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Executives

Ahmed Pasha - Vice President of Investor Relations

Andres Ricardo Gluski Weilert - Chief Executive Officer, President, Director and Chairman of Strategy & Investment Committee

Thomas M. O'Flynn - Chief Financial Officer and Executive Vice President

Andrew Martin Vesley - Chief Operating Officer and Executive Vice President

Brian A. Miller - Acting Chief Compliance Officer, Executive Vice President, General Counsel and Corporate Secretary

Analysts

Jonathan Cohen - ISI Group Inc., Research Division

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Charles J. Fishman - Morningstar Inc., Research Division

Gregg Orrill - Barclays Capital, Research Division

Brian Chin - BofA Merrill Lynch, Research Division

Paul Patterson - Glenrock Associates LLC

The AES (AES) Q2 2013 Earnings Call August 8, 2013 10:00 AM ET

Operator

Welcome, and thank you for standing by. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. I'd now turn the meeting over to Ahmed Pasha. Sir, you may begin.

Ahmed Pasha

Thank you, Tim. Good morning, and welcome to the Second Quarter 2013 Earnings Call of The AES Corporation. 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 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 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?

Andres Ricardo Gluski Weilert

Thanks, Ahmed, and good morning, everyone. Today, I will focus my comments on 3 areas: Our operating performance and progress on our strategic objectives during the second quarter; an update on a couple of our key businesses; and a review of our most important initiatives to maximize the value of our portfolio.

Turning to Slide 4. Our financial results for the quarter were in line with our expectations. We increased our adjusted earnings per share by $0.14 to $0.32. Our continued focus on improving operational performance and reducing corporate overhead contributed significantly to our results for the quarter. We achieved these results despite a $0.05 impact from the worst hydrology in Latin America in many decades. With our year-to-date results, we're on track to achieve our full year guidance on all metrics. Tom will discuss our financial performance and guidance in more detail. In addition to solid financial results, we made continued progress towards our 3 main strategic objectives.

Turning to Slide 5. Our first strategic objective is to improve profitability. As you may remember, we committed to a reduction of $145 million in overhead cost by 2014 relative to 2011. During the quarter, we reduced our G&A expense by another $15 million from last year. Based on our progress so far, I'm pleased to report that we have accelerated our efforts and expect to achieve $135 million this year, which is $15 million higher than our prior forecast. Over the last 2 years, we've reduced our G&A by more than 1/3.

Our second strategic objective is to narrow our geographic and business focus. As you can see on Slide 6, since May, we have sold 2 additional assets for net equity proceeds of $56 million. We sold our 10% stake in a gas-fired plant in Trinidad, which was not an attractive market for us, given its small size and lack of growth opportunities. The sale of 48 megawatts of wind turbines, which we had held in storage, was purely a commercial decision as we did not find an attractive project for these older technology machines. These 2 transactions bring our total sales proceeds year-to-date to approximately $230 million, just under 50% of our 2013 target of $500 million, which we expect to achieve.

Since September 2011, we have closed the sale of 16 businesses for total proceeds of $1.1 billion. We have exited 7 countries and are now present in 21, down from 28 2 years ago. We are working hard to further simplify our portfolio by continuing to exit those markets and businesses where we do not have a compelling competitive advantage. We will keep you posted as soon as we are able to disclose specific additional transactions.

Turning to Slide 7. Our third strategic objective is to optimize capital allocation, aiming to maximize risk-adjusted returns for our shareholders. As we've said in previous calls, when making investment decisions, we require the various uses of discretionary cash to compete against one another, including delevering, returning cash to shareholders and investing in platform expansions.

Earlier this year, when we discussed our 2013 capital allocation plan, we indicated that debt reduction was a significant priority for us. To that end, during the second quarter, we successfully completed $1.8 billion in parent debt refinancing and delevering, including $300 million of recourse debt prepayment. As a result of these transactions, we have extended the average term of our recourse debt to about 7 years and lowered our interest expense by $50 million. Overall, we have prepaid more than $1 billion of debt in the last 2 years.

With respect to the stock buyback, we have been indicating that our discretionary cash would be back-end loaded this year. However, when our stock price recently softened, we bought back 5.3 million shares at an average price of $11.81, for a total investment of $63 million. At present, we have a remaining share buyback authorization for 237 million.

This September 2011, we have repurchased 39 million shares or approximately 5% of our shares outstanding at an average price of $11.58, for a total investment of $453 million. As well as share repurchases, we have implemented an annual dividend of $0.16 per share. We remain committed to returning cash to our shareholders through dividends and buybacks, in addition to creating long-term value by investing in select platform expansion opportunities. Later on this call, Tom will update you on our capital allocation plans for the rest of the year.

Now I'd like to give you a brief update on 2 of our businesses to address some of the questions we're hearing from investors. Turning to Slide 8, in Bulgaria, a new government was put in place following the election in May. As some of you may know, the prior government was forced out due to social unrest, partly driven by protests over the perception of high energy prices. We continue to honor all of our obligations under our PPA and expect other parties to do the same. Maritza is an important business for us, and we are closely monitoring the situation in Bulgaria. We have also been in constructive discussions with our offtaker, NEK, and the new Bulgarian government. Our objective is to preserve the value of our contract, and we will keep you informed if there are any further developments.

