The AES Corporation

Good morning. Thank you for attending today's AES Corporation Third Quarter 2024 Financial Review Call. My name is Megan and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to turn the call over to Susan Harcourt, Vice President of Investor Relations at AES Corporation. Susan, you may begin.

Thank you, operator. Good morning and welcome to our third quarter 2024 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 disclosed 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.

Andres Gluski Good morning, everyone, and thank you for joining our third quarter 2024 financial review call. We are pleased with our performance this year. And today, I will discuss our third quarter results, a robust growth we are seeing at our renewables and U.S. utility businesses, and our progress towards our asset sales target. Beginning on slide three with our third quarter results, which were generally in line with our expectations, adjusted EBITDA with tax attributes was about $1.2 billion. Adjusted EBITDA was $692 million, and adjusted EPS was 71 cents. We're on track to meet our 2024 financial objectives, including our expectation to be in the top half of our ranges for adjusted EBITDA with tax attributes and adjusted EPS. At the same time, we now expect adjusted EBITDA to be towards the low end of the guidance range for the year, primarily due to the one-time impact of extreme weather in Columbia and the lower margins in the energy infrastructure SBU. We are reaffirming our expected growth rates through 2027. Steve Coughlin, our CFO, will provide more detail on our financial performance and outlook. I'm also very pleased to report that since our last call in August, we have signed or been awarded 2.2 gigawatts of new contracts. This includes both long-term renewable PPAs and new data center load growth at our U.S. utilities. turning to our renewables business on slide four. Since our Q2 financial review call, we have added 1.3 gigawatts of new PPAs to our backlog, bringing our year-to-date total to 3.5 gigawatts, more than 70% of which is with corporate customers. As a reminder, last year we set a target of signing 14 to 17 gigawatts of new PPAs from 2023 to 2025. And with 9.1 gigawatts signed or awarded since the beginning of last year, we're currently well on track to meet this objective. Since setting that goal, we also materially increased our project return targets, and we are focused on prioritizing the most profitable PPAs. Moving to slide five and our construction progress. Since our second quarter call in August, we have completed construction of an additional 1.2 gigawatts of new projects, bringing our year-to-date total to 2.8 gigawatts, which represents nearly 80% of the 3.6 gigawatts we expect to complete this year. On-time execution is one of our competitive advantages, and we believe we have the best supply chain management in the industry. In the U.S., we have 100% of our solar panels onsite for those projects coming online this year. and 84% in country for next year. For 2026, we have 100% of our solar panels either in country or contracted to be domestically manufactured, providing protection against potential changes in tariff policy. We have also been a first mover in securing domestically manufactured battery modules and cells. We expect our first battery energy storage project with domestic content to come online in the first half of 2026. Additionally, we have established a robust supply chain for wind through our strategic suppliers with domestic manufacturing. Regarding long lead time equipment, such as transformers and high voltage breakers, we have secured all of the supply for our backlog through 2027. Turning to slide six, we are very well positioned as a leading provider of renewable energy to data center companies, particularly in the US, and to large mining companies outside the US. These customers want to work with AES due to our track record of providing customized solutions that best serve their specific needs and delivering our projects on time and on budget. With the US elections only a few days away, I have great confidence in the resilience of our business plan, regardless of the outcomes of the presidential and congressional elections. While we do not believe the elimination of the investment tax credit or production tax credit is likely, even in an extreme scenario, we're uniquely well positioned due to the following. First, regardless of federal policies, our corporate customers had a massive need for new power that can only be met by renewables over the next decade. McKinsey estimates that in the U.S., data centers alone could require an additional 450 terawatt hours through the end of the decade, which is equivalent to more than the annual electricity consumption of France. With these market dynamics, we will continue to sign high-return renewables PPAs with our core customers. Second, should there be any changes to U.S. tariff policy, we have a resilient supply chain with a large majority of our project components manufactured domestically by 2026. Finally, our strategy of procuring our equipment at the time of the PPA signing provides clear safe harboring protections from potential changes in policy. Now turning to slide seven. Over the last 12 months, we have embarked on the most ambitious investment program in the history of our U.S. utilities, which will improve reliability and quality of service for our customers while maintaining some of the lowest rates in both states. AS Indiana and AS Ohio are now two of the fastest-growing U.S. utilities with projected double-digit rate-based growth through 2027 based on necessary investments for our customers. As you may recall, in the third quarter of last year, we received commission approval for a new regulatory structure for AES Ohio, providing for timely recovery of the majority of these investments. Similarly, earlier last year, we received commission approval for new rates at AES Indiana, our first rate case in seven years. We're starting to see the benefits from the $1.2 billion we have invested in both utilities so far this year, representing a year-over-year increase of investment of 60%. Excluding the one-time settlement benefit recognized in 2023, year-to-date EBITDA is up 25%. Turning to slide eight, we're also seeing additional investment opportunities from data center growth in our service areas above and beyond our existing rate-based projections. Our utilities have many natural advantages that are attractive to large technology companies, such as proximity to fiber networks and the presence of ample land and water. We have worked to proactively identify sites that are well positioned to support new data centers, capitalizing on our deep relationships with technology companies. At AES Indiana, we expect to have specific data center deals to announce in the coming months, as we've been in active negotiations with several parties. We recently launched an RFP for three gigawatts of new generation to support accelerating demand growth. From a regulatory perspective, we will use the results of this RFP to help inform our IRP submission next year. At AES Ohio, We have now signed agreements for new data center load growth of 2.1 gigawatts, including an incremental 900 megawatts, on top of the 1.2 gigawatts we already announced on our last call. On our fourth quarter call in February, we will provide a comprehensive update on how these agreements impact our long-term investment plan and rate-based growth. Today, we can indicate that just what we've signed to date provides a nearly 30% increase in investment through the end of the decade over our current plan. Turning to slide 9, in September, we announced a plan to sell down 30% of AS Ohio to CDPQ, our longtime partner in AS Indiana. This transaction builds upon our strong relationship with CDPQ and allows for common ownership across our U.S. utilities. This partnership will support growth at AS Ohio with CDPQ as a funding partner for increasing investments to support reliability and economic development. Finally, as you may have seen in our release, we are pleased to report that we have now closed the sale of our equity interest in AS Brazil. We are proud of the work our people have done in Brazil to expand beyond the 2.7 gigawatt hydro portfolio by adding 2.5 gigawatts of operating wind and solar, creating one of the largest renewable businesses in the country. With these two transactions, we have now signed or closed agreements for more than three quarters of our 3.5 billion asset sale proceeds target through 2027. We have also further simplified our portfolio and eliminated Brazilian weather, interest rate, and currency risks. With that, I would now like to turn the call over to our CFO, Steve Kauflin.

