Executives: Ahmed Pasha - VP, IR Andrés Gluski - President and CEO Tom O'Flynn -

CFO
Analysts: Ali Agha - SunTrust Julien Dumoulin-Smith - UBS Chris Turnure - JP Morgan Angie Storozynski - Macquarie Steven Fleishman - Wolfe Research Brian Chin - Bank of America Lasan Johong - Auvila Research Charles Fishman -

Morningstar
Operator: Welcome to the AES First Quarter 2016 Financial Review Conference Call. [Operator Instructions] I would now like to turn the conference over to Ahmed Pasha, Vice President of Investor Relations. Please go ahead, sir.

Ahmed Pasha: Thank you, Dan. Good morning and welcome to our first quarter 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 Gluski: Thanks you, Ahmed. Good morning, everyone and thank you for joining our first quarter financial review call. Today, I will discuss our first quarter results and provide updates on our progress and our strategic objectives, macro conditions in our markets, and construction and development program. Since our last call in late February, we have achieved a number of key objectives for 2016.

We received payment of all outstanding receivables in Bulgaria. We are on track to achieve our three-year $150 million cost reduction and revenue enhancement goals. We saw improvements in our credit ratings and outlook from the rating agencies. Our $7.5 billion construction program is advancing on schedule and will be the major contributor to our cash and earnings growth over the next three years. We continue to leverage our existing business platforms by advancing projects with long-term contracts denominated in U.S.

dollars. During the first quarter, we achieved significant milestones on three new projects, which will contribute to our growth after 2018. I’ll discuss these achievements in more detail in the movement. But I would like to summarize our financial results on slide four. In the first quarter, we generated proportional free cash flow of $253 million, in line with last year.

The recent collection of $350 million in Bulgaria will be reflected in our second quarter cash flow. Our first quarter adjusted EPS was $0.13, which is considerably lower than the $0.25, we earned last year. Our first quarter operating performance was impacted by adverse movements in FX, lower power prices in the U.S. and the expiration of the power purchase agreement at Tietê in Brazil. Our earnings performance was also driven by a tax rate of 50% for the first quarter, which is really a timing issue.

We continue to expect a 31% to 33% tax rate for the full year. In terms of our outlook for the full year, we’re reaffirming our guidance on all financial metrics. Nonetheless, we expect our first half adjusted EPS to be relatively weak, due to the continuing impact from the factors I just mentioned and scheduled major maintenance in the second quarter. Now, I’ll turn to our strategic accomplishments since our last call. As you can see on slide five, we have successfully resolved the outstanding receivables issue at Maritza in Bulgaria.

Maritza’s sole customer, the National Electricity Company, or NEK has fallen significantly behind on its payments. In April, we received full payment of the outstanding receivables of $350 million. This is a direct result of the steps taken by the government of Bulgaria to strengthen the financial position of NEK and the long-term sustainability of the energy sector. By meeting all of its contractual obligations, Bulgaria is sending a very positive signal to all foreign investors. Currently, Maritza is providing critically needed power to the Bulgarian electric grid, and we have been collecting in a timely manner, since December 2015.

Turning now to slide six and our cost savings and revenue enhancement initiative. Our goal is to achieve a run rate of $150 million per year in bottom line improvement. We are on track to achieve our $50 million goal for 2016 and the additional $100 million to 2018. These bottom line benefits are largely driven by global procurement efforts, moving back office functions to lower cost service centers in Argentina and Bulgaria, and continued improvement in our performance of our plants. Now turning to slide seven, I’ll discuss macro conditions in our markets.

First, the impact from hydrology in Latin America should be negligible this year. While cumulative rainfall remains below average in Panama, it is generally improved in the rest of Latin America. Regarding Panama, spot prices have fallen significantly, as a result of the barge based power plant we commissioned there last year, which reduced the effects of low rainfall on our contracted hydro plants. Second, economic conditions in our markets are generally in line with prior expectations, except for Brazil, which is experiencing a deepening recession. At our distribution businesses in Brazil, we are announcing a second consecutive year of 5% decline in demand.

While in the U.S. demand is essentially flat, in most of our other markets we continue to see energy demand growth in the range of 4% to 10%. Moving on to slide eight, we are focusing our investment efforts on platform expansion projects with long-term contracts and U.S. dollar denominated revenues. We see a significant opportunity to take a leading role in the distribution and storage of LNG in Central America and the Caribbean.

Turning to slide nine, let us review our major new projects. During the quarter, we started construction on the 335-megawatt Masinloc expansion to take advantage of robust growth in the Philippines and our existing infrastructure. The new unit, Masinloc 2 will be one of the most competitive thermal plants in the country employing highly efficient and flexible super critical technology. The $740 million project will be funded by a combination of non-recourse financing, partner equity and cash generated at the Masinloc 1 for facility. Moving on to slide 10, I am pleased to report that we have achieved a number of milestones on our Colon project in Panama.

