UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2016~~March 31, 2017



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12291

THE AES CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		54 1163725
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
4300 Wilson Boulevard Arlington, Virginia		22203
(Address of principal executive offices)		(Zip Code)

(703) 522-1315

Registrant’s telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, ~~and~~ “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer x	Accelerated filer ¨	~~Non-accelerated filer~~Smaller reporting company ¨	~~Smaller reporting~~Emerging growth company ¨

	Non-accelerated filer ¨	(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, on ~~October 31, 2016~~May 1, 2017 was ~~659,175,940~~660,144,428.

THE AES CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2016~~MARCH 31, 2017

TABLE OF CONTENTS



Glossary of Terms		1

PART I: FINANCIAL INFORMATION		2

ITEM 1.	FINANCIAL STATEMENTS	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) ~~Income~~	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
	Note 1 - Financial Statement Presentation	6
	Note 2 - Inventory	78
	Note 3 - Fair Value	78
	Note 4 - Derivative Instruments and Hedging Activities	1011
	Note 5 - Financing Receivables	12
	Note 6 - ~~Investment~~Investments in and Advances to Affiliates	1213
	Note 7 - Debt	1213
	Note 8 - Commitments and Contingencies	13
	Note 9 - Pension Plans	15
	Note 10 - Redeemable Stock of Subsidiaries	15
	Note 11 - Equity	16
	Note 12 - Segments	17
	Note 13 - Other Income and Expense	19
	Note 14 - Asset Impairment Expense	19
	Note 15 - ~~Income Taxes~~Discontinued Operations	2019
	Note 16 - ~~Discontinued Operations~~Held-for-Sale Businesses and Dispositions	20
	Note 17 - ~~Dispositions~~Acquisitions	20
	Note 18 - Earnings Per Share	21
	Note ~~18 - Acquisitions~~	22
	~~Note~~ 19 ~~- Earnings Per Share~~	22
	~~Note 20~~ - Subsequent Events	2221

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
	Executive Summary	23
	Overview of Q1 2017 Results and Strategic Performance	24
	Review of Consolidated Results of Operations	25
	SBU Performance Analysis	28
	Key Trends and Uncertainties	36
	Capital Resources and Liquidity	39
	Critical Accounting Policies and Estimates	47

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5747

ITEM 4.	CONTROLS AND PROCEDURES	6049

PART II: OTHER INFORMATION		6151

ITEM 1.	LEGAL PROCEEDINGS	6151

ITEM 1A.	RISK FACTORS	6554

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6554

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	6554

ITEM 4.	MINE SAFETY DISCLOSURES	6554

ITEM 5.	OTHER INFORMATION	6554

ITEM 6.	EXHIBITS	6555

SIGNATURES		6656

GLOSSARY OF TERMS

The following terms and acronyms appear in the text of this report and have the definitions indicated below:



Adjusted EPS	Adjusted Earnings Per Share, a non-GAAP measure
Adjusted PTC	Adjusted Pretax Contribution, a non-GAAP measure of operating performance
~~AES~~	~~The Parent Company and its subsidiaries and affiliates~~
AFS	Available For Sale
~~ANEEL~~	~~Brazilian National Electric Energy Agency~~
AOCL	Accumulated Other Comprehensive Loss
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
BNDES	Brazilian Development Bank
CAA	United States Clean Air Act
CAMMESA	Wholesale Electric Market Administrator in Argentina
CCGT	Combined Cycle Gas Turbine
CDPQ	La Caisse de depot et placement du Quebec
CHP	Combined Heat and Power
CO₂	Carbon Dioxide
COD	Commercial Operation Date
COFINS	Contribuição para o Financiamento da Seguridade Social
~~CSAPR~~	~~Cross-State Air Pollution Rule~~
~~CTA~~	~~Cumulative Translation Adjustment~~
DP&L	The Dayton Power & Light Company
DPL	DPL Inc.
DPLER	DPL Energy Resources, Inc.
EPA	United States Environmental Protection Agency
EPC	Engineering, Procurement and Construction
EURIBOR	Euro Interbank Offered Rate
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
FX	Foreign Exchange
GAAP	Generally Accepted Accounting Principles in the United States
GHG	Greenhouse Gas
~~GWh~~	~~Gigawatt Hours~~
~~HLBV~~	~~Hypothetical Liquidation Book Value~~
IPALCO	IPALCO Enterprises, Inc.
IPL	Indianapolis Power & Light Company
~~IURC~~	~~Indiana Utility Regulatory Commission~~
kWh	Kilowatt Hours
LIBOR	London Interbank Offered Rate
LNG	Liquid Natural Gas
MATS	Mercury and Air Toxics Standards
MW	Megawatts
MWh	Megawatt Hours
~~NAAQS~~	~~National Ambient Air Quality Standards~~
NPDES	National Pollutant Discharge Elimination System
NEK	Natsionalna Elektricheska Kompania (state-owned electricity public supplier in Bulgaria)
NM	Not Meaningful
NOV	Notice of Violation
NO_X	Nitrogen Oxides
NCI	Noncontrolling Interest
~~OCI~~	~~Other Comprehensive Income~~
~~OPGC~~	~~Odisha Power Generation Corporation~~
PIS	Partially Integrated System
PJM	PJM Interconnection, LLC
PPA	Power Purchase Agreement
~~PREPA~~	~~Puerto Rico Electric Power Authority~~
RSU	Restricted Stock Unit
~~RTO~~	~~Regional Transmission Organization~~
~~SIC~~	~~Central Interconnected Electricity System~~
SBU	Strategic Business Unit
SEC	United States Securities and Exchange Commission
SO₂	Sulfur Dioxide
U.S.	United States
USD	United States Dollar
VAT	Value-Added Tax
VIE	Variable Interest Entity

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE AES CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)


	September 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
	(in millions, except share and per share data)						(in millions, except share and per share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,325		$	1,257		$	1,588		$	1,305
Restricted cash	291			295			218			278
Short-term investments	596			469			634			798
Accounts receivable, net of allowance for doubtful accounts of $113 and $87, respectively	2,081			2,302
Accounts receivable, net of allowance for doubtful accounts of $116 and $111, respectively							2,134			2,166
Inventory	637			671			645			630
Prepaid expenses	92			106			118			83
Other current assets	1,266			1,318			1,040			1,151
Current assets of discontinued operations and held-for-sale businesses	1,006			424
Current assets of held-for-sale businesses							24			—
Total current assets	7,294			6,842			6,401			6,411
NONCURRENT ASSETS
Property, Plant and Equipment:
Land	780			702			795			779
Electric generation, distribution assets and other	29,087			27,751			28,690			28,539
Accumulated depreciation	(9,884		)	(9,327		)	(9,777		)	(9,528		)
Construction in progress	3,300			3,029			3,440			3,057
Property, plant and equipment, net	23,283			22,155			23,148			22,847
Other Assets:
Investments in and advances to affiliates	626			610			674			621
Debt service reserves and other deposits	644			555			686			593
Goodwill	1,157			1,157			1,157			1,157
Other intangible assets, net of accumulated amortization of $94 and $93, respectively	227			207
Other intangible assets, net of accumulated amortization of $534 and $519, respectively							353			359
Deferred income taxes	503			410			778			781
Service concession assets, net of accumulated amortization of $93 and $34, respectively	1,465			1,543
Service concession assets, net of accumulated amortization of $136 and $114, respectively							1,425			1,445
Other noncurrent assets	1,909			2,109			1,886			1,905
Noncurrent assets of discontinued operations and held-for-sale businesses	—			882
Total other assets	6,531			7,473			6,959			6,861
TOTAL ASSETS	$	37,108		$	36,470		$	36,508		$	36,119
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,426		$	1,571		$	1,657		$	1,656
Accrued interest	368			236			365			247
Accrued and other liabilities	2,026			2,286			2,043			2,066
Non-recourse debt, includes $247 and $258, respectively, related to variable interest entities	1,091			2,172
Current liabilities of discontinued operations and held-for-sale businesses	802			661
Non-recourse debt, includes $134 and $273, respectively, related to variable interest entities							1,137			1,303
Current liabilities of held-for-sale businesses							41			—
Total current liabilities	5,713			6,926			5,243			5,272
NONCURRENT LIABILITIES
Recourse debt	4,944			4,966			4,500			4,671
Non-recourse debt, includes $1,494 and $1,531, respectively, related to variable interest entities	14,796			12,943
Non-recourse debt, includes $1,643 and $1,502, respectively, related to variable interest entities							14,697			14,489
Deferred income taxes	1,042			1,090			758			804
Pension and other post-retirement liabilities	1,035			919
Pension and other postretirement liabilities							1,411			1,396
Other noncurrent liabilities	3,035			2,794			2,996			3,005
Noncurrent liabilities of discontinued operations and held-for-sale businesses	—			123
Total noncurrent liabilities	24,852			22,835			24,362			24,365
Commitments and Contingencies (see Note 8)
Redeemable stock of subsidiaries	775			538			774			782
EQUITY
THE AES CORPORATION STOCKHOLDERS’ EQUITY
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 816,061,123 issued and 659,175,940 outstanding at September 30, 2016 and 815,846,621 issued and 666,808,790 outstanding at December 31, 2015)	8			8
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 816,079,347 issued and 660,108,793 outstanding at March 31, 2017 and 816,061,123 issued and 659,182,232 outstanding at December 31, 2016)							8			8
Additional paid-in capital	8,645			8,718			8,731			8,592
Retained earnings (accumulated deficit)	(114		)	143
Accumulated deficit							(1,139		)	(1,146		)
Accumulated other comprehensive loss	(3,753		)	(3,883		)	(2,717		)	(2,756		)
Treasury stock, at cost (156,885,183 shares at September 30, 2016 and 149,037,831 at December 31, 2015)	(1,904		)	(1,837		)
Treasury stock, at cost (155,970,554 shares at March 31, 2017 and 156,878,891 at December 31, 2016)							(1,892		)	(1,904		)
Total AES Corporation stockholders’ equity	2,882			3,149			2,991			2,794
NONCONTROLLING INTERESTS	2,886			3,022			3,138			2,906
Total equity	5,768			6,171			6,129			5,700
TOTAL LIABILITIES AND EQUITY	$	37,108		$	36,470		$	36,508		$	36,119

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION

Condensed Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2016			2015			2017			2016

	(in millions, except per share amounts)												(in millions, except per share data)
Revenue:
Regulated	$	1,785		$	1,691		$	4,926		$	5,319		$	1,727		$	1,576
Non-Regulated	1,757			1,831			5,116			5,617			1,765			1,695
Total revenue	3,542			3,522			10,042			10,936			3,492			3,271
Cost of Sales:
Regulated	(1,623		)	(1,458		)	(4,521		)	(4,447		)	(1,578		)	(1,467		)
Non-Regulated	(1,231		)	(1,399		)	(3,750		)	(4,348		)	(1,321		)	(1,295		)
Total cost of sales	(2,854		)	(2,857		)	(8,271		)	(8,795		)	(2,899		)	(2,762		)
Operating margin	688			665			1,771			2,141			593			509
General and administrative expenses	(40		)	(45		)	(135		)	(150		)	(54		)	(48		)
Interest expense	(354		)	(365		)	(1,086		)	(995		)	(348		)	(342		)
Interest income	110			126			365			321			97			117
Loss on extinguishment of debt	(16		)	(20		)	(12		)	(161		)
Gain on extinguishment of debt													17			4
Other expense	(13		)	(18		)	(42		)	(47		)	(29		)	(8		)
Other income	18			12			43			42			73			13
Gain on disposal and sale of businesses	—			24			30			24			—			47
Asset impairment expense	(79		)	(231		)	(473		)	(276		)	(168		)	(159		)
Foreign currency transaction gains (losses)	(20		)	12			(16		)	4			(21		)	40
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES	294			160			445			903			160			173
Income tax expense	(75		)	(43		)	(165		)	(266		)	(69		)	(96		)
Net equity in earnings of affiliates	11			81			25			96			7			6
INCOME FROM CONTINUING OPERATIONS	230			198			305			733			98			83
(Loss) income from operations of discontinued businesses, net of income tax benefit (expense) of $0, $(1), $4 and $6, respectively	(1		)	5			(7		)	(12		)
Net loss from disposal and impairments of discontinued businesses, net of income tax benefit of $401 for the nine months ended September 30, 2016	—			—			(382		)	—
NET INCOME (LOSS)	229			203			(84		)	721
Less: Net income attributable to noncontrolling interests	(57		)	(23		)	(105		)	(330		)
Loss from operations of discontinued businesses, net of income tax benefit of $4													—			(9		)
NET INCOME													98			74
Less: Net (income) loss attributable to noncontrolling interests													(125		)	52
Less: Net loss attributable to redeemable stocks of subsidiaries	3			—			8			—			3			—
Total net (income) loss attributable to noncontrolling interests													(122		)	52
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	175		$	180		$	(181	)	$	391		$	(24	)	$	126
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
Income from continuing operations, net of tax	$	176		$	175		$	208		$	403
(Loss) income from discontinued operations, net of tax	(1		)	5			(389		)	(12		)
Income (loss) from continuing operations, net of tax													$	(24	)	$	135
Loss from discontinued operations, net of tax													—			(9		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	175		$	180		$	(181	)	$	391		$	(24	)	$	126
BASIC EARNINGS PER SHARE:
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.26		$	0.26		$	0.31		$	0.58
Income (loss) from discontinued operations attributable to The AES Corporation common stockholders, net of tax	—			0.01			(0.59		)	(0.01		)
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax													$	(0.04	)	$	0.20
Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax													—			(0.01		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	0.26		$	0.27		$	(0.28	)	$	0.57		$	(0.04	)	$	0.19
DILUTED EARNINGS PER SHARE:
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.26		$	0.26		$	0.31		$	0.58
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax													$	(0.04	)	$	0.20
Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax	—			—			(0.59		)	(0.02		)	—			(0.01		)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	0.26		$	0.26		$	(0.28	)	$	0.56		$	(0.04	)	$	0.19
DILUTED SHARES OUTSTANDING	662			682			662			694			659			663
DIVIDENDS DECLARED PER COMMON SHARE	$	0.11		$	0.10		$	0.22		$	0.20		$	0.12		$	0.11

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss) ~~Income~~

(Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2016 2015 2016 2015

(in millions)
NET INCOME (LOSS) $ 229
$ 203
$ (84 ) $ 721
Foreign currency translation activity:
Foreign currency translation adjustments, net of income tax benefit (expense) of $(1), $1, $0 and $1, respectively (16 ) (513 ) 232
(857 )
Total foreign currency translation adjustments (16 ) (513 ) 232
(857 )
Derivative activity:
Change in derivative fair value, net of income tax benefit (expense) of $(7), $22, $39 and $22, respectively 19
(70 ) (138 ) (73 )
Reclassification to earnings, net of income tax expense of $4, $0, $5 and $6, respectively 21
14
23
46
Total change in fair value of derivatives 40
(56 ) (115 ) (27 )
Pension activity:
Reclassification to earnings due to amortization of net actuarial loss, net of income tax expense of $2, $3, $4 and $8, respectively 3
4
10
13
Total pension adjustments 3
4
10
13
OTHER COMPREHENSIVE INCOME (LOSS) 27
(565 ) 127
(871 )
COMPREHENSIVE INCOME (LOSS) 256
(362 ) 43
(150 )
Less: Comprehensive (income) loss attributable to noncontrolling interests (66 ) 229
(94 ) 56
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION $ 190
$ (133 ) $ (51 ) $ (94 )



	Three Months Ended March 31,
	2017			2016

	(in millions)
NET INCOME	$	98		$	74
Foreign currency translation activity:
Foreign currency translation adjustments, net of income tax expense of $1 and $0, respectively	68			128
Reclassification to earnings, net of $0 income tax	3			—
Total foreign currency translation adjustments	71			128
Derivative activity:
Change in derivative fair value, net of income tax benefit of $8 and $21, respectively	(5		)	(64		)
Reclassification to earnings, net of income tax benefit (expense) of $(1) and $3, respectively	20			(1		)
Total change in fair value of derivatives	15			(65		)
Pension activity:
Reclassification to earnings due to amortization of net actuarial loss, net of income tax expense of $3 and $1, respectively	6			3
Total pension adjustments	6			3
OTHER COMPREHENSIVE INCOME	92			66
COMPREHENSIVE INCOME	190			140
Less: Comprehensive (income) loss attributable to noncontrolling interests	(142		)	62
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	48		$	202

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2017			2016

	(in millions)						(in millions)
OPERATING ACTIVITIES:
Net income (loss)	$	(84	)	$	721
Net income							$	98		$	74
Adjustments to net income:
Depreciation and amortization	877			880			291			290
Gain on sales and disposals of businesses	(30		)	(24		)	—			(47		)
Impairment expenses	475			276			168			161
Deferred income taxes	(475		)	(8		)	(6		)	31
Provisions for (reversals of) contingencies	28			(91		)	12			(1		)
Loss on extinguishment of debt	12			165
Gain on extinguishment of debt							(17		)	(4		)
Loss on sales of assets	26			23			12			—
Impairments of discontinued operations and held-for-sale businesses	783			—
Other	106			50			43			(3		)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable	335			(314		)	50			37
(Increase) decrease in inventory	36			(11		)	(16		)	(24		)
(Increase) decrease in prepaid expenses and other current assets	670			377			120			274
(Increase) decrease in other assets	(237		)	(1,103		)	(43		)	(21		)
Increase (decrease) in accounts payable and other current liabilities	(567		)	238			(74		)	(72		)
Increase (decrease) in income tax payables, net and other tax payables	(270		)	(126		)	38			(148		)
Increase (decrease) in other liabilities	497			452			27			93
Net cash provided by operating activities	2,182			1,505			703			640
INVESTING ACTIVITIES:
Capital expenditures	(1,770		)	(1,687		)	(474		)	(640		)
Acquisitions, net of cash acquired	(61		)	(17		)	—			(6		)
Proceeds from the sale of businesses, net of cash sold, and equity method investments	157			96			4			115
Sale of short-term investments	3,747			3,683			907			1,603
Purchase of short-term investments	(3,797		)	(3,605		)	(716		)	(1,708		)
Increase in restricted cash, debt service reserves and other assets	(123		)	(60		)
(Increase) decrease in restricted cash, debt service reserves and other assets							(22		)	96
Other investing	(22		)	(49		)	(39		)	(8		)
Net cash used in investing activities	(1,869		)	(1,639		)	(340		)	(548		)
FINANCING ACTIVITIES:
Borrowings under the revolving credit facilities	1,079			677			225			248
Repayments under the revolving credit facilities	(856		)	(644		)	(84		)	(116		)
Issuance of recourse debt	500			575
Repayments of recourse debt	(808		)	(915		)	(341		)	(116		)
Issuance of non-recourse debt	2,118			3,281			569			161
Repayments of non-recourse debt	(1,720		)	(2,468		)	(295		)	(248		)
Payments for financing fees	(86		)	(65		)	(18		)	(11		)
Distributions to noncontrolling interests	(356		)	(182		)	(33		)	(78		)
Contributions from noncontrolling interests and redeemable security holders	154			117			29			28
Proceeds from the sale of redeemable stock of subsidiaries	134			461			—			134
Dividends paid on AES common stock	(218		)	(209		)	(79		)	(73		)
Payments for financed capital expenditures	(108		)	(110		)	(26		)	(10		)
Purchase of treasury stock	(79		)	(408		)	—			(79		)
Other financing	(12		)	(24		)	(26		)	(20		)
Net cash (used in) provided by financing activities	(258		)	86
Net cash used in financing activities							(79		)	(180		)
Effect of exchange rate changes on cash	7			(40		)	6			6
Decrease in cash of discontinued operations and held-for-sale businesses	6			7
(Increase) decrease in cash of discontinued operations and held-for-sale businesses							(7		)	4
Total increase (decrease) in cash and cash equivalents	68			(81		)	283			(78		)
Cash and cash equivalents, beginning	1,257			1,517			1,305			1,257
Cash and cash equivalents, ending	$	1,325		$	1,436		$	1,588		$	1,179
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of amounts capitalized	$	837		$	875		$	195		$	228
Cash payments for income taxes, net of refunds	$	425		$	319		$	74		$	182
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired through capital lease and other liabilities	$	5		$	12		$	—		$	3
Dividends declared but not yet paid							$	79		$	75
Reclassification of Alto Maipo loans and accounts payable into equity (see Note 11—Equity)							$	279		$	—

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION

Notes to Condensed Consolidated Financial Statements

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~

1. FINANCIAL STATEMENT PRESENTATION

The prior-period condensed consolidated financial statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) have been reclassified to reflect the businesses held-for-sale and discontinued operations as discussed in Note 16—Held-for-Sale Businesses and Dispositions and Note 15—Discontinued ~~Operati~~Operations~~ons.~~, respectively.

Consolidation — In this Quarterly Report the terms “AES,” “the Company,” “us” or “we” refer to the consolidated entity including its subsidiaries and affiliates. The terms “The AES Corporation” or “the Parent Company” refer only to the publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. Furthermore, ~~variable interest entities (“VIEs”)~~VIEs in which the Company has a variable interest have been consolidated where the Company is the primary beneficiary. Investments in which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.

Interim Financial Presentation — The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income and cash flows. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 are not necessarily indicative of results that may be expected for the year ending December 31, ~~2016.~~2017. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the ~~2015~~2016 audited consolidated financial statements and notes thereto, which are included in the ~~2015~~2016 Form 10-K filed with the SEC on February ~~23, 2016~~27, 2017 (the ~~“2015~~“2016 Form 10-K”).

New Accounting Pronouncements — The following table provides a brief description of recent accounting pronouncements that had and/or could have a material impact on the Company’s consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on the Company’s consolidated financial statements.