Next, turning to Slide 9, and DP&L's ESP proceeding. We have not yet received the final counter [ph] approval. All of the key milestones in the process have been completed, including prefiled testimony, the hearing and the post-hearing briefing. The only remaining item is for the commission to issue its decision. We don't believe that there are any significant issues pending with the commission and expect that we will receive our new tariff in the near future.

Lastly, now on Slide 10, I would like to share a few thoughts on how we are creating more value for our shareholder. First, we're engaging partners for both our existing businesses and new growth projects to tailor our risk exposure, reduce capital requirements, leverage strategic relationships and maximize our return. This approach allows us to undertake larger projects, to extract greater synergies and economies of scale while managing the equity exposure we have on any particular project, technology or market. Partners provide an additional market test and can pay or promote our management fee, which further increases our returns by up to 200 basis points.

We have already closed several partnerships of this type, Cochrane in Chile, Mong Duong in Vietnam, and we recently signed a similar agreement with the Antofagasta Minerals mining company to take a 40% stake in the 531-megawatt Alto Maipo hydro project. Antofagasta Minerals also signed a 20-year power purchase agreement for 160 megawatts. We're now in the process of raising nonrecourse financing for Alto Maipo and expect construction to begin later this year.

For the same reasons, we're also looking more broadly at opportunities in our portfolio to monetize the value of certain assets through partial sell-downs and contract optimizations.

Second, asset sales are an important component of our plan to reposition our portfolio to improve returns and reduce overall risk. We will continue to exit markets and businesses where we do not have or cannot develop a compelling competitive advantage. In addition to the $1.1 billion in asset sales we have already completed, we see the potential for another $900 million in asset sales within the next 2 years. Any net proceeds from portfolio rationalization will be deployed in a manner consistent with our capital allocation framework.

Third, we see additional opportunities to optimize our assets and further streamline our cost structure. For example, we're improving the efficiency of our operations through our continuous improvement program, APEX, and further leveraging our global scale in procuring equipment, chemicals, insurance and fuel.

We're also evaluating opportunities across our fleet to standardize equipment and processes and to improve the cost effectiveness of our operations. These opportunities include closing the cycle at Los Mina in the Dominican Republic, adding fogging technology where appropriate to our CCGTs, studying ways to reduce inventories and lower business interruption costs through our transformer loss control program. For this program, we have designed and built a multiuse transformer, which can be ready for quick deployment should a transformer failure occur at a key facility. It is important to note that despite all of our cost-saving initiatives, the company's safety and operational indicators are the best they have ever been. And this year, we won our third consecutive EEI International Edison Award for operational innovation and improvement.

Finally, in my view, AES has an unmatched footprint in many key markets where demand for electricity is expected to grow for the foreseeable future. Our growth is largely focused on expanding our platforms in such markets. In Chile, where we are seeing some of the highest levels of power demand growth in our portfolio, there's a limited pipeline of permitted new projects. We recently started construction on the 532-megawatt Cochrane coal-fired plant. And as I previously explained, we're making good progress on the 531-megawatt Alto Maipo hydro project.

In the Philippines, where GDP growth continues in the 5% range, we're advancing on the development of Masinloc 2. We are securing the necessary permits and EPC contracts, while working to secure a long-term PPA for 300 to 600 megawatts to support the expansion.

In India, GDP growth is still expected to be more than 5%. We believe that the 1,320-megawatts OPGC II expansion project, with its own dedicated source of low-cost coal, will be a competitive plant in the Indian power market. We continue to work closely with our partner, the state government of Odisha, to complete the remaining development milestones.

In Vietnam, construction on our 1,240 Mong Duong project remains on budget and on time for 2015 commissioning. Although it is not one of our rapidly growing markets, at IPL in Indiana, we will upgrade 2,400 megawatts of baseload coal-fired generation to comply with MATS, and we are developing a 600-megawatt CCGT power plant. Approximately 55% of this $1.1 billion future increase in rate space will be financed with nonrecourse debt at the IPL level.

In addition to these large development projects, we also see opportunities to leverage our existing infrastructure by offering adjacent services. For example, in California, Chile and the Dominican Republic, we're assessing leveraging our platform to provide desal capabilities at our existing plants to deliver water to local industrials. While these programs are individually fairly small, such projects can be leveraged across our businesses and completed fairly quickly, as they utilize existing infrastructure and do not require significant development spend.

In summary, I am pleased that we are making good progress on a number of fronts that will result in sustainable earnings growth and improved returns on our invested capital.

With that, let me turn the call over to Tom, who will discuss our financial performance and 2013 outlook in more detail.

Thomas M. O'Flynn

Thanks, Andres, and good morning, everyone. We're on track for the year, and we're reaffirming our guidance on all metrics. Today, I'd like to review our second quarter results, including adjusted EPS, results by SBU and proportional free cash flow, then I'll discuss our 2013 guidance and capital allocation updates.

