The AES Corporation

Good morning and welcome to the AES Corporation's first quarter 2019 financial review conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, If you are listening to the webcast, please mute your computer speakers before asking questions. Please note this event is being recorded. I would now like to turn the conference over to Ahmed Pasha, Head of Investor Relations. Please go ahead.

Thank you, Brendan. Good morning, everyone, and welcome to our first quarter 2019 financial review call. Our press release, presentation, and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements during the call. There are many factors that may cause future results to differ materially from these statements. Please refer to our SEC filings for a discussion of these factors. Joining me this morning are Andres Kluski, our President and Chief Executive Officer, Gustavo Pimenta, our Chief Financial Officer, and other senior members of our management team. With that, I'll turn the call over to Andres.

Good morning, everyone. and thank you for joining our first quarter 2019 financial review call. Since our last call, we have made significant progress on a number of fronts. We continue to transform the company, growing our renewables and LNG businesses, simplifying and streamlining our portfolio, reducing costs and improving our overall risk profile. Specifically, we reported first quarter adjusted EPS of 28 cents and remain confident in our full-year outlook. We're on track to attain investment-grade ratings in 2020. We signed long-term contracts for approximately 500 megawatts of renewable capacity, increasing our backlog to 6.2 gigawatts. We signed a 12-year agreement to sell up to 18 Tera BTUs of LNG annually in the Caribbean, beginning in 2020. Today, we're announcing a target of $100 million of additional annual cost savings to be realized by 2022 as a result of our digital initiatives. And we agreed to sell our businesses in Jordan and Northern Ireland for $211 million. Gustavo will discuss our financial results and capital allocation plan in more detail following my remarks. Turning to slide four. Our core strategy continues to revolve around three themes. First, enhancing the resilience of our portfolio to deliver attractive returns. Second, increasing our backlog of long-term contracted projects to ensure profitable growth. And third, investing in innovative technologies to maintain our competitive edge and market-leading positions. Today, I will review the progress we've made since our last call in support of these themes. Turning to slide five, we continue to take steps to de-risk our portfolio and make it even more resilient. We remain on track to attain investment grade ratings by 2020, supported not only by our financial metrics, but also by the lower level of risk and higher quality of our portfolio. We expect to achieve our carbon intensity reduction target of 50% by 2022 and 70% by 2030. reducing potential regulatory risks, and attracting a broader investor base. One of the ways we are reducing our carbon intensity is through our green blend and extend strategy, where we are negotiating new long-term renewable PPAs with existing long-term thermal customers. Through this win-win strategy, we preserve the value of our existing contracts while extending our average contract life and earning a return on our incremental capital investments. We're currently in advanced discussions for additional large green blend and extend contracts in Chile and Mexico. Separately, we just initiated similar conversations on green blend and extend with PREPA in Puerto Rico. Another way we're transforming our portfolio is by exiting certain businesses. For example, in late April, we announced the sale of more than two gigawatts of overwhelmingly thermal generation in Jordan and Northern Ireland. These sales decrease our merchant exposure, lower our carbon intensity, and reduce our presence to 13 countries. In line with our capital allocation framework, we will primarily invest these proceeds in renewables in the Americas. Turning to slide six, as we've discussed previously, we're focused on growing our business through long-term US dollar-denominated contracts with limited merchant, commodity, and hydrology exposure. One additional initiative that I would like to mention today is the expansion of our business with commercial and industrial customers. This approach further enhances our resilience by diversifying our customer base and providing greater protection from regulatory and macroeconomic factors in our markets. Now turning to our backlog, our growth in renewables continues. As can be seen on slide seven, during the first quarter, we signed new long-term PPAs for approximately 500 megawatts of renewables, consistent with our expectations. Turning to slide eight, we now have a total backlog of 6.2 gigawatts, and we expect to sign two to three gigawatts of new PPAs every year for a total of approximately 12 gigawatts of new capacity by 2022. By then, We project that the U.S. will represent almost half of our earnings versus about a third today. Now to our projects under construction, beginning on slide 9. Of the 4.5 gigawatts currently under construction, approximately 40% is now renewables. This percentage will grow as we bring online the large conventional thermal plants we contracted a number of years ago, while adding new wind, solar, and energy storage projects. As you can see on