New Accounting Standards Adopted
ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption
~~2015-03, 2015-15, Interest — Imputation of Interest (Subtopic 835-30)~~	These standards simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a tranche of debt be presented on the balance sheet as a direct deduction from the carrying amount of that debt, consistent with debt discounts. Debt issuance costs related to a line-of-credit can still be presented as an asset and subsequently amortized over the term of the line-of-credit, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The recognition and measurement guidance for debt issuance costs are not affected by the standard. Transition method: retrospective.	~~January 1, 2016~~	Deferred financing costs of $24 million previously classified within other current assets and $357 million previously classified within other noncurrent assets were reclassified to reduce the related debt liabilities as of December 31, 2015.
~~2015-02, Consolidation — Amendments to the Consolidation Analysis (Topic 810)~~	The standard makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The standard amends the evaluation of whether (1) fees paid to a decision-maker or service providers represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. Transition method: retrospective.	~~January 1, 2016~~	~~None, other than that some entities previously consolidated under the voting model are now consolidated under the VIE model.~~



~~New Accounting Standards Issued But Not Yet Effective~~
~~ASU Number and Name~~	~~Description~~	~~Date of Adoption~~	~~Effect on the financial statements upon adoption~~
~~2016-17, Consolidation (Topic 810): Interest Held through Related Parties That Are under Common Control~~	This standard amends the evaluation of whether a reporting entity is the primary beneficiary of a VIE by amending how a reporting entity, that is a single decision maker of a VIE, treats indirect interests in that entity held through related parties that are under common control. Transition method: retrospectively.	~~January 1, 2017. Early adoption is permitted.~~	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
~~2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory~~	This standard requires that an entity recognizes the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Transition method: modified retrospective method.	~~January 1, 2018. Early adoption is permitted.~~	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
~~2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)~~	~~This standard provides specific guidance on how certain cash transactions are presented and classified in the statement of cash flows. Transition method: retrospective method.~~	~~January 1, 2018. Early adoption is permitted.~~	~~The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.~~
~~2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~	The standard updates the impairment model for financial assets measured at amortized cost to an expected loss model rather than an incurred loss model. It also allows for the presentation of credit losses on available-for-sale debt securities as an allowance rather than a write down. Transition method: various.	~~January 1, 2020. Early adoption is permitted only as of January 1, 2019.~~	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting	The standard simplifies the following aspects of accounting for share-based payments awards: accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes. Transition method: ~~various.~~The recognition of excess tax benefits and tax deficiencies arising from vesting or settlement were applied retrospectively. The elimination of the requirement that excess tax benefits be realized before they are recognized was adopted on a modified retrospective basis.	January 1, ~~2017.~~2017	The recognition of excess tax benefits in the provision for income taxes in the period when the awards vest or are settled, rather than in paid-in-capital in the period when the excess tax benefits are realized, resulted in a decrease of $31 million to deferred tax liabilities, offset by an increase to retained earnings.



New Accounting Standards Issued But Not Yet Effective
ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption
2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities	This standard shortens the period of amortization of the premium on certain callable debt securities to the earliest call date. Transition method: modified retrospective.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	This standard changes the presentation of non-service cost expense associated with defined benefit plans and updates the guidance so that only the service cost component will be eligible for capitalization. Transition method: Prospective for presentation of non-service cost expense. Retrospective for the change in capitalization.	January 1, 2018. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements and does not plan to early adopt.
2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment	This standard simplifies the accounting for goodwill impairment by removing the requirement to calculate the implied fair value. Instead, it requires that an entity records an impairment charge based on the excess of a reporting unit's carrying amount over its fair value. Transition method: prospective.	January 1, 2020. Early adoption is permitted as of January 1, 2017.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business	This standard provides guidance to assist the entities with evaluating when a set of transferred assets and activities is a business. Transition method: prospective.	January 1, 2018. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)	This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Transition method: retrospective.	January 1, 2018. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory	This standard requires that an entity recognizes the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Transition method: modified retrospective.	January 1, 2018. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The standard updates the impairment model for financial assets measured at amortized cost to an expected loss model rather than an incurred loss model. It also allows for the presentation of credit losses on available-for-sale debt securities as an allowance rather than a write down. Transition method: various.	January 1, 2020. Early adoption is permitted only as of January 1, 2019.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-02, Leases (Topic 842)	The standard creates Topic 842, Leases, which supersedes Topic 840, Leases. It introduces a lessee model that brings substantially all leases onto the balance sheet while retaining most of the principles of the existing lessor model in U.S. GAAP and aligning many of those principles with ASC 606, Revenue from Contracts with Customers. Transition method: modified retrospective approach with certain practical expedients.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements. The Company intends to adopt the standard as of January 1, 2019.
~~2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory~~	~~The standard replaces the current lower of cost or market test with a lower of cost or net realizable value test. Transition method: prospectively.~~	~~January 1, 2017. Early adoption is permitted.~~	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-05, Revenue from Contracts with Customers (Topic 606),	The Revenue from Contracts with Customers standard provides a single and comprehensive revenue recognition model for all contracts with customers to improve comparability. The standard contains principles to determine the measurement and timing of revenue recognition. The standard requires an entity to recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The amendments to the standard provide further clarification on contract revenue recognition specifically related to the implementationSee discussion of the principal versus agent evaluation, the identification of performance obligations, clarification on accounting for licenses of intellectual property, and allows for the election to account for shipping and handling activities performed after control of a good has been transferred to the customer as a fulfillment cost. Transition method: a full retrospective or modified retrospective approach.ASU below.	January 1, 2018. Earlier application is permitted only as of January 1, 2017.	The Company will adopt the standard on January 1, 2018; ~~and it is currently evaluating~~see below for the evaluation of the impact of its adoption on the consolidated financial statements.

ASU 2014-09 and its subsequent corresponding updates provides the principles an entity must apply to measure and recognize revenue. The core principle is that an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Amendments to the standard were issued that provide further clarification of the principle and to provide certain transition expedients. The standard will replace most existing revenue recognition guidance in GAAP, including the guidance on recognizing other income upon the sale or transfer of nonfinancial assets (including in-substance real estate).

The standard requires retrospective application and allows either a full retrospective adoption in which all of the periods are presented under the new standard or a modified retrospective approach in which the cumulative effect of initially applying the guidance is recognized at the date of initial application. We are currently working

toward adopting the standard using the full retrospective method. However, the Company will continue to assess this conclusion which is dependent on the final impact to the financial statements.

In 2016, the Company established a cross-functional implementation team and is in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard. At this time, we do not expect any significant impact on our financial systems as a result of the implementation of the new revenue recognition standard.

Given the complexity and diversity of our non-regulated arrangements, the Company is assessing the standard on a contract by contract basis and has completed more than half of the total expected effort. Through this assessment, the Company has identified certain key issues that we are continuing to evaluate in order to complete our assessment of the full population of contracts and be able to assess the overall impact to the financial statements. These issues include: the application of the practical expedient for measuring progress toward satisfaction of a performance obligation, when variable quantities would be considered variable consideration versus an option to acquire additional goods and services, how to measure progress toward completion for a performance obligation that is a bundle and application of the standard to contracts that are under the scope of Service Concession Arrangements (Topic 853). We are continuing to work with various non-authoritative industry groups, and monitoring the FASB and Transition Resource Group activity, as we finalize our accounting policy on these and other industry specific interpretative issues which is expected in 2017.

2. INVENTORY

The following table summarizes the Company’s inventory balances as of the periods indicated (in millions):


	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Fuel and other raw materials	$	294	$	343	$	329	$	302
Spare parts and supplies	343		328		316		328
Total	$	637	$	671	$	645	$	630

3. FAIR VALUE

The fair value of current financial assets and liabilities, debt service reserves and other deposits approximate their reported carrying amounts. The estimated fair ~~value~~values of the Company’s assets and liabilities ~~has~~have been determined using available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The Company made no changes during the period to the fair valuation techniques described in Note ~~4.—~~4—Fair Value in Item 8.—Financial Statements and Supplementary Data of its ~~2015~~2016 Form 10-K.

Recurring Measurements — The following table presents, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of the ~~periods~~dates indicated (in millions). For the Company’s investments in marketable debt and equity securities, the security classes presented are determined based on the nature and risk of the security and are consistent with how the Company manages, monitors and measures its marketable securities:


	September 30, 2016								December 31, 2015								March 31, 2017								December 31, 2016
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
AVAILABLE FOR SALE:
Debt securities:
Unsecured debentures	$	—	$	372	$	—	$	372	$	—	$	318	$	—	$	318	$	—	$	328	$	—	$	328	$	—	$	360	$	—	$	360
Certificates of deposit	—		168		—		168		—		129		—		129		—		238		—		238		—		372		—		372
Government debt securities	—		9		—		9		—		28		—		28		—		6		—		6		—		9		—		9
Subtotal	—		549		—		549		—		475		—		475		—		572		—		572		—		741		—		741
Equity securities:
Mutual funds	—		40		—		40		—		15		—		15		—		52		—		52		—		49		—		49
Subtotal	—		40		—		40		—		15		—		15		—		52		—		52		—		49		—		49
Total available for sale	—		589		—		589		—		490		—		490		—		624		—		624		—		790		—		790
TRADING:
Equity securities:
Mutual funds	16		—		—		16		15		—		—		15		17		—		—		17		16		—		—		16
Total trading	16		—		—		16		15		—		—		15		17		—		—		17		16		—		—		16
DERIVATIVES:
Interest rate derivatives																	—		18		—		18		—		18		—		18
Cross-currency derivatives	—		3		—		3		—		—		—		—		—		10		—		10		—		4		—		4
Foreign currency derivatives	—		42		274		316		—		35		292		327		—		47		231		278		—		54		255		309
Commodity derivatives	—		52		10		62		—		41		7		48		—		38		4		42		—		38		7		45
Total derivatives — assets	—		97		284		381		—		76		299		375		—		113		235		348		—		114		262		376
TOTAL ASSETS	$	16	$	686	$	284	$	986	$	15	$	566	$	299	$	880	$	17	$	737	$	235	$	989	$	16	$	904	$	262	$	1,182
Liabilities
DERIVATIVES:
Interest rate derivatives	$	—	$	194	$	307	$	501	$	—	$	54	$	304	$	358	$	—	$	118	$	183	$	301	$	—	$	121	$	179	$	300
Cross-currency derivatives	—		26		—		26		—		43		—		43		—		10		—		10		—		18		—		18
Foreign currency derivatives	—		82		—		82		—		41		15		56		—		48		—		48		—		64		—		64
Commodity derivatives	—		37		1		38		—		29		4		33		—		26		2		28		—		40		2		42
Total derivatives — liabilities	—		339		308		647		—		167		323		490		—		202		185		387		—		243		181		424
TOTAL LIABILITIES	$	—	$	339	$	308	$	647	$	—	$	167	$	323	$	490	$	—	$	202	$	185	$	387	$	—	$	243	$	181	$	424

As of ~~September 30, 2016,~~March 31, 2017, all AFS debt securities had stated maturities within one year. For the three months ended March 31, 2017 and 2016 no other-than-temporary impairments of marketable securities were recognized in earnings or Other Comprehensive Income (Loss). Gains and losses on the sale of investments are determined using the specific-identification method. ~~For the three and nine months ended September 30, 2016 and 2015 no other-than-temporary impairments of marketable securities were recognized in earnings or OCI.~~ The following table ~~below~~ presents gross proceeds from the sale of ~~available for sale~~AFS securities during the periods indicated (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Gross proceeds from sale of AFS securities $ 812
$ 1,105
$ 3,216
$ 3,285



	Three Months Ended March 31,
	2017		2016
Gross proceeds from sale of AFS securities	$	921	$	1,360

The following tables present a reconciliation of net derivative assets and liabilities ~~by type~~ measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015 (in~~(presented net by type of derivative in millions). Transfers between Level 3 and Level 2 are determined as of the end of the reporting period and principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.

Three Months Ended September 30, 2016 Interest Rate Foreign Currency Commodity Total
Balance at the beginning of the period $ (421 ) $ 271
$ 11
$ (139 )
Total realized and unrealized gains (losses):
Included in earnings (1 ) 12
1
12
Included in other comprehensive income — derivative activity 6
—
—
6
Included in other comprehensive income — foreign currency translation activity —
(5 ) —
(5 )
Settlements 17
(4 ) (3 ) 10
Transfers of liabilities into Level 3 (2 ) —
—
(2 )
Transfers of liabilities out of Level 3 94
—
—
94
Balance at the end of the period $ (307 ) $ 274
$ 9
$ (24 )
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period $ —
$ 8
$ 1
$ 9



Three Months Ended March 31, 2017	Interest Rate			Foreign Currency			Commodity			Total
Balance at January 1	$	(179	)	$	255		$	5		$	81
Total realized and unrealized losses:
Included in earnings	—			(16		)	—			(16		)
Included in other comprehensive income — derivative activity	(12		)	—			—			(12		)
Settlements	10			(8		)	(3		)	(1		)
Transfers of liabilities into Level 3	(4		)	—			—			(4		)
Transfers of liabilities out of Level 3	2			—			—			2
Balance at March 31	$	(183	)	$	231		$	2		$	50
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	2		$	(24	)	$	—		$	(22	)

Three Months Ended September 30, 2015 Interest Rate Foreign Currency Commodity Total
Balance at the beginning of the period $ (191 ) $ 222
$ 17
$ 48
Total realized and unrealized gains (losses):
Included in earnings (1 ) 19
—
18
Included in other comprehensive income — derivative activity (33 ) —
—
(33 )
Included in other comprehensive income — foreign currency translation activity —
(8 ) —
(8 )
Included in regulatory (assets) liabilities —
—
(20 ) (20 )
Settlements 7
(2 ) 12
17
Transfers of liabilities into Level 3 (65 ) —
—
(65 )
Balance at the end of the period $ (283 ) $ 231
$ 9
$ (43 )
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period $ —
$ 18
$ —
$ 18

Nine Months Ended September 30, 2016 Interest Rate Foreign Currency Commodity Total
Balance at the beginning of the period $ (304 ) $ 277
$ 3
$ (24 )
Total realized and unrealized gains (losses):
Included in earnings —
30
3
33
Included in other comprehensive income — derivative activity (172 ) 6
—
(166 )
Included in other comprehensive income — foreign currency translation activity (3 ) (43 ) —
(46 )
Included in regulatory (assets) liabilities —
—
11
11
Settlements 56
(8 ) (8 ) 40
Transfers of liabilities into Level 3 (2 ) —
—
(2 )
Transfers of liabilities out of Level 3 118
12
—
130
Balance at the end of the period $ (307 ) $ 274
$ 9
$ (24 )
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period $ 5
$ 25
$ 3
$ 33


Nine Months Ended September 30, 2015	Interest Rate			Foreign Currency			Commodity			Total
Balance at the beginning of the period	$	(210	)	$	209		$	6		$	5
Three Months Ended March 31, 2016													Interest Rate			Foreign Currency			Commodity			Total
Balance at January 1													$	(304	)	$	277		$	3		$	(24	)
Total realized and unrealized gains (losses):
Included in earnings	(1		)	49			2			50			3			47			—			50
Included in other comprehensive income — derivative activity	(30		)	—			—			(30		)	(99		)	3			—			(96		)
Included in other comprehensive income — foreign currency translation activity	7			(21		)	—			(14		)	(3		)	(33		)	—			(36		)
Included in regulatory (assets) liabilities	—			—			(12		)	(12		)
Settlements	16			(6		)	13			23			18			(1		)	(3		)	14
Transfers of liabilities into Level 3	(65		)	—			—			(65		)	(31		)	—			—			(31		)
Balance at the end of the period	$	(283	)	$	231		$	9		$	(43	)
Transfers of assets out of Level 3													—			(3		)	—			(3		)
Balance at March 31													$	(416	)	$	290		$	—		$	(126	)
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	—		$	44		$	2		$	46		$	4		$	45		$	—		$	49

The following table ~~below~~ summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of ~~September 30, 2016~~March 31, 2017 (in millions, except range amounts):


Type of Derivative	Fair Value			Unobservable Input	Amount or Range (Weighted Avg)	Fair Value			Unobservable Input	Amount or Range (Weighted Avg)
Interest rate	$	(307	)	Subsidiaries’ credit spreads	2.4% to 31.5% (4.3%)	$	(183	)	Subsidiaries’ credit spreads	2.3% to 5.5% (3.7%)
Foreign currency:
Argentine Peso	274			Argentine Peso to USD currency exchange rate after one year	17.5 to 32.7 (25.4)	231			Argentine Peso to USD currency exchange rate after one year	17.7 to 29.6 (23.5)
Commodity:
Other	9					2
Total	$	(24	)			$	50

Changes in the above significant unobservable inputs that lead to a significant and unusual impact to current-period earnings are disclosed to the Financial Audit Committee. For interest rate derivatives, and foreign currency derivatives, increases (decreases) in the estimates of the Company’s own credit spreads would decrease (increase) the value of the derivatives in a liability position. For foreign currency derivatives, increases (decreases) in the estimate of the above exchange rate would increase (decrease) the value of the derivative.

Nonrecurring Measurements

When evaluating impairment of long-lived assets and equity method investments, the Company measures fair value using the applicable fair value measurement guidance. Impairment expense is measured by comparing the fair value at the evaluation date to ~~its~~the then-latest available carrying amount. The following table summarizes our major categories of assets and liabilities measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):



Three Months Ended March 31, 2017	Measurement Date	Carrying Amount (1)		Fair Value						Pretax Loss
Assets	Measurement Date	Carrying Amount (1)		Level 1		Level 2		Level 3		Pretax Loss
Long-lived assets held and used: ⁽²⁾
DP&L	02/28/2017	$	77	$	—	$	—	$	11	$	66
Tait Energy Storage	02/28/2017	15		—		—		7		8
Held-for-sale businesses: ⁽³⁾
Kazakhstan	03/31/2017	171		—		29		—		94

Nine Months Ended September 30, 2016 Measurement Date
Carrying Amount (1)
Fair Value Pretax Loss
Assets Level 1 Level 2 Level 3
Long-lived assets held and used: ⁽²⁾

Buffalo Gap I 08/31/2016 $ 113
$ —
$ —
$ 35
$ 78
DPL 06/30/2016 324
—
—
89
235
Buffalo Gap II 03/31/2016 251
—
—
92
159
Discontinued operations: ⁽³⁾

Sul 06/30/2016 1,581
—
470
—
783

Nine Months Ended September 30, 2015 Measurement Date
Carrying Amount (1)
Fair Value Pretax Loss
Assets Level 1 Level 2 Level 3
Long-lived assets held and used: ⁽²⁾

Buffalo Gap III 09/30/2015 $ 234
$ —
$ —
$ 116
$ 118
Kilroot 08/28/2015 191
—
—
78
113
UK Wind 06/30/2015 38
—
1
—
37
Other Various 29
—
21
—
8
Equity method investments:
Solar Spain 02/09/2015 29
—
—
29
—



Three Months Ended March 31, 2016	Measurement Date	Carrying Amount (1)		Fair Value						Pretax Loss
Assets	Measurement Date	Carrying Amount (1)		Level 1		Level 2		Level 3		Pretax Loss
Long-lived assets held and used: ⁽²⁾
Buffalo Gap II	03/31/2016	$	251	$	—	$	—	$	92	$	159

_____________________________


⁽¹⁾	Represents the carrying values at the dates of measurement, before fair value adjustment.


⁽²⁾	See Note 14—Asset Impairment Expense for further information.


⁽³⁾	Per the Company’s policy, ~~pre-tax~~pretax loss is limited to the impairment of long-lived assets. Any additional loss will be recognized on completion of the sale. See Note 16—~~Discontinued Operations~~Held-for-Sale Businesses and Dispositions for further information.

The following table summarizes the significant unobservable inputs used in the Level 3 measurement on a nonrecurring basis during the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 (in millions, except range amounts):

Fair Value Valuation Technique Unobservable Input Range (Weighted Average)
Long-lived assets held and used:
Buffalo Gap I $ 35
Discounted cash flow Annual revenue growth -20% to 9% (-14%)
Annual pretax operating margin -40% to 42% (29%)
Weighted-average cost of capital 9 %
DPL 89
Discounted cash flow Annual revenue growth -11% to 13% (1%)
Annual pretax operating margin -50% to 60% (5%)
Weighted-average cost of capital 7% to 12%
Buffalo Gap II 92
Discounted cash flow Annual revenue growth -17% to 21% (20%)
Annual pretax operating margin -166% to 48% (18%)
Weighted-average cost of capital 9 %



	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
Long-lived assets held and used:
DP&L	$	11	Discounted cash flow	Pretax operating margin (through remaining life)	10% to 22% (15%)
				Weighted-average cost of capital	7%
Tait Energy Storage	7		Discounted cash flow	Annual pretax operating margin	46% to 85% (80%)
				Weighted-average cost of capital	9%

Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets

The ~~next~~following table presents (in millions) the carrying amount, fair value and fair value hierarchy of the Company’s financial assets and liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, but for which fair value is disclosed:


		September 30, 2016											March 31, 2017
		Carrying Amount		Fair Value									Carrying Amount		Fair Value
		Carrying Amount		Total		Level 1		Level 2		Level 3			Carrying Amount		Total		Level 1		Level 2		Level 3
Assets:	Accounts receivable — noncurrent ⁽¹⁾	$	222	$	312	$	—	$	—	$	312	Accounts receivable — noncurrent ⁽¹⁾	$	252	$	340	$	—	$	19	$	321
Liabilities:	Non-recourse debt	15,887		16,411		—		14,381		2,030		Non-recourse debt	15,834		16,318		—		15,096		1,222
	Recourse debt	4,944		5,298		—		5,298		—		Recourse debt	4,500		4,723		—		4,723		—


		December 31, 2015											December 31, 2016
		Carrying Amount		Fair Value									Carrying Amount		Fair Value
		Carrying Amount		Total		Level 1		Level 2		Level 3			Carrying Amount		Total		Level 1		Level 2		Level 3
Assets:	Accounts receivable — noncurrent ⁽¹⁾	$	238	$	310	$	—	$	20	$	290	Accounts receivable — noncurrent ⁽¹⁾	$	264	$	350	$	—	$	20	$	330
Liabilities:	Non-recourse debt	15,115		15,592		—		13,325		2,267		Non-recourse debt	15,792		16,188		—		15,120		1,068
	Recourse debt	4,966		4,696		—		4,696		—		Recourse debt	4,671		4,899		—		4,899		—

_____________________________

⁽¹⁾

These amounts principally relate to amounts due from CAMMESA, the administrator of the wholesale electricity market in Argentina, and are included in Other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of ~~$23~~$38 million and ~~$27~~$24 million as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively.

4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

There are no changes to the information disclosed in Note 1—General and Summary of Significant Accounting Policies—Derivatives and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the ~~2015~~2016 Form 10-K.