Thank you, Andres, and good morning, everyone. Today I will discuss our third quarter results in our 2024 guidance and parent capital allocation. Turning to slide 11, adjusted EBITDA with tax attributes was approximately $1.2 billion in the third quarter versus $1 billion a year ago. Although we realized $458 million of additional tax value year over year, renewables EBITDA was down $68 million, driven mostly by record-breaking drought conditions in South America. In addition, our energy infrastructure SBU was down $221 million, largely due to expected items, which I'll cover in more detail on a later slide. Turning to slide 12. Adjusted EPS for the quarter was 71 cents versus 60 cents last year. Drivers were similar to those of adjusted EBITDA with tax attributes, but partially offset by higher parent interest due to growth investments, as well as a higher adjusted tax rate. I'll cover the performance of our SBUs or strategic business units on the next four slides. Beginning with our renewables SBU on slide 13. Higher EBITDA with tax attributes was driven primarily by significant growth from new projects in the U.S., where we've added 3.3 gigawatts since Q3 2023, but was partially offset by significant declines at our Colombia and Brazil businesses. This year, we've experienced unprecedented weather volatility and a record-breaking drought in South America driven by El Nino conditions. In June, a historic flooding event took out our one gigawatt Chivor facility in Columbia for nearly two months, followed by an extreme drought across the entire country. Also, you may recall that the third quarter of 2023 was extremely positive as we had better hydrology at our Chivor facility than the rest of the country, while spot prices were very high, yielding significant margins. As a result, Columbia is down 92 million versus the third quarter of last year and over 130 million year to date versus last year. In Brazil, the record drought and extremely low wind resource this year have also negatively impacted renewables in Q3 and year to date. While 2024 has been a difficult year due to the events in South America, we expect our renewable segment will grow significantly in 2025. Emerging La Nina conditions in the Pacific are expected to return the region to much better hydrology, while in the U.S., by the end of this year, we will have brought online a total of nearly 2 gigawatts of new capacity, which will drive a large increase in our renewable segment EBITDA in 2025. Now, turning to slide 14, lower adjusted PTC at our utilities SBU was mostly driven by the prior year recovery of $39 million of purchase power costs at AES Ohio included as part of the ESP4 settlement, as well as higher interest expense from new borrowings. This was offset by returns on new rate-based investment in the U.S., as well as new rates implemented in Indiana in May. Adjusting for the one-time settlement last year, utilities adjusted PTC grew by 18% in the third quarter over prior year. Low year-over-year Q3 EBITDA at our energy infrastructure SBU was primarily driven by nearly $200 million of expected declines at our Warrior Run and Southland legacy businesses and the impact of several sell downs, all of which were baked into our guidance. At Warrior Run, we recognized revenues from the accelerated monetization of the PPA beginning last year and ending in the second quarter of this year. Our legacy Southland assets benefited from energy margins earned in the prior year, which are no longer an opportunity in 2024 under the new extension monetization structure. In addition to these known drivers, we experienced lower margins at our new Southland combined cycle assets in the U.S. due to much milder weather, as well as extended outages at our TEG and TEP thermal plants in Mexico. Finally, higher EBITDA at our New Energy Technologies SPU reflects continued high growth and margin increases at Fluence. Now turning to our expectations on slide 17. We are reaffirming our 2024 adjusted EBITDA with tax attributes guidance of 3.6 to 4 billion and adjusted EPS guidance of $1.87 to $1.97. and continue to expect to be in the top half of both ranges, driven in part by the success we've had securing higher tax value on our new projects. Our renewables team expects to capture over $200 million in tax value upside this year, which reduces our growth capital needs. EBITDA from renewables will be favorable in the fourth quarter from revenues earned on our new PPAs Mike Pratt- Although we expect lower tax attributes in the fourth quarter as a result of the more balanced timing of renewable commissioning throughout the year. Mike Pratt- We also expect further growth in our US utilities and Q4 as we continue to realize returns from our investment program. Mike Pratt- This will be offset by the negative impact from the prior year monetization of the warrior run PPA as well as incremental impact from asset sales, including as Brazil. DRIVERS OF ADJUSTED EPS WILL BE SIMILAR, ALONG WITH HIGHER INTEREST EXPENSE FROM GROWTH CAPITAL, BUT BENEFITING FROM A LOWER ADJUSTED TAX RATE. AS A RESULT OF OUR EFFORTS TO SPREAD RENEWABLES CONSTRUCTION MORE EVENLY THROUGHOUT THE YEAR, WE'VE ACHIEVED MORE THAN 80% OF OUR ADJUSTED EPS GUIDANCE YEAR TO DATE, PROVIDING GREATER CERTAINTY AROUND OUR 2024 FINANCIAL OBJECTIVES. TURNING TO SLIDE 18. We are also reaffirming our adjusted EBITDA guidance range of 2.6 to 2.9 billion. While I'm pleased with our execution this year on our growth objectives, several large drivers have impacted results primarily at our legacy businesses, and we now expect to end the year toward the lower end of our guidance range. Milder weather compressed spark spreads in California, resulting in lower margins at our Southland combined cycle gas plant. The PPA for these assets contains an option that allows us to choose to sell the energy to the market in a given year. We previously chose to execute this option for 2024 and were therefore impacted by declining spark spreads that occurred later in the year. In Mexico, the unplanned outages, which have now been resolved, further impacted our results in the second and third quarter. In Colombia, the combination of the Q2 flood-related outage at Chavor and year-long record drought have negatively impacted us versus our guidance. Finally, inverter failures at several of our solar sites impacted availability versus our plan. These inverters were under warranty and are being remediated by the manufacturers. Despite the confluence of these one-time negative impacts, growth in U.S. renewables remains very strong, and our U.S. utilities have outperformed. We expect to continue this momentum and substantially increase EBITDA at both our renewables and utilities businesses in 2025. Now to our 2024 parent capital allocation plan on slide 19. Sources reflect approximately 2.7 billion of total discretionary cash, including 1.1 billion of parent free cash flow, 950 million of hybrid debt that we issued in May, and $650 million of proceeds from asset sales. Sale proceeds will be slightly lower than expected in 2024 due to timing, but we are well ahead of our $3.5 billion long-term target through 2027. On the right-hand side, you can see our planned use of capital. We will return approximately $500 million to shareholders this year, reflecting the previously announced 4% dividend increase. We also plan to invest 2.2 to 2.3 billion in new growth. In summary, we continue to execute in the year to date and are well positioned for a strong finish to 2024. Our substantial renewables commissionings thus far give us greater line of sight toward achieving our earnings and cash targets, and our funding plan is largely complete. With $1.60 of adjusted EPS year to date, We have over achieved on our EPS growth, with a clear path to landing at least in the upper half of our guidance range. As we look ahead to 2025 we see strong growth in our renewables and utility segments and continued execution of our decarbonization strategy in energy infrastructure. I look forward to providing additional detail around 2025 and beyond on our fourth quarter call. With that, I'll turn the call back over to Andres. Thank you, Steve.

