Good morning, and thank you for joining The AES Corporation Third Quarter 2023 Financial Review Call. My name is Kate, and I will be the moderator for today's call. I would now like to turn the call over to your host, Susan Harcourt, Vice President of Investor Relations. You may proceed.

Thank you, operator. Good morning, and welcome to our third quarter 2023 financial review call. Our press release, presentation and related financial information are available on our website at aes.com. Today, we will be making forward-looking statements. There are many factors that may cause future results to differ materially from these statements, which are discussed in our most recent 10-K and 10-Q filed with the SEC. Reconciliations between GAAP and non-GAAP financial measures can be found on our website along with the presentation. Joining me this morning are Andres Gluski, our President and Chief Executive Officer; Stephen Coughlin, our Chief Financial Officer; and other senior members of our management team. With that, I will turn the call over to Andres.

Good morning, everyone, and thank you for joining our third quarter 2023 financial review call. In addition to discussing our third quarter and outlook for the remainder of the year, I will address some concerns that we have heard from investors since our second quarter call in August. Specifically, my remarks today will focus on three areas: strategic and financial updates, our funding sources, and our exposure to interest rates. Beginning on Slide 3. I am pleased to report that our financial results continue to be strong and we now expect full year adjusted EPS to be in the top half of our guidance range of $1.65 to $1.75. We are also reaffirming all of our short- and long-term financial metrics. For the third quarter, adjusted EBITDA with tax attributes was $1 billion, and adjusted earnings per share was $0.60. I'm very pleased with these results, which Steve will address in more detail shortly. Turning to Slide 4. We continue to see strong demand for long-term contracts for renewables, particularly from our primary customer base of large technology companies with a rapidly expanding data center business. Notably, even with rising interest rates, renewables continue to have the lowest levelized cost of energy, or LCOE, across almost all of the markets where we operate. So far this year, we have signed 3.7 gigawatts of new PPAs, including 1.5 gigawatts since our second quarter call in August. This number does not include the 1.2 gigawatts of new projects we were recently awarded in New York. Given that we have several large contracts that could be finalized in the coming weeks, we remain confident in our ability to sign at least 5 gigawatts of new long-term PPAs this year. Included in the new contracts that we have already signed, is our first-ever developed transfer agreement, or DTA, to transfer to a utility 975 megawatts of solar plus storage at the point of commencement of construction. This structure allows us to create value from our advanced pipeline without the investment of any AES equity beyond the development costs. Now turning to our backlog on Slide 5. Our backlog of projects with signed long-term contracts is now 13.1 gigawatts. Of this total backlog, we expect more than 70% or over 9 gigawatts to come online through 2025, and we have already secured all of the necessary equipment for these projects. Furthermore, 44% or 5.8 gigawatts is already under construction. Moving to Slide 6. Our construction program continues to make excellent progress with 93% of the megawatts expected to come online this year, already having achieved mechanical completion. As a result, we have increased our year-end construction target from 3.4 gigawatts to 3.5 gigawatts to incorporate the progress we have made this year. This figure reflects a more than doubling of the renewable projects placed in service compared to last year. Now turning to Slide 7. In light of current market conditions, I would like to directly address the sources of funding that we have in our long-term plan. We will not be issuing any equity until at least 2026, and even then, we will only issue equity if it is value accretive to our shareholders. Instead, we are significantly accelerating our asset sales, and believe, we now have line of sight to at least $2 billion of asset sale proceeds in '24 and '25, and expect our asset sale proceeds to total at least $3.5 billion through 2027. With the proceeds from the sell-downs of our businesses in the Dominican Republic and Panama that we announced in September, we have already secured all of our external financing needs for the year at attractive terms. The general buckets that are part of our asset sales plan are: coal exit; sell-downs of U.S. renewable projects; partial monetization of businesses, including new energy technologies; and the exit of certain noncore businesses. We also plan to bring in partners at some of our businesses as we have done in the past to reduce future equity needs. While we never disclose specific transactions until we have actually signed sales agreements, we are in active and positive discussions with many interested counterparties. Turning to Slide 8. The last topic I want to address before turning the call over to Steve is our exposure to interest rates. As a normal course of business, we have always proactively matched the profile of the debt to the profile of the cash flows that are supporting it, which minimizes any impact from higher interest rates. Approximately 80% of our debt is non-recourse to the AES parent. And of that, the vast majority is either utility debt included in our customer rates or project level debt that is matched to the underlying project revenues. All of our long-term debt at Corp is either fixed or hedged, and as we have stated before, we've been able to pass on higher costs and interest rates in the new PPAs we signed. Finally, I want to highlight our commitment to maintaining our investment-grade credit ratings, which we see as an important component of our value proposition. To that end, in every business decision we make, we take into consideration our relevant credit metrics. We take a disciplined approach to growth and overall risk management to ensure that we consistently maintain these metrics. With that, I would like to turn the call over to our CFO, Steve Coughlin.