This project encompasses both, 380-megawatt combined cycle plant or CCGT and an adjacent LNG regasification terminal and storage facility. The CCGT is contracted under 10-year U.S. dollars denominated PPA. The LNG facility will have an 180,000 cubic-meter tank, which is sufficient to handle 80 Tera Btu annually. Our CCGT will use about 1 quarter of the tank’s capacity leaving substantial unused capacity to meet the needs of additional power plants for downstream customers.

The Colon project seeks to replicate the success of our LNG facilities in the Dominican Republic, which provides gas to our adjacent power plant, another power plant via pipeline and to numerous downstream customers in the transportation and industrial sectors. The Colon project is strategically located near the entrance of Panama Canal and will be able to offer bunkering to the maritime industry as it starts to use natural gas as a fuel. There are many commercial synergies between the LNG terminal in the Dominican Republic and Panama. And with both facilities in service, we will become the largest provider of LNG regasification and storage services in Central America and the Caribbean. All the Colon projects permits are in place, and we have selected the EPC contractor.

Project financing for approximately 60% of the project cost is well underway. AES’s equity is expected to be around $200 million, which we will fund over the construction period. The project is expected to close in the second quarter of 2016 with completion of the power plant in 2018 and the LNG facility in 2019. As we can see on slide 11, the repowering of Southland in California is another example of a large project that will contribute to our growth beyond 2018. As a reminder, we were awarded a 20-year PPA by Southern California Edison for 1,384 megawatts of capacity, which includes 100 megawatts of energy storage and 1,284 megawatts of combined cycle gas capacity.

Since our last call, we have signed turbine supply agreement and EPC contracts to build the CCGT. We are making good progress on the remaining regulatory approval and expect to break ground in 2017 with completions in 2020. We anticipate funding the $2 billion total project cost with a combination of non-recourse debt and $500 million in equity from AES and a possible financial partner. Turning to slide 12, we remain optimistic on the future battery-based energy storage and our leadership position in this market. We currently have 116 megawatts of energy storage projects in operations across four countries and expect to install another 50 megawatts this year.

Additionally, we have another 228 megawatts in advanced stage development, including the 100 megawatts under contract in California. By 2017, we expect to be operating in seven countries, adding India, the Philippines, and the Dominican Republic to the four countries where we already operate, the U.S., the UK, the Netherland and Chile. We see growth in our energy storage business through

two paths: AES owned projects, such as the previously discussed 100 megawatts with a PPA with Southern California Edison; and sales of our Advancion energy storage solutions by AES and our channel partners. These sales will target utilities and other large energy storage customers. First, regarding long-term contracts, we see significant potential in many of our markets including the U.S., the UK, the Philippines and Mexico.

We continue to work with local regulators to facilitate the development of market structures that enable new investments in battery-based energy storage. Second, over the past eight years, we have learned a tremendous amount about how to integrate the various components to create a proprietary battery-based energy storage solution, which we have named Advancion. To promote Advancion sales in many more markets, we have executed channel partner agreements with Mitsubishi for sales in Asia and with Eaton for sales in Europe, the Middle East and Africa. We are in discussions with other potential partners to sell Advancion in additional markets. Although battery-based energy storage is still early on its private cycle, we believe that Advancion presents an interesting opportunity for upside in our cash and earnings forecast.

Turning now to our projects under construction on slide 13. Our ongoing construction program is a most significant driver of our growth over the next few years. We expect to commission 6 gigawatts of new capacity from projects currently under construction through the first half of 2019. As a remainder, total capital expenditure for this project is $7.5 billion. However, by using financial partners, AES's equity commitment is reduced to $1.3 billion.

AES's equity commitment all but $160 million has already been funded. As you can see on slide 13, roughly 74% of our investments are in Americas, and of this, a maturity is in the U.S. and Chile. We expect an average return on equity from these projects of approximately 15%. About 3-gigawatt representing half of the capacity currently under construction are 90% complete and our on track to come on line, on time and on budget this year.

In 2017, we plan to commission an additional 670 megawatts of capacity in the U.S. and 112 megawatts in the Dominican Republic. We have completed about 70% of the work on these two projects, and we also expect them to come on line, on time and on budget. The remaining three major projects now under construction, Masinloc 2, OPGC 2, and Alto Maipo all projected to come on line in late 2018 and early 2019. This construction program will drive visible and attractive growth in both free cash flow and earnings.

As you can see on slide 14, we expect at least 10% annual growth in proportional free cash flow through 2018, which will support our 10% annual growth in dividend, continued deleveraging of the parent and subsidiaries and investments in attractive platform expansions. Turning now to slide 15, we also see robust growth in earnings through 2018. From 2016 to 2018, we expect an attractive growth rate of 12% to 16% in our adjusted EPS. Approximately 5% of this annual growth rate is driven by cost reductions and revenue enhancements. Another 8% to10% of expected growth is driven by the 2.4 gigawatts of construction projects coming on line in 2017 and 2018.