Before opening up the call for Q&A, I would like to summarize the highlights from today's call. We continue to execute well on our strategic priorities, including robust growth at our renewables and U.S. utility businesses. With 9.1 gigawatts of new PPA signed or awarded in 2023 and year-to-date 2024, we're well on our way towards achieving our goal of 14 to 17 gigawatts in 2023 through 2025. Regarding our construction program, we have added 2.8 gigawatts of new projects to our operating portfolio so far this year, and we're seeing the direct financial benefits in our adjusted EPS and adjusted EBITDA with tax attributes results. At our U.S. utilities, we have embarked on the most ambitious investment program in their history while signing agreements for 2.1 gigawatts of data center load growth, and we expect more in the coming months. We're also executing well on our asset sale and transformation program, and we feel good about the remainder of 2024 and our long-term outlook, despite specific one-time weather-related events this year. Finally, I can confidently say that I believe no one is better positioned with large technology customers than AES. Energy market fundamentals and the strong demand we are seeing from our corporate customers give us great confidence in the resilience of our business plan, regardless of the outcomes of the upcoming US elections. Operator, please open up the line for questions.

Absolutely. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to retract your question for any reason, please press star followed by 2. Again, to ask a question, please press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to register. Our first question will go to the line of Nick Campanella with Barclays. Your line is now open, Nick.

Hey, good morning. Thanks for taking my question. So… Good morning, Nick. I wanted to ask… Yeah, good morning. So, I wanted to just ask, you know, the comments about supply chain. You seem well positioned through 2026 with panels, et cetera. You continue to construct 3.5 gigs for this year. You kind of outlined this previous target at the end, let's say, of 14 gigs, you know, into 2025. So, you know, we're getting closer up to 2025 now. I just kind of wanted to check in and see, you know, how you feel progressing towards that target because it will be – it seems like it will be a pretty good step up into 2025 here. Is that still attainable? Thank you.

