The AES Corporation
Q1 2014 Earnings Call Transcript

Published: 8 May 2014

[Operator:]

Good morning, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. And I would now like to turn the call over to your host, Ahmed Pasha, Vice President of Investor Relations. Mr. Pasha, you may begin.

[Ahmed Pasha:]

Thank you, Angela. Good morning, and welcome to our First Quarter 2014 Earnings Call. Our earnings 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 Gluski, our President and Chief Executive Officer; Tom O'Flynn; our Chief Financial Officer, and other senior members of our management team. With that, I will now turn the call over to Andres. Andres?

[Andres Ricardo Gluski Weilert:]

Good morning, everyone, and welcome to our first quarter earnings call. Today I will discuss

[Thomas M. O'Flynn:]

Thanks, Andres, and good morning to all. As Andres said, hydrology for this year is challenging. We're taking steps to offset these issues. While we're reaffirming our guidance for cash flow and adjusted EPS, we now expect to be in the lower half of the range for adjusted EPS. Today I'll go through our first quarter, including adjusted EPS, adjusted PTC by strategic business units or SBU, proportional free cash flow and our 2014 capital allocation plan. Turning to Slide 12. First quarter 2014 adjusted EPS of $0.24 was $0.03 below first quarter 2013. I'll give more details in a moment. But at a high level, we benefited from the following

[Andres Ricardo Gluski Weilert:]

Thanks, Tom. In summary, although hydrology is once again extremely dry in some of our markets, we're taking steps to minimize the impact, including increased cost management efforts, accelerated capital allocation and strategic initiatives. At the same time, we're taking advantage of the opportunities our presence in attractive markets offers us to create value while being mindful of the amounts of AES equity we invest. Going forward, and in line with our capital allocation framework, we will continue to invest our discretionary cash to maximize value for our shareholders. As we've demonstrated through the repurchase of 8% of our outstanding shares over the last 2 years, buybacks will remain a key component of our capital allocation plan. To that end, we have $190 million of our repurchased authorization outstanding in conjunction with strong liquidity. The bottom line is that we still expect our annual total return to grow from a range of 6% to 8% to a range of 8% to 10% and expect our free cash flow to grow at a rate of 10% to 15% annually on average over the next 5 years. With that, I'd like to open up the call for Q&A.

[Operator:]

[Operator Instructions] Our first question is from Ali Agha with SunTrust.

[Ali Agha:]

A couple of quick clarifications. First off on DPL, I know that you folks have been trying to get clarity from the commission on the status of the non-bypassable charge if you were to sell those assets. I heard you say you're sort of second round in the bids could -- and the sale transaction could occur by the end of this year. So where are you in that process from hearing back from the commission? And what bearing, if any, will that have on the timeline of the sale that you were talking about?

[Thomas M. O'Flynn:]

Ali, it's Tom. I'll just say we're on a parallel path there to -- as a separate to an affiliate and keeping the affiliate or of course to look at separating and selling to a nonaffiliate. We believe that the NDC and the other pieces of the ESP from last year are a fair and reasonable treatment, whether we continue to own the assets or not, essentially to provide stability for the DP&L utility, to manage through the transition pieces. And we think that's very reasonable. So we're continuing on a path. The team has made their -- a substantial filing before our last call. And we continue to move forward on that process. And we would expect to have the separation perhaps in the third quarter of this year and then have the flexibility to sell, as Andres said, by the end of the year.

[Ali Agha:]

Okay. Secondly, Andres, if I was hearing you right, you mentioned these expansion opportunities that you're now capitalizing on represents $0.10 to $0.12 of earnings. It sounded from your timeline that that's starting to flow '15 onwards on these plus the pickup in the forward pricing in Brazil, particularly the '16 pricing. So have we raised our '15 and '16 outlook to reflect this? And if not, why not? Like what's offsetting at least the $0.10 to $0.12 of pickup that you highlighted for us?

