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Executives

Andrew Martin Vesey - Chief Operating Officer of Utilities

Joel Abramson - Vice President of Investor Relations

Andres Ricardo Gluski - Chief Executive Officer, President, Director and Member of Finance & Investment Committee

Victoria D. Harker - Chief Financial Officer and Executive Vice President

Analysts

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

Gregg Orrill - Barclays Capital, Research Division

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Unknown Analyst -

The AES (AES) Q3 2011 Earnings Call November 4, 2011 10:00 AM ET

Operator

Welcome and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now let me turn the meeting over to Mr. Joel Abramson. You may begin.

Joel Abramson

Thank you, Heather, and welcome to the AES Corporation's Third Quarter Earnings Call. We appreciate your being with us this morning. Joining me today are Andres Gluski, our President and CEO; Victoria Harker, our Chief Financial Officer; Ned Hall, our Chief Operating Officer for Generation; Andrew Vesey, our Chief Operating Officer for Utilities; and other senior members of our management.

Before we begin our presentation, let me remind you that our comments today will include forward-looking statements, which are subject to certain risks and uncertainties. For a complete discussion of these risks, we encourage you to read our documents on file with the Securities and Exchange Commission. Our presentation is being webcast and the slides are available on our website, which you can access at aes.com under Investor Relations.

With that, I would like to turn the call over to Andres Gluski, our CEO. Andres?

Andres Ricardo Gluski

Good morning, everyone, and thank you for calling in this morning. Welcome to my first earnings call as CEO. Today, in addition to reporting a strong third quarter, we have a number of important announcements. First is our continued progress on portfolio management; second is the acceleration of our previously announced cost savings program; and third is our intent to initiate a dividend in the third quarter of next year, with the first payment expected in the fourth quarter of 2012.

We're on track to meet our 2011 guidance, and we believe that the steps that we are taking, such as accelerating cost savings, completing more than 1,500 megawatts of construction and closing the acquisition of DP&L, support strong earnings growth in 2012. Building on the themes from our May Investor Day, we're working to become a geographically focused and cost-efficient company with an improving credit profile. By paying a consistent quarterly dividend and growing our established business platforms, we believe we will be positioned to deliver compelling total shareholder returns.

Starting with the first announcement. Our portfolio management plan aims to improve overall returns by selling non-core assets and focusing our investments in fewer markets, where we have a competitive advantage. As a reminder, our 3 core markets are the United States, Brazil and Chile. We also have important investment pipelines and projects under construction in Turkey, Poland, United Kingdom and Vietnam. There are markets, however, such as Spain and China, where we do not believe we can achieve the necessary scale or any competitive advantage that would support realizing the level of returns that we expect from our businesses. We plan to decrease our presence in such markets in a prudent yet consistent manner.

With regard to recent portfolio management activities, we have achieved 2 important milestones. The first was to sign an agreement with GDF Suez for a combined cycle plant in Cartagena, Spain. Under the agreement, GDF Suez, who's also the plant's off-taker and gas supplier, will buy 80% of our interest in the plant for EUR 172 million, with an option to buy the remainder for an additional EUR 28 million in 2013. Secondly, Brasiliana, our joint venture with BNDES, the Brazilian National Development Bank, received payment of $901 million this week for our telecom businesses in São Paulo and Rio. Of the net proceeds of $618 million, Brasiliana plans to use $480 million to retire very expensive debt carrying an interest rate of 14.2% in reais. Besides improving earnings, this will further strengthen cash flows to AES by eliminating a large debt at our holding company.

In both of these cases, we took advantage of attractive opportunities to simplify our portfolio by getting out of or materially reducing our presence in non-core markets and businesses. Though far less material to our results but in line with our portfolio management objectives, we also sold a small operations in the Czech Republic and have exited this market.