Based on our strong market position in attractive high growth markets, we are optimistic about our ability to drive growth beyond 2018. The three projects I just discussed, Masinloc 2; Colon; and Southland will come fully on line after 2018. With that I’ll turn the call over to Tom to discuss our first quarter results, capital allocation, and full year guidance in more detail. Tom O'Flynn: Thanks Andrés. Good morning, everyone.

Today, I'll review our first quarter results including adjusted EPS, proportional free cash flow, and adjusted pre-tax contribution or PTC by strategic business unit or SBU, and I'll cover our 2016 capital allocation, as well as our 2016 guidance. Turning to slide 17, first quarter adjusted EPS of $0.13 was $0.12 lower than 2015. Much of this decline was driven by factors incorporated into our full guidance, certain exceptions, primarily the decline in power markets in the U.S. as well as lower demand in Brazil. Specifically our results reflect the $0.04 impact from a significantly higher quarterly tax rate of 50% in 2016 versus 33% in ‘15.

This was mostly driven by the timing of certain tax expenses, the largest of which was the enactment of income tax reforms in Chile. We do expect the rate to recover during the year to full year tax rate of 31% to 33%. Next, the $0.04 impact from devaluation of foreign currency is expected primarily in Latin America and Europe. And also $0.05 lower contributions from SUBs mainly due to anticipated drivers such as the expiration of Tietê’s PPA with Eletropaulo. In addition to the drivers included in our expectations, we also saw some softness in power markets and mild weather in the U.S.

That being said, we’ve seen some recovery in prices in the last month, which will contribute to our stronger second half of the year and helps give us comfort in our full year outlook. Now on slide 18, our overall results were primarily driven by lower margins in our Brazil, Europe and U.S. SBUs due to factors I just mentioned. Generated $253 million in proportional free cash flow, a modest decrease of $12 million from last year reflecting lower margins, mostly offset by higher collections at our Brazil utilities and lower working capital requirements in Vietnam. We also earned $172 million in adjusted PTC during the quarter, a decrease of $80 million.

Now, I’ll cover our SBUs in more detail over the next six slides, beginning on slide 19. In the U.S., our results reflect lower margins at DPL, due to lower wholesale prices and lower contributions from regulated customers; lower contributions from IPL due to mild weather and the partial sell-down and the sale of our Armenia Mountain wind project. Proportional free cash flow also reflects unfavorable working capital changes at IPL. In Andes, our results reflect the 40% devaluation of the Argentine peso, 24% deval of the Colombian peso and lower volumes at Chivor in Colombia. Proportional free cash flow was also impacted by higher tax payments in Chile.

PTC also reflects lower equity in earnings at Guacolda in Chile. In Brazil, our results reflect lower margins to the expiration of Tietê’s PPA with Eletropaulo in 2015; lower demand at Sul and Eletropaulo and the 26% devaluation of the Brazilian real. Proportional free cash flow also reflects higher collections at Sul and Eletropaulo, as well as a favorable timing of energy purchases at Tietê. Mexico, Central America and the Caribbean, our results reflect modestly lower margins. Proportional free cash flow largely reflects higher than normal collections in the Dominican Republic in 2015.

In Europe, our results reflect lower margins due to the 48% devaluation of the Kazakhstan Tenge and lower dark spreads at Kilroot in the UK. Proportional free cash flow also reflects the timing of payments to the fuel supplier at Maritza in Bulgaria and the unfavorable timing of working capital and tax payments in the UK. Finally, in Asia, our results benefited from higher margins and lower build up of working capital, as a result of start up operations at Mong Duong in Vietnam in April of 2015. Turning to slide 25, I’ll now provide an update on a regulatory filing at DPL and Ohio. As you may recall, in February, DPL filed its electric security plan.

Since that time, there have been challenges to regulation in Ohio. We saw the potential for similar arguments to impact the structure of other utilities proposals pending before the Public Utilities Commission of Ohio. Consequently, when we filed our plan, we included an alternative proposal that provided an option for the PUCO to approve a non-bypassable charge structured in the same way as the one approved in our existing ESP. We believe that this alternative falls under PUCO’s authority and also achieves the policy goals set out by the Commission. We continue to believe this alternative provides a viable path forward for DPL and Ohio and that Commission is seeking for reasonable resolution matter before the end of this year.

Turning now to our 2016 capital allocation on slide 26. Sources on left hand side continue to reflect $1.1 billion of total available discretionary cash, which includes $575 million in parent free cash flow and announced asset sales. We remain confident in our 2016 parent free cash flow range of $525 million to $625 million, which is the foundation of our discretionary cash available for dividend growth and value creation. Turning to uses on the right hand side of the slide, consistent with our capital allocation plan that we showed during our last call. The 10% growth in our dividend and share repurchases year-to-date, were returning at least a third of this cash to share holders.

Going forward, we see our dividend as the primary means to distribute cash to shareholders. Stock repurchases should be less material, absent proceeds from additional asset sales and partnerships. Regarding debt reduction, we’re making good progress on our $200 million target for the year, in our longer term goal of parent credit improvement. In fact, year-to-date, we’ve prepaid a $125 million parent debt. Taking advantage of weak market conditions early in the quarter, we were able to buy this debt at a 7% discount.

