Q3 2020 AES Corp Earnings Call
Good morning, and welcome to the E S Corporation third quarter Financial review.
All participants will be in listen only mode. If.
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After todays presentation, there will be an opportunity to ask questions. Please note that this event is being recorded.
I'm not like to turn the call over to Mr. Ahmed Pasha, Treasurer, and Vice President of Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome to our third quarter 2020 financial review call.
Our press release presentation and related financial information are available on our website at <unk> Dot com.
Today, we will be making forward looking statements. During the call. There are many factors that may cause future desserts to differ materially from these statements which are discussed in our most recent 10-K and 10-Q filed with the <unk>.
He can see issuance between GAAP and non-GAAP financial measures can be found on our website along with the presentation.
Joining me. This morning are Andreas Gursky, our President and Chief Executive Officer, Gustava, Menthol, our Chief Financial Officer, and other senior members of our management team.
With that I will turn the call over to Andreas Andreas.
Good morning, everyone.
And thank you for joining our third quarter financial review call.
Today I will cover both our near term priorities and the progress we have made on our larger strategic goals.
On our last call I outlined three top priorities.
First achieving our 2020 guidance.
Second attaining a second investment grade rating.
And third Decarbonizing our portfolio.
We see all three of these goals, both individually and collectively as a catalyst for attracting a wider investor base.
Perhaps more importantly, we see all three as clear demonstrations of our ability to thrive in today's evolving landscape.
Today I am pleased to report that we're making great progress on all of these objectives and have several exciting developments to discuss.
First.
As Gustavo will review in his remarks, our portfolio continues to prove its resiliency in the face of COVID-19, and we're on track to achieve our full year guidance. In fact, we expect to be at the top end of the ranges for both adjusted EBITDA and parent free cash flow.
Turning to our goal of attaining a second investment grade rating.
I'm proud to say that we were upgraded by S&P earlier this week.
This reflects the low level of risk inherent in our current business model.
Two investment grade ratings will help us reduce our overall cost of capital and enable us to attract a broader investor base.
Following this milestone we remain committed to further strengthening our balance sheet and increasing the percentage of our business in the U.S.
Now to our third priority of aggressive de carbonization on slide four.
As you May recall, we said a near term target to reduce our cogeneration to below 30% of total generation by the end of this year and to below 10% by 2030.
I'm happy to report that with todays announced retirement of an additional 1.2 gigawatts, we have reduced our coal generation to 29% on a pro forma basis.
Three quarters of these retirements are in the U.S. and the remainder in Chile.
Importantly, these retirements, we're already anticipated in our guidance and we will achieve our de carbonization targets, while delivering on our financial commitments.
We see the transformation of our portfolio as an ongoing process and we expect to announce additional coal retirements and asset sales in the near term.
However, this milestone is significant in that it puts us in compliance with the environmental criteria of several large investors, including Norges Bank.
In the longer term, we expect to produce net zero carbon emissions by 2050.
Moving to our long term strategy and the progress we've made to date.
As we've discussed previously our strategy revolves around three core themes.
One investing and sustainable growth.
Two offering innovative solutions.
And three delivering superior results.
Turning to slide five we are well positioned to meet our strategic and financial objectives. So far this year, we have side P.B.A.S for 2.1, Gigawatts of wind solar and energy storage projects, which is the most we have signed in the first three quarters of any given year.
Onto slide six.
We now have a backlog of 6.8, Gigawatts, which is also the largest in our history.
Approximately one third is under construction with the majority expected to come online through Twentytwenty two.
Almost half of this backlog is in the U.S., which we expect to grow as a proportion of our business going forward.
Our backlog includes a mix of solar wind energy storage and our Alto Maipo Hydro project in Chile.
We continue to make good progress it out to Michael where construction is more than 96% complete.
As you can see on slide seven renewables are now nearly 40% of our installed capacity and disproportionate will grow materially as we complete the 6.8 gigawatts in our 100% renewable backlog and sell and retire additional coal plants.
In addition to our renewables backlog, we see significant growth opportunities at our two U.S. utilities DPL and ideal.
We're pleased with the recent developments at IP, you know, where we reached a constructive settlement.
On various pending regulatory proceedings.
Gustava will provide additional detail shortly but this settlement is truly a milestone for DPL as it grows its rate base and its network.
Turning to slide eight.
I have previously discussed that our green blend and extend strategy, where we work with existing customers to convert the power sold from thermal to renewable generation, while extending the contract life.
This approach allows all parties to meet their financial and environmental objectives.
Since our last call, we signed an additional 410 megawatts of solar capacity under a 17 year contract in Chile, but.