[Andres Ricardo Gluski Weilert:]

Sure, Ali. As I mentioned in previous call, this was a very important initiative for us which is really to use those sort of adjacent spaces to add to our existing platforms to increase the profitability of the businesses. So at this time, Ali, we are sticking to our guidance for '14. And what we're saying in terms of beyond that is that we're doing everything possible to accelerate our total return growth from 6% to 8% to 8% to 10%. So at this point, I really have nothing further to say but that we're going to do everything possible to accelerate this as soon as possible.

[Ali Agha:]

But did I hear you right that $0.10 to $0.12 of earnings, this is incremental it was not in your original budget that you were laying out for us? Is that correct?

[Andres Ricardo Gluski Weilert:]

I would say some of that was because as I mentioned, when I first came out with the initiative, I said that we really were in the process of quantifying it. We had these ideas that we thought they were very promising but we really had to see how they would pan out in reality. So what I'm very pleased with the development in the last couple of months is that we're seeing that they're panning out very well.

[Ali Agha:]

Got it. My final question, as far as capital allocation is concerned, Tom, the $200 million to $300 million bucket that you highlighted unallocated, when will you allocate that? We're almost getting to the halfway point in the year and share buybacks, clearly, you haven't done any so far this year. How should we think about that in terms of priority of that $200 million to $300 million that you plan to use this year?

[Thomas M. O'Flynn:]

Ali, our cash flow does tend to be a little bit more third, fourth quarter driven. We obviously are doing work to try to accelerate some of that. But as Andres said, we do have an authorization for a little short of $200 million. We do have good liquidity. So it is something that we look at as we look at some of the opportunities that Andres has mentioned, despite they're, let's say, thin on capital, because we're trying to be miserly, let's say, with our investment. So we've got good availability for other alternatives. We do compete those very much against share repurchase. So we do look at it on a regular basis. And I would say that -- remind you we did buy back 20 million shares in mid-December. And we bought back I think 8% of our shares since Andres stepped in as CEO. So it is something we look at on a regular basis.

[Ali Agha:]

Okay. Final comment, more than a question, I mean, as you know given your valuation multiple, share buyback seems like a no-brainer at these price levels.

[Andres Ricardo Gluski Weilert:]

Yes. We definitely think that current share price is an attractive value for us. So yes, I agree with you.

[Operator:]

Our next question is from Gregg Orrill with Barclays.

[Gregg Orrill:]

Just a follow-up on the Tietê contracting strategy '16 and beyond, how you're looking to fill that position through purchases or auction. Are there other auctions coming up that might help you to fill that?

[Andres Ricardo Gluski Weilert:]

Okay. I'll make it sort of a general comment. Our strategy there has been gradual recontracting. I think if you go back a couple of calls, people were saying why hadn't we contracted more? Partly one of the reasons, of course, we couldn't foresee the degree of drought but we did foresee that with MP 579 and other -- any of the concessions that we thought supply would be a bit tight. So we really essentially hedged our bets and said we contract over time. So as we mentioned we're about 68% contracted today post the ending of the contract with Eletropaulo at BRL 119 per megawatt hour. Our latest has been closing around BRL 125, BRL 135 and current prices are higher. But I'll pass it on to Andy, so he can talk a little bit about some of the auctions that we've seen recently.

[Operator:]

And we'll go ahead and take our next question from Angie Storozynski with Macquarie.

[Angie Storozynski:]

I just wanted clarification. So this $0.07 to $0.10 of an impact, is this before the $0.04 mitigation or is this inclusive of the $0.04?

[Andres Ricardo Gluski Weilert:]

Yes. That number is net of the mitigation actions that we've taken. And of course we're going to try for more. And as I also mentioned, to some extent where we'll be in that range will depend on how the potential El Niño develops. If it's very strong, it could help mitigate this. I would say that essentially El Niño will help us in Colombia, if it's strong -- whenever it's a very strong wind it could also help rains in Brazil. And typically it will make things worse in Panama. So there is a lot of moving pieces here. But what I think is very important, this is the second year that we've seen this occur. So we're taking actions to mitigate this risk going forward. We had taken some actions but we're taking additional actions, such as the barge into Panama.

