AES Corp (AES) — Q1 2015 Earnings Call Transcript

Thank you, Angel. Good morning, and welcome to AES’s First Quarter 2015 Earnings Call. Our earnings release presentation and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause financial results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andres Gluski, our President and Chief Executive Officer; Tom O’Flynn, our Chief Financial Officer; and other senior members of our management team. With that, I will now turn the call over to. Andres. Andres?

Good morning, everyone. And thank you for joining our first quarter 2015 earnings call. I am pleased to report that with our first quarter results we’re reaffirming our 2015 guidance for all metrics. Since our previous quarterly call less than three months ago, we have achieved several significant milestones on our strategic objectives and our priorities for 2015. We continue to leverage our platforms; our $9 billion construction program is advancing on schedule and will be the major contributor to our cash and earnings growth over the next four years. This quarter, we commissioned the largest power plant that AES has ever constructed. We also signed agreements for two additional asset sales, totaling $105 million in equity proceeds and invested $345 million to prepay and refinance debt. This year, we have also repurchased $42 million of our shares and we made substantial progress in addressing short-term issues affecting our businesses in Bulgaria and India. I will discuss some of these achievements in detail. But first, I’d like to provide the highlights of our financial results. In the first quarter, we generated proportional free cash flow of $265 million, doubling the results of a year ago. Due to the recovery of working capital and a couple of significant businesses, we are in $0.25 of adjusted earnings per share, which was a $0.01 increase from our first quarter of 2014. We improved operating performance at our U.S. and Andes strategic business units, although we continue to experience headwinds from poor hydrology in Brazil and unfavorable foreign exchange in Latin America and Europe. During the quarter, our earnings benefited from our previous capital allocation decisions to pay down debt and buy back our shares. As we’ve discussed in the past, we have taken steps to mitigate the impact of adverse hydrology in Latin America and this year that risk is mostly limited to Brazil. We also have a rolling 12-month hedging strategy to help mitigate the impact of fluctuations in foreign currencies, especially the Brazilian real, the Colombian peso, and the euro. Although these currencies have weakened against the U.S. dollar, energy demand has remained robust at 3% to 10% in our markets, except in the U.S., where we are experiencing flat demand and in Brazil where demand growth is slightly negative. Now I’ll discuss our significant accomplishment since our last call. Starting with our progress in resolving a couple of business-specific issues beginning on slide four. In Bulgaria with the Maritza Plant's sole customer, the National Electricity Company (NEK) had fallen significantly behind on its payment; we’re now seeing positive momentum. Last month, Maritza signed an MOU with NEK to receive full payment of all arrears which as of March 30th were $236 million in exchange for a decrease in the capacity price of the long-term PPA. We expect to sign a binding agreement by the third quarter of this year. The 14% capacity price reduction is already reflected in our 2015 guidance as well as our longer-term expectations. This agreement is part of a broad set of initiatives; the Government of Bulgaria is taking to help restore NEK’s financial position. One of these initiatives is the introduction of energy sector reforms to reduce the volume of energy that NEK purchases from coal generators and compensating NEK through existing environmental taxes. Already Maritza’s collections during the first four months of the year have improved by 40% and our receivable balance has remained flat as of the end of December. Turning now to our 1,320 megawatts OPGC 2 project, under construction in India on slide 5. As you may know late last year, the Supreme Court of India overturned the allocations of 214 coal blocks, including those for OPGC 2. I am pleased to report that the project, through a new joint venture between OPGC and the Government of Odisha, has re-secured the rights to the same coal blocks, which can support 2,640 megawatts of new capacity. Construction on OPGC 2 is on schedule, with this plant expected to come online in 2018. Now turning to slide six, I’ll discuss our construction program and develop the pipeline in more detail. Our construction program is the most significant driver of our 10% to 15% average annual growth and free cash flow over the next few years. This strong growth is a foundation for a commitment to 10% annual dividend growth as well as other capital allocation decisions. From 2015 through 2018, we expect to commission 7,131 megawatts of new capacity, which is a high multiple of the roughly 600 megawatts we’ve brought online in the three previous years from 2012 to 2014. In fact, already this year, we’ve brought online 1,312 megawatts, which is 87% of the capacity we expect to commission this year. Moving onto slide 7, the remaining 5,118 megawatts under construction are progressing well and remain on-time and on-budget. As a reminder, the total CapEx for