aes ipalco final 05-06-06s2.q4cdn.com/825052743/files/doc_events/2006/ibr.pdf · 13-19% per year...
TRANSCRIPT
AES CORPORATION
City or location Month XX, 20XX
AES CORPORATIONIPALCO Business Review
Ann MurtlowPresident and CEO, IPALCO and IPL
May 9, 2006
1www.aes.com
Financial Goals
Revenue Growth
Gross Margin Growth
Earnings per Share Growth
ROIC Improvement (1)
Cash Flow Growth
Subsidiary Distributions (1)
Restructuring Opportunities
Growth Goals
Platform Expansion
Greenfield Investment
Privatization/M&A
AES Goals AES 2008 Target IPALCO Role
IPALCO Strategic Overview
--
$3.5 Billion
13-19% per Year
11%
$2.6-2.9 Billion
--
--
--
--
--
Below Average
Below Average
Below Average
Below Average
Below Average
Significant and Stable
Limited
Limited
N/A
Potential(1) Non-GAAP financial measure. See Appendix.
Contains Forward Looking Statements
2www.aes.com
IPALCO History
1881 – Indianapolis Brush Electric Light & Power Co. (IBELP) is first Indianapolis electric utility
1931 – First 132kV loop around city completed & Harding Street plant begins commercial operations
1940 – IPL IPO is first large US investor owned utility to list on the New York Stock Exchange
1949 – Eagle Valley plant begins commercial operations
1967 – Petersburg plant begins operations & IPL forms Kentucky-Indiana Power Pool
1970 – IPL requests first rate increase in its 44 year history
1977 – IPL installs Indiana’s first full-scale FGD for SO2 removal
1983 – IPALCO Enterprises (IPALCO) established for non-utility business growth
1994 – IPL files a case in chief with Indiana Utilities’Regulatory Commission (IURC) for revenue requirements and corresponding tariffs based on fair market value case (concluded in 1995)
1880-1950 1951-1975 1976-2000
2001 – AES acquires IPALCO
2001– IPL submits application with 8 other utilities to join Midwest Independent System Operator (MISO)
2002 – IPL files petition with IURC for tracker recovery of NOx environmental controls
2004 – IPL files petition with IURC for Multi-pollutant Plan addressing SO2 and mercury removal
2001-2005
3www.aes.com
IPALCO Service Area and Facilities
HARDING STREET & GEORGETOWN
Petersburg1,722MW Coal8MW Oil
Harding Street & Georgetown653MW Coal158MW Oil283MW Gas202MW Oil & Gas
Eagle Valley263MW Coal81MW Oil
Indianapolis OperationsCustomer Service Center (CSC)Morris Street Arlington
PETERSBURG
EAGLE VALLEY
528m2 service territory3,222 transmission line miles75 high voltage & 69 distribution substations465,000 customers
MORRIS STREET, ARLINGTON AND CUSTOMER SERVICE CENTER
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IPALCO Electricity Demand Growth
Source: IPL
IPL’s service territory energy demand and national GDP growth rates maintain a basic correlation.
Energy demand GDP
Gro
wth
(QoQ
)
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1999 2000 2001 2002 2003 2004 2005
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IPALCO Fuel Sourcing Strategy
Sourced From
Generation
Transportation Method
Distance
Key Suppliers
Fuel Flexibility (sulfur, BTU)
Illinois Basin (mainly Indiana)
99%
Rail; Truck
< 100 miles
Black Beauty Coal Company (Peabody), Triad Mining
(James River Coal), Solar Sources, and Sunrise Coal,
LLC.
High> 10,900 BTU/lb
< 10% Ash< 16% Moisture
< 6 lbs/MMBTu SO2
CoalUSA
1%
Texas Gas Transmission(TGT) and Panhandle
Eastern Pipelines (PEPL)
Delivered by local distribution company (LDC)
Proliance Energy
Not applicable
Natural Gas
Note: Fuel Flexibility represents company-wide maximums or minimums.