During our Investor Day presentation in May of this year, the company set out a goal of reducing annual overhead costs by $100 million by the end of 2014. We initially set a target of achieving annualized savings of $10 million to $20 million for 2012. We have since decided to accelerate this program and have already taken steps that will increase our savings for the next year to a range of $40 million to $50 million. We expect to reach the target of $100 million in annual savings by the end of 2013, a year earlier than our initial 2014 target.

Our cost savings for 2012 are mainly comprised of personnel reductions and third-party expenses related to business development in non-core markets, as well as reductions in our corporate support functions, flowing from our recently announced management structure. The new structure has 2 chief operating officers. Andy Vesey will run the utilities group and Ned Hall will head our generation group. Victoria Harker will assume additional responsibilities by leading risk and Global Business Services, comprised of information technology and non-fuel sourcing.

These changes will help us reduce cost by eliminating reporting layers and making better use of our global synergies and know how. At the same time, we will maintain our disciplined capital allocation process and level of financial controls.

All of these actions are being made in line with our strategy of focusing on our core and key growing markets, where we have or will have a sustainable competitive advantage. These reductions in business development expenses will not affect our ability to grow, either in the short term or long term, as we have plenty of remaining development projects and acquisition opportunities in our pipeline.

Regarding our third announcement. We intend to initiate a dividend in the third quarter of 2012 of $120 million annually, payable in equal quarterly installments, with the first payment expected in the fourth quarter of 2012. At today's share price, this represents a dividend of about 1.3% of our market cap. This timing will allow us to start realizing the benefit of the acquisition of DP&L and the commercial operations of new projects coming online this year.

At the same time, we wanted to provide investors with as much transparency as possible regarding our future plans, and that is why we're announcing it today. Of course, we will consider increasing the dividend over time, subject to our operational performance, credit profile and external market factors. A dividend will represent an important commitment to return cash to shareholders on a timely basis, as well as a demonstration of our confidence in future cash flows.

Speaking of returning money to our shareholders, during the third quarter, we took advantage of market volatility by repurchasing $126 million worth of shares. We repurchased an additional $54 million in October, bringing our total repurchases since July of 2010 to $378 million.

Before turning the call over to Victoria, I would like to give you a brief update on our construction program and the acquisition of DP&L. During the third quarter, Maritza, our 670-megawatt lignite-fired plant in Bulgaria, passed its 72-hour full capacity operational test, meaning that as anticipated, it will produce earnings of approximately $0.11 next year. Our 223-megawatt Changuinola hydro plant in Panama and our 518-megawatt coal-fired plant Angamos in Chile have also achieved full commissioning. With these 3 additional plants, and our 98-megawatt Laurel Mountain wind project in Virginia, we've completed more than 1,500 megawatts of new construction slated for this year.

The acquisition of DP&L is proceeding smoothly. DP&L recently obtained approval from their shareholders. And with all funding in place, we're only waiting for approval from the Public Utilities Commission of Ohio and FERC. As you know, DP&L will be a major earnings and cash contributor in 2012 and will allow us to accelerate the use of substantial tax attributes available at AES. Planned activities are on track to fully integrate DP&L into the AES family of companies by early next year.

Now Victoria will walk you through our third quarter and year-to-date results, as well as expectations for full year 2011 and guidance for 2012.

Victoria D. Harker

Thanks, Andres, and good morning, everyone. I'll begin with an update on the performance of key operating drivers that impacted our earnings and cash flow results for the quarter, then I'll walk through our other key financial metrics, as well as parent liquidity.

First, our operating drivers. Volume trends in Latin America this quarter continued to show growth year-on-year. Our Brazilian utilities grew by 4%, driven by increased demand. Similarly, our Latin American generation business has also benefited from higher volume. Chile experienced a demand growth, an essential growth of over 3%. Argentina had volume growth of 7% due to better availability of plants there.

Earnings for the period also increased in part due to our new businesses, such as Maritza in Bulgaria, where increased capacity was brought online during the quarter, increasing its contribution both versus the prior year and also the second quarter of 2011. In addition, Ballylumford, our Northern Ireland business acquired in August of 2010, contributed positive year-over-year earnings.

