Ladies and gentlemen, thank you for standing by. Welcome to the AES Corporation Second Quarter 2022 Financial Review Call. My name is Irene, and I will be coordinating this event. [Operator Instructions] I would like to turn the conference over to our host Susan Harcourt, Vice President of Investor Relations. Susan, please go ahead.

Thank you operator. Good morning and welcome to our second quarter 2022 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. There are many factors that may cause future results to differ materially from these statements, which are discussed in our most recent 10-K and 10-Q filed with the SEC. Reconciliations between GAAP and non-GAAP financial measures can be found on our website along with the presentation. Joining me this morning are Andrés Gluski, our President and Chief Executive Officer; Steve Coughlin, our Chief Financial Officer; and other senior members of our management team. With that, I will turn the call over to Andrés. Andrés Gluski: Good morning everyone and thank you for joining our second quarter 2022 financial review call. As you have seen from our earnings release, we reported second quarter adjusted EPS of $0.34, which was in line with our expectations and consistent with our historical quarterly earnings profile. Our CFO, Steve Coughlin will discuss our financial results in more detail. Based on our year-to-date results and outlook for the second half of the year, we are reaffirming our 2022 guidance and our expectation for annualized growth in adjusted EPS and parent free cash flow of 7% to 9% through 2025. I would also note that our guidance and expectations do not include any benefit from proposed US climate legislation, which we see as a meaningful source of potential upside as it would drive additional demand for renewables and energy storage and accelerate the development of green hydrogen projects in the US. This morning I will discuss our strategy in the context of two broad themes. First, our resilience to macroeconomic volatility including high inflation, high commodity prices, fluctuations in foreign…

Thank you, Andrés and good morning, everyone. Today I will discuss our second quarter results 2022 parent capital allocation and 2022 guidance. Turning to our financial results for the quarter beginning on Slide 12. I'm pleased to share that we had a good second quarter in line with our expectations which keeps us well on track for our full year guidance. Adjusted EPS was $0.34 versus $0.31 last year, driven by growth in our core business segments higher margins primarily at AES Andes and a lower adjusted tax rate. These positive contributions were partially offset by the higher share count as a result of the accounting adjustment we made for our equity units, higher parent interest expense related to growth funding and onetime outages at select thermal businesses. These outages were primarily driven by turbine manufacturer component defects and the plants impacted are now all back online. There are two additional points I would like to highlight from the second quarter. First, we successfully closed several nonrecourse subsidiary financing, extending tenures at very attractive rates and expanding facilities that support our renewables growth. And second, our collections and days sales outstanding in all of our businesses remain strong reflecting our predominantly investment-grade rated customer base. Turning to side 13. Adjusted pre-tax contribution or PTC was $304 million for the quarter, which was relatively flat year-over-year consistent with the drivers I just discussed. I'll cover the performance of our strategic business units or SBUs in more detail over the next four slides beginning on slide 14. In the US in Utilities SBU, lower PTC was driven primarily by outages at Southland and AES Indiana as well as lower contributions from AES Clean Energy due to increased investment in renewables development. Contributions from new clean energy project commissionings will be more skewed…

Thank you. [Operator Instructions] Our next question comes from Insoo Kim from Goldman Sachs. Insoo, your line is open.

Thank you. First question starting off with the IRA bill. Thank you for the comments on potential upside and all that stuff. I guess, are you inferring that if this bill does pass as proposed that you could potentially see upside to your 7% to 9% EPS growth over the next few years on a CAGR basis? Andrés Gluski: Yes. Good morning Insoo. Look what we're saying is that there is a number of very good opportunities, which would be certainly made more likely by the IRA bill. And one of them for example is green hydrogen in the US. We'd also expect greater demand from utilities and corporate customers as well. So it's generally. So rather than say we're going to exceed that it certainly would push us towards the higher end if these come true. So that's how I would think about it.

Okay. And you think at that higher end there's enough visibility of that if the component of the bill has passed? Andrés Gluski: Yes. I mean, I think there will be discrete projects potentially in green hydrogen. And also you would see it in the number of renewables that we signed in the US.

