The AES Corporation
Q2 2014 Earnings Call Transcript

Published:

  • Operator:
    Good morning, and thank you for standing by. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] And I would now like to turn the call over to your host, Mr. Ahmed Pasha, Vice President of Investor Relations. Mr. Pasha, you may begin.
  • Ahmed Pasha:
    Thank you, Elan. Good morning, and welcome to the second quarter 2014 earnings call for The AES Corporation. 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 thank you for joining our second quarter earnings call. Today I will provide a brief update on our second quarter results and our progress on executing our strategic plan. Turning to Slide 4. Our second quarter results were $0.28 of adjusted earnings per share, which keeps us in line to achieve the low end of our guidance range on EPS despite the continuation of the drought in Brazil and Panama. Tom will provide more details on our results today and our year-to-go forecast, but a major driver of lower earnings in the second quarter was a much higher tax rate, which we expect will normalize on a full year basis. Similarly, while our cash flow results to date are significantly below last year's, this is largely due to timing issues at our utility. And we continue to expect to achieve our full year guidance. Now turning to the progress we are making on executing our strategic plan. I am pleased with our results to date. As you can see on Slide 5, the main objectives we set out almost 3 years ago were
  • Thomas M. O'Flynn:
    Thanks, Andres, and good morning, everyone. Today, I'll go through our second quarter results including adjusted EPS, adjusted PTC by strategic business unit or SBU, proportional free cash flow, the 2014 capital allocation plan, and finally, our 2014 guidance. Beginning on Slide 22. This quarter, we benefited from higher pretax contributions from our businesses and also our capital allocation impacts. However, the tax rate in the second quarter was higher than last year and above our full year 2014 expectations. We finished the quarter with adjusted EPS of $0.28 a share and expect to achieve adjusted EPS in the low end of our guidance range. Improvements in our businesses in the U.S., Andes, Brazil and also in Mexico, Central America and Caribbean SBUs together contributed an increase of $0.02, including a lower adverse impact from hydrology versus last year. Partially offsetting these improvements, outages in our Europe, Middle East and Africa and Asia SBUs reduced results by $0.02. Like last year, we recognized benefits from some discrete items, the net effect of which was a positive $0.02. We also benefited from investing in our balance sheet, which added $0.02 to the bottom line. This was driven by 2 factors
  • Andres Ricardo Gluski Weilert:
    Thanks, Tom. In summary, although we're facing some short-term headwinds, we're taking concrete steps to lower our portfolio risks and increase per-share value. Since we set out our strategy in September 2011, we're on target to reduce our global overhead by $200 million by next year, and we are focusing on additional O&M cost reductions. We raised $2 billion in asset sale proceeds. We paid down 20% of our parent debt; invested $758 million in our shares, reducing our share count by 8%; and we are selectively investing in platform expansion opportunities that yield attractive risk-adjusted returns. Through these actions, we've laid a solid foundation and remain committed to investing our excess cash flow to grow our earnings and free cash flow per share, resulting in proportional free cash flow growth of 10% to 15% per year and a total return to shareholders of 8% to 10% by 2017. Now, I'd like to open up the call for questions.
  • Operator:
    [Operator Instructions] Our first question today is from Ali Agha.
  • Ali Agha:
    Just following-up on a few of the topics, first off on the capital allocation front. So if I looked at on the slide, this quarter versus last quarter, it appears you've paid down about an another $390 odd million of debt or plan to do that in terms of -- in terms of that bucket. What are the earnings implications of that, or have those been factored in from that incremental debt reduction?
  • Andres Ricardo Gluski Weilert:
    Yes, those are factored in, Ali.
  • Ali Agha:
    So is it fair to say the asset sale proceeds, the earnings going away from asset sales are being offset by the lower interest. Is that the way to think about that?
  • Andres Ricardo Gluski Weilert:
    Yes, I would say partially, yes.
  • Ali Agha:
    Okay. And then with regards to the unallocated bucket, and I know, Tom, you alluded to the fact you will be buying more shares in the second half, given that roughly 300 million or so number. Is there a thought of getting even more aggressive on the buyback given where the stock is, Andres? I mean just your thoughts on that, as you're investing in new projects versus buybacks looking at the valuations, how are you thinking about potentially getting even more aggressive on buybacks?