We’re also seeing positive momentum on the ratings front. In March, Moody’s changed our parent credit outlook from stable to positive; and in April, S&P upgraded our ratings from BB minus to BB. These actions reflect our continued efforts to derisk our portfolio and improve our credit metrics. We think that continuing to strengthen our credit will help us get better recognition and valuation for a growing cash flow and dividend. This positive credit trend along with an overall mark improvement has allowed us to continue to be opportunistic regarding refinancing and extending maturities.

To that end, last week, we extended our $800 million parent revolver maturity from 2018 to 2021. Also last week on the non-recourse side, our business in the Dominican Republic was able to replace a short-term financing with a new $370 million, 10-year bond at more favorable terms. We’ve also earmarked $330 million for investments in our subsidiaries, about a third of which is for our Colon project in Panama at Southland in California, coming on line after 2018. Finally, after considering these in our subs, our current dividend and debt prepayment, were left with roughly $150 million discretionary cash, which we’ll invest consistent with our capital allocation framework. As in years past, much of this cash is weighted towards the latter part of the year.

Now to slide 27, we are reaffirming our guidance and 2017-18 expectations for all metrics, based on foreign currency and commodity forward curves as of April 30th. We continue to generate strong proportional free cash flow, which will be relatively evenly distributed in the first and second half of the year. And with the settlement of all outstanding receivables at Maritza, we expect our first half proportional free cash flow to be well ahead of last year’s. Regarding adjusted EPS, consistent with the first quarter, we also except the second quarter to be lower than normal. In fact, we are forecasting that 70% to 75% of our 2016 adjusted EPS to be recorded in the second half of 2016 versus about 60% in past years.

There are few reasons that our results will be strong in the second half than first half. First, we expect a lower tax rate in the next few quarters. In any given year, there are certain items that influence quarterly rate tend to normalize on a full year basis. As I mentioned earlier, in the first quarter, we recognized a higher than usual tax expense, which when combined with relatively low first quarter earnings and at an outsized impact on our tax rate for the quarter. This tax expense was anticipated in our guidance and accordingly, we continue to expect a 31% to 33% tax rate in 2016.

Second, the higher concentration of scheduled maintenance in the first half of the year will position us for stronger performance in second half, for example, San Nicolas plant in Argentina will undergo plant major maintenance entire second quarter, as part of its regular maintenance cycle that occurs about every eight years. Few of our other plants have similar circumstances. Third, forward curves for FX and commodities reflect some improvement over the balance of the year, which will provide a benefit in second half. Fourth, this year’s $50 million cost reduction is more heavily weighted towards the second half. And lastly, we expect to benefit from a couple of items that we are working on to partially offset lower demand in Brazil and lower power prices in the U.S., be in a better position to discuss these later in the year.

With that I'll now turn it back over to Andrés.

Andrés Gluski: Thanks Tom. To summarize our views on this call, we continue to generate strong proportional free cash flow, which will be evenly distributed between the first and second half of the year. Although we expect our first half adjusted EPS to be relatively weak, many of the negative drivers will reverse in the second half and therefore we are reaffirming our guidance for all financial metrics. In terms of our strategic priorities, in the first few months of this year, we have made significant progress, including resolving the outstanding receivables issue in Bulgaria, receiving positive actions from the rating agencies resulting from our actions to de-risk the portfolio and de-lever the parent, reaffirming our double-digit growth through 2018 in both cash flow and earnings, driven by a largely funded construction program and $150 million in cost savings and revenue enhancements, and achieving significant milestones on three new projects in our development pipeline, to drive growth beyond 2018.

I am optimistic about the future of AES. We are delivering strong and growing free cash flow, which we will continue to use to maximize risk-adjusted returns for our shareholders. The 6 gigawatts we currently have under construction is the largest driver of our expected growth of at least 10% in free cash flow through 2018. Beyond 2018, we are well-positioned to capture new opportunities due to our strong business platforms in attractive and growing market, and our leadership position in deploying new technologies. Now, I'd like open up the call for questions.

Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Ali Agha of SunTrust. Please go ahead.

Ali Agha: The first question, Tom, you alluded to the fact that while the tax rate and FX drivers in the first quarter were pretty much on plan, the U.S. and Brazil results were somewhat below plan.

Could quantify how much below plan from an earnings perspective Q1 ended up?
Tom O'Flynn: Yes. I think if you single out those two, it’s probably $0.03 to $0.04 probably split between them, probably about $0.04 equally split.

Ali Agha: And you alluded to some offsets in the second half; would they be cost reduction related initiatives or what would be offsetting them in the second half?
Tom O'Flynn: Truly list that one through recently cost reductions, a part of the $50 million we are expecting to get as part of our savings plan is more heavily weighted, but truly all the things.