[Angie Storozynski:]

Okay. Now about DPL, so we've had quite an impressive moving forward power curves. AD Javes [ph] is stronger than we probably -- you have ever expected. Now is this in any way impacting your decision making about the disposing your merchant assets or maybe restarting the sale process, given the fact that the value of these assets have still increased?

[Thomas M. O'Flynn:]

Angie, it's Tom. Yes, we've certainly seen that with gas coming up and some -- also some retirements. We've seen that. We would -- I think our plan continues to be the same. We're on a parallel path. We would hope and expect that those higher -- those improved outlooks and the forward market would translate into higher value from the folks looking at our assets. And we also have seen RPM here in the next few months. We think there's a lot of -- in the next few weeks, I'm sorry, we think there's a lot of helpful things that will bring the RPM back into a more attractive number. It would also help values that we would expect to see.

[Angie Storozynski:]

And lastly, you mentioned that there were some gas curtailment for some of the assets in Ohio. Is this a real curtailment or is this something that the prices were prohibitively high?

[Andrew Martin Vesey:]

Angie, this is Andy Vesey. Let me respond to that. This is the first time that -- in recent operating memory at DP&L there've been basically shortages of gas. What happened with extremely cold weather, there were 2 effects. One was that literally there was no gas available because it was prioritized to residential customers. The second issue is that the pricing went very, very high. I think on average, we see gas at about $8 a decatherm. We were buying at $25 and we were refusing at $45, so it was both. It was a period just no gas available because it was prioritize to residential customers. And the second impact that we saw was that when there was gas available, the pricing was extremely high. I think this is something we have to recognize and be cognizant of. And as a result of the performance that we had during the polar vortex, we've made a number of changes. And one is that we had recognize that the commercial strategy we had in place was suboptimal if not fragile. And we're currently reviewing that and reorienting that so we don't have these issues going forward.

[Angie Storozynski:]

Could you say which gas hub will have this issue with curtailment of gas?

[Andrew Martin Vesey:]

Angie, that I just don't know. We can get back to you on that.

[Operator:]

Our next question is from Julien Dumoulin-Smith with UBS.

[Julien Dumoulin-Smith:]

So just a quick clarification on the hydrology, if you would. Is there any way to break up this $0.07 to $0.10 by quarter or by region a little bit more granularly, just so as we think through the next few quarters here what the expected impacts could be respectively?

[Andres Ricardo Gluski Weilert:]

Sure. I mean, we had $0.02 as we said in the first quarter. And then we're thinking of $0.07 to $0.10 for the remainder. Now again this range will depend again on -- it looks more likely than not that we'll have an El Niño effect and the question will be the strength of El Niño. If it's a very strong one then it's of course more positive for us. Now the main effects would be, one is Panama will get worse if you have a strong El Niño. That's the most -- that's where we have the biggest exposure. And then second, it would be Brazil where we have basically the Tietê. And then on the positive side, you basically have Colombia. So I would say that in terms of quarters, maybe 60% will be in the second half of the year and we'll have 40% in the first half of the year. And again, we are cognizant of this. And what we're really trying to do is reshape our commercial strategy and create real options to sort of cut off the extreme ends here.

[Julien Dumoulin-Smith:]

Okay. And then on the Chilean tax situation, if you could talk about that briefly, I was wondering -- so you have an increase by year but also this is, I suppose, a 2017 increase step-up potential. What do you estimate that to be and also what are some mitigating strategies that you see as well?