  • Andres Ricardo Gluski Weilert:
    That's a very good question, Ali. When we're looking at the investments that we're making, as I've said in the past, we compete that -- those against share buybacks. So obviously, when you look at the returns that we're projecting, 16% cash returns and a 15% ROE, we think that those are superior to what we're getting back from buybacks. So we're taking a balanced approach. We're saying that -- we said last time that we would buy back shares. We're doing that. Do realize that the cash that we received from these asset sales was also quite recent. We only received it, say, in the last month. But I think we're doing exactly what we said that we would do that we would buy back shares. But we'd also complete the new projects. And so obviously, if we're doing these new projects it's because we feel that those are the projects that maximize our shareholder value over time.
  • Ali Agha:
    And then Andres, just coming back to DPL for a second. So the merchant, as you said, the pricing you thought was not good, so you pulled back on that sale. So should we view these assets now as core holdings and that sale is completely off the table? And related to that, as you know Duke is going through the similar process, and you do have joint ownership with them on a bunch of your plants. Would you look to participate through that joint ownership in the Duke process?
  • Andres Ricardo Gluski Weilert:
    You're right, Ali, one of the factors and one of the reasons we proceeded to go out and get a market read on these assets were that some of our partners were out there selling. And obviously, that will have an impact on these assets. It depends on who buys them, how they will be running these operations. So we will continue to closely monitor that process and see what ways we can continue to increase value there. I mean, as you know, we have a program to get more out of these plants from a performance point of view. Maybe Andy would like to just comment on some of the things we're doing there.
  • Andrew Martin Vesey:
    Thanks, Andres. We -- in keeping the plants, we have a few things that we're focusing it on, and I'll just talk to the 3. Obviously, we continue our cost reduction program. We've already achieved about $65 million in O&M reductions to date, which is currently in our forecast. We're also looking at 2 other things. One is reliability and improvements at the major stations. For our fleet at DPL, every 1% increase in -- decrease in E4 [ph] gives us about approximately $2 million of adjusted PTC. And also heat rate, which again on a fleet basis, every 1% improvement in heat rate gives us about $3 million to us. So we're focused on both of those programs. We have a lot of experience there, and we should start to see those improvement results in 2015. And lastly, one of the lessons we took away from last year's polar vortex was we really had to refocus on our commercial strategy in working with our risk flow. The operating people are trying to increase operational flexibility by improving the ability to turn down and be much more responsive to markets. So those 3 things we're going to pursue much more aggressively now. And we think we'll start to see the benefit of that in the 2015 timeframe.
  • Andres Ricardo Gluski Weilert:
    To sort of close the topic, also some of our other firms in Ohio are looking at, for example, PPAs and other things. so we're monitoring those things. And we took a decision based that we thought there was more upside at that price than selling it. It would have been a -- I think it shows our discipline in terms of executing on our strategy. I think all of our asset sales, we've executed quite well and really tried to get value from those assets. Even though sometimes we could have done things faster, I think we would have left some money on the table.
  • Operator:
    Our next question is from Julien Dumoulin-Smith.
  • Julien Dumoulin-Smith:
    So first question here, could you reconcile a little bit what the assumptions are baked into your long-term growth rates? Specifically, I noticed you talk about a higher growth rate in '17, '18. What's embedded in there from both the DPL perspective as well as the hydro and recontracting perspective in Brazil?
  • Andres Ricardo Gluski Weilert:
    I'm going to pass this question off to Tom. But I think that the basic assumptions -- what I can say in terms of the longer forecast -- I mean this is based on the projects that we have under construction today. A big factor is Mong Duong coming online next year, which will produce a lot of cash. We also have Alto Maipo. We have these 4,500 megawatts, which we're constructing. And in terms of the hydro in Brazil, we do assume a return to normal, but we are looking at higher contract prices.
  • Julien Dumoulin-Smith:
    Tom, were you going to add something?
  • Thomas M. O'Flynn:
    Yes. Sorry, Julien. So the 5-year forecast, we look at it on an annual basis. That's when we talked in our year end call, we laid out. And that was based upon market assumptions at that time. So those were PJM forwards at that time and also Brazil numbers that were around, more like 115 at that time. So as we sit here today, DPL's probably up a couple of cents. And as Andres went through Tietê, we'll probably be up a penny or 2 based upon the forward curves as we see them today. I think that said, we're reluctant to update 5-year guidance on a piece-by-piece basis. But just in isolation, those 2 things would be tailwinds for us. We would plan to give a wholesome 5 year update at the same time next year, which is in Feb when we announce our year end earnings.