Volume of Activity — The following table presents the Company’s ~~significant outstanding~~maximum notional (in millions) over the remaining contractual period by type of derivative as of ~~September 30, 2016,~~March 31, 2017, regardless of whether they are in qualifying cash flow hedging relationships, and the dates through which the maturities for each type of derivative range:


Derivatives	Current Notional Translated to USD		Latest Maturity	Maximum Notional Translated to USD		Latest Maturity
Interest Rate (LIBOR and EURIBOR)	$	3,324	2033	$	4,834	2039
Cross-Currency Swaps (Chilean Unidad de Fomento and Chilean Peso)	379		2029	378		2029
Foreign Currency:
Argentine Peso	158		2026	172		2026
Chilean Unidad de Fomento	196		2019
Colombian Peso				329		2019
Euro				159		2019
Others, primarily with weighted average remaining maturities of a year or less	1,227		2019	217		2019

Accounting and Reporting — Assets and Liabilities — The following tables present the fair value of assets and liabilities related to the Company’s derivative instruments as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (in millions):

Fair Value September 30, 2016 December 31, 2015
Assets Designated Not Designated Total Designated Not Designated Total
Cross-currency derivatives $ 3
$ —
$ 3
$ —
$ —
$ —
Foreign currency derivatives 11
305
316
8
319
327
Commodity derivatives 28
34
62
30
18
48
Total assets $ 42
$ 339
$ 381
$ 38
$ 337
$ 375
Liabilities
Interest rate derivatives $ 495
$ 6
$ 501
$ 358
$ —
$ 358
Cross-currency derivatives 26
—
26
43
—
43
Foreign currency derivatives 35
47
82
35
21
56
Commodity derivatives 20
18
38
12
21
33
Total liabilities $ 576
$ 71
$ 647
$ 448
$ 42
$ 490

September 30, 2016 December 31, 2015
Fair Value Assets Liabilities Assets Liabilities
Current $ 110
$ 158
$ 86
$ 144
Noncurrent 271
489
289
346
Total $ 381
$ 647
$ 375
$ 490

Credit Risk-Related Contingent Features ⁽¹⁾
September 30, 2016 December 31, 2015
Present value of liabilities subject to collateralization $ 47
$ 58
Cash collateral held by third parties or in escrow 21
38



Fair Value	March 31, 2017						December 31, 2016
Assets	Designated		Not Designated		Total		Designated		Not Designated		Total
Interest rate derivatives	$	18	$	—	$	18	$	18	$	—	$	18
Cross-currency derivatives	10		—		10		4		—		4
Foreign currency derivatives	8		270		278		9		300		309
Commodity derivatives	15		27		42		20		25		45
Total assets	$	51	$	297	$	348	$	51	$	325	$	376
Liabilities
Interest rate derivatives	$	296	$	5	$	301	$	295	$	5	$	300
Cross-currency derivatives	10		—		10		18		—		18
Foreign currency derivatives	27		21		48		19		45		64
Commodity derivatives	12		16		28		26		16		42
Total liabilities	$	345	$	42	$	387	$	358	$	66	$	424



	March 31, 2017				December 31, 2016
Fair Value	Assets		Liabilities		Assets		Liabilities
Current	$	93	$	105	$	99	$	155
Noncurrent	255		282		277		269
Total	$	348	$	387	$	376	$	424

Credit Risk-Related Contingent Features ⁽¹⁾					March 31, 2017		December 31, 2016
Present value of liabilities subject to collateralization					$	26	$	41
Cash collateral held by third parties or in escrow					7		18

_____________________________


⁽¹⁾	Based on the credit rating of certain subsidiaries

Earnings and Other Comprehensive Income (Loss) ~~Income~~ — The next table presents (in millions) the pretax gains (losses) recognized in AOCL and earnings related to all derivative instruments for the periods indicated:

Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Effective portion of cash flow hedges:
Gain (Losses) recognized in AOCL
Interest rate derivatives $ 7
$ (110 ) $ (213 ) $ (130 )
Cross-currency derivatives 15
3
12
4
Foreign currency derivatives (6 ) 5
(11 ) 6
Commodity derivatives 10
10
35
25
Total $ 26
$ (92 ) $ (177 ) $ (95 )
Gain (Losses) reclassified from AOCL into earnings
Interest rate derivatives $ (26 ) $ (33 ) $ (81 ) $ (88 )
Cross-currency derivatives 4
(1 ) 14
(3 )
Foreign currency derivatives (7 ) 12
(3 ) 20
Commodity derivatives 4
8
42
19
Total $ (25 ) $ (14 ) $ (28 )
$ (52 )
Gain (Losses) recognized in earnings related to
Ineffective portion of cash flow hedges $ (2 ) $ (2 ) $ —
$ (6 )
Not designated as hedging instruments:
Foreign currency derivatives $ (6 ) $ 23
$ 10
$ 62
Commodity derivatives and Other 7
(10 ) (11 ) (18 )
Total $ 1
$ 13
$ (1 ) $ 44

Twelve Months Ended September 30, 2017
AOCL expected to decrease pre-tax income from continuing operations ⁽¹⁾
$ 133

~~_____________________________~~



	Three Months Ended March 31,
	2017			2016
Effective portion of cash flow hedges
Gain (losses) recognized in AOCL
Interest rate derivatives	$	(22	)	$	(130	)
Cross-currency derivatives	12			8
Foreign currency derivatives	(15		)	—
Commodity derivatives	12			37
Total	$	(13	)	$	(85	)
Gain (losses) reclassified from AOCL into earnings
Interest rate derivatives	$	(24	)	$	(29	)
Cross-currency derivatives	4			9
Foreign currency derivatives	(2		)	2
Commodity derivatives	1			22
Total	$	(21	)	$	4
Gain (losses) recognized in earnings related to
Ineffective portion of cash flow hedges	$	—		$	2
Not designated as hedging instruments:
Foreign currency derivatives	$	(32	)	$	40
Commodity derivatives and Other	(2		)	(9		)
Total	$	(34	)	$	33

The AOCL expected to decrease pretax income from continuing operations, primarily due to interest rate derivatives, for the twelve months ended March 31, 2018 is $78 million.

⁽¹⁾

~~Primarily due to interest rate derivatives~~

5. FINANCING RECEIVABLES

Financing receivables are defined as receivables with contractual maturities of greater than one year. The Company’s financing receivables are primarily related to amended agreements or government resolutions that are due from ~~CAMMESA. Presented below are~~CAMMESA, the administrator of the wholesale electricity market in Argentina. The following table presents financing receivables by country as of the ~~periods~~dates indicated (in millions):


	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Argentina	$	217	$	237	$	263	$	236
United States	20		20		19		20
Brazil	8		7		8		8
Total long-term financing receivables	$	245	$	264
Other					12		—
Total					$	302	$	264

Argentina — Collection of the principal and interest on these receivables is subject to various business risks and uncertainties including, but not limited to, the ~~completion and~~ operation of power plants which generate cash for payments of these receivables, regulatory changes that could impact the timing and amount of collections, and economic conditions in Argentina. The Company monitors these risks, including the credit ratings of the Argentine government, on a quarterly basis to assess the collectability of these receivables. The Company accrues interest on these receivables once the recognition criteria have been met. The Company’s collection estimates are based on assumptions that it believes to be reasonable but are inherently uncertain. Actual future cash flows could differ from these estimates. The increase in Argentina financing receivables was primarily due to increased VAT invoiced by CAMMESA as well as foreign currency movements.

6. INVESTMENTS IN AND ADVANCES TO AFFILIATES

Summarized Financial Information — The following table summarizes financial information of the Company’s 50%-or-less-owned affiliates that are accounted for using the equity method (in millions):

Nine Months Ended September 30,
50%-or-less-Owned Affiliates 2016 2015
Revenue $ 439
$ 496
Operating margin 108
118
Net income 46
193

~~Solar Spain —~~ On September 24, 2015, the Company completed the sale of Solar Spain, an equity method investment. Net proceeds from the sale transaction were $31 million and the Company recognized a pretax gain on sale of less than $1 million.

~~Guacolda —~~ On September 1, 2015, AES Gener and Global Infrastructure Partners (“GIP”) executed a restructuring of Guacolda that increased Guacolda’s tax basis in certain long-term assets and AES Gener’s equity investment. As a result, AES Gener recorded $66 million in net equity in earnings of affiliates for the three and nine months ended September 30, 2015, of which $46 million is attributable to The AES Corporation.

~~Silver Ridge Power —~~ As part of the Company’s sale of its 50% ownership interest in Silver Ridge Power, LLC (“SRP”) on July 2, 2014, the buyer had an option to purchase the Company's indirect 50% interest in SRP’s solar generation business in Italy (“Solar Italy”) for additional consideration of $42 million by August 2015. The buyer exercised its option to purchase Solar Italy on August 31, 2015, and the sale was completed on October 1, 2015.



	Three Months Ended March 31,
50%-or-less-Owned Affiliates	2017		2016
Revenue	$	167	$	134
Operating margin	32		35
Net income	11		15

7. DEBT

Recourse Debt

In ~~July 2016,~~March 2017, the Company redeemed ~~in full the $181~~via tender offers $276 million ~~balance~~aggregate principal of its ~~8.0% outstanding~~existing 7.375% senior unsecured notes due ~~2017 using proceeds from~~in 2021 and $24 million of its existing 8.00% senior ~~secured credit facility.~~unsecured notes due in 2020. As a result of these transactions, the Company recognized a loss on extinguishment of debt of ~~$16~~$47 million for the three ~~and nine~~ months ended ~~September 30, 2016 that is included in the Condensed Consolidated Statement of Operations.~~

In May 2016, the Company issued $500 million aggregate principal amount of 6.0% senior notes due 2026. The Company used these proceeds to redeem, at par, $495 million aggregate principal of its existing LIBOR + 3.00% senior unsecured notes due 2019. As a result of the latter transaction, the Company recognized a net loss on extinguishment of debt of $4 million for the nine months ended September 30, 2016March 31, 2017 that is included in the Condensed Consolidated Statement of Operations.

In January 2016, the Company redeemed $125 million of its senior unsecured notes outstanding. The repayment included a portion of the 7.375% senior notes due in 2021, the 4.875% senior notes due in 2023, the 5.5% senior notes due in 2024, the 5.5% senior notes due in 2025 and the floating rate senior notes due in 2019. As a result of these transactions, the Company recognized a net gain on extinguishment of debt of $7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2016 ~~that is included in the Condensed Consolidated Statement of Operations.~~

In April 2015, the Company issued $575 million aggregate principal amount of 5.5% senior notes due 2025. Concurrent with this offering, the Company redeemed via tender offers $344 million aggregate principal of its existing 8.0% senior unsecured notes due 2017, and $156 million of its existing 8.0% senior unsecured notes due 2020. As a result of the latter transaction, the Company recognized a loss on extinguishment of debt of $82 million for the nine months ended September 30, 2015 that is included in the Condensed Consolidated Statement of Operations.

In March 2015, the Company redeemed in full the $151 million balance of its 7.75% senior unsecured notes due October 2015 and the $164 million balance of its 9.75% senior unsecured notes due April 2016. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $23 million for the nine months ended September 30, 2015 that is included in the Condensed Consolidated Statement of Operations.

Non-Recourse Debt

During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the Company’s subsidiaries ~~engaged in~~had the following significant debt transactions:

Subsidiary Issuances Repayments Gain (Loss) on Extinguishment of Debt
IPALCO $ 598

$ (390 ) $ —
Gener 619

(279 ) 7
Andres 220
(180 ) (2 )
Los Mina 118
—
—
Itabo Opco 100
(70 ) (1 )
Maritza 18
(136 ) —
DPL 445

(521 ) (3 )
Other 266
(462 ) —
$ 2,384
$ (2,038 ) $ 1



Subsidiary	Issuances		Repayments			Gain (Loss) on Extinguishment of Debt
Alicura	$	307	$	(181	)	$	65
Atlantico	107		—			—
Other	223		(233		)	(1		)
Total	$	637	$	(414	)	$	64

~~Non-recourse debt in default~~Alicura — In February 2017, Alicura issued $300 million aggregate principal of unsecured and unsubordinated notes due in 2024. The ~~following table summarizes~~net proceeds from this issuance were used for the ~~Company’s subsidiary~~prepayment of $75 million of non-recourse debt ~~in default as of September 30, 2016 (in millions). Due~~related to the ~~defaults, these amounts are included in the current portion of non-recourse debt:~~

Subsidiary Primary Nature of Default Debt in Default Net Assets
Kavarna (Bulgaria) Covenant $ 129
$ (50 )
Sogrinsk (Kazakhstan) Covenant 5
6
$ 134

~~The above defaults are not payment defaults. All~~construction of the ~~subsidiary non-recourse~~San Nicolas Plant resulting in a gain on extinguishment of debt ~~defaults were triggered by failure to comply with covenants and/or other conditions such as (but not limited to) failure to meet information covenants, complete construction or other milestones~~of approximately $65 million.

Non-Recourse Debt in ~~an allocated time, meet certain minimum or maximum financial ratios, or other requirements contained in the non-recourse debt documents of the applicable subsidiary.~~

Default — In the event that there is a default, bankruptcy or maturity acceleration at a subsidiary or group of subsidiaries that meets the applicable definition of materiality under the ~~Parent Company’s~~ corporate debt agreements of The AES Corporation, there could be a cross-default to the Company’s recourse debt. ~~A material subsidiary~~Materiality is defined in the ~~Parent Company’s~~Parent’s senior secured credit facility as ~~any business that contributed~~having provided 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently completed fiscal quarters. As of ~~September 30, 2016, none of~~March 31, 2017, the Company has no defaults ~~listed above individually or in the aggregate~~which result in or are at risk of triggering a cross-default under the recourse debt of the Parent Company. In the event the Parent Company is not in compliance with the financial covenants of its senior secured revolving credit facility, restricted payments will be limited to regular quarterly shareholder dividends at the then-prevailing rate. Payment defaults and bankruptcy defaults would preclude the making of any restricted payments.

8. COMMITMENTS AND CONTINGENCIES

Guarantees, Letters of Credit and Commitments — In connection with certain project ~~financing, acquisition,~~financings, acquisitions and dispositions, power ~~purchase~~purchases and other agreements, the Parent Company has expressly undertaken limited obligations and commitments, most of which will only be effective or will be terminated upon the occurrence of future events. In the normal course of business, the Parent Company has entered into various agreements, mainly guarantees and letters of credit, to provide financial or performance assurance to third parties on behalf of AES ~~subsidiaries.~~businesses. These agreements are entered into primarily to support or enhance the creditworthiness otherwise achieved by a business on a stand-alone basis, thereby facilitating the availability of sufficient credit to accomplish their intended business purposes. Most of the contingent obligations relate to future performance commitments which the Company or its

businesses expect to fulfill within the normal course of business. The expiration dates of these guarantees vary from less than one year to more than 18 years.

~~Presented below is~~

The following table summarizes the Parent Company’s contingent contractual obligations as of March 31, 2017. Amounts presented in the following table represent the Parent Company’s current undiscounted exposure to guarantees and the ~~potential~~ range of maximum undiscounted potential exposure. The maximum exposure is not reduced by the amounts, if any, that could be recovered under the recourse or collateralization provisions in the guarantees. ~~The table below summarizes the Parent Company’s contingent contractual obligations as of September 30, 2016 (in millions, except range amounts).~~


Contingent Contractual Obligations	Amount		No. of Agreements	Maximum Exposure Range for Each Agreement	Amount (in millions)		Number of Agreements	Maximum Exposure Range for Each Agreement (in millions)
Guarantees and commitments	$	497	17	$8 — 58	$	457	17	$8 — 58
Letters of credit under the unsecured credit facility	146		6	$2 — 58	185		8	$2 — 73
Asset sale related indemnities ⁽¹⁾	27		1	$27	27		1	$27
Letters of credit under the senior secured credit facility					6		15	<$1 — 1
Cash collateralized letters of credit	3		1	$3	3		1	$3
Letters of credit under the senior secured credit facility	6		15	<$1 — 1
Total	$	679	40		$	678	42

_____________________________


⁽¹⁾	Excludes normal and customary representations and warranties in agreements for the sale of assets (including ownership in associated legal entities) where the associated risk is considered to be nominal.

During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the Company paid letter of credit fees ranging from ~~0.2%~~0.25% to ~~2.5%~~2.25% per annum on the outstanding amounts of letters of credit.

Contingencies

Environmental — The Company periodically reviews its obligations as they relate to compliance with environmental laws, including site restoration and remediation. As of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, the Company had recognized liabilities of ~~$11~~$9 million and ~~$10~~$12 million, respectively, ~~relating to~~for projected environmental remediation costs. Due to the uncertainties associated with environmental assessment and remediation activities, future costs of compliance or remediation ~~with current legislation or costs for new legislation introduced~~ could be higher or lower than the amount currently accrued. Moreover, where no liability has been recognized, it is reasonably possible that the Company may be required to incur remediation costs or make expenditures in amounts that could be material but could not be estimated as of ~~September 30, 2016.~~March 31, 2017. In aggregate, the Company estimates the range of potential losses related to environmental matters, where estimable, to be up to ~~$21~~$20 million. The amounts considered reasonably possible do not include amounts accrued as discussed above.

Litigation — The Company is involved in certain claims, suits and legal proceedings in the normal course of business. The Company accrues for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company has evaluated claims in accordance with the accounting guidance for contingencies that it deems both probable and reasonably estimable and, accordingly, has recognized aggregate liabilities for all claims of approximately ~~$177~~$181 million and $179 million as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. ~~Recognized aggregate liabilities for these claims~~These amounts are reported on the Condensed Consolidated Balance Sheets within Accrued and other liabilities and Other noncurrent liabilities. A significant portion of these accrued liabilities relate to labor and employment, non-income tax and customer disputes in international ~~jurisdictions,~~jurisdictions. Certain of the Company’s subsidiaries, principally in Brazil, ~~where there~~ are defendants in a number of labor and employment lawsuits. The complaints generally seek unspecified monetary damages, injunctive relief, or other relief. The ~~AES~~ subsidiaries have denied any liability and intend to vigorously defend themselves in all of these proceedings. There can be no assurance that these accrued liabilities will be adequate to cover all existing and future claims or that we will have the liquidity to pay such claims as they arise.

The Company believes, based upon information it currently possesses and taking into account established accruals for liabilities and its insurance coverage, that the ultimate outcome of these proceedings and actions is unlikely to have a material effect on the Company’s consolidated financial statements. However, whereWhere no accrued liability has been recognized, it is reasonably possible that some matters could be decided unfavorably to the Company and could require the Company to pay damages or make expenditures in amounts that could be material but could not be estimated as of ~~September 30, 2016.~~March 31, 2017. The material contingencies where a loss is reasonably possible primarily include ~~(1)~~ claims under financing agreements, including the Eletrobrás ~~case (see Part II—Item 1—Legal Proceedings~~ ~~of this Form 10-Q); (2)~~case; disputes with offtakers, suppliers and EPC contractors; ~~(3)~~ alleged violation of monopoly laws and regulations; ~~(4)~~ income tax and non-income tax matters with tax authorities; and ~~(5)~~ regulatory matters. In aggregate, the Company estimates that the range of potential losses, where estimable, related to these reasonably possible material contingencies isto be between ~~$1.4~~$1.6 billion and ~~$1.7~~$1.8 billion. ~~Certain claims are in settlement negotiations. These claims~~The amounts considered reasonably possible do not include the amounts accrued,

as discussed ~~in the preceding paragraph, nor~~above. These material contingencies do ~~they~~not include income tax-related contingencies which are considered part of our uncertain tax positions.

~~Regulatory~~ — During the fourth quarter of 2013, the Company recognized a regulatory liability of $269 million for a contingency related to an administrative ruling which required Eletropaulo to refund customers’ amounts due to the regulatory asset base. During the second half of 2014, Eletropaulo started refunding customers as part of the tariff. In January 2015, ANEEL updated the tariff to exclude any further customer refunds. On June 30, 2015, ANEEL included in the tariff reset the reimbursement to Eletropaulo of these amounts previously refunded to customers to begin in July 2015. During the second quarter of 2015, as a result of favorable events, management reassessed the contingency and determined that it no longer meets the recognition criteria under ASC 450 ~~Contingencies~~. Management believes that it is now only reasonably possible that Eletropaulo will have to refund these amounts to customers. Accordingly, the Company reversed the remaining regulatory liability for this contingency of $161 million in the second quarter of 2015, which increased ~~Regulated revenue~~ ~~by $97 million and reduced~~ ~~Interest expense~~ ~~by $64 million. Amounts related to this case are included as part of our reasonably possible contingent range discussed in the preceding paragraph.~~

9. PENSION PLANS

Total pension cost and employer contributions were as follows for the periods indicated (in millions):


	Three Months Ended September 30,												Nine Months Ended September 30,												Three Months Ended March 31,
	2016						2015						2016						2015						2017						2016
	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign			U.S.			Foreign			U.S.			Foreign			U.S.			Foreign
Service cost	$	3		$	3		$	4		$	4		$	9		$	9		$	12		$	12		$	3		$	4		$	3		$	3
Interest cost	10			92			12			84			30			255			35			281			10			99			10			78
Expected return on plan assets	(17		)	(59		)	(17		)	(59		)	(50		)	(164		)	(51		)	(197		)	(17		)	(73		)	(17		)	(50		)
Amortization of prior service cost	2			—			1			—			6			—			5			—			1			—			2			—
Amortization of net loss	5			5			5			6			14			14			15			21			5			10			5			4
Curtailment loss recognized																									4			—			—			—
Total pension cost	$	3		$	41		$	5		$	35		$	9		$	114		$	16		$	117		$	6		$	40		$	3		$	35

													Nine Months Ended September 30, 2016						Remainder of 2016 (Expected)						Three Months Ended March 31, 2017						Remainder of 2017 (Expected)
													U.S.			Foreign			U.S.			Foreign			U.S.			Foreign			U.S.			Foreign
Total employer contributions													$	22		$	103		$	—		$	41		$	12		$	40		$	2		$	119

10. REDEEMABLE STOCK OF SUBSIDIARIES

The following table ~~below~~ is a reconciliation of changes in redeemable stock of subsidiaries (in millions):

Nine Months Ended September 30,
2016 2015
Balance at the beginning of the period $ 538
$ 78
Sale of redeemable stock of subsidiaries 134
460
Contributions to redeemable stocks of subsidiaries 130
—
Net loss attributable to redeemable stocks of subsidiaries (8 ) —
Fair value adjustment recorded to retained earnings ⁽¹⁾
4
—
Reclassification of mandatorily redeemable stock of subsidiaries to other liabilities (23 ) —
Balance at the end of the period $ 775
$ 538



	Three Months Ended March 31,
	2017			2016
Balance at the beginning of the period	$	782		$	538
Sale of redeemable stock of subsidiaries	—			134
Net loss attributable to redeemable stock of subsidiaries	(3		)	—
Other comprehensive income attributable to redeemable stock of subsidiaries	(1		)	—
Acquisition and reclassification of stock of subsidiaries	(4		)	—
Balance at the end of the period	$	774		$	672

The following table summarizes the Company’s redeemable stock of subsidiaries balances as of the periods indicated (in millions):



	March 31, 2017		December 31, 2016
IPALCO common stock	$	618	$	618
Colon quotas ⁽¹⁾	96		100
IPL preferred stock	60		60
Other common stock	—		4
Redeemable stock of subsidiaries	$	774	$	782

_____________________________


⁽¹⁾	~~$5 million increase in fair value~~Characteristics of ~~DP&L preferred shares offset by $1 million decrease in fair value of Colon~~quotas are similar to common stock.

~~The table below presents the investments in redeemable stock of subsidiaries (in millions):~~

September 30, 2016 December 31, 2015
IPALCO $ 618
$ 460
Colon 97
—
IPL preferred shares 60
60
DP&L preferred shares —
18
Redeemable stock of subsidiaries $ 775
$ 538

~~Colon~~ — During the nine months ended September 30, 2016, our partner in Colon invested an additional $23 million, increasing their ownership from 25% to 49.9%, and $83 million, with no impact to the ownership structure of the investment. Any subsequent adjustments to allocate earnings and dividends to our partner or measure the investment at fair value, will be classified as temporary equity each reporting period as it is probable that the shares will become redeemable.

