The AES Corporation

Good morning everyone and welcome to today's conference call titled the AES Corporation Second Quarter Financial Review Call. My name is Ellen and I'll be coordinating the call for today. At the end of today's presentation, there'll be an opportunity to ask a question. If you would like to ask a question, please press star followed by one on your telephone keypad to join the question queue. It's now my pleasure to turn the call over to Susan Harcourt, Vice President of Investor Relations. Susan, please go ahead whenever you're ready.

Thank you, Operator. Good morning and welcome to our second quarter 2023 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. There are many factors that may cause future results to differ materially from these statements, which are discussed in our most recent 10-K and 10-Q filed with the SEC. Reconciliations between GAAP and non-GAAP financial measures can be found on our website, along with the presentation. Joining me this morning are Andres Gluski, our President and Chief Executive Officer, Steve Coughlin, our Chief Financial Officer, and other senior members of our management team. With that, I will turn the call over to Andres.

Good morning, everyone, and thank you for joining our second quarter 2023 financial review call. I will discuss our second quarter results as well as the excellent progress we're making towards our financial and strategic objectives. Steve Coughlin, our CFO, will give some more detail on our financial performance and outlook. For the second quarter, adjusted EBITDA with tax attributes was $607 million and adjusted earnings per share was $0.21. Results for the quarter. as well as for the first half of the year, are very much in line with our expectations. Thus, we're reaffirming our 2023 guidance for all metrics and our targeted annualized growth rates through 2027. As we noted earlier this year, approximately 75% of our 2023 earnings will come in the second half of the year. Now for an update on our strategic priorities. At the core of our strategy is a focus on, first, new renewables, with the target to triple our installed capacity by 2027. Second, growth at our U.S. utilities, where we expect to increase the rate base by more than 10% per year through 2027. And third, the transformation of our portfolio as we exit coal by the end of 2025 and invest in the new technologies that will define our industry for years to come. Today, I will provide an update on how we are executing across each of these focus areas, beginning with our renewables on slide four. We continue to see significant inbound interest from key customers wanting to do large US-based renewable projects with us. We believe this reflects both our reputation for consistently delivering on time as well as our best-in-class ability to tailor projects to the specific needs of our customers. Year to date, we have now signed 2.2 gigawatts of new PPAs, including 2.1 gigawatts since our investor day in May. These numbers do not include 1 gigawatt from Bellfield's second phase or 1.4 gigawatts from our green hydrogen project with Air Products in Texas, both of which could be signed before the year's end. I feel good about the likelihood that we will sign five to six gigawatts of new PPAs this year. We continue to be globally the number one seller of renewable energy to corporate customers. We also have a leading position in the U.S. providing renewable energy to data centers, which are seeing explosive growth in part as a result of the generative AI revolution. Turning to slide five, another area of recent success is how we have been working with technology customers to complete projects initiated by other developers. Our corporate customers want us to take on these projects because they know we will deliver them on time and can also restructure the original PPAs to provide customized solutions. Two great recent examples of this are the 185 megawatt Delta Wind project in Mississippi, which has a signed PPA with Amazon, and the two gigawatt Belfield project in California, one gigawatt of which has a signed PPA with a large technology company that is a repeat customers. Both of these projects demonstrate the strength of the relationships we have with our customers. For us, completing other developers' projects is especially attractive because we can get similar returns to greenfield projects while preserving our current pipeline for future projects. Our 61 gigawatt pipeline represents investments in land, interconnection, and development, which must be replaced once utilized. Giving growing constraints on new transmission in markets like California and PJM Having the flexibility to decide when to utilize these resources helps us maximize total returns from our renewables business. Moving on to slide six, we now have a backlog of projects with signed long-term contracts of 13.2 gigawatts, which is the largest in AES's history. I would like to reiterate once more that our definition of backlog includes only signed contracts for which we have an obligation to deliver and our customers have an obligation to take a given amount of renewable energy for a given amount of time. The average tenor of the contracts in our backlog is 19 years and currently 41% of our 13.2 backlog is already under construction and 74% is slated to come online within the next three years. Turning to slide seven. Since our investor day in May, we have completed a number of landmark projects. In June, we announced the commercial operation of the 238 megawatt phase one of the Shetland Butte Wind Project in Arizona. It is one of the first projects in the country to be placed in service to qualify for