These positive trends were partially offset by lower prices at a few of our businesses. At one of our Brazilian utilities, Eletropaulo, the regulated tariff is reviewed and reset every 4 years, but the July 2011 reset has not yet been finalized. As a result, for the third quarter, Eletropaulo continues to invoice customers under the existing tariff rate, as required by the regulator. However, it is expected that the new tariff, once finalized, will be lower than the existing tariff. Therefore, we also recognized the regulatory liability against a portion of these collected amounts from July 2011 forward. Likewise, we anticipate a reduction in revenue in 2012 and going forward once the tariff is enacted.

As was true in the second quarter, the outage at Estí, our hydroelectric plant jointly owned with the government in Panama, continued to create a drag on our results for the third quarter versus the same quarter of 2010. The plant remains offline as repair work continues. During that time, it is meeting its contractual obligations through spot market energy purchases. While we did receive business interruption insurance proceeds of $30 million in the third quarter, the net impact is still negative for this quarter. As a reminder, the plant is expected to be back online during the second half of 2012.

Foreign exchange tailwinds experienced earlier in 2011 diminished in the third quarter, and foreign exchange had a minimal impact on our earnings for the period. However, FX tends to be very volatile as a result of global economic trends.

Third quarter consolidated gross margin was just over $1 billion, which is an increase of $53 million or 5% compared to the same quarter of 2010. On a proportional basis, we earned $563 million of gross margin, which was a decline of $25 million versus 2010, primarily due to the impact of the Panama outage.

This quarter, we also booked several impairments to operating assets, as well as directly [indiscernible] investments that I'd like to walk you through. In total, these impairments represented $0.27 per share loss on a GAAP earnings basis. Approximately $0.10 of this was due to the impairment of 39 wind turbines held in storage and the forfeiture of nonrefundable deposits made in prior years for the purchase of other wind turbines. An additional $0.12 of impairments was related to our investment in generation businesses in China. As we previously discussed, our business in China has experienced increased pressure on its operating margins due to higher coal prices, which we have not had the ability to pass through in tariffs there.

Finally, we impaired our Climate Solutions businesses due to a continued decline in the market prices for carbon offset. Please remember that these noncash expenses impact GAAP EPS from continuing operations, but they're excluded from our adjusted EPS results.

In the third quarter, adjusted EPS was $0.27, including $0.04 of costs related to the pending DP&L acquisition. Excluding these costs, our adjusted EPS would have been $0.31 or an increase of $0.11 over the third quarter of 2010. While proportional gross margin is down for the third quarter, adjusted EPS benefited from a favorable interim effective tax rate, a tax settlement in the Dominican Republic, as well as lower expenses.

Diluted EPS from continuing operations was a loss of $0.15, a decrease of $0.20 compared to the third quarter of 2010. This year-over-year change was driven by unrealized foreign exchange transaction impact, which swung from a $0.13 gain in the third quarter of 2010 to a loss of $0.10 in the third quarter of 2011.

These noncash losses are primarily due to a decrease in the valuation of foreign denominated receivables and cash balances as a result of the weakening of the Euro, British pound and Chilean peso during the quarter.

Now let's discuss cash flow. Our cash flow results reflect many of the same trends that impacted earnings. On a consolidated basis, operating cash flow grew as a result of favorable working capital at our business in Chile and the contribution of new businesses in Bulgaria and Northern Ireland, which was offset by declines in Eletropaulo, El Salvador and the Philippines, driven by higher regulatory charges and lower operating income, respectively.

As a result, our operating cash flow of $1.1 billion was $127 million higher year-over-year on a consolidated basis and higher by $102 million on a proportional basis, driven by new businesses in Europe and improved working capital in Chile. Consolidated free cash flow increased by $55 million to $886 million for the quarter. This increase was driven by higher operating cash flow as just discussed, partially offset by higher maintenance CapEx primarily in our Northern America utilities. This was primarily due to environmental projects there, as well as the Estí tunnel outage in Panama, as well as the stronger real in Brazil. On a proportional basis, our free cash flow increased $55 million to $456 million.