Thank you, Andres, and good morning, everyone. Today, I will discuss our third quarter results, our 2023 guidance, how we are flexing our plans to adapt to current financial market conditions and how we minimize our exposure to interest rates. Turning to our financial results for the quarter, beginning on Slide 10. I'm pleased to share that we had a strong third quarter and are fully on track to achieve our full year guidance. Adjusted EBITDA with tax attributes was just over $1 billion versus $991 million last year, driven primarily by higher contributions at our Renewables SBU, the recovery of prior year's purchase power costs at AES Ohio included as part of the ESP4 settlement and improved results at Fluence. These drivers were partially offset by the absence of the significant LNG transaction margins, which we earned last year. Tax attributes earned by our U.S. renewables projects this quarter were $18 million versus $60 million a year ago, in line with our expectations of a higher share of renewable projects coming online in the fourth quarter. Turning to Slide 11. Adjusted EPS was $0.60 versus $0.63 last year. In addition to the drivers of adjusted EBITDA, we saw higher parent interest expense this quarter as well as a higher adjusted tax rate. I'll cover the performance of our strategic business units or SBUs in more detail over the next few slides, beginning on Slide 12. In the Renewables SBU, we saw higher adjusted EBITDA with tax attributes, driven primarily by higher contributions from new projects brought online in the last 12 months, as well as higher margins in Colombia. This was partially offset by lower tax credit recognition as a result of fewer new projects placed into service this quarter versus a year ago. Our business continues to make strong progress, not just with construction, but also the financing of new projects. We continue to see a robust market for tax credits. This year, we have already raised $1.8 billion in tax capital financing. The market for tax attributes is also greatly expanding as a result of the tax credit transfer option that has brought many more participants to the market. Importantly, tax credit transfers get recognized in operating and free cash flow, which further enhances our financial funding flexibility. Going forward, we will increasingly use tax credit transfers as a means to monetize tax credits including for nearly 500 megawatts of projects in 2023. At our Utilities SBU, higher adjusted PTC was driven by the recovery of prior year's purchase power costs at AES Ohio included as part of the ESP4 settlement, which have been recognized as an expense in the third quarter of last year. I'd now like to take a moment to discuss the continued progress of our utility growth program on Slide 14. In August, we received commission approval at AES Ohio for our new Electric Security Plan, or ESP4, which includes timely recovery of $500 million of grid modernization investments at a 10% return on equity, allowing us to further improve the quality of service. As a reminder, we plan to grow the combined rate bases of our U.S. utilities at a 10% average annual rate through 2027. 80% of our planned investments through 2027 are either already approved or under FERC formula rate programs. We are executing on this plan and with our investment programs across the two utilities, we are on track to increase our capital expenditures by over 35% year-over-year as we work to modernize and invest in system reliability. As we previously discussed, our utilities in Ohio and Indiana continue to charge the lowest residential rates of all electric utilities in both states. Turning back to our third quarter results, with our Energy Infrastructure SBU on Slide 15. Lower adjusted EBITDA primarily reflects significant LNG transaction margins in the prior year, partially offset by prior year one-time expenses in Argentina and higher revenues recognized from the monetization of the PPA at our Warrior Run coal plant. Finally, at our New Energy Technologies SBU, higher adjusted EBITDA reflects continued improved results at Fluence. Fluence has continued to demonstrate improving margins and strong pipeline growth, and they have indicated their expectation to be close to adjusted EBITDA breakeven in the fourth quarter of their 2023 fiscal year. This year-over-year improvement would be reflected in our own fourth quarter results. Turning to Slide 17. I'm very pleased to highlight that we now expect to achieve the top half of both our 2023 adjusted EPS guidance range of $1.65 to $1.75 and our parent free cash flow range of $950 million to $1 billion. This reflects the strong performance of our renewables construction team whose excellent execution this year means that we expect to exceed our construction target of 3.4 gigawatts by at least 100 megawatts. Now to Slide 18. We are reaffirming our full year 2023 adjusted EBITDA guidance range of $2.6 billion to $2.9 billion. Including the $500 million to $560 million of tax attributes we expect to realize in 2023, we expect adjusted EBITDA with tax attributes of $3.1 billion to $3.5 billion. The additional U.S. projects we expect to bring online this year should allow us to exceed the midpoint of the tax attributes estimate we provided at Investor Day. Now to our 2023 parent capital allocation plan on Slide 19. Sources reflect approximately $2.4 billion of total discretionary cash, including $1 billion of parent free cash flow, $400 million to $600 million of asset sales, and the $900 million parent debt issuance we completed in Q2. With the agreement to sell down a minority interest in our gas and LNG business in the Dominican Republic and Panama, we have secured the entirety of our external sources of parent level capital for 2023. Turning to Slide 20. Since our Investor Day in May, financial market conditions have changed, and AES will flex its near-term and long-term plans accordingly. Looking ahead, we will continue to prioritize our strong credit profile and investment-grade ratings, hitting our financial metric growth targets, funding our growth primarily in U.S. renewables and U.S. utilities and advancing on our decarbonization and portfolio simplification goals. We have a number of levers to adjust that will keep us on track with these objectives. First, and to be clear, we will not issue equity at or near current share price levels and not until it is value accretive to our shareholders on a per share basis. As such, we are increasing our asset sale target to at least $3.5 billion for the 2023 to 2027 timeframe and accelerating our plan to achieve $2 billion of asset sale proceeds in 2024 and 2025. With this change, we will not issue any equity until at least 2026, and the amount anticipated has been reduced to $500 million to $1 billion through our guidance period. Second, the tax credit transferability option that we now have creates added flexibility to monetize the tax value of our U.S. renewables projects with a broader base of market participants while also increasing free cash flow and the capacity to fund growth. Third, while we still intend to exit all of our coal businesses in a few of our markets, our coal assets will be temporarily needed to support the energy transition beyond 2025 as renewable deployments and transmission have not progressed as quickly as required. We still intend to exit the majority of our remaining coal businesses by the end of 2025. However, we have the flexibility to delay the exit of a few select plants through 2027 to support continued electricity reliability. This delay would yield continued financial contributions from these assets during this period. For 2024 and 2025, we expect to fund our remaining parent capital needs entirely with asset sales and planned debt issuances. We feel confident that we can achieve the $2 billion asset sale target in these years, as we have already held discussions for a large portion of the assets in this program. We anticipate competitive processes that will yield attractive valuations with minimal dilution to earnings and cash beyond what had been incorporated in our plan. Our sales program is designed to meet our strategic objectives to simplify and decarbonize our portfolio while funding our core growth investments in U.S. renewables and utilities. Finally, turning to Slide 21, we are largely hedged against future increases in interest rates. Looking at the parent company, our long-term debt is entirely fixed and we hedge our exposure to refinancing risk over a five-year window. Our nearest maturities in 2025 and 2026 were previously hedged at a rate of approximately 3%. Approximately 80% of our consolidated debt is at the subsidiary or project level and is non-recourse to the parent. We typically pre-hedge future project debt issuance for the full tenor when we sign a PPA, insulating our expected returns from future rate movements. The amortizing structure of our project debt rather than bullet maturities allows the project to support higher leverage. As we grow, our long-term debt balances will increase proportionally to the underlying cash flow of our businesses, enabling us to maintain steady leverage ratios and investment-grade credit metrics. At the end of the third quarter, we had approximately $6 billion of interest rate hedges outstanding at an average rate of 2.9%. Looking at the impact of a 100 basis point shift in interest rates on our future issuances, refinancings and U.S. floating rate debt, we have under $0.01 of EPS exposure from interest rates in 2024 and $0.03 to $0.04 of exposure in 2025. Unhedged floating rate debt is primarily located outside the U.S. where inflation indexation in our PPAs provides a natural hedge against rising rates. In summary, as we approach year-end, we've made excellent progress on achieving our financial and strategic objectives for 2023. Our balance sheet is strong, and we are flexing to adapt to current financial market conditions. With line of sight to our future growth funding needs, we will create value from our excellent market position while continuing to prioritize maintaining investment-grade credit metrics and achieving our financial commitments. With that, I'll turn the call back over to Andres.