slide 10, the renewable projects under construction are split equally between the U.S. and internationally. All of these projects are expected to come online in the next 18 months. We are particularly pleased with the speed at which we have been able to transition these projects from development to construction. For example, as you can see on slide 11, we received all necessary permits for S-Power's 500 megawatt Highlander solar project in Virginia, the largest solar project in the Mid-Atlantic. This project has long-term contracts with CNI customers, such as Apple and Microsoft, and we expect to begin construction this summer with completion targeted for 2020 and 2021. Turning to slide 12 and our conventional projects under construction. Our OPGC II plant in India is in the testing phase and is running at full load The plant is expected to be operational later this month and will deliver much-needed power to the Indian grid. Our Southland repowering project in Southern California is approximately 90% complete, and the project is on track to come online in the first half of next year. And our Alto Maipo hydroelectric project in Chile is advancing as planned and is now 78% complete, with 72% of the tunneling work done. Turning now to our LNG business on slide 13, you see the expansion of our LNG projects is complementary to our renewable businesses, as it provides capacity while displacing heavy fuel oil and diesel with cheaper and cleaner natural gas. This business is based on long-term tolling agreements with no direct commodity risk. Another benefit of our LNG projects is that once they are built, they can be scaled up at relatively low cost, as most of the key infrastructure is already in place. We are focusing our LNG growth on two major markets. First in Vietnam, where we are making very good progress towards the development of a landmark project with 450 terabtus of LNG storage capacity and two gigawatts of associated combined cycle gas plants. We expect this project to significantly contribute to our growth beginning in 2023. Second, in the Caribbean and Central America, where we have a total of 150 TBTUs of LNG storage capacity in Panama and the Dominican Republic. Our guidance assumed that we would contract some of the excess capacity available at these two terminals. In fact, since our last call, we signed a 12-year contract for up to 18 Tera BTUs of annual capacity. With this contract, we have already locked in the terminal capacity payments that are assumed in our guidance through 2022. The remaining uncontracted capacity provides us with three cents of potential EPS upside relative to our guidance. Turning to slide 14, the third component of our core strategy is to invest in innovative technologies to maintain our market-leading position and realize commercial and operational efficiencies. As most of you know, AAE is at the forefront of battery-based energy storage. Fluence, our energy storage joint venture, is the leading provider of grid-scale storage in the world, with 81 projects in 18 countries, totaling 776 megawatts deployed or awarded. Now let me say a few words on the recent thermal incident at our two-megawatt energy storage facility we installed for Arizona Public Service, which resulted in serious injuries of four first responders last month. Of course, our top priority is the health, safety, and recovery of the first responders. Fortunately, we understand from statements made by the hospital that all are expected to make a full recovery. Regarding the event itself, Fluence immediately dispatched a team of technical, and operational experts to support APS in the incident root cause investigation. APS and Fluence have committed to share what they can from the investigation, especially insights that would be helpful to the entire industry and first responders in efforts to prevent similar incidents anywhere in the world. AES has been safely operating a fleet of battery-based energy storage systems for over a decade. and today has storage systems operating in multiple country uses and environments. We continue to believe in the use of lithium ion batteries for energy storage and continue to see rapidly growing demand for this technology and its many applications. Finally, turning to slide 15, today we announced the launch of an additional $100 million annual cost savings program. Our savings target is based on our current digital initiatives which are expected to be fully implemented by 2022. Although we have significantly reduced costs over the last several years, we're taking our efforts to the next level by applying new digital initiatives and analytics across our $33 billion asset base. As most of our business is long-term contracted at fixed US prices, much of the benefits from these digital initiatives will flow to our bottom line. Specifically, the main activities include utilizing AI for predictive maintenance and outage preventance, using technologies such as robotics and drones for solar and wind maintenance and inspection, and implementing process automation in administrative and support functions. On an annual basis, we are targeting a 5% reduction in the total expense for these activities, net of any cost to achieve. So we feel very confident about our ability to achieve $100 million in annual run rate savings by 2022. Now, I'll turn the call over to Gustavo to discuss our financial results and capital allocation in more detail. Thank you, Andres.

