AES CORPORATION. IPALCO Business Review Ann Murtlow President and CEO, IPALCO and IPL. City or location Month XX, 20XX

Transcription

1 AES CORPORATION AES CORPORATION IPALCO Business Review Ann Murtlow President and CEO, IPALCO and IPL City or location Month XX, 20XX May 9, 2006

2 IPALCO Strategic Overview Contains Forward Looking Statements AES Goals AES 2008 Target IPALCO Role Financial Goals Revenue Growth -- Below Average Gross Margin Growth $3.5 Billion Below Average Earnings per Share Growth 13-19% per Year Below Average ROIC Improvement (1) 11% Below Average Cash Flow Growth $ Billion Below Average Subsidiary Distributions (1) -- Significant and Stable Restructuring Opportunities -- Limited Growth Goals Platform Expansion -- Limited Greenfield Investment -- N/A Privatization/M&A (1) Non-GAAP financial measure. See Appendix. -- Potential 1

3 IPALCO History 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 fullscale FGD for SO 2 removal 1983 IPALCO Enterprises (IPALCO) established for nonutility 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) 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 NO x environmental controls 2004 IPL files petition with IURC for Multi-pollutant Plan addressing SO 2 and mercury removal 2

4 IPALCO Service Area and Facilities Petersburg 1,722MW Coal 8MW Oil Harding Street & Georgetown 653MW Coal 158MW Oil 283MW Gas 202MW Oil & Gas MORRIS STREET, ARLINGTON AND CUSTOMER SERVICE CENTER HARDING STREET & GEORGETOWN Eagle Valley 263MW Coal 81MW Oil PETERSBURG EAGLE VALLEY Indianapolis Operations Customer Service Center (CSC) Morris Street Arlington 528m 2 service territory 3,222 transmission line miles 75 high voltage & 69 distribution substations 465,000 customers 3

5 IPALCO Electricity Demand Growth 10% Growth (QoQ) 8% 6% 4% 2% 0% -2% % -6% Energy demand GDP IPL s service territory energy demand and national GDP growth rates maintain a basic correlation. Source: IPL 4

6 IPALCO Fuel Sourcing Strategy Sourced From Generation Transportation Method Distance Key Suppliers Fuel Flexibility (sulfur, BTU) Coal 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 Natural Gas USA 1% Texas Gas Transmission (TGT) and Panhandle Eastern Pipelines (PEPL) Delivered by local distribution company (LDC) Proliance Energy Not applicable < 6 lbs/mmbtu SO 2 Note: Fuel Flexibility represents company-wide maximums or minimums. 5

7 IPALCO Customer Base Billed Consumption (GWh) 7% 2005 Wholesale & Other 7% Small 13% 33% Commercial & Residential Industrial 13% 33% Large 47% Commercial & Industrial 47% Revenues % Wholesale & Other 9% Small 16% 36% Commercial & Residential Industrial 15% 36% Electricity Sales Trend (GWh) 16,256 16,184 15,707 16,205 16,276 1,955 2,018 1,986 2,028 2,076 7,337 7,417 7,370 7,489 7,663 4,789 5,011 5,000 5,073 5,397 2,175 1,738 1,351 1,615 1, Small Wholesale Column 2 Residential Large C&I C&I Large C&I Small C&I Residential Wholesale Large 40% Commercial & Industrial 40% Note: Residential includes public lighting; Wholesale includes Rural Electric Membership Corporation. 6

8 Indiana Regulatory Framework Regulatory Bodies Retail tariffs are determined at the state level IURC Indiana Utility Regulatory Commission OUCC Office of Utility Consumer Counselor Other Players Rate Setting Rates are determined through a formal public hearing process and based on the record of the proceedings Determine fair rates & charges Determine fair rate of return on fair value of usable assets plus reasonable operating expenses Fuel Adjustment Clause Fuel costs and fuel portion of power purchases are passed through Quarterly hearings Expense and earnings tests Citizens Action Coalition Governor s Office IPL Industrial Group Indiana Legislature IPL s good regulatory relationships are supported by Low, competitive rates High reliability and superior service Open communications Active community involvement 7