  • Julien Dumoulin-Smith:
    Got you. And can you just reconcile a little bit on DPL. I think I heard you saying that it generates, perhaps, breakeven or even negative EPS prospectively. When would you think about next reevaluating this business? Is this really about waiting it out in terms of maturity and seeing what happens in terms of the market, or is it something else?
  • Andres Ricardo Gluski Weilert:
    I think Julien, getting back to sort of our decision, this year it would have been accretive to sell DPL, as Tom pointed out in our last earnings call and mentioned today again. We think given current forward curves that it will be neutral to slightly accretive to have kept it going forward. Now in terms of -- we are always evaluating all of our businesses and updating it. But what I would say is that, as Tom mentioned in his speech, we're thinking about things very much in the portfolio and in terms of looking what's our aggregated risk at the corporate level. And so here, we're saying that basically, given the various factors that are happening in Ohio and the forward curves, we think there's potential upside from having kept Ohio. Of course, we have to always revalue our decisions over time.
  • Julien Dumoulin-Smith:
    I'll move on. On the D -- sorry, on the share repurchase side of the equation, when you're thinking about allocating the rest of the to-be-allocated capital on that pie chart, at what point in time could we see a potential revision in share repurchase? I know it's a little bit re-asking the last question, but I just want to be a little clearer about this.
  • Andres Ricardo Gluski Weilert:
    What I would say, Julien, is that again, we've said that we would buy shares at these prices, and we are doing so. And I don't think that at this stage, we have a number of interesting projects. And we also have the opportunity to pay down debt, which we've announced. I think we've -- Tom stated that we wanted to be a solid BB, and we're keeping our credit metrics within that range. So we'll maintain that balanced capital allocation, say, philosophy going forward.
  • Julien Dumoulin-Smith:
    And then could you talk a little bit about the expansions here? Again kind of with respect to the guidance there, I assume this isn't in there. But the Dominican Republic expansion, how much does that contribute in EPS? And then also Mexico, given increasing competitive pressures, I mean is this something that is attractive to you? How are you thinking about your own participation, and how soon could that come?
  • Andres Ricardo Gluski Weilert:
    Okay. I'd say let's take first the Dominican Republic. This is in our forecast in terms of -- so we expect this to come online mid-2016. So this is in our forecast. This is an attractive project. We have a very good portfolio there in the Dominican Republic. I would say that in terms of Mexico, we have a great brand name there. We have a very good brand name because of the turnaround that we did on 2 pet coke plants. They're [indiscernible] and Tietê. And our offtakers were Grupo Penoles and CEMEX . And so we have a good brand name. People want us to build more plants there and would like to be our offtaker. We have some potential projects. We have to see if those pan out. But I think that the -- it's an attractive market for us. We've done well there. I think it's a market very correlated, let's say, with U.S. risk, in terms of the economy itself. So we're well positioned. We're looking at the opportunities. And let's see if some of these projects are concrete, and we can announce them.
  • Operator:
    Our next question is from Christopher Turnure.
  • Christopher Turnure:
    Could you give us a little bit more color on the drivers of the increase in solar power prices in Brazil? And then give us some color as well on how you're thinking about contracting going forward? We see the slide today that shows where you are now, but has that changed? Have you been more aggressive given the power price increase, et cetera?
  • Andres Ricardo Gluski Weilert:
    What's interesting in the case of Brazil -- I mean what is driving it? You had medida provisória, MP 579, which let's say, reduced some of the concession life. Some of the company did not renew their concessions on some of the generation assets. And there was somewhat of a slowdown in new construction. Because of that, there's also been a delay on some of the mega hydros on the tributaries of the Amazon. So put that all together, I think that's partly what's driving the higher prices. There's also been the drought in Brazil. But really, when you’re talking '16 onwards, I think it's -- the bigger effect is MP 579. Our strategy was when we had the sort of, cliff falling off in our contract. We actually took a conservative approach and didn't contact everything right away. Had we done so, we would have re-contracted at the then going price of 95 to 100. We thought that it was likely the market would get tighter, of course, based on our conditions. So -- and that has come true. So I think that in terms of our contracting strategy going forward, we're going to continue to take advantage, let's say, of these higher prices and contract more. But it's a little bit sort of a rolling average. So as you go out over time, we're less contracted. It's also you can't get that many long-term contracts in Brazil. It's going to be these sort of 2 to 3-year contracts.
  • Christopher Turnure:
    Is there any chance that 2 consecutive years of dry hydrology have actually impacted the outer years at all, even though that's, by definition, a short-term phenomenon?
