The net impact relatedattempt to restore and review First Class or the correction of these errorsBackup Tapes because: (i) the Company was able to previously reported net income resulted in an increase of $10 million and a decrease of $19 millionreview certain electronic data, including for the years ending December 31, 20041997-2002, as well as paper files and 2003, respectively. other available information relating to the majority of the grants made during the Review Period; (ii) the Company believes that it is unlikely that information from these sources would materially alter the accounting adjustments that have been determined to be necessary; (iii) the Company has implemented or will implement measures necessary to provide effective controls and procedures in these areas; (iv) of the senior officers who were primarily involved in the selection of the prices of the annual on-cycle grants from 1999-2001, the former CEO is no longer with the Company, the former CFO is no longer an officer and is not active in the Company’s management, and the former General Counsel has a different position in the Company that does not involve corporate legal responsibilities or participation in Board consideration or approval of share-based compensation; and (v) based on consultation with a reputable information technology vendor, the Company determined that neither First Class nor the Backup Tapes could be restored for review without causing substantial delays in the LTC Review. In addition, while the Company restated stockholders’ equity asconducted more than twenty interviews with persons who, by virtue of January 1, 2003 by $12 million as a correctiontheir position or otherwise, were believed to be most likely to have relevant knowledge, the Company did not interview every director or employee who may have had any involvement with options grants or accounting for these errors in all periods preceding January 1, 2003.share-based compensation.

C.               Other Balance Sheet Reclassifications

Certain other balance sheet reclassifications were recorded at December 31, 2004 including a $45 million reclassification which reduced Accounts Receivables and increased Other Current Assets (regulatory assets).

ITEM 1.                 BUSINESS

Overview

AES,We are a global power company formed in 1981, is a Delaware corporation holding company that through itsincorporated in Delaware in 1981. Through our subsidiaries, operateswe operate a portfolio of electricity generation and distribution businesses in 25 countriesand investments on five continents.continents and in 27 countries.

Our Businesses

We operate in two types of businesses within the power sector:businesses. The first is our distribution business, which we generate power for salerefer to as Utilities, in which we operate electric utilities and other wholesale customers; second, we operate utilities that distributesell power to customers in the retail (including residential), commercial, industrial and governmental sectors. These customers are typically through integrated transmission and distribution systems. Each typeend users of electricity. The second is our Generation business, generates approximately one half of the Company’s revenues.

The generation and distribution of electricity are essential services required in all industrialized societies. We are committedwhere we sell power to helping meet the world’s need for electricity by supplying power from our existing portfolio,wholesale customers such as well as by growing our portfolio through the development and construction of new power plants and through selective acquisitions. We believe that being a large participant in the global power sector gives us the best chance to accomplish our goals. Some of the benefits of being a large organization are the ability to take advantage of scale and to have the resources to develop better operating and management practices to increase overall Company efficiency and productivity. By maintaining a substantial geographic footprint, we are well positioned to pursue opportunities in those markets with favorable characteristics for new investment, namely those having a large and growing need for power. We target specific countriesutilities or major geographic regions as areas of primary focus, and seek to build sufficient knowledge and experience in order to increase our ability to successfully compete, and ultimately grow our businesses, in those targeted markets. We believe that this approach also allows us to more efficiently identify and manage the risks inherent in our business.

other intermediaries. In addition to our primarytraditional generation and distribution operations, we are also developing an alternative energy business. The revenues and earnings growth of both our Utilities and Generation businesses vary with changes in electricity demand.