Turning to Slide 12. Hydrology has been a challenge across several of our SBUs. On a proportional basis, 12% of our installed capacity is hydro. We've seen very dry conditions in many of our markets. During the second quarter, we had a $0.05 drag and poor hydrology across our portfolio, including in Panama, Colombia, Chile, Brazil and Turkey. This brings our year-to-date impact from poor hydrology to $0.08 per share. The situation has improved, but based upon current reservoir levels, we expect another $0.04 impact in the second half, bringing the full year hydrology impact to $0.12 a share. This is an increase of $0.06 relative to our expectations as of the end of the first quarter.

We are, however, seeing some recovery. Hydrology and reservoir levels in Brazil are nearing a normal range at this point. It's currently the rainy season in both Panama and Colombia where water inflows are roughly 20% to 30% below historical levels, that we've seen some improvement in Colombia over the last few weeks. Critical point is that we're offsetting these impacts with other opportunities in our portfolio and reaffirming our guidance. I'll touch on the specifics in a moment.

Now to Slide 13. Adjusted EPS increased $0.14 for the second quarter. Net of the $0.05 impact from dry conditions, operational improvements at the SBUs contributed $0.05, driven by Gener in Andes, Uruguaiana in Brazil and the Dominican Republic and El Salvador businesses in MCAC. I'll cover the specifics of each SBU, but first, let me touch on taxes.

As you may recall, we anticipated some tax favorability this year as we assumed a full year tax rate of roughly 27%. This rate implied about $0.03 of favorability for the second quarter. However, our year-to-date rate is 20%, benefiting from geographic income mix and timing within the year of certain tax benefits and expenses. Further, we favorably resolved some outstanding tax items during the quarter. Collectively, these items added another $0.03, bringing the total quarterly tax benefit to $0.06 a share. Finally, for the quarter, we saw a $0.03 benefit from lower G&A to parent and lower share count.

Now I'd like to review the operating drivers of adjusted pretax contribution, or PTC, for each of our SBUs during the quarter. As a reminder, PTC is essentially pretax earnings adjusted for one-time gains or losses on unrealized derivatives in foreign currency, dispositions and losses on retirements of debt and impairments. We currently don't make these adjustments for our small number of equity method investments but expect to begin making these adjustments in the third quarter.

Turning to Slide 14 in the U.S. We reported a modest decline of $9 million PTC, mostly are utilities. This is consistent with our expectations for the year. At DPL, we experienced continued pressure on margins from lower capacity prices and customer switching. A 65% of the load at DP&L has switched to competitive providers. At IPL, retail demand was down due to milder weather during the early summer months. And in Andes, we reported an increase for the quarter of $36 million in PTC, despite the impact of low hydrology in Chile and Colombia. The growth was driven by a new Ventanas IV facility, a 270-megawatt coal-fired project in Central Chile, which achieved COD in March of this year. Additionally, we benefited from higher availability in Chile in contrast with significant outages at Gener last year.

In Brazil, PTC increased $23 million for the quarter, largely due to a favorable reversal of a provision at Uruguaiana. As you may remember, when Uruguaiana's gas supply was curtailed several years ago, we brought an arbitration against YPF, a former gas supplier now controlled by the government of Argentina. This quarter, we won the arbitration on the merits and reversed the provision we had previously recorded. This development was worth $26 million in PTC or about $0.03 and was consistent with our expectations. We believe this step in the arbitration process will help us resolve the dispute with YPF and bring this plant back into permanent service.

Retail was flat for the quarter. On the utility side, Eletropaulo improved for the quarter as a result of the tariff reset catch-up provision recorded in the second quarter of last year, so a decrease for the quarter is a result of its tariff reset which was finalized in April of this year.

Now MCAC on Slide 15. We had an increase of $10 million in PTC for the quarter despite the impact of low water inflows in Panama. We recorded higher spot volumes in the Dominican Republic and a higher tariff in El Salvador as a result of the tariff reset approved by the regulator in late 2012.

At EMEA, during the quarter, PTC increased modestly by $7 million. This was a result of higher margin in the United Kingdom due to improved availability at Ballylumford and higher dark spreads at Kilroot. These were partially offset by the impact of an unrealized derivative loss of $0.02 in Turkey, which as I mentioned earlier, as of the second quarter, is not excluded from adjusted EPS because Turkey is one of our few equity method investments.

Finally, turning to Asia. PTC declined $15 million for the quarter, consistent with our expectations. As you may remember, Masinloc is a long-term contract starting this year at prices moderately below last year's spot levels to reduce earnings and cash flow volatility.

Now to cash flow on Slide 16. We generated $148 million of proportional free cash flow this quarter. Year-to-date, we're at about $500 million or 56% of our 2013 guidance midpoint. The quarter-over-quarter decline of $65 million was largely driven by lower operating cash at Gener, which had a value-added tax refund last year. In addition, we recorded higher environmental capital expenditures at IPL and Gener, consistent with our expectations for the year.