  • Andres Ricardo Gluski Weilert:
    I don't think so. I really don't think so because I think that everybody expects the droughts to reverse and enter more into a normal cycle of El Niño and La Niña-type phenomena.
  • Christopher Turnure:
    My second question is on cash flows in the back half of the year. Could you just walk us through how the Eletropaulo kind of true-up works with the regulators there, or with the government subsidy or help plan that they give you? And then kind of how much of a percentage of what you have to make up for in the back half of the year that actually equates to for overall AES?
  • Andres Ricardo Gluski Weilert:
    I'm going to ask Tom to take this question. But basically, the essence is that in both cases, we have higher energy prices that first, we have to pay for the energy and then we bill clients.
  • Thomas M. O'Flynn:
    Yes, so it's really 2 things. There's tariff adjustments. Both Eletropaulo and Sul have had major tariff adjustments that would capture some of the shorter-term costs, such as purchase power, which is the largest one. And then also there's been a government funding mechanism by the regulator that provides, I think, about $1.2 billion to collectively EP and Sul that allows some direct payment of those higher cost power payments. For us, the big swing factor is Sul. Eletropaulo, we only own 16% of it. It's a more modest amount. But of the $400 million swing that I talked about, of all the utilities, which is down 100 -- or $500 million swing, I'm sorry, down $100 million to plus $400 million from first half to second half, a, about 70% of that is coming out of the U.S. And for us, the lion's share of the Brazilian portion is coming from Sul.
  • Operator:
    Our next question is from Kit Konolige.
  • Kit Konolige:
    So just to get back to DPL, at least, briefly. Obviously, there have been a few questions on the withdrawal of the capacity for sale. Do you -- can you give us any idea of what you're kind of looking for or what kind of timetable you're looking at that might lead to a remarketing of that capacity, or is that really not in the cards at this point?
  • Andres Ricardo Gluski Weilert:
    I would say at this point, it's -- we're not in the cards. I mean we've taken a decision. We expect to improve the performance of those assets. And we think that there are several factors, several different avenues to significant increase in volume in the future of those generation assets. So of course, we don't know exactly how the future, but we think there are several paths where this could have significant upside.
  • Kit Konolige:
    And when you looked at the bids that were coming in and looked at your process for putting those plants up for sale, what's your conclusion, in retrospect, about the difference between your expectations and the bids you got in? I mean what were the buyers seeing there? Was this just too small of a fleet for people to want to buy into? It would have seemed like a pretty good environment with prices having run up some?
  • Andres Ricardo Gluski Weilert:
    Well, I -- again, I can't get into the minds of the potential buyers. What I would say is that the run-up in forward curves in the better outlook for the RPM capacity also helped us in terms of what we consider our whole value would be.
  • Thomas M. O'Flynn:
    Kit, it's Tom. I'd just add that obviously, we've done a lot of asset sales around the world, many billions of dollars that have brought $2 billion of cash back to AES. So we've shown an ability to transact. I guess that said, at any -- for all those transactions, when we looked at where the numbers were finally coming down to, we made a judgment ourselves and the board as to whether the assets were worth more to us or more to somebody else. So at least in this case, through a whole lot of factors, it was a tough decision. It was a -- certainly had a lot of discussion. We looked at it hard. We did get real bids from real players, so it certainly was transactable. But it was -- we just thought it worth more to keep than to take the money now.
  • Kit Konolige:
    And then one other area that I'd like to touch on. You sold your position in some solar assets that you had. And you're investing in other solar assets. Can you give us an idea -- I mean you mentioned for the ones that you're selling that you weren't getting adequate returns. And obviously, for the ones that you're going to invest in, you're expecting to get adequate returns. Can you give us an idea what the difference was? In other words, what was wrong with the solar investment that you made previously? And why is the future one going to be better?
  • Andres Ricardo Gluski Weilert:
    Well, the big difference is that going forwards, we're really looking at geographic markets. So we're building solar where we have an existing business. So when I mentioned we have 220 megawatts of permitted solar in Chile, we already have a substation there. We already have all of the infrastructure. So it's far less expensive to operate. It's far less expensive to do the development. So that's really the big change in strategy. What we're looking at is the total cost of doing the project and taking advantage of our platforms. So what we did was exit a number of countries. We had relatively small number of megawatts operating them. And what we're doing is we will build solar in the future because we do many types of energy. We will do the energy -- type of energy that is most attractive and makes the most sense for that market, but that also compliments our portfolio. So that's the big difference. We're going to where we have assets, where we can do the development and operations much cheaper than going into markets where we don't have a presence.