Thank you, Steve. Before moving to Q&A, I would like to briefly address a few other concerns that we have heard from some of you regarding the future of the renewable sector in general. For starters, global warming is, unfortunately, very real and likely accelerating. We have seen it in all-time record temperatures over the past five years, especially this summer in the Northern Hemisphere. This new reality was reflected in record demand for energy during heat waves, unprecedented wildfires, and more volatile rainfall, all of which affect the general public. Completely apolitical actors, such as insurance companies, are pulling out of certain markets in vulnerable areas after suffering material losses due to climate change. It is, therefore, extremely unlikely that major corporations will abruptly walk away from all of their carbon reduction goals regardless of any short-term unscientific political rhetoric. Given all that is happening in the renewable space, it is now more important than ever to differentiate among companies and developers. In my opinion, nobody is better placed than AES to create shareholder value from the ongoing energy transition because we have been focusing for years on the most resilient and lucrative opportunities. We are among the largest suppliers of renewable energy in the most attractive markets in the U.S., California, New York, and PJM. We are also the biggest supplier of renewable energy to corporations in the world and particularly to data centers. Already, data centers represent half of our U.S. backlog, and the growth of generative AI will only accelerate their demand for more renewable energy. An important differentiator is that AES is one of the very few major renewable developers that has not had to abandon projects in its backlog due to cost increases or supply chain disruptions. This has cemented our reputation for reliability among premium customers. Finally, AES is the most innovative company in the sector, developing and implementing new technologies such as: grid scale energy storage, hourly match renewable power purchase agreements, refabricated solar, construction robotics, and software for energy efficiency in AI-enabled grid visualization. I believe these efforts will have material and growing benefit to our shareholders, especially by maintaining our lead in the most lucrative market segments. Regarding significant drivers for future growth post-2027, AES is best positioned to be the leader in green hydrogen production with the most advanced large project in the country, in Texas, in our participation in two of the largest hubs chosen by the Department of Energy. Our green hydrogen projects have real off-takers and sites, and we expect that they will meet the most exacting standards of additionality, regionality, and hourly matching. Today, AES has the technology, the people, customer and supplier relationships, the scale and proven track record to continue to grow renewables profitably during the now unstoppable energy transition. While the total addressable market for our products and services is truly immense, I want to emphasize, once more, that our aim is to maximize shareholder value, not the number of megawatts or market share. Our priority will always be to ensure the best risk-adjusted returns for our shareholders on a per share basis. With that, I would like to open up the call for questions.