Now I'll cover guidance on Slide 17. As I said, we're reaffirming 2013 guidance. Year-to-date, we've earned about 45% of our adjusted EPS, midpoint of $1.28, which is consistent with our expectations that earnings will be somewhat more weighted towards the second half.

Relative to our last call in early May, we've incorporated foreign currency and commodity forward curves as of June 30, resulting in a reduction of about $0.01. Also, we've included the additional $0.06 impact from hydrology I touched on earlier. On the positive side, we've had some favorability on our full year tax rate, which we now expect to be roughly 24% compared to our prior assumption of 27%. This improvement added $0.05 for the year.

Finally, as Andres mentioned, we accelerated our cost cutting, refinanced recourse debt at lower rates, repurchased some shares. Together, these actions added $0.02 for the year compared to our prior guidance.

You may remember that we provided some PTC modeling assumptions for SBUs with our prior guidance. We generally don't expect to update these ranges on a quarterly basis. That said, our SBUs are generally still in those ranges, though some are at the lower end, primarily as a result of hydrology and lower power demand growth in Brazil. As a result, we've narrowed our range for total PTC by reducing the top end, which brings the midpoint down by $50 million. Again, we've offset the unfavorable PTC impact of the SBUs with favorability on tax and accelerated cost management.

Finally, turning to Slide 18, our capital allocation plan for the year. Since last quarter, our equity proceeds and asset sales have increased by nearly $60 million as a result of the Trinidad and wind turbine asset sales that Andres discussed. We expect to be in the higher end of our $400 million to $500 million range for parent free cash flow, which, as you know, is an important driver of our dividend policy. Therefore, based upon announced transactions, we're projecting discretionary cash of roughly $1.1 billion to $1.2 billion.

Turning to uses. As Andres mentioned, we refinanced $750 million of parent debt and prepaid another $300 million. Including the premiums, we used $464 million of parent cash to complete these transactions. In addition, we refinanced our $800 million revolver, extending its maturity to June 2018 and reducing the margin by 75 basis points.

Also, we repurchased 5.3 million shares for a total investment of $63 million. Our current forecast includes $195 million for investment in our subsidiaries, and year-to-date, we've invested $87 million. This leaves discretionary cash to be allocated approximately $100 million to $250 million for the year. I'd like to highlight that it only includes asset sales proceeds received to date. We expect this to increase based on additional transactions in the pipeline. We continue to use our discretionary cash as a tool to maximize value for our shareholders.

Last quarter, we talked about using up to $200 million of our discretionary cash to fund the equity requirements for platform expansions at Gener. Since then, we've explored other funding alternatives for these investments. As we see it today, our participation in a potential equity issuance at Gener and Chile should be no more than $100 million. We'll keep you updated as our plans progress.

In summary, we're on track for the year, and our continued execution of our strategy will help us deliver on our commitments to shareholders.

Now back to Andres.

Andres Ricardo Gluski Weilert

Thanks, Tom. Operator, we'll now open up the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will come from Jon Cohen from the ISI Group.

Jonathan Cohen - ISI Group Inc., Research Division

So a couple of things. First of all, there's been some reports in the press about you looking to exit your stake in Cameroon. So now, I'm sure you don't want to talk too much about it, but can you give us a sense of just some of the high-level financial metrics there, maybe like book value and contribution at PTC?

Andres Ricardo Gluski Weilert

Yes, of course, I can't comment and I haven't. A lot of our -- none of our possible asset sales, we sort of laid out how we look at businesses and how we sell them. I would say that the -- that is within the EMEA region, and it's a relatively modest contributor to earnings and a very small contributor to our parent operating cash flow or dividends back to corp.

Jonathan Cohen - ISI Group Inc., Research Division

Okay. And then my other question, so it looks like you're at $500 million for proportional free cash flow for the year, which is almost half of the top end of your range. And you said that most of your earnings and cash flow from ops are going to be back-end loaded. So can we infer from that, that you'll do -- you could do better than the top end of the range for your proportional free cash flow, and what would that mean to the parent free cash flow?

Andres Ricardo Gluski Weilert

Yes, I would say that the parent free cash -- I mean, no, we're not going to -- as we're saying, we're staying within our guidance at this point. But as Tom indicated, we were doing better on the cash metric.

Thomas M. O'Flynn

Yes. I think, Jon, I said it's the proportional free cash flow. I think I'd say that proportional free cash flow, we just stay with the ranges we have. I think the parent free cash flow, we're actually more conservative with that range going out at the start of the year, so we're now focused towards the top end of that range. And as we consider dividend policy later in the year, that's an important baseline.

Jonathan Cohen - ISI Group Inc., Research Division

Okay. And lastly, can you just give us a sense of what the rate -- long-term effective tax rate is? So it looks like this year, your earnings are going to benefit about $0.11 versus last year from tax. Is that something that should reverse over time? Or can we assume that your tax rate is going to stay close to where it was [indiscernible]?