Yeah, thanks for the question, Nick. I mean, we feel very strong about our supply chain management and construction program. We are the only large renewables developer which really hasn't had to abandon any large PPAs over the last three, four years. So, you know, what we've said, we have all the equipment we need this year. We have 84% of what we need for next year already in country. In the next month or so, we should have 100%. So we feel very good about supply chain. And, you know, we tend to concentrate on the big items like, you know, wind turbines, batteries, solar panels. But you also have inverters and you have transformers, which are long lead time, and we feel very solid there. In addition, we've really had no problems with the workforce either because we have strategic relationships with EPC contractors so that they can move the crews from one project to the next. So in answering your question, we feel very good about our construction program. And as you know, in 2023, we geared up 100%. So now we've been able to really smooth out our commissioning throughout the year, and we expect that in 2025 and 2026.

All right, thanks. And, you know, when I think about, you know, 25 again, obviously you had on an tax-attribute basis some one-timers that's kind of putting you a little lower here, and I, you know, sense the notable confidence on the growth into 2025. Can you just kind of quantify for us, you know, how much is really just returned to normal versus, you know, new EBITDA from, you know, renewables contributions? And then, you know, when you consider things like Brazil rolling off, do you still expect that renewable segment to grow year over year? Thank you.

Yeah. Look, that's a very good question. You know, we aren't giving guidance for 2025 at this time. But you're right, what you really have is a mean reversion. You're really coming back to a sort of more normal year. 2024 is a year that we've never had before, the sort of combination of extreme floods and extreme droughts in some of our service territories, largely driven by El Nino. Coming into La Nina, we expect a return to normal. But you also correctly point out that we're maintaining all of our guidance and our long-term growth rates uh, with, without Brazil. And so that means that the other sectors are picking up. So to the extent that I can say, we expect next year to be a more normal year, uh, and, uh, you know, we've absorbed the, uh, sale of Brazil by increasing the growth rates, uh, you know, especially in, in us renewables and us utilities.

Yeah. I would just add, we we've added our, and we'll add a total of three gigawatts of new renewables this year across the portfolio. So there's, in addition to some more normalization, like the La Nina coming in South America, the, um, the install base is going to be significantly higher. So that's, that's part of it. Renewables segment will grow significantly. Um, and we also, uh, have outside the renewables, we have the utilities growth. So with a full year of new rates in Indiana and continue rate based growth in Ohio.

makes sense thanks thanks for answering those questions and uh we'll see you soon thank you thanks thank you thank you nick our next question goes to the line of david arquero with morgan stanley david your line is now open hey thanks so much good morning good morning i was wondering if you could elaborate on um

wondering if you could elaborate on the outperformance you had in tax credits that you received. You referenced the $200 million higher than expected tax credits. Wondering what that stemmed from, and is there an opportunity for any more outperformance from here?

Yes. Hey, David. Steve. Definitely been a very good year. Look, this is, I would say, a very poor competency for us and a key differentiator. We have I think the strongest tax team and renewables finance team there is. We're always looking to ensure that we maximize the tax value opportunity because what does that do? It reduces our capital requirements and also increases returns. So we've had a good year. We've done a number of things to ensure we qualify for bonuses, including places where there's a brownfield adder that allows us to qualify for the energy community. You know, these are sites that were formerly, say, agricultural sites that had different materials, chemicals applied that allow them to qualify. So we've done a lot of research and digging to justify adders where we can. So the other thing we're doing is, you know, all tax credits are not created equal. So because of our track record, people tend to come to us and expect and we get less of a discount. And we get people very focused on working with us. So I would say, you know, monetizing through transfers, we've had a lot of success. And transfers do tend to get recognized a little earlier than through the tax equity partnerships, but the credit value. So that's part of it. So I do see this as, you know, potential upside in the future, but, of course, there's other things going on in the portfolio. You know, we have to take a holistic look, and when we get guidance in 25, we'll update you guys on the entire portfolio.

Okay, got it. That's helpful. Thanks. Yeah, good to see just chipping away at the financing need with that. And then I'm wondering if you could just touch on what renewable returns have been on the incremental projects that you've been signing, I guess, since raising your return expectations earlier in the year. How have those return levels been trending? Has there been continued momentum upwards?

Well, we're seeing good returns from our projects, and we continue to see a market that values what we bring to our customers. The answer to that is yes, that we continue to see, you know, our newer projects have been within that range, towards the upper end of that range. So we feel, you know, very confident in the numbers that we provided.

Okay, got it. Appreciate it. Thanks so much. Thanks, Dave.

Thank you, David. Our next question goes to the line of Durgesh Chopra with Evercore ISI. Dugresh, your line is not open.

Thank you. Good morning, team. Thanks for taking my questions. Just wanted to start off with the actual portfolio that is going to come online, not front-to-front on the guidance, but in terms of the 2.8 gigawatts that's coming online this year, should we expect an uptick in that number as we go into 2025, the actual construction and getting projects online?