  • Operator:
    Our next question is from Stephen Byrd.
  • Rajeev Lalwani:
    It's actually Rajeev Lalwani on for Stephen's team. 2 questions, the first, just as it relates to Latin America. We've seen some issues in Puerto Rico and Argentina. How concerned are you that, that could spread to other regions? And then likewise, as you look at the Middle East and Russia and places like that, there's been some more headlines. How can that impact your operations? And then a follow-up.
  • Andres Ricardo Gluski Weilert:
    Okay, talking about -- I think the situation in Argentina is particular to Argentina. I really don't see that spreading. That was a selective default. I'm sure you followed the court cases in New York. And we have 3,000 megawatts of terrific assets in Argentina. They're cash positive and have very little debt on them. They have about $180 million debt for 3,000 megawatts. So [indiscernible], we'll continue to monitor the situation, but we've had really no effect whatsoever to date. If you look at the case of Puerto Rico, it's a case where you do have the commonwealth, as you know, has been downgraded twice. And the reason I mentioned it in my script, we think we have a very strong operation there because we're selling energy at $0.095 per kilowatt hour to PREPA that would cost it $0.20 for itself to self-generate because these are inefficient oil-fired plants. So we have a good contract. It's in our interest. So we're just highlighting that because we wanted to make sure that we covered all of the things that were potential risks. So I don't see those particular situations spreading. Puerto Rico is very unique. Argentina's guys [ph] is very unique. Chile is a very strong economy. Mexico is doing well, Colombia, these are our main other businesses there. Of course, we've already discussed Brazil. So I don't see any contagion. Now moving to Eastern Europe, we talked about Bulgaria. Bulgaria, is somewhat of a unique case, because it actually has a relatively small foreign debt. And so had -- was not that affected by, for example, contamination from Greece. We have been reducing our position in Eastern Europe. We sold Ukraine, you may remember, about 10 months ago. And we're very happy with that decision. How could Bulgaria be affected? Well, Bulgaria does get its gas from Russia, which comes through the Ukraine. So if there were any cut-off of gas from Russia to the Ukraine, it would affect Bulgaria. And that would make our plant even more valuable because it operates on local lignite. And the other thing I would mention about our plant, it's the only EU 16 environmentally compliant thermal plant in the country. So that this is also an important factor to take into account. Now what we've had basically is a transition from the 2 parties and a lack of a firm government. And in that you had a little -- the regulator came out with some rather unexpected statements, which we are trying to manage. So the issue really has been the liquidity situation of the offtaker NEK.
  • Rajeev Lalwani:
    And then maybe a question for Tom. In terms of additional asset sales, can you talk about maybe regions you're targeting and the process for looking at where you're going to sell?
  • Thomas M. O'Flynn:
    Yes. I think consistent with our prior practice, we'd rather not talk about or speculate on things we might do. Keep in mind that some of these businesses are -- obviously have a lot of relationships with people, stake holders, regulators, et cetera, so we'd rather think through something and then announce it rather than creep it out. Andres talked about a $500 million that would be cash back to parent that may be selling entire stakes or selling minority stakes out on the Philippines.
  • Andres Ricardo Gluski Weilert:
    What I think is important is that -- what I'm saying today is that we had basically met our target for 2014 and 2015 this year. We're saying that we think there could be another additional $500 million. But that would not necessarily be exiting. That could be bringing on partners. Because what we're really focused on now is optimizing our portfolio, optimizing our position in different businesses. So by bringing in partners, this permits us flexibility to try to achieve that optimal portfolio.
  • Operator:
    Our next question is from Charles Fishman.
  • Charles J. Fishman:
    Following-up that last question about [indiscernible]. I mean just to make sure I understand. Really, you're dealing with a plant there [indiscernible]. It's a low-cost plant under -- environmentally, it's adequate or even more than adequate. There's, to the best of my knowledge, no talk of nationalization of that plant. So it's really just a receivable from a utility that has a [indiscernible] purchase, that has what appears to be a liquidity issue at the moment. Is that a fair assessment?
  • Andres Ricardo Gluski Weilert:
    I think what you said is fair. One thing I'd say is that our contract in Maritza is not the low cost in the country. Because we had a really state-of-the-art waste disposal facility, which is part of that contract. But you're right in a sense that, really the issue is the liquidity of the offtaker [ph] NEK. NEK sales of energy, it generates us well. Sells energy to the distribution company and also exports energy. Now Bulgaria actually has one of the lowest -- actually has lowest retail tariffs in the EU. So the fact is if the EU rules are enforced, that would retire about 1,000 megawatts in country and make this -- our thermal plant more attractive. And it's also a big employer because again, it uses local lignite. So you're right. I mean the essential problem there really is keeping track of the receivables at NEK and the regulator trying to find various ways to continually to lower retail tariffs. But this has not been [indiscernible] an issue with the government, per se. It's been an issue with the regulator, which is independent of the government.
