Enel Chile SA Q3 FY2026 earnings call

• Hydrological Recovery: After severe dryness through July, hydrology improved significantly in August and September due to strong rainfall and El Niño conditions. Cumulative rainfall in key basins is above historical averages.
• Hydro Generation: Q3 hydro generation increased 88% sequentially to 3.9 TWh. Nine-month production reached 8.2 TWh, 3% above last year. Reservoir levels recovered significantly, with some plants operating at 100% capacity.
• Battery Energy Storage (BEST): Four BEST projects totaling ~0.6 GW are under construction. La Salinas (206 MW) achieved its first synchronization. These projects feature grid-forming technology, crucial for system stability as renewable penetration increases.
• Grid Modernization: Distribution business saw energy distributed increase by 2% to 11.1 TWh. Remote control equipment increased by 22% to 4,300 units. Q3 CapEx for grids was $122 million (up 21%), focused on resilience and digitalization.
• Regulatory Context: The national reconstruction law provides tax incentives. Electricity grid reform discussions are ongoing, with a bill expected in March 2027. The SEC issued a Type Normalization Report for BID 2020-2024, aiding tariff resolution.
• Thermal Flexibility: Thermal plants provided essential inertia for system stability, particularly in the north. Management notes this service currently lacks economic recognition but expects authorities to establish price signals for reliability services.

The transcript does not provide a detailed breakdown of financial performance by specific product segment (e.g., Generation vs. Distribution) in terms of absolute revenue contribution percentages for each distinct line item. However, the CFO outlines that Gross Debt is $3.8 billion, with Fixed Rate Debt at 84% and an average cost of debt of 4.9%. YTD EBITDA reached $1.021 billion (up 2% YoY), with Q3 EBITDA at $336 million. Net Income was $390 million for the first nine months (up 11% YoY). Free Cash Flow from Operations (FFO) totaled $770 million for the first nine months (up 25% YoY). The capital allocation highlights that 63% of CAPEX was directed to renewable generation and 25% to distribution network strengthening.

• Full-Year 2026: Management remains on track to achieve previously stated EBITDA and Net Income guidance for 2026, citing resilient underlying execution despite seasonal headwinds.
• 2026 Hydro Outlook: Full-year hydro generation is expected to be between 11 and 12 TWh, driven by improved conditions since August.
• 2027 Guidance: No preliminary estimates or guidance were provided for 2027 hydrology or financials, stating it is too early to define.
• Gas Supply: Current firm Argentina gas contracts cover volumes through April 2027. Management sees no material supply risk for 2027 based on current diversified strategies (LNG, portfolio management), but will provide more detail in Q1 2027 results.

• Hydrological Variability: While improved, the first half of the year suffered from exceptionally dry conditions, impacting generation volumes and requiring higher spot purchases.
• Market Price Volatility: Spot prices were highly volatile; high purchase costs occurred during the dry period (July), while low selling prices occurred after rains returned. Low spot prices reduce the economic value of additional hydro generation.
• Regulatory Uncertainty: Key regulatory frameworks for inertia compensation and grid investment incentives are still evolving. Lack of economic recognition for thermal inertia services poses a operational/financial risk if not addressed.
• Gas Supply Dependence: Although diversified, reliance on Argentine gas requires monitoring of production/export trends and market conditions beyond April 2027.
• Refinancing Risk: Yankee bond refinancing involves trade-offs between current low rates (~4.9%) and potentially higher new issuance rates (~6.2% for 10-year USD bonds), though liquidity remains accessible.

Q: Analysts asked about the hydrology outlook, specifically how improved reservoirs/snow melt affect 2026/2027 generation, export prices, and EBITDA, and requested 2027 guidance. / A: CEO Palumbo confirmed full-year 2026 hydro generation will likely be 11-12 TWh due to recovery since August. However, he emphasized that higher volume does not linearly translate to higher EBITDA because much of it offsets prior drought impacts, and current spot prices are historically low. Regarding 2027, he declined to provide guidance, noting it is too early to assess hydrology or market conditions for the next year, reiterating confidence only in achieving 2026 targets.

Q: Analysts inquired about gas supply risks for 2027 given the expiration of the Argentina gas contract in April, and whether alternative sources like LNG pose risks. / A: CEO Palumbo stated that while the firm contract ends in April 2027, the company’s strategy relies on a diversified mix including LNG and active portfolio management, reducing single-source risk. He noted that variables like Argentine production exports and overall market conditions must be watched, but currently sees no evidence of material supply risk for 2027. Detailed commercial updates will be provided in the Q1 2027 results.

Q: Analysts asked how inertia services will be remunerated going forward and what role grid-forming batteries play in system stability, requesting guidance on battery remuneration. / A: CEO Palumbo explained that thermal units currently provide inertia without economic recognition, which he argues should be formally compensated via price signals to ensure reliability. Grid-forming batteries are positioned to complement this by providing frequency regulation and fault response. He stated there is no specific guidance on remuneration yet, as it depends on evolving regulation and market conditions, but views the direction positively for capturing additional value from system support services.

Q: An analyst questioned why Enel Chile purchased power at high spot prices while selling hydro at lower prices in the recent quarter, asking for clarification on the timing of these transactions. / A: CFO Conticelli explained the 'roller coaster' nature of the quarter. Until mid-July, low water availability forced the company into a buyer position during a price spike caused by the tail end of the dry season. From mid-July onwards, abundant water allowed for high hydro generation, but this coincided with a sharp drop in spot prices to $20-30/MWh, resulting in lower selling prices for their own generation.

Q: Analysts asked when the technical details for the distribution investment framework under the Electricity Tariff Protection Law would be defined, and how legacy contract roll-offs impact portfolio strategy regarding regulated auctions. / A: CEO Palumbo indicated that authorities are expected to release a detailed proposal for public consultation in the coming weeks. On portfolio strategy, he affirmed they view both regulated and free markets as opportunities. They see improvements in the upcoming auction framework (flexibility, supply obligation mechanisms) as positive and will evaluate participation based on final conditions and returns, rather than prioritizing one channel over the other.