Our Utilities business consists primarily of operating a global power portfolio, we also are engaged13 distribution companies in seven countries with over 10 million end-use customers. All of these companies operate in a exploringdefined service area. This segment is comprised of:

·       integrated utilities located in:

·        the United States—Indianapolis Power & Light (“IPL”);

·   Cameroon—AES SONEL; and promoting a set of related activities that include alternative energy businesses such as wind generation, the supply of liquefied natural gas to certain targeted North American markets, the production of greenhouse gas reduction activities

·       distribution companies located in:

·        Brazil—AES Eletropaulo and related industries involving environmental issuesAES Sul,

·        Argentina—Empresa Distribuidora La Plata S.A. (“EDELAP”), Empresa Distribuidora de Energia Norte (“EDEN”) and the application of new energy technologies. At present, these initiatives represent growth opportunities for us but currently account for aEmpresa Distribuidora de minimus amount of revenueEnergia Sure (“EDES”),

·        El Salvador—Compañia de Alumbrado Eléctrico de San Salvador, S.A. de C.V. (“CAESS”), Compania, S. En C. de C.V. (“AES CLESA”), Distribuidora Electrica de Usulutan, S.A. de C.V. (“DEUSEM”) and earnings.Empresa Electrica de Oriente (“EEO”) and

Our financial results are reported within three business segments: Contract Generation, Competitive Supply·        Ukraine—Kievoblenergo and Regulated Utilities.Rivneenergo.

Our generation business encompasses our contract generation and competitive supply segments. Performance drivers for our contract generation and competitive supply segments include plant reliability and fuel and fixed cost management. Growth is largely tied to securing new power purchase agreements and expanding capacity. The contract generation and competitive supply segments contributed 37% and 11% of revenues, respectively, for the year 2005.

Performance drivers for our regulated utilities segmentthese businesses include, providing reliableamong other things, reliability of service, managingmanagement of working capital, obtainingnegotiation of tariff adjustments, and appropriatecompliance with extensive regulatory treatment for new investmentsrequirements and, in developing countries, reduction of commercial and technical losses. The regulated utilities segment contributed 52% of revenues for the year 2005. The revenues and earnings growth of both our generation and utility businesses vary with changes in electricity demand.

Our management structure is divided into four regions: North America; Latin America; Europe, Middle East and Africa (“EMEA”); and Asia, each led by a regional president who reports directly to the Chief Executive Officer (“CEO”). This structure allows us to place senior leaders and resources closer to our businesses around the world to further improve operating performance and integrate operations and development on a more localized level. This helps us leverage regional market trends to enhance our competitiveness and identify and capitalize on key business development opportunities across our lines of business. The Company also maintains a corporate Business Development group which manages large scale transactions such as mergers and acquisitions, and portfolio management, as well as targeted strategic initiatives such as the creation of an alternative energy business.

Operating Segments

See Note 21 to the Consolidated Financial Statements included in Item 8 of this Form 10-K for additional financial information about our business segments as well as information about our geographic operations.

Contract Generation

Our contract generation businesses own and operate plants that sell electricity and related products to utilities or other wholesale customers under long-term contracts. Our contract generation facilities generally limit their exposure to commodity price risks, primarily electricity price volatility and frequently volume risk, by entering into power sales agreements of five years or longer for 75% or more of their output capacity. The remaining terms of these agreements range from 1 to 25 years. These facilities also generally enter into long-term agreements for most of their fuel supply requirements, or they may enter into tolling or “pass through” arrangements in which the counter-party directly assumes the risks associated with providing the necessary fuel and then markets the generated power. Through these types of contractual agreements, our contract generation businesses generally produce more predictable cash flows and earnings. The degree of predictability varies from business to business based on the degree to which their exposure is limited by the contracts they have negotiated with their buyers and fuel suppliers.

Our contract generation segment is comprised of our interests in 76 power generating facilities totaling approximately 23.0 gigawatts of capacity located in 17 countries. This includes minority interests in 28 power generation facilities totaling over 2.0 gigawatts of capacity. In addition, there are three plants under construction in three countries which, when completed, will add a total capacity of approximately 1.4 gigawatts to our contract generation segment. AES also operates, under either management or operations and maintenance agreements, 377 MW of wind generation facilities in the U.S. Of the 23.0 gigawatts of current operating capacity, 50% is derived from gas-fired facilities, 28% from coal-fired facilities, 13% from hydro facilities, 7% from oil-fired facilities, 2% from wind facilities, and less than 1% from biomass facilities.