~~DP&L~~ —In September 2016, it became probable that the preferred shares of DP&L, a wholly-owned subsidiary of DPL, would become redeemable. As such, the Company recorded an adjustment of $5 million to retained earnings to adjust the preferred shares to their redemption value of $23 million. Notice of the redemption

~~plan was issued on September 13, 2016, at which point the shares became mandatorily redeemable and were reclassified to other liabilities.~~

IPALCO — In March 2016, ~~La Caisse de depot et placement du Quebec (“CDPQ”) completed~~CDPQ exercised its ~~investment commitment in IPALCO~~remaining option by ~~investing~~ $134 million in IPALCO, ~~Enterprises, Inc. (“IPALCO”). As a result of this transaction, CDPQ owns a~~which resulted in CDPQ’s combined direct and indirect interest in IPALCO of 30%. ~~In June 2016, CDPQ contributed~~The company also recognized an increase to additional ~~$24~~paid-in capital and a reduction to retained earnings of $84 million ~~to IPALCO, with no impact to ownership structure~~for the excess of the ~~investment.~~fair value of the shares over their book value. Any subsequent adjustments to allocate earnings and dividends to CDPQ will be classified as NCI within permanent equity as it is not probable that the shares will become redeemable.

11. EQUITY

Changes in Equity — The following table ~~below~~ is a reconciliation of the beginning and ending equity attributable to stockholders of The AES Corporation, NCI and total equity as of the periods indicated (in millions):


	Nine Months Ended September 30, 2016									Nine Months Ended September 30, 2015									Three Months Ended March 31, 2017									Three Months Ended March 31, 2016
	The Parent Company Stockholders’ Equity			NCI			Total Equity			The Parent Company Stockholders’ Equity			NCI			Total Equity			The Parent Company Stockholders’ Equity			NCI			Total Equity			The Parent Company Stockholders’ Equity			NCI			Total Equity
Balance at the beginning of the period	$	3,149		$	3,022		$	6,171		$	4,272		$	3,053		$	7,325		$	2,794		$	2,906		$	5,700		$	3,149		$	3,022		$	6,171
Net income (loss) ⁽¹⁾	(181		)	97			(84		)	391			330			721			(24		)	122			98			126			(52		)	74
Total foreign currency translation adjustment, net of income tax	179			53			232			(498		)	(359		)	(857		)	61			10			71			100			28			128
Total change in derivative fair value, net of income tax	(52		)	(63		)	(115		)	10			(37		)	(27		)	12			3			15			(25		)	(40		)	(65		)
Total pension adjustments, net of income tax	3			7			10			3			10			13			(1		)	7			6			1			2			3
Cumulative effect of a change in accounting principle(2)	—			—			—			(5		)	—			(5		)	31			—			31			—			—			—
Fair value adjustment to redeemable stock of subsidiaries	(4		)	—			(4		)	—			—			—
Acquisition of businesses ⁽²⁾	—			—			—			—			11			11
Disposition of businesses	—			18			18			—			(49		)	(49		)	—			—			—			—			(2		)	(2		)
Distributions to noncontrolling interests	(2		)	(293		)	(295		)	—			(182		)	(182		)	—			(19		)	(19		)	(2		)	(17		)	(19		)
Contributions from noncontrolling interests	—			23			23			—			117			117			—			17			17			—			28			28
Dividends declared on common stock	(144		)	—			(144		)	(138		)	—			(138		)	(79		)	—			(79		)	(71		)	—			(71		)
Purchase of treasury stock	(79		)	—			(79		)	(408		)	—			(408		)	—			—			—			(79		)	—			(79		)
Issuance and exercise of stock-based compensation benefit plans, net of income tax	15			—			15			23			—			23			1			—			1			4			—			4
Sale of subsidiary shares to noncontrolling interests	—			17			17			(83		)	—			(83		)	(4		)	22			18			—			17			17
Acquisition of subsidiary shares from noncontrolling interests	(2		)	(3		)	(5		)	—			—			—			200			67			267			(2		)	(3		)	(5		)
Less: Net loss attributable to redeemable stocks of subsidiaries	—			8			8			—			—			—
Less: Net loss attributable to redeemable stock of subsidiaries																			$	—		$	3		$	3		$	—		$	—		$	—
Balance at the end of the period	$	2,882		$	2,886		$	5,768		$	3,567		$	2,894		$	6,461		$	2,991		$	3,138		$	6,129		$	3,201		$	2,983		$	6,184

_____________________________

⁽¹⁾~~Net income attributable to noncontrolling interest of $105 million and $8 million of net loss attributable to redeemable stocks of subsidiaries.~~

⁽²⁾ Fair value of a tax equity partner’s right to preferential returns as a result of the acquisition of Solar Power PR, LLC (Solar Puerto Rico), which was previously accounted for as an equity method investment.


⁽¹⁾	Net income attributable to noncontrolling interest of $125 million and $3 million of net loss attributable to redeemable stocks of subsidiaries.


⁽²⁾	See Note 1—Financial Statement Presentation, New Accounting Standards Adopted for further information.

Equity Transactions with Noncontrolling Interests

Alto Maipo — On March 17, 2017, the Company completed the legal and financial restructuring of Alto Maipo. As part of this restructuring, AES indirectly acquired the 40% ownership interest of the noncontrolling shareholder and sold a 6.7% interest in the projects to the construction contractor. This transaction resulted in a $196 million increase to the Parent Company’s Stockholders’ Equity due to an increase in additional-paid-in capital of $229 million, offset by the reclassification of accumulated other comprehensive losses from NCI to the Parent Company Stockholders’ Equity of $33 million. No gain or loss was recognized in net income as the sale was not considered to be a sale of in-substance real estate. After completion of the sale, the Company has an effective 62% economic interest in Alto Maipo. As the Company maintained control of the partnership after the sale, Alto Maipo continues to be consolidated by the Company within the Andes SBU reportable segment.

Jordan — On February 18, 2016, the Company completed the sale of 40% of its interest in a wholly owned subsidiary in Jordan which owns a controlling interest in the Jordan IPP4 gas-fired plant, for $21 million. The transaction was accounted for as a sale of in-substance real estate and a pretax gain of $4 million, net of transaction costs, was recognized in net income. The cash proceeds from the sale are reflected in Proceeds from the sale of businesses, net of cash sold on the Consolidated Statement of Cash Flows for the period ended ~~September 30,~~March 31, 2016. After completion of the sale, the Company has a 36% ~~net ownership~~economic interest in Jordan IPP4 and will continue to manage and operate the plant, with 40% owned by Mitsui Ltd. and 24% owned by Nebras Power Q.S.C. As the Company maintained control after the sale, Jordan IPP4 continues to be consolidated by the Company within the Europe SBU reportable segment.

~~Deconsolidations~~

~~UK Wind~~ — During the second quarter of 2016, the Company determined it no longer had control of its wind development projects in the United Kingdom (“UK Wind”) as the Company no longer held seats on the board of directors. In accordance with the accounting guidance, UK Wind was deconsolidated and a loss on deconsolidation of $20 million was recorded to ~~Gain on disposal and sale of businesses~~ ~~in the Condensed Consolidated Statement of Operations to write off the Company’s non-controlling interest in the project. The UK Wind projects were reported in the Europe SBU reportable segment.~~

Accumulated Other Comprehensive Loss — ~~See below for~~The following table summarizes the changes in AOCL by component, net of tax and NCI, for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 (in millions):


	Foreign currency translation adjustment, net			Unrealized derivative gains (losses), net			Unfunded pension obligations, net			Total			Foreign currency translation adjustment, net			Unrealized derivative gains (losses), net			Unfunded pension obligations, net			Total
Balance at the beginning of the period	$	(3,256	)	$	(353	)	$	(274	)	$	(3,883	)	$	(2,147	)	$	(323	)	$	(286	)	$	(2,756	)
Other comprehensive income (loss) before reclassifications	179			(71		)	—			108			58			(8		)	(2		)	48
Amount reclassified to earnings	—			19			3			22			3			20			1			24
Other comprehensive income (loss)	179			(52		)	3			130			61			12			(1		)	72
Reclassification from NCI due to Alto Maipo Restructuring													—			(33		)	—			(33		)
Balance at the end of the period	$	(3,077	)	$	(405	)	$	(271	)	$	(3,753	)	$	(2,086	)	$	(344	)	$	(287	)	$	(2,717	)

Reclassifications out of AOCL are presented in the following table. Amounts for the periods indicated are in millions and those in parenthesis indicate debits to the Condensed Consolidated Statements of Operations:


Details About		Affected Line Item in the Condensed Consolidated Statements of Operations		Three Months Ended September 30,								Nine Months Ended September 30,
AOCL Components			2016				2015				2016				2015
Details About AOCL Components																				Affected Line Item in the Condensed Consolidated Statements of Operations	Three Months Ended March 31,
Details About AOCL Components																					2017			2016
Foreign currency translation adjustment, net																			Foreign currency translation adjustment, net
																				Gain on disposals and sale of businesses	$	(3	)	$	—
																				Net income attributable to The AES Corporation	$	(3	)	$	—
Unrealized derivative gains (losses), net	Unrealized derivative gains (losses), net																		Unrealized derivative gains (losses), net
			Non-regulated revenue		$	20			$	12			$	94			$	27
		Non-regulated cost of sales		(17		)		(5		)		(54		)		(10		)
		Interest expense		(25		)		(28		)		(86		)		(84		)		Non-regulated revenue	$	10		$	42
		Gain on disposals and sale of investments		—				(4		)		—				(4		)		Non-regulated cost of sales	(10		)	(21		)
		Foreign currency transaction gains (losses)		(3		)		12				18				20				Interest expense	(23		)	(29		)
		Income (loss) from continuing operations before taxes and equity in earnings of affiliates		(25		)		(13		)		(28		)		(51		)		Foreign currency transaction gains (losses)	2			12
		Income tax expense		4				—				5				6				Income from continuing operations before taxes and equity in earnings of affiliates	(21		)	4
		Net equity in earnings of affiliates		—				(1		)		—				(1		)		Income tax expense	1			(3		)
		Income (loss) from continuing operations		(21		)		(14		)		(23		)		(46		)		Income from continuing operations	(20		)	1
		Less: Net income attributable to noncontrolling interests		5				6				4				15				Less: Net (income) loss attributable to noncontrolling interests	—			(1		)
		Net income (loss) attributable to The AES Corporation		$	(16	)		$	(8	)		$	(19	)		$	(31	)		Net income (loss) attributable to The AES Corporation	$	(20	)	$	—
Amortization of defined benefit pension actuarial loss, net	Amortization of defined benefit pension actuarial loss, net																		Amortization of defined benefit pension actuarial loss, net
		Regulated cost of sales		$	(4	)		$	(7	)		$	(13	)		$	(20	)		Regulated cost of sales	$	(10	)	$	(4	)
		Income (loss) from continuing operations before taxes and equity in earnings of affiliates		(4		)		(7		)		(13		)		(20		)		General and administrative expense	1			—
		Income tax expense		2				3				4				8				Income from continuing operations before taxes and equity in earnings of affiliates	(9		)	(4		)
		Income (loss) from continuing operations		(2		)		(4		)		(9		)		(12		)		Income tax expense	3			1
		Net loss from disposal and impairments of discontinued businesses		(1		)		—				(1		)		(1		)		Net Income (loss)	(6		)	(3		)
		Net Income (loss)		(3		)		(4		)		(10		)		(13		)		Less: Net (income) loss attributable to noncontrolling interests	5			2
		Less: Net income attributable to noncontrolling interests		2				3				7				10				Net income (loss) attributable to The AES Corporation	$	(1	)	$	(1	)
		Net income (loss) attributable to The AES Corporation		$	(1	)		$	(1	)		$	(3	)		$	(3	)
Total reclassifications for the period, net of income tax and noncontrolling interests	Total reclassifications for the period, net of income tax and noncontrolling interests			$	(17	)		$	(9	)		$	(22	)		$	(34	)	Total reclassifications for the period, net of income tax and noncontrolling interests		$	(24	)	$	(1	)

Common Stock Dividends — The Company paid dividends of ~~$0.11~~$0.12 per outstanding share to its common stockholders during the first ~~second and third~~ quarter of ~~2016~~2017 for dividends declared in December ~~2015, and~~2016.

On February ~~and July 2016, respectively.~~

~~Stock Repurchase Program~~ ~~— During~~24, 2017, the ~~nine months ended September 30, 2016, the Parent Company repurchased 8.7 million shares~~Board of ~~its~~Directors declared a quarterly common stock ~~at a total cost~~dividend of $79 million under the existing stock repurchase program (the “Program”). The cumulative repurchases from the commencement of the Program in July 2010 through September 30, 2016 totaled 154.3 million shares for a total cost of $1.9 billion, at an average price$0.12 per share payable on May 15, 2017 to shareholders of ~~$12.12 (including a nominal amount~~record at the close of ~~commissions). As of September 30, 2016, $264 million remained available for repurchase under the Program.~~business on May 1, 2017.

12. SEGMENTS

The segment reporting structure uses the Company’s management reporting structure as its foundation to reflect how the Company manages the businesses internally and is organized by geographic regions which provides a socio-political-economic understanding of our business. The management reporting structure is organized by six SBUs led by our President and Chief Executive Officer: ~~US; Andes; Brazil; MCAC; Europe;~~US, Andes, Brazil, MCAC, Europe, and Asia SBUs. Using the accounting guidance on segment reporting, the Company determined that it has six operating and six reportable segments corresponding to its ~~six~~ SBUs.

Corporate and Other — Corporate overhead costs which are not directly associated with the operations of our six reportable segments are included in “Corporate and Other.” Also included are certain intercompany charges such as self-insurance premiums which are fully eliminated in consolidation.

The Company uses Adjusted PTC as its primary segment performance measure. Adjusted PTC, a non-GAAP measure, is defined by the Company as pretax income from continuing operations attributable to The AES Corporation excluding ~~(1)~~

gains or losses of the consolidated entity due to (a) unrealized gains or losses related to derivative transactions, ~~(2)~~(b) unrealized foreign currency gains or losses, ~~(3)~~(c) gains or losses and associated benefits and costs due to dispositions and acquisitions of business interests, ~~(4)~~including early plant closures, and the tax impact from the repatriation of sales proceeds, (d) losses due to impairments, and ~~(5)~~(e) gains, losses and costs due to the early retirement of debt. Adjusted PTC also includes net equity in earnings of affiliates on an after-tax basis adjusted for the same gains or losses excluded from consolidated entities. The Company has concluded that Adjusted PTC ~~best~~better reflects the underlying business performance of the Company and is the most relevant measure considered in the Company’s internal evaluation of the financial performance of its segments. Additionally, given its large number of businesses and complexity, the Company has concluded that Adjusted PTC is a more transparent measure that better assists investors in determining which businesses have the greatest impact on the Company’s results.

Revenue and Adjusted PTC are presented before inter-segment eliminations, which includes the effect of intercompany transactions with other segments except for interest, charges for certain management fees, and the write-off of intercompany balances, as applicable. All intra-segment activity has been eliminated within the segment. Inter-segment activity has been eliminated within the total consolidated results.

The following tables present financial information by segment for the periods indicated (in millions):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Total Revenue	2016			2015			2016			2015			2017			2016
US SBU	$	916		$	923		$	2,582		$	2,751		$	808		$	855
Andes SBU	667			652			1,864			1,894			618			622
Brazil SBU	1,027			866			2,761			3,083			1,039			839
MCAC SBU	547			597			1,596			1,796			586			519
Europe SBU	207			292			675			921			237			246
Asia SBU	179			195			574			501			192			194
Corporate and Other	6			7			8			17			14			1
Eliminations	(7		)	(10		)	(18		)	(27		)	(2		)	(5		)
Total Revenue	$	3,542		$	3,522		$	10,042		$	10,936		$	3,492		$	3,271


													Three Months Ended March 31,
Total Adjusted PTC													2017			2016
Reconciliation from Income from Continuing Operations before Taxes and Equity In Earnings of Affiliates:
Income from continuing operations before taxes and equity in earnings of affiliates													$	160		$	173
Add: Net equity in earnings of affiliates													7			6
Less: Income (loss) from continuing operations before taxes, attributable to noncontrolling interests													171			(17		)
Pretax contribution													(4		)	196
Unrealized derivative gains													(1		)	(34		)
Unrealized foreign currency transaction gains													(9		)	(9		)
Disposition/acquisition (gains) losses													52			(19		)
Impairment expense													168			50
Gains on extinguishment of debt													(16		)	1
Total Adjusted PTC													$	190		$	185

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
Total Adjusted PTC	2016			2015			2016			2015			2017			2016
US SBU	$	114		$	101		$	257		$	263		$	48		$	85
Andes SBU	134			150			279			322			88			61
Brazil SBU	6			15			18			97			39			5
MCAC SBU	74			92			197			248			59			48
Europe SBU	24			45			127			171			55			69
Asia SBU	22			24			70			66			22			22
Corporate and Other	(102		)	(112		)	(331		)	(330		)	(121		)	(105		)
Total Adjusted PTC	$	272		$	315		$	617		$	837		$	190		$	185
Reconciliation to Income from Continuing Operations before Taxes and Equity In Earnings of Affiliates:
Non-GAAP Adjustments:
Unrealized derivative (losses) gains	(5		)	12			(1		)	29
Unrealized foreign currency (losses) gains	(3		)	(5		)	(12		)	(48		)
Disposition/acquisition (losses) gains	3			23			5			32
Impairment losses	(24		)	(139		)	(309		)	(175		)
Loss on extinguishment of debt	(20		)	(21		)	(26		)	(159		)
Pretax contribution	$	223		$	185		$	274		$	516
Add: Income from continuing operations before taxes attributable to noncontrolling interests	82			56			196			483
Less: Net equity in earnings of affiliates	11			81			25			96
Income from continuing operations before taxes and equity in earnings of affiliates	$	294		$	160		$	445		$	903


Total Assets	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
US SBU	$	9,822	$	9,800	$	9,229	$	9,333
Andes SBU	8,858		8,594		9,349		8,971
Brazil SBU	5,975		5,209		6,405		6,448
MCAC SBU	5,120		4,820		5,355		5,162
Europe SBU	2,766		3,101		2,506		2,664
Asia SBU	3,204		3,099		3,290		3,113
Assets of discontinued operations and held-for-sale businesses	1,006		1,306
Assets of held-for-sale businesses					24		—
Corporate and Other	357		541		350		428
Total Assets	$	37,108	$	36,470	$	36,508	$	36,119

13. OTHER INCOME AND EXPENSE

Other income generally includes gains on asset ~~sales;~~sales and liability ~~extinguishments;~~extinguishments, favorable judgments on ~~contingencies;~~contingencies, gains on contract terminations, allowance for funds used during construction and other income from miscellaneous transactions. Other expense generally includes losses on asset sales and ~~dispositions;~~dispositions, losses on legal ~~contingencies;~~contingencies, and losses from other miscellaneous transactions. The components are summarized as follows (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2016		2015		2016		2015			2017		2016
Other Income	Allowance for funds used during construction (US utilities)	$	8	$	5	$	22	$	12	Legal settlements ⁽¹⁾	$	60	$	—
	Gain on sale of assets	—		1		3		12		Allowance for funds used during construction (US Utilities)	7		7
	Other	10		6		18		18		Gain on sale of assets	1		2
	Total other income	$	18	$	12	$	43	$	42	Other	5		4
										Total other income	$	73	$	13

Other Expense	Loss on sale and disposal of assets	$	12	$	10	$	26	$	30	Loss on sale and disposal of assets	29		5
	Water rights write-off	—		4		7		4		Other	—		3
	Legal settlement	1		—		5		8		Total other expense	$	29	$	8
	Other	—		4		4		5
	Total other expense	$	13	$	18	$	42	$	47

_____________________________


⁽¹⁾	In December 2016, the Company and YPF entered into a settlement agreement in which all parties agreed to give up any and all legal action related to gas supply contracts that were terminated in 2008 and have been in dispute since 2009. In January 2017, the YPF board approved the agreement and paid the Company $60 million, thereby resolving all uncertainties around the dispute.

14. ASSET IMPAIRMENT EXPENSE

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2016 2015 2016 2015
Buffalo Gap I $ 78
$ —
$ 78
$ —
Buffalo Gap II —
—
159
—
DPL —
—
235
—
Kilroot —
113
—
113
UK Wind —
—
—
37
Buffalo Gap III —
118
—
118
Other 1
—
1
8
Total asset impairment expense $ 79
$ 231
$ 473
$ 276



	Three Months Ended March 31,
(in millions)	2017		2016
Kazakhstan	$	94	$	—
DP&L	66		—
Tait Energy Storage	8		—
Buffalo Gap II	—		159
Total	$	168	$	159

~~Buffalo Gap I~~DP&L — ~~During~~On March 17, 2017, the ~~third quarter~~board of ~~2016,~~directors of DP&L approved the Company tested the recoverability of its long-lived assets at Buffalo Gap I. As a result of decreases in wind production, management underwent a process to enhance the methodology for forecasting wind dispatch. The change in management’s estimate of dispatch resulted in lower forecasted revenues from September 2016 through the endretirement of the ~~asset group’s useful life. The Company determined that~~DP&L operated and co-owned Stuart Station coal-fired and diesel-fired generating units, and the carrying amount of the Buffalo Gap I asset group was not recoverable. The Buffalo Gap I asset group was determined to have a fair value of $35 million using the income approach. As a result, the Company recognized an asset impairment expense of $78 million ($23 million attributable to AES). Buffalo Gap I is reported in the US SBU reportable segment.

~~DPL~~ ~~— During the second quarter of 2016, the Company tested the recoverability of its long-lived generation assets at DPL. Uncertainty created by the Supreme Court of Ohio’s~~Killen Station coal-fired generating unit and combustion turbine on or before June 20, 2016 opinion, lower expectations of future revenue resulting from the most recent PJM capacity auction, and higher anticipated environmental compliance costs resulting from third party studies were collectively determined to be an impairment indicator for these assets.1, 2018. The Company performed a long-lived asset impairment analysis and determined that the carrying ~~amount~~amounts of ~~Killen, a coal-fired generation facility, and certain DPL peaking generation~~the facilities were not recoverable. The Stuart Station and Killen ~~and DPL peaking generation asset groups~~Station were determined to have a fair ~~value~~values of ~~$84~~$3 million and $5$8 million, respectively, using the income approach. As a result, the Company recognized a total asset impairment expense of ~~$235~~$66 million. DPL is reported in the US SBU reportable segment.

Kazakhstan — In January 2017, the Company entered into an agreement for the sale of Ust-Kamenogorsk CHP and Sogrinsk CHP, its combined heating and power coal plants in Kazakhstan. The fair value of the Kazakhstan asset group was determined to be below carrying value. As a result, the Company recognized asset impairment expense of $94 million during the three months ended March 31, 2017. Kazakhstan is reported in the Europe SBU reportable segment. See Note 16—Held-for-Sale Businesses and Dispositions of this Form 10-Q for further information.

Buffalo Gap II — During the first quarter of 2016, the Company tested the recoverability of its long-lived assets at Buffalo Gap II. Impairment indicators were identified based on a decline in forward power curves. The Company determined that the carrying amount was not recoverable. The Buffalo Gap II asset group was determined to have a fair value of $92 million using the income approach. As a result, the Company recognized an asset impairment expense of $159 million ($49 million attributable to AES). Buffalo Gap II is reported in the US SBU reportable segment.