Today, I'll cover our first quarter results, Improving Credit Profile and Capital Allocation. In the first quarter, we made solid progress towards our full-year guidance range of $1.28 to $1.40. As shown on slide 17, adjusted EPS was $0.28, primarily reflecting the benefits of improved efficiencies and lower parent interest expense resulting from about $1 billion in debt pay down. This improvement was offset by the impact of asset sales and shutdowns. With our first quarter results and 2.2 gigawatts coming online in the year to go, we are on track to achieve our full year guidance. Turning to slide 18, adjusted pre-tax contribution, or PTC, was $272 million for the quarter, a decrease of $16 million. I'll cover our results in more detail over the next four slides, beginning on slide 19. In the U.S. and utilities SBU, relatively flat PTC reflects higher rates following the resolutions of rate cases late last year at DPL and IPL, as well as lower expected asset retirement obligations at DPL. These impacts were partially offset by the exits of coal-fired generation at DPL and Shady Point. Regarding DPL's DMR extension filing, there is not much to report, but we expect activity to increase as the transition at the Commission is complete and a new chairman is now in place. Accordingly, we remain on track for an expected ruling in 2020, and we continue to feel confident about the merits of our case. At our South America SPU, lower PTC was largely driven by Argentina, where we saw lower dispatch at our plants. This generation profile was in line with our projections and was expected to impact the first quarter only. Relatively flat PTC at our Mexico, Central America, and the Caribbean, or MCAC, SPU, reflects an extended planet outage for maintenance and repairs at our Shanginola hydro plant in Panama. This was partially offset by the commencement of operations at AES Colón CCGT last year, and outage-related insurance proceeds in the Dominican Republic. Finally, in Eurasia, lower results primarily reflect the sales of our businesses in the Philippines and the Netherlands, as well as the shutdown of 300 megawatts of capacity at Bally Lanford in Northern Ireland. In Bulgaria, there have been no significant developments since our last call. Our plan continues to be highly dispatched, reinforcing its criticality to the Bulgarian grid, and we are being paid on time. Turning to our improving credit profile on slide 23. Since we first established our goal of reaching investment grid in 2016, we have reduced parent debt by $1.3 billion, or 26%. We continue to have ongoing discussions with the rating agencies and remain confident in our ability to attain investment rating in 2020. We believe this improvement in our credit profile is helping us not only to reduce our cost of debt and improve our financial flexibility, but also to enhance our equity valuation. Over the next few years, we expect our credit metrics to show further improvement through growth in our parent-free cash flow, as well as modest additional deliverings. While parent credit improvement is a key focus of ours, we are also constantly looking for opportunities to strengthen the capital structure of our subsidiaries. This is demonstrated by the $1.5 billion of liability management transactions we have executed so far this year at three businesses alone, Henair, TAT, and DPL. In all cases, we are able to take advantage of good market conditions to extend maturities and lower interest rates. For instance, at DPL, we refinanced $400 million of the hold code 2021 notes, increasing the term by eight years and reducing the interest rate by 290 basis points. Now to 2019 parent capital allocation on slide 24. Beginning on the left-hand side, sources reflect $1.1 billion of total discretionary cash, including $725 million of parent free cash flow. Sources also include $384 million in asset sale proceeds, which is 60 million higher than our previous disclosure for 2019. Proceeds include approximately $170 million from the sell-down of S-Power's operating portfolio, and $211 million from the sale of our businesses in Jordan and Northern Ireland, announced a couple of weeks ago. Now to use on the right-hand side, including the 5% dividend increase we announced in December, we'll be returning $361 million to shareholders this year. We expect to allocate another $150 million this year to parent debt, largely to strengthen our investment-grade metrics. And we plan to invest over $400 million in our subsidiaries, leaving about $200 million of an allocated cash. Finally, moving to our capital allocation from 2019 through 2022, beginning on slide 25. We expected our portfolio to generate $4 billion in discretionary cash, which is about 35% of our current market cap. About 80% of this cash is expected to be generated from parent-free cash flow. The remaining 800 comes from asset sale proceeds, about half of which has been announced or closed this year. Turning to the uses of this discretionary cash on slide 26, roughly 40% of this cash will be allocated to shareholder dividends. Looking forward, subject to annual review by the Board, we expect the dividend to grow 4% to 6% per year, in line with the industry average. We expect it to use $300 million for debt reduction, including a portion to maintain credit neutrality as we pursue the remaining planned asset sales. We are also planning to use $1.5 billion for our equity investments in our backlog and projected PPAs. Once completed, all of these projects will contribute to our growth through 2022 and beyond. The remaining $670 million of unallocated cash will be used in accordance with our capital allocation framework to achieve our financial objectives. With that, I'll turn the call back over to Andres.