Got it. My second question on that consortium for domestic panel manufacturing on solar. How should we think about what that does for the projects that get those panels domestically from a cost perspective, and just any changes to the return profile for those projects that we should be considering? Andrés Gluski: Well, this starts in 2024. I would say that the major component is the security of supply. As we've seen this just this week, having a domestic manufacturing is very beneficial. You'll also see that Fluence came out with an announcement that they're going to manufacture their modules in Utah, here in the States. So, I'd say, look, it's large enough that it should be cost competitive and so this would be incorporated and we have to see what is the market clearing prices here in the US for solar projects. Now as we talked about in the past, most of our projects in the US are bilateral, negotiated with corporate clients. We're not just adding a generic clean kilowatt hours, we're you're also adding other features and more value for our customers. So, I think this will help us be more cost competitive. I think that -- but, the most important factor is that it will insulate us from any sort of trade restrictions in the future on the imports of solar panels from Asia. So that is the -- I think the main benefit.

Understood. Thank you so much. Andrés Gluski:

Thank you, Insoo. Our next question comes from David Arcaro from Morgan Stanley. David, you may ask your question.

Hi. Good morning. Thanks so much for taking my question. I was wondering on the pace of PPA signings here. What's the pace we should expect through the rest of the year? We've seen, I guess, a bit of a slowdown in the second quarter with the uncertainty around the tariff. But what's your confidence level right now in still achieving that 4.5 gigawatt to 5.5 gigawatt level by the end of the year? Andrés Gluski: Yes. Good morning, David. Great questions. As I had said on the prior call that we expected this to be more weighted towards the second half of the year, because of uncertainties that we continue to negotiate it with key clients, but there was a certain amount of price uncertainty that we had to have cleared and that has occurred. So, just as we speak right now, we expect to sign a another 500 megawatts roughly today and that would bring us up to 2.1 gigawatts. So, as of -- again, we expect sort of breaking news. We expect them to be signing as we speak. And if that occurs then we would be at 2.1 gigawatts, which is close to the half of the bottom range, but we do expect activity to pick up in the second half. So, we feel confident that we'll be in the range of 4.5 gigawatts to 5.5 gigawatts. These are lumpy. So, you noticed that this -- it's not like we're signing them in 50-megawatt increments. It had this occurred on day earlier, the information on the press release and our disclosure would have been different. So, we expect to sign this morning. And with that, we'd be at 2.1 gigawatts.

Got it. Okay. No, that's great to hear. It sounds like active dialogue going on obviously. And then, I just -- I wanted to touch on foreign exchange. We've seen some sizable moves in the foreign exchange rates. But are you seeing -- or any way you could quantify the potential kind of drag there is some impact on future years? And if efforts are kind of underway to look for offsets and to manage that any downside exposure there?

Yes, hey, this is Steve. So we are -- I think you're asking for the longer term, but we are very well hedged through 2023, even a little bit beyond. So actually -- we actually see some net upside frankly this year based on our hedge positions. The other thing to keep in mind is that, we're -- about 90% of our business is US dollar denominated. So where we're exposed is a limited set of businesses, its Argentina, its Brazil and Colombia. So it's basically a fairly small exposure. I think, in fact, in Brazil we've seen the real appreciate this year, so we've had some favorability there. So I would say, really, it's just we have to keep our eye on Argentina. We have ways to mitigate that. We have expenses in the country; have local debt in the country. So it's manageable within the guidance is how I would look at it. Andrés Gluski: Yes. I would add also that, part of that is Bulgaria.

Yes. Andrés Gluski: Which is euros.

Yes. Andrés Gluski: So if you look at between dollars and euros, you're probably getting to about 95%. So we're very much in strong currency. This is, again, a decade of work and with the great job that the finance team has done in shaping our portfolio, but also making sure that the new contracts we sign are primarily in dollars.

Got it. That’s helpful. Thanks so much. Andrés Gluski: Thank you.

Thank you, David. Our next question comes from Durgesh Chopra from Evercore. Durgesh, your line is open.