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2,175 1,738 1,351 1,615 1,140
5,000 5,073 5,397
7,337 7,417 7,370 7,489
1,955 2,018 1,986 2,028 2,076
5,0114,789
7,663
2001 2002 2003 2004 2005
Wholesale Column 2 ResidentialLarge C&I Small C&ISmall C&I
IPALCO Customer Base
33%
47%
13%
7%
36%
40%
16%
9%
Large Commercial & Industrial 40%
Wholesale & Other 9%
Residential36%
Billed Consumption (GWh)2005
Revenues2005
Electricity Sales Trend (GWh)
16,256 16,184 15,707 16,205
Residential Wholesale
Note: Residential includes public lighting; Wholesale includes Rural Electric Membership Corporation.
Residential33%
Large Commercial & Industrial 47%
Wholesale & Other 7%
Small Commercial & Industrial 15%
Small Commercial & Industrial 13%
Large C&I
16,276
7www.aes.com
Indiana Regulatory Framework
Retail tariffs are determined at the state level
Regulatory Bodies Rate Setting Fuel Adjustment Clause
IURC – Indiana Utility Regulatory CommissionOUCC – Office of Utility Consumer Counselor
Other Players
Citizens Action
Coalition
IPL Industrial
Group
Governor’s Office
Indiana Legislature
Rates are determined through a formal public hearing process and based on the record of the proceedings
Determine fair rates & chargesDetermine fair rate of return on fair value of usable assets plus reasonable operating expenses
Fuel costs and fuel portion of power purchases are passed through
Quarterly hearingsExpense and earnings tests
Low, competitive ratesHigh reliability and superior serviceOpen communicationsActive community involvement
IPL’s good regulatory
relationships are supported by
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The Midwest Independent System Operator
2/1/2002 – MISO becomes operational and addresses:
MISO Day 1 MISO Day 2 Recovery Issues
4/1/2005 – Day Ahead, Real Time and Financial Transmission Rights (FTR) energy markets commence and all generation resources and customer demand are offered/bid into markets
Control Area ConsolidationResource Adequacy Planning Cost Sharing Methodologies
IPL is actively monitoring & lobbying re:
IPL must separate retail and wholesale transactions Fuel costs for jurisdictional retail customers pass through via Fuel Adjustment ClauseAdministration fees, uplift costs & internal compliance costs become deferred regulatory assets
IPL a Transmission Owner (TO)9 industry sectors w/voting rights
MISO Members
Security CoordinationLong-term Regional PlanningTransmission Scheduling and Tariff AdministrationMarket Monitoring & Administration
Participation costs include:Market administration & upliftInternal costs of complianceLocational marginal price (LMP) load/generation differentials
Contains Forward Looking Statements
15 states200 market participants28 utilities250 asset owners3 North America electric reliability regions
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IPALCO Utility and Generation KPIs
Key Performance Indicator (KPI)
OSHA recordable incident rateLost time accidents (LTAs)Safety Excellence
Equivalent forced outage rate (EFOR)Short term opacity performanceOperational Excellence
Customer satisfaction Average speed of answer (ASA)Customer Service Excellence
System interruption duration (SAIDI)System interruption frequency (SAIFI)Reliability
10www.aes.com
Implementing KPIs at IPL
IPL targets simultaneous operating excellence in seven key areas versus other US electric utility performance through its “Be the Best” (BTB) philosophy .
11www.aes.com
OSHA Recordable Incident Rate
LTA Rate
IPALCO Safety Performance Scorecard
IPL’s top priority is safety in the workplace as demonstrated by the significant safety performance improvements over the last three years.
T & D Reliability48% Improvement in SAIDI
0246
2002 2003 2004 2005
200420032002 2005
59% Improvement
2.72 2.043.605.02
T &D Reliability39% Improvement in SAIFI
0.0
0.5
1.0
2002 2003 2004 2005
200420032002 2005
0.140.21
0.591.00
79% Improvement
Getting Better Getting Better
12www.aes.com
Customer Satisfaction3% Improvement
0400800
1,200
2002 2003 2004 2005
IPALCO Generation Performance Scorecard
T & D Reliability48% Improvement in SAIDI
0%4%8%
12%
2002 2003 2004 2005
2004 200420032002 200320022005 2005
4.6 4.05.7
10.7
226232
961
EFOR Short Term Opacity Exceedances
163
Note: 2002 opacity exceedance figure includes soot blowing exceedances.
IPL’s plants have successfully improved their operations asillustrated by the dramatic EFOR and opacity nonconformance reductions.