Bringing our total green blend and extend execution to more than two gigawatts.
As a demonstration of the strength of our existing coal contracts in August he has hinted.
Reached an agreement with BHP for early termination, resulting in a payment of $720 million.
We will use in part to fund our renewables growth in Chile.
Well, we only report on our projects with signed P. A's as you can see on slide nine we have a robust development pipeline, which we believe is one of our key differentiators.
We currently have a developing pipeline of 25 gigawatts in key markets.
Of which 12 gigawatts or in the U.S.
Over the past couple of months, we have been solidifying our pipeline by securing land interconnection rights.
We already have very capable solar and energy storage developing teams and we recently acquired a group of experienced wind developers.
Expected renewables growth and.
In the U.S. is currently 20 gigawatts per year Howard.
However, this rate could accelerate.
We're very well positioned to take advantage of any increase in the rate of growth in demand for renewables.
Furthermore, we also could benefit from an extension of ITC and PTC incentives for renewables.
As well as the potential for new incentives for Standalone storage.
Turning to slide 10, and our LNG strategy we.
We see the expansion of our LNG infrastructure business is complementary to our renewables growth by offering a clean predictable and low cost fuel that provides capacity and flexibility to the system.
We are focusing our LNG business in three markets.
The Caribbean.
Central America.
In Southeast Asia.
In all of these markets there is rapidly growing demand for natural gas to supply new generation and to displace coal in higher cost fuel oils.
As you May know, we're developing an efficient 2.2 gigawatt combined cycle gas facility.
And a 450 terabits to you LNG terminal in Vietnam.
We have hit key milestones towards closing these projects, which will help meet vietnam's rapidly growing electricity demand.
Last week, we signed a term sheet for the LNG terminal in partnership with PV gas the state owned gas utility.
In parallel we have seen strong interest from potential lenders to finance the majority of the capital cost.
In Central America, and the Caribbean, we continue to lead the transition to cleaner natural gas weaker.
We currently have a total of 150 terribly to use of LNG storage capacity.
An additional 50 terabits to use is under construction in the Dominican Republic.
We now have contracted 60% of this storage capacity and we are in advanced discussions for an additional 20%.
This would bring our total contracted volumes to 80% in 2023 and beyond.
For context 200 terribly to you of LNG volume can serve approximately three gigawatts of natural gas generation.
Moving to slide 11, the second component of our strategy is offering innovative solutions we.
We see the energy needs of our clients like Google evolving to achieve the highest standards in clean energy.
We are leading this transition through our unique integration of renewables with our scalable platforms, a fluent five b and applied.
Our technological innovation gives us a key competitive advantage. An example is energy storage, where we have access to the latest technology in this sector and combine it with our unique industry insights to create transformative clean energy solutions.
As a reminder, working closely with our customer K. I you see in Hawaii.
We were the first company to develop a true 24, seven solar and energy storage project.
And we continue to advance new applications. In fact, we recently inaugurated a world first virtual reservoir in Chile, which combines run of the river hydro with battery based energy storage, allowing us to sell our energy when prices are highest.
Turning to slide 12 fluids, our joint venture with Siemens that sells energy storage technology to third parties continues to maintain its position as the market leader in the sector.
This year fluids has been awarded 690 megawatts of contracts, increasing their awarded or delivered capacity to 2.4 Gigawatts.
Fluent as revenue is expected to reach $500 million. This year, an increase of 400 per cent compared to last year.
While rapidly growing their backlog fluids continues to enhance their digital capabilities and to complement their suite of solutions.
To that end fluids acquired A.M.S., the leading provider of AI enabled bidding software for storage and generation assets.
Through the HMS acquisition Fluence now has ongoing contracts for digital bidding services for more than 2.4 Gigawatts most of it additional two fluence asleep.
The integration of this technology to fluids is current offerings will help optimize the use of energy storage and to ensure the greatest value for their clients.
We're also looking to additional new products and innovation that could transform the sector as shown on slide 13.
With our recent investment in five B, a prefabricated solar solution company solar projects can be built in a third of the time and on half as much land.
We believe that being able to double solar energy output from a given area will become a great differentiator as solar penetration increases, especially in urban and congested areas.
In addition to five BS potential pipeline of more than 10 Gigawatts of third party projects in Australia we.
We see an addressable market of five gigawatts across our owned development pipeline.
We aim to be the most competitive solar operator and developer by using five b to reduce time to build and.
And increase energy density income.
In combination with our ongoing robotic and digital initiatives.
One example of how we're integrating all of these technologies to improve customer outcomes is the Andes to be project in Chile.
This project consists of 180 megawatts of solar.