  • Charles J. Fishman:
    And then second question. [indiscernible], is that a similar technology to Tietê?
  • Andres Ricardo Gluski Weilert:
    Yes. But we're thinking about putting in it is -- it's basically our energy storage, which are lithium ion batteries in containers. And what we really have is proprietary algorithms to help with the ancillary services. So we tested it out, we're the world leader in this. And that's exactly right.
  • Charles J. Fishman:
    So it's a lot like Tietê?
  • Andres Ricardo Gluski Weilert:
    It's virtually identical. I mean it's the same containers and it would be used in the same fashion.
  • Charles J. Fishman:
    And then you mentioned the opportunity for energy storage in Asia. Is that technology, or is that [indiscernible] storage or something else?
  • Andres Ricardo Gluski Weilert:
    It would be exactly the same technology. It works really well in islands where you have sort of isolated grids because you have more instability, especially as you put on more renewables. So we operate on a lot of islands, Hawaii, Northern Ireland, Puerto Rico, and the Philippines, there's a lot of islands. So this is something I spoke to with the President of the Philippines and also his Minister of Energy and Minister of Finance that they're very interested in putting more renewables in, and we could also help that, make it more feasible by putting in the same technology on various of the islands in the Philippines.
  • Charles J. Fishman:
    And I assume now you're -- I don't know if you're quite a year into Tietê, but the performance has been good. And that's given you a showcase to illustrate the technology.
  • Andres Ricardo Gluski Weilert:
    Yes, you're right. The performance has been very good. And it gives us a showcase here in the States. I mean we are also operating larger units in Chile, so those were some of the first units that came out. So I think that the when you have situations like the polar vortex in Ohio, et cetera, it's very good to have a facility like Tietê, so I think it's been a great time to showcase its abilities.
  • Operator:
    Our final question today is from Paul Patterson.
  • Paul Patterson:
    Just to follow-up on Argentina and the -- you guys mentioned that an extreme devaluation might change the outlook or something. Could you just elaborate a little bit more exactly? Sort of what's in guidance, and what your comments -- what that meant?
  • Andres Ricardo Gluski Weilert:
    Ahmed, you want to...
  • Ahmed Pasha:
    Paul, I mean we have assumed devaluation when we gave our forecast for 5 years outlook. We assumed roughly 20% on average annual depreciation in Argentine pesos, and it was more front-end loaded. But we did assume devaluation when we gave our outlook. And just to give you, in context, anything beyond that 20%, every 10% is roughly $6 million pretax earnings for us.
  • Paul Patterson:
    Okay. Then in terms of the DPL assets, there was some discussion, you did touch on the fact that I think FirstEnergy and AEP are looking to have PPAs, sort of for fuel diversity or stability or what have you. I'm just wondering do you see -- are there any opportunities like that for you guys? Is that any part of what your discussion or decision was in terms of retaining these?
  • Andres Ricardo Gluski Weilert:
    What we have said is that we look favorably on this because we do think that if you had a replay of the polar vortex post-'16 and you retired as many plants as would be slated for retirement, coal plants, you would have a problem in PGM and in Ohio. So we look favorably on something like that, that would help secure the stability of the network. Because again, that's the last -- how do I say, the worst time possible to be short power. And you don't have adequate transmission capacity. So we look favorably upon it, and certainly, we will be following that very closely. And it could apply to DPL's generation as well.
  • Paul Patterson:
    And then just -- not to beat up on the DPL thing. But is there any potential for a partial sale of assets associated with the Duke joint ownership process that they're going under? Since you guys own some of the same plants, could some of those go with them, or how should we think about that? Or it's just too early to say?
  • Andres Ricardo Gluski Weilert:
    I'd say it's too early to say. Let's see what happens with their process. What we're interested in is really optimizing the performance of those plants.
  • Operator:
    I'll now turn the call back to the speakers for closing remarks.
  • Ahmed Pasha:
    We thank, everybody, for joining us on today's call. As always the IR team will be available to answer any questions you may have. Thank you, and have a nice day.
  • Operator:
    Thank you, and this does conclude today's conference. You may disconnect at this time.