Hey, good morning, Steve and Andrés. Breaking news in the 500 megawatts. Can you -- is that what, with one customer? Congrats, by the way. Is that with one customer or is that multiple customers? Andrés Gluski: That is one transaction. That is one transaction.

Excellent. Congrats on that. Okay. So I wanted to kind of dig in a little bit on the alternative minimum tax and how do you think that impacts you and your business. I mean, I think, the last time we talked about it, the headwind was offset by credits. Maybe just talk to that. And then, Andrés, I'd love to get your views on this transferability concept that is introduced in the bill. How do you think that works?

Okay. So I'll take on the tax side, I guess. So, look, it is still somewhat early. The situation is still fluid and moving around. But based on what we know at this point, we don't see any material impact from the 15% global min tax in the near term. So we'll continue to look into the details and monitor it and we'll make a final assessment once the bill is finalized. If anything, it would be several years into the future and I would expect that we would have offsets and planning activities by that time. So basically, this is like a -- it's a parallel methodology. We already are subject to the GILTI tax regime. This is just another way of calculating to ensure you reach a minimum. Again, I don't expect and our taxing doesn't expect it to impact us over the next few years. Andrés Gluski: Yes. Regarding your question on transferability, this is being able to sell tax credits to third parties. We don't see like a major impact, but we see it as an additional tool in our cash management practices. So that's favorable.

Yes. I mean, it could impact the way tax equity partnerships are structured, could make it simpler perhaps. So we've got to see what all the rules are around the transferability first. But if anything it looks that it may make the financing structure simpler to manage and account for.

Got it, okay. I appreciate it certainly. So thank you for the discussion. Maybe just a really quick follow-up, Steve when you say several years out on the alternative minimum tax is that because of your U.S. businesses are not of that $1 billion threshold. Is that why it is, or when you say several years out, what does that mean?

Yeah. So there is a $1 billion test as you referred to. So I don't expect that we would meet that. And there's like a three-year I think averaging of that. I don't expect we would meet that for several years to come.

Got it. Thanks for the time guys.

Thank you.

Thank you. Our next question comes from Richard Sunderland from JPMorgan. Richard, your line is open.

Hi. Good morning. Thanks for the time today. Starting with the 2H walk, I see $0.08 from new renewables. I'm curious is that pretty locked in given your commentary around only two projects shifting into 2023? I guess, similarly on that front, the $0.08 of LNG utilities and other, can you break that down to the component uses and relative line of sight to the U.S. utilities portion you've given Ohio remains outstanding?

Yeah. So the $0.08 of renewables, yeah, I feel very good about both of these buckets frankly. So the renewables is both the growth in new projects as well as we do have some higher generation out of our hydro portfolio. As you recall last year was a poor hydro year. So that's in that bucket as well. And then, on the utilities and LNG side, as Andrés mentioned, we've had -- we've been really on the right side of things with the commodities this year. So LNG international prices are quite high. We have LNG position of course in our MCAC unit, specifically in Panama where we've had quite a wet year we've been able to not use that gas in Panama and redirect those cargoes and sell them on the international market. So there -- while that's not in the year-to-date, it is a year to go favorability. So that's a little over half I would say of that $0.08. We've got some additional utility growth baked in for the second half of the year. Those are the two primary components of that $0.08. And frankly, I see potential for even more upside. So that's -- and then, I think you asked about Ohio as well. So with Ohio where, -- as Andrés said in his comments, we don't yet have a decision. It's not something that we had a material contribution assumed from the new rates this year. So certainly we look forward to a decision continue to expect a constructive outcome. But it's not going to be a driver one way or the other for this year.

Understood, I appreciate the color there. And they're thinking broadly about the U.S. green hydrogen opportunity. How do you think this, ties in with the existing renewables platform? How could it expand I guess both the demand for new renewables and timing with some of the more complex structured products opportunities you capitalized on in the past two years?