Ali Agha: I was talking about that last bucket line, which you had mentioned in those lists of things which were not really listed in more detail, you said more to come on that. Tom O'Flynn: Yes, those will likely be in the second half, the things that -- two things of particular that we are working on to offset these issues and certainly not appropriate to give a lot of color on it, at this point, which I appreciate, people like get more color but we expect to give more color as they materialize in the second half of the year.

Ali Agha: Yes. Separately, where do we stand on the Sul, transaction and what's the timing we should be expecting on that?

Andrés Gluski: As we said last time, we injected $75 million into Sul, we restructured the debt, and we are looking at all options now for Sul. At this point, I really can't comment anymore about that.

Ali Agha: Okay. And lastly, on Ohio, Andrés, as you mentioned the non-bypassable, you feel, keeps you out of the FERC review, but that still would keep the volatility of that business around.

The beauty of the PPA was that it would take volatility out. I am wondering, have you looked at some of the recent filings that some folks have gone back in to try to keep FERC out and yet also keep volatility out or those would be of interest to you? And separately, if non-bypassable is the only way to go here, would you come back to the notion of potentially selling those assets again to get out of the commodity-exposed business there?

Andrés Gluski: I would say that, again, we believe that our proposal avoided some of the issues raised by the PPAs. We continue to feel that that’s the correct path to go and we feel optimistic. We feel it's in everybody's interest. So, at this point what we would like to do is we continue to go with that path.

And you are correct that there is a certain amount of volatility due to the on contract nature of the generation assets at DP&L, [ph] which is separate from that. But we have to -- especially if we get the non-liability rider, we have to think of it as an integrated business at that point.

Ali Agha: But these other filings that I think FE and others may have made in response, would any of those be of interest to you?

Ahmed Pasha: Yes, Ali, what we have filed is not much different, what they have filed as a new case, if you wish, because we filed is not -- if you look at our plan A, which is not much different what FE has recently filed.

Ali Agha: Okay, we would talk more of that offline. Thank you.

Operator: And our next question comes from Julien Dumoulin-Smith of UBS. Please go ahead. Julien Dumoulin-Smith: Perhaps, just starting where Ali left off, can you remind us just what the benefit embedded in Ohio is of continuation of the ESP structure et cetera, or whatever structure ultimately is approved there in guidance?

Andrés Gluski: Given a wide range in our guidance I think, so what we have embedded in there I think is a reasonable amount going forward. But as we say, we do have somewhat of a wide range to this. And that’s -- I don’t Tom, would you like to add anything to that?
Tom O'Flynn: I think, Julien we have said before, we’re obviously in the middle of our filing and working through it.

So, we are careful about too much detail here. But I think we said before we have got a 110 now on in our ESP. We have incorporated something and it will be less than that amount into our ‘17 and beyond numbers. But, it's still a meaningful number, but it's certainly less than what we currently get. Julien Dumoulin-Smith: And then turning to the Chilean tax rate change, obviously it's a first quarter item, but as you think about it more structurally, what is that impact in ‘17, ‘18 et cetera, just on an ongoing basis?
Tom O'Flynn: It's nothing.

We headed into our guidance; it was unclear when the final legislation would be final, final, so be recognized. So, it's about $0.03 to $0.04; we fully expected it in our guidance for ‘16. It's just happen to fall in the first quarter because this final, final in Chile. What is it, it’s revaluation deferred taxes, the tax rate goes up slightly; so, it's a modest revaluation of deferred taxes. It's similar to what we did two years ago, I believe, ‘14, I think it was Q3 of ‘14 as I recall.

It’s a similar deal. So, this is a second phase of that same legislation that came in shortly after President Bachelet took office. Julien Dumoulin-Smith: And then turning to the asset sales, obviously you were very active in the first quarter here; kind of hit your annual targets already. Can you comment more broadly, I forget talking about specifics like Sul, but ambitions to continue to pursue equity sale downs? And also if you think about the ratio of buyback versus asset sales proceeds, should we assume for the most part they’re going to be earnings neutral for the course of what you’ve announced already and then prospectively?

Andrés Gluski: We have announced in the past that we would be selling likely on average of $200 million to $300 million in equity proceeds to us of sale downs and getting out of certain businesses. And we continue.

I think we’ve quite frankly outperformed the numbers that we have given in the past. Now, we don’t comment on them. But, what we would be doing again is fine tuning our portfolio to have really sort of an optimal mix, optimal mix of risks and position. So, we will continue to do that. And in terms of what we do with the proceeds, we’ll continue to allocate them as we have in terms of a mix, whether it’d be new investments and debt pay downs.

And we’ll see what the circumstances are. As Tom said, I think it’s more of a -- we’ll have more of an emphasis on the growth of dividend than we’ve had in the past. Julien Dumoulin-Smith: Got it. But give that you’re at seemingly the midpoint of that 200 million, 300 million, you’re saying that you’ve outperformed, so you wouldn’t necessary rule out further asset sales clearly?

Andrés Gluski: No, absolutely not, absolutely not. Julien Dumoulin-Smith: And what is the earnings contribution loss from the asset sales seen thus far?