our projects currently under construction is $7 billion, but AES’s equity commitment is only $1.3 billion, of which all but $400 million has already been funded. As you can see, roughly 80% of this new capacity is in the Americas, and we expect our return on equity from these projects of more than 15%. Turning to slide 8, I’m very happy to report that we have achieved commercial operation on our 1,240 megawatts Mong Duong project in Vietnam six months early. Additionally, the project reached 18 million man-hours without a lost time incident. This project provides us with a solid platform from which to grow our presence in Vietnam where we see a number of future platform expansion opportunities. Moving to slide 9, to help mitigate our hydrology risk in Panama, we’ve recently inaugurated a 72 MW thermal power barge. The plant's output is contracted under a five-year PBA. We're also looking at similar opportunities in other countries in Latin America to decrease our exposure to fluctuations in hydrology. Finally, looking at our growth opportunities beyond the projects currently under construction; beginning on slide 10. We see compelling platform expansion opportunities in a number of growing markets such as Chile, Mexico, Panama, and the Philippines. In more mature markets like California and the United Kingdom, we see opportunities to replace older, less efficient, or non-compliant capacity. Generally, we expect our future project mix to be heavily weighted towards natural gas, renewables, and energy storage as we seek to match the right offering to the future needs of each market. As we have said in the past, we will continue to compete all investments in growth projects against share repurchases in order to ensure that we are maximizing risk-adjusted per share returns for our shareholders. Based on the opportunities we see across our portfolio beyond 2018, we believe we could invest $300 million to $400 million of AES equity in attractive growth projects each year, which is consistent with the amount of equity we are currently contributing annually to our growth projects. This level of annual equity commitment is quite moderate considering the expected growth in our free cash flow and continued recycling of capital from additional asset sales. We also plan to bring in financial partners on all of our larger projects as a means of improving our returns, fine-tuning our portfolio's risk exposures, and having our projects bidded by other investors. Now, I’d like to highlight a couple of more significant projects in our development pipeline, beginning on slide 11. Our Southline Repowering Project in California with 1,400 MW of gas-fired and energy storage capacity is on track to begin construction in 2017. We expect to select our EPC contractor and file final permitting amendments in the next six months. Our development pipeline is not limited to power generation projects as we seek to realize the full value of our existing market platforms through adjacent business lines such as enhanced LNG services, desalination, and energy storage. Turning to slide 12. For example, in the Dominican Republic, we are working on opportunities to expand our existing LNG infrastructure. We are developing a second gas pipeline which would transport natural gas from our regasification terminal to other power generators so they can convert up to 1,000 MW of diesel and oil-fired generations to cheaper, cleaner natural gas. We are also advancing in the development of an upgrade of our LNG import terminal to allow for the reshipment of LNG. The ability to reship LNG will be an extension of our successful gas distribution business in the Dominican Republic, which supplies third-party trucks with liquefied natural gas. Both of these attractive projects will require only modest equity investments as we expect to largely fund them with leverage capacity at the local business. In terms of desalination, on slide 13, we currently have one 200 cubic meter per hour project under construction at our Angamos power plant in Chile. Although this project is largely a modernization of our existing diesel facilities at that plant, there are a number of potential diesel projects in Chile to supply our mining and industrial customers. We see diesel as a timely and significant opportunity in Chile and possibly longer-term in Mexico and California, given the challenges of water supply in those markets and our many years of experience operating diesel plants. Moving on to slide 14. We are the world leaders in battery-based energy storage, with 86 MW of installed capacity. Although this is likely to remain relatively small in the near term, we see the potential for much larger opportunities over the next 4 to 5 years. We are encouraged by ongoing regulatory support and growing acceptance by power systems and utilities in some of AES' markets. To that end, as you may have seen, we have recently announced that we have 50 MW under construction including the first energy storage units in the Netherlands and Northern Ireland. These projects under construction are all additions to our existing platforms. We are well-positioned to take advantage of this emerging business opportunity given AES' international portfolio and eight years of successful and profitable experience operating battery-based energy storage. With that, I'll turn the call over to Tom to discuss our first quarter results and full-year guidance in more detail.