Now turning to parent liquidity. During the third quarter, parent liquidity benefited from $344 million of subsidiary distributions net of corporate overhead and interest expense during the quarter. Also during the quarter, we repurchased $126 million of AES shares as a result of market price opportunities. Additionally, we funded $414 million during the quarter. These investments consisted of prepayment of interest costs associated with the DP&L acquisition debt, as well as several construction and development projects, such as Mong Duong in Vietnam, Laurel Mountain in the U.S. and our AES Solar business. Our parent liquidity at quarter end is now $2.9 billion, down $200 million versus the second quarter of 2011. In some, the quarter was in line with our expectations.

As you know, full year adjusted EPS guidance is $1.08 to $1.14, excluding the DP&L acquisition costs estimated at $0.13. As we look ahead to the conclusion of 2011, we have several transactions underway, which could impact our final results compared to our guidance previously given, the most material of which I'd like to highlight here.

We previously disclosed that we're pursuing a sale of our interest in Eastern Energy. As you recall, in March 2011, we placed Eastern Energy into discontinued operations based on our active sale process this year. Given where we are in the year, and while efforts to sell Eastern Energy continue, there can be no assurance that we will be able to sell our interest there. It is possible that Eastern Energy may no longer be classified as continued operations by year end and as a result, we may be required to include Eastern Energy's loss of $0.07 per share in the company's results of operations in 2011.

As previously referenced, we also have several other transactions ongoing which could also and positively impact earnings. For example, we anticipate the closing of the sale of Cartagena, our business in Spain, by year end. Under the terms of the sale agreement, there are ender and regulator consents required. However, if this sale closes before year end, the transaction will provide adjusted earnings of up to $0.05 as a result of the settlement of dispute amounts due to Cartagena. We will update investors as we get a better sense of outcomes and the timing related to these and any other material transactions to the extent that they impact our results should they occur prior to our year-end call in February 2012.

With regard to 2012 guidance, adjusted EPS and cash flow metrics remain on track within the ranges previously disclosed. This is the result of new plants coming online, the contributions from the planned acquisition of DP&L and projected operating performance at our existing businesses. In addition, market and other headwinds, such as the tariff reset in Brazil, are mitigated by the additional cost cuts that we have announced. As is our practice, we will update you on our first quarter 2012 earnings call.

With that, let me turn it back over to Andres.

Andres Ricardo Gluski

Thank you, Victoria. Before we take any questions, I would like to make a couple of brief closing remarks. Today, we announced our intent to initiate a dividend in the third quarter of next year. However, I would like to highlight that this is but one component of a broader vision for AES' future. We aim to improve our credit profile and earnings by focusing our new investments in core and key growing markets while prudently exiting non-core markets and businesses. We see a leaner, more efficient AES that takes full advantage of its business platforms to create shareholder value to earnings growth and a consistent dividend.

As part of our new organizational structure, Joel Abramson will move to become Chief Financial Officer of Generation. And I am pleased to announce that Ahmed Pasha will return to lead our Investor Relations effort.

As we move forward on our goal of creating value for shareholders, we believe it will be more important than ever to effectively communicate our strategy and progress. To that end, Victoria, Andy, Ned and I will be visiting investors in New York and Boston on the 17th and 18th of this month, as well as in London and the West Coast some time before the end of March of next year. I look forward to seeing many of you soon.

With that, let me turn it over to the operator so we can open up the call to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Gregg Orrill.

Gregg Orrill - Barclays Capital, Research Division

A couple of questions. I was hoping to touch on some of the earnings drivers for 2012. I think one of the things that was mentioned was Maritza would contribute $0.11, and I wasn't sure if that was incremental or that was including 2011.

Victoria D. Harker

That's in the guidance for 2012.