Incorporates 10 megawatts, a five BS technology.
And includes 560 megawatt hours of energy storage.
The largest in Latin America.
Another example of our leading innovations is our applied platform, which is helping utilities improved energy efficiency and balance system demand both.
Both of these capabilities are increasingly relevant to apply its 100 million end users and 80 utility customers in the U.S.
Finally, as previously discussed we continue to be on the forefront of new technologies.
To that end, we had been running tests on hydrogen at several thermal plants in Latin America.
We consider ourselves to be well positioned to be a leader to incorporate green hydrogen.
If and when it becomes economic sometime in the future.
Turning now to the third component of our strategy, which gustava will spend more time on delivering superior results.
By investing in our development pipeline, we are earning attractive risk adjusted returns.
As you can see on slide 14 in the U.S., we're earning low double digit returns.
While internationally, we're earning mid to high teen returns.
Before concluding I would like to note that last week, we launched a new brand with a new logo as you can see on our slides.
We have transformed yes into a leader in clean energy and our new brand symbolizes our position at the forefront of the technological and commercial changes that are redefining our industry.
Now I would like to turn the call over to stove him into our CFO. So he can provide more color on our results.
That profile and guidance.
Thanks, Congrats and good morning, everyone.
Today I'll cover three key topics.
Resilient business model, our performance during the third quarter and our capital allocation plan.
Let me start with our resilient business model.
Over the last decade, we have proactively transformed our portfolio and now 85% of our earnings our friend utilities and long term contracted generation with an average contract life of 14 years supported by credit worthy off takers.
At the same time more than 80% of our earnings are now in dollars. This.
This provides significant the stability to our earnings and cash flow.
Turning to slide 16, you can see how our portfolio has performed during these challenging times.
As you know in majority of our customers are large industrials and export oriented mining companies that continue to operate despite over 19 as they are deemed essential.
As a result, Q3 receivables and days sales outstanding remained stable and very much in line with historical levels.
Moving onto slide 17, the impact of the global Hawk down on our financial results has been mostly limited to our utilities.
Our generation businesses have been largely unaffected due to their take or pay nature of contracts and customers being deemed essential.
As you may recall in our first quarter call, we had anticipated an extended U shaped recovery in energy demand across our markets.
Since then the meant performance has been better than our expectation.
For Q3, our initial projection was for a demand drop of about 5% to 7% and our U.S. utilities, while the actual result was significantly less severe than anticipated.
On a weather normalized basis than that combined volume at DPL in IP I was mostly flat demand.
Demand at DPL was up 3% largely driven by the higher load from residential customers, while demand that IPO was down 3% as the loads from commercial and industrial customers has yet to reach pre covered lives.
Accordingly, the total net impact of the lower demand on our utilities was only one cent on not just said EPS for the quarter better than our initial expectation of two to three cents.
Now turning to our quarterly results on slide 18.
Adjusted EPS was 42 cents for the quarter versus 48 cents last year.
Our quarterly results reflect an 11 cents impact most related to last year's insurance recovery and an outage that occurred this quarter at one of our facilities in Dominican Republic, which is already back in operations right.
Results also reflect the regulatory changes that were implemented at the pan out and in Argentina in Q4 2019.
These headwinds were partially offset by higher contributions from the Southland Repowering project. Our Eurasia SB, you are a cost savings and de leveraging initiatives as well as a lower tax rate.
Turning to slide 19, adjusted pretax contribution or PTC was $331 million for the quarter.
A decrease of $95 million first the third quarter of 2019.
I'll cover our results in more detail over the next four slides beginning on his lightweighting.
In the U.S. into tinnitus, SBQ PTC remained relatively flat.
The benefit from the commencement of bps at Sauflon energy CCG. These.
Well, it's mostly offset by the reversion to U.S.P. one rates at the IPO in 2019, as well as lower demand at our utilities due to the impact of COVID-19.
Before moving on I'd like to take a moment to update you on recent regulatory developments at DPL now on slide 21.
I'm very pleased to announce that we have reached a successful settlement with Buzios staff and keep their vendors.
Resolving for open proceedings significantly reducing regulatory uncertainty and.
In allowing us to move forward with our smart grid investments.
More specifically as a result of this settlement VPN now committed to file a new SP by October Onest to any 23.
New continued to recover its approximately $80 million annual rate stabilization charge until the new SP becomes effective.
The PNM, we will make the smart grid investments of $249 million over the next four years, which were a return through the vast many infrastructure rider.
Resolution was reach it on the cheap bandied retroactive Ssi task related to 2018, and 2019 and the Biennale past the seat and MFS regulatory that's filed earlier this year.