Well, as we said in the past we are looking at partnerships with producers of hydrogen to actually get more integrated in the whole production chain. So, what's very interesting is that the problem of producing cheap green hydrogen is very much like supplying 24/7 100% green energy or carbon-free energy to data centers. So, we think we have a leg up here. So, we're working on this. If the legislation passes then it's very likely to move forward. So, that's what we've been waiting for. In the meantime in Chile we have a different project which obviously does not depend on this. And that would be much more to supply the local market. And we have done a very good job of decarbonizing the Chilean system and the mining sector in particular. So, we feel good about both of these and these would be significant projects. So, they would accelerate the growth of renewables because of the additional demand.

Understood. Very helpful. Just one final cleanup for me. The Southland outage what led to that and any inflation impact there?

Yes. So it was actually Southland and also it was the same root cause at Indiana. So, there are veins on the turbine compressor unit I understand. So, don't go to go into too much detail but they -- there's a failure of component related to manufacturing defect. And so those units both have replacements in Eagle Valley in Indiana and our Southland the New Southland combined cycles in the gas turbine. So, those have been replaced. They are both back online at this point.

Understood. Thank you for the time today.

Thank you.

Thank you. Our next question comes from Angie Storozynski from Seaport. Angie, your line is open.

Thank you. So, I wanted to go back to the Ohio rate case. I understand that it has no impact on the timing of the those decision on 2022, but it will have on 2023. I mean by all accounts it sounds like you will have to file an ESP. So, it might take time right to the final of the resolution? So, there should be an impact in 2023. And so in that context I mean can you -- I mean you mentioned that there is additional optionality around the LNG cargoes that could impact 2023. So, is it fair to assume that any impact by the shifting of the LNG cargoes also in 2023?

I mean it certainly could be. We're not necessarily attributing one as an offset to the other Angie. So, the issue -- the staff had already come out and supported a rate increase. The issue at hand was whether because we've historically had this rate stability charge in place. It's been in place for about 20 years now whether the rate any new rates could be implemented while that charge is still in place. And so that's I think the fundamental issue on being evaluated by the commissioners. If in fact the rates are frozen, we'll move quickly to file a new ESP, and that will have new riders associated with it. And so it would be more of a delay than anything. So at that point, the current rate stability charge would stay in place, we would file a new ESP and we would then – and that the new rates would be implemented once that ESP has been approved. So that would take into the middle of next year to some delay. We're still optimistic based on our belief of the – our legal position here that the rate freeze is not necessary or not – should not be required that the outcome will be in our favor on that. But regardless, we see a path to what we included in our guidance just could be a delay, if we have to go down the path of the rate freeze, as I described to get that ESP filed. Andrés Gluski: And Angie, maybe to describe a little bit the opportunity in Panama. We have hydro, but we also have the LNG re-gasification terminal being at Henry Hub prices. Of course, Henry Hub prices plus transportation liquefaction re-gasification. But nonetheless, it's kind of a one-sided bet, because we have enough cash to fulfill our contracts, but we had the opportunity, if there is a lot of water a lot of water in the reservoirs to not burn, and therefore ship those cargoes to international customers at obviously the international rates. So there's a very interesting arbitrage opportunity there. So it's a one-sided bet. If it stops raining, or if the reservoir levels fall then we'll just consume the gas and fulfill our contracts.

And how sort of, are you going to know that? So in a sense, I mean, it's hard to predict hydro conditions, but I mean, is it a bit like a rainy season by some months? Andrés Gluski: Yeah. So look, it's been raining a lot. So the rainy season has started. The reservoirs are full and that's why we're able to make these sell gas to international customers and get that arbitrage. What I'm referring to more really would be 2023 do these conditions persist, or does say 2023 start off being a very dry year. So for 2022, we're locked in. It's really a question of will this opportunity repeat in 2023.