Thanks Andres, and good morning everyone. This quarter, we continued to benefit from our capital allocation decisions and operational improvements despite some macro headwinds. Further, as anticipated, our cash flow improved as a result of lower working capital requirements. We also made substantial progress toward a key financial goal of improving our credit profile by reducing parent debt, lowering interest expense, and extending maturities. Today, I’ll review our first quarter results, including adjusted EPS, adjusted pretax contribution or PTC by strategic business unit or SBU and for the first time proportional free cash flow by SBU, which we’ve also included in our 10-Q. Now I’ll cover our 2015 capital allocation plan and our 2015 guidance. Turning to slide 16, first quarter adjusted EPS of $0.25 was a penny higher than the first quarter of 2014. At a high level, we benefited from the following: $0.03 from capital allocation which resulted in a 13% lower parent debt and a 3% lower share count relative to last year and a $0.01 net increase from the performance of our businesses with improvements in the U.S. and Andes partially offset by lower contributions from Brazil, Europe, and Mexico, Central America, and the Caribbean or MCAC. On the negative side, we are affected by a $0.02 impact from a stronger U.S. dollar which appreciated 18% against the Brazilian real, Colombian peso, and euro and also an impact from a slightly higher tax rate of 33% this year versus 30% in the first quarter of last year. Now I’ll cover our SBU’s financial performance in more detail on the six slides beginning on slide 17. In the U.S., adjusted PTC increased by $31 million driven by better availability at DPL compared to the first quarter of last year when a couple of DPL generation plants were not available during the polar vortex. Proportional free cash flow increased by $74 million, reflecting a lower working capital requirements this year compared to during the extreme cold of last year. In Andes, PTC increased by $38 million primarily due to better availability at our plants in Chile; however, proportional free cash flow declined by $6 million due to the timing of collections and higher maintenance capital expenditures. In Brazil, PTC decreased by $48 million driven by FX and operating performance, perhaps the decline is driven by our generation business Tietê, you may recall that last year Tietê benefited from spot sales at favorable prices due to lower contract levels during the first half of the year. This benefit was more of a timing issue of Tietê at the purchase and spot market in the second half. This year, Tietê’s contracts levels are flat in the first and second so we expect contributions to be evenly distributed. Additionally, Sul, one of our utilities, had lower results due to lower sales volume and higher fixed costs. Proportional free cash flow increased by $15 million primarily driven by higher collections pass through energy purchases built during 2014 offset by lower operating performance. In MCAC, PTC declined by $15 million largely driven by lower margins in the Dominican Republic, where revenues are partially indexed to oil prices as well as lower availability. This impact was partially offset by improved hydrology in Panama; proportional free cash flow improved by $55 million primarily driven by improved working capital in El Salvador and Puerto Rico. In Europe, adjusted PTC decreased by $30 million half due to lower contributions from the sales of Ebute in Nigeria and our UK wind businesses, remaining half is largely from unfavorable foreign currency impacts. Proportional free cash flow increased by $21 million driven by higher collections at Maritza which was 60% higher than the first quarter of 2014. Finally, in Asia, PTC was essentially flat after taking into account the impact from the sale of 41% of Masinloc in the third quarter of last year, offset by the one-time charge recorded in Masinloc in the first quarter of ’14 related to the market spot price adjustment. Proportional free cash flow decreased by $37 million due to the Masinloc sale and higher working capital requirements. Turning to slide 23, in summary overall, we earned $252 million in adjusted PTC during the quarter and an increase of $9 million from last year, and we generated $265 million in proportional free cash flow, representing a doubling from $129 million in last year’s first quarter. As you may recall, working capital was a drag on our results last year, and as