Thanks, Gustavo. Before we take your questions, let me summarize today's call. 2019 is off to a good start, as demonstrated by our financial results and progress on our strategic goals. We remain on track to attain investment grade ratings in 2020. We are completing our large conventional construction projects. We are assigning long-term U.S. dollar denominated PPAs for renewables. We are leveraging our position and experience to expand our LNG infrastructure business. And we are targeting $100 million of additional annual cost savings, further enhancing the resilience of our 7 to 9% average annual growth target. Accordingly, we remain confident in our ability to deliver attractive double-digit total return to our shareholders. Operator, We are now ready to take questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Again, if you are listening to the webcast, please mute your computer speakers before asking questions. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ali Agha with SunTrust. Please go ahead.

Thank you. Good morning.

Morning, Ali.

Morning. First question, Andres, just to get a little better sense on the timing around this incremental cost reduction. So you currently have an ongoing cost reduction program giving you benefits of $100 million in 2019 and in 2020. So when does this incremental $100 million actually kick in? Does it kick in in 21? And you said the run rate of $100 million by 22. How much can you specifically capture in 21 and 22 from this program?

That's a great question. So first, let me be very clear. This is additional to the programs that we have announced in the past. And this is also net of any cost to achieve those savings. We feel very confident in achieving these savings because this is about 5% of expense on those categories. And these initiatives are currently underway. So with that said, it's also sort of growing over time because this is an annual run rate savings. So as you correctly point out, the larger benefits will be in 21 and 22. So by 21, we should probably have about half of these savings. And the full amount would be in the run rate of 2022.

Okay. And then secondly, the $1.5 billion that you've targeted as equity investment in new projects between now and 2022, how much of that is already in hand right now in terms of at least having the signed PPA, if not construction? And I know in the past you talked about potential investment by Tietê on a wind company in Brazil. Where does that stand? And is that part of this $1.5 billion?

What this includes is that which we're committed to, projects which are under construction and being completed, includes all the renewables, but it also includes a run rate in renewables, you know, getting into new projects to hit that 2 to 3 gigawatts of annual capacity. So it will include a portion of those expected renewables you know, PPAs that we're signing as we on-go. Because, you know, between signing and completion is about 18 months. So, obviously, some of the things that are in that number have not yet been signed. So, it includes part of the run rate.

So, Gustavo, here, if I can compliment, I would say probably 70% to 80% is somewhat in the pocket. So, deals that we've signed But as Andres said, there is a portion yet to be allocated. It's expected to be captured. So things like investments in subs would fall under that category.

Okay. And the TTA transaction?

So TTA, they haven't announced yet how they're going to fund it, so we can't comment on that. But if needed, that would come from that $1.5 billion. Okay. of projected PPAs that we have in the chart.

I see. Last question. Can you just remind us how much of the LNG capacity is not yet contracted, and what's the timing when you think potentially you could contract and see that incremental three cents of earnings?

As I said, a lot of the infrastructure already exists, so it really depends on the timing of the additional investments. So, you know, we've completed what we said we would do, you know, by 2022. So, basically, we already have that. So, I think, you know, basically, we have, let's see, we have probably about 30% still to go. So, we have about 50 BTUs. So, between, you know, the Caribbean and Central America. And that just is a question of, you know, when we sign up more customers. So, you know, stay tuned. I think we're doing very well. And quite frankly, with relative prices today of U.S.-based LNG and oil, it's very attractive for customers to sign up. So, you know, we've completed what we said we would do, and now we're actively pursuing those additional $0.03.

Understood.

Thank you.

Thanks, Lee.

Our next question comes from Julian DeMoulin-Smith with BOA. Please go ahead. Hey, good morning.

Good morning, Julian.

Hey, congrats. Lots of updates this morning. So I just wanted to clarify a couple things here, if you can, very quickly. First, on incremental cost savings, how much of that is parent versus allocated or at the subsidiary levels? And then how much, when you say this is incremental, what's the total amount, especially of parent SG&A savings that we're talking about through 22, just to make sure we're fine-tuning things precisely here?