Now turning back to our third quarter results on slide 22.
At our South America, SBQ, lower PTC was primarily driven by dry hydrology at the shoe for hydro plant in Colombia, resulting in lower generation in high energy purchases.
Lower PTC at our M.C.C.S. view, primarily reflects the outage related impacts I discussed previously as well as the arbitration settlement at chunk and all it this year.
Finally in Eurasia, Hi results reflect lower maintenance and outage as well as lower interest expense due to debt repayment and training training. It also includes a favorable variance in India, given the OPGC see you de delay last year.
Now to slide 25.
To summarize our performance in the first three quarters of the year. We earned adjusted EPS of 96 cents versus a dollar two cents last year.
We are reaffirming our two any to any adjusted EPS guidance range of $1.30 to shut down to 42.
In fact based on our strong year to date performance and outlook for the remainder of the year. We are now expecting to be at the top end of this range.
Now turning to our credit profile on slide 26, as we have discussed on our prior calls since 2011, we reduced our parent that by approximately $3 billion or about 50%.
As Andres mentioned, we recently received our second investment grade rating. We are very pleased that S&P has recognized the underlying quality and strength of our portfolio.
As you can see on the slide we have improved our ratings by two to three notches over the last four years strong credit metrics remain one of our top priority and we will continue to take steps to maintain and further improve upon current levels.
Now to 22 any parent capital allocation on is like trying to seven weeks.
We expect it to $1.5 billion of discretionary cash this year, which is roughly $100 million higher than our prior disclosure.
Regarding asset sales today, we are very pleased to announce a sell down of 35% of our interest in the south floods repowering projects for $424 million to Yulico Expo.
Expanding on our successful partnership at S. power.
This transaction demonstrates the substantial intrinsic value of our portfolio and how we benefit from our platform and long term contracted assets.
As you May recall Sauflon has a 20 year contract and was commissioned early this year. These.
These sell down implies it total equity value of more than $1.2 billion.
With this transaction combined with our previously announced asset sales, we have exceeded our proceeds target for the year by approximately $100 million for a total of $650 million.
Further based on our year to date performance and our outlook for the remainder of the year. We now also expect parent free cash flow to come in at the top end of our range of $725 million to $775 million.
Moving to the right hand side. The uses are largely unchanged from the last quarter, except the investments in our subsidiaries, which are roughly $200 million higher.
The increase primarily reflects a temporary cash injection at Sauflon and high investments in renewables.
Approximately 90% of the $900 million of investments in subsidiaries R&D U.S. contributing to our grow of increasing the proportion of earnings from the U.S. Chubb about half.
Next moving to our capital allocation fund 20 chewing through 2022, beginning July 28.
We continue to expect our portfolio to generate $3.4 billion in discretionary cash three quarters of this is expected to be generated from parent free cash flow with the remaining $900 million coming from asset sale proceeds there.
Turning to the uses of discretionary cash on July 29.
Roughly a third will be allocated your shareholder dividends subject you end of review by the board. We continue to expect that you increased the dividend by 4% to 6% per year in line with industry average.
We also expect that you use $1.9 billion to invest in our backlog new projected P.P.A.S TNT investments at IPO. The partial funding of our Vietnam LNG project and the investment in a S. Hare.
Once completed this project will contribute to our growth through 2022 and beyond with that I'll turn the call back over to address.
Thank you good though.
Before we take your questions, let me summarize todays call.
We have made great progress on our key objectives, specifically, we secured a second investment grade rating.
We reduced our generation from coal to below 30%.
We signed 2.1 gigawatts of new renewable contracts, increasing our backlog to a record 6.8 gigawatts.
And we are growing our development pipeline and deploying new technologies, such as fluids Fivee and applied.
Finally, with our year to date financial performance, we now expect to be at the top end of our guidance ranges for both adjusted EPS in parent free cash flow.
With that I would like to open the call to your questions.
Yes.
Well now begin the question answer session I.
Ask a question you May press Star then one on your Touchtone phone.
For using a speakerphone, please pick up your handset before pressing the keys.
All your question.
Please press Star then too.
This time, we'll pause momentarily to assemble the roster.
First question comes from Richard Sunderland of JP Morgan. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Good morning.
Sorry, Greg just starting off with the fluence process could you update us similarly latest timing and expectations around the sale of a minority interest.
Sure the capital raise influence is going very well, we have strong interest and we expect to get it done.
By the by the end of this year.
So today, we kind of know impacts from the elections or considerations around there specifically to the sale.
Not really I mean this capital raise you know people are looking at the long term.
And certainly a lithium ion based energy storage as you know has.