Yeah, so this is Steve. So we'll give that guidance in February. So there's a number of moving pieces here. I would say the largest inflection will be beyond 2025, Dardesh. And so I expect renewables will be up somewhat, but I think based on what our COD schedules look like, the largest increases will come in 26 and 27.

Got it. Okay, that's very helpful. That's just project timing. Okay, I have two other questions. First, on the hydrogen project with APD, there may have been some changes there with the activist involvement with the company. Just, can you update us, you know, what your plan is there, how much capital might you have invested, you know, to date, and what do we do with those gigawatts coming online? Just anything you can share there that would be helpful.

Sure, no, I appreciate the question. Look, we have developed a very attractive one and a half gigawatts of renewables, which, as you know, there's a market that there's a shortage of large, you know, advanced renewable projects. So, We have to see, you know, when 45V comes out and other things, how much of this goes to hydrogen. But in any case, we have a very attractive asset there. Regarding, you know, outside of the states, I do see those projects likely going forward with Asian buyers stepping up as partners in the early part of it. So we don't have a lot of money invested other than the development money that we've done. However, I think that this is probably some of the best pipeline development that we've done because it's a particularly attractive asset.

Got it, Andres. That's very helpful. This is part of the backlog that you show, right? I believe that number is 12 now. Is that the one and a half gig, is that included in the 12?

No, no. We only include in our backlog that which is signed or awarded at the very final stage. We've never taken any project out of our backlog, really. Nothing but, you know, so we wouldn't include it until we have assigned PPA.

Understood. Okay, very good. And then one final question. Sorry for dragging for this long. Steve, just on Moody's basis, earlier in the year we've had conversations on the methodology, potentially a methodology change at Moody's. Maybe just update us on where you stand on Moody's basis and the latest conversations you've had with the credit rating agency.

uh sure so um the dialogue continues i do expect that they will publish an update before year end um i characterize the conversations as continuing to be very constructive they do see that our credit quality has indeed improved since they gave us the initial upgrade a few years back um you know what's the reality here is that we've been really transforming the portfolio exiting markets, exiting carbon-intensive assets, and rotating capital into long-duration U.S. dollar, high-credit-worthy counterparties with no fuel exposure. So we have a very, very attractive profile. I think what they're working through, since Moody's looks at AES on a consolidated basis, as opposed to S&P and Fitch, which is at their parent recourse level only, they're looking at the project finance structures and how they take account of those. You know, project finance is amortizing. When we put debt on our projects, it amortizes over the life of the contract. So there's not an exposed levered tail there. So it's a low risk structure. It's actually investment grade rated debt at the project levels. It's an attractive structure. It just hasn't fit well within the way they define their thresholds. So they're looking at that. They're also looking at how, given our high growth, we carry a fairly material amount of construction debt, and that's not yet yielding. And so they're looking at that in ways to recognize that there is cash flow pending that's very certain. And, of course, this is non-recourse debt as well, that they're looking for adjustments along those lines as well. So I feel good about where we are, feel really good about the conversations, and I do expect they'll be sharing their view here before the end of the year.

I would add that if you think of sort of the big picture, overall, we continue to improve our credit profile. FX, certainly a big part of our foreign interest rate exposure and weather-related exposures we learned this year. So as we shut down coal plants or sell coal plants, you're changing two-year PPAs with fuel risk for really long-term 20-year PPAs with no fuel risk with investment-grade offtakers in the U.S. So I feel very confident that any credit rating agency looking at the overall company where we are today versus where they gave us the ratings a year or two ago is a substantially better company.

Got it. Really appreciate that color, guys. Thank you.

Thank you, Durgesh.

Thank you, Durgesh. Our next question goes to the line of Julian Dumoulin-Smith with Jefferies. Julian, your line is now open.

Hey, good morning, team. Thank you guys very much for the time. I appreciate it. Can you guys hear me? Hey, thank you, Andres. Excellent. Well, actually, since we're talking on the credit here, just to kick off on a nuance there, which is where do you see your metrics getting here? And then more specifically, do you anticipate needing to upsize the asset sales or accelerate the asset sale target to kind of true up the balance sheet for any reason here? I get that Moody's methodology is in flux, but, you know, as you think about the asset sale piece of this, any observations to make on that front? since we were focused on it a second ago?

Yeah. Yeah, no, certainly. So, I mean, the credit metrics remain strong at the parent level. And actually, things that we've been doing are quite credit accretive. So, some of the largest things we've done here now, just closing on Brazil, you know, Brazil, while it was generating a significant amount of EBITDA in the renewable segment was actually producing very, very little cash. The business is highly levered. And so the sale is actually very credit accretive. Similarly, with the Ohio sell down, when that closes next year, we're going to be paying down a tranche of debt that's due at the whole co over 400 million. So we see that as also credit accretive and that we do, in fact, expect as a result of the transaction Ohio will be able to start paying dividends at least a year sooner than it otherwise would have. So we really feel good about the trajectory. I would expect at the end of this year, the parent level metrics will be in between 22% and 23%, which are well above the threshold of 20% that we have. And so, yeah, no, Julian, I think the asset sale program, we've had a lot of success targeted three and a half. The universe is in fact bigger. So, you know, we'll see what makes sense going into the future. But I see us, you know, having a lot of runway here and that the credit metric has actually in fact been supported by the asset sale program.