Andres Ricardo Gluski Weilert

What we have in our long-term projections is low 30s. And so -- yes, this year in particular. This is very much effective from where the earnings come. So the earnings, for example, Brazil is having lower earnings, that is a high tax jurisdiction. If you have more earnings, for example, coming from Chile, that's a low tax jurisdiction.

Thomas M. O'Flynn

Yes. So I think, Jon, you're right. I think as we look at sort of a run rate cutting through the differences, if next year is a normalized year on a similar path of earnings, we'd be about $0.10 to $0.12 higher in taxes.

Operator

Our next question comes from Ali Agha from SunTrust.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Andres, listening to your comments, particularly on the cost reduction front, the fact that you will be running ahead of plan this year, how should we think about the fact that, that $145 million target through '14 could end up being conservative? I mean, what's your confidence level that it will go up? And related to that, in the past, you've talked about the fact that even though you're officially looking at 4% to 6% EPS growth, your aspiration would be to get it back up to 6% to 8%. What's your confidence level on doing that, and when could we start to see signs of that happening?

Andres Ricardo Gluski Weilert

Okay. I think in the first part of the question, how do we feel about our overhead cost reduction target. And first, I want to say, this is our overhead cost reduction targets. We're doing a lot of other things in the businesses. So first, yes, we feel confident that we will exceed the $145 million. We'll give you more exact indication how far we think that will go when we update our guidance for next year, in the fourth quarter, after we've finished our budget. And regarding the second question, as we said, we'll work very hard to exceed the sort of total return, as we set out at 6% to 8%. But we are facing significant headwinds. The dry hydrology this year is, in many cases, the worst the country's experienced in 70 years. And what's been very unusual is that the north of Latin America and the south of Latin America were correlated, which is usually they're not correlated, they're going opposite directions. As well as FX and commodities, but we remain committed to try to exceed this goal.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Okay. Second question. I know you guys had looked at this, potentially IPO-ing your solar assets in Toronto, pulled back on that. Since then, there's been excitement about this so-called yield cost structure. Other companies have tried it, and that seems to have been accepted well by investors. What would be your appetite for a structure like that? And what's your thinking on your portfolio in a yield-curve-type format?

Andres Ricardo Gluski Weilert

Well, what we think -- again, the process that we're in now of bringing in partners on our projects and our businesses, especially financial partners, we're allowed to operate and really extract the synergies and economies of scale is the way to go. Now regarding the solar, we did look at a yield base, in sort of a yield curve on solar. We still have Mount Signal in construction, which is 260 megawatts of solar in Imperial Valley in California. And so, really, it was not completed. We weren't happy with the price and wait until there's less sort of construction risk and revisit this. So what I can say is that we're looking at all possible ways of getting the most value out of our footprint and out of our assets. That's really what we think it's all about. This is a capital-intensive business. And what we want to do is at each -- we have an unmatched footprint. We have a very good brand names, we have very good contracts, very good assets, it's really how can we maximize the returns from that invested capital. I don't know, Tom, do you want to add something?

Thomas M. O'Flynn

No, I think you said it well, Andres. I'd say we do look at ways that we can attract capital at more attractive levels. We certainly do at the project level with partnerships that Andres has touched on. We did look at the solar situation in the North and thought it was a good concept, we just weren't comfortable with the value. It may look better in the future once Mount Signal gets online. But...

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Okay. Last question. Just to be clear on the asset sale goals you've talked about, so you've done about $234 million year-to-date. Did I hear you right that you still expect to do $500 million by the end of this year? And then the $900 million number you've talked about, is that incremental to the $500 million? Or does that incorporate the remaining portion of that $500 million?

Andres Ricardo Gluski Weilert

Sort of the 2 parts of the question. First, yes, we remain optimistic that we can reach the $500 million in net proceeds to AES this year. And when you talk about the $900 million -- when I talk about the $900 million, that's up and above the $230 million that has already been closed this year.

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Okay. So the starting point is after what has been done so far this year?

Andres Ricardo Gluski Weilert

That's correct. And if you remember, when we first started talking about it, we always said there was a universe around $2 billion. And what we're saying at this stage is that we feel confident that we can reach that -- from now to the next 2 years, complete this and hit the $2 billion figure.

Operator

Our next question comes from Julien Dumoulin-Smith from UBS.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

So quick first question here on the Gener funding of the equity layer, I suppose, later this year, is that really due to the Alto Maipo sale, and just kind of keeping your stake at a comparable level as it is today?

Thomas M. O'Flynn

No, Julien. It's Tom. It's really more -- Alto Maipo is on track. The partnership is very consistent with our expectations and what we've worked on for the last 6 months. It's really how Gener fund their equity piece into Alto. And we're looking at some scenarios that would have some non-equity which could reduce the Gener new issue common into the market.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Ultimately, would you keep the existing stake that you have in Gener with the $100 million?