reflected in our first quarter results, we’re seeing recovery. Now to Slide 24 and our parent capital allocation plan for the year. Regarding sources on the left-hand side, the only update from our last call is an increase of $100 million in equity proceeds from asset sales from the sale of the Armenia Mountain Wind project in Pennsylvania and the sale of 40% of our interest in the IPP4 Plant in Jordan. This brings our total available discretionary cash for 2015 to roughly $1.6 billion. We continue to expect parent free cash flow of $525 million this year with 10% to 15% average annual growth through 2018. Turning to the uses on the right-hand side of the slide, in addition to the dividend, we also plan to invest about $350 million in our subsidiaries, 60% of which is IPL and has already been funded. We’ve invested $345 million in prepayment and refinancing of parent debt to balance asset sales and planned share buybacks. And finally, we repurchased $42 million of shares year-to-date and expect to invest at least $324 million this year, which assumes that we use $300 million of the $400 million we purchased, authorized in February. This leaves $200 million of discretionary cash to be allocated this year. Turning to our parent debt profile on Slide 25. Since our last call, we prepaid $315 million of parent debt, bringing our total parent debt reduction since the end of 2011 to $1.5 billion or a 25% reduction. In early April, we also refinanced another $500 million in near-term parent debt maturities. These transactions resulted in a reduction in our near-term maturities to only $180 million over the next four years and reduced the average interest rate from 6.3% to 5.6%. We also continue to optimize the capital structure of certain subsidiaries and affiliates such as Guacolda in Chile, where $830 million in long-term debt was refinanced in April at about 4.5%, demonstrating the strong credit quality and market access of our businesses. Now beginning on Slide 26, I’ll discuss our adjusted EPS guidance for this year, which is based on the following assumptions: currency forward curves as of March 31st, which reflect roughly 10% appreciation versus the U.S. dollar compared to year-end curves for the Brazilian Real, Colombian Peso, and the Euro; commodity forward curves as of March 31st, which reflect roughly a 5% to 10% decline for oil and gas, and the current outlook for hydro in Latin America, which is in line with our expectations except in Brazil. In the rainy season, there is drawing to close and reservoir levels are currently at about 35% and are expected to be about 37% at the end of May. We believe that the government is unlikely to call for rationing this year, given these levels. That said, the system continues to face a hydro generation shortfall, which has a financial impact on Tiete; it previously had built a $0.05 impact into our guidance, based on having to cover 15% to 17% of our contracts in the spot market. We now expect the shortfall to be 17% to 19% due to continued high thermal dispatch. We expect this will add another $0.02 to the hydro impact this year. We’ve also incorporated a modest decline in demand at Sul in Brazil resulting in an incremental impact of another penny. Now turning to Slide 27, as we discussed on our last call, our adjusted EPS guidance is $1.25 per share to $1.35 per share, which when we provided in late February was based on currency and commodity curves as of December 31st. The impact of updating these curves based on the sensitivities we’ve disclosed is $0.05. However, we’ve been proactive in hedging our downside which reduced the FX and commodity impact by $0.03. Further, as I just discussed, we’re incorporating an additional $0.03 impact from poor hydrology and demand in Brazil. We’ve also included a penny benefit from the completion of the Vietnam project, slightly ahead of our internal projection. The bottom line is that although we’re facing some headwinds, we’re managing the impacts and therefore reaffirming our EPS guidance range. At the same time, as you can see on Slide 27, we remain confident in our portfolio visibility to generate strong cash flow. We’re affirming our proportional free cash flow guidance of $1 billion to $1.35 billion, which after subsidiary debt period provides us with about $525 million in parent free cash flow. We’ll continue to create value by investing in this strong and growing cash flow to maximize returns to shareholders. With that, I’ll now pass it back to Andrés.