I'd like to sort of also say that we've always exceeded our asset sale program And I would also say, quite frankly, I think we have a very good record of selling assets at good value. And what we've always been doing is maximizing the value for our shareholders and not just doing asset sales to hit a certain, let's say, megawatt or generation composition target.

No, fair enough, guys. And thank you for that. Let me pivot real quickly to Opalco here, right? We saw your peers to the north with NIPSCO, Nicers, give a very robust update. You guys are talking about three gigawatts of procurement activity. I know you guys already had a team's trajectory articulated at the annual estate last year, but I suspect that number is potentially meaningfully higher or potentially extends itself for meaningfully greater duration, given A, the three gigawatts, and B, the baseline of the rate base at Opalco here. if you can speak a little bit to what your expectations on what total portion that you can, you can own and how that impacts your financials here.

Okay. So look, I mean the rate case this year was resolved early, settled early and approved early. So we had a significant increase over $70 million annual increase. And so that, is driving a significant year over year. We'll have a full year of the new rates next year. And then as Andres described in his comments, we're launching RFP for a lot of new generation in the utility. It'll go into the integrated resource plan to be filed next year. And we're talking, you know, I think we said in the last call, three gigawatts total Um, and that's increasing of data center load across the utilities in addition to what we've already signed. So, um, there's a, there's a, I would say what we guided to is double digit rate based growth across the utilities. It's going to be much higher than that. Um, uh, so, so we'll get more guidance in 25 Julian, but, um, Given what we're seeing, the utility investment is going to increase. The returns are going to increase. The rate base will increase. And that's also part of why we also sold down Ohio, because although we're selling down 30%, in fact, our net investment in the utilities is increasing. So this sell down is allowing us to improve credit, get to earlier distributions from the utility. It'll improve the credit quality in Ohio. And it helps fund a much bigger investment program than even we anticipated a year ago. And our net investment, even though we're at 70% ownership in both utilities, is going to be even higher. So that's how I would look at it. And, of course, in Indiana, you know, it's an integrated utility. So not only do we have the load on the network, but we also have the generation piece to supply as well. So we see a lot of generation growth.

Right, so even the medium-term rate-based growth CAGRs could potentially be heading higher is what I'm hearing. But actually, you made allusion to one thing here, if I can just clarify. You'll be providing an updated outlook here on the fourth quarter, and I know that there's a lot of different things that are moving around in the plan. So as you guys have done historically, expect that kind of integrated update here on the 4Q? Roll forward from the analyst side?

Yes, absolutely. Yes, we will update you on our long-term in February.

Wonderful. Excellent, guys. Thank you for the time. Appreciate it. Thanks. Thanks, Julian.

Thank you, Julian. Our next question goes to the line of Angie Sterzinski with Seaport. Angie, your line is open.

Thank you for taking my question. So I just wanted to focus on the Renewable Power EBITDA, so the one without credits, so cash EBITDA, I would call it. So I'm looking at these results. I mean, you will be basically flat since 2022, and now it looks like 2025. It's going to be also in like a, you know, 620, 630 range. So, I mean, I understand that there are one-off items that wait on this year, which is going to be even lower than the number I just mentioned. So, I mean, there has to be some growth in that number, and I hear you. Steve, that there will be some in 26, 27, but you're making very substantial investments and we're not seeing growth in that cash renewable EBITDA. Now, the reason I'm actually asking about it is because if you look at the parent free cash flow, parent distributions, I mean, the vast majority of them come from energy infrastructure, but that's a segment that is shrinking. So I will have to rely on cash distributions from renewables very soon in order to hit the FIGASRO expectations. So I'm just hoping that we can reconcile this.

Thanks. First, we're not saying that the renewable EBITDA will grow substantially in 2025. And what you have is the fact that we're selling Brazil. That's five gigawatts. So what you're having a little bit is apples and oranges here. So we're seeing the operating results from our renewables build absolutely in where we think it should be. So it is, you know, there's a number of things going on here, Angie, that, you know, we can, time will clarify. But I don't think that it's so you can say that, you know, we're not getting the results from, you know, the investments that we're making. It's just, you know, moving. And then second, on the energy infrastructure, yes, I mean, we have a balanced portfolio. So, you know, we tend to have, you know, Bad events in one spot, offset by good events in the other. And this was a particular quarter where really a lot of things came together that normally don't come together. So, you know, normally if you have dry conditions, you have more wind. This time we had both. But what we also had was sort of all the year's rain came in a very short period of time and damage of one gigawatt hydro. So I think we really did have sort of one-time events, and I think you're drawing – sort of longer-term conclusions from that. I'll pass it to Steve.