Okay. Okay. So moving on to the other inflation bill, so I understand, the comments you made about green hydrogen and energy storage. But when you actually listen to smaller developers they are also talking about maybe installing – adding solar PV to existing sites of conventional power assets, retrofitting existing assets with storage facilities. I mean, some changes in repowering of wind farms. I mean, there are some I would say secondary benefits from that bill, which could also benefit your portfolio. I guess it depends on the age of your contracts, and how heavy they are in the money. But could you talk about again benefits or additional benefits that this bill could add to your existing portfolio? Andrés Gluski: Yeah. Well, of course, I think it helps repowering and add-ons. What we have to see is that, we already have contracts in these places. And so the question is, do we negotiate an additional contract from that location based on – we've done repowering already we're starting to – we've been repowering units in California at Mountain View, and also we plan to do some in Maryland at Laurel Mountain. So this helps those to happen, and you're right. It does -- one does have to look at what you have existing and what additional opportunities there, but since we are on the renewable side pretty much fully contracted then the question would be that additional energy do you -- is there an adder that you could add to the same client to keep it simple, or what are the opportunities there? But you're right, this is an upside that's smaller so we haven't talked that much about it.

Okay. And lastly, I mean, we saw these media reports about Vietnam and offshore wind. I mean, I don't think that I've ever imagined yet and offshore winds in the same sentence. So could you talk about that opportunity? Andrés Gluski: Sure. You noticed it was in our press release. First, so I'd say, look this is a -- we're in Vietnam. We're helping the Vietnamese come up with a plan to decarbonize their grid. So we do have the LNG terminal project there. And we are -- have been talking about bringing in energy storage and other renewables. So, to eliminate the need for additional coal plants. So at this point, I'd say, this was more sort of an exploratory issue. We will be very disciplined and committed to all the goals that we've given 50% US, 50% renewables. Now whenever we get into a new technology, we'd obviously have to partner with somebody. So we haven't done any offshore wind, because it didn't make sense economically. The markets we're in like the US, there's still plenty of land and it just really wasn't cost competitive. But we have nothing, let's say, against the technology itself. But of course, we would have to partner with somebody who has a long experience. And so we're not going to get into a new technology in a large scale on our own at this time. And so this was -- again, this is not an announcement from us and what we guarantee is we're going to stick to the exact goals that we have given you.

Great. Thank you. Andrés Gluski: Thank you.

Thank you, Angie. Our next question comes from Julien Dumoulin-Smith from Bank of America. Julien, your line is open.

Hi. Good morning. It's Paul Zimbardo sitting in this busy morning. Thanks a lot. Andrés Gluski: Good morning.

I wanted to check in. I believe the last long-term guidance you gave for AES Next was breakeven net income by the end of the plan in 2025. That's still a good assumption? And how could that evolve under the Inflation Reduction Act?

Yes. Actually, it was 2024, Paul, that I said that. So look Fluence is the largest component of Next. So I can't go into detail, they'll have their call soon and we'll talk about their performance. But they've been executing on a number of things lately. As Andrés talked about, they are launching their Utah manufacturing facility. They're diversifying their battery supply base. So, we fully expect based on what they've guided to which is that they'll be bottom line neutral by 2024. That's very consistent with what we've included in our guidance as well. And so I would say, they'll talk about their progress, but we feel good about both. But Fluence is doing as well as the levers that AES has regardless of what happens with Fluence that that portfolio will be neutral and then growing from there. Andrés Gluski: And maybe speak a little bit about the other components like Uplight. As you know, they did the deal with Schneider Electric. So they now have a much, let's say wider product offering and very strong strategic partner in Schneider. And then you have 5B, which is the producer of Maverick the prefab solar. We're seeing a lot of interest in Maverick, where you have the first large-scale projects being completed in Chile. We have big projects in Puerto Rico. And we've already done a small project in Panama. So what's very important about this project is – this product is that it's hurricane wind resistant. So we're seeing a lot of interest in all sort of hurricane built of the Caribbean for this product. And there's also been a change of government in Australia. This is an Australian company. So they have very large projects in Australia, which were looking very favorably and that's the sort of hometown [indiscernible]. So we feel good about that as well. So overall we feel that AES Next is fulfilling its mission of really giving us the leading-edge technologies and giving us the opportunity to be the first to roll them out.

Okay. Great. Thank you. And then just separately could you please elaborate a little bit on the recent California legislation, how that would impact either extending, increasing or both the cash flows from the gas assets you have there?

