on the end on potential uses of capital. And you talked about the dividend growth you've done and then trying to assess whether you're going to get kind of credit in the stock for it and buybacks and the like. Just is there kind of a time horizon when you will be in a position to have kind of really made that assessment? I -- because I guess you're not really getting to investment grade until 2020, which is still a couple of years away. So is that the time line? Or is it sooner than that? Just how are you going to think about this from a time standpoint? Andrés Weilert: Steve, well, we just raised the dividend 8.3% this year. And I think we have the strongest track record in terms of growing the dividend. So what we are doing is strengthening our credit. So we're in, we think, a very coherent position of being investment grade or having investment-grade metrics and paying a substantial dividend. So as Tom mentioned, we will review any increase of the dividend at the year-end with our board. But we just made a dividend increase. That's a bit early. Then regarding sort of the use of capital for stock buybacks, we've also said we made very significant stock buybacks of the company. And we will assess those over time if there's a need for any stock buybacks. But I think what's very important, our priority is, first, getting to investment grade. Second, you -- we have some very attractive investment opportunities that we should complete. And I think that in terms of the derisking of our portfolio, it's very important to understand, like we have 777 megawatts of hydro in Panama. With the completion of the combined-cycle gas plant, those hydro assets should be more valuable because you're really going to have a cap on hydro -- on energy prices in years of drought. So it's going to lower the volatility and strengthen the earnings from that. The other thing to realize is that in the Dominican Republic and in Panama, we -- since we have the reexport capabilities, there's some very attractive upside. So we have to take those things into consideration. But I would point out, we have made very substantial stock buybacks in the past, and we just raised our dividend as well.

Okay. I guess my -- I'm just trying to interpret the answer there. So it's something where you're going to give it time because obviously, you've just raised the dividend, and you're not going to kind of change course quickly on that, it would seem. Andrés Weilert: Yes, that's correct, that's correct.

And our next question comes from Lasan Johong with Auvila Research Consulting.

Tom, kind of hypothetical for you, maybe you may not want to answer this question. But if you -- if AES had $1 billion of unallocated cash, would you rather buy back AES stock or make a risk-adjusted weighted average cost of capital plus 1% investment?

Yes. I mean, that's a part of how we look at things. I think we've done both over the past number of years. I think in the near term, going to that slide that shows capital allocation through 2020, that's what you're trying to get to, I think in the near term, we're really focused on improving our credit and getting to investment-grade stats that we think we'll do by next year, and then with some seasoning, get to investment grade, we would expect by 2020. So we think we do have close to $1 billion, let's call it $800 million, to think about, it's really a '19 and '20 level of thought. And we do look at returns on investment opportunities. We do take them in the context of the overall business, not just one-off assets because we do think about things on a platform basis, not on a one-off, you-pump-it-out, asset basis. And we do -- and we will look at that relative to the share purchase, which is what we've done in the past.

Okay. Is the reason why -- in the past, AES has always said that if it has an asset that has no future prospects, no growth prospects, you're willing to, just kind of assuming they're spinning off cash, that it's most likely better utilized by others. DPL and IPL would fit that description to a T now that you've -- now that AES has disposable generation and so on and so forth. Is the reason why AES is still sitting on IPL and DPL because it needs it to get to the investment-grade rating? And once you -- once AES obtains the investment-grade rating and finds adequate backstops, would that be a point at which DPL and IPL make an exit from AES' portfolio? Andrés Weilert: What I'd say is we are doubling the rate base at IPL, and we think that the new investment grade-rated DPL also has significant rate base growth. So a lot of catch-up because a lot of the utilities in the area have been investing a lot in their rate base. And DPL has not been in a situation that it could do that. And so we think -- believe there's catch-up. So no, we think there's attractive growth, risk-adjusted growth in both of those utilities, and we expect them to do quite well.

That's great. Last question is, and maybe I'm beating a dead horse here, but is there a way for AES to get to a 15% to 20% compound annual growth rate over the long -- more of a longer term? And what would it take to get there? Is it impossible?

This is Ahmed. I think we just gave our guidance, so let us deliver on this. We can talk about the rest later. Apologies.

Our last question for today will be Charles Fishman with Morningstar Research.

Andrés, those of us in the utility industry, that follow the utility industry, certainly have the experience in the past year of the Westinghouse situation. And I guess my -- what we learned here is that the value of a guarantee from an EPC contractor is only as good as the checking account at the parent. How deep of a pocket does Strabag have? I mean, or is there a bank performance guarantee behind it? Or what gives you the confidence this is really of its price contract at this point? Andrés Weilert: That's a great question. I'd say, number one, the guarantee here is from the head office, Strabag, which is an investment-grade company listed in Austria. Second, that the LCs will be bank guarantees. So when we say that there are strong guarantees, these are backed by significant, investment-grade bank LCs. So on both counts, Strabag is a company that's in good shape, and second, that these are your top-notch bank guarantees LCs.

Okay. You can see where my question is coming from after the Westinghouse experience. Andrés Weilert: No, it's a very fair question.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Ahmed Pasha for any closing remarks.

Thanks, Austin, and we thank everybody 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.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.