Yeah, I would just say, Andy, the only reason we're down year over year is because of the record drought. The only material reason is because of the record drought, primarily Columbia and to a degree, Brazil as well. So, you know, those conditions are known to be changing, moving to La Nina. Obviously, Brazil is out of the portfolio. So Colombia, we do expect returning to much more normal conditions next year. And don't forget, we also had an extremely high third quarter last year in Colombia, unusually high. So it makes the year-over-year comparison look more extreme. But what's the reality is the U.S. growth is significant. And so this year and even higher into next year, more than overcoming the loss of Brazil from the renewable segment. So the renewables growth will be very material next year. So we get that we're not on track at this point with the guidance for, you know, if you were to straight line the guidance, but we're picking up substantially into next year and are reaffirming through 2027 that 19 to 21%. growth rate, and that's largely driven by all of this U.S. growth, which is taking off. As I said, we have added a total of three gigawatts of renewables across the year since Q3 of last year. We also will ultimately move Chile into the renewable segment where it belongs. as we execute on our coal exit. So the cash from this renewable segment will grow accordingly as well, and the EBITDA will be on track with that growth rate.

Okay. So let me just push back. The latter, meaning the chiller, was supposed to be additive to the growth trajectory that you were showing at the analyst day. And now that we see the results, like year-over-year changes versus 23 results, We clearly point out that the second half of 23 had some big one-time benefits, which you could not have counted on during your 23 analyst day, and yet you came below your expectations, even the low end on renewables EBITDA for 23. So again, I mean, I hear you that there is a growth in the US portfolio, which will benefit the EBITDA, but Again, I mean, you had some big positives in the second half of 2023, which you could not have expected when you were giving guidance on 2023 on renewables, and yet you came below expectations on renewables in 2023 now. So why should I have conviction that the same is not going to be true in future years?

Well, you know, we feel confident we're going to hit the long-range growth that we talked about. I mean, it has to do with, you know, reaching critical mass on some of these things. And, you know, certainly we can have one-time, you know, weather events. But I think the important thing is what returns are you actually seeing from the projects you're bringing online? What is the value of the PPAs you are assigning? And as we move forward, it'll be easier to make apples and apples comparisons as we have the same portfolio year to year.

Yeah. The other thing I would say, Angie, is referring to last year, we did end up having more of our commissionings very late in the year in fact most in december so a little later than expected this year we have substantially changed that trend uh and so the renewable commissionings were much more evenly spread throughout the year that's why we've already recognized 900 million of tax attributes already so you know i think that's that's another reason that that program has become more mature and spread throughout the year that that we're seeing a better result, and that 23 was lower.

And just one other question. So I'm looking at your guidance here on the for the parents for the year. It seems like you're expecting about $1.5 to $1.6 billion in distributions from subsidiary, and you are at about 800, 880, I forget. So is this apples to apples, meaning that I am basically 50% of distributions, meaning that the fourth quarter will be this big catch-up on distributions?

Yeah, but that's a normal trend. So we've been having that type of seasonality for a long time. In, I would say, most cases, the cash is already sitting there. It's based on the windows in time relative to our debt service that we're also allowed to pay So, we have clear visibility into the remaining dividend. It's just a matter of timing at this point as to when they get released on the periodic, you know, twice a year, once a year in some cases. So, I'm very, very confident in the distribution level.

Okay. Thank you. Thank you, Angie.

Thank you, Angie. Our next question goes to the line of Michael Sullivan with Wolf Research. Michael, your line is now open.

Hey, good morning. Good morning, Michael. I know that kind of got hashed through a bunch there on the last line of questions or commentary, I guess. Just to make it simple, you keep talking about significant growth in 25. We obviously don't know what that means exactly, but you have this 5% to 7% EBITDA CAGR off of 23. When do you get inside of that within your plan?

Yeah, so again, we'll give an update in February. The early years as we have been executing on the transformation and things like the Brazil exit, We'll have the Vietnam exit next year. We had the Warner Run shut down, and so that goes away. So that weighs on the early years, but the trajectory, as I said, there's more of an inflection point beyond next year overall getting through the 2027 period. So what's happening is that the renewables will grow significantly next year. The utilities will grow significantly catching back up to, you know, closer to that level of return or growth that we've been expecting. But the energy infrastructure shrinking has been a little more front-end loaded. And then the Brazil sale, obviously, is a headwind in renewables in the near term, but we're significantly more than offsetting it next year. You know, so that's how I would characterize it. We feel good about the growth rate overall, but it's influenced by how we execute on the transformation as well as the growth, and the transformation shows up in the shrinking of the energy infrastructure. So that's how I would characterize it, and so we'll give more in February. But again, I feel really good about the renewables and the utilities. And then the energy infrastructure, you know, we'll look at the choices we have around how fast to continue the transformation and discuss that in February.

Okay. That's very helpful, Steve. And then I had two ones just on your resource additions. The first, just in terms of looking at new gas at the utility, will we see that in the RFP or is that not until the IRP? And do you have a good handle on how much you could look to be doing in gas? And then on the non-utility side, you know, you all have traditionally been pretty solar heavy, though I think you mentioned wind a few times just in terms of supply chain. But when I look at you and your peers, it doesn't seem like anyone's adding too much wind these days. So just curious what you're seeing on that front. Thank you.