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

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

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

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

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

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

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

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

That will depend. We’ve outlined our strategy and considerations, and we remain committed to buying back $300 million of shares. We will determine the allocation, but we will adhere to our strict capital allocation procedures, as we have done today. However, I can't provide more details at this stage.

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

It's a modest amount, Ali. The Armenia Mountain wind project was the second part of the wind initiative we conducted earlier, which would yield a relatively attractive price-to-earnings ratio from our perspective. The Jordan project was a partial sell-down. If you combine them, the price-to-earnings ratio is around 13, so the estimated amount of $7 million to $8 million needs to be evaluated against 100.

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

Thank you for your question. We have recently integrated energy storage units into our platform, which has provided us with several advantages. We have a strong understanding of the markets and have maintained an ongoing dialogue with regulators, as obtaining regulatory approval is one of the key challenges in energy storage. While we recognize the benefits it offers for grid stabilization, there are often questions around compensation for these services, especially in the absence of an active ancillary market. Initially, we have implemented this in Chile and DP&L, and we are also exploring opportunities in California, IPL, and other regions in the future. The process involves two main steps: identifying the use of battery energy and securing regulatory approval. We are focused on expanding into markets where we are already established, such as the Netherlands and Northern Ireland, and continuing this successful strategy. In terms of monetization beyond our platforms, we aim to deploy our advanced product, which incorporates our intellectual property, batteries, and operational methods, in collaboration with external platforms. For instance, if we sell energy to a utility interested in appraising these assets, we can facilitate that as well. This approach could allow us to scale more quickly than solely relying on our own operations, and we are currently in discussions with potential partners. We believe the market is developing, but securing the necessary regulatory approvals remains a significant challenge. Once a unit is successfully deployed in a market and demonstrates its effectiveness, we anticipate an increase in demand. If we collaborate with a partner in a specific platform, like in Chile or IPL, they will also be involved in the asset we're deploying. We manage this from a central location while facilitating implementation in the businesses. This strategy has proven effective, and we feel this idea is timely. We view the U.S. market as the most immediate opportunity, particularly for smaller grids and islands. Locations like the Philippines, Puerto Rico, Hawaii, Northern Ireland, and the Dominican Republic present great potential, as do regions like Chile, which face grid limitations. Therefore, we are optimistic about our position and will continue to advance this product in several markets.

That’s very helpful. I wanted to discuss the growth of renewables. We are observing what I see as some quite aggressive competitors in the market, many of whom have yields. Could you provide some insights into the level of competition you are encountering, whether in terms of absolute returns or business developments? Have you noticed any changes in competition? Or do you believe that, considering your long-standing presence in your core markets, AES still has several advantages as you pursue growth in renewables?

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

Tom, the $0.01 of operating performance improvement you had in the quarter. You don’t have a commensurate assumed increase or decrease in earnings within the $1.25 to $1.35 guidance range associated with operating performances. Is that because sort of quarter specific, or is it just too early in the year to know how much you’re going to sort of gain from that as you annualize the things you did in the first quarter?

It’s probably a little early Greg, and obviously there are a lot of moving parts. We call that few, not all. I think the one thing that does jump out was DPL. It had improved performance. We didn’t have to pull out what’s actually, that was one thing that jumped off.

At what point during the year do you decide to proceed with capital allocation on the remaining $200 million if you find yourself potentially reaching the midpoint or high-end of guidance, or conversely, the midpoint or low-end of guidance? It’s clear that as the year progresses, if you fall behind, it may be too late to make that decision. On the other hand, if things are going well, it would make sense to hold off and consider a more flexible approach. Given your current situation, how do you perceive the trends, and when can we expect an update on this?

We’ll certainly do it quarter to quarter; we try to look ahead here and that’s what we felt very comfortable saying that we do $300 million of the $400 million that we authorized a couple of months ago, that would bring our share repurchase up to $3 and $340 whatever it would be. So, we’ll do it quarter by quarter. Also keep in mind to the extent we see capital allocation opportunities, let’s say in early 2016 we may end up in '15 with a higher balance than just working capital would require. So, we do look at this hard. We do compete all projects, all businesses whether it be small storage or whether it be larger new builds, we compete everything against share repurchase and we’ll continue to do that and keep you posted.

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

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

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

Not really, there was this scandal in India related to coal allocations, and we weren’t involved in it. However, they canceled all 214 allocations. OPGC has formed a joint venture with the state government of Orissa, meaning our ownership in this company would be around 25%. It will operate the mine, and we don’t foresee any issues at this time. We're dealing with the same two coal blocks and the same capacity of 2,640 megawatts, which would support OPGC2 and potentially OPGC3. At this point, we see nothing negative coming from the reallocation of coal, and the plant's construction is going according to plan. We've addressed the coal allocation issue, and we're back on track. The only difference is that this joint venture is with the state government of Orissa.

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

Nothing has changed to date.

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

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

First, congratulations on your contract at Mong Duong; that safety record is outstanding. I just wanted to confirm regarding the third bullet point on Slide 24 about the $214 million from your partner IPALCO, the Canadian partner. This amount is not an increase in their equity stake; it aligns with the original timing of their equity contribution in IPALCO, correct?

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