Great.
Great future ahead of it as the.
I said in my remarks, as its growing very rapidly and it's the leader in the sector. So it really is a unique investment opportunity. So no. It we've seen no impact whatsoever.
It has there been any shift in the kind of the interest or types of party evaluating affluence.
None whatsoever.
Got it great and then just curious on the outage cited on the quarter I know you should have sort of stacking operations any.
Any any color around.
The outage itself and I guess rich so to going forward.
Oh It was this Gustavo rich no. It was a an outage that we had in the era in one of our facilities. There it's about two cents impact in the quarter.
The facility is back in operation already.
Great. Thank you so times.
Thank you.
Next question comes from Julien Dumoulin Smith Bank of America. Please go ahead.
Hey, good morning.
Congratulations.
Absolutely Olivia developments here, it's hard to know where to start.
[laughter].
Outside of your how about this so you've had a lot of success across your businesses here. When you think about the earnings trajectory of the renewables business altogether, how would you characterize that right.
Given the backlog given the success year to date.
Given the capital available to deploy back into it how in aggregate would you.
You describe its actually appreciate her contribution to EPS growth rate and then related fluids as well if you can I know its still small.
Okay, Let me start sort of big picture.
You know most of our business most of our earnings is coming from the traditional businesses.
So this is sort of an add on and we are retiring some of the thermal asset. So it's a transition so it's it's going to be growing overtime.
You know we feel very good about the way it's.
It's sort of blending in you know something like Green blend and extend you know its blending in to this growth so yes.
We have a backlog of seven.
Seven Gigawatts it's up.
It's a good mix of U.S. and outside and it's it has a good returns.
And there's a variety of regulatory schemes under which they operate so.
We feel good about it it's going to be growing and it's going to.
You know, it's replacing some of the older thermal assets that were retiring.
Second part of your question regarding fluids.
Well realize if you know as I've said in the past the faster fluence grows to some extent it pushes off a little bit positive earnings were creating an enormous amount of value, but all R&D.
For example, or all upgrading of our teams.
Around the World you know that is expensed. So you know when you're growing in a 400%. This year, we expect a 40 plus growth rate going forwards, we have a backlog of.
One gigawatt Oh, so that's that's still off so there is no right now.
Fluence is a drag of around two.
Around two cents. So you know it will you know everything has a positive margin we expect this to turn around but.
But it's a little bit of the function of how fast we grow so ironically, the more value, we create and the faster we growth of that may take a little bit more time.
And.
If I can pivot this slightly better more specifically to your guidance.
When you think about this roll forward coming up with with fourth quarter, and I'm kind of asking for guidance without getting explicitly.
How are you thinking about some of the major puts and takes here because as best I see it it seems like you've resolved a number of these issues and so I just want to make sure. We're on the same page about this whether it's D.
GTL, whether it's relates to hand, there or frankly, whether it relates to your execution on backlog on renewables, but.
Can you give us at least a sense for some of the bigger puts and takes here.
Andrew I think that.
Jason.
Yeah, you've mentioned most of the factors I mean, we have rapid renewable growth green blend and extend.
We have.
DPL IPO growing their rate base.
Oh I think the one that you did not mention was the growth of LNG.
So you know realize that we are doing very well on contracting more.
Really totaling of gas in the Dominican Republic, where.
Barry you know actually we have the contracts there were very optimistic about doing more in Panama and as I said in my speech those will all contribute to our earnings are 23 and beyond So you know most of the investment is made so having said that that's that's how we see it so we feel optimistic.
And that's why we've included the retirement of our or part of that guidance. So we can't give you guidance.
Before the fourth call. Good stuff would you want to add something yeah, I would just add Julian.
In addition to our Andres just said I think California.
The extension of the legacy units. This is another important driver right. So.
Also the incremental cost cutting remember, we had talked about $100 million of cost cutting through 2022 half of that search any 21. So those those will be helpful. And eventually we'll be able to capture more both post that period.
And I think to your question on renewables that probably the the best way to think about it is most of our free cash is going to renewables. Nowadays so it's about $350 million to $400 million of investment in new renewal was going forward and you put low double digit to mid teen returns and you see that this is going to be an important driver.
Earnings going forward.
Andreas sorry to clarify this when you were speaking on LNG.
Can you elaborate briefly on Panama and the IMO.
He said this in terms of Bunkering.
And the upside potential.
Well, you're basically are our current facility, especially the storage tank in Panama is about 30% utilized.
All the capital investment has been made so to the extent that we can contract more gas passing through it you know that go straight to our bottom line and so we feel good about the possibility of contracting more gas in.