Yeah, on your first question, that would be really waiting for the IRP. So we certainly are looking at all options. So it will be likely a mix of renewables and some thermal, of course, batteries as well. Now, regarding the second question and wind, well, we had been building quite a lot of wind in Brazil. But a lot of the projects that we have in our pipeline have a considerable amount of wind. If you think of what's been known as sort of the green hydrogen project in Texas, you know, one and a half giga, that's primarily wind. So we'll have more of a balance, let's say, in the U.S. between wind and solar in future years. Okay, great. Thank you very much. All right. Thank you.

Thank you, Michael. Our next question goes to the line of Ryan Levine with Citi. Ryan, your line is now open.

Good morning and thanks for taking my questions. What is the timeline for the $92 million? What is the timeline for the $92 million Columbia impact to return to historic norms? And what is the risk to achieving this ramp at this stage in the year?

Yeah, so conditions are already improving. The fourth quarter, in fact, I expect will be higher in Columbia than last year, Ryan. And all forecasts point to La Nina being highly probable over the next couple of months and lasting well into next year. So it's pretty much turning around now. Again, I expect the fourth quarter to be higher. And then throughout next year, I expect Columbia to be higher than this year overall so colombia has has been and it was 92 million in the quarter alone it's 130 million down year to date over prior years so that is the single largest driver here and it shows up in the renewables segment but the u.s growth is doing uh hard work to offset that and significantly overcomes overcomes it in the fourth quarter here and into the next year.

Yeah, I would add we had a two-month outage. So the truth is that outage was at the worst possible time because if we hadn't had the outage because we had a rain which was 25% higher than anything previously recorded, we could have used that water to very good results subsequently in the drought. So being out for two months, that's part of the recovery.

Okay. So then by 2026, you should be back to a more normal performance, if I'm hearing correctly?

No, 25, Ryan. So the conditions are already improving. We expect this quarter, fourth quarter, to be higher than last year. And next year, in 2025, we expect normal to better hydrology from the La Nina. Okay.

And then maybe switching gears, you referenced in your prepared comments the impact to California spark spreads. Are you looking to change your hedging strategy there, or any color you could share around the outlook going forward for the Southland asset?

Yeah, so just as a reminder, the Southland structure has a 20-year contract for capacity and energy so we have a very known monetization stream it is at our election annually a year in advance to decide whether we want to market the energy ourselves and hedge it or or put it to the to the off taker under the ppa so for 24 um we did previously decide at the end of 22 to um call the energy to us and to market it. Unfortunately, it sparked spreads change significantly during the time that we made that decision and we're executing on the hedge program. And so we had downside this year, but still relative to the put value, still a good decision. And so we have made that decision also for 2025 that we will market the energy. We are over 95% hedged already at values well in excess of the put value. So the market has changed. The market has compressed a lot due to better hydro conditions. What we've had is milder weather. There's been a lot more battery penetration in California. So the market value is not as high over the long term as it had been, you know, back in 22 when we first made that decision. But nonetheless, we see overall the strategy has been increasing or has added value over the put. It's just not as much as we expected when we gave the guidance, unfortunately.

So then as a follow-up, Given that framework and your decisions for next year, is there any color around and direction and travel for that assets performance for 25, given what you've already decided?

Yeah, I mean, I would say at this point, since we've already decided on 25, it is in excess. of the put value, you know, and we're already nearly 100% hedged, 95% hedged, as I said. So the value is lower than it was in the original guidance, but still above had we taken a no risk strategy. And then for 2026, we have not yet made that decision. And we'll have to hear later in the fourth quarter. And we'll update you all on that later. And that will be based just upon what we see in the hedge market at the time relative to the put value.

Thanks for taking my questions. Thanks.

Thank you, Ryan. Our next question goes to the line of Richard Sutherland with JP Morgan. Richard, your line is now open.

Hey, thanks for the time. I know we've covered a lot of grounds. Just one quick cleanup. You've talked at various points about the asset sale program and how you've thought about timing that and affecting that. It sounds like more to come on year-end around that, but just curious how you're thinking about monetizing the new energy technologies investments and if that's something that should fall within the planned period. Any thoughts there? Thank you.

When you think about the new energy technologies, look, what we've talked about is through 2027. And we approach these strategically. So what we've always said is that we will monetize these assets when we feel it's appropriate. And we aren't sort of long-term venture capitalist investors. So we'll monetize them at the right time when we don't think we're adding a lot of value. And, you know, we've already done some monetization and taken some money off the table. So it's been a very successful program. And I think there's a lot more value there than is being recognized by most of the sum of the parts. But, you know, what I would say is that, you know, so long as we add a lot of value, you know, we'll stay in. However, you know, we'll continue to opportunistically, you know, monetize. And, you know, certainly, you know, we're well ahead of our plan for 2027, but, you know, it's Steve mentioned, the universe is greater. So it would include some things from new energy technologies.

Great. Thank you. Thank you.

Thank you, Richard. There are no additional questions waiting at this time, so I'll turn the call back over to Susan Harcourt for closing remarks.

We thank everybody for joining us on today's call. As always, the IR team will be available to answer any follow-up questions you may have. We look forward to seeing many of you at the EEI Financial Conference later this month. Thank you and have a nice day.

That concludes today's conference call. Thank you for your participation. I hope you have a wonderful rest of your day.