[Andres Ricardo Gluski Weilert:]

Okay. I was in Chile last week and I met with key ministers. I met with leading congressmen and leading senators. So first, we have to say that this is a tax proposal. And what we really have is a discussion about it. What is key is that President Bachelet has that said they want 3% additional revenues, 3% of GDP additional revenues, which most of that will go for educational reform, making higher education free at all levels. So that's the desired outcome. So they have different components. The first is the increase of the corporate income tax to 25%. And quite frankly, we were expecting that and that has always been as part of our guidance. And we've taken the appropriate steps in time for that. And they're doing it in a gradual fashion to -- as should be the case. The second part of that is the withholding tax, doing on an accrual basis rather than on a cash basis. And that -- it was not as expected. But again, we had to pay that anyway when we pay the dividend. And we have been paying -- for example, this year high proportion of our disposable cash. Then the third issue, which is the green tax. This is interesting because what we heard was basically this was a revenue measure more than having -- because of the -- it's not extensive to all sources of CO2. So it's very specific, it was a revenue measure. They're looking at raising $180 million when fully implemented. So this one is also being debated at this point. Do you make it a wider tax rather than just boilers and turbines? And so we'll have to see how this one turns out. But in all cases, I think that we are well positioned for. We started Alto Maipo, which is 500 megawatts of hydro, thinking that this could be an eventuality in Chile. And we do have a pipeline potential from the Alto Maipo making additional hydro run of the river investments, if we see this task in full. [ph] So Julien, this is one thing we'll have to continue to monitor because this is not in place. What I feel very certain is that you will have this tax increase and they will have additional funds for the educational system, the corporate income tax of 25%, that's a given. Some sort of a green tax is also very likely. And there's a lot of discussion about the withholding.

[Julien Dumoulin-Smith:]

Great. And then just in Bulgaria quickly, it seems like in the K we calculated some prices retroactively. I mean, how is the collection, how is the political situation stand there?

[Andres Ricardo Gluski Weilert:]

Okay. We haven't, sorry, calculated any prices retroactively. What Tom said in his script was basically that if you look at the level of receivables, they remain basically unchanged. I don't know, Tom, do you want to add?

[Thomas M. O'Flynn:]

So I'll just say, Julien, maybe the recalc was in the Philippines and it was about $14 million from very high prices last November, December. There was a large number of outages, I believe it was 2,000 megawatts of outages, so prices really spiked and the market did some recalculation. So some spot prices that we've taken in the income last November, December we've reversed out this quarter. That's the only market recalc. Bulgaria and Maritza, there hasn't been any recalc. And we continue to move forward and I gave the stats on receivables and payments.

[Julien Dumoulin-Smith:]

Great, excellent. And let me just clarify one last comment you made Andres, with regards to Ohio, some of the other dynamics around, I suppose, getting involved with recon -- PPA's potentially. I'm kind of curious is that something on the radar screen? And could you talk about how that timeline for that process might mesh with your own decision to move forward with the sale and maybe also how it might relate to the pending ESP as well? I suppose the read that we're hearing on ESP.

[Andres Ricardo Gluski Weilert:]

We're aware of some of the other proposals that have been made in the space regarding a commercial strategy, which will help assure supply. I think there's serious concern given what happened in the polar vortex to keep sufficient plants online. And if there's a commercial strategy that helps make this happen, we support it. And we'd certainly look at this before making any final decision on a sale. So as we've said in effect, we're pursuing both fast. We're looking at what's occurring in Ohio and we will make the decision that we feel is in our shareholders' interest.

[Julien Dumoulin-Smith:]

Okay. But the timeline, is there a certain period of time with which you would need to wait for the ESP and PPAs to get resolved or you're kind of moving forward regardless with the sale and if it's not resolved by then, then you move forward with the sale?

[Andres Ricardo Gluski Weilert:]

Obviously, if you would transfer to an affiliate or you sell, sort of mutually exclusive. I don't see any sort of hard timeline that we have to make a decision in any specific period of time. So this will be more sort of a, I believe, a Q3 -- Q2, Q3 -- late Q2, Q3 issue.