Getting Better Getting Better
63% Improvement 83% Improvement
13www.aes.com
IPALCO Service Reliability vs. Indiana Peers
SAIFI SAIDI
IPL Indiana Average Highest Indiana rate
IPL has consistently outperformed the average of Indiana peer utilities.Source: IURC 2005 Reliability Report
200420032002 2005
66.565.773.8 53.20
100
200
300
400
200420032002 2005M
inut
es
Getting Better Getting Better
1.03 0.79 0.71 0.90
0.0
0.5
1.0
1.5
2.0
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T & D Reliability48% Improvement in SAIDI
84%
88%
92%
2002 2003 2004 2005
Plant Forced Outage Rate70% Improvement in EFOR
0
40
80
2002 2003 2004 200570% Improvement20042004 200320032002 20022005 2005
Consistent Performance
89.0%91.7%
89.0%87.0% 51 574759
IPL offers the most competitive retail residential rates in Indiana and in the top 20 U.S. investor owned utilities (KB Parrish, 2005)
IPL ranks 2nd out of 15 Midwestern utilities in “price and value” perception as part of a customer satisfaction survey (JD Power & Associates, 2005)
IPALCO Customer Service Performance Scorecard
Customer Satisfaction Average Speed of Answer
Sec
onds
5% Improvement
Getting Better
15www.aes.com
Projected Capital Spending Through 2008 ($ Millions)
IPALCO Environmental Investments
IPL’s near term growth will come in part from environmental control capital expenditures which qualify for independent tracker recovery.
$140 $120 $213 $112 Total Capex
$302 $132$72 $98 $56 Maintenance & Other Capex
$171 $8 $48 $115 $56 Total Environmental Capex
$0 $0 $0 $0 $28 NOx SIP Call
$171 $8 $48 $115 $27 Multi-Pollutant Plan
Total(2006-2008E)2008E 2007E2006E2005
$473
Contains Forward Looking Statements
16www.aes.com
Debt to Capital Ratio
Credit Rating Objectives (1)
S&P/Fitch
Moody’s
Interest Coverage Ratio (1)
Funds from Operations to Total Debt (1)
Fixed to Floating Rate (1)
Average Maturity
Capital Structure Elements Target
IPALCO Capital Structure Objectives
50 to 55%
Investment Grade
BBB-
Baa3
> 2.5 times
12 to 20%
85 to 90% fixed rate
9.4 years
(1) Represents IPALCO consolidated debt.
Contains Forward Looking Statements
17www.aes.com
IPALCO Amortization Schedule and Interest Rate Breakdown
5%
45%50%
0
100
200
300
400
500
600
700
IPALCO IPL IPL Variable
IPL Fixed45%
IPALCO50%
IPL Variable5%
$ M
illion
s
Interest Rate Breakdown of Consolidated Co.December 31, 2005Amortization Schedule
59 80
375 375
542
72
2006E 2008E 2010E 2012E+
Contains Forward Looking Statements
18www.aes.com
Fitch S&P's Moody’s
IPALCO Credit Rating Trends
2001 2002 2003 2005A-/A3
BBB+/Baa1
BBB/Baa2
BBB-/Baa3
BB+/Ba1
BB/Ba2
BB-/Ba3
B+/B1
B/B2
B-/B3
2004
Fitch upgraded IPALCO in October 2005 citing, among other factors, “low business risk associated with IPL’s utility operations”, “ring-fencing mechanisms” & “AES credit profile improvement”.
19www.aes.com
IPALCO Financial Overview
Note: Information presented on an AES basis. Certain intercompany transactions may not be eliminated. Distributions to AES Corporation include common stock dividends and cash paid for income taxes.
Revenue
Gross Margin
Income Before Tax &Minority Interest
Distributions to AES Corporation
2002
$823
$632
$208
$271
$211
2003
$832
$282
$175
$176
2004
$884
$304
$194
$177
2005
$951
$305
$189
$208
($ Millions)
20www.aes.com
IPALCO Strategic Issues
Long Term Fuel Supply
Strategic Issues
Achieve more flexible fuel mix and supplier diversityContinued fuel cost recovery through Fuel Adjustment ClauseValue and treatment of emission credits related to coal sulfur content
Strategic Supply Plan
Maintenance and outage planning and schedulingTiming and magnitude of environmental capital expendituresPotential retirement of assets and timing thereofNew capacity additionsRegulatory planning and implementation
Contains Forward Looking Statements