~~Kilroot~~ — During the third quarter of 2015, the Company tested the recoverability of long-lived assets at Kilroot, a coal and oil-fired plant in the United Kingdom, when the regulator established lower capacity prices for the Irish Single Electricity Market. The Company determined that the carrying amount of the asset group was not recoverable. The Kilroot asset group was determined to have a fair value of $78 million using the income approach. As a result, the Company recognized asset impairment expense of $113 million. Kilroot is reported in the Europe SBU reportable segment.

~~Buffalo Gap III~~ — During the third quarter of 2015, the Company tested the recoverability of its long-lived assets at Buffalo Gap III, a wind farm in Texas. Impairment indicators were identified based on a decline in forward power curves coupled with the near term expiration of favorable contracted cash flows. The Company determined that the carrying amount was not recoverable. The Buffalo Gap III asset group was determined to have a fair value of $116 million using the income approach. As a result, the Company recognized asset impairment expense of $118 million. Buffalo Gap III is reported in the US SBU reportable segment.

~~UK Wind~~ — During the second quarter of 2015, the Company decided to no longer pursue two wind projects in the United Kingdom based on recent regulatory clarifications specific to these projects, resulting in a full impairment. Impairment indicators were also identified at four other wind projects based on their development status and a reassessment of the likelihood that each project would be pursued given aviation concerns, regulatory changes, economic considerations and other factors. The Company determined that the carrying amounts of each of these asset groups, which totaled $38 million, were not recoverable. In aggregate, the asset groups were determined to have a fair value of $1 million using the market approach and, as a result, the Company recognized an asset impairment expense of $37 million. The UK Wind projects were reported in the Europe SBU reportable segment.

15. ~~INCOME TAXES~~DISCONTINUED OPERATIONS

~~Chilean Tax Reform~~Brazil Distribution — ~~— In February 2016, the Chilean government enacted further reforms~~Due to its income tax laws that resulted in an increase to statutory income tax rates for most of our Chilean businesses from 25% to 25.5% in 2017 and to 27% for 2018 and future years. The impact of remeasuring deferred taxes to account for the enacted change in future applicable income tax rates was recognized as discrete income tax expensea portfolio evaluation in the first ~~quarter~~half of 2016, ~~resulting~~management decided to pursue a strategic shift of its distribution companies in ~~an increase of $26 million to consolidated income tax expense.~~

~~16. DISCONTINUED OPERATIONS~~

Brazil, Sul —and Eletropaulo. In June 2016, the Company executed an agreement for the sale of Sul and reported its ~~wholly-owned subsidiary~~results of operations and financial position as discontinued operations. The disposal of Sul was completed in October 2016. Prior to its classification as discontinued operations, Sul was reported in the Brazil SBU reportable segment. In December 2016, Eletropaulo underwent a corporate restructuring which is expected to, among other things, provide more liquidity of its shares. AES is continuing to pursue strategic options for Eletropaulo in order to complete its strategic shift to reduce AES’ exposure to the Brazilian distribution businesses, including preparation for listing its shares into the Novo Mercado, which is a

listing segment of the Brazilian stock exchange with the highest standards of corporate governance.

As the sale of Sul ~~a distribution business~~was completed during 2016, there were no assets or liabilities of discontinued operations at March 31, 2017 or December 31, 2016. There was no income from discontinued operations or cash flows from operating or investing activities of discontinued operations for the three months ended March 31, 2017.

The following table summarizes the major line items constituting the loss from discontinued operations for the three months ended March 31, 2016 (in millions):



	Three Months Ended March 31, 2016
Loss from discontinued operations, net of tax:
Revenue — regulated	$	200
Cost of sales	(204		)
Other income and expense items that are not major, net	(9		)
Pretax loss from discontinued operations	$	(13	)
Income tax benefit	4
Loss from discontinued operations, net of tax	$	(9	)

The following table summarizes the operating and investing cash flows from discontinued operations for the three months ended March 31, 2016 (in millions):



	Three Months Ended March 31, 2016
Cash flows provided by operating activities of discontinued operations	$	14
Cash flows used in investing activities of discontinued operations	(42		)

16. HELD-FOR-SALE BUSINESSES AND DISPOSITIONS

Held-For-Sale Businesses

Kazakhstan— In January 2017, the Company entered into an agreement for the sale of Ust-Kamenogorsk CHP and Sogrinsk CHP, its combined heating and power coal plants in ~~Brazil.~~Kazakhstan. Upon meeting the held-for-sale criteria, the Company recognized an ~~after tax loss of $382 million comprised of a pretax~~ impairment charge of $783 million, offset by a tax benefit of $266 million related to the impairment of the Sul long lived assets and a tax benefit of $135 million for deferred taxes related to the investment in AES Sul. Prior to the impairment charge in the second quarter, the$94 million. The carrying value of the ~~AES Sul~~ asset group of ~~$1.6 billion~~approximately $171 million was greater than its approximate fair value less costs to sell of ~~$470~~$29 million. However, the impairment charge was limited to the carrying value of the long lived assets of the ~~AES Sul~~ disposal ~~group.~~group as of March 31, 2017. The sale of ~~AES Sul closed October 31, 2016. See Note 20—Subsequent Events~~.

Upon disposal of AES Sul, we expect to incur an additional after tax loss on sale of approximately $700 million subject to factors such as adjustments to sales proceeds and potential future movements in exchange rates. The cumulative impact to earnings of the ~~impairment and loss on sale is expected~~Kazakhstan CHP plants did not meet the criteria to be approximately $1.1 billion. This includes the reclassification of approximately $1 billion of cumulative translation losses, resulting in an expected net reduction to the Company’s stockholders’ equity of approximately $100 million.

~~Due to~~reported as a ~~recent portfolio evaluation, we determined that AES Sul is no longer aligned with our strategic goals and~~discontinued operation, therefore its ~~disposal is part of a strategic shift of the Company in the Brazil distribution sector. Therefore, we have reported the~~ results ~~of operations and financial position of Sul as discontinued~~were reflected within continuing operations in the ~~consolidated financial statements for all periods presented. Sul’s pretax~~Condensed Consolidated Statements of Operations. Pretax loss ~~attributable to AES was $1 million and $794 million, for the three and nine months ended September 30, 2016, respectively. Sul’s pretax gain~~ attributable to AES for the three months ended ~~September 30, 2015~~March 31, 2017 was $6$81 million and pretax ~~loss~~income attributable to AES for the ~~nine~~three months ended ~~September 30, 2015~~March 31, 2016 was ~~$18~~$8 million. ~~Prior to its classification as discontinued operations, Sul was reported in the Brazil SBU reportable segment.~~

The ~~following table summarizes the carrying amounts of the major classes of assets and liabilities of discontinued operations and held-for-sale businesses at September 30, 2016 and December 31, 2015:~~

(in millions) September 30, 2016 December 31, 2015
Assets of discontinued operations and held-for-sale businesses:
Cash and cash equivalents $ 4
$ 5
Accounts receivable, net of allowance for doubtful accounts of $19 and $8 respectively 184
171
Property, plant and equipment and intangibles, net 860
668
Deferred income taxes 589
133
Other classes of assets that are not major 206
233
Loss recognized on classification as held-for-sale ⁽¹⁾
(837 ) —
Total assets of discontinued operations $ 1,006
$ 1,210
Other assets of businesses classified as held-for-sale ⁽²⁾
—
96
Total assets of discontinued operations and held-for-sale businesses ⁽³⁾
$ 1,006
$ 1,306
Liabilities of discontinued operations and held-for-sale businesses:
Accounts payable $ 141
$ 150
Accrued and other liabilities 156
150
Non-recourse debt 337
346
Other classes of liabilities that are not major 168
125
Total liabilities of discontinued operations $ 802
$ 771
Other liabilities of businesses classified as held-for-sale ⁽²⁾
—
13
Total liabilities of discontinued operations and held-for-sale businesses ⁽³⁾
$ 802
$ 784

~~_____________________________~~


⁽¹⁾	~~Pre-tax impairment expense of $783 million is net of the impact from cumulative translation adjustments.~~


⁽²⁾	~~DPLER and Kelanitissa were classified as held-for-sale as of December 31, 2015. See Note 17—Dispositions~~ ~~for further information.~~


⁽³⁾	~~Amounts were classified as both current and long-term on the Condensed Consolidated Balance Sheet as of December 31, 2015.~~

~~The following table summarizes the the major line items constituting gains (losses) from discontinued operations for the three and nine months ended September 30, 2016 and 2015:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2016 2015 2016 2015
Loss from discontinued operations, net of tax:
Revenue — regulated
$ 213
$ 199
$ 632
$ 627
Cost of sales (200 ) (192 ) (608 ) (620 )
Asset impairment expense —
—
(783 ) —
Other income and expense items that are not major (14 ) (1 ) (35 ) (25 )
Pretax gain (loss) from discontinued operations $ (1 ) $ 6
$ (794 ) $ (18 )
Income tax benefit (expense) —
(1 ) 405
6
(Loss) income from discontinued operations, net of tax $ (1 ) $ 5
$ (389 ) $ (12 )

~~The following table summarizes the operating and investing cash flows from discontinued operations for the nine months ended September 30, 2016 and 2015:~~

Nine Months Ended September 30,
(in millions) 2016 2015
Cash flows from operating activities of discontinued operations $ 68
$ (23 )
Cash flows from investing activities of discontinued operations (63 ) (16 )

~~17. DISPOSITIONS~~

~~UK Wind~~— ~~During the second quarter of 2016, the Company deconsolidated UK Wind and recorded a loss on deconsolidation of $20 million to~~ ~~Gain on disposal and sale of businesses~~ ~~in the Condensed Consolidated Statement of Operations. Prior to deconsolidation, UK Wind was~~plants are reported in the Europe SBU reportable segment. ~~See Note 11—Equity~~On April 7, 2017, the Company completed the sale of its interest in the Kazakhstan CHP plants for ~~additional information.~~net proceeds of $24 million and expects to recognize a pretax loss on sale of $48 million, subject to foreign currency movements, primarily related to the reclassification of cumulative translation losses.

The Company has two remaining hydroelectric plants in Kazakhstan. These plants operate under a concession agreement until the beginning of October 2017. In April 2017, the Government of Kazakhstan initiated the process to transfer the assets back to the government in accordance with the concession agreement. The transfer is currently under negotiation and the outcome is uncertain. The combined carrying value of the long-lived assets total approximately $92 million as of March 31, 2017.

Dispositions

DPLER — On January 1, 2016, the Company completed the sale of its interest in DPLER, a competitive retail marketer selling electricity to customers in Ohio. Upon completion, proceeds of $76 million were received and a gain on sale of $49 million was recognized. The sale of DPLER did not meet the criteria to be reported as a discontinued operation. Prior to its sale, DPLER was reported in the US SBU reportable segment.

Kelanitissa — On January 27, 2016, the Company completed the sale of its interest in Kelanitissa, a diesel-fired generation station in Sri Lanka. Upon completion, proceeds of $18 million were received and a loss on sale of $5 million was recognized. The sale of Kelanitissa did not meet the criteria to be reported as a discontinued operation. Prior to its sale, Kelanitissa was reported in the Asia SBU reportable segment.

~~Armenia Mountain~~— OnJuly 1, 2015, the Company completed the sale of Armenia Mountain, a wind project in Pennsylvania. Net proceeds from the sale transaction were $64 million and the Company recognized a pretax gain on sale of $22 million. The sale did not meet the criteria to be reported as a discontinued operation. Prior to its

~~sale, Armenia Mountain was reported in the US SBU reportable segment.~~

~~18.~~17. ACQUISITIONS

~~Distributed Energy~~sPower Acquisition — On February ~~18, 2015,~~19, 2017, the Company ~~completed~~and Alberta Investment Management Corporation (“AIMCo”) entered into an agreement to acquire FTP Power LLC (“sPower”) for $853 million in cash, subject to

customary purchase price adjustments, plus the ~~acquisition~~assumption of ~~100%~~sPower’s non-recourse debt. Upon completion of the ~~common stock~~transaction, AES and AIMCo will each own slightly below 50% of ~~Main Street Power Company, Inc.~~sPower. The sPower portfolio includes solar and wind projects in operation, under construction, and in development located in the United States. The transaction is expected to close by the third quarter of 2017. The agreement contains certain termination rights for ~~approximately $25 million. The purchase consideration was composed of $20 million cash and~~ the ~~fair value of earn-out payments of $5 million. At~~parties, including if the closing does not occur by December 31, ~~2015, the assets acquired (including $4 million cash) and liabilities assumed at the acquisition date were recorded at fair value based on the final purchase price allocation,~~2017, which ~~resulted in the recognition of $16 million of goodwill. After the date of acquisition, Main Street Power Company, Inc. was renamed Distributed Energy, Inc.~~

On September 16, 2016, Distributed Energy acquired the equity interest of various projects held by multiple partnerships for approximately $43 million. These partnerships were were previously classified as equity method investments. In accordance with the accounting guidance for business combinations,may be automatically extended under certain circumstances. Additionally, the Company ~~has recorded the opening balance sheets~~and AIMCo may be required to incur a reverse termination fee of ~~the acquired businesses based on the purchase price allocation as of the acquisition date. The Company has not finalized the purchase price allocation and will continue~~up to ~~make adjustments during the measurement period.~~$75 million.

~~19.~~18. EARNINGS PER SHARE

Basic and diluted earnings per share are based on the ~~weighted average~~weighted-average number of shares of common stock and potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted earnings per share, includes the effects of dilutive RSUs, stock options and convertible securities. The effect of such potential common stock is computed using the treasury stock method or the if-converted method, as applicable. ~~Presented below~~

The following table is a reconciliation ~~for the periods indicated,~~ of the numerator and denominator of the basic and diluted earnings per share computation for income (loss) from continuing operations for the three months ended March 31, 2017 and 2016, where income or loss represents the numerator and ~~weighted average~~weighted-average shares ~~represents~~represent the ~~denominator:~~denominator.

(in millions, except per share data) 2016 2015
Three Months Ended September 30, Income Shares $ per Share Income Shares $ per Share
BASIC EARNINGS PER SHARE
Income (loss) from continuing operations attributable to The AES Corporation common stockholders⁽¹⁾
$ 171
659
$ 0.26
$ 175
679
$ 0.26
EFFECT OF DILUTIVE SECURITIES

Stock options —
—
—
—
1
—
Restricted stock units —
3
—
—
2
—
DILUTED EARNINGS PER SHARE $ 171
662
$ 0.26
$ 175
682
$ 0.26
Nine Months Ended September 30,
BASIC EARNINGS PER SHARE
Income from continuing operations attributable to The AES Corporation common stockholders⁽²⁾
$ 203
660
$ 0.31
$ 403
692
$ 0.58
EFFECT OF DILUTIVE SECURITIES
Restricted stock units —
2
—
—
2
—
DILUTED EARNINGS PER SHARE $ 203
662
$ 0.31
$ 403
694
$ 0.58

~~_____________________________~~

⁽¹⁾ Income from continuing operations, net of tax, of $176 million less the $5 million adjustment to retained earnings to record the DP&L redeemable preferred stock at its redemption value as of September 30, 2016.

⁽²⁾ Income from continuing operations, net of tax, of $208 million less the $5 million adjustment to retained earnings to record the DP&L redeemable preferred stock at its redemption value as of September 30, 2016.



Three Months Ended March 31,	2017							2016
(in millions, except per share data)	Loss			Shares	$ per Share			Income		Shares	$ per Share
BASIC EARNINGS PER SHARE
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	(24	)	659	$	(0.04	)	$	135	661	$	0.20
EFFECT OF DILUTIVE SECURITIES
Restricted stock units	—			—	—			—		2	—
DILUTED EARNINGS PER SHARE	$	(24	)	659	$	(0.04	)	$	135	663	$	0.20

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~respectively, the calculation of diluted earnings per share excluded 7 million ~~outstanding~~and 8 million stock awards ~~which~~outstanding that could potentially dilute basic earnings per share in the future. Additionally, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ all 15 million ~~shares of potential common stock associated with~~ convertible debentures were omitted from the earnings per share calculation as the impact would have been anti-dilutive.

For the three months ended March 31, 2017, the calculation of diluted earnings per share also excluded 4 million outstanding restricted stock units, that could potentially dilute earnings per share in the future. These restricted units were not included in the computation of diluted earnings per share for the three months ended March 31, 2017 because their impact would be anti-dilutive given the loss from continuing operations. Had the Company generated income from continuing operations in the three months ended March 31, 2017, 3 million potential shares of common stock related to the restricted stock units would have been included in diluted average shares outstanding.

~~20.~~19. SUBSEQUENT EVENTS

~~Sale of AES Sul~~Kazakhstan Sale — On ~~October 31, 2016,~~April 7, 2017, the Company ~~closed~~completed the sale of its ~~100% equity~~ interest in ~~AES Sul and received proceeds of $440 million, net of estimated working capital adjustments and transaction costs. The Company expects to recognize an additional loss on~~ the ~~sale in the fourth quarter of 2016.~~Kazakhstan CHP plants. See Note 16—~~Discontinued Operations~~Held-for-Sale Businesses and Dispositions for ~~additional information.~~further discussion.

Alto Sertao II Acquisition — On April 18, 2017, the Company entered into an agreement to purchase from Renova Energia S.A. the Alto Sertao II Wind Complex (“Alto Sertao II”) for $189 million, subject to customary purchase price adjustments, plus the assumption of $363 million Alto Sertao’s non-recourse debt and $32 million of contingent consideration. Alto Sertao II is a wind farm located in Brazil. The transaction is expected to close by the second half of 2017.

Zimmer and Miami Fort Sale— On April 21, 2017, DP&L and AES Ohio Generation entered into an agreement for the sale of DP&L’s undivided interest in Zimmer and Miami Fort for $50 million in cash and the assumption of certain liabilities, including environmental, subject to predefined closing adjustments. The sale is subject to approval by the Federal Energy Regulatory Commission and is expected to close in the third quarter of 2017.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this Quarterly Report on Form 10-Q (“Form 10-Q”), the terms “AES,” “the Company,” “us,” or “we” refer to the consolidated entity and all of its subsidiaries and affiliates, collectively. The term “The AES Corporation” or “the Parent Company” refers only to the publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. The condensed consolidated financial statements included in Item 1.—Financial Statements of this Form 10-Q and the discussions contained herein should be read in conjunction with our ~~2015~~2016 Form 10-K.

The prior-period condensed consolidated financial statements and management’s discussion and analysis in this Form 10-Q have been reclassified to reflect the businesses held-for-sale and discontinued operations as discussed in Note 16—Held-for-Sale Businesses and Dispositions and Note 15—Discontinued Operations,.respectively.

FORWARD-LOOKING INFORMATION

The following discussion may contain forward-looking statements regarding us, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described in Item 1A.—Risk Factors and Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~2015~~2016 Form 10-K and subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and factors that may affect our business.

Overview of Our Business — We are a diversified power generation and utility company organized into the following six market-oriented SBUs: US (~~United States~~)(United States); Andes (~~Chile,~~(Chile, Colombia and ~~Argentina~~)Argentina); Brazil; MCAC (~~Mexico,~~(Mexico, Central America and the ~~Caribbean~~)Caribbean); Europe (~~Europe and Middle East~~); and Asia~~(India, Philippines, Vietnam, and Sri Lanka)~~. For additional information regarding our business, see Item 1.—Business of our ~~2015~~2016 Form 10-K.

Within our six SBUs, ~~listed above,~~ we have two lines of business. The first business line is generation, where we own and/or operate power plants to generate and sell power to customers such as utilities, industrial users and other intermediaries. The second business line is utilities, where we own and/or operate utilities to generate or purchase, distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors within a defined service area. In certain circumstances, our utilities also generate and sell electricity on the wholesale market.

~~Key Topics~~

Executive Summary

Compared with last year, the results for the three months ended March 31, 2017 primarily reflect higher margins at the Company's MCAC SBU, due to improved availability in ~~Management’s Discussion~~Mexico; Brazil SBU, largely due to higher spot sales at Tietê; and ~~Analysis~~ ~~— Our discussion covers~~Andes SBU, due to higher sales in Colombia. These positive contributions were partially offset by lower margins at the ~~following:~~Company's Europe SBU, due to the restructuring of the PPA at Maritza in Bulgaria in the second quarter of 2016.

Consolidated net cash provided by operating activities for the first quarter of 2017 was $703 million, an increase of $63 million compared to the first quarter of 2016. The increase was primarily driven by higher margins, as well as higher collections and lower tax payments at AES Gener and in the Dominican Republic.

Overview of ~~Q3 2016~~Q1 2017 Results and Strategic Performance

~~Review of Consolidated Results of Operations~~

~~Non-GAAP Measures and SBU Performance Analysis~~

~~Key Trends and Uncertainties~~

~~Capital Resources and Liquidity~~

~~Overview of Q3 2016 Results and Strategic Performance~~

~~Management’s~~ Strategic Priorities — ~~Management is focused on the following priorities:~~We continue to make progress towards meeting our strategic goals to maximize value for our shareholders.

~~Leveraging our platforms~~ — We are focusing our growth on platform expansions in markets where we already operate and have a competitive advantage to realize attractive risk-adjusted returns. We currently have 3,389 MW under construction. These projects represent $6.4 billion in total capital expenditures, with the majority of AES’ $1.1 billion in equity already funded. These projects are expected to come on-line through 2019. Beyond the projects we currently have under construction, we will continue to advance select projects from our development pipeline.

~~Reducing complexity~~ — By exiting businesses and markets where we do not have a competitive advantage, we are simplifying our portfolio and reducing risk. Year-to-date 2016, we announced or closed $510 million in equity proceeds from the sales or sell-downs of six businesses.

~~Performance excellence~~ — We strive to be the low-cost manager of a portfolio of assets and to derive synergies and scale from our businesses. In late 2015, we launched a $150 million cost reduction and revenue enhancement initiative. This initiative will include overhead reductions, procurement efficiencies and operational improvements. We expect to achieve at least $50 million in savings in 2016, ramping up to a total of $150 million in 2018.

~~Expanding access to capital~~ — We are building strategic partnerships at the project and business levels. Through these partnerships, we aim to optimize our risk-adjusted returns in our existing businesses and growth projects. By selling down portions of certain businesses, we can adjust our global exposure to commodity, fuel, country and other macroeconomic risks. Partial sell-downs of our assets can also serve to highlight or enhance the value of businesses in our portfolio.