In most of our contract generating businesses, a single customer contracts for most or all of a particular facility’s generated power. To reduce the resulting counter-party credit risk, we seek to contract with creditworthy customers. We also seek to obtain sovereign government guarantees of the customer’s obligations. However, we do business with many customers in many countries where neither the customer nor the government has investment grade ratings. We believe that locating our plants in different geographic areas helps to mitigate the effects of regional economic downturns, thereby offsetting some of

the risks associated with operating in less developed countries. Additionally, in countries in which we own distribution companies, our contract generation businesses seek to contract with the distribution companies that we control.

Certain of our subsidiaries and affiliates are in various stages of developing and constructing new power plants (known as “greenfield power plants” or “greenfield”). Some have signed long-term contracts or made similar arrangements for the sale of electricity. During 2005, the Company made significant progress on important growth projects. Among these plants under construction, the Company’s 120 MW Buffalo Gap wind power project in Texas began commercial operations in 2006. The Company’s 1,200 MW gas-fired power plant in Cartagena, Spain is scheduled for completion in 2006. The Company’s new 120 MW Los Vientos diesel-fired peaking facility which will serve the largest power market in Chile, is expected to be on-line in the second quarter of 2006. We currently believe that our costs related to these projects are recoverable but can provide no assurance that we will complete these projects and/or that these projects will reach commercial operation.

In the contract generation segment, we face most of our competition prior to the execution of a power sales agreement during the development phase of a project. Our competitors in this business include other independent power producers and equipment manufacturers, as well as various utilities and their affiliates. During the operational phase, we traditionally have faced limited competition in this segment due to the long-term nature of the generation contracts. However, since competitive power markets have been introduced and new market participants have been added, we will encounter increased competition in attracting new customers and maintaining our current customers as our existing contracts expire.

Competitive Supply

Our competitive supply businesses own and operate plants that sell electricity to wholesale customers in competitive markets. These plants typically sell into local power pools under short-term (less than one year) contracts or into daily spot markets. Demand can be affected by weather, electricity transmission constraints, fuel prices and competition. This business segment offers more varied sales, earnings and cash flows than our other segments.

In contrast to the contract generation segment discussed above, these facilities generally sell less than 75% of their output under long-term contracts. The prices at which these facilities sell electricity under short-term contracts and in the spot electricity markets are unpredictable and can be volatile. In addition, our operational results in this segment are more sensitive to the impact of market fluctuations in the price of natural gas, coal, oil and other fuels. These businesses also have more significant needs for working capital or credit to support their operations than our businesses in the contract generation segment.

Our competitive supply segment is comprised of 27 power generation facilities totaling approximately 13 gigawatts of capacity located in 7 countries. Of the total 13 gigawatts of current operating capacity, 59% is derived from coal-fired facilities, 8% from gas-fired facilities, 29% from hydro facilities, 2% from oil facilities, 1% from petroleum coke facilities and less than 1% from biomass facilities. In November 2005, we completed an output upgrade of the Alicura facility in Argentina, which resulted in an additional 10 MW of capacity.

The absence of long-term contracts makes future production volumes uncertain, which in turn makes it difficult to forecast the amount of fuel needed to support those volumes. As a result, competitive supply businesses are exposed to volume risk in connection with their purchases of natural gas, coal and other raw materials. Where appropriate, we have hedged a portion of our financial performance against the effects of fluctuations in energy commodity prices using such strategies as commodity forward contracts, futures, swaps and options.

Although we maintain credit policies with regard to our counterparties, there can be no assurance that ultimately they will be able to fulfill their contractual obligations. Volatility in electricity markets causes increases in credit risk, a decline in the number and quality of market participants with strong credit ratings and considerably less liquidity in energy markets.

We compete in this segment with numerous other independent power producers, energy marketers and traders, energy merchants, transmission and distribution providers and retail energy suppliers. Competitive factors in this segment include reliability, operational cost and third party credit requirements.

