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Ladies and gentlemen, thank you for standing by. Welcome to the AES Corporation Second Quarter 2022 Financial Review Call. My name is Irene, and I will be coordinating this event. [Operator Instructions] I would like to turn the conference over to our host Susan Harcourt, Vice President of Investor Relations. Susan, please go ahead.

Thank you. [Operator Instructions] Our next question comes from Insoo Kim from Goldman Sachs. Insoo, your line is open.

Thank you, Insoo. Our next question comes from David Arcaro from Morgan Stanley. David, you may ask your question.

Got it. Okay. No, that's great to hear. It sounds like active dialogue going on obviously. And then, I just -- I wanted to touch on foreign exchange. We've seen some sizable moves in the foreign exchange rates. But are you seeing -- or any way you could quantify the potential kind of drag there is some impact on future years? And if efforts are kind of underway to look for offsets and to manage that any downside exposure there?

Thank you, David. Our next question comes from Durgesh Chopra from Evercore. Durgesh, your line is open.

Excellent. Congrats on that. Okay. So I wanted to kind of dig in a little bit on the alternative minimum tax and how do you think that impacts you and your business. I mean, I think, the last time we talked about it, the headwind was offset by credits. Maybe just talk to that. And then, Andrés, I'd love to get your views on this transferability concept that is introduced in the bill. How do you think that works?

Yes. I mean, it could impact the way tax equity partnerships are structured, could make it simpler perhaps. So we've got to see what all the rules are around the transferability first. But if anything it looks that it may make the financing structure simpler to manage and account for.

Got it, okay. I appreciate it certainly. So thank you for the discussion. Maybe just a really quick follow-up, Steve when you say several years out on the alternative minimum tax is that because of your U.S. businesses are not of that $1 billion threshold. Is that why it is, or when you say several years out, what does that mean?

Yeah. So there is a $1 billion test as you referred to. So I don't expect that we would meet that. And there's like a three-year I think averaging of that. I don't expect we would meet that for several years to come.

Got it. Thanks for the time guys.

Thank you.

Thank you. Our next question comes from Richard Sunderland from JPMorgan. Richard, your line is open.

Hi. Good morning. Thanks for the time today. Starting with the 2H walk, I see $0.08 from new renewables. I'm curious is that pretty locked in given your commentary around only two projects shifting into 2023? I guess, similarly on that front, the $0.08 of LNG utilities and other, can you break that down to the component uses and relative line of sight to the U.S. utilities portion you've given Ohio remains outstanding?

Yeah. So the $0.08 of renewables, yeah, I feel very good about both of these buckets frankly. So the renewables is both the growth in new projects as well as we do have some higher generation out of our hydro portfolio. As you recall last year was a poor hydro year. So that's in that bucket as well. And then, on the utilities and LNG side, as Andrés mentioned, we've had -- we've been really on the right side of things with the commodities this year. So LNG international prices are quite high. We have LNG position of course in our MCAC unit, specifically in Panama where we've had quite a wet year we've been able to not use that gas in Panama and redirect those cargoes and sell them on the international market. So there -- while that's not in the year-to-date, it is a year to go favorability. So that's a little over half I would say of that $0.08. We've got some additional utility growth baked in for the second half of the year. Those are the two primary components of that $0.08. And frankly, I see potential for even more upside. So that's -- and then, I think you asked about Ohio as well. So with Ohio where, -- as Andrés said in his comments, we don't yet have a decision. It's not something that we had a material contribution assumed from the new rates this year. So certainly we look forward to a decision continue to expect a constructive outcome. But it's not going to be a driver one way or the other for this year.

Understood, I appreciate the color there. And they're thinking broadly about the U.S. green hydrogen opportunity. How do you think this, ties in with the existing renewables platform? How could it expand I guess both the demand for new renewables and timing with some of the more complex structured products opportunities you capitalized on in the past two years?