Yes. No we feel very optimistic. So we have – as I talked about previously, we've only included Southland legacy businesses, you've got Alamitos Huntington Beach and Redondo through 2023. So it may not be all three plants, but I would say probably at least two that we would expect to be extended possibly for several years. So the formal process I would expect in terms of permitting the ones through cooling permits that are needed, et cetera will likely kick off here in the next one to two months. And then that will run into the first say half of next year through the first half of next year. As we've done in the past, when we've been facing a potential extension, we've looked to do where we've executed contingent capacity contracts, continued upon the permitting and all that coming forward – going forward. So we'll start looking at commercial opportunities for the extensions, once the formal process gets underway in the state. And so we'll have more certainty next year but I would say, we're all very optimistic here that given the fundamentals of the California system and the droughts in the Southwest of the US but that additional peak capacity is going to be needed for several years to come. And so we feel we're in a good position to provide that and that will provide some upside to our plan.

Great. Thank you, Coughlin.

Thank you, Paul

Thank you. Our next question comes from David Peters from Wolfe Research. David, your line is open.

Yes. Hey, good morning, everyone. Andrés, I was just wondering if you could comment, specifically with respect to the US, LPA. We've heard from some companies here recently that they're seeing issues with panels being stopped recently at the border. Just wondering if you all are seeing this at all and if not kind of what you're doing differently I guess. Andrés Gluski: Yes. The Uyghur Forced Labor Prevention Act, we have not seen any of our panel imports stopped by -- excuse me. As you know we've been on top of this matter for a long time, the polysilicon -- first the panels that we import to the US, come from Southeast Asia ASEAN countries. And we have asked the manufacturers to make sure that there's nothing that comes from Western China, that could be allegedly using forced labor. Polysilicon, the plan is that we're starting to use polysilicon coming from Korea. And that China would be the more likely place, where you -- there could be allegations of forced labor. But as you know the making of the wafers themselves, 95% of that today is still occurring in China. So we have to move that supply chain out of China, but it's going to take some time. But the short answer is no, we haven't seen anything and we believe our suppliers are the best place not to have any issues and documentations and we've been working with them, for a long time now. So this is nothing new, but we have to just see how this develops. So we don't expect any major issues.

Great. And then just one other one on the asset sale target being at the low end, and I guess you're expecting a little less dilution this year, as a result too. Can you just give a little bit more of an update on the processes in Vietnam and Jordan? And just when are those expected to close I guess? Andrés Gluski: Yes. Look, what's basically have, at least have to do with government approval. So we've agreed with our counterpart. It's not a question of price. It's just a question that the government -- well in the case of Vietnam, it's been the government's approval, of the new operator of the plant. And so that's taken some time for them to get comfortable with it. That's why it's dragged on. But we do expect resolution, by the end of this year. And the other case, I think you mentioned is Jordan, and that really has to do with some of the lenders including the US government signing off the loans, to the new buyers. So these have been really just bureaucratic issues, but the sale price, the buyer, the conditions have all been agreed to and it has taken longer than we expected.

Yes. Yes. And that's the majority of the $500 million. So we feel good, as Andrés said, we'll get there on those by the end of this year. And then, we have been working on additional sales and sell-downs of primarily thermal businesses. So as we work towards those and the timing around those, some variability, it looks like some of that may happen in say the first half of 2023, which is why we said, let's focus on $500 million this year, the remaining of the $500 million to $700 million will come in through next year. And then we have the full $1 billion target, we feel well on track for. So, it's just a matter of some timing expectations around, what we're doing in the next say 12 months or so.

Okay. Thank you, guys. Andrés Gluski: Thank you.

Thank you. We have no further questions. Therefore, I would like to hand back to Susan Harcourt, for any closing remarks. Susan, please go ahead.

We thank everybody for joining us on today's call. As always, the IR team will be available to answer any follow-up questions, you may have. Thank you and have a nice day.

Thank you. Ladies and gentlemen this is today's conference call. Thank you for being with us today. Have a lovely day ahead. You may disconnect your lines now.