~~Allocating capital in a disciplined manner~~ — Our top priority is to maximize risk-adjusted returns to our shareholders, which we achieve by investing our discretionary cash and recycling the capital we receive from asset sales and strategic partnerships. Year-to-date 2016, we generated substantial cash by executing on our strategy, which we allocated in line with our capital allocation framework:



◦	~~Used $312 million to prepay and refinance the Parent Company debt;~~


◦	~~Returned $297 million to shareholders through share repurchases and quarterly dividends; and~~


◦	~~Invested $343~~	Leveraging Our Platforms
		Focusing our growth in markets where we already operate and have a competitive advantage to realize attractive risk-adjusted returns

		●	3,399 MW currently under construction
			○	Represents $6.9 billion in total capital expenditures
			○	Majority of AES’ $1.2 billion in equity already funded
			○	Expected to come on-line through 2019
		●	Will continue to advance select projects from our development pipeline



		Reducing Complexity
		Exiting businesses and markets where we do not have a competitive advantage, simplifying our portfolio and reducing risk

		●	In 2017, announced the sale or shutdown of 3,737 MW of merchant coal-fired generation in Ohio and Kazakhstan



		Performance Excellence
		Striving to be the low-cost manager of a portfolio of assets and deriving synergies and scale from our businesses
		●	In 2015, launched a $150 million cost reduction and revenue enhancement initiative
			○	Includes overhead reductions, procurement efficiencies and operational improvements
			○	Achieved $50 million in savings in 2016 and expect to ramp up to a total of $150 million in 2018
		●	Expect to achieve an additional $25 million in savings per year in 2019 and 2020



		Expanding Access to Capital
		Optimizing risk-adjusted returns in existing businesses and growth projects
		●	Building strategic partnerships at the project and business level with an aim to optimize our ~~subsidiaries.~~risk-adjusted returns in our business and growth projects
		●	Adjust our global exposure to commodity, fuel, country and other macroeconomic risks



		Allocating Capital in a Disciplined Manner
		Maximizing risk-adjusted returns to our shareholders by investing our free cash flow to strengthen our credit and deliver attractive growth in cash flow and earnings
		●	In the first quarter of 2017, prepaid $300 million of Parent debt

~~Safe Operations~~

Safety is our first value and a top priority. We consistently analyze and evaluate our safety performance in order to capture lessons learned and strengthen mitigation plans that improve our safety performance.

~~Q3 2016~~Q1 2017 Strategic Performance

Earnings Per Share and ~~Proportional~~Consolidated Free Cash Flow Results in ~~Q3 2016~~Q1 2017 (in millions, except per share amounts):


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
	2016		2015		Change			% Change		2016		2015		$ Change			% Change		2017			2016		$ Change			% Change
Diluted earnings per share from continuing operations	$	0.26	$	0.26	$	—		—	%	$	0.31	$	0.58	$	(0.27	)	-47	%	$	(0.04	)	$	0.20	$	(0.24	)	-120	%
Adjusted EPS (a non-GAAP measure) ⁽¹⁾	0.32		0.38		(0.06		)	-16	%	0.64		0.90		(0.26		)	-29	%	0.17			0.15		0.02			13	%
Net cash provided by operating activities	819		915		(96		)	-10	%	2,182		1,505		677			45	%	703			640		63			10	%
Proportional free cash flow (a non-GAAP measure) ⁽¹⁾	400		621		(221		)	-36	%	1,070		948		122			13	%
Free Cash Flow (a non-GAAP measure) ⁽¹⁾																			546			490		56			11	%

_____________________________


⁽¹⁾	See Item 2.—SBU Performance Analysis—Non-GAAP Measures for reconciliation and definition.

Three Months Ended ~~September 30, 2016~~

Diluted earnings per share from continuing operations remained $0.26, for the three months ended September 30, 2016 as compared to 2015. The key drivers for 2016 were stable margins and lower impairment expense; largely offset by lower equity in earnings of affiliates due to the restructuring at Guacolda, in Chile, executed during the third quarter of 2015.

~~Adjusted EPS, a non-GAAP measure, decreased $0.06, or 16%, to $0.32, primarily driven by lower equity in earnings of affiliates due to the restructuring at Guacolda.~~

~~Net cash provided by operating activities decreased by $96 million, or 10%, to $819 million, primarily driven by lower net income, adjusted for non-cash items.~~

Proportional Free Cash Flow, a non-GAAP measure, decreased by $221 million, or 36%, to $400 million, primarily driven by lower collections in the Dominican Republic resulting from the collection of overdue accounts receivable in September 2015, and a decrease in VAT refunds related to our Cochrane and Alto Maipo construction projects.

~~Nine Months Ended September 30, 2016~~March 31, 2017

Diluted earnings per share from continuing operations decreased ~~$0.27,~~$0.24, or ~~47%~~120%, to ~~$0.31,~~a loss of $0.04, primarily driven by ~~lower operating margins at our Brazil, MCAC and Europe SBUs,~~ higher impairment expense inattributable to AES and, to a lesser extent, losses associated with the ~~first half~~sale of ~~2016, higher interest expense, lower equity in earnings~~Sul and the retirement of ~~affiliates due to~~ the ~~restructuring~~Stuart and Killen Stations at ~~Guacolda in the third quarter of 2015, and devaluation of foreign currencies against the US dollar.~~DP&L. These decreases were partially offset by higher margins at our MCAC, Brazil and Andes SBUs, the favorable impact of the YPF legal settlement at AES Uruguaiana and a lower ~~share count, lower losses on extinguishment of debt, higher operating margin at Andes SBU, and higher interest income.~~

effective tax rate.

Adjusted EPS, a non-GAAP measure, ~~decreased $0.26,~~increased $0.02, or ~~29%~~13%, to ~~$0.64,~~$0.17, primarily driven by ~~lower operating~~higher margins at our MCAC, Brazil ~~MCAC~~ and ~~Europe~~Andes SBUs, ~~higher interest expense~~favorable impact of the YPF legal settlement at AES Uruguaiana and lower ~~equity in earnings of affiliates due to the restructuring at Guacolda; partially offset by lower share count, higher operating margin at Andes SBU, and higher interest income.~~

effective tax rate.

Net cash provided by operating activities increased by ~~$677~~$63 million, or ~~45%~~10%, to ~~$2.2 billion,~~$703 million, primarily driven by ~~the collection of overdue receivables at Maritza and~~ an increase in ~~collections at our Brazil utilities, which were partially offset by the timing of payments for energy purchases at our Brazil utilities and lower~~ net income, adjusted for non-cash ~~items.~~items, and lower tax payments at Gener, Tietê, and the Dominican Republic. These increases were partially offset by lower collections of net regulatory assets at Eletropaulo and higher working capital requirements at DPL.

~~Proportional~~ Free ~~Cash Flow,~~cash flow, a non-GAAP measure, increased by ~~$122~~$56 million, or ~~13%~~11%, to ~~$1.1 billion,~~$546 million, primarily driven by the ~~collection of overdue receivables at Maritza, increased collections at our Brazil utilities,~~$63 million increase in net cash provided by operating activities, as well as a decrease in maintenance and ~~lower working capital requirements.~~non-recoverable environmental expenditures. These increases were partially offset by a decrease in ~~Adjusted Operating Margin (a non-GAAP measure).~~service concession asset expenditures, which are excluded from the calculation of free cash flow but included in operating cash flows determined in accordance with GAAP.

Review of Consolidated Results of Operations

Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except per share amounts) 2016 2015 $ change % change 2016 2015 $ change % change
Revenue:
US SBU $ 916
$ 923
$ (7 ) -1 % $ 2,582
$ 2,751
$ (169 ) -6 %
Andes SBU 667
652
15
2 % 1,864
1,894
(30 ) -2 %
Brazil SBU 1,027
866
161
19 % 2,761
3,083
(322 ) -10 %
MCAC SBU 547
597
(50 ) -8 % 1,596
1,796
(200 ) -11 %
Europe SBU 207
292
(85 ) -29 % 675
921
(246 ) -27 %
Asia SBU 179
195
(16 ) -8 % 574
501
73
15 %
Corporate and Other 6
7
(1 ) -14 % 8
17
(9 ) -53 %
Intersegment eliminations (7 ) (10 ) 3
-30 % (18 ) (27 ) 9
-33 %
Total Revenue 3,542
3,522
20
1 % 10,042
10,936
(894 ) -8 %
Operating Margin:

US SBU 189
165
24
15 % 436
463
(27 ) -6 %
Andes SBU 203
162
41
25 % 466
412
54
13 %
Brazil SBU 53
91
(38 ) -42 % 174
492
(318 ) -65 %
MCAC SBU 140
148
(8 ) -5 % 370
416
(46 ) -11 %
Europe SBU 54
59
(5 ) -8 % 184
226
(42 ) -19 %
Asia SBU 41
33
8
24 % 124
104
20
19 %
Corporate and Other 7
4
3
75 % 11
28
(17 ) -61 %
Intersegment eliminations 1
3
(2 ) -67 % 6
—
6
NM
Total Operating Margin 688
665
23
3 % 1,771
2,141
(370 ) -17 %
General and administrative expenses (40 ) (45 ) 5
-11 % (135 ) (150 ) 15
-10 %
Interest expense (354 ) (365 ) 11
-3 % (1,086 ) (995 ) (91 ) 9 %
Interest income 110
126
(16 ) -13 % 365
321
44
14 %
Loss on extinguishment of debt (16 ) (20 ) 4
-20 % (12 ) (161 ) 149
-93 %
Other expense (13 ) (18 ) 5
-28 % (42 ) (47 ) 5
-11 %
Other income 18
12
6
50 % 43
42
1
2 %
Gain on disposal and sale of businesses —
24
(24 ) -100 % 30
24
6
25 %
Asset impairment expense (79 ) (231 ) 152
-66 % (473 ) (276 ) (197 ) 71 %
Foreign currency transaction gains (losses) (20 ) 12
(32 ) NM
(16 ) 4
(20 ) NM
Income tax expense (75 ) (43 ) (32 ) 74 % (165 ) (266 ) 101
-38 %
Net equity in earnings of affiliates 11
81
(70 ) -86 % 25
96
(71 ) -74 %
INCOME FROM CONTINUING OPERATIONS 230
198
32
16 % 305
733
(428 ) -58 %
(Loss) income from operations of discontinued businesses, net of income tax benefit (expense) of $0, $(1), $4 and $6, respectively (1 ) 5
(6 ) NM
(7 ) (12 ) 5
-42 %
Net loss from disposal and impairments of discontinued businesses, net of income tax benefit of $401 for the nine months ended September 30, 2016 —
—
—
NM
(382 ) —
(382 ) NM
NET INCOME (LOSS) 229
203
26
13 % (84 ) 721
(805 ) NM
Less: Net income attributable to noncontrolling interests (57 ) (23 ) (34 ) NM
(105 ) (330 ) 225
-68 %
Less: Net loss attributable to redeemable stocks of subsidiaries 3
—
3
NM
8
—
8
NM
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION $ 175
$ 180
$ (5 ) -3 % $ (181 ) $ 391
$ (572 ) NM
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
Income from continuing operations, net of tax $ 176
$ 175
$ 1
1 % $ 208
$ 403
$ (195 ) -48 %
(Loss) income from discontinued operations, net of tax (1 ) 5
(6 ) NM
(389 ) (12 ) (377 ) NM
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION $ 175
$ 180
$ (5 ) -3 % $ (181 ) $ 391
$ (572 ) NM
Net cash provided by operating activities $ 819
$ 915
$ (96 ) -10 % $ 2,182
$ 1,505
$ 677
45 %
DIVIDENDS DECLARED PER COMMON SHARE $ 0.11
$ 0.10
$ 0.01
10 % $ 0.22
$ 0.20
$ 0.02
10 %

~~NM - Not Meaningful~~



	Three Months Ended March 31,
(in millions, except per share amounts)	2017			2016			$ change			% change
Revenue:
US SBU	$	808		$	855		$	(47	)	-5	%
Andes SBU	618			622			(4		)	-1	%
Brazil SBU	1,039			839			200			24	%
MCAC SBU	586			519			67			13	%
Europe SBU	237			246			(9		)	-4	%
Asia SBU	192			194			(2		)	-1	%
Corporate and Other	14			1			13			NM
Intersegment eliminations	(2		)	(5		)	3			60	%
Total Revenue	3,492			3,271			221			7	%
Operating Margin:
US SBU	113			114			(1		)	-1	%
Andes SBU	146			123			23			19	%
Brazil SBU	107			43			64			NM
MCAC SBU	108			96			12			13	%
Europe SBU	80			83			(3		)	-4	%
Asia SBU	40			37			3			8	%
Corporate and Other	1			8			(7		)	-88	%
Intersegment eliminations	(2		)	5			(7		)	NM
Total Operating Margin	593			509			84			17	%
General and administrative expenses	(54		)	(48		)	(6		)	13	%
Interest expense	(348		)	(342		)	(6		)	2	%
Interest income	97			117			(20		)	-17	%
Gain on extinguishment of debt	17			4			13			NM
Other expense	(29		)	(8		)	(21		)	NM
Other income	73			13			60			NM
Gain on disposal and sale of businesses	—			47			(47		)	-100	%
Asset impairment expense	(168		)	(159		)	(9		)	6	%
Foreign currency transaction gains (losses)	(21		)	40			(61		)	NM
Income tax expense	(69		)	(96		)	27			-28	%
Net equity in earnings of affiliates	7			6			1			17	%
INCOME FROM CONTINUING OPERATIONS	98			83			15			18	%
Loss from operations of discontinued businesses, net of income tax benefit of $4	—			(9		)	9			-100	%
NET INCOME	98			74			24			32	%
Less: Net (income) loss attributable to noncontrolling interests	(125		)	52			(177		)	NM
Less: Net loss attributable to redeemable stocks of subsidiaries	3			—			3			NM
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	(24	)	$	126		$	(150	)	NM
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
Income (loss) from continuing operations, net of tax	$	(24	)	$	135		$	(159	)	NM
Loss from discontinued operations, net of tax	—			(9		)	9			-100	%
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	(24	)	$	126		$	(150	)	NM
Net cash provided by operating activities	$	703		$	640		$	63		10	%
DIVIDENDS DECLARED PER COMMON SHARE	$	0.12		$	0.11		$	0.01		9	%

Components of Revenue, Cost of Sales, Operating Margin, and Operating Cash Flow — Revenue includes revenue earned from the sale of energy from our utilities and the production and sale of energy from our generation plants, which are classified as regulated and non-regulated, respectively, on the Condensed Consolidated Statements of Operations. Revenue also includes the gains or losses on derivatives associated with the sale of electricity.

Cost of sales includes costs incurred directly by the businesses in the ordinary course of business. Examples include electricity and fuel purchases, operations and maintenance costs, depreciation and amortization expense,

bad debt expense and recoveries, and general administrative and support costs (including employee-related costs directly associated with the operations of the business). Cost of sales also includes the gains or losses on derivatives (including embedded derivatives other than foreign currency embedded derivatives) associated with the purchase of electricity or fuel.

Operating margin is defined as revenue less cost of sales.

Consolidated Revenue and Operating Margin ~~— Executive Summary~~

(in millions)

Three months ended ~~September 30, 2016:~~

March 31, 2017

Consolidated Revenue — Revenue increased ~~$20~~$221 million, or 1%7%, ~~to $3.54 billion~~ for the three months ended ~~September 30, 2016,~~March 31, 2017 as compared ~~with $3.52 billion for~~to the three months ended ~~September 30, 2015.~~March 31, 2016. This increase was driven by favorable FX impact of $184 million, primarily byin Brazil of $199 million, as well as higher LNG sales of $33 million in the ~~commencement of operations of Unit 1 at Cochrane in Chile as of July 2016.~~Dominican Republic.

Consolidated Operating Margin — Operating margin increased ~~$23~~$84 million, or 3%17%, ~~to $688 million~~ for the three months ended ~~September 30, 2016,~~March 31, 2017 as compared ~~with $665 million for~~to the three months ended September 30, 2015 due to new operations at Cochrane as discussed above as well as lower energy purchase and fuel costs in Chile and higher margins at IPL driven by new rate order and environmental projects placed in service. These results were partially offset by lower rates for energy sold under new contracts at Tietê.

~~Nine months ended September 30, 2016:~~

~~Consolidated Revenue— Revenue decreased $894 million, or 8%, to $10.0 billion for the nine months ended September 30, 2016, compared with $10.9 billion for the nine months ended September 30, 2015.~~March 31, 2016. This ~~decrease~~increase was driven by ~~unfavorable~~favorable FX impact of ~~$598~~$23 million, primarily in Brazil of ~~$355 million, Argentina of $74 million, Kazakhstan of $60 million and Colombia of $54~~$21 million. ~~Additionally, revenues decreased in Brazil~~In addition, operating margin increased due to ~~lower rates for energy sold under new contracts at Tietê; operations in 2015 but not in 2016 at Uruguiana; the reversal~~higher tariffs of a contingent regulatory liability in 2015, and lower demand, partially offset by the annual tariff adjustment, at Eletropaulo. Revenues also declined due to lower pass-through costs at El Salvador and IPP4 in Jordan, the sale of DPLER in January 2016, and lower rates at DPL. These decreases were partially offset by the impact of full operations at Mong Duong in 2016 compared to Unit 1 in March 2015 (with principal operations commencing in April 2015) and the commencement of operations of Unit 1 at Cochrane in Chile as of July 2016.

~~Consolidated Operating Margin— Operating margin decreased $370~~$41 million or 17%, to $1.8 billion for the nine months ended September 30, 2016, compared with $2.1 billion for the nine months ended September 30, 2015. In addition to the unfavorable FX impact of $78 million primarily in Kazakhstan, Argentina, Brazil, and Colombia, the decrease was driven primarily by the reversal of a contingent regulatory liability in 2015, higher fixed costs and lower demand at Eletropaulo and ~~lower rates for energy sold under new contracts~~favorable timing of spot sales at higher prices of $19 million at Tietê. ~~These decreases were partially offset by higher margin and lower fixed costs at Gener as well as the impact from new operations at Mong Duong in Vietnam and Cochrane in Chile as discussed above.~~

See Item 2.—SBU Performance Analysis of this Form 10-Q for additional discussion and analysis of operating results for each SBU.

Consolidated Results of Operations — Other

General and administrative expenses

General and administrative expenses ~~decreased $5~~increased $6 million, or ~~11%~~13%, to ~~$40~~$54 million for the three months ended ~~September 30, 2016. The decrease was~~March 31, 2017 as compared to $48 million for the three months ended March 31, 2016 primarily due to ~~decreased employee-related costs and~~increased professional ~~fees.~~

General and administrative expenses decreased $15 million, or 10%, to $135 million for the nine months ended September 30, 2016. The decrease was primarily due to decreased employee-related costs and professional fees.fees, most of which are associated with acquisition activities.

Interest expense

Interest expense ~~decreased $11~~increased $6 million, or 3%2%, to ~~$354~~$348 million for the three months ended ~~September 30, 2016. This decrease was primarily due~~March 31, 2017 as compared to ~~prior year interest expense recorded on payments to the Argentinian tax authority.~~

~~Interest expense increased $91~~$342 million ~~or 9%, to $1.1 billion~~ for the ~~nine~~three months ended ~~September 30, 2016. This increase was~~March 31, 2016 primarily due to a $101 million increase at Eletropaulo as a result of the prior year reversal of $64 million in interest expense, previously recognized on a contingent regulatory liability, and increased interest expense due to higher regulatory liabilities and interest rates in the current period. Additionally, there was a $26 million increase at Mong Duong, mainly due to lower capitalized interest at Cochrane as a result of the commencement of operations of two units in ~~April 2015. These increases were partially offset by lower interest expense~~the second half of ~~$20 million due to a reduction in debt principal and lower interest rates at the Parent Company and DPL.~~2016.

Interest income

Interest income decreased ~~$16~~$20 million, or ~~13%~~17%, to ~~$110~~$97 million for the three months ended ~~September 30, 2016. The decrease was~~March 31, 2017 as compared to $117 million for the three months ended March 31, 2016 primarily ~~due to lower interest income of $6 million at Andres due to higher collection of receivables and lower interest rates; and $4 million at Eletropaulo~~ due to lower interest on regulatory assets ~~resulting from annual tariff review.~~

~~Interest income increased $44 million, or 14%, to $365 million for the nine months ended September 30, 2016. This increase was primarily due to higher interest income of $35 million~~ at Eletropaulo ~~mainly due~~attributable to ~~higher~~lower regulatory asset balance as a result of cost recoveries, and lower interest on regulatory assets in the first half of 2016 and higher interest rates, and $23 million recognized on the financing element of the service concession arrangement at Mong Duong, which became fully operational from April 2015.rates.

~~Loss~~Gain on extinguishment of debt

~~Loss~~Gain on extinguishment of debt ~~was $16~~increased $13 million ~~and $12~~to $17 million for the three ~~and nine~~ months ended ~~September 30, 2016 and $20 million and $161~~March 31, 2017 as compared to $4 million for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~March 31, 2016 primarily due to a $65 million gain at Alicura as a result of the prepayment of non-recourse debt related to the construction of the San Nicolas Plant. This

gain was partially offset by a $47 million loss at the Parent Company due to the redemption of two of its existing senior unsecured notes in 2017, and a $7 million gain at the Parent company in 2016 due to the redemption of senior unsecured notes. See Note 7—Debt included in Item 1.—Financial Statements of this Form 10-Q for further information.

Other income and expense

Other income ~~was $18~~increased $60 million ~~and $43~~to $73 million for the three ~~and nine~~ months ended ~~September 30, 2016, and $12 million and $42~~March 31, 2017 as compared to $13 million for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~March 31, 2016 primarily due to the favorable settlement of legal proceeding at Uruguiana related to YPF's breach of the parties’ gas supply agreement.

Other expense ~~was $13~~increased $21 million ~~and $42~~to $29 million for the three ~~and nine~~ months ended ~~September 30, 2016, and $18 million and $47~~March 31, 2017 as compared to $8 million for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~March 31, 2016 primarily due to loss on disposal of assets at DP&L as a result of the decision to close the coal-fired and diesel-fired generating units at Stuart and Killen on or before June 1, 2018.

See Note 13—Other Income and Expense included in Item 1.—Financial Statements of this Form 10-Q for further information.

Gain on disposal and sale of businesses

There were no material gains on disposal and sale of businesses for the three months ended ~~September 30, 2016. The were gains~~March 31, 2017.

Gain on disposal and sale of businesses was ~~$30 million for the nine months ended September 30, 2016 and $24~~$47 million for the three ~~and nine~~ months ended ~~September 30, 2015.~~March 31, 2016 primarily due to gain on sale of DPLER.

See Note ~~17—~~16—Held-For-Sale Businesses and Dispositions included in Item 1.—Financial Statements of this Form 10-Q for further information.

Asset impairment expense

Asset impairment expense was ~~$79 million and $473~~$168 million for the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017. This was primarily related to asset impairments of $94 million at Kazakhstan due to the fair value of the held-for-sale Kazakhstan asset group being lower than its carrying value, and ~~$231~~$66 million at DPL as a result of the decision to close the coal-fired and ~~$276~~diesel-fired generating units at Stuart and Killen on or before June 1, 2018.

Asset impairment expense was $159 million for the three ~~and nine~~ months ended ~~September 30, 2015, respectively.~~ March 31, 2016 primarily related to asset impairment at Buffalo Gap II due to a decline in forward power curves.

See Note 14—Asset Impairment Expense included in Item 1.—Financial Statements of this Form 10-Q for further information.

Foreign currency transaction gains (losses):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2016			2015			2016			2015			2017			2016
Parent Company	$	(23	)	$	(2	)	$	(29	)	$	(21	)
Colombia	(3		)	13			(4		)	18
Chile	(2		)	(12		)	(4		)	(20		)
Corporate													$	(14	)	$	8
Argentina	8			13			9			30			(8		)	30
United Kingdom	1			4			10			6
Other	(1		)	(4		)	2			(9		)	1			2
Total ⁽¹⁾	$	(20	)	$	12		$	(16	)	$	4		$	(21	)	$	40


⁽¹⁾	Includes ~~$15~~$33 million of losses and ~~$39~~$45 million of gains on foreign currency derivative contracts for the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015, respectively, and $8 million and $85 million of gains on foreign currency derivative contracts for the nine months ended September 30, 2016 and 2015,~~ respectively.