Gregg Orrill - Barclays Capital, Research Division

So that's incremental?

Victoria D. Harker

No, it's included in the 2012 guidance previously given.

Andres Ricardo Gluski

Yes. But I think what Gregg is saying is it's $0.11 for the whole year, and if you look at what Maritza was contributing for this year, it's substantially less. It's going to be probably about $0.01 or $0.02. Did that answer your question?

Gregg Orrill - Barclays Capital, Research Division

It will be $0.01 or $0.02 this year.

Andres Ricardo Gluski

This year. So we're jumping -- it's coming up to about $0.11 next year. This year, what happened is it wasn't, it ran at not the full commissioning amount, and so now that it's fully commissioned, then it's going to start receiving the full payments.

Gregg Orrill - Barclays Capital, Research Division

Okay. And can you update us on the accretion from DPL in 2012?

Andres Ricardo Gluski

No. We have nothing new to say about DP&L at this time.

Gregg Orrill - Barclays Capital, Research Division

Okay. And then the benefits from some of the other growth projects? So maybe a sense overall for how much those projects might add in 2012?

Andres Ricardo Gluski

Sure. I mean, I think the big ones, it's a combination of many things. I mean, at the one hand, we're talking about having a run rate reduction on cost savings side of around $0.04 to $0.05. And then the big ones, of course, being Maritza is $0.11. Then you have Angamos in Chile, which is 518 megawatts. Fully contract, that's around $0.05 as well. And then you have Changuinola coming on in Panama, which is around $0.02. And also, we have the, let's say, completion of the repairs of Estí, which was out for most of 2011. So those are sort of the big moving pieces there.

Gregg Orrill - Barclays Capital, Research Division

And then you mentioned that you were reserving -- I'm not sure if that's the right term -- or setting aside an impact already in the third quarter for the Eletropaulo rate case outcome? Are you willing to share what that is?

Victoria D. Harker

Gregg, this is Victoria. What we've done is to the extent that we can from a U.S. GAAP standpoint, which means we've had to back out certain of the regulatory assets we have reserved against the delta, we believe will be the lower amount for the tariff once it's finalized. It's about 70% of that delta we expect will end up having to true up once it's finalized probably in early 2012, but we're still waiting to hear what that final amount is.

Gregg Orrill - Barclays Capital, Research Division

Okay. And then maybe lastly, if you could touch on just sort of a thought process around the dividend and sort of the uncertainties in terms of what you see them to be in the cash flows and where do you see that growing in the future.

Andres Ricardo Gluski

Sure. Well, as I said on the call, first, the timing. In the timing, we want to announce it now to give transparency in terms of what are our plans for the year. But we want to first complete the acquisition of DP&L. We also want to have some time of running the new projects, which we've mentioned, to have them online, to have those consistent cash flows. And we think then would be the right time, starting at the end of the third quarter, to start paying a dividend. So that's the first, let's say, thought process about why announce it today and why the third quarter, why not for example the second quarter. So we have a number of important projects that we want to complete, and we'll be acting very prudent in this respect. In terms of whether it will grow over time, as we mentioned, we will look at our operating results. We will look at our credit profile, and we will look on what's going on in the external market, which includes many factors. So that's our approach at this point, and we think it's an important first step for AES.

Gregg Orrill - Barclays Capital, Research Division

Okay. And I'm sorry, one last one. You touched on the potential sale or not of the New York assets. And to the extent that that's not successful, there would be a $0.07 impact. I wasn't clear -- sort of whether that -- first, whether that was impacting adjusted earnings. And second, kind of what is the fallback plan if you can't sell it. Is it shut it down? Or what's the fallback strategy?

Andres Ricardo Gluski

I think the reason we mentioned it on this call is really the passage of time. We’ve been talking for a long time about Eastern Energy. We continue to think that we will complete or fail. We really have until the first quarter of next year, but we didn't want to -- we just wanted to highlight that if it didn't, this could be the impact from it. And of course, we're looking at other alternatives, as we always have. But we believe that we will close that within the time period that we've given. But we just wanted to say, if it didn't, this would be the effect.