the 10% additional energy community tax credit bonus under the Inflation Reduction Act. And once phase two is completed, it will reach 454 megawatts and be the largest wind project in the state. In addition, we completed the Andes 2B solar plus storage project in Chile for our copper mining customers. Its 180 megawatts of solar plus 560 megawatt hours of storage will make it the largest battery storage installation in all of Latin America. We were also able to use 5B's prefabricated solar panels for a portion of the project, which advances the learning and lowers the cost of future developments. Turning to slide 8, we're on track to complete the 3.4 gigawatts of new renewable projects we committed to earlier this year, including nearly 800 megawatts we've already brought online. In the U.S., we expect to commission roughly 2.1 gigawatts which is roughly double the capacity we installed last year. I am very proud of the work our teams have done to ensure that we have had no supply chain or construction delays. All of the necessary equipment has been contracted for our 2023 through 2025 backlog. There remains the potential for completion of up to an additional 600 megawatts this year in the U.S. given the strong performance of our construction program. We see our record of completing projects on time as a key competitive advantage that is highly valued by our customers. We were one of the only major developers that did not abandon or meaningfully delay construction projects over the last two years due to supply chain issues. Furthermore, due to our emphasis on long-term planning and strong contractual agreements, we have maintained our project margins despite inflationary pressures and rising interest rates. Now moving to our second priority of utility growth on slide nine. We remain on track to grow our U.S. pre-tax contribution at an annualized rate of 17 to 20% through 2027. At AES Ohio, we expect to receive commission approval for our new electric security plan, or ESP4, by the end of August, at which point our new distribution rates would go into immediate effect. As a reminder, ESP4 includes approval of timely recovery of $500 million in grid modernization over the next three years, carrying a 10% return on equity. This will allow us to accelerate investments to continue to improve the quality of service while maintaining the most competitive rates in Ohio. At AES Indiana, we filed for a new rate case in June, the first rate case since 2018. The proposed new rates are designed to recover inflationary impacts since the last case, as well as investments in reliability, resiliency improvements, and system upgrades. We expect commission approval by the middle of next year. Even after this proposed increase, We still expect our residential rates to be among the lowest in the state. At AS Indiana, we continue to advance our low carbon generation growth plan. We recently filed for approval to build a 200 megawatt or 800 megawatt hour storage facility at the site of the retiring Petersburg coal plant. This project is expected to come online by the end of next year. at which point it will be the largest battery storage project in the Midwest. Now turning to slide 10 and our third priority of transforming our portfolio by exiting coal generation by the end of 2025. Since our investor day in May, we have significantly advanced our decarbonization objective by assuring the retirement of an additional 900 megawatts of coal generation. In June, we retired 415 megawatts of coal, as we shut down unit two of the Petersburg plant at AES Indiana. We also announced the retirement of the 276 megawatt NorHanair plant in Chile by 2025. Additionally, we received final approval allowing for the termination of the PPA at our 205 megawatt Warrior Run plant in Maryland for proceeds of 357 million. Now turning to slide 11, We have expanded our leadership in the development and application of new technologies in our sector. We see this as another important competitive advantage. A new example is the use of embedded artificial intelligence, including generative AI, across our operations. This year, we already expect more than 200 million of our adjusted EBITDA to be enabled by AI through both cost reductions and revenue enhancements. We have incorporated AI and data analytics across our operations from areas such as wind production forecasting to vegetation management to identification of isolated solar panel failures. As part of this program, we also continue to pioneer and advance the use of robotics to install and maintain solar panels. Through our solar robotics program, we are developing proprietary AI-based computer vision to install a wide variety of solar modules, including the largest and heaviest models. With this technology, we plan to install projects significantly faster and across a wide range of working conditions, including extreme heat. In the coming months, we will be validating this technology for the installation of tens of megawatts and expect to move to use it for full-scale solar projects in 2024. Finally, we're consolidating our lead in advanced green hydrogen projects with committed off-takers. We're currently developing the largest announced green hydrogen project in the U.S., jointly with Air Products in Texas. It features 1.4 gigawatts of inside defense, hourly matched renewables, 200 metric tons of hydrogen per day, and a 30-year take-or-pay contract. It is expected to come online in 2027. Our pipeline of advanced green hydrogen projects is equivalent to more than six gigawatts of renewables and 800 metric tons of hydrogen per day. With that, I would like to turn the call over to our CFO, Steve Coughlin.