Regulated Utilities

Our regulated utilities business segment consists of 14 distribution companies in seven countries with approximately 11 million customers. Our regulated utilities aggregate approximately 7.0 gigawatts of generation capacity with annual sales of over 82 gigawatt hours. All of these companies maintain a monopoly franchise within a defined service area. This segment is composed of three integrated utilities, one located in the U.S. (Indianapolis Power & Light Company, or “IPL”), one in Venezuela (EDC) and one in Cameroon (AES SONEL) and electricity distribution businesses located in Argentina (EDELAP, EDEN and EDES), Brazil (AES Eletropaulo and AES Sul), El Salvador (CAESS, CLESA, DEUSEM and EEO), and Ukraine (Kievoblenergo and Rivneenergo). These utilities sell electricity under regulated tariff agreements and each has transmission and distribution capabilities; IPL, EDC, and AES SONEL also have generation plants. Our regulated utilities are subject to extensive regulation at multiple governmental levels relating to ownership, marketing, delivery and pricing of electricity and gas, with a focus on protecting customers. Regulated utilities revenues result primarily from retail electricity sales to customers under regulated tariff or concession agreements, long term electricity sale concessions granted by the appropriate governmental authorities and, to a lesser extent, from contractual agreements of varying lengths and provisions. Our three largest regulated utilities businesses (further described below), which account for approximately 67% of the gigawatt-hours distributed by our regulated utilities, are IPALCO Enterprises, Inc., AES Eletropaulo and EDC.

IPALCO Enterprises Inc. (“IPALCO”) is a holding company and its principal subsidiary is IPL. IPL is engaged in generating, transmitting, distributing and selling electric energy to approximately 460,000 customers in the city of Indianapolis and neighboring areas within the state of Indiana. IPL owns and operates four generation facilities. Two generating facilities are primarily coal-fired plants. The third facility has a combination of units that use coal (base load capacity) and natural gas and/or oil (peaking capacity). The fourth facility is a small peaking station that uses gas-fired combustion turbine technology. IPL’s net generation winter capability is 3,370 MW and net summer capability is 3,252 MW. We acquired IPALCO in March 2001.

AES Eletropaulo has served the São Paulo, Brazil area for over 100 years and with over five million customers, is the largest electricity distribution company in the Americas in terms of customers. AES Eletropaulo’s concession contract with the Brazilian National Electric Energy Agency (“ANEEL”), the government agency responsible for regulating the Brazilian electric industry, entitles AES Eletropaulo to distribute electricity in its service area for 30 years from the date of our acquisition in 1998. AES Eletropaulo’s service territory consists of 24 municipalities in the greater São Paulo metropolitan area and adjacent regions that account for approximately 15% of Brazil’s GDP, covering more than 5 million customers or 44% of the population in the State of São Paulo, Brazil.

EDC was founded in 1895 and is the largest private-sector electric utility in Venezuela serving approximately one million customers. EDC generates, transmits and distributes electricity to customers in metropolitan Caracas and its surrounding area. EDC’s distribution area covers 5,176 square kilometers. EDC has an installed generating capacity of 2,616 MW. EDC commenced construction of a new 200 MW

gas-fired generation plant. This project is expected to start-up in 2007 and will support continued demand growth at this regulated utility.

Electricity sales are made under regulated tariff agreements or under existing regulatory laws and provisions. For utilities located in developing countries, the local business environment also provides for significant opportunities to implement operating improvements that may stimulate growth in earnings and cash flow performance. These growth rates may be greater than those typically achievable in our other business segments and at utilities in more developed countries. Many of these businesses face challenges unique to developing countries including outdated equipment, significant electricity theft-related losses, cultural problems associated with customer safety and non-payment, emerging economies and potentially less stable governments or regulatory regimes.

The regulated utilities face relatively little direct competition due to significant barriers to entry which are present in these markets. In this segment, we primarily face competition in our efforts to acquire businesses. We compete against a number of other participants, some of which have greater financial resources, have been engaged in distribution related businesses for periods longer than we have, and have accumulated more significant portfolios. Relevant competitive factors for Utilities include financial resources, governmental assistance, regulatory restrictions and access to non-recourse financing and regulatory restrictions.financing. In certain locations our utilities face increased competition as a result of changes in laws and regulations which allow wholesale and retail services to be provided on a competitive basis. We can provide no assurance that deregulation will not adversely affect our regulated utilities’the future operations, cash flows and financial condition.condition of our Utilities business. The results of operations of our utilitiesUtilities business are sensitive to changes in economic growth and regulation, (especially in emerging markets), abnormal weather conditions affecting each local market,in the area in which they operate, as well as the success of the operational changes that have been implemented.implemented (especially in emerging markets).