Thomas M. O'Flynn

Yes, that's our expectation. So when you said up to $100 million, that would be roughly 70% of the deal, so that would assume that Gener would do an equity deal of $150 million, $175 million, something like that. Appreciate it's still work in process, but it also impacts how we see relative values. And so even if Gener went a little larger than we can subscribe to up to 70%, we can also dial it back if we want.

Andres Ricardo Gluski Weilert

Yes. And I'd like to add there, the way we're looking at the portfolio is that we really target even in the sense that through something like this, emission of shares at Gener, we can target the exact amount that we want and so -- also buy some of the sell-downs, so we'll be doing partial sell-downs. So what we're doing is really optimizing our portfolio and seeing where we get the -- we feel the best returns. Of course, it's a strategic objective of controlling these companies so that we can really extract the synergies from having this global portfolio.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Great, excellent. So perhaps the next question, just going back to the discussion on asset sales and partnerships. Just if you can provide some sense of magnitude for what these potential partnerships could yield in any kind of metrics, if you will, but just a little bit more detail there.

Andres Ricardo Gluski Weilert

Well, that's a little bit tough. And as you know...

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Do you have a target maybe or anything like that, that you want to throw out there?

Andres Ricardo Gluski Weilert

What I would say, in the number I gave you, the $900 million, some of that could be partial sell-downs than the $200 million that we are -- or $900 million that we're going to do over the next 2 years. So part of that could be partial sell-downs, and we could sell down at various levels. And again, the basic idea is to be able to tailor the risks that we want in markets that we want in technologies. So for example, take something like Alto Maipo, we want half of that project, because that's what we feel would be optimal for Gener and for us. And the same thing is the decision between Cochrane and Alto Maipo is to be able to do both projects. So as Tom mentioned, we will look at what's the optimal mix of partnerships and new equity, for example, into Gener.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Great. And then lastly on Bulgaria, I mean, you talked about preserving the contract value. And I know it's a little tough to talk about it right now, but what are those potential avenues, if you can talk about it at all, frankly.

Andres Ricardo Gluski Weilert

Just to give you a sort of -- we have a great asset there. It's the only major plant in Bulgaria which is EU 16 compliant, very good contract. There's some things going on in Bulgaria, we're on top of that. I think Andy can comment a little bit more on the specific actions.

Andrew Martin Vesley

Julien, it's Andy Vesley. I really don't want to talk about all kind of options because quite honestly, our discussions associated with...

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Andy, I'm not sure we can quite hear you.

Andrew Martin Vesley

Sorry, Julien. It's Andy Vesley. In terms of what's going on in Bulgaria, as you know, what's driving all these issues are the perception of the high energy prices, and that's retail energy prices. And as you may be following, when the new government came in, they reduced distribution tariffs by 7%, and that was done by impacting the distribution companies' distribution value added. August 1, they've come out with a new regime, basically reducing energy prices again by 5%, and that is going to other generators and not those who have PPAs like AES. The real issue that we're focusing on the moment is with our offtake in NEK and their liquidity because the primary focus for us right now is making sure our accounts are current. So we're in constant discussions. We had very productive discussions. They are working very hard to find ways of continuing to meet their obligations to us. At the moment, that's where our discussions are. And it's a changing situation. The Bulgarian government has taken a lot of steps in the sector, a lot of focus on NEK and how it's structured. So at this point, it's our relationship with NEK, which is in front of us, and the most immediate issue is to make sure that they continue to meet their obligation in paying for the energy that we provide them. So that's where we are at the moment. And as this goes forward, we'd be happy to update.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Great. And then actually, just a quick one on Uruguaiana in Brazil, any update on re-contracting there?

Andres Ricardo Gluski Weilert

On Uruguaiana, in terms of the actual operations of the plant, we operated for 2 months, and we expect to probably get it back up in September. This has to do with the Brazilians, as you know, because of the drought, they have managed their reservoirs very well and have been requesting a lot more thermal into the system. Now some of that, of course, has been socialized across all the generators, including Japan, that's affected somewhat the results. But yes, we do expect to be operating it once again, probably in September.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

And that would be on a go-forward basis, just from a modeling perspective? Would that be...

Andrew Martin Vesley

Well, we're not ready to say that yet. I mean, the real issue becomes -- right now, in Brazil, as you know, they're still using a lot of thermal generation. So the ability to have Uruguaiana available to provide supply to help rebuild the reservoir levels is essential. And actually, the Brazilian government had said that. The real issue becomes the relationship between Brazil and Argentina and getting the gas. As you remember, the last time when we restarted the plant, it was Brazilian gas transported through Argentina. So there are a few pieces that have to work. Those conversations are ongoing, they're active, and we're very hopeful that we will not only be able to get the plant back, as Andres said, in an emergency situation, whether this year, but as we resolve the YPF situation, we'll have a long-term commitment.

Andres Ricardo Gluski Weilert

Yes. That's good to clarify. I mean, when I say September, on the month of September, our goal is to have it long-term available, constantly available, and receive capacity payments, et cetera. And we do have very good relations with both governments, and we're in conversations and we're optimistic this will happen.

Operator

Our next question will come from Charles Fishman from Morningstar.