Operator

Our next question comes from Brian Russo.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Just to focus a little bit more on the dividend. Can you just maybe provide some insight as to what kind of assumptions support the $120 million a year dividend payment? Should we kind of view it as being supported by the regulated utility cash flows? Or are you viewing it from a consolidated cash flow perspective? And then any thoughts on where the payout ratio could trend over time?

Andres Ricardo Gluski

Okay. I think in terms of -- if you look at the amount, I think an important element that we're considering is subsidiary distributions. So if you look at the growth of our subsidiary distributions, they have grown from about $1 billion, have been for many years to this year being about $1.25 billion. And we're projecting the midpoint about $1.5 billion next year. But I think that sort of puts it in context $120 million in terms of our total subsidiary distributions. We do have certain, say, restrictions under our debt covenants in terms of how much cash we can use for things like dividends or share buybacks. And this is normally in the range of around $400 million to $500 million. So that’s, I would say, one of the constraints that we have there. But in general, I think this is an amount that we feel comfortable if you compare it to the subsidiary distributions from our big core companies, whether it be a Gener, whether it be a DP&L, whether it be an IPL, it's, we think, the right amount. And we also have to take into consideration with what is offshore, onshore in terms of other tax considerations. So all in all, this is a, we think, sustainable dividend. It's a good place to start, and I think that the timing’s right.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay, great. Can we kind of also assume that your commitment to share repurchases would continue even with the initiation of a dividend payment?

Andres Ricardo Gluski

What I said -- as you will have noted from what we've said, we had a more aggressive, let's say, share repurchase program in the last couple of months. What I'd say in terms of going forward that we will look at the market volatility and really, no change in our policy there. But I do think that, again, a dividend represents a strong commitment and it's one that we have to, of course, maintain for the long run and, if anything, grow over time as the operations and our cash flows permit.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And just on the portfolio management initiatives. Is it safe to say that the Wind business and the solar JV are also considered non-core? And maybe could you just share your thoughts on that?

Andres Ricardo Gluski

Yes. Well, generally, what we've been talking about sort of core and non-core, it's been principally on a geographic basis. However, because the way I think we think of wind today, really, is as one more component of how we deliver energy to our clients and to networks. And so we think that's important. If you're in a country where you have renewable portfolio standards and the most efficient way of meeting that is by wind, we want to have that in our arsenal to meet those requirements. Solar is different in the sense that it really is a JV that we have with Riverstone. And it operates today quite independently, a sort of AES' portfolio strategy. So I wouldn't say that -- the way to think about it is geographically and this is one component of our capability. And that doesn't mean that if in some geography we don't think it's strategic or we get a very good price and it would make sense to, say, turn that money into more highly productive investment, we will. But I wouldn't start thinking about wind as a stand-alone, to be spun off. That's not where we're at today.

Brian J. Russo - Ladenburg Thalmann & Co. Inc., Research Division

Okay. And then just lastly, when we look at like -- I guess, Slide 23 and 24 in your pipeline of construction projects, is everything currently under construction fully financed so there's no -- we shouldn't see any incremental debt raised for that? And then some of the longer-term projects, that's where additional debt will be needed, like the Vietnam plant and some of the other longer-term projects.

Andres Ricardo Gluski

Yes, that's exactly right, Brian. That's exactly right.

Operator

Our next question comes from Ali Agha.

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

Andres, I wanted to flush out a couple of issues a little more, some of which have been clearly touched upon earlier. To be clear on what you said earlier, given the restrictions, bank restrictions, covenant restrictions, et cetera, if I heard you right, what you're saying is the combination of share buybacks and dividends right now, you would be limited to about $500 million a year. Am I hitting that right?