Yeah, let me be clear here. So So a portion of that savings will be obviously at the sub-level. However, this is what we expect to flow up to CORP. Okay, so this is, you know, basically we expect $100 million of savings to what hits CORP, even though a lot of those savings will occur in the subs. But that means that obviously, you know, there will be additional savings, which we'll share with our partners. So this is what actually hits AES.

Got it. And total cost savings, I mean, or rather, the SG&A kind of target, just overall? Because I know that there was already some kind of degree of cost savings reflected through 22.

Honestly, the SG&A savings, especially at corporate, are relatively small. A lot of this is operational efficiencies, predictive maintenance, less outages, better planning. So we feel very confident because a lot of these are things which some other companies have done. So we're really leapfrogging here to put ourselves at the leading edge. As you know, we hired a new chief information digital officer, Sanjeev Adala. He's working hand-in-hand with our chief operational officer, Bernardo Santos. So we feel very good about this and going forward, and we've identified where the savings would come from. And it's also, quite frankly, leapfrogging and catching up with the leading edge of all of our other companies around the world.

Excellent. And then turning back to the U.S. side of the equation, you said I think about half of your earnings by 22 versus a third today would be coming from the U.S. Can you clarify, especially in light of your latest procurement efforts, how you are addressing ITC recognition for solar assets and how much will be tax credits when you think of that U.S. earnings contribution? I'm just trying to make sure we're fine-tuning things appropriately, especially given the litany of different accounting approaches taken across the sector.

Sure. Julian, this is Gustavo. The 50% is mostly driven by the fact that 50% or even more of our free cash flow has been deployed in the U.S. So it's more equity going to the U.S., and therefore you see the proportion of the U.S. growing. We are growing the distribution business, IPL, DPL as well. So that's the main driver. As we've mentioned in the last call, from our perspective, a lot of the renewables outside the U.S., So the growth is not really, from an ITC, PTC recognition, is not really a major driver for 7% to 9%. And a lot of the growth is 7% to 90%. We do have a lot of deals already in the pocket, like softland coming online, OPGC, cost cutting, things like that. So it's not a major driver in our case because, as I said, 50% is in the U.S. Even in the U.S., you have 40% wind, which has a low impact. And I think what is more important, our cash flow is also growing at 7% to 9% ratio, which kind of reinforced the quality of the earnings.

Fair. And then lastly, just if you can quickly clarify, on Mexico, PrEP, Chile, the blend and extend, what does that imply for your existing assets? And just perhaps elaborate a little bit more on the opportunity size, especially in Puerto Rico and Mexico, given you guys haven't done much there historically.

Well, as we said, the sort of green blend and extend, what does it essentially consist of? You have a long-term thermal contract where we really make our returns on the capacity payments and energy is a pass-through. So we basically go to the client and say we will replace a portion of the energy being generated by the thermal plant with renewable energy if you sign a long-term PPA. So this is a win-win for both because we get a new contract for a renewable and get a return on that. and we still get our capacity payment. So part of this is that we learned how to run our thermal plants at a lower min to make space for the renewable. Now, in the case of Mexico, we have TECDEP, which are thermal plants. Of course, in Chile, we have a number of thermal plants where we've already been applying this with our large commercial and industrial customers. And in Puerto Rico, you may have seen that we are in discussions with PREPA to see how we could have some modifications to allow for green blend and extend as well. So basically, we are reacting to customers' desires for more green energy. In many cases, the cost of the energy is lower than the variable cost of running the thermal plant. And we're lowering carbon footprints in line with what they desire. And very importantly, we're keeping the capacity because, you know, when everybody talks about renewables, that's great for energy, but what about capacity? You know, the ability to maintain the lights on 24-7. So we really feel that, you know, there are two ways to do it, green blend and extend or energy storage. And I think we're well positioned on both sides.

Excellent. Thank you.

You're welcome.

Our next question comes from Christopher Turner with JP Morgan. Please go ahead.

Good morning. I wanted to ask for more color on Alto Mipo. I think you said it was 78% complete as of now, and the tunneling was around 72% complete. Could you maybe comment a little bit more on that, particularly on the progress of tunneling since your last update?