In Panama, and increasing that utilization in the case of the Dominican Republic, We had talked about this for many years and actually we filled up the tank to the to the extent that we're actually having to build a somewhat smaller but second tank there to meet all the demand. So realize that this is contracted it's totally we're not taking commodity risk. So.
Our gas strategy in the Caribbean and Central America is playing out as planned.
One more clarification on Indiana, I Didnt hear you say anything about Alco and renewables I know, there's an RFP out there.
Apologies.
Yeah. There is a there is.
There is and I are b.
As we speak so the team is finalizing and it's one of the opportunities that we have chosen to sign up for more renewable growth there and rate base.
So stay tuned we'll be talking about that shortly.
Got it all right not not yet in there all right great. Thank you are not adding there.
Thanks Julien.
Our next question comes from Stephen Byrd.
Stanley. Please go ahead.
Hey, good morning, and congratulations on the progress on a on a lot of fronts I agree with Joe and it's kind of hard to know where to start.
Thank you very much Dave.
So I wanted to maybe start at a high level and just talk about a year renewals business globally and thinking about sort of how to realize the full value that business. The business has become very large as one of the biggest backlogs globally.
How do you think about ensuring that you realize the full value given that you know it's it's housed within a S. And this has always been sort of a a question in terms of highlighting that these businesses and I think it's just really accentuated given the the trading levels of pure clean energy companies, just curious how you're thinking about the long term strategy there.
That's a great question, we think about that a lot.
So really what we see is that there is a true competitive advantage of combining our existing platforms with the no and I say that because it's easy to talk about renewables, but really that's just energy.
And what the market is demanding is capacity.
So you're going to get that capacity in the short term from your existing traditional facilities and then with energy storage.
So thinking about that nobody is in a better position than us to do that.
Because we really are the leader in the not only the amount of energy storage, but more important I think the new applications finding new ways to use this so.
I I feel very good about the sort of leading this transition in a very responsible way retiring coal plants.
Selling coal plants are providing that capacity to some extent you know in in other new markets in with gas because quite frankly.
Not all markets are capable with todays technology of efficiently.
Providing capacity, even with batteries be too expensive.
Global so we're leading that transition to a lower carbon future, but at the same time I think we are uniquely integrating you know be it energy storage.
<unk> innovative renewables I mean, I think five b that technology will play a greater role in the future as you get greater.
Really penetration of solar in some areas, so being able to do it in a smaller space is very valuable being able to do it faster is very valuable.
You know were really doing some very interesting things on robotics, we're doing some very interesting things on in digital digital controls and so you know up light is one aspect of it but so is for example, the purchase of HMS by fluids. So that's a little bit how I see it so well.
Well, it's true that there is a premium today for pure renewable plays we think there'll be a premium tomorrow for those companies that truly satisfy what customers need. So it's not only energy its energy plus capacity and we will lead the way into.
Providing capacity energy and you know.
Customer.
Facing solutions, you know into the future. So it's a very interesting transition, even though it's a little bit complicated story.
So those are good points about capacity and off integration I take take those points.
Maybe shifting over to the corporate customer side.
Google arrangement, Yeah makes makes a lot of sense I was just curious your latest thoughts in terms of additional appetite from other corporate or potential corporate customers to to do something along those lines given a S global platform.
Well that's a great question. So you know we have a.
You say an arrangement with who were were.
Exploring several fronts as you know we do have a RFP out for a gigawatt in PJM.
We will.
Will we believe making announcements into the future.
In terms of how we will be working together as I said several fronts.
But this is not something that you know will not exclude other clients potential clients. So if as we find ways to provide you know the capacity people need and the low carbon that people need a plus a digital overlay that is certainly something that we believe will be attractive to a lot of clients. So.
Green blend and extend for example was an interesting you know solution for a lot of the big mining companies that wanted to lower their carbon footprint and have cheaper energy.
And again that can transition overtime to a.
Net zero solution, but it's going to take some time and to get there.
Okay understood. So it sounds like well, there's a lot of opportunities. It's it's going to take some time to really get traction with lot of corporate customers to the point, where this is a more meaningful part of the overall business mix is that fair.
No I would say that.
I guess, what I'm, saying is that I expect to do more with corporate customers.
No.
What I'm, saying is that you know depending on what the situation is it may take longer or less long it depends on the market. There in depends on the availability of renewables in that market and it depends exactly what the customer wants I mean, what we're really working with this sort of co creating with clients.
A co creating what they want and I think again, we're also uniquely positioned to do that.
Not only because of the various technologies we're involved in.
But also quite frankly, our modus operandi with the client. So if you think of something like how you see in the first sort of 24 seven renewables load following renewable solar.