Well, as we said in the past we are looking at partnerships with producers of hydrogen to actually get more integrated in the whole production chain. So, what's very interesting is that the problem of producing cheap green hydrogen is very much like supplying 24/7 100% green energy or carbon-free energy to data centers. So, we think we have a leg up here. So, we're working on this. If the legislation passes then it's very likely to move forward. So, that's what we've been waiting for. In the meantime in Chile we have a different project which obviously does not depend on this. And that would be much more to supply the local market. And we have done a very good job of decarbonizing the Chilean system and the mining sector in particular. So, we feel good about both of these and these would be significant projects. So, they would accelerate the growth of renewables because of the additional demand.

Understood. Very helpful. Just one final cleanup for me. The Southland outage what led to that and any inflation impact there?

Yes. So it was actually Southland and also it was the same root cause at Indiana. So, there are veins on the turbine compressor unit I understand. So, don't go to go into too much detail but they -- there's a failure of component related to manufacturing defect. And so those units both have replacements in Eagle Valley in Indiana and our Southland the New Southland combined cycles in the gas turbine. So, those have been replaced. They are both back online at this point.

Understood. Thank you for the time today.

Thank you.

Thank you. Our next question comes from Angie Storozynski from Seaport. Angie, your line is open.

Thank you. So, I wanted to go back to the Ohio rate case. I understand that it has no impact on the timing of the those decision on 2022, but it will have on 2023. I mean by all accounts it sounds like you will have to file an ESP. So, it might take time right to the final of the resolution? So, there should be an impact in 2023. And so in that context I mean can you -- I mean you mentioned that there is additional optionality around the LNG cargoes that could impact 2023. So, is it fair to assume that any impact by the shifting of the LNG cargoes also in 2023?

Thank you, Angie. Our next question comes from Julien Dumoulin-Smith from Bank of America. Julien, your line is open.

Hi. Good morning. It's Paul

I wanted to check in. I believe the last long-term guidance you gave for AES Next was breakeven net income by the end of the plan in 2025. That's still a good assumption? And how could that evolve under the Inflation Reduction Act?

Okay. Great. Thank you. And then just separately could you please elaborate a little bit on the recent California legislation, how that would impact either extending, increasing or both the cash flows from the gas assets you have there?

Yes. No we feel very optimistic. So we have – as I talked about previously, we've only included Southland legacy businesses, you've got Alamitos Huntington Beach and Redondo through 2023. So it may not be all three plants, but I would say probably at least two that we would expect to be extended possibly for several years. So the formal process I would expect in terms of permitting the ones through cooling permits that are needed, et cetera will likely kick off here in the next one to two months. And then that will run into the first say half of next year through the first half of next year. As we've done in the past, when we've been facing a potential extension, we've looked to do where we've executed contingent capacity contracts, continued upon the permitting and all that coming forward – going forward. So we'll start looking at commercial opportunities for the extensions, once the formal process gets underway in the state. And so we'll have more certainty next year but I would say, we're all very optimistic here that given the fundamentals of the California system and the droughts in the Southwest of the US but that additional peak capacity is going to be needed for several years to come. And so we feel we're in a good position to provide that and that will provide some upside to our plan.

Great. Thank you, Coughlin.

Thank you, Paul

Thank you. Our next question comes from David Peters from Wolfe Research. David, your line is open.

Yes. Yes. And that's the majority of the $500 million. So we feel good, as Andrés said, we'll get there on those by the end of this year. And then, we have been working on additional sales and sell-downs of primarily thermal businesses. So as we work towards those and the timing around those, some variability, it looks like some of that may happen in say the first half of 2023, which is why we said, let's focus on $500 million this year, the remaining of the $500 million to $700 million will come in through next year. And then we have the full $1 billion target, we feel well on track for. So, it's just a matter of some timing expectations around, what we're doing in the next say 12 months or so.

Thank you. We have no further questions. Therefore, I would like to hand back to Susan Harcourt, for any closing remarks. Susan, please go ahead.

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. Thank you and have a nice day.