The Company recognized net foreign currency transaction losses of ~~$20~~$21 million for the three months ended ~~September 30, 2016,~~March 31, 2017, primarily due ~~to:~~

~~a loss of $23 million at the Parent Company, which was mainly~~to Corporate losses on foreign currency forwards and options related to ~~foreign currency swaps and options, partially offset by remeasurement gains on intercompany notes.~~the Brazilian Real.

The Company recognized net foreign currency transaction gains of ~~$12~~$40 million for the three months ended ~~September 30, 2015,~~March 31, 2016, primarily due ~~to:~~

a gain of $13 million in Colombia, which was mainly related to unrealized gains due to the 19% depreciation of the Colombian Peso, resulting in a gain at Chivor (a U.S. Dollar functional currency subsidiary) from liabilities denominated in Colombian Pesos, primarily income tax payable, accounts payable, and non-recourse debt, and positive impact from foreign currency embedded derivatives;

~~a gain of $13 million in Argentina, which was mainly related~~ to the favorable impact of foreign currency derivatives associated with government receivables at AES Argentina Generacion (an Argentine Peso functional currency subsidiary), partially offset by losses from the remeasurement of U.S. Dollar denominated debt, and losses from the remeasurement of local currency asset balances at Termoandes (a U.S. Dollar functional currency subsidiary); andArgentina.

a loss of $12 million in Chile, which was mainly due to the 9% depreciation of the Chilean Peso, resulting in a loss at Gener (a U.S. Dollar functional currency subsidiary) from working capital denominated in Chilean Pesos, primarily cash, accounts receivables and VAT receivables.

~~The Company recognized net foreign currency transaction losses of $16 million for the nine months ended September 30, 2016, primarily due to:~~

~~a loss of $29 million at the Parent Company, which was mainly related to foreign currency swaps and options, partially offset by remeasurement gains on intercompany notes; and~~

~~a gain of $10 million at United Kingdom, which was mainly related to remeasurement gains on intercompany debt.~~

~~The Company recognized net foreign currency transaction gains of $4 million for the nine months ended September 30, 2015, primarily due to:~~

a gain of $30 million in Argentina, which was mainly related to the favorable impact of foreign currency derivatives associated with government receivables at AES Argentina Generacion (an Argentine Peso functional currency subsidiary), partially offset by losses from the remeasurement of U.S. Dollar denominated debt, and losses from the remeasurement of local currency asset balances at Termoandes (a U.S. Dollar functional currency subsidiary);

a gain of $18 million in Colombia, which was mainly related to unrealized gains due to the 30% depreciation of the Colombian Peso, resulting in a gain at Chivor (a U.S. Dollar functional currency subsidiary) from liabilities denominated in Colombian pesos, primarily income tax payable, accounts payable, and non-recourse debt, and positive impact from foreign currency embedded derivatives;

~~a loss of $21 million at the Parent Company, which was mainly due to net remeasurement losses on intercompany notes, partially offset by gains on foreign currency options; and~~

a loss of $20 million in Chile, which was mainly due to the 15% depreciation of the Chilean Peso, resulting in a loss at Gener (a U.S. Dollar functional currency subsidiary) from working capital denominated in Chilean Pesos, primarily cash, accounts receivables and VAT receivables.

Income tax expense

Income tax expense ~~increased $32~~decreased $27 million, or ~~74%~~28%, to ~~$75~~$69 million for the three months ended ~~September 30, 2016~~March 31, 2017 compared to ~~$43~~$96 million for the three months ended ~~September 30, 2015.~~March 31, 2016. The Company’s effective tax rates were ~~26%~~43% and ~~27%~~55% for the three months ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ respectively.

The net decrease in the effective tax rate for the three months ended ~~September 30, 2016,~~March 31, 2017, compared to the same

period in ~~2015 was principally due to favorable resolution of an audit settlement at certain of our operating subsidiaries in the Dominican Republic this quarter.~~

~~Income tax expense decreased $101 million, or 38%, to $165 million for the nine months ended September 30,~~ 2016, ~~compared to $266 million for the nine months ended September 30, 2015. The Company’s effective tax rates were 37% and 29% for the nine months ended September 30, 2016 and 2015, respectively.~~

~~The net increase in the effective tax rate for the nine months ended September 30, 2016, compared to the same period in 2015~~ was principally due to the unfavorable impact of Chilean income tax law reform enacted during the first quarter of ~~2016 and~~2016. This was partially offset by tax expense related to the ~~2016 asset impairments recorded~~appreciation of the Peso at ~~Buffalo Gap I, Buffalo Gap II, and DPL. See Note 14—Asset Impairment Expense~~ ~~included in Item 1.—Financial Statements~~certain of ~~this Form 10-Q for further information regarding~~our Mexican subsidiaries during the ~~Buffalo Gap I, Buffalo Gap II, DPL asset impairments.~~first quarter of 2017.

Our effective tax rate reflects the tax effect of significant operations outside the U.S. which are generally taxed at lower rates than the U.S. statutory rate of 35%. A future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate. In certain periods, however, our effective tax rate may be higher than 35% due to various discrete tax expense impacts.

Net equity in earnings of affiliates

Net equity in earnings of affiliates ~~decreased $70~~increased $1 million, or 17%, to ~~$11~~$7 million for the three months ended ~~September 30, 2016~~March 31, 2017 compared to $6 million for the three months ended ~~September 30, 2015. The decrease was primarily due to a restructuring of Guacolda in September 2015. See Note 6—Investment In and Advances to Affiliates~~ ~~included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for further information.~~

Net equity in earnings of affiliates decreased $71 million to $25 million for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. The decrease was primarily due to a restructuring of Guacolda in September 2015. See Note 6—~~Investment In and Advances to Affiliates~~ ~~included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for further information.~~March 31, 2016.

Net income attributable to noncontrolling interests

Net income attributable to NCI increased ~~$34~~$177 million to ~~$57~~income of $125 million for the three months ended ~~September 30,~~March 31, 2017 as compared to a loss of $52 million for the three months ended March 31, 2016. This increase was primarily due to ~~prior year~~ asset impairment at Buffalo Gap ~~III; partially offset by current year asset impairment~~II in 2016, along with the favorable YPF legal settlement at ~~Buffalo Gap I.~~

~~Net income attributable to NCI decreased $225 million, or 68%, to $105 million for the nine months ended September 30, 2016. This decrease was primarily due to lower~~AES Uruguaiana and higher operating margin at ~~Eletropaulo resulting from the the reversal of a contingent regulatory liability~~Tietê in ~~2015, asset impairments at Buffalo Gap I and II in 2016, and lower operating margin at Tietê; partially offset by an asset impairment at Buffalo Gap III in 2015.~~2017.

Discontinued operations

~~Net losses from discontinued operations were $1 million and $389 million for the three and nine months ended September 30, 2016, and $12 million for the nine months ended September 30, 2015.~~ Net income from discontinued operations was $5$9 million for the three months ended ~~September 30, 2015.~~March 31, 2016 due to the operations from Sul being classified as discontinued operations starting in the second quarter of 2016. The sale of Sul closed in the fourth quarter of 2016. See Note ~~16—~~15—Discontinued Operations included in Item 1.—Financial Statements of this Form 10-Q for further information regarding the Sul discontinued operations.

Net income (loss) ~~income~~ attributable to The AES Corporation

Net income attributable to The AES Corporation decreased $5 million to $175 million in the three months ended September 30, 2016 compared to $180 million in the three months ended September 30, 2015. Key drivers of the decrease were:

~~lower equity in earnings of affiliates;~~

~~lower operating margin at our Brazil SBU;~~

~~devaluation of foreign currencies against the US dollar;~~

~~lower gains on disposal and sale of businesses; and~~

~~lower interest income.~~

~~These decreases were partially offset by:~~

~~lower impairment expense on long lived assets; and~~

~~higher operating margin at our Andes SBU.~~

Net income (loss) attributable to The AES Corporation decreased ~~$572~~$150 million to a loss of ~~$181~~$24 million in the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 compared to income of ~~$391~~$126 million in the ~~nine~~three months ended ~~September 30, 2015.~~March 31, 2016. Key drivers of the decrease were:

current year impairments at ~~discontinued operations;~~

~~lower operating margins at our Brazil, MCAC~~Kazakhstan and ~~Europe SBUs;~~

~~higher impairment expense on long lived assets;~~

~~higher interest expense;~~

~~lower equity in earnings of affiliates; and~~

~~devaluation of foreign currencies against the US dollar.~~DPL.

These decreases were partially offset by:

~~lower losses on extinguishment of debt;~~

higher ~~operating margin~~margins at our MCAC, Brazil and Andes ~~SBU;~~SBUs in the current year;

the favorable impact of the YPF legal settlement at AES Uruguaiana;

a lower effective tax rate; and

~~higher interest income.~~prior year impairment at Buffalo Gap II.

SBU Performance Analysis

Non-GAAP Measures

Adjusted Operating Margin, Adjusted PTC, Adjusted EPS, and ~~Proportional~~Consolidated Free Cash Flow (“Free Cash Flow”) are non-GAAP supplemental measures that are used by management and external users of our consolidated financial statements such as investors, industry analysts and lenders. The Adjusted Operating Margin, Adjusted PTC, and ~~Proportional~~Consolidated Free Cash Flow by SBU for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 are shown below. The percentages represent the contribution by each SBU to the gross metric, excluding Corporate.

For the year beginning January 1, 2017, the Company changed the definition of Adjusted PTC and Adjusted EPS to exclude associated benefits and costs due to acquisitions, dispositions, and early plant closures; including the tax impact of decisions made at the time of sale to repatriate sales proceeds. We believe excluding these benefits and costs better reflect the business performance by removing the variability caused by strategic decisions to dispose of or acquire business interests or close plants early. The Company has also reflected these changes in the comparative period ending March 31, 2016.

Adjusted Operating Margin

Operating Margin is defined as revenue less cost of sales. We define Adjusted Operating Margin as Operating Margin, adjusted for the impact of NCI, excluding unrealized gains or losses related to derivative transactions.

The GAAP measure most comparable to Adjusted Operating Margin is Operating Margin. We believe that Adjusted Operating Margin better reflects the underlying business performance of the Company. Factors in this determination include the impact of NCI, where AES consolidates the results of a subsidiary that is not wholly owned by the Company, as well as the variability due to unrealized derivatives gains or losses. Adjusted Operating Margin should not be construed as an alternative to Operating Margin, which is determined in accordance with GAAP.

Reconciliation of Adjusted Operating Margin (in millions)
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
US SBU $ 164
$ 155
$ 382
$ 447
Andes SBU 144
125
326
314
Brazil SBU 12
19
37
103
MCAC SBU 107
121
290
335
Europe SBU 36
52
156
206
Asia SBU 19
16
58
49
Corporate and Other 8
3
18
27
Intersegment Eliminations 1
3
6
—
Total Adjusted Operating Margin 491
494
1,273
1,481
Noncontrolling Interests Adjustment 187
178
502
670
Unrealized derivative gains (losses) 10
(7 ) (4 ) (10 )
Operating Margin $ 688
$ 665
$ 1,771
$ 2,141



Reconciliation of Adjusted Operating Margin (in millions)	Three Months Ended March 31,
	2017			2016
Operating Margin	$	593		$	509
Noncontrolling Interests Adjustment	(201		)	(132		)
Derivatives Adjustment	(2		)	7
Total Adjusted Operating Margin	$	390		$	384

Adjusted PTC

We define Adjusted PTC as pretax income from continuing operations attributable to The AES Corporation excluding gains or losses of the consolidated entity due to (a) unrealized gains or losses related to derivative transactions, (b) unrealized foreign currency gains or losses, (c) gains or losses and associated benefits and costs due to dispositions and acquisitions of business interests, including early plant closures, and the tax impact from the repatriation of sales proceeds, (d) losses due to impairments, and (e) gains, losses and costs due to the early retirement of debt. Adjusted PTC also includes net equity in earnings of affiliates on an after-tax basis adjusted for the same gains or losses excluded from consolidated entities.

Adjusted PTC reflects the impact of NCI and excludes the items specified in the definition above. In addition to the revenue and cost of sales reflected in Operating Margin, Adjusted PTC includes the other components of our income statement, such as general and administrative ~~expense~~expenses in the corporate segment, as well as business development costs; interest expense and interest income; other expense and other income; realized foreign currency transaction gains and losses; and net equity in earnings of affiliates.

The GAAP measure most comparable to Adjusted PTC is income from continuing operations attributable to The AES Corporation. We believe that Adjusted PTC better reflects the underlying business performance of the Company and is the most relevant measure considered in the Company’s internal evaluation of the financial ~~performance.~~performance of its segments. Factors in this determination include the variability due to unrealized gains or losses related to derivative transactions, unrealized foreign currency gains or losses, losses due to impairments and

strategic decisions to dispose of or acquire business interests or retire debt, which affect results in a given period or periods. In addition, earnings before tax represents the business performance of the Company before the application of statutory income tax rates and tax adjustments, including the effects of tax planning, corresponding to the various jurisdictions in which the Company operates. Adjusted PTC should not be construed as alternatives to income from continuing operations attributable to The AES Corporation, which is determined in accordance with GAAP.

Adjusted PTC ⁽¹⁾ (in millions)
Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
US SBU $ 114
$ 101
$ 257
$ 263
Andes SBU 134
150
279
322
Brazil SBU 6
15
18
97
MCAC SBU 74
92
197
248
Europe SBU 24
45
127
171
Asia SBU 22
24
70
66
Corporate and Other (102 ) (112 ) (331 ) (330 )
Total Adjusted PTC $ 272
$ 315
$ 617
$ 837
Non-GAAP Adjustments:
Unrealized derivative (losses) gains (5 ) 12
(1 ) 29
Unrealized foreign currency losses (3 ) (5 ) (12 ) (48 )
Disposition/acquisition gains 3
23
5
32
Impairment losses (24 ) (139 ) (309 ) (175 )
Loss on extinguishment of debt (20 ) (21 ) (26 ) (159 )
Pretax contribution 223
185
274
516
Income tax benefit (expense) attributable to The AES Corporation (47 ) (10 ) (66 ) (113 )
Income from continuing operations, net of tax, attributable to The AES Corporation $ 176
$ 175
$ 208
$ 403



Reconciliation of Adjusted PTC (in millions)	Three Months Ended March 31,
	2017			2016
Income (loss) from continuing operations, net of tax, attributable to The AES Corporation	$	(24	)	$	135
Income tax expense attributable to The AES Corporation	20			61
Pretax contribution	(4		)	196
Unrealized derivative gains	(1		)	(34		)
Unrealized foreign currency transaction gains	(9		)	(9		)
Disposition/acquisition (gains) losses	52			(19		)
Impairment expense	168			50
Gains on extinguishment of debt	(16		)	1
Total Adjusted PTC	$	190		$	185

~~_____________________________~~


⁽¹⁾	Adjusted PTC for each segment includes the effect of intercompany transactions with other segments, except for interest, charges for certain management fees, and the write-off of intercompany balances.

Adjusted EPS

We define Adjusted EPS as diluted earnings per share from continuing operations excluding gains or losses of both consolidated entities and entities accounted for under the equity method due to (a) unrealized gains or losses related to derivative transactions, (b) unrealized foreign currency gains or losses, (c) gains or losses and associated benefits and costs due to dispositions and acquisitions of business interests, including early plant closures, and the tax impact from the repatriation of sales proceeds, (d) losses due to impairments, and (e) gains, losses and costs due to the early retirement of debt.

The GAAP measure most comparable to Adjusted EPS is diluted earnings per share from continuing operations. We believe that Adjusted EPS better reflects the underlying business performance of the Company and is considered in the Company’s internal evaluation of financial performance. Factors in this determination include the variability due to unrealized gains or losses related to derivative transactions, unrealized foreign currency gains or losses, losses due to impairments and strategic decisions to dispose of or acquire business interests or retire debt, which affect results in a given period or periods. Adjusted EPS should not be construed as alternatives to diluted earnings per share from continuing operations, which is determined in accordance with GAAP.

The Company reported a loss from continuing operations of $0.04 per share for the three months ended March 31, 2017. For purposes of measuring diluted loss per share under GAAP, common stock equivalents were excluded from weighted-average shares as their inclusion would be anti-dilutive. However, for purposes of computing Adjusted EPS, the Company has included the impact of dilutive common stock equivalents. The table below reconciles the weighted-average shares used in GAAP diluted earnings per share to the weighted-average shares used in calculating the non-GAAP measure of Adjusted EPS.

Adjusted EPS Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 2015
Diluted earnings per share from continuing operations $ 0.26
$ 0.26
$ 0.31
$ 0.58

Unrealized derivative gains —
(0.02 ) —
(0.04 )
Unrealized foreign currency transaction losses 0.01
0.01
0.01
0.07

Disposition/acquisition gains —
(0.03 )
⁽¹⁾
—
⁽²⁾
(0.05 )
⁽¹⁾
Impairment losses 0.03
⁽³⁾
0.20
⁽⁴⁾
0.47
⁽⁵⁾
0.25
⁽⁶⁾
Loss on extinguishment of debt 0.04
⁽⁷⁾
0.03
0.05
⁽⁸⁾
0.23
⁽⁹⁾
Less: Net income tax benefit (0.02 ) (0.07 )
⁽¹⁰⁾
(0.20 )
⁽¹¹⁾
(0.14 )
⁽¹²⁾
Adjusted EPS $ 0.32
$ 0.38
$ 0.64
$ 0.90



Reconciliation of Denominator Used For Adjusted Earnings Per Share	Three Months Ended March 31, 2017
(in millions, except per share data)	Loss		Shares	$ per share
GAAP DILUTED (LOSS) PER SHARE
Loss from continuing operations attributable to The AES Corporation common stockholders	(24	)	659	(0.04	)
EFFECT OF DILUTIVE SECURITIES
Restricted stock units	—		3	—
NON-GAAP DILUTED (LOSS) PER SHARE	(24	)	662	(0.04	)



Adjusted EPS	Three Months Ended March 31,
	2017				2016
Diluted earnings per share from continuing operations	$	(0.04	)		$	0.20
Unrealized derivative gains	—				(0.05		)
Unrealized foreign currency transaction gains	(0.01		)		(0.01		)
Disposition/acquisition (gains) losses	0.08			⁽¹⁾	(0.03		)	⁽²⁾
Impairment expense	0.25			⁽³⁾	0.08			⁽⁴⁾
Gains on extinguishment of debt	(0.02		)	⁽⁵⁾	—
Less: Net income tax benefit	(0.09		)	⁽⁶⁾	(0.04		)	⁽⁷⁾
Adjusted EPS	$	0.17			$	0.15

_____________________________


⁽¹⁾	Amount primarily relates to realized derivative losses associated with the ~~gain on~~ sale of ~~Armenia Mountain~~Sul of ~~$22~~$38 million, or $0.06 per share; costs associated with early plant closures at DPL of $20 million, or $0.03 per share; partially offset by interest earned on Sul sale proceeds prior to repatriation of $6 million, or $0.01 per share.


⁽²⁾	Amount primarily relates to the gain on sale of DPLER of $22 million, or $0.03 per ~~share; offset by the loss on deconsolidation of UK Wind of $20 million, or $0.03 per~~ share.


⁽³⁾	Amount ~~primarily~~ relates to ~~the~~ asset ~~impairment~~impairments at ~~Buffalo Gap I~~Kazakhstan of ~~$78 million ($23~~$94 million, or ~~$0.03~~$0.14 per ~~share, net~~share; at DPL of ~~NCI).~~ $66 million, or $0.10 per share; and Tait Energy Storage of $8 million, or $0.01 per share.


⁽⁴⁾	Amount primarily relates to the asset ~~impairments~~impairment at Buffalo Gap ~~III~~II of ~~$118~~$159 million ($2749 million, or ~~$0.04 per share, net of NCI); and $113 million at Kilroot ($112 million, or $0.16~~$0.07 per share, net of NCI).

⁽⁵⁾

Amount primarily relates to ~~asset impairments~~the gain on early retirement of debt at ~~DPL~~Alicura of ~~$235~~$65 million, or ~~$0.36~~$0.10 per ~~share; $159 million~~share, partially offset by the loss on early retirement of debt at ~~Buffalo Gap II ($49~~the Parent Company of $47 million, or $0.07 per ~~share, net of NCI); and $78 million at Buffalo Gap I ($23 million, or $0.03 per share, net of NCI).~~share.


⁽⁶⁾	Amount primarily relates to the income tax benefits associated with asset impairments ~~at Buffalo Gap III~~ of ~~$118 million ($27~~$51 million, or ~~$0.04~~$0.08 per share ~~net~~and dispositions of ~~NCI); $113 million at Kilroot ($112~~$16 million, or ~~$0.16~~$0.02 per ~~share, net of NCI); and $38 million at UK Wind ($30 million or $0.04 per share, net of NCI).~~ share.


⁽⁷⁾	Amount primarily relates to ~~losses on early retirement~~the income tax benefit associated with asset impairments of ~~debt at the Parent Company~~$52 million, or $0.08 per share; partially offset by income tax expense associated with derivatives of ~~$17~~$11 million, or $0.02 per ~~share; and an adjustment of $5 million, or $0.01 per share to record~~share.

Free Cash Flow

We define Free Cash Flow as net cash from operating activities (adjusted for service concession asset capital expenditures) less maintenance capital expenditures (including non-recoverable environmental capital expenditures), net of reinsurance proceeds from third parties.

We also exclude environmental capital expenditures that are expected to be recovered through regulatory, contractual or other mechanisms. An example of recoverable environmental capital expenditures is IPL's investment in MATS-related environmental upgrades that are recovered through a tracker. See Item 1.—US SBU—IPL—Environmental Matters included in our 2016 Form 10-K for details of these investments.

The GAAP measure most comparable to Free Cash Flow is net cash provided by operating activities. We believe that Free Cash Flow is a useful measure for evaluating our financial condition because it represents the amount of cash generated by the business after the funding of maintenance capital expenditures that may be available for investing in growth opportunities or for repaying debt.

The presentation of Free Cash Flow has material limitations. Free Cash Flow should not be construed as an alternative to net cash from operating activities, which is determined in accordance with GAAP. Free Cash Flow does not represent our cash flow available for discretionary payments because it excludes certain payments that are required or to which we have committed, such as debt service requirements and dividend payments. Our definition of Free Cash Flow may not be comparable to similarly titled measures presented by other companies.



Calculation of Free Cash Flow (in millions)	Three Months Ended March 31,
	2017			2016
Net Cash provided by operating activities	$	703		$	640
Add: capital expenditures related to service concession assets ⁽¹⁾	1			24
Less: maintenance capital expenditures, net of reinsurance proceeds	(152		)	(162		)
Less: non-recoverable environmental capital expenditures ⁽²⁾	(6		)	(12		)
Free Cash Flow	$	546		$	490

_____________________________


⁽¹⁾	Service concession asset expenditures are included in net cash provided by operating activities, but are excluded from the ~~DP&L redeemable preferred stock at its redemption value.~~free cash flow non-GAAP metric.