9 The Midwest Independent System Operator Contains Forward Looking Statements MISO Day 1 MISO Day 2 Recovery Issues 2/1/2002 MISO becomes operational and addresses: Security Coordination Long-term Regional Planning Transmission Scheduling and Tariff Administration Market Monitoring & Administration 9 industry sectors w/voting rights IPL a Transmission Owner (TO) MISO Members 15 states 200 market participants 28 utilities 250 asset owners 3 North America electric reliability regions 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 Participation costs include: Market administration & uplift Internal costs of compliance Locational marginal price (LMP) load/generation differentials IPL is actively monitoring & lobbying re: IPL must separate retail and wholesale transactions Fuel costs for jurisdictional retail customers pass through via Fuel Adjustment Clause Administration fees, uplift costs & internal compliance costs become deferred regulatory assets Control Area Consolidation Resource Adequacy Planning Cost Sharing Methodologies 8

10 IPALCO Utility and Generation KPIs Key Performance Indicator (KPI) Safety Excellence OSHA recordable incident rate Lost time accidents (LTAs) Operational Excellence Equivalent forced outage rate (EFOR) Short term opacity performance Reliability System interruption duration (SAIDI) System interruption frequency (SAIFI) Customer Service Excellence Customer satisfaction Average speed of answer (ASA) 9

11 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. 10

12 IPALCO Safety Performance Scorecard OSHA Recordable Incident Rate LTA Rate 59% Improvement 79% Improvement Getting Better T & D Reliability 48% Improvement in SAIDI T &D Reliability 39% Improvement in SAIFI Getting Better IPL s top priority is safety in the workplace as demonstrated by the significant safety performance improvements over the last three years. 11

13 IPALCO Generation Performance Scorecard EFOR Short Term Opacity Exceedances 63% Improvement 83% Improvement 12% 8% 4% 0% Getting Better T & D Reliability 48% Improvement in SAIDI , Customer Satisfaction 3% Improvement Getting Better Note: 2002 opacity exceedance figure includes soot blowing exceedances. IPL s plants have successfully improved their operations as illustrated by the dramatic EFOR and opacity nonconformance reductions. 12

14 IPALCO Service Reliability vs. Indiana Peers SAIFI SAIDI Getting Better Getting Better Minutes Source: IURC 2005 Reliability Report IPL Indiana Average Highest Indiana rate IPL has consistently outperformed the average of Indiana peer utilities. 13

15 IPALCO Customer Service Performance Scorecard Customer Satisfaction Average Speed of Answer 5% Improvement Consistent Performance 92% 88% 84% Plant Forced Outage Rate 70% Improvement in EFOR T & D Reliability 48% Improvement in SAIDI 89.0% 91.7% Getting Better 89.0% % % Improvement Seconds 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 2 nd out of 15 Midwestern utilities in price and value perception as part of a customer satisfaction survey (JD Power & Associates, 2005) 14

16 IPALCO Environmental Investments Contains Forward Looking Statements Projected Capital Spending Through 2008 ($ Millions) E 2007E 2008E Total ( E) Multi-Pollutant Plan $27 $115 $48 $8 $171 NOx SIP Call $28 $0 $0 $0 $0 Total Environmental Capex $56 $115 $48 $8 $171 Maintenance & Other Capex $56 $98 $72 $132 $302 Total Capex $112 $213 $120 $140 $473 IPL s near term growth will come in part from environmental control capital expenditures which qualify for independent tracker recovery. 15

17 IPALCO Capital Structure Objectives Contains Forward Looking Statements Capital Structure Elements Target 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 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. 16

18 IPALCO Amortization Schedule and Interest Rate Breakdown 700 Amortization Schedule Contains Forward Looking Statements Interest Rate Breakdown of Consolidated Co. December 31, $ Millions IPALCO 50% 50% IPL Variable 5% 5% 45% IPL Fixed 45% E 2008E 2010E 2012E+ IPALCO IPL IPL Variable 17

19 IPALCO Credit Rating Trends A-/A BBB+/Baa1 BBB/Baa2 BBB-/Baa3 BB+/Ba1 BB/Ba2 BB-/Ba3 B+/B1 B/B2 B-/B3 Fitch S&P's Moody s 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. 18

20 IPALCO Financial Overview ($ Millions) Revenue $823 $832 $884 $951 Gross Margin $632 $282 $304 $305 Income Before Tax & Minority Interest $208 $175 $194 $189 Distributions to AES Corporation $271 $176 $177 $208 $211 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. 19

21 IPALCO Strategic Issues Contains Forward Looking Statements Strategic Issues Long Term Fuel Supply Achieve more flexible fuel mix and supplier diversity Continued fuel cost recovery through Fuel Adjustment Clause Value and treatment of emission credits related to coal sulfur content Strategic Supply Plan Maintenance and outage planning and scheduling Timing and magnitude of environmental capital expenditures Potential retirement of assets and timing thereof New capacity additions Regulatory planning and implementation 20