In our Generation business we generate and sell electricity primarily to wholesale customers. Performance drivers for our Generation business include, among other things, plant reliability, fuel costs and fixed-cost management. Growth in this business is largely tied to securing new power purchase agreements, expanding capacity in our existing facilities and building new power plants. Our Generation business includes our interests in 94 power generation plants totaling over 35 gigawatts of capacity installed in 21 countries.

Approximately 68% of the revenues from our Generation business are from plants that operate under power purchase agreements of five years or longer for 75% or more of the output capacity. These long-term contracts reduce the risk associated with volatility in the market price for electricity. We also reduce our exposure to fuel supply risks by entering into long-term fuel supply contracts or through fuel tolling contracts where the customer assumes full responsibility for purchasing and supplying the fuel to the power plant. As a result of these contractual agreements, these facilities have relatively predictable cash flows and earnings. These facilities face most of their competition prior to the execution of a power sales agreement, during the development phase of a project. Our competitors for these contracts include other independent power producers and equipment manufacturers, as well as various utilities and their affiliates. During the

operational phase, we traditionally have faced limited competition due to the long-term nature of the generation contracts. However, since competitive power markets have been introduced and new market participants have been added, we have and will continue to encounter increased competition in attracting new customers and maintaining our current customers as our existing contracts expire.

The balance of our Generation business sells power through competitive markets under short-term contracts or directly in the spot market. As a result the cash flows and earnings associated with these facilities are more sensitive to fluctuations in the market price for electricity, natural gas, coal and other fuels. However, for a number of these facilities, including our plants in New York which include a fleet of low-cost coal fired plants, we have hedged the majority of our exposure to fuel, energy and emissions pricing for the next several years. These facilities compete with numerous other independent power producers, energy marketers and traders, energy merchants, transmission and distribution providers and retail energy suppliers. Competitive factors for these facilities include price, reliability, operational cost and third party credit requirements.

Recent Initiatives

We are always seeking opportunities to grow our businesses and increase the value of our stock, both within our existing Generation and Utilities businesses and in new lines of businesses. When exploring new businesses, we seek opportunities that leverage the skills and experience we have developed in our core business. These core competencies include: financing, constructing and developing large, capital-intensive projects; negotiating and closing complex merger, acquisition, disposition and investment transactions; operating businesses that are heavily-regulated; and conducting business and establishing operations around the world, including in countries where relationships and insight into local rules, regulations, politics and business practices provide us with a competitive advantage.

In our existing businesses we are currently seeing increased demand for power plants sited adjacent to coal resources in markets such as Vietnam, India and Indonesia. Some of the important drivers of performance for us in developing our alternative energy businesses include continued government support through regulation and incentives, continued progress towards liquid and transparent markets, particularly in the area of greenhouse gas emission credit trading, and the successful identification, execution and commercialization of new market opportunities in these nascent markets.

We are also developing an alternative energy business including wind generation, the supply of liquefied natural gas (“LNG”), greenhouse gas emission reduction projects and new energy technologies. In Qatar and Oman we own and operate water desalination plants, and in the Dominican Republic we own and operate a LNG re-gasification terminal, which are ancillary to our existing power businesses.

Our Organization

Our business operations are organized along geographic lines, with regional management teams responsible for the financial results in their respective territories. Each of the four regions, (1) North America, (2) Latin America, (3) Europe, CIS & Africa, which we refer to as “Europe & Africa” and (4) Asia and the Middle East, which we refer to as “Asia”, are led by a Regional President reporting to our Chief Operating Officer (“COO”) who reports to the Chief Executive Officer (“CEO”). Our Alternative Energy business is led by an Executive Vice President, who reports to the CEO. Supporting these businesses is a business excellence group providing expertise in areas such as procurement, engineering and construction, safety, environment, information technology and performance improvement. This group is also led by an Executive Vice President who reports to the COO.