Thank you. The first question will be from the line of David Arcaro with Morgan Stanley. Your line is now open.

So strong update in terms of the contract originations within the renewables development portfolio. I was wondering if you could elaborate on what you're seeing in terms of that backdrop, the trends in customer demand. There have been concerns in the market around renewable slowdown given the higher PPA prices, financing challenges, et cetera. Wondering if you could talk about what your conversations are like with your customers? Are there pockets of weakness? Or is there still an ample opportunity set out there for contract signings?

What we're seeing is very strong demand from our target customers. So we have not seen a weakening. And as we said, it's very important to distinguish what markets you're operating in. So markets like California and New York, PJM, there is very strong demand. And there's very strong demand from corporations, especially from the tech companies in the data center business. So we have not seen a slowing down. Now, if you're talking about WEC and auctions for public utilities, et cetera, we're seeing a lot more competition for those projects. But for our target customers in our target markets, we're seeing demand very firm.

That's helpful and encouraging. I have a question regarding the outlook for the asset sale. You're targeting $2 billion over the next two years. What gives you confidence in achieving that? How is the market for project sales? Are you experiencing demand and finding potential buyers for these projects? Additionally, what are you observing in terms of pricing? Are the yields favorable compared to what you're investing in those projects?

Okay. I believe there are two parts to your question. We are continuing to sell specific businesses, which we've been doing for the past decade. Our businesses are performing well, and there is interest in them, as not all businesses are equal and we hold strong positions in these markets. We are also seeing significant interest from potential partners, including our current partners, looking to engage more. This interest helps reduce our equity needs over the next four to five years, which is important to balance. Regarding the sell-down of renewable projects, I'll hand that over to Steve for an update.

Yes, that's going well. As part of our sales, Andres walked through in his comments, there's a number of ways we achieve it. With the renewable sell-downs, we typically will sell down after the projects come online. And these are very low-risk, long-duration cash flows. Our average contract duration is 19 years. Obviously, no variable fuel cost, very little variable O&M in these types of assets. So they're very attractive. And so yes, returns expectations have come up somewhat, but not in lockstep with where base rates have come because of the very low risk profile of these assets. So those sell-downs continue to yield a lift in AES' equity returns commensurate with what we've talked about in the past, David.