Yeah, I mean, we continue to execute on our plan. I think it's going very well. I believe now we have six tunnel boring machines in operation. And, you know, we remain on track for what we've said in the past of, you know, completing the project by starting in 2020. So, you know, I guess that's the only update that I can really say, that, you know, since we did the restructuring, where the contractor has a lot more – let's say, skin in the game and applied the learnings that we've had over the last couple of years, we're executing as per the plan.

Okay, excellent. And then switching gears to Mexico, could you just kind of comment broadly on your existing assets there and the project where you've relatively recently signed a contract, kind of how you're thinking about the political and regulatory environment given some of the headlines over the past three months?

Well, you know, our strategy in Mexico has always been to sign long-term dollar-denominated contracts with investment-grade off-takers in the private sector. So we're relatively little exposed, let's say, to some of the changes that they have announced for the CFE and others. So, you know, our projects continue. I think our clients are looking for green energy. In many cases, they're looking for the green blend and extend. So those projects continue on track, and we expect to be signing more sort of green blend and extend projects in Mexico.

Okay, and kind of with that, no slowdown of future project potential?

Again, we remain on track, and we think our strategy was very resilient and robust, because from day one, it was really long-term, dollar-denominated, contracts with investment-grade off-takers. And, you know, many of them are exporters, for example. So, you know, they really, you know, having a dollar denominated cost is not an issue for them. It actually helps them sort of, you know, with their future forecasts.

Okay, great.

Thanks, Andres.

Thank you.

Our next question comes from Greg Gordon with Evercore ISI. Please go ahead.

uh thanks guys a couple questions good morning good morning greg the uh the um it looks like some of the currency exposures um for not for 2019 which i know are quite small but for 2020 which are a bit a bit larger have shifted uh if i look from the q4 presentation to the q Q1 presentations. Can you just talk about how your currency hedging has changed and if that's the case, why?

No, it hasn't moved maturely. Greg, this is Gustavo. It hasn't moved maturely. We continue to be mostly dollar denominated. And if anything, when there is a remaining exposure in some particular market, we do pursue a hedge here at Corp to offset that. So It's not something that we are concerned with, and no mature differences versus where we were before.

Okay, great. It did look small, so thank you. The second thing was with regard to the cadence of the expected backlog realization in the renewables, which is slide 8. I think you're still basically assuming you, over time, achieving almost exactly the same amount, but I think some of the realizations have shifted from 19 to 20 to 21. Am I misreading that? And if not, can you just talk about how, as you firmed up the backlog, what you're looking at?

Yeah, Greg, Gustavo again. Yeah, you're right. I think the only major change from the prior years Disclosure has been Highlander, which we got the approvals. It took a little bit longer than we initially forecasted. So we move at that, you're going to see in the appendix, we move at that to 2020 and 2021. So initially it was part of that was in 2019. That's the only change. So the rest is in line.

Okay. And I know, and just to reconfirm, you are assuming a favorable outcome in the DMR filing in your long-term guidance, correct?

Yeah, we assume a continuation. We haven't disclosed the particular number there, but we assume a continuation of a support. We believe it's needed, and yes, it is in our projections.

Okay, but given A, you have a guidance range, and B, you've just basically added 10 cents of incremental earnings from cost savings that if you were to not get the DMR and you were to risk adjust for not getting the DMR, are you still comfortable that you'd be in that guidance range?

What I'd say is, again, we're adding resilience to our forecast, so the additional $100 million of cost savings. Realize that the DMR, where it's really crucial, is at the DPL level, and it's crucial for DPL to undertake its modernization program.

I completely agree with you. I know it's an investor debate, and that's why I ask. Thank you.

Okay. Thanks, Greg.

Our next question comes from Charles Fishman with Morningstar Research. Please go ahead.

Thank you. Good morning. One of the savings in your waterfall chart, slide 17, was effective tax rate for the recently ended quarter. Going down to 32%, I realize you don't give guidance on effective tax rate, but you can sort of back into it from the guidance you give on adjusted PTC and adjusted EPS. The last couple years it's been running around 30% on an annual basis. Is the first quarter just normally run higher or is something changing with respect to what you're seeing on your effective tax rates? because of the mix of earnings from different countries? Is there any additional color you can provide?