We believe that our organizational structure, including our use of regional management teams, is the most effective method to manage our business. We target geographic regions as primary areas of expansion because our regional management structure provides us with important relationships in key

markets and helps us identify localities with a large and growing need for power and other favorable characteristics for new investment. Regional management also allows for a hands-on approach to operations and business developments, which helps us assess and manage the risks associated with our new investments in each region. As a large organization we believe we have the resources and the ability to capitalize on economies of scale and develop better operating and management practices to increase our overall efficiency and productivity. Finally, our broad geographic footprint reduces political, macroeconomic and other risks associated with conducting business in any particular region.

Subsequent Events

On February 22, 2007, we entered into a definitive agreement with Petróleos de Venezuela, S.A., (“PDVSA”), pursuant to which we have agreed to sell to PDVSA all of our shares of EDC. The agreement is dated as of February 15, 2007. Subject to the terms and conditions in the agreement, PDVSA agreed to pay us a purchase price of US$739 million at closing, net of any withholding taxes. In addition, the agreement provided for the payment of a US$120 million dividend in 2007. On March 1, 2007, the shareholders of EDC approved and declared a US$120 million dividend, payable on March 16, 2007, to all shareholders on record as of March 9, 2007. A wholly-owned subsidiary of the Company is the owner of 82.14% of the outstanding shares of EDC, and therefore, on March 16, 2007, this subsidiary received the equivalent of approximately US$99 million in Bolivares that is currently being held in trust at a U.S. bank until the funds can be converted to U.S. Dollars. Under the terms of the purchase and sale agreement with the Republic of Venezuela, PDVSA has agreed to ensure that the Company’s portion of the dividend is converted by the Venezuelan government’s Foreign Exchange Commission, CADIVI, from Bolivares into U.S. Dollars at the current official exchange rate within 90 days of the dividend payment date. As of the date of this filing, the conversion of the Company’s portion of the dividend from Bolivares to U.S. Dollars has been submitted to CADIVI and is awaiting their approval.

The agreement provided that PDVSA would acquire our EDC common shares in a tender offer. PDVSA commenced and publicly announced the commencement of concurrent tender offers in Venezuela and the United States (the “Offers”), on April 9, 2007. The Offers provided for the purchase of 2,704,445,687 of EDC common shares at a U.S. Dollar equivalent amount of $0.2734 per common share, which is consistent with the price per share implied by the purchase price within the agreement. The closing of the Offers occurred on May 8, 2007, the actual transfer of the shares along with payment of the purchase price occurred on May 16, 2007.

As a result of signing this agreement, we have concluded that a material impairment of our investment in EDC has occurred, which will be recorded in the first quarter ending March 31, 2007. This material impairment represents the net book value of our investment less the estimated purchase price. Management estimates that this pre-tax, non-cash charge will be in the range of $600 to $650 million.

We purchased a controlling interest in EDC in 2000. EDC is the largest private electric utility in Venezuela. It is a provider of power and light to approximately one million customers in the Caracas metropolitan area. EDC also owns and operates five generation plants with a total of 2,616 MW of generation capacity. These facilities collectively represent approximately 14% of the electricity consumed in Venezuela.

For the year ended December 31, 2006, EDC represented 5% of AES’ consolidated revenues and 12% of the Latin America Utilities segment revenues, 5% of AES’ consolidated gross margin and 17% of the Latin America Utilities segment gross margin. In addition, EDC represented 37% of AES’ consolidated net income and 36% of basic earnings per share. Excluding the net after-tax loss impact of $512 million related to the sale of Eletropaulo shares and debt restructuring, EDC represented 12% of AES’ consolidated net income and 12% of basic earnings per share. AES received a dividend of

approximately $101 million from EDC in 2006. EDC’s five generation plants represented approximately 7% of AES’ approximate 35 gigawatts of capacity installed.