The next question will be from the line of Durgesh Chopra with Evercore ISI. Your line is now open.

Just want to start off with a quick housekeeping question here. Just the $0.10 EPS upside that we talked about, Steve, from projects potentially being moved from '24 into late '23, is that factored into your raised EPS guidance now, or is that still an upside?

Yes. So a portion of it, Durgesh, so we did guide to 100 megawatts over at least this year, so the 3.4 to 3.5. So just a portion of that $0.10 is included. And the good thing is we have a very clear line of sight at this point to that increase as mechanical completion has been achieved on 93% of the new capacity. That means everything is all built out. We're just in final synchronization of equipment and systems. And so, we feel very confident in the year-end number. That which does not come online this year of that upside will be in the first half of next year.

Got it. Okay. That's clear. And then maybe, Steve, there was a report from credit rating agency highlighting sort of weakening of your credit metrics here and then going into 2024. And then, Andres and you both talked about the importance of maintaining a strong balance sheet. Could you just sort of frame for us what your expectation is? With these asset sales because obviously, there's going to be a cash flow drop. What the expectation is for your FFO debt metrics next year versus your downgrade thresholds?

One thing to note is that our credit metrics can vary throughout the year, particularly when we have increased construction balances in the middle of the year. Additionally, as projects begin to generate revenue towards the end of the year, we see a rise in our corporate revolver balances that help pay down construction debt and manage timing and distributions from our subsidiaries. It’s also important to recognize that we are currently in a phase of significant growth, which means we hold construction debt that hasn’t yet started to generate returns, all of which is non-recourse. This debt serves to finance the tax credit value and sees quick paydowns as projects launch. We are in regular communication with the rating agencies and are confident that we will not only meet but surpass the established thresholds. Furthermore, our leverage is structured to amortize, meaning most of our project-level debt declines over the PPA period. This setup is low-risk, non-recourse, and avoids large bullet payments, allowing our leverage ratio to grow in line with our business cash flows.

Okay. So but just to be clear though, Steve, I mean, next year, you feel with the plan that you have in place that versus your downgrade thresholds, you'll exceed them, right, into 2024?

Yes, maintaining investment grade is our top priority in all planning. As we evaluate asset sales, we have already factored in a significant amount, between $2.7 billion and $3 billion, in our Investor Day projections. We're focusing on assets that align with our strategy and have minimal negative impact on our earnings, cash, and credit. I am confident that our plans will not adversely affect our credit metrics.

Got it. Perfect. I just want to ask one last question before passing it on to others. Andres, you mentioned active discussions with various parties regarding assets. The $3.5 billion in asset sales is already significant. Could that number increase as you generate more interest during these discussions?

At this point in time, I would say that we feel that we will sell at least $3.5 billion through the end of 2027, but a lot of these, again, are partial sell-down, sell-down of renewables, our plan to exit from coal. So if you look in the past, we've done a multiple of this number. I'd also point out that I'm not aware of any time that we have set a target for asset sales and not achieved it or exceeded it. So we feel very confident in achieving those asset sale numbers.

The next question will be from the line of Angie Storozynski with Seaport Global. Your line is now open.

Okay. First, I wanted to address your comments about the transferability of tax credits. I want to ensure that this is not just a way to enhance certain credit metrics and that it is genuinely driven by economic factors. Looking back to your Analyst Day, you financed your renewable projects in the U.S. with 40% tax equity, 40% project-level debt, and 20% equity. I want to confirm that this structure is still in place and that we are not simply trying to improve credit metrics by increasing leverage on these projects. Also, could you explain why you are shifting from traditional tax equity structures that allowed you to benefit from accelerated depreciation to the transferability model?

Yes, Angie, it's Steve. Thank you for your question. It's important to recognize that AES has always been focused on maximizing the value of their tax credits, and that continues to be true. The transfers provide access to a wider range of market participants, creating a more liquid market with many corporates from various sectors participating. It's a quicker and simpler transaction to execute, but we will still take both approaches because it's essential to not only capitalize on the tax credit value but also on the benefit of the accelerated depreciation, which cannot be transferred and requires either AES or a partner in the asset to utilize. Therefore, we will employ hybrid strategies. My main point is that the market is broader, transactions are simpler, and there is more liquidity. I believe it is fitting that this aspect is reflected in operating cash and free cash, as it is a significant component of value and a return on the investment made in the assets.