Charles J. Fishman - Morningstar Inc., Research Division

Just a follow-up on that last -- or one of the previous questions on Bulgaria. What is your total exposure right now to NEK?

Andres Ricardo Gluski Weilert

Our total exposure is about, let's say, 5% of our total PTC, pretax contribution. And I would say that our exposure, as you can see in the Q, is about $80 million in terms of, let's say, accounts receivable that are past due. But I'd say that that's basically -- on book value, I think it's somewhere around 590...

Andrew Martin Vesley

But we focused on the PTC number, so a little over 100, 110, something like that.

Andres Ricardo Gluski Weilert

Yes. But just to put it in context, as Andy said, I mean, right now, our focus is really on making sure we maintain the receivables at this level. The plant is operating very well, and the issues that the sector is facing in Bulgaria have a lot -- really are driven by this. It has to do with some of the legacy plants, increasing their exports of energy, and they've taken the right steps. So it's a question of strengthening any case cash flow more than anything else.

Charles J. Fishman - Morningstar Inc., Research Division

You've had a contractual issue with the contract around that plant at one time. Is that still in arbitration?

Andres Ricardo Gluski Weilert

We didn't -- well, we basically did have an issue with a contractor on that. And I think Brian can comment on that.

Brian A. Miller

You're correct. It's still in arbitration, and the hearing is scheduled for later this year and the beginning of 2014.

Charles J. Fishman - Morningstar Inc., Research Division

Just roughly, what's your exposure on that?

Andres Ricardo Gluski Weilert

Well, I'd say, our exposure, I mean, basically, it's -- we have, let's say, the funds that were put up for, let's say, losses caused by the contractor, I think are about -- well, about EUR 90 million to EUR 100 million, and that we feel our exposure here is minimal in terms of -- if any. Because what happened is that we asked them to exit the construction site and we completed it ourselves with some assistance from some technical firms, and we did get it up to nameplate capacity. I don't know, Brian, you can -- want to comment any more on that?

Brian A. Miller

No, it's accurate. And obviously, it's in arbitration, so we need to be a little less talkative about the issue.

Operator

Next, we have Gregg Orrill from Barclays.

Gregg Orrill - Barclays Capital, Research Division

I was wondering if you could touch on parent free cash flow and how you see that trending into 2014 and ongoing? I know you said you are looking at the top end of the higher part of your guidance for this year. And then within that, just a couple of drivers, I know you said the parent interest was on a run rate reduction of $50 million, and how that compares to your expectation, and whether you can increase those savings going forward. And then lastly, on the MCAC region, I think you had some spot sales there, just how that's tracking relative to your PTC ranges from the Analyst Day and going forward.

Thomas M. O'Flynn

Gregg, let me hit -- try those. From a parent free cash flow, I think our range for this year, $400 million to $500 million, was conservative. And as I said, we're more comfortable with the higher end of the range. You may remember last year, the number was about $520 million, $525 million. I think $500 million is a generally good run rate for us. We haven't got a specific number for next year, in '15, but that's a generally good number, maybe $450 million to $500 million. As we look out longer term, with some new plants coming online, especially Mong Duong, which comes on later in '15, we do think '16 and thereafter, we'll have some good ability for us to grow off of that base, if you will. But certainly, as it impacts dividends, as we've talked, we think we can grow into a range and then grow the baseline on a longer-term basis. Andy, I don't know if you want to touch on the spot sales...

Andres Ricardo Gluski Weilert

Gregg, could you clarify the question? I didn't hear it very well, for Andy. The second part of the question regarding MCAC.

Gregg Orrill - Barclays Capital, Research Division

The second part of the question is related to just how you were trending relative to the PTC guidance on MCAC and how you see that business going forward.

Andrew Martin Vesley

Yes. Gregg, maybe I'll just say that I think MCAC was still in the range, trending towards the lower part of that -- some meaningful offsets from Panama where we have said had some improved results out of the Dominican Republic. So it's still -- we're still below the midpoint in MCAC, but the DR is done well and I think benefited from some market conditions there.

Gregg Orrill - Barclays Capital, Research Division

And then on interest expense going forward, additional savings and how it's coming in versus expectations?

Thomas M. O'Flynn

Yes, I think we will have some -- the interest savings that we're seeing this year, we'll have some continuation of that. I think it's in the 30-ish range, maybe $0.03 to $0.04, Gregg, from a bottom line EPS impact.

Operator

Next question comes from Brian Chin from Merrill Lynch..

Brian Chin - BofA Merrill Lynch, Research Division

Could you give us a little bit of update on Indianapolis Power & Light? Two things, one, I know that the CCGT decision is still early 2014, but any sort of color on updates on that? And then secondly, could you give us an update on the environmental retrofit settlement agreement, did the commission decide on that, what's the latest on that?

Andres Ricardo Gluski Weilert

Okay. I think Andy can certainly can update you on the first part.