Segments

Beginning with this Annual Report on Form 10-K, AES realigned its reportable segments We previously reported under three segments: Regulated Utilities, Contract Generation and Competitive Supply. The Company currently reports seven segments as of December 31, 2006, which include:

·       Latin America Generation;

·       Latin America Utilities;

·       North America Generation;

·       North America Utilities;

·       Europe & Africa Generation;

·       Europe & Africa Utilities;

·       Asia Generation

The additional segment reporting better reflects how AES manages the company internally in terms of decision making and assessing performance. The Company manages its business primarily on a geographic basis in two distinct lines of business—the generation of electricity and the distribution of electricity. These businesses are distinguished by the nature of the customers, operational differences, cost structure, regulatory environment and risk exposure.

Latin America

Our Latin American operations accounted for 58%, 58% and 54% of consolidated revenues in 2006, 2005, and 2004, respectively. AES began operating in Latin America in 1993 when it acquired the CTSN power plant in Argentina. Since that time, AES has expanded its presence in the region and now has operations in eight Latin American countries. These operations include a total of 48 generation plants owned and operated under management agreements with a total generating capacity of 11,217 MW. AES owns and operates 9 utilities, distributing a total of 48,058 GWh, in addition to operating one utility under management agreement, which distributes 1,626 GWh to customers.

Latin American Generation.   Our Generation business in Latin America consists of 47 generation facilities with the capacity to generate 11,217 MW. This capacity includes our new 125 MW Los Vientos diesel-fired peaking facility, which came on line in January, 2007 and serves the largest power market in Chile. AES also has two coal plants under construction in Chile, Guacolda III and Ventanas III with 152 MW and 267 MW generation capacity respectively, and one plant under construction in Panama, the Changuinola hydro plant with 223 MW capacity.

Latin American Utilities.We own 9 Utility businesses, including electricity distribution businesses located in Argentina (EDELAP, EDEN and EDES), Brazil (AES Eletropaulo and AES Sul) and El Salvador (CAESS, CLESA, DEUSEM and EEO). Our tenth Utility business, EDC, was sold in May 2007. We also manage another utility under contract in the Dominican Republic. These businesses sell electricity under regulated tariff agreements and each has transmission and distribution capabilities. AES Eletropaulo, serving the São Paulo, Brazil area for over 100 years, has over five million customers and is the largest electricity distribution company in Brazil in terms of revenues and electricity distributed. Pursuant to its concession contract, AES Eletropaulo is entitled to distribute electricity in its service area until 2028. AES Eletropaulo’s service territory consists of 24 municipalities in the greater São Paulo

metropolitan area and adjacent regions that account for approximately 15% of Brazil’s GDP and 44% of the population in the State of São Paulo, Brazil.

North America

Our North American operations accounted for 23%, 25% and 27% of consolidated revenues in 2006, 2005 and 2004, respectively. AES began operating in North America in 1985, when it developed its first power plant in Deepwater, Texas. Since then AES has grown its North America business and currently owns a total of 27 generation facilities with 13,576 MW generating capacity and one integrated utility, distributing approximately 16,287 GWh of electricity to customers.

North American Generation.   In North America, AES has 23 generation facilities, including seven gas-fired plants, ten coal-fired plants, three petroleum coke-fired plants and three biomass-fired plants, in the United States, Puerto Rico and Mexico.

North American Utilities.   AES has one integrated utility in North America, Indianapolis Power & Light Company (“IPL”), which it owns through IPALCO Enterprises Inc. (“IPALCO”), the parent holding company of IPL. IPL is engaged in generating, transmitting, distributing and selling electric energy to more than 465,000 customers in the city of Indianapolis and neighboring areas within the state of Indiana. IPL also owns and operates four generation facilities. Two generating facilities are primarily coal-fired plants. The third facility has a combination of units that use coal (base load capacity) and natural gas and/or oil (peaking capacity). The fourth facility is a small peaking station that uses gas-fired combustion turbine technology. IPL’s gross generation capability is 3,599 MW.