[Operator:]

Our next question is from Brian Chin with Merrill Lynch.

[Brian Chin:]

Just going back to the Philippines question. I thought I heard in your prepared remarks that there were unprecedented high spot prices in this quarter, but then in your response to Julien's question, I thought you had referenced that it was in the prior period. Can you just clarify that and help us understand this one?

[Andres Ricardo Gluski Weilert:]

Yes, I'll pass this one on to Andy. Basically there are -- there was 1 period where there were high prices and that's what it refers to.

[Andrew Martin Vesey:]

Brian, this is Andy Vesey, the period of time with -- of the recalc was last November, December. As Tom had mentioned, over 2,000 megawatts off the system. And the way to think about it is that on an average in 2013, we saw spot prices about 88,000-megawatt hour. During this period in November, December they climbed to 296,000-megawatt hour and that really stressed the system. And you also have to remember this was immediately after the typhoon. So this was a big stress on the economy. The government stepped in to recalc based on what they thought it should've been. That is over now. We have no indication that, that will go on. And quite honestly, most of the generators are discussing that decision by the government. We are -- right now we do not anticipate that this is a trend or that the government in the future would step in again, given that we don't see that kind of amazing spike in prices.

[Andres Ricardo Gluski Weilert:]

If you look at the Philippines, it is a market that's going to be short. But we think it's an attractive market. And we're looking at the opportunity of expanding our Masinloc plant there. So this decision by the ERC, as Andy mentioned, is being, let's say, contested because it interferes with the pricing mechanism. But again it was a very particular short period of time when prices really did really spike.

[Brian Chin:]

And then going back to DPL and gas deliverability, you've made comments about the fact that you're looking at solutions for gas deliverability in the future. Can you just go into little bit more color on what does that mean? Are we talking real changes, are you talking changes to some of your current contracts? Just a little more flavor on what we're looking at there.

[Andrew Martin Vesey:]

Brian, this is Andy. I really don't think we're looking at, at gas. One of the things we're really looking at is the commercial strategy and how close to the edge we're operating with our baseload and how we view the need for our gas turbine facilities to help meet our obligations. So this is really a re-examination of the commercial strategy to give us more flexibility in times of stress and potentially looking at the different uses of hedges in our hedging strategy in Ohio.

[Brian Chin:]

And then last one for me. The Tietê comments about how power prices are now higher, is there a rough sense of what the incremental year-over-year EPS impact will be for that contractual rollover now?

[Andres Ricardo Gluski Weilert:]

The contractual rollover, I mean, the current contract is at BRL 195 per megawatt hour. It expires in late 2015. It's a contract between Tietê and Eletropaulo. There are contracts being signed now. There was an A0 [ph] auction but it had to be energy was available now. That's what A0 [ph] means, close to those levels actually, actually higher than those levels. And so again our strategy of having sort of not committed all of these energy early and having done it over time I think is playing favorably. And if those continue, we could see a potential upside. I mean what's in our forecast is an average price of around BRL 125 per megawatt hour. And currently, the 68% that we have is 119 megawatts -- BRL 119 per megawatt hour. So this could be -- for every $0.10 above an average price of BRL 10, that's about $0.01 for us in terms of adjusted EPS.

[Brian Chin:]

Okay. So a slight uptick is embedded in the forecast from '14 to '16 based on where you think the contractual prices could go. Is that correct?

[Andres Ricardo Gluski Weilert:]

Actually, I think that we're conservative given where we're at today, at today's prices, because again we have BRL 119 is our average price for 68% And we still have to contract 1/3 more. And if we contracted those, say -- to get to our BRL 125, you're probably talking about $1.30 up or BRL 1.35 per megawatt hour. Now if we contract higher than that and realize that if you go out to, let's say, 2018, we're 2/3 open. So I think there's a potential for an upside. I certainly don't think that our numbers are high.