Victoria D. Harker

About $400 million to $430 million. And it has grown over time as our parent operating cash flow grows as well. So it's not -- like the cap that would move as our improved and base operations continue to generate more cash distributions to the parent.

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

Okay. So that's about $400 million to $430 million the combination of buybacks and dividend payouts?

Victoria D. Harker

Yes.

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

Okay. And so I guess, I mean, you've got -- your original authorization was about $500 million on the buyback and you told us you got about $378 million. So should we assume that the current program will get competed on the buyback? Or are you going to just be opportunistic and then hold back on that?

Andres Ricardo Gluski

I would say that, basically, we're not making a commitment to use the full $500 million of the authorization. On the other hand, if in the future we needed more authorization, that would not be a limit either.

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

Okay, okay. And then, secondly, in the 2012 guidance, what's the effective tax rate you assumed for next year?

Victoria D. Harker

We've assumed the same year-over-year. And so we would assume, for example, that TIPRA would be extended or the benefits that we saw this year. Obviously, that remains pending any legislative changes. We haven't yet updated for anything subsequent in terms of geographic shifts from portfolio changes. For example, we'll have to continue to look at that. And the rate is low 30s, 31%.

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

Okay. And if I recall correctly, Victoria, if the projects don’t get extended and the tax rate goes up, the impact is about $0.05 to $0.06 annually -- on an annual basis. Does that sound about right?

Victoria D. Harker

I think it was a bit higher. It was about 35% or so. So it was $0.10, $0.11.

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

Okay, okay. And then I'm just looking at your portfolio today and the projects you have in the pipeline, the cost reduction program, et cetera. Of this '11 base -- or maybe that '12 base since that '11 had the DPL cost in there. So let's take '12. What do you believe is the sustainable growth rate, EPS growth rate, that AES can deliver for shareholders?

Andres Ricardo Gluski

Yes. Let me -- if you look at our guidance for 2012, we have a significant step-up in our earnings. And we will have Investor Day later on in 2012, and I would sort of update the guidance that we've given in the past. But I think what's important is that with our sort of more focused strategy, we expect to have sort of higher hit rates in terms of development projects. We also think it will be more cost efficient because there'll be more platform expansions than in the past. But at this stage, what I'd say is we're confirming 2012 and we'll get back in terms of updating you some time in 2012.

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

Okay. So back at the Investor Day, I recall you folks had said of the ‘12 base, you still felt that a 10% annual growth over the next 3 to 4 years beyond that was sustainable. You are no longer confirming that?

Andres Ricardo Gluski

No. I'm not confirming or in the sense of denying this. What I'm saying is that given that we will have different projects into the future pipeline, and you know that these can be lumpy as well. We'll have to see exactly over what sort of time period. And in addition, one of the things that I have highlighted is asset sales. And so asset sales, it will depend on how quickly we redeploy that cash and how do we redeploy that cash. So that's why I'm hesitating a little bit here and saying, "You know, let us come to you and we'll see a little bit on how we progress on some of these key asset sales."

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

Okay. And my last question. When you talked about wind and solar and your thoughts there, one of the frustrations for the investment community has been the fact that over $1 billion has been invested in your renewable portfolio to date. And yet, at least on the earnings front, the impact has been very immaterial and arguably one of the reasons holding back your stock valuation. Have you thought along those lines and from a valuation enhancements perspective perhaps revisited what the plan is for the renewable investments?

Andres Ricardo Gluski

Well, I think we looked very hard in terms of our renewable portfolio and specifically speaking, wind. There were a number of issues there. First, you had the tax equity, which essentially depresses earnings in the initial years and then you really do get a tremendous hockey stick in the outer years as that gets repaid. You had also the hypothetical liquidated book value, HLBV, issues, which also pushed down earnings at the beginning of the year. So it was somewhat of a skewed picture. I think what's most important is the sort of -- what sort of returns are we getting from these projects? Are they coming online? Some of the projects have had issues with curtailment. I think a lot of these have been solved. I mean, this is mostly in Bulgaria and in China. So overall, if you look at our portfolio, I think we've -- your past -- some of the projects are maturing out of the lease equity -- tax equity, sorry, time period. And also, if you look at going forward in the U.S., you have more investment tax credits and things like that, that will upfront the earnings relative to our initial projects.