Andrés Gluski: We have in our forecast through 2018, we have modest decrease in earnings from those sales, because first you never can deploy the cash immediately, and it depends on the assets you’re selling, its risk profile, whether it’d be accretive or dilute.

Operator: And our next question comes from Chris Turnure of JP Morgan. Please go ahead.

Chris Turnure: I appreciate that you don’t want to give us too much detail on the Sul transaction or the potential of Sul transaction, but would you be able to give us, maybe the trailing 12-month EBITDA contribution from that business or PTC and then tell us how much debt is associated with that asset right now?
Tom O'Flynn: The PTC contribution from Sul is -- it’s modest, to be honest, it was a modest negative in the first quarter of the year. And last year, it was probably a couple of pennies of PTC, but it was -- right now, the way Sul is running, it’s a negative PTC. In terms of debt, we had -- it’s about $275, $300, around $300 under the exchange rates, roughly in my head when we paid it down, we got it down to about 275 in dollars.

Chris Turnure: The debt is in reis?
Tom O'Flynn: Yes, the debt in reis is obviously, I’m doing the math in dollars; but call it $275, $300; it’s all in reis, so call it then 1,100, 1,200.

Chris Turnure: And you’re done with the recapitalization of that asset as of now?
Tom O'Flynn: Yes, we put in 300 million reis, shortly after our last call paid down some debt, and we get covenants in that part of significant amount of time. Yes.

Chris Turnure: And then my second question is about kind of I guess 2019 and beyond. I’m wondering, one, when we would potentially get more color on earnings that year in cash flow that year, and kind of terms of your overall growth rate and what that would mean specifically? And then I also wanted to understand, within I guess that question, the contracting structure of some of your success here on the LNG side.

You have clearly at least in Panama one particular power plant where you have a 10-year contract. So, I guess I understand that. But, then how do you guys think about the risk and the structure of the actual importing of the LNG and the regas there and the selling of that to third parties?

Andrés Gluski: Okay. We tend to give our longer term forecast in February of -- so that will be in next year when we sort of move out an additional. What we wanted to do was give your color that our growth will continue post 2018 and fact that we have a good pipeline through 2020 that we recently added to.

So that was really the point of this call. Now, talking about the facility in Panama, Colon facility, so it has two parts, as you said, one the 380-megawatt combined cycle gas plant, with a ten year PPA with the credibility offtaker in dollars; and the second is a tank. And the tank, we’re using about a quarter of the capacity for this plant. This leads about three quarters. So, it’s really a question of tolling; we are not going to be taking commodity risk on this.

So, this could be tolling fuel for other power plants. We did this in the Dominican Republic, we’re using it. We’ve built a pipeline to the -- our own actually DPP facility and converted from diesel to natural gas. And we’re selling it there to the transportation and industrial sectors. So, what we would have in Panama is first to meet domestic demand; there are power plants nearby, the other power plants that will be built that will require natural gas, so that’s first use.

Transportation and industrial use would be second, following the model we had in Dominican Republic. And third which is very interesting is the ship bunkering. We would not be doing the bunkering; we would actually have somebody else do that, but they would use our storage and regas capacity. So, the way to think about this is you basically bring in large efficient, LNG tankers, you unload them in Panama and Dominican Republic and then you have various means of delivering gas to various kinds of customers or actually LNG as well. So, we do not plan to take any commodity per se on these transactions.

We’d be providing a service, regasification service, a bunkering service and a hub service. And between the two, this gives us a very attractive position to be able to service people who want services in Panama and the Dominican Republic.

Chris Turnure: That’s very clear. It sounds like this would be within your risk tolerance or your risk profile of contracted assets, kind of at least medium term in duration and beyond with no commodity risk?
Tom O'Flynn: Yes, that’s exactly right. And with some of the people who would be using these tanks, we would expect to have contracts as well, basically assuring a certain amount of capacity from our tanks.

Operator: And our next question comes from Angie Storozynski of Macquarie. Please go ahead.

Angie Storozynski: My first question is so, this Panama CCGT, you mentioned it's going to start operations in ‘18. Did you have it previously in your earnings expectations for ‘18; and if that's what's actually causing the guidance to move towards the high end, the percentage wise? That's one. And two, could you comment, if you have any earnings contributions for Sul and Eletropaulo in your guidance in ‘17 and ‘18?

Andrés Gluski: So, I'll take the first.

No, this was not in our guidance previously. Now, realize that the power plant will come on line late in ‘18, so really won't have any effect on ‘18, it’s really ‘19 forward. And the storage tank will become fully operational in ‘19. So, this is outside the window that we have given in the past. Regarding -- I think Tom can talk about the contributions of Sul and EP.

Tom O'Flynn: Yes, just to put a fine point, I think Sul has been running at loss and it’s been running at loss really since middle of last year. So, last year, it was down about 20 million to 25 million PTC and this year, we’re forecasting similar numbers. As we look at Sul, the earnings are -- we don’t have Sul in our forecast for ‘17, and inflection point for Sul will be their rate, the next rate case, rate adjustment mechanism, which is in spring of ‘18, that’s if we were to retain the business. In terms of Eletropaulo, the earnings were also very modest. We do have Eletropaulo, we do continue to have it in our business but its contributions are between $0.00 and $0.02, depending upon your forecast for Brazil.