Okay. So that's treatment so that the FFO uplift under those structures, you already considered that when you quantified your equity needs during the Analyst Day?

So I would say at this point, we have already done 500 megawatts in transfer credits. The market is moving faster. So, I think in the Analyst Day, I would say there's upside in terms of our cash flow metrics related to the use of more transferability. But it's not necessarily something that is changing returns or anything. It's just that it's creating more visibility, more market participation and shows up in the operating cash flow.

Okay. You mentioned the appeal of renewables compared to other power sources based on the levelized cost of electricity, specifically new builds for renewables versus thermal assets. However, not everywhere requires the addition of more generation sources. Additionally, we are hearing that PPA prices have recently surpassed forward power prices, whether it's peak for solar or around the clock for wind. I understand the distinction with tech clients, but what about other locations and off-takers for new renewables?

Well, again, we're talking about the markets where we're located. And the way I look at it is a little bit different. I mean, in terms of the energy, the LCOE, again, as I said, in most markets that we're operating, it is the cheapest. The issue with renewables is really having that dispatchable 24/7. So you need to complement it with regular power or batteries, which will require even more renewables. But I think the state is a huge play. So you can't say in every single location. But certainly in states that have high solar radiation or high wind, that's just the fact. I mean, the real issue is more having the 24/7 capability.

Okay. And then the last question about some flexibility on the retirement of the coal plants. I understand the reliability needs of local grids, et cetera. But this situation is not due to renewables coming online later than expected; it's more about the market backdrop in which the coal plants operate. Is that correct?

Exactly. You're correct. As we have always stated, we require regulatory approval to retire the coal plants. What we're observing is that in some markets, the overall development of renewables and transmission has progressed slower than anticipated, making it likely that these plants will be needed through 2027. However, I want to emphasize that this represents a small minority of our total plants. We have reduced our capacity from 22 gigawatts to 7. We have a clear plan for about 4 of those, and of the remaining roughly 3, it will only be a small portion. I'm not suggesting we are abandoning our decarbonization plan; rather, there are a few plants that will face challenges in going offline before their power purchase agreements expire.

The next question will be from the line of Richard Sunderland with JPMorgan. Your line is now open.

Andres, you spoke to active conversations on the asset sale front. I'm curious if you can outline at a high level how advanced those discussions are? And if this is an effort that could yield any announcements before year-end or I guess, earlier on in that sort of '24, '25 window?

Yes. It's a good question. I would think that, again, it's over a two-year period, but I would expect some important announcements in the first half of next year. And again, we tend to announce things when they're very firm. So the negotiations, et cetera, are ongoing. It's several assets. But yes, I would expect to be able to say something in the first half of next year.

Understood. And then looking back at, I guess, it's Slide 7, where you lay out the potential asset sales. Has any of your thinking on those buckets in terms of what's actually in those buckets changed since the May Investor Day, I guess, in particular, I'm thinking about the noncore businesses and if there are any new thoughts there relative to six months ago?

What I'd say is, yes, I really can't comment on that. I would say stay tuned, and we will make announcements in that regard. But it's mostly assets that we have designated as noncore over time. So it's more of an acceleration or perhaps a deepening of some of the sell-downs.

That's helpful. And I'll try this from one other side if you'll indulge me here, new and expanded partnerships. New partnerships, any flavor for what that means? Just again, trying to get a sense of the scope of the opportunity. Obviously, you've laid out the magnitude with this $2 billion figure in the over $3.5 billion in total.

What I would suggest is to look at our past actions. For instance, when we made a significant investment in renewable energy, our first major acquisition was sPower, and we developed a new partnership that has grown over time. We are engaged in several promising sectors right now, making it an intriguing time to explore what our partners are planning or if any new partners are interested in joining us. We are indeed in a strong position, particularly in many of the emerging fields.

The next question will be from the line of Julien Dumoulin-Smith with Bank of America. Your line is now open.