[Operator:]

Our next question is from Charles Fishman with Morningstar.

[Charles J. Fishman:]

In fourth quarter, you provided a long-term outlook for adjusted EPS. And I just wanted to make sure I understood the comments today and how it might impact that. 2015 was 4% to 6%, 4% to 6% growth? I'm still assuming that's the case. 2016, flat. And then 2017, 2018, you're going from 6% to 8%, to 8% to 10%? Is that correct?

[Andres Ricardo Gluski Weilert:]

That's correct.

[Charles J. Fishman:]

Okay. And then the change in 2017 to 2018, you've got a $0.02 headwind because of the Chilean emissions tax. What's offsetting that, that gets you the 2% growth bump?

[Andres Ricardo Gluski Weilert:]

There are of course many moving pieces and one I'd say is the Chilean green tax, we have to see the final form, but that's a potential downside at this side. There are many things that could improve. I mean some of the adjacencies and enhancements, not all of those were in our forecast. And you also have the potential for higher re-contracting prices, for example, at Tietê. So we don't -- we're not moving from those numbers. And we think that we have enough offsets to compensate for any green tax in Chile.

[Charles J. Fishman:]

But going from 6% to 8% average annual growth in 2017 to 2018, the 8% to 10% is it just an increase in your confidence or is that project specific?

[Andres Ricardo Gluski Weilert:]

No. No, there's a number of projects. I mean you realize that we have 4,100 megawatts under construction today. So you have Mong Duong coming online, you have -- in that time period, you would have the -- you'll have about -- besides Mong Duong, you have a number of other plants coming online that time period. So this is not, sort of, just uptick in our confidence it's basically plants that are coming online, including OPGC II, including -- in that timeframe, you would have Alto Maipo as well. So it's really most of it is just based on the construction projects coming online.

[Charles J. Fishman:]

So there's just been an acceleration of the commercial operations?

[Ahmed Pasha:]

Just to be clear, Charles, this is Ahmed, just to be clear there's no change in our outlook that we provided back in December. So EPS growth rate, we talked about 4% to 6%, 4% to 6% to 8%, and then you have a dividend yield. So the total return we are talking about is 8% to 10%, so the EPS growth, just to be clear.

[Charles J. Fishman:]

Okay. The 8% to 10% is total and the 6% to 8% in '17, '18 still stands?

[Ahmed Pasha:]

Yes. So the EPS growth rate remains intact, no change, so is the cash flow.

[Operator:]

Our next question is from Alex Kania with Wolfe Research.

[Alex Kania:]

Just a quick question. Can you comment on just the coal piles in Indiana and Ohio, how they look relative to how you like to usually have them in -- going to the summer?

[Andrew Martin Vesey:]

Alex, this is Andy Vesey. We're okay. I mean we're right where we think we need to be. And we monitor that on a regular basis. We manage our coal procurement globally. So we're relatively comfortable with the current inventory levels that we have.

[Operator:]

Our next question is from Jeff Gildersleeve with Millennium Partners.

[Jeff Gildersleeve:]

I just wanted to ask, Tom, on the -- you went over certain cash management efforts, minimum cash balances and review of existing project financed structures. Could you just repeat that, and maybe explain how that's transforming? And is it just for this year or is it something that would have an ongoing impact on the cash flow of the business?