Solution into why that was co developed with them. So the same way like we are working with Google We are working with other people what we've done in Chile. We've also worked with the client so.
I hope that answers.
That was your question so no I don't see this way off in the future I see.
You know, there's a certain relatively short term.
And growing over time.
As you know the clients become.
More clear exactly what they want and some of the technologies get cheaper.
Oh, sorry, I misunderstood great. Thank you very much that's all I had.
All right. Thanks.
Thank you next question is from Charles Fishman of Morningstar. Please go ahead.
Good morning.
Uh huh.
Typically the order.
Year to date.
Great.
No big.
[music].
There are four.
Yes.
The project that's power solar.
Oh, if I compare.
Thank you.
Yes.
Lower overall for that.
Was the project.
Wow.
Yes.
Yeah, sorry are you looking at what the unexpected 53, yes.
Yes.
Right.
Yeah.
Yeah.
The east distributor Leonard.
Okay.
Yes.
Okay.
You can see that okay, you got over 91 megawatt.
For 97.
<unk>.
I see yes, you get an energy forward 40.
For 47.
Both of those quite a bit higher.
Yeah Charles.
Oh, Yes, I mean, I think some <unk>.
Some of these projects that we show in the backlog there only either in construction or we have signed where if the project is completed then that goes back to operations, that's no longer part of our backlog.
Okay. So this.
Something.
Yes.
Went into operation.
Oh, yes in the quarter that moved off.
Yes.
Okay. Once once it's an operation it's no longer backlog, yeah, you know its been fulfilled.
Okay backlog that the developer you define backlog is either it is in construction or we have signed up yet, but it's not yet in construction, but if it is completed its gets out.
Even though it was signed this year.
You could take it off.
Yeah.
Okay got it now.
Got it.
Basically yes.
Indiana IPO.
Maybe push a little harder on that.
We recently thing to other utilities in Indiana.
Really go all in on solar.
And yes quite frankly.
Solar experience.
Other utility behind Oh.
Do you have the opportunity.
Uh huh.
Okay.
Oh yeah.
We should expect.
Like that it seems like Indiana Commission.
Very receptive to that direction.
Yeah, well, we have an RFP out for 1.2 Gigawatts of renewables so.
So stay tuned for the results of that.
And you know as in those numbers that I gave in this call of 1.2 Gigawatts of retirement there.
There's the some of the older coal plants in Indiana. So you know as a regulated too we have to get approval for this transition, but you're right. We have a whole lot of experience on that and that's what we're going to do.
Okay.
That's a.
That's helpful. Thank you that's all I had.
All right. Thank you Charles.
Next question is from Steve Fleishman of Wolfe Research. Please go ahead.
Yes, hi, good morning.
Just wanted to clarify on the coal.
Getting below the 30% announcement.
Was there something that didn't get done in terms of an asset sale or something because the.
I think the shutdowns already planned for a while.
Yeah, they're not happen until 21 or 23.
So I guess I'm, just trying to figure out.
How that fits into meeting it by the end of 2000.
Yeah no.
Thanks for the question no look.
What we have in there in our pro forma or a sales that we already have a signed contract win or a plants that we've have already you know program to retire.
Now that does not exclude additional sales now we're not behind on any additional sales or additional shutdowns you know and as we said we expect more in the near term. So you know well, we're saying it's 29 already in the third quarter. We had said we would do it by the end of the year. So stay tuned we think will be comfortably.
Below the 30% threshold and remember that's that's.
Megawatt hours was actual generation. So actually capacity were already is about 26% and will be continued to decline. So no honestly, we havent missed any of our internal milestones.
Okay, I'm, sorry, Andreas I need to clarify this but these these plants, we've known are going to be shut down for a while this is not like new.
I think and they're not actually being shut down by the end of 2020. So I'm confused so I think Steve Amit here. Most of these plants I think we got approvals like Hawaii you know they just passed the law is where we've got the regulatory approval in Hawaii. Then also in Ventana us as well. So I think these are all the development that we just don't know.
So.
These are not something that could improve in Indiana, I do because I thought.
Which were Indiana is about 500 megawatts I think this also got approval. We just made that filing I think it's about a month ago or so.
Okay.
In terms of meeting the target it doesn't matter if they don't shot by the end of 2020 or you don't sell by that as long as you're shutting a few years from now yeah.
Yeah, I mean, we've been in discussions with SG investors like Norges Bank.
And really it was like show me a path, how you're going to get there in the near term.
So really this is reflecting what they've asked us to do you know we're going to overperform.
Sure you have that.