Europe & Africa

Our operations in Europe & Africa accounted for 12%, 12% and 12% of our consolidated revenues in 2006, 2005 and 2004, respectively. AES began operations in Europe & Africa in 1992, when we acquired the AES Kilroot power plant in Northern Ireland. Since that time, AES has grown in this region and now has a presence in nine countries. AES’s operations in the region now include a total of 24 generation plants owned or operated under management agreements with a total of 11,431 MW generation capacity. AES owns and operates three utilities, distributing a total of 8,960 GWh, in addition to operating 2 utilities under management agreement in the region, which distribute a total of 2,096 GWh.

Europe & Africa Generation.   We own 11 generation facilities in Europe & Africa, and operate two additional generation facilities under management contract in Kazakhstan. These generation facilities have the capacity to generate 10,504 MW. In 2006, we began commercial operation of AES Cartagena, our first power plant in Spain with 1,200 MW capacity. AES Maritza East 1 is a 670 MW lignite-fired power plant currently under construction in Bulgaria.

Europe & Africa Utilities.   We own three Utility businesses in Europe & Africa, including an integrated utility in Cameroon (AES SONEL) and two distribution businesses in Ukraine (Kievoblenergo and Rivneenergo). AES acquired a 56% interest in AES SONEL in 2001. AES SONEL generates, transmits and distributes electricity to approximately 538,000 customers. AES SONEL has an installed generating capacity of 927 MW, and a small plant under construction. Our two distribution businesses in Ukraine serve over 1.2 million customers, while the two distribution businesses we operate under management agreements in Kazakhstan together serve over 554,000 customers.

Asia

Our Asian operations accounted for 7%, 6% and 6% of consolidated revenues in 2006, 2005 and 2004, respectively. AES began operations in Asia in 1994 when we acquired the Cili power plant in China. Since

that time AES’s Generation business has expanded and it now operates 13 power plants with a total capacity of 5,369 MW in six countries. AES only operates generation facilities in Asia.

Asia Generation.   AES has 13 generation facilities with the capacity to generate 5,369 MW. Over half of our facilities and capacity are located in China, where AES joined with Chinese partners to build Yangcheng, the first “coal-by-wire” power plant with the capacity of 2100 MW. In 2000, AES was selected by the Sultanate of Oman to build, own and operate a 456 MW and 20 MIGD combined power and desalinated water facility, which achieved commercial operations in 2003. In 2001, AES was awarded the right to build, own and operate for 25 years a 756 MW and 40 MIGD combined power and desalinated water facility, the first such facility to be awarded to the private sector in Qatar. This facility commenced commercial operations in 2004. AES also owns and operates two oil-fired facilities in Pakistan (Lal Pir and Pak Gen), which have been in operations for the last nine years. In India, AES acquired a 420 MW coal-fired power plant (OPGC) in 1998. In Sri Lanka, AES owns a 168 MW diesel-fired power plant that began commercial operations in 2003. AES Amman East is a 370 MW combined-cycle gas power plant under construction in Jordan.

Corporate and Other

Corporate and other expenses include general and administrative expenses related to corporate staff functions and initiatives—primarily executive management, finance, legal, human resources, information systems and certain development costs which are not allocable to our business segments; interest income and interest expense; and intercompany charges such as management fees and self insurance premiums which are fully eliminated in consolidation.

In addition, Corporate and Other also includes net operating results of our Alternative Energy business which is not material to our presentation of operating segments. We own and operate 298 MW of wind generation capacity and operate an additional 298 MW capacity through operating and management or O&M agreements. We also have ownership interests in development-stage companies in Scotland, France and Bulgaria. In 2006, we began construction of the 233 MW Buffalo Gap 2 wind farm in Texas.

19

The table below presents information about our consolidated operations and long-lived assets, by country, for years ended December 31, 2006 through December 31, 2004 and as of December 31, 2006 and 2005, respectively. Revenues are recorded in the country in which they are earned and assets are recorded in the country in which they are located.

Facilities

The following tables present information with respect to the facilities in each of our three business segments.segments as of December 31, 2006. The amounts under “Gross Gross Megawatt (“MW”) and “Approximate Gigawatt Hours” represent the gross amounts for each facility without regard to our percentage of ownership interest in the facility.

9