[Thomas M. O'Flynn:]

Yes, Jeff, happy to cover it. I'd say in general, we have unrestricted cash on a proportional basis. Year end was about $1.3 billion -- around $1.3 billion and we have a target to bring that down to about $1 billion by year end. That's different than the unrestricted cash you see in our financials because that's consolidated. So the number we focus more is on our proportional numbers just as we do on everything. So we are looking at working capital issues, looking at cash balances within our project financed structures, looking at seasonality, working capital, also see in some cases whether we can pool, if you will, on a modest basis some adjacent businesses that may have some offsetting working capital issues. So it's a couple of things. One, we do expect to make a press down this year. Some of this will be -- will not be classified as proportional free cash flow, some of it may be return capital but it's all cash so it all helps. So we think there'll be some benefits this year. But on an ongoing basis, we would expect to continue to make improvements from cash flow. And some of that goes into some of the structures as we -- Andres went through some of the growth that we're doing. We're very mindful of working capital requirements and restricted cash requirements in our growth. I think historically perhaps we weren't as mindful so we've got cash trapped in a lot of places. That is very fundamental to our investment decision and structural decisions.

[Andres Ricardo Gluski Weilert:]

We've taken, really, lessons learned and making sure that our new contracts, that we really have the ability to spend out the cash, unrestricted versus in the past. We've also restructured a lot of our debt. I mean we've had $8 billion of refinancing over the last year of subsidiary debt. And so all told, we are making structural changes to make it -- to reduce the amount of restricted cash that we have.

[Operator:]

And our next question is from Raymond Leung with Goldman Sachs.

[Raymond M. Leung:]

Just to follow on Jeff's question, actually. He started to ask about what I wanted to talk about. How do you -- how should we think about for you to work on working capital or just restructuring some of your project financed, what does that do to maybe your subsidiary distributions? Do you think that or should we think this is more onetime in nature? And sort of what's your timing or sustainability of getting cash out? Is it more of a ongoing cash flow stream versus onetime in nature? I guess it sounds like you're targeting $300 million for that. And if you can address that, and also are you guys still projecting $1.15 billion to $1.25 billion for subsidiary distribution for the year, if you could update us on that?

[Andres Ricardo Gluski Weilert:]

Let me take, sort of backwards the first -- last one, yes. We are maintaining the same projections. I think, getting to your question, again, we are -- when we are doing refinancings, when we're doing restructurings, when we're doing a growth project, what we're incorporating is the ability, the greatest ability possible to be able to upstream that cash. So we are making structural changes to that. I don't know, Tom, do you want to add something too? I mean it's really an ongoing process.

[Thomas M. O'Flynn:]

It's ongoing process. I'd say it was factored in when we talk about 10% to 15% proportional free cash flow growth for the next 5 years, it was very much factored into that. We continue to look at ways obviously to be at the higher end of that range. And some of this will be used within the businesses. Some of this would be used to pay down debt in the businesses, use money more effectively. Some of it may also be used for subsidiary distributions, which obviously helps Parent free cash flow.

[Andres Ricardo Gluski Weilert:]

I think one of the things -- one of our great challenges is to take this very rapid cash flow growth and to turn it into earnings growth on a per-share basis. So that's one of the big challenges that we're grappling with.

[Raymond M. Leung:]

Okay. I mean what would be the optimal number of this unrestricted cash? I think you said $1.3 billion at year end, would like to get it down to $1 billion, what sort of, any thoughts on where you'd like it to get to?

[Thomas M. O'Flynn:]

We're looking through that. I think $1 billion is a reasonable target for year end '14. We have objectives to obviously get lower. I'd be a little ahead of skis if I put an objective down. Some of it, frankly, is restructuring some of our agreements and also trying to work some of the seasonality in the businesses. So we certainly think we can make more improvements to get lower than $1 billion in the future. Maybe it will provide a target but I'd probably be a little ahead of myself if I put one out right now.

[Raymond M. Leung:]

Just my last question, just back to DPL I guess you guys noted that you had operational challenges at DPL. It sounded like it was more gas plants. Can you talk about how the coal plants performed during the quarter, during the vortex, what are your operational challenges there and then so, what sort of -- what are triggers there?