And you know we've been somewhat cautious in terms of our announcements because Islam. It said.
What weve shown this time is what we've actually gotten approvals to do you know these aren't just gee I wish I am going to shut this down well can you really shut it down and you need to have the approval of the regulator of the network operator, So that's where we're at so honestly. This is exactly what we discussed with people like Norges Bank.
Exactly what they asked us to do.
And you know if anything we're we're up front about it now it is pro forma because in some cases you know you. The retirement you know they still needed for say another year in some cases, but you know say soon okay, well I don't know that I believe you announced the Petersburg retirement occur.
Hi, Paul.
You're going to go or we've had that no no no that's helpful and and I think it was punch line is that Steve just to be clear, we have not seen any delays in the transactions we are working on.
As far as the cell phones are concerned on the coal side. So I think we still continue to see the interest.
So I don't think there's unique reading between the lines.
Okay. That's helpful and then just.
The on the DPL settlement the the path there.
It looks like you.
Europe. It allows you now to invest the money and get the rate base growth from that.
That's correct and also keep it also keep the current.
Oh, the all the fee rate.
And then I guess at the end of the period the old DSP rate goes away.
But you can then keep growing the rate base.
From from there on can you is there any way you can kind of extend this.
All the SP rate, that's that's still in for 23.
Well I think there then you know our expectation is that October 23, we will file a U.S. before it.
It'll probably take 12 to 18 months to get approval and then we were going to get into a new yes be without the RSC, but the plan is we will build up the rate base in the meantime, so we can you know once.
Punching at your post growth post that period.
Yeah.
Okay, Great I appreciate it thank you.
I do.
Again, if you have a question. Please press Star then one.
Next question comes from Durgesh Chopra Evercore ISI. Please go ahead.
Hey, Tim Good morning. Thank you for taking my question I had one clarification and then just one big picture question just.
Going back to maybe start with maybe this is for you, but just going back to slide 28 here when we sort of look at the.
The cash generation and you have about 250 million left of the 906 50 announced I just want to be clear it fluence transaction any proceeds they're not on this slide correct.
Not on this slide it's all going to be kept at Phyllis.
Okay, Okay, and it will be kept just at Fluence me, there's not using proceeds in terms of with your other businesses no none of them.
Okay, and then maybe just big picture you know obviously the you know this.
This year, you've you've executed strongly but 7% to 9% can you just high level talk about.
What gets you to 9% versus what gets you to 7%.
Well I would say that the.
You know the difference will have to be in terms of the.
The projects that we have you know how fast for example, we fill up the gas.
Thanks, you know it Panama.
Panama and the D.R.
We'll have to be a little bit in terms of demand growth at our utilities.
And probably execution of our renewable projects I'd say those are the three drivers in order to sell said you know we have cost cuts are inherent we'd have.
Lower financing cost as well so all those are plus or so I'd say the ones that are outside of our control to some extent a little bit would be the demand growth in the utilities and a little bit the timing of filling up the.
Tolling capacity in Central America, and the Caribbean.
Got it helpful guys, maybe just just one quick one just as you think long term Andreas I mean, you you have it.
Pretty good competitive advantage here, but storage and you know a renewal.
Renewables, just how do you think about balancing growing and growing internationally versus sort of your view will portfolio internationally, but we're still being 50% earnings from the U.S. that your long term target.
Well, that's a that's a great question it look.
You know our objective is to be an investment grade company continue to strengthen our balance sheet and the mix of our businesses. You know we moved very strongly towards investment grade dollar long term contracted business and that's why we've been so resilient. This.
This year in an uncertain environment I think we've proven that and you know weve improved our credit rating in the midst of covert I think that says a lot for the strength of our business. We think the optimal mix also given market conditions, probably is about you know, but half U.S. it half outside and.
And we think Thats optimal we have big corporate opportunities in the U.S. to strong markets for us we.
We also think that we have a good corporate demand internationally and somewhat unique to us and we do get higher returns in general internationally. So we think of sort of 50 50 split would be ideal you know, it's not we can oriented in one direction or the other part of it will have to do where our clients.
Demand in where we have competitive advantages, but we think we're developing really global competitive advantages. So it's not only international we have them here in the U.S.
That's great. Thank you guys great quarter.
Thank you.
This concludes our question and answer session I now want to turn the conference back over to Mr. tougher.
Oh sure for closing remarks. Please go ahead.
Thanks, everybody for joining us on todays call as always the IR team will be available to answer any follow up questions. You may have next week, we look forward to seeing many of you at the EEI conference.
Thanks, again and have a great day.
Yes.
Conference is now concluded. Thank you for attending today's presentation you may now disconnect.