First question here, I'm going to take it and play in every direction. All right, deal. $3.5 billion here. You talk about coal exits of selective assets in '27. To me, I hear that, and I'm asking well, how much does that delay some of the loss of contribution in the plan out to '28, i.e., the earlier targets that you gave through '27 contemplated full divestment of these assets. Now I get that you're raising the asset divestment target. So in theory, there's going to be fewer assets at the end. So in theory, you should be sacrificing some of the net income to the plan. But obviously, by selling some of the coal assets in '27, you're delaying or deferring some of the chunkiest lowest multiple assets potentially and the loss of the contribution into '28. I just want to like kind of hear how you think about that '27 versus '28, are you effectively pushing out a little bit of an earnings impact from '27 into '28 if you think about it or from '25 into '28?

What I can say is that you are largely correct regarding our operations and the flexibility we have with certain plants and power purchase agreements. In terms of asset sales, our various assets exhibit distinct earnings profiles, and we are confident that we have a solid plan to achieve our targets. Looking ahead to post-2027 and into 2028, there will be a need to involve partners in some of these growth projects. There are many factors at play in the market, and honestly, we don't anticipate significant efficiency improvements in our numbers moving forward, although we are actively developing various technologies to address that. Ultimately, while you raise valid points about certain large factors, I am very confident about our projections from 2028 onward. We are well-positioned in emerging technologies and sectors, and I want to emphasize that there won't be a drastic drop-off into 2028. As we've stated previously, there is no abrupt decline in 2026. We are managing a multitude of variables and levers to ensure a smooth transition. Our main challenge is not demand; in fact, there is substantial demand and abundant opportunities. Our focus is on maximizing value per share, making strategic decisions, and choosing the best combinations of options available to us.

No. Look, I get it. It makes sense. And just to clarify, the select assets, though, those are the ones that the PPAs are expiring or otherwise faced regulatory issues, right? Again, I think that's a nice catch all, right? If that's the way you're framing it, one or the other?

That's correct. We have some assets that may still be under contract, and it’s looking more challenging to obtain regulatory approval to retire those assets in 2025.

Right. Yes, indeed, right. There's a couple of them that stand out, if you will, that would seem to fit that right?

I guess.

I know you don't want to be too specific. I'm sorry, I'm trying to be less specific here. Quickly, if I can pivot here real quickly. Yes, go for it.

I was just going to say, there's a number of ways we're exiting both the retirements and sales. So looking at this, we have 7 gigawatts of coal. We've already announced and the exits of half of that. So you're talking about 3.5% roughly remaining. And we're not talking about that whole amount. Even a small portion of that are these assets that will be selectively considered.

Yes. as I said, it's a small part of the 3 that's remaining.

Yes. Okay. Sorry, I just wanted to try to put that in a box a little bit more. And just to clarify this, the partial monetization, how do you think about Fluence here just to hit that a little bit more squarely? I know it's a sensitive subject, whatever you can offer here about how you think about that through the plan? You talk about beginning next year here on sell-downs a bit large, not specific to the new technologies bucket. Whatever you can offer?

We don’t have much new to add beyond what we've already communicated. Essentially, we see ourselves as a driving force behind new technologies, collaborating on numerous applications that benefit us. This is a key reason we believe we lead in the premium markets. Over time, we plan to capitalize on our positions. It’s not solely about Fluence, as we have other investments that are developing well. However, I can’t provide additional specifics on this matter.

And you feel confident in the previous marks in the other technologies? I mean, I know it's been a little bit of time there, but that's important as well.

Sure. There are various levels of maturity among our investments. Uplight is progressing well and expanding its product offerings, becoming part of Schneider Electric's energy efficiency solutions. Other investments are at earlier stages, and their potential value to us is still uncertain. One particularly promising initiative is the development of solar farms using robotics, which I believe has significant potential over the next four years. We're also doing a lot with AI operationally, such as using it in our wind farms for next-day energy demand and weather predictions. Fluence is utilizing AI in its bidding engines, but there's even more to come. We have partnered with technology companies on projects like grid visualization, which I believe will be essential for how ISOs manage development and respond to natural disasters. Additionally, we will receive a share of the royalties from the sales of technologies we co-developed with these companies. While these advancements aren't reflected in our current numbers, I'm confident they will lead to significant cost savings and efficiencies. In some instances, we will also have the opportunity to monetize them when market conditions are favorable.

Yes, absolutely. Sorry. And just a quick clarification, more setting expectations ahead. You guys have done a lot on the new origination front. You flagged it at the outset, this 5 gigawatt number, I think. Just to set expectations, you've also done a number of acquisitions of backlog here, too. How does that mesh with your commentary about origination, and should we expect a steady cadence of announcements of further backlog acquisitions here as some of these have been the higher price points? Again, I just want to tackle that directly and give you an opportunity to kind of bifurcate and clearly set expectations.