So, it's fairly modest number.

Operator: And our next question comes from Steven Fleishman of Wolfe Research Please go ahead.

Steven Fleishman: Just a brief question on the Ohio plant. I know we had the FERC decision regarding the PPAs, but we also had a decision, not too long ago on AEP's ESP by the Supreme Court that kind of might arguably be comparable to the plans you filed, so do you have any thoughts in context of that decision?

Andrés Gluski: I thoughts are quite frankly, we see that our filing, we think has been the correct path to take and we think it's within the PUCO’s purview to grant because we think it's a very similar to what we currently have in the ESP. So for those reasons, we remain optimistic.

Steven Fleishman: And then just on the longer term drivers, you've given great visibility on the growth drivers and particularly new projects. Just to fill out the picture, are there any visible cliffs or roll offs over this period that we need to match against the growth projects or are those pretty much kind of done with at this point?

Andrés Gluski: I would say that the only one we have is really Southland, that’s where are repowering. That’s more in sort of 2020 timeframe that we have the roll ups. And I'd say that that’s basically -- and in DPL, we have the -- our application for 2017 would eliminate any such cliff at DPL. So, we have nothing else major out there.

Ahmed Pasha: Yes. Steven, this is Ahmed. Just on DPL, our PPA expired in ‘18 but we still operate the plant through 2020; and in 2021, our new plant comes on line -- Southland, sorry.

Andrés Gluski: This is Southland. So, that’s the only when have we are PPA expires, so we are going to repower the plant.

Operator: And our next question comes from Brian Chin of Bank of America. Please go ahead.

Brian Chin: A question for you on the batteries’ segment, which is one of the more unique aspects of the Company. You mentioned that you’re seeing growth through two paths. Of the 394 megawatts in operation construction or late development, is there a way you can break out between what AES owns versus build by AES or is that all AES owned projects you…

Andrés Gluski: Those are all AES owned projects.

So, we don’t have -- we are working very hard on these third-party sales. We have a lot of interest in projects we are working on, some with channel partners, some on our own. And we hope to be giving you news sometime within the next six months. This is in many cases -- we're quite frankly creating the market because we are talking with regulators to make sure that the regulations allow compensation for battery-based energy storage. So yes, that’s 100% our projects.

Brian Chin: And then, I know because the market structures are still under development, each project is sort of one-off situation. But, in terms of modeling this growth area, can you give us sort of rules of thumb about how to think about any modeling data points, for example like dollars per KW or return levels, just anything that we can use to try and get a little bit more specific on that?

Andrés Gluski: First, it’s the way we are looking at it. I mean -- and you are correct, I mean, in some cases, we are putting up relatively small projects, sort of 10 megawatts, 20 megawatts to open up a market. And a lot of the return we believe will come from third-party sales. Now, we also are seeing some markets that are more competitive, and you have basically very rapid build out energy-based storage.

And so returns come down. We have others, but we are looking at sort of long-term contracts. So, I think that the way we would look at the returns is that we would expect to earn on average the same as we earned in our other projects. We are not subsidizing this business. What will be new for us, quite frankly is the third-party sales, because there we don’t have to put in any equity; essentially, we are using our intellectual property rights and our experience and the brand name of Advancion.

So, it's a -- we have it quite frankly incorporated, the third-party sales, because we really want to get a good feel for what they will be like. But, with our channel partners, we are really casting a wide net. And we will see I think over the next 6 to 12 months much clear how big that business could get.

Operator: And our next question comes from Lasan Johong of Auvila Research. Please go ahead.

Lasan Johong: Thank you. Okay. So, Andrés, I want to ask Julien's question slightly different way. How long do you think AES to sustain this 12% to 16% growth rate beyond the ‘17, ‘18 expectations?
Tom O'Flynn: At this stage, it's a little bit -- we are not ready to provide, guide sort of four, five year guidance out. I mean obviously there is a lot factors there that would influence this; what are forward exchange rates going to be, what are commodity curves, energy prices.

But, what I think we feel very confident saying is we are not going to sort of run out of growth projects in 2018. We already have significant projects that will come on line 2019, 2020. And we continue to work on ways to accelerate that rate of growth. And part of it is our use of partnerships and our sell-down of assets to continue to turn capital into higher growth, higher return projects.

Lasan Johong: Well, is it at least fair to say that AES has now come out of the restructuring mode that’s gone on for about a decade and now we are back into the growth mode; is that at least a fair treatment?
Tom O'Flynn: I think in terms of cash flow and earnings, it's a fair statement.

That’s how we measure success, honestly; we not going to measure in terms of megawatts. And I think we are going to remain the very disciplined Company that we have been, certainly over the last five years. We are going to be very disciplined and make sure that again not fall into any sort of rapid growth for growth sake, I mean we really want to maximize. And I think one of the things we have shown is that we are willing to have less megawatts and less clients under operation, but have a better risk profile and a better growth profile. That’s really where we want to go.