Operator

Our next question comes from Travis Miller.

Unknown Analyst -

On the environmental stuff. Now that we've had some time to digest Casper, what are your plans for the older coal plants, particularly the merchant ones outside of the Eastern Energy?

Andres Ricardo Gluski

Okay. First, as you know, in both IPL and DPL, we're quite well positioned in terms of how our plants are scrubbed versus the other plants in the market. And we have, of course, a good idea, I think, in terms of what the CapEx would be required to meet some of the new environmental regulations. I'd like to ask Ned to add some comments to that.

Ned Hall

Yes, Andres, I would just amplify what you said. Outside of IPL and DPL, certainly, our plants that have contracts or the few that are still remaining in the merchant are largely scrubbed for SO2 and NOx. So we're in pretty good shape as far as the Casper rules go from those facilities. IPL may have to actually make some investment. But there's clarity in how that would work. Obviously, as Andy steps into that role, he'll be dealing with that. But that investment would be anticipated to be recovered through rates as it is made. And DPL is actually in pretty good shape in terms of NOx and SOx requirements as well. So overall, I think we're feeling like we're in a good position.

Unknown Analyst -

So no plant closures planned at this point?

Andres Ricardo Gluski

Andy?

Andrew Martin Vesey

This is Andy Vesey. In terms of IPL, we have announced a number of plant closures that have intent -- or are initially based on finding the final rulings on the hafta [ph] map, which is going to be out in December. We have a number of plants. The older plants probably would not support the incremental investment. So there are some plants that are scheduled potentially to close down by the end of 2015. This has been announced publicly. And in order for us to get a regulatory treatment for the investments, we would have to get from the Indiana Commission a certificate of [indiscernible]. And it’s clear to us that those older plants would not receive that and therefore, we would not get the right recovery. So we do have plans to close the smaller facilities. However, that said, we are still awaiting the final rules, which will be out on December 16, and then we'll update our plans.

Andres Ricardo Gluski

I think the key point here is it would be to sum up a smaller plant. We don't see it having a major effect on our generation capacity.

Unknown Analyst -

Okay. Beaver Valley or where you're on?

Ned Hall

Beaver Valley is scrubbed and has NOx controls as does Warrior Run. The specifics, obviously, again, will depend on the economics as it plays out over time. Both have power purchase contracts that support them. There's growing concerns right now. And the long term, obviously, if costs increase for the allowances, could have an impact. But the near term, we're fine.

Operator

Our next question comes from Sachin Shah [ph].

Unknown Analyst -

So I just want to get an update on the DPL deal. I know that you’d mentioned the deal in Ohio and FERC. So it seems from the update from Ohio stipulation that we should hear back from them but -- so I just wanted to get an update on the Ohio POC and any kind of indication from FERC at this point.

Andres Ricardo Gluski

Yes, I'll pass this off to Ned. I really don't think there's much that we can comment on it other to say that the approval process is proceeding smoothly and that we really don't see any major hiccups in the process, but I don't think we can give any opinions past that.

Ned Hall

FERC has it scheduled to decide by the 18th. And so we anticipate some progress there. And as you know, we filed with Public Utilities Commission of Ohio and that's all progressing on the natural course.

Unknown Analyst -

Okay. But -- so no indication if you can close the deal by the end of the year?

Ned Hall

No. We're dealing with regulatory process. So we don't want to be speculative. But everything is proceeding well.

Operator

We have no further questions at this time.

Andres Ricardo Gluski

Okay. Well, with that, we'd like to thank everybody for having called in. I'll turn it over to Joel.

Joel Abramson

All right. Thank you very much.

Operator

Thank you for participating in today's conference. You may disconnect at this time.

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