We are focused on maximizing the value from our various assets. Recently, we completed our first sale related to our development project pipeline through the DTA. Rather than building the project ourselves, we decided that selling it represented the greatest value creation. Occasionally, this approach may be the best way to utilize our pipeline. As I've mentioned before, acquiring late-stage development projects is particularly attractive, especially when we have a premium customer requiring that energy. This is advantageous because, with a late-stage development project, the conversion rate is essentially guaranteed if the client is secured, resulting in a favorable risk-adjusted return. We will continue to explore these opportunities. For one of our utilities, there's a purchase happening of a project developed by another entity. We also have other projects that will undergo repowering. Our aim is to leverage every available option to enhance shareholder value. It's important to understand that the pipeline, from greenfield projects to final delivery, is critical for value creation. The key is to have the right projects, markets, and clients, and to focus on meeting their needs effectively. While we can discuss this further in private, it’s clear to us that acquiring late-stage projects in the current buyer's market is one of the most appealing opportunities for our business.

The final question for today's call will be from the line of Michael Sullivan with Wolfe Research. Your line is now open.

I wanted to start with, can we just confirm if there's been any change to your levered returns targets in the current environment up or down? And then maybe also just you alluded to it a little bit, but just a sense of like how much LCOEs or PPA pricing on new projects have changed?

I'll address the first part of your question, and then I'll hand the second part over to Steve. Currently, our portfolio is generating low-teen returns on a project level. If we factor in core or mezzanine financing, those returns would be in the high teens. I believe we offer some of the most consistent returns due to the nature of our projects, the markets we're in, and our scale, which allows us to compete effectively. We've also excelled in supply chain management. What's shifted is our use of a CAPM model updated for risk-free U.S. treasuries, which have obviously increased. This impacts our calculations of net present value for our projects. We're successfully passing on higher interest rates and costs, which, by the way, are declining. Battery prices have dropped by 50%, and solar prices are also decreasing. For our projects outside the U.S. for corporate clients, solar panel prices are at nearly historic lows. When considering these factors, we are applying higher discount rates to evaluate the viability of our projects based on net present value, yet we have managed to maintain our margins. Currently, there's no market stress on that front. Now, regarding your second question about specific projects in the U.S. and the returns we're seeing.

Yes. So I would say, generally in the States with our corporate clients, in particular, where we're doing structured products, we are seeing the higher end of that return range. And also, it's important, while PPA prices have been increasing, over the past one to two years, they've actually leveled off and are starting to come back down. We've seen significant reductions in solar module pricing this year. We've seen significant reductions in the commodities going into batteries and battery pricing coming down. So we're starting to see levelized costs come back down, which is also supporting the activity and the demand going forward. So I think we're in kind of past the difficulties of the supply chain past the impacts of the inflation and back to a declining curve in the key technologies we're using.

Yes, Michael, I want to mention that we recently completed a project that received an additional 10% from the energy community, specifically the Chevelon Butte wind project, which is the largest wind project in Arizona. Regarding our wind farms, we are meeting the domestic content requirements. We anticipate that Fluence will begin receiving adequate domestic content from its batteries and casings next year. We are also actively discussing solar projects; we were among the first to engage in these discussions. Therefore, we see potential benefits from the additional domestic content, and we have already been achieving our energy community goals. Currently, over 40% of our pipeline is situated in energy communities, which represents additional opportunities. We are experiencing positive impacts from the IRA concerning the returns on some of our projects, especially those that have already been signed.

Can you share your thoughts on the initial intervenor testimony in the Indiana rate case and what the next steps will be toward a potential settlement or final decision?

Yes. So just to kind of put things in context, too. This is our first rate case in over five years. And as I mentioned in my comments, we have the lowest residential rates in Indiana of any utility. So we're starting from a very good place. We had our IRP last year where we also have a lot of support for the growth that's there. So of course, any process like this, there are multiple stakeholders involved and interveners, they need to be heard. But we feel very good about what we asked for, given our position with the lowest rates and the growth plan that's been supported through the IRP. And again, it's our first rate case in five years. So in terms of timing, at this point, I would say, middle of next year for this to be all resolved and new rates to come into effect thereafter.

Thank you. That concludes today's Q&A session, and I will turn the call back over to Susan for final 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 all for your participation, and you may now disconnect your lines.