[Andrew Martin Vesey:]

Raymond, this is Andy Vesey. It wasn't just gas. We had some baseload units out notably in the first cold snap. One of the Zimmer units were out and that's one that we're co-tending, we don't operate. But we also had outages at Stuart. So collectively that represents almost 600 megawatts. Now these were very short outages from 5 to 7 days and actually Zimmer was ready to come back but we didn't have the gas for start-up. So when you think about -- the thing that was the major impact that we had from the gas was on our gas turbines, which we would have called in. We didn't have them. So the performance of the baseload units were impacting this period. We don't view the performance of these major coal units as problematic but as part of our overall review of our performance during January, we will be looking again as to what are the things we can do to basically improve performance and bring that equal [ph] rate down. Because that will have to be a very important part of our commercial strategy going forward.

[Ahmed Pasha:]

Angela, can we take one last question, please?

[Operator:]

Yes, our last question for today is from Andy Levi with Avon Capital Advisors.

[Andrew Levi:]

I'm not really left with much. I guess the only thing that I'm kind of curious about and kind of goes around Jeff's question as well, is obviously you're trying very, very hard to unlock the value of the company, whether it's through asset sales, stock buyback, but it does seem that you have an awful lot of cash available. Is there -- are there any other things that you guys are thinking about as far as trying to unlock value for the shareholders? Something more radical as I would assume you get frustrated with the stock as far as its value and kind of where it's stuck?

[Andres Ricardo Gluski Weilert:]

Well certainly, as I said, we think that we are -- our stock is an attractive value. Now I would say that in terms of the things that we're doing, I mean these do take some time, this is a big company. What we feel very good about is how our strategy of thinking differently about our capital, about how we bring in partners, about how we do add-ons is -- we think making -- getting significant traction and that is really how we'll create growth. I mean people talk a lot about yield cos. What we're doing is quite frankly, bringing the partners in at the project level, getting a promote or getting management fees and other ways of increasing our return on capital. If we think about on the efficiency side by having a more focused geographic footprint, we've been able to cut -- we're getting close to 1/3 of our overhead. And we're starting now to look at O&M. And we have in our plans to cut about 11% of addressable O&M over the next -- through 2018. So we feel very good about what's been under our control. I mean we've had a difficult quarter. Part of that was some of the outages at DP&L, which we discussed. Looking for the rest of the year, second half, we're looking at a difficult hydrological situation. But if we think about the value that we've created by our active measures, we think these outweigh the sort of onetime event of a drought. And we will emerge from this situation with a portfolio that is less, say, vulnerable to droughts because we're creating the real option. So overall, I feel very optimistic about the path of the company. And I think that this will be recognized. And some of those things that we're doing is new. How we're thinking about capital is new. And I think we have to prove ourselves and that's what we're trying very hard to do.

[Andrew Levi:]

And then -- and there's no doubt that you're doing that. I guess what I was kind of thinking was -- I mean obviously the DPL, you have to sell those assets, and see what you get as proceeds. And I guess most of the proceeds are at this point scheduled to pay down debt, assuming you get those proceeds.

[Andres Ricardo Gluski Weilert:]

That's correct.

[Andrew Levi:]

But there is an awful lot of kind of cash available to you. And with the stock where it is, trying to do something a little bit more radical, whether it's a more immediate buyback such as like a Dutch auction or something like that, to try to unlock the value there and reward the shareholders. I don't know anything -- maybe not that specific but you understand what I'm saying, something more...

[Andres Ricardo Gluski Weilert:]

I understand completely. Count on us -- we, as I said, we see one of our challenges to convert our strong free cash flow and our strong free cash flow growth into value for our shareholders. And certainly, we were open to any ideas. Of course we have a plan that we're executing on and very clearly our objective is really increasing value per share, total return per share value. And that's what we're focused on. And I think if you look at our track record, we've done that and we will continue to do that.

[Operator:]

And we're showing no additional questions at this time.

[Ahmed Pasha:]

Okay. Thanks, guys. Thank you, I appreciate your help.

[Operator:]

And that does conclude today's conference. Thank you for participating. You may disconnect at this time.