Lasan Johong: Okay. Switching to Panama, is it fair to say you are looking at the source of LNG for the plant in Gulf of Mexico?
Tom O'Flynn: Yes. We have a contract through 2023 for gas from Trinidad for the Dominican Republic. In terms of the source of gas for our share, the 25% that we will be using, we have a contract with one of the big suppliers. They can source it wherever they feel best.

Probably some of it will come from the U.S. liquefaction facilities in the Gulf. And then when they are -- we feel at the tank and other people are utilizing it and they are taking the commodity risk, it's up to them where they will source it.

Lasan Johong: Okay. So, it's coming from [indiscernible] model and not directly from this plant?
Tom O'Flynn: That’s correct, unlike the case in Trinidad that we’ve seen, but it was very directed and it was coming from Trinidad at the point, or initially.

Now they have optionality.

Lasan Johong: Okay. A quick question on Brazil; there are very interesting assets, upper river of Paranapanema where AES's long said that controls that because it provides tremendous benefits, both in terms of cost as well as upgrades and development opportunities. It’s on for sale, any comments?

Andrés Gluski: I think that it’s true that Paranapanema which is owned by Duke in Tietê were once one company and was split in two. Having said that, what we’re looking at our complete portfolio, in terms of our risk profile.

We have right now a lot of Brazil hydro risk. So, this really isn’t, we think in our sweet spot at this point in time. And we also understand that they are going to sell the whole package together, of all the other assets. It’s a pretty big ticket and there are other assets that we’re not interested in. So, what I would say is that really at this point, it’s not something we are actively pursuing.

Lasan Johong: Last question on Brazil, Brazil’s been long in recession/mild depression for the last couple of years. Do you think the Olympics will help bring it back out of that mode and back to a more possible economic profile or do you think it’s need a political change to get that.

Andrés Gluski: I think that the Brazil is a much more diversified economy than perhaps it gets credit for. I mean as you look at the GDP of the state of São Paulo, it looks more like Belgium than it does to some of the Northeastern states of Brazil, so to realize that point. Now, I think that Brazil got itself into the some funk, some policy issues, not just commodity price drops.

So, the good thing is that they can work their way out of it. Our view is that they’ll probably take a couple of years at least for Brazil to get out of it. I don’t think that the Olympics will have any effect whatsoever. I think the key point.

Lasan Johong: Really?

Andrés Gluski: Yes, I really think that.

The key point for Brazil is, determine the political process; who is going to be the President within six months and what policies he will pursue; so, having said that, Brazil has a lot of strong points in its economy. So, if they get their political act together and take some tough structural changes, I’m sure, it will be back within five years, I feel very confident that Brazil will be -- can be a strong economy again.

Lasan Johong: I’m sorry but I have to ask one last question, which is if that’s the case, then Brazil sounds like it’s on a very fine line between great candidate for divestiture versus great candidate for expansion. AES has available -- slide BNDES, yet still owns a large chunk of everything that AES has a footprint in except for Sul. And there’s been a lot of talk about privatizing the BNDES’ interests.

Is that something that you want to pursue more aggressively, depending on the political situation or is this something that’s laid for a long time?

Andrés Gluski: We can’t speak for BNDES and what they decide to do with their assets. We did have the separation of our assets in Brazil to give us greater operating control in Tietê and greater capital structuring flexibility in general. So, we’ve done that. And I would say that, if you look at what we’ve done Brazil, we’ve certainly de-risked our self significantly, because we sold half of our holdings in Eletropaulo in 2006. We spun off the telco from Eletropaulo; sold that for $1 dollars.

So we feel that we’ll continue to manage Brazil sort of holistically and look at what are the fundamental exposures we have there.

Operator: And our last question today comes from Charles Fishman of Morningstar. Please go ahead.

Charles Fishman: Andrés, just to follow up that last question; you are probably most knowledgeable person about Brazil that I ever get a chance to ask a question to. In a quarter or two quarters ago, you talked about a turnaround in Brazil, maybe 2018.

And now, in response to the last question, I heard you say like more like five years. Has something happened in the last three months that makes you a little more pessimistic?

Andrés Gluski: No, let me clarify that. I do think the turnaround in two years is still I would say possible, may be sort of 50-50 chance. What I think within five-years, I feel very optimistic at some point, I don’t know if it’s three years, two years, they will come back. I think depending on the political resolution of that the crisis they are facing now, I wouldn’t even be surprised that you have a sort of, I don’t know, call it euphoria but a pickup in sentiment in Brazil with the resolution.

I mean we’ve seen that when you have certain political developments, they actually appreciate in the market. So, what I think is important to realize is that the crisis in Brazil has a lot to do with certain policies and not just the drop in commodity prices. So that makes the comeback more within their capabilities of doing.

Ahmed Pasha: Okay. We thank everybody for joining us in 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.

Operator: And ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect.