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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Good morning. And welcome to the AES Corporation's First Quarter 2019 Financial Review Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Ahmed Pasha, Head of Investor Relations. Please go ahead.
Thank you, Brandon. Good morning everyone and welcome to our first quarter 2019 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 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 Andrés Gluski, our President and Chief Executive Officer; Gustavo Pimenta, our Chief Financial Officer; and other senior management of our management team. With that, I will turn the call over to Andrés. Andrés?
Good morning everyone and thank you for joining our first quarter 2019 financial review call. Since our last call we have made significant progress on a number of fronts. We continue to transform the company, growing our renewables and LNG businesses, simplifying and streamlining our portfolio, reducing costs, and improving our overall risk profile. Specifically we reported first quarter adjusted EPS of $0.28 and remain confident in our full year outlook.
We're on track to attain investment grade ratings in 2020. We signed long-term contracts for approximately 500 megawatts of renewable capacity increasing our backlog to 6.2 gigawatts. We signed a 12 year agreement to sell up to 18 TBTUs of LNG annually in the Caribbean beginning in 2020. Today we're announcing a target of $100 million of additional annual cost savings to be realized by 2022 as a result of our digital initiatives and we agreed to sell our businesses in Jordan and Northern Ireland for $211 million. Gustavo will discuss our financial results and capital allocation plan in more detail following my remarks.
Turning to slide 4, our core strategy continues to revolve around three themes; first, enhancing the resilience of our portfolio to deliver attractive returns. Second, increasing our backlog long-term contracted projects to ensure profitable growth. And third, investing in innovative technologies to maintain our competitive edge and market leading positions. Today I will review the progress we've made since our last call in support of these themes.
Turning to slide 5, we continue to take steps to derisk our portfolio and make it even more resilient. We remain on track to attain investment grade ratings by 2020 supported not only by our financial metrics but also by the lower level of risk and higher quality of our portfolio. We expect to achieve our carbon intensity reduction target of 50% by 2022 and 70% by 2030 reducing potential regulatory risks and attracting a broader investor base. One of the ways we are reducing our carbon intensity is through our green blend and extend strategy where we are negotiating new long-term renewable PPAs with existing long-term thermal customers. Through this win-win strategy we preserve the value of our existing contracts while extending our average contract life and earning a return on our incremental capital investments.
We're currently in advanced discussions for additional large green blend and extend contracts in Chile and Mexico. Separately we just initiated a similar conversations on green blend and extend with PURPA in Puerto Rico. Another way we're transforming our portfolio is by exiting certain businesses. For example in late April we announced the sale of more than 2 gigawatts of overwhelmingly thermal generation in Jordan and Northern Ireland. These sales decrease our merchant exposure, lower our carbon intensity, and reduce our presence to 13 countries. In line with our capital allocation framework we will primarily invest these proceeds in renewables in the Americas.
Turning to slide 6, as we've discussed previously we're focused on growing our business through long-term U.S. dollar denominated contracts with limited merchant commodity and hydrology exposure. One additional initiative that I would like to mention today is the expansion of our business with commercial and industrial customers. This approach further enhances our resilience by diversifying our customer base and providing greater protection from regulatory and macroeconomic factors in our markets.
Now turning to our backlog, our growth in renewables continues. As can be seen on slide 7 during the first quarter we signed new long-term PPAs for approximately 500 megawatts of renewables consistent with our expectations. Turning to slide 8 we now have a total backlog of 6.2 gigawatts and we expect to sign 2 to 3 gigawatts of new PPAs every year for a total of approximately 12 gigawatts of new capacity by 2022. By then we project the U.S. will represent almost half of our earnings versus about a third today.
Now to our projects under construction beginning on slide 9, of the 4.5 gigawatts currently under construction approximately 40% is now renewables. This percentage will grow as we bring online the large conventional thermal plants we contracted number of years ago while adding new wind, solar, and energy storage projects. As you can see on slide 10 the renewable projects under construction are split equally between the U.S. and internationally. All of these projects are expected to come online in the next 18 months. We are particularly pleased with the speed at which we have been able to transition these projects from development to construction. For example as you can see on slide 11 we received all necessary permits for sPower's 500 megawatt Highlander Solar Project in Virginia, the largest solar project in the mid-Atlantic. This project has long-term contracts with C%I customers such as Apple and Microsoft and we expect to begin construction this summer with completion targeted for 2020 and 2021.
Turning to slide 12 and our conventional projects under construction. Our OPGC 2 plant in India is in the testing phase and is running at full load. The plant is expected to be operational later this month and will deliver much needed power to the Indian grid. Our Southland Repowering project in Southern California is approximately 90% complete and the project is on track to come on line in the first half of next year. And our Alto Maipo hydroelectric project in Chile is advancing as planned and is now 78% complete with 72% of the tunneling work done.
Turning now to our LNG business on slide 13. You see the expansion of our LNG projects is complementary to our renewable businesses as it provides capacity while displacing heavy fuel oil and diesel with cheaper and cleaner natural gas. This business is based on long-term tolling agreements with no direct commodity risk. Another benefit of our LNG projects is that once they are built they can be scaled up at relatively low cost as most of the key infrastructure is already in place. We are focusing our LNG growth on two major markets; first is Vietnam where we are making very good progress towards the development of a landmark project with 450 TBTUs of LNG storage capacity and 2 gigawatts of associated combined cycle gas plants. We expect this project to significantly contribute to our growth beginning in 2023.
Second, in the Caribbean and Central America where we have a total of 150 TBTUs of LNG storage capacity in Panama and the Dominican Republic. Our guidance assume that we would contract some of the excess capacity available at these two terminals. In fact since our last call we signed a 12-year contract for up to 18 TBTUs of annual capacity. With this contract we have already locked in the terminal capacity payments that are assumed in our guidance through 2022. The remaining uncontracted capacity provides us with $0.03 of potential EPS upside relative to our guidance.
Turning to slide 14, the third component of our core strategy is to invest in innovative technologies to maintain our market leading position and realize commercial and operational efficiencies. As most of you know AES is at the forefront of battery based energy storage. Fluence, our energy storage joint venture is the leading provider of grid scale storage in the world with 81 projects in 18 countries totaling 776 megawatts deployed or awarded. Now let me say a few words on the recent thermal incident at our 2 megawatt energy storage facility we installed for Arizona Public Service which resulted in serious injuries for four first responders last month. Of course our top priority is the health, safety, and recovery of the first responders. Fortunately we understand from statements made by the hospital that all are expected to make a full recovery.
Regarding the event itself police immediately dispatched a team of technical and operational experts to support APS in the incident root cause investigation. APS and Fluence have committed to share what they can from the investigation especially insights that would be helpful to the entire industry and first responders in efforts to prevent similar incidents anywhere in the world. AES has been safely operating a fleet of battery based energy storage systems for over a decade and today has storage systems operating in multiple country, uses and environments. We continue to believe in the use of lithium ion batteries for energy storage and continue to see rapidly growing demand for this technology and its many applications.
Finally turning to slide 15 today we announced the launch of an additional $100 million annual cost savings program. Our savings target is based on our current digital initiatives which are expected to be fully implemented by 2022. Although we have significantly reduced costs over the last several years we're taking our efforts to the next level by applying new digital initiatives and analytics across our $33 million asset base. As most of our business is long-term contracted at fixed U.S. prices, much of the benefits from these digital initiatives will flow to our bottom line. Specifically the main activities include utilizing AI for predictive maintenance and outage prevents. Using technologies such as robotics and drones for solar and wind maintenance and inspection and implementing process automation in administrative and support functions.
On an annual basis we're targeting a 5% reduction in the total expense for these activities. Net of any cost we achieve so we feel very confident about our ability to achieve $100 million in annual run rate savings by 2022. Now I'll turn the call over to Gustavo to discuss our financial results and capital allocation in more detail.
Thank you Andrés. Today I will go over our first quarter results, improving credit profile, and capital allocation. In the first quarter we made solid progress towards our full year guidance range of a $1.28 to a $1.40. As shown in slide 17 adjusted EPS was $0.28 primarily reflecting the benefits of improved efficiencies and lower parent interest expense resulting from about $1 billion in debt pay down. This improvement was offset by the impact of asset sales and shutdowns. With our first quarter results and 2.2 gigawatts coming online in the year to go we are on track to achieve our full year guidance.
Turning to slide 18 adjusted pre-tax contribution or PPC was $272 million for the quarter, a decrease of $16 million. I will cover our results in more detail over the next four slides beginning on slide 19. In the U.S. and utilities SBU relatively flat PPC reflects higher rates following the resolutions of rate cases late last year at DPL and IPL as well as lower expected asset return obligations at DPL. These impacts were partially offset by the exits of coal fired generation at DPL and Shady Point. Regarding DPLs DMR extension filing there is not much to report, would expect activity to increase as its position at the commission is complete and the new chairman is now in place. Accordingly we remain on track for an expected ruling in 2020 and we continue to feel confident about the merits of our case.
At our South America SBU lower PPC was largely driven by Argentina where we saw lower dispatch at our plants. This generation profile was in line with our projections and was expected to impact the first quarter only. Relatively flat PPC at our Mexico, Central America, and the Caribbean are MCAC SBU reflects an extended plant outage for maintenance and repairs at our Changuinola hydro plant in Panama. This was partially offset by the commencement of operations at the AEC Colón CCGT last year and outage related insurance proceeds in the Dominican Republic.
Finally in Eurasia, lower results primarily reflect the sales of our businesses in the Philippines and the Netherlands as well as the shift our 300 megawatt of capacity at Ballylumford in Northern Ireland. In Bulgaria there have been no significant developments since our last call. Our plant continues to be reinforcing its criticality to the Bulgarian and we are being paid on time.
Turning to our improving credit profile on slide 23. Since we first established our goal of reaching investment grade in 2016 we have reduced apparent debt by $1.3 billion or 26%. We continue to have ongoing discussions with the rating agencies and remain confident in our ability to attain investment grade rating in 2020. We believe this improvement in our credit profile is helping us not only to reduce our cost of debt and improve our financial flexibility but also to enhance our equity valuation. Over the next few years we expect our credit metrics to show further improvement through growth in our parent free cash flow as well as modest additional delevering. While apparent credit improvement is a key focus of ours we are also constantly looking for opportunities to strengthen the capital structure of our subsidiaries. This is demonstrated by the $1.5 billion of liability and management transactions we have executed so far this year at three businesses alone Gener, Tiete and DPL. In all cases we're able to take advantage of good market conditions to extend maturities and lower interest rates. For instance at DPL we refinanced $400 million of the Holdco 2021 notes increasing the term by 8 years and reducing the interest rates by 290 basis points.
Now to 2019 parent capital allocation on slide 24, beginning on the left hand side source reflect $1.1 billion of total discretionary cash including 725 million of parent free cash flow. Sources also include $384 million in assets sale proceeds which is $16 million higher than our previous disclosure for 2019. Proceeds include approximately $170 million from the sell down of sPower's operating portfolio and $211 million from the sale of our businesses in Jordan and Northern Ireland announced a couple of weeks ago. Now to uses on the right hand side. Including the 5% dividend increase we announced in December we'll be returning $361 million to shareholders this year. We expected to allocate another $150 million this year to parent debt largely to strengthen our investment grade metrics and we plan to invest over 400 million in our subsidiaries leaving about 200 million of unallocated cash.
Finally moving to our capital allocations in 2019 through 2022 beginning on slide 25. We expected our portfolio to generate $4 billion in discretionary cash which is about 35% of our current market cap. About 80% of this cash is expected to be generated from parent free cash flow. The remaining 800 comes from asset sale proceeds about half of which has been announced or closed this year.
Turning to the uses of the discretionary cash on slide 26, roughly 40% of this cash will be allocated to shareholder dividends. Looking forward, subject to annual review by the board we expect the dividend to grow 4% to 6% per year in line with the industry average. We expected to use $300 million for debt reduction including a portion to maintain credit neutrality as we pursue the remaining planned asset sales. We are also planning to use $1.5 billion for our equity investments in our backlog and projects PPAs. Once completed all of these projects will contribute to our growth through 2022 and beyond. The remaining $670 million of unallocated cash will be used in accordance with our capital allocation framework to achieve our financial objectives. With that I'll turn the call back over to Andrés.
Thanks Gustavo. Before we take your questions let me summarize today's call. 2019 is off to a good start as demonstrated by our financial results and progress on our strategic goals. We remain on track to attain investment grade ratings in 2020. We are completing our large conventional construction projects. We are signing long-term U.S. dollar denominated PPAs for renewables. We are leveraging our position and experience to expand our LNG infrastructure business and we are targeting $100 million of additional annual cost savings further enhancing the resilience of our 7% to 9% average annual growth target. Accordingly we remain confident in our ability to deliver attractive double-digit total return to our shareholders. Operator we are now ready to take questions.
Thank you. [Operator Instructions]. Our first question comes from Ali Agha with SunTrust. Please go ahead.
Thank you. Good morning.
Good morning Ali.
Good morning. First question Andrés, just to get a bigger and better sense on the timing around this incremental cost reduction, so you currently have an ongoing cost reduction program giving you benefits of 100 million in 2019 and in 2020. So when does this incremental 100 million actually kick in, does it kick-in in 2021 and you said the run rate of 100 million by 2022 how much can you specifically capture in 2021 and 2022 from this program?
That's a great question. So first let me be very clear, this is additional to the programs that we have announced in the past and this is also net of any cost to achieve those savings. We feel very confident in achieving these savings because this is about 5% of expense on those categories and these initiatives are currently underway. So with that said it's also sort of growing over time because this is an annual run rate savings. So as you correctly point out, the larger benefits will be in 2021 and 2022. So you know by 2021 we should probably have about half of these savings and the full amount would be in the run rate of 2022.
Okay and then secondly the 101.5 billion that you've targeted as equity investment in new projects between now and 2022 how much of that is already in hand right now in terms of at least having the signed PPA if not construction and I know in the past you talked about potential investment by Tiete on a win company in Brazil where does that stand and is that part of this 1.5 billion?
What this includes is that we are committed to, projects which are under construction and being completed includes all the renewables but it also includes a run rate in renewable, getting into new projects that hit that 2 to 3 gigawatts of annual capacity. So it will include a portion of those expected PPAs that we're signing as we on go because between signing and completion it is about 18 months so obviously some of the things that are in that number have not yet been signed. So it includes part of the run rate.
Gustavo here. If I can complement I would say probably 70% to 80% is somewhat in the pocket, so deals that we've signed but as Andrés said there is a proportion yet to be allocated that's expected to be captured. So things like investments in subs would fall under that category.
Okay and the Tiete transaction?
So Tiete they haven't announced yet how they're going to fund it so we can't comment on that. But if needed that would come from that $1.5 billion of projected PPAs that we have in the chart.
I see, last question, can you just remind us how much of the LNG capacity is not yet contracted and what's the timing when you think potentially you could contract and see that incremental $0.03 of earnings?
You know as I said a lot of the infrastructure already exists. So it really depends on the timing of the additional investments. So you know we've completed what we said we would do by 2022. So basically we already have that. So I think basically we have let's see, we have probably about 30% still to go. So we have about 50 TBTUs so between the Caribbean and Central America and that just is a question of when we sign up more customers. So stay tuned, I think we are doing very well and quite frankly with relative prices today of U.S. based LNG and oil it is very attractive for customers to sign up. So we've completed what we said we would do and now we're actively pursuing those additional $0.03.
Understood, thank you.
Thanks Ali.
Our next question comes from Julien Dumoulin-Smith with BOA. Please go ahead.
Hey good morning.
Good morning Julien.
Hey, congrats. Lots of updates this morning, so I just wanted to clarify a couple of things here if you can very quickly. First, on incremental cost savings how much of that is parent versus allocated at the subsidiary levels and then how much would you say this is incremental, what's the total amount especially of parent SG&A savings that we're talking about through 2022, just to make sure we're fine tuning things precisely here?
Yeah, let me be clear here. So a portion of that savings will be obviously at the sub level but however this is what we expect to flow up to Corp. Okay, so this is basically we expect $100 million of savings to what hits Corp even though a lot of those savings will occur in subs but that means that obviously there will be additional savings which we'll share with our partners. So this is what actually hits AES.
Got it. And total cost savings I mean there were rather, is that SG&A kind of target just overall because I know that there was already some degree of cost savings reflected through 2022?
Obviously the SG&A a savings especially at Corp are relatively small. A lot of this is operational efficiencies, predictive maintenance, less outages, better planning. So we feel very confident because a lot of these are things which some other companies have done. So we're really leapfrogging here to put ourselves at the leading edge. As you know we hired a new Chief Information Digital Officer, Sanjeev Addala. He's working hand-in-hand with our Chief Operational Officer, Bernard Da Santos. So you know we feel very good about this and going forward we've identified where the savings would come from and it's also pretty leapfrogging and catching up with the leading edge of all of our other companies around the world.
Excellent and then turning back to the U.S. side of the equation, you said I think about half of your earnings by 2022 versus a third today would be coming from the U.S., can you clarify especially in light of your latest procurement efforts how you are addressing ITC recognition for solar assets and how much will be tax credits when you think of that U.S. earnings contribution, I am just trying to make sure we're fine tuning things appropriately especially given the litany of different accounting approaches taken across the sector?
Sure. Julien, this is Gustavo. The 50% is mostly driven by the fact that 50% or even more of our free cash flow has been deployed in the U.S. It's more equity going to the U.S. and therefore you see that the proportion of the U.S. growing. We are growing the distribution business IPL, DPL as well so that that's the main driver. As we've mentioned in the last call from our perspective a lot of the renewables are outside the U.S. so the growth is not really from an ITC PPC recognition is not really a major driver for a 7% to 9%. And a lot of the growth is 7% to 9%. We do have a lot of deals already in the pocket like something coming online or PPC cost cutting things like that. So it's not a major driver in our case because as I said 50% is in the U.S. Even in the U.S. you have 40% wind which has a low impact. And I think what is more important our cash flow is also growing at 7% to 9% ratio which kind of reinforce the quality of the earnings.
Fair, and then lastly just if you can quickly clarify on Mexico, proper Chile, the blend and extend, what does that imply for your existing assets and just perhaps elaborate a little bit more on the opportunity side especially in Puerto Rico and Mexico given you guys haven't done much there historically?
Well, as we said it is sort of green, blend and extend, what does it essentially consist of. You have a long-term thermal contract where we really make our returns on the capacity payments and energy is a pass through. So we basically go to the client and say we will replace a portion of the energy being generated by the thermal plant with renewable energy if you sign a long-term PPA. So this is a win-win from both because we get a new contract for renewal and get a return on that and we still get our capacity payment. So part of this is that you have to relearn how to run our thermal plants at a lower margin to make space for renewable.
Now in the case of Mexico we have picked up which are thermal plants. Of course in Chile we have a number of thermal plants where we've already been applying this with our large commercial and industrial customers. And in Puerto Rico you may have seen that we are in discussions with PURPA to see how we could have some modifications to allow for green, blend and extend as well. So basically we are reacting to customers desires for more green energy. In many cases the cost of the energy is lower than the variable cost of running the thermal plant and we're lowering carbon footprints in line with what they desire. And very importantly we're keeping the capacity because you know when everybody talks about renewables that's great for energy but what about capacity, the ability to retain the lights on 24/7. So we really feel that there are two ways to do it, the green, blend and extend or energy storage. And I think we're well-positioned in both sides.
Excellent, thank you.
You're welcome.
Our next question comes from Christopher Turnure with JP Morgan. Please go ahead.
Good morning. I wanted to ask for more color on Alto Maipo, I think you said it was 78% complete as of now and the tunneling was around 72% complete. Could you maybe comment a little bit more on that particularly on the progress of tunneling since your last update?
Yeah, I mean we continue to execute on our plan. I think it's going very well. I believe now we have six tunnel boring machines in operation and we remain on track for what we've said in the past of completing this project by starting in 2020. So I guess that's the only update that I can really say that we're -- since we did the restructuring where the contractor has a lot more say skin in the game and applied the learnings that we've had over the last couple of years we're executing as per the plan.
Okay, excellent. And then switching gears to Mexico, could you just kind of comment broadly on your existing assets there and the project where you've relatively recently signed a contract kind of how you're thinking about the political and regulatory environment given some of the headlines over the past three months?
Well, our strategy in Mexico has always been to sign a long-term dollar denominated contracts with investment grade off takers in the private sector. So we're relatively a little exposed let's say to some of the changes that they have announced for the CFE and others. So our projects continue, I think our clients are looking for green energy. In many case they're looking for the green, blend and extend. So those projects continue on track and we expect to be signing more sort of green, blend and extend projects in Mexico.
Okay, then with that no slowdown of future project potential?
Again we remain on track and we think our strategy was very resilient and robust because from day one it was a really long-term dollar denominated contracts with investment grade off takers. And many of them are exporters for example. So they really it's you know having a dollar denominated cost is not an issue for them and actually helps them sort of with their future forecasts?
Okay, great. Thanks Andrés.
Thank you.
Our next question comes from Greg Gordon with Evercore ISI. Please go ahead.
Thanks guys, a couple of questions, good morning. It looks like some of the currency exposures not for 2019 which I know are quite small but for 2020 which are a bit larger have shifted if I look from the Q4 presentation to the Q1 presentations, can you just talk about how you or how you've -- how your commodity -- how your currency hedging has changed and if that's the case why?
No, it hasn't moved maturely Greg. Greg, this is Gustavo. It hasn’t moved maturely. We continue to be mostly dollar denominated. And if anything and when there is a remaining exposure in some particular market we do pursue a hedge here at Corp to offset that. So it's not something that we are concerned with and no mature differences versus where we were before.
Okay, great, it did look small so thank you. The second thing was with regard to the cadence of the expected backlog realization in the renewables which is slide 8. I think you're still basically assuming you over time achieving almost exactly the same amount. But I think some of the realizations have shifted from 2019 to 2020 to 2021, am I misreading that or if not can you just talk about how has it firmed up the backlog and what you're looking at?
Yeah Greg, Gustavo again. Yeah, you're right. I think the only major change from the prior disclosure has been Highlander which we got the approvals, it took a little bit longer than we initially forecasted. So we move at that, you're going to see in the appendix we move on that to 2020 and 2021. So initially it was part of that was in 2019. That's the only change. So the rest is in line.
Okay, and I know -- and just to reconfirm you are assuming a favorable outcome in the DMR filing in your long-term guidance correct?
Yeah, we assume a continuation, we haven't disclosed the particular number there but we assume a continuation of our support. We believe it's needed. And yes it is in our projections.
Okay, but given a) you have a guidance range and b) you've just basically added $0.10 of incremental earnings from cost savings and that if you were to not get the DMR and you were to risk adjust for not getting the DMR, are you still comfortable that you'd be in that guidance range?
What it says again we're adding resilience to our forecasts. So the additional $100 million of cost savings realize that the DMR where it's really crucial was at DPL level. And it's crucial for DPL to undertake its modernization program.
I completely agree with you, I am just -- I know it's an investor debate and that's why I ask. Thank you.
Yeah. Okay. Thanks Greg.
Our next question comes from Charles Fishman with Morningstar Research. Please go ahead.
Thank you. Good morning. One of the savings in your waterfall chart slide 17 was effective tax rate for the recently ended quarter going down to 32%. I realize you don't give guidance on effect of tax rate but you can sort of back into it from the guidance you give on adjusted PPC and adjusted EPS. In the last couple of years it's been running around 30% on an annual basis, is the first quarter just normally run higher or is something changing with respect to what you're seeing on your effective tax rates because of the mix of earnings from different countries or is there any additional color you can provide?
This is Gustavo again. Yeah, that's right. It's mostly driven by the mix. We're not seeing any mature change versus what we had anticipated which is somewhat between 29% and 31% for the year. But yes on a quarter after quarter we should have and it's not uncommon to have similar activity and driven by the mix. But on a full year basis it should be normalized in the 29% to 31% should be the final number.
Got it, thank you. That's the only question I had.
Thanks Charles.
Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.
Yeah, hi, good morning. Just, could you just give us your thoughts on the political economic environment in Argentina and potential things we should be watching there for you?
Sure. Steve, as I have said in the past in Argentina I don't see it as anything sort of binary. So, really the question is, is there any degradation in the earnings. And we've seen a slight degradation of $0.01 to $0.02 from let's say where we were thinking maybe a year ago. So Argentina assets are excellent assets and it's a very robust business. Since I've been involved in the Argentine business since the year 2000 we've made money every year. We've paid dividends every year. We did have three years where we were unable to convert those dividends into dollars because there were currency restrictions in place. So to put it in perspective. So, first it is a very resilient business and depending on government policies there could be some degradation but it's not a binary issue I believe.
I think with the political situation in Argentina they're having elections in October and we'll see who wins, whether it's a continuation of the current president, could be Lavagna who's a Peronist or you could have Cristina Kirchner who is running on her own. And so we'll have to see. I don't think there'll be any immediate regardless of who wins, I don't think there will be any immediate outcome or changes in this sector that would require laws for it to change. I think that the -- as I said in the past when people got very worried about the exchange rate in Argentina I said look they had a terrible harvest, 30% lower but they're increasing, they're up. If they have normal harvests and with the increase in their natural gas exports, I think reaching exports of natural gas eliminating imports I think that side looks a lot stronger. So it's really a question of what -- how the change in the regulatory structure is. We've been there before and as I said it's not a binary issue. Overall we feel cautiously optimistic that things will continue more or less as they are today.
Okay, and then just on the battery side of that occurred, I know you're still investigating that in the light. But I'm just in some of the stories I read I think there were at least some that talked about there being fires in other parts of the world with batteries. And I don't know if you have examples of others and what might have caused those other ones just so we kind of have an idea of what it could be.
Yeah, first what we had was a thermal event. We didn't really have a fire per say. And you're right there have been over the years, this is nothing new, over the years a number of thermal events or fires in lithium ion batteries in everything from cars to energy storage. So this is not totally new. So we have to investigate what was it that occurred in this event, exactly what was the root cause and make sure that we engineer or take all precautions to really minimize the likelihood of such an event in the past. Things are changing in terms of some of the technologies but you know we've had lithium ion batteries on a grid scale 10 to 40 megawatts operating for 10 years already without an incident. So we're investigating it, there's not much I can say at this point but as I mentioned we will share the crucial aspects of the finding to make sure that everybody takes whatever precautionary measures can be taken. So this is not -- there's not a repeat of this event.
Okay, thank you.
Thank you Steve.
Our next question comes from Gregg Orrill with UBS. Please go ahead.
Yeah. Thank you. You talked about some items in the quarter related to generation dispatch in Argentina and then there was some issues in Panama but you didn't modify your adjusted PPC guidance for those regions, can you talk about what you're thinking is?
Yeah. Hey Greg, Gustavo here. Yes, the impact in the quarter as we mentioned in my prepared remarks present in the case of Argentina and also in Panama with Changuinola were expected. So we had that in our plan already. So 1Q came really in line with our initial projections and expectations so there was no need for us to adjust going forward. And again while we are catching up towards the year end as I said also in my prepared remarks we are having 2.2 gigawatt coming online from today until December and that's going to be a major driver of earnings going forward. So that's why you see this variance quarter after quarter.
Okay, thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to Ahmed Pasha for any closing remarks.
Thank you Brandon. Thanks everybody for joining us on today's call. As always the IR team will be available to answer any questions you may have. Thanks again and have a nice day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.