Andrew Martin Vesley

Yes. Brian, it's Andy Vesley. In terms of the CCGT, where we are in the process is we do expect, as you know, we filed for the CPCN almost a year ago, and we do anticipate getting a decision out of the commission on it this month, and we expected it to be on the last agenda. It wasn't -- well, we do anticipate it being at the end of this month. We don't anticipate any difficulty, and we were not aware of any issues that will come up. So we believe we'll be moving forward with that as per our schedule and as we've discussed before. In terms of the second part of your question, maybe if we're talking about -- are we talking about the MATS investment?

Andres Ricardo Gluski Weilert

Certainly, it's the MATS.

Brian Chin - BofA Merrill Lynch, Research Division

Yes, I was thinking of the retrofits and settlement agreement that had been reached between Indianapolis Power & Light and the consumer groups. I think I have in my notes here that a decision by the commission was expected some time around the middle of this year, but maybe I've got my notes wrong. I just wanted to [indiscernible] right update.

Andrew Martin Vesley

Yes. Brian, I'm going to have to say that I'm aware of those ongoing discussions. I know that there had been a lot of proposal put back and forth. I am not aware that we have a decision, so we'll have to update you because I don't have any new information on that.

Brian Chin - BofA Merrill Lynch, Research Division

Okay. Okay, fair enough. And then second topic, I believe you said in the prepared remarks that the share buyback that's been done so far leaves about 237 million left that's been authorized. Is that correct?

Andres Ricardo Gluski Weilert

That's correct.

Brian Chin - BofA Merrill Lynch, Research Division

Okay. Based on the run rate of how much you guys have been buying back in terms of shares, that leaves about another year or so of share buybacks, if you just use the same run rate. Should we expect to see at some point over the next, call it, 2 or 3 quarters, an increase to the authorization amount, just to give you guys the flexibility in the event that shares do decline?

Andres Ricardo Gluski Weilert

Yes. As I've always said, the authorizations are really no issue in terms of us getting authorizations. The question is, as we make our capital allocation plans as we decide to do different things. So as I've said in the past, this is -- we have it. It's on the shelf. We can use it as we feel it is appropriate. If, for any reason, we wanted to exceed that amount, and of course, we could go back to the board and discuss it.

Operator

Our next question will come from Paul Patterson from Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

Most of my questions have been answered. But just back on comments you guys made on Bulgaria in terms of aiding any case, cash flow or liquidity, could you just elaborate a little bit more on that? I did notice that the receivables obviously rose and such. But what sort of -- how would you guys could be -- what has actually sort of contemplated with respect to that, if I understood that correctly?

Andres Ricardo Gluski Weilert

Well, I think the most -- again these are decisions of the Bulgarian government, but there's certainly -- one of the things that NEK has faced is some relatively high export taxes, and just kind of lowering some of those export taxes to allow them to export more energy into the area and get more revenues from that. And also, it's a question of some of the legacy costs that they have from some of the less-efficient plants. I don't know, Andy, do you have anything to add really to that?

Andrew Martin Vesley

Yes. Paul, Andy Vesley here. The only thing I would say is that the liquidity issue in NEK is being worked by the government and the sector, and the new regime are looking for a lot of nonenergy cash visibility in NEK. Their laws have been changes in the taxes on energy. But let me put it into some perspective. I think our accounts are about $84 million, of which, 75% are less than 60-day aged. We've been in this situation with them before, and we've always been able to come to an arrangement. Without going to too much detail at the moment, we've received a letter from NEK basically with the proposal that would make them whole rather in the first quarter and a payment scheme. So everything seems productive there. And of course, it very much depends on a lot of this new regime coming into place, but the relationship we have, in any case, is very positive, it's very open. We meet with them regularly. We have solved this type of issue in the past, and we're trying to be as flexible as we can so we can have a long-term solution. They have an issue. Everybody's working on it. We want to be part of that solution. And given the past performance of NEK and our contacts with the government, we feel we're back on the path to having a resolution. And as that becomes firm, we'll be able to update everybody on it.

Paul Patterson - Glenrock Associates LLC

Okay. That's great. And then just on the 587 [ph] of net equity, that's the total exposure, is that right? There's no -- you guys don't have any parent guarantees or anything else with respect to the Maritza or whatever? Is that...

Thomas M. O'Flynn

Yes. No, that's correct. It's all nonrecourse financing.

Operator

No other questions are in queue at this time.

Andres Ricardo Gluski Weilert

Okay. Well, thank you, operator. Before we conclude today's call, let me reiterate that we are reaffirming our guidance, that we continue to execute on our strategic plan, that we will continue to reduce cost and rationalize our portfolio. As we've previously laid out, we are maintaining a balanced approach to allocate capital towards deleveraging, returning cash to shareholders and investing in platform expansion to maximize risk-adjusted returns. We look forward to seeing you in the near future.

And with that, I will now turn the call back to Ahmed.

Ahmed Pasha

Thanks, Andres, and we thank everybody for joining us today. As always, the IR team will be available to answer any questions you may have. Thank you, and have a nice day.

Operator

Today's call has ended. Please disconnect at this time.

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