Yeah, this is Gustavo again. Yes, that's right. It's mostly driven by the mix. We are not seeing any material change versus what we had anticipated, which is somewhat between 29% and 30% for the year. But yes, on a quarterly after quarter, we should have, and it's not uncommon to have some volatility driven by the mix. But on a full year base, this should be normalized, and the 29 to 31 should be the final number.

Got it. Thank you. That's the only question I have.

Thanks, Charles.

Our next question comes from Steve Fleischman with Wolf Research. Please go ahead.

Yeah, hi. Good morning. Could you just give us your thoughts on the political, economic environment, Argentina, and potential things we should be watching there for you?

Sure. Steve, as I said in the past, in Argentina, I don't see it as anything sort of binary. It's really of a question, is there any degradation in the earnings? And we've seen a slight degradation, one or two cents, from, let's say, where we were thinking maybe a year ago. So our Argentine assets are excellent assets, and it's a very robust business. Since I've been involved in the Argentine business since the year 2000, we've made money every year. We've paid dividends every year. We did have three years where we were unable to convert those dividends into dollars because there were currency restrictions in place. So to put it in perspective. So first, it's a very resilient business, and depending on You know, government policies, there could be some degradation, but it's not a binary issue, I believe. I think, you know, with the political situation in Argentina, they're having elections in October. And, you know, we'll see who wins, you know, whether it's a continuation of the current president. Could be, you know, Lavagna, who's a Peronist, or you could have Christina Kirchner, who's running on her own. And so, you know, we'll have to see. I don't think there'll be any immediate, regardless of who wins, I don't think there'll be any immediate outcome or changes in the sector. This would require laws for it to change. You know, I think that the, as I said in the past, you know, when people got very worried about the exchange rate in Argentina, I said, look, you know, they had a terrible harvest, 30% lower, but they're increasing their price. If they have normal harvests and with the increase in their natural gas exports, actually reaching exports of natural gas, eliminating imports, I think that side looks a lot stronger. So it's really a question of how the change in the regulatory structure is. We've been there before. And as I said, it's not a binary issue. Overall, we feel cautiously optimistic that things will continue more or less as they are today.

Okay. And then just on the battery fire that occurred, I know you're still investigating that and the like, but I'm just, in some of the stories I read, I think there were at least some that talked about there being fires in other parts of the world with batteries. And I don't know if you have examples of others and what might have caused those other ones. just so we kind of have an idea of what it could be?

Yeah, first, what we had was a thermal event. We didn't really have a fire per se. And you're right, you know, there have been over the years, this is nothing new, over the years, a number of, you know, thermal events or fires in lithium-ion batteries in everything from cars to energy storage. So this is, you know, not totally new. So we have to investigate what was it that occurred in this event, exactly what was the root cause and make sure that we engineer or take all precautions to really minimize the likelihood of such an event in the past. Things are changing in terms of some of the technologies, but we've had lithium ion batteries on a grid scale, 10 to 40 megawatts operating for 10 years already without an incident. We're investigating it. There's not much I can say at this point. But as I mentioned, you know, we will share the crucial aspects of the finding to make sure that everybody takes whatever precautionary measures can be taken. So this is not, you know, there's not a repeat of this event.

Okay. Thank you.

Thank you, Steve. Our next question comes from Greg Orle with UBS. Please go ahead.

Yeah, thank you. You talked about some items in the quarter related to generation dispatch in Argentina, and then there was some issues in Panama, but you didn't modify your adjusted PTC guidance for those regions. Can you talk about what your thinking is there?

Greg Gustavo here. Yes, the impact in the quarter, as you mentioned in my preferred remarks, for example, in the case of Argentina and also in Panama with Shanginola, were expected. So we had that in our plan already. So first Q came really in line with our initial projections and expectations, so there was no need for us to adjust going forward. And again, while we're catching up towards the year end, as I said also in my prepared remarks, we are having 2.2 gigawatts coming online from today until December, and that's going to be a major driver of earnings going forward. So that's why you see this various quarter after quarter.

Okay, thank you.

This concludes our question and answer session. I would like to turn the conference back over to Ahmed Pasha for any closing remarks.

Thank you, Brendan. Thanks, everybody, for joining us on today's call. As always, the IR team will be available to answer any questions you may have. Thanks again, and have a nice day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.