⁽⁸⁾⁽²⁾	~~Amount primarily relates to losses on early retirement~~Excludes IPL's recoverable environmental capital expenditures of ~~debt at the Parent Company of $19~~$18 million ~~or $0.03 per share;~~ and ~~an adjustment of $5~~$75 million ~~or $0.01 per share, to record the DP&L redeemable preferred stock at its redemption value.~~


⁽⁹⁾	~~Amount primarily relates to losses on early retirement of debt at the Parent Company of $113 million, or $0.16 per share; and $22 million at IPL ($16 million or $0.02 per share, net of NCI).~~


⁽¹⁰⁾	~~Amount primarily relates to the per share income tax benefit associated with impairment losses of $46 million, or $0.06 in~~for the three months ended ~~September 30, 2015.~~


⁽¹¹⁾	~~Amount primarily relates to the per share income tax benefit associated with impairment losses of $123 million, or $0.19 in the nine months ended September 30,~~March 31, 2017 and 2016.


⁽¹²⁾	Amount primarily relates to the per share income tax benefit associated with losses on extinguishment of debt of $51 million, or $0.08 and impairment losses of $48 million, or $0.07 in the nine months ended September 30, 2015.

~~Proportional Free Cash Flow~~

~~Refer to Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity—Proportional Free Cash Flow (a non-GAAP measure)~~ ~~for the discussion and reconciliation of Proportional Free Cash Flow to its nearest GAAP measure.~~

US SBU

The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and ~~Proportional~~ Free Cash Flow (in millions) ~~for our US SBU~~ for the periods indicated:


	Three Months Ended September 30,										Nine Months Ended September 30,											Three Months Ended March 31,
	2016			2015			$ Change		% Change		2016			2015			$ Change			% Change		2017			2016			$ Change			% Change
Operating Margin	$	189		$	165		$	24	15	%	$	436		$	463		$	(27	)	-6	%	$	113		$	114		$	(1	)	-1	%
Noncontrolling Interests Adjustment(1)	(26		)	(17		)					(59		)	(27		)						(17		)	(14		)
Derivatives Adjustment	1			7							5			11								3			4
Adjusted Operating Margin	$	164		$	155		$	9	6	%	$	382		$	447		$	(65	)	-15	%	$	99		$	104		$	(5	)	-5	%
Adjusted PTC	$	114		$	101		$	13	13	%	$	257		$	263		$	(6	)	-2	%	$	48		$	85		$	(37	)	-44	%
Proportional Free Cash Flow	$	219		$	218		$	1	—	%	$	469		$	477		$	(8	)	-2	%
Free Cash Flow																						$	92		$	143		$	(51	)	-36	%
Free Cash Flow Attributable to NCI																						$	16		$	10		$	6		60	%

_____________________________


⁽¹⁾	See Item 1.—Business included in our 2016 Form 10-K for the respective ownership interest for key businesses. In addition, AES directly and indirectly owned approximately 70% of IPL as of March 2016 compared to approximately 75% beginning April 2015.

Operating Margin for the three months ended ~~September 30, 2016 increased~~March 31, 2017 decreased by ~~$24~~$1 million, or ~~15%~~1%, which was driven primarily by the following (in millions):


DPL
Lower retail margin due to lower regulated rates				$	(10	)
Lower depreciation expense due to fixed asset impairments in 2016 and 2017				6
Other				2
Total DPL Decrease				(2		)
US Generation
Hawaii due to outages in 2017				(8		)
US Wind primarily lower depreciation at Buffalo Gap due to fixed asset impairments in 2016 as well as better winds and better pricing in 2017				5
Other				(1		)
Total US Generation Decrease				(4		)
IPL
Higher retail margin driven by environmental revenues and higher rates due to a new rate order	$	18
Lower maintenance and storm costs				2
Higher retail and wholesale margins, driven by higher retail rates partially offset by lower retail volumes due to mild weather				1
Other	4			2
Total IPL Increase	22			5
DPL
Increased plant availability which also resulted in reduced penalties	15
Total DPL Increase	15
US Generation
Warrior Run due to lower availability and higher maintenance costs primarily due to major outages in 2016	(7		)
Other	(6		)
Total US Generation Decrease	(13		)
Total US SBU Operating Margin Increase	$	24
Total US SBU Operating Margin Decrease				$	(1	)

Adjusted Operating Margin ~~increased~~decreased by $9$5 million for the US SBU due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives. AES owns 100% of its businesses in the U.S. with the exception of IPL, which is wholly owned by its indirect subsidiary IPALCO. As of September 30, 2016, CDPQ owns a combined direct and indirect interest in IPALCO of 30%.

Adjusted PTC increased by $13 million driven by the $9 million increase in Adjusted Operating Margin described above and lower interest expense at DPL and IPL, partially offset by a decrease in the Company’s share of earnings under the HLBV accounting allocation at Buffalo Gap.

Proportional Free Cash Flow increased by $1 million, primarily driven by the timing of $29 million in payments for accounts payable and inventory purchases due to the conversion of coal generation assets to natural gas at IPL and inventory optimization efforts at DPL, lower proportional interest payments of $7 million (mainly at DPL) due to timing and lower interest rates, $5 million of lower pension contributions at DPL, and a $15 million increase in Adjusted Operating Margin (net of non-cash impacts of $6 million). These positive impacts were partially offset by a $35 million decrease in the timing of receivables collections resulting primarily from higher rates at IPL, more favorable weather in 2016, and the impact of DPLER’s declining customer base in 2015. Additionally, Proportional Free Cash Flow was negatively impacted by the impact of $20 million of competitive bid deposits received from suppliers in 2015 to participate in DP&L’s auction.

~~Operating Margin for the nine months ended September 30, 2016 decreased by $27 million, or 6%, which was driven primarily by the following (in millions):~~

DPL
Impact of lower wholesale prices and completion of DP&L’s transition to a competitive-bid market $ (32 )
Decrease in RTO capacity and other revenues primarily due to lower capacity cleared in the auction (16 )
Other 5
Total DPL Decrease (43 )
US Generation
Southland from an increase in depreciation expense as a result of a change in estimated useful lives of the plants (11 )
Impact from sale of Armenia Mountain in July 2015 (10 )
Warrior Run due to lower availability and higher maintenance cost primarily due to major outages in 2016 (9 )
Other 2
Total US Generation Decrease (28 )
IPL
Higher retail margin driven by environmental revenues and higher rates due to a new rate order 28
Change in accrual resulting from the implementation of new rates 18
Other (2 )
Total IPL Increase 44
Total US SBU Operating Margin Decrease $ (27 )

Adjusted Operating Margin decreased by $65 million for the US SBU due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives. AES owns 100% of its businesses in the U.S. with the exception of IPL, which is wholly owned by its indirect subsidiary IPALCO. As of September 30, 2016, CDPQ owns a combined direct and indirect interest in IPALCO of 30%.

Adjusted PTC decreased by $6$37 million, driven by the ~~$65~~$5 million decrease in Adjusted Operating Margin described above ~~partially offset by~~as well as a 2016 gain on contract termination at DP~~&L and lower interest expense at DPL and IPL in part due to the sell-down impacts as discussed above.~~&L.

~~Proportional~~ Free Cash Flow decreased by $8$51 million, of which $6 million was attributable to NCI. The decrease in Free Cash Flow was primarily driven by the timing of $34 million in vendor payments at DPL and IPL, a ~~$59~~$30 million increase in inventory purchases at DPL and IPL due to prior year inventory optimization efforts, $17 million in lower collections at DPL due primarily to the settlement of DPLER’s receivable balances resulting from its sale in 2016, and a $10 million decrease in ~~Adjusted~~ Operating Margin (net of ~~non-cash impacts~~lower depreciation of ~~$6 million, primarily related to the implementation of IPL’s new rates~~

and depreciation), a $58 million decrease in the timing of receivables collections resulting primarily from higher rates at IPL, more favorable weather in 2016, and the impact of DPLER’s declining customer base in 2015. Additionally, Proportional Free Cash Flow was negatively impacted by the 2015 impact of $20 million of competitive bid deposits received from suppliers to participate in DP&L’s auction.$9 million). These negative impacts were partially offset by ~~a $76~~$18 million ~~decrease~~ in ~~proportional coal purchases~~higher collections at IPL due to ~~the ongoing conversion of coal generation assets to natural gas at IPL, a build-up of inventory due to mild winter weather~~higher receivable balances in December ~~2015,~~2016 resulting from favorable weather and ~~inventory optimization efforts at DPL. Additionally, Proportional Free Cash Flow was positively impacted by a net increase of $17 million in settlements of accounts receivable primarily due to~~ the ~~sale of DPLER in~~impacts from the 2016 ~~and~~rate order, lower ~~proportional~~ interest payments of ~~$27~~$10 million ~~due to timing~~at DPL, and ~~lower interest rates.~~a decrease of $6 million in maintenance and non-recoverable environmental capital expenditures.

ANDES SBU

The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted ~~Proportional~~PTC, and Free Cash Flow (in millions) for ~~our Andes SBU for~~ the periods indicated:


	Three Months Ended September 30,											Nine Months Ended September 30,											Three Months Ended March 31,
	2016			2015			$ Change			% Change		2016			2015			$ Change			% Change		2017			2016			$ Change		% Change
Operating Margin	$	203		$	162		$	41		25	%	$	466		$	412		$	54		13	%	$	146		$	123		$	23	19	%
Noncontrolling Interests Adjustment(1)	(59		)	(37		)						(140		)	(98		)						(49		)	(35		)
Adjusted Operating Margin	$	144		$	125		$	19		15	%	$	326		$	314		$	12		4	%	$	97		$	88		$	9	10	%
Adjusted PTC	$	134		$	150		$	(16	)	-11	%	$	279		$	322		$	(43	)	-13	%	$	88		$	61		$	27	44	%
Proportional Free Cash Flow	$	92		$	134		$	(42	)	-31	%	$	152		$	131		$	21		16	%
Free Cash Flow																							$	107		$	20		$	87	NM
Free Cash Flow Attributable to NCI																							$	44		$	16		$	28	NM

_____________________________


⁽¹⁾	See Item 1.—Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.

Including ~~unfavorable~~favorable FX and remeasurement impacts of $4 million, Operating Margin for the three months ended ~~September 30, 2016~~March 31, 2017 increased by ~~$41~~$23 million, or ~~25%~~19%, which was driven primarily by the following (in millions):

Gener
Lower spot prices on energy and fuel purchases $ 44
Start of operations at Cochrane’s Unit 1 in July 2016 18
Other (2 )
Total Gener Increase 60
Chivor
Lower spot sales prices (9 )
Lower volume of spot sales (8 )
Total Chivor Decrease (17 )
Total Argentina Decrease (2 )
Total Andes SBU Operating Margin Increase $ 41



Gener
Start of operations at Cochrane	$	27
Lower margin at the SING market primarily associated with lower contract sales at Norgener partially offset by higher spot sales	(12		)
Negative impact of new regulation on Emissions (Green Taxes)	(12		)
Higher fixed costs mainly associated with maintenance activities at Angamos and Ventanas as well as higher people costs	(10		)
Total Gener Decrease	(7		)
Argentina
Higher availability mainly associated with major maintenance activities performed in 2016	4
Unfavorable FX impact	(1		)
Total Argentina Increase	3
Chivor
Higher spot and contract sales primarily associated with higher dam levels at the beginning of 2017	21
Favorable FX impact	5
Other	1
Total Chivor Increase	27
Total Andes SBU Operating Margin Increase	$	23

Adjusted Operating Margin increased by ~~$19~~$9 million due to the drivers above, adjusted for the impact of NCI. ~~AES owned 71% of Gener and Chivor as of September 30, 2015 and 67% as of September 30, 2016, and 100% of AES Argentina.~~

Adjusted PTC ~~decreased~~increased by ~~$16~~$27 million, driven ~~by a restructuring of Guacolda in 2015 which increased our equity investment and resulted in additional equity in earnings of $46 million. This negative impact was partially offset~~ by the increase of ~~$19~~$9 million in Adjusted Operating Margin ~~described above.~~and the positive impact of realized foreign currency gains in Argentina associated with collections of financing receivables and lower FX losses associated with the sale of Argentina’s sovereign bonds at Termoandes and prepayment of Sojitz Debt in 2017.

~~Proportional~~ Free Cash Flow ~~decreased~~increased by ~~$42~~$87 million, of which $28 million was attributable to NCI. The increase in Free Cash Flow was primarily driven by a $35 million decrease in VAT refunds related to our Cochrane and Alto Maipo construction projects, $19 million in higher payments to fuel suppliers in Chile, an $11 million decrease in Argentina mainly associated with lower collections at the CTSN plant, and a $9 million increase in ~~income~~Operating Margin (net of higher depreciation of $12 million), lower working capital requirements of $49 million at Gener mainly due to favorable timing of collections, lower tax payments ~~in Chile and Argentina. These negative impacts were partially offset by the $19~~of $32 million ~~increase in Adjusted Operating Margin as described above, and a $25 million favorable impact related~~primarily at Gener due to ~~a payment~~withholding taxes paid in the prior year on dividends to ~~unwind an interest rate swap as part~~AES Affiliates and income tax refunds received in 2017, and a $17 million increase in collections of ~~the Ventanas refinancing~~financing receivables in ~~July 2015.~~

Including unfavorable FX and remeasurement impacts of $32 million, Operating Margin for the nine months ended September 30, 2016 increased by $54 million, or 13%, which was driven primarily by the following (in millions):



~~Gener~~
~~Lower prices on energy and fuel purchases~~	$	60
~~Higher spot sales in the SIC market driven by better availability, partially offset by termination of Nueva Renca tolling agreement~~	25
~~Start of operations at Cochrane’s Unit 1 in July 2016~~	23
~~Lower fixed costs mainly associated with lower maintenance expenses and lower salaries~~	22
~~Other~~	~~(11~~		)
~~Total Gener Increase~~	~~119~~
Argentina
~~Higher fixed costs mainly driven by higher inflation and maintenance costs~~	~~(38~~		)
~~Lower availability mainly associated with planned major maintenance~~	~~(22~~		)
~~Unfavorable FX impact~~	~~(17~~		)
~~Higher rates driven by annual price review~~	58
~~Total Argentina Decrease~~	~~(19~~		)
~~Chivor~~
~~Decrease in anciliary services sales partially offset by higher volume of spot sales~~	~~(17~~		)
~~Unfavorable FX impact~~	~~(15~~		)
~~Lower spot sales prices~~	~~(14~~		)
~~Total Chivor Decrease~~	~~(46~~		)
~~Total Andes SBU Operating Margin Increase~~	$	54

~~Adjusted Operating Margin increased by $12 million~~ due to the ~~drivers above, adjusted for the impact~~commencement of ~~NCI. AES owned 71% of Gener and Chivor as of September 30, 2015 and 67% as of September 30, 2016, and 100% of AES Argentina.~~

Adjusted PTC decreased by $43 million, driven by restructuring of Guacolda in 2015 which increased our equity investment and resulted in additional equity in earnings of $46 million. This negative impact was partially offset by the increase of $12 million in Adjusted Operating Margin described above.

Proportional Free Cash Flow increased by $21 million, primarily driven by the $12 million increase in Adjusted Operating Margin as described above, $27 million of higher collections at Chivor related to increased sales from the fourth quarter of 2015, a $25 million favorable impact related to a payment in the prior year to unwind an interest rate swap as partoperations of the ~~Ventanas refinancing~~Guillermo Brown Plant in July 2015, a $12 million favorable impact related to collections from CAMMESA associated with remuneration of major maintenance costs, and a $15 million reduction in proportional maintenance and non-recoverable environmental capital expenditures due to lower expenditures on emissions control equipment at Chile.October 2016. These positive impacts were partially offset by lower collections of $35 million at Chivor, higher ~~net tax~~interest payments of ~~$47~~$8 million ~~primarily related to withholding taxes paid on Chilean distributions to AES affiliates and higher taxable income in Colombia, and $34 million of lower VAT refunds related to our~~at Cochrane, and ~~Alto Maipo construction projects.~~$8 million in higher maintenance capital expenditures, primarily in Argentina.

BRAZIL SBU

The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and ~~Proportional~~ Free Cash Flow (in millions) ~~for our Brazil SBU~~ for the periods indicated:


	Three Months Ended September 30,											Nine Months Ended September 30,											Three Months Ended March 31,
	2016			2015			$ Change			% Change		2016			2015			$ Change			% Change		2017			2016			$ Change		% Change
Operating Margin	$	53		$	91		$	(38	)	-42	%	$	174		$	492		$	(318	)	-65	%	$	107		$	43		$	64	NM
Noncontrolling Interests Adjustment(1)	(41		)	(72		)						(137		)	(389		)						(86		)	(34		)
Adjusted Operating Margin	$	12		$	19		$	(7	)	-37	%	$	37		$	103		$	(66	)	-64	%	$	21		$	9		$	12	NM
Adjusted PTC	$	6		$	15		$	(9	)	-60	%	$	18		$	97		$	(79	)	-81	%	$	39		$	5		$	34	NM
Proportional Free Cash Flow	$	24		$	31		$	(7	)	-23	%	$	106		$	(36	)	$	142		NM
Free Cash Flow																							$	218		$	196		$	22	11	%
Free Cash Flow Attributable to NCI																							$	162		$	162		$	—	—	%

_____________________________


⁽¹⁾	See Item 1.—Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.

Including favorable FX impacts of $5$21 million, Operating Margin for the three months ended ~~September 30, 2016 decreased~~March 31, 2017 increased by ~~$38~~$64 million, ~~or 42%,~~ which was driven primarily by the following (in millions):

Eletropaulo
Higher fixed costs mainly due to higher bad debt and employee-related costs $ (17 )
Regulatory penalties contingency provision in 2015, partially offset by higher regulatory penalties in 2016 10
Other (8 )
Total Eletropaulo Decrease (15 )
Tietê
Lower rates for energy sold under new contracts (24 )
Other (5 )
Total Tietê Decrease (29 )
Other business drivers 6
Total Brazil SBU Operating Margin Decrease $ (38 )



Eletropaulo
Higher tariffs	$	41
Lower volume mainly due to migration to free market	(10		)
Other	1
Total Eletropaulo Increase	32
Tietê
Favorable timing of higher spot volume and prices	19
Favorable FX impacts	14
Other	3
Total Tietê Increase	36
Other Business Drivers	(4		)
Total Brazil SBU Operating Margin Increase	$	64

Adjusted Operating Margin ~~decreased~~increased by $7$12 million, primarily due to the drivers discussed above, adjusted for the impact of ~~NCI. As of September 30, 2016, AES owns 16% of Eletropaulo, 46% of Uruguaiana and 24% of Tietê.~~noncontrolling interests.

Adjusted PTC ~~decreased~~increased by $9$34 million, driven by the ~~decrease~~increase of ~~$7 million in Adjusted Operating Margin as described above.~~

Proportional Free Cash Flow decreased by $7 million, primarily driven by the unfavorable timing of non-income tax payments of $34 million, higher maintenance capital expenditures at Eletropaulo and Sul of $9 million, higher interest payments at Sul and Eletropaulo of $9 million, and a decrease in Adjusted Operating Margin of $12 million (net of $5 million in non-cash impacts, primarily contingency expenses at Eletropaulo in 2015). These negative impacts were offset by favorable timing of $32 million in net collections of higher costs deferred in net regulatory assets in the prior year at Eletropaulo and Sul as a result of unfavorable hydrology in prior periods, and favorable timing of $27 million in collections on current year energy sales.

Including unfavorable FX impacts of $16 million, Operating Margin for the nine months ended September 30, 2016 decreased by $318 million, or 65%, which was driven primarily by the following (in millions):

Eletropaulo
Negative impact of reversal of contingent regulatory liability in 2015 $ (97 )
Higher fixed costs mainly due to higher bad debt and employee-related costs (67 )
Lower demand mainly due to economic decline (42 )
Higher regulatory penalties in 2016 partially offset by regulatory penalties contingency provision in 2015 (31 )
Higher tariffs 71
Other (4 )
Total Eletropaulo Decrease (170 )
Tietê
Lower rates for energy sold under new contracts (183 )
Unfavorable FX impacts (19 )
Lower rates for energy purchases mainly due to decrease in spot market prices 71
Other (4 )
Total Tietê Decrease (135 )
Other business drivers (13 )
Total Brazil SBU Operating Margin Decrease $ (318 )

Adjusted Operating Margin decreased by $66 million, primarily due to the drivers discussed above, adjusted for the impact of NCI. As of September 30, 2016, AES owns 16% of Eletropaulo, 46% of Uruguaiana and 24% of Tietê.

~~Adjusted PTC decreased by $79 million, driven by the decrease of $66~~ million in Adjusted Operating Margin as described above, as well as ~~higher~~a $28 million increase from the settlement of a legal dispute with YPF at Uruguaiana, partially offset by negative net impact in interest income and expense of ~~$10~~$4 million ~~related to the reversal of a contingent regulatory liability~~ at ~~Eletropaulo in 2015.~~Eletropaulo.

~~Proportional~~ Free Cash Flow increased by ~~$142~~$22 million, none of which was attributable to NCI. The increase in Free Cash Flow was primarily driven by a $74 million increase in Operating Margin (net of increased depreciation of $10 million), $60 million related to a legal dispute settlement received at Uruguaiana, $58 million of lower tax payments at Tietê due to lower taxable income in 2016, and $21 million from the favorable timing of ~~$311~~collections on energy sales at Tietê. These positive impacts were partially offset by an unfavorable timing of $132 million in ~~net~~higher collections in the prior year of ~~higher~~ costs deferred in net regulatory assets ~~in the prior year~~ at Eletropaulo ~~and Sul~~ as a result of unfavorable hydrology in prior periods, ~~favorable~~and an unfavorable timing of ~~$119~~$58 million in collections on ~~current year~~ energy sales ~~and lower energy purchases of $22 million~~ at Tietê due to favorable hydrology. These positive impacts were partially offset by unfavorable timing of $211 million in payments for energy purchases and regulatory charges at Eletropaulo and Sul, and a $56 million decrease in in Adjusted Operating Margin (net of $10 million in non-cash impacts, primarily due to the reversal of a contingent regulatory liability at Eletropaulo in 2015).Eletropaulo.

MCAC SBU

The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and ~~Proportional~~ Free Cash Flow (in millions) ~~for our MCAC SBU~~ for the periods indicated:


	Three Months Ended September 30,											Nine Months Ended September 30,											Three Months Ended March 31,
	2016			2015			$ Change			% Change		2016			2015			$ Change			% Change		2017			2016			$ Change		% Change
Operating Margin	$	140		$	148		$	(8	)	-5	%	$	370		$	416		$	(46	)	-11	%	$	108		$	96		$	12	13	%
Noncontrolling Interests Adjustment(1)	(31		)	(27		)						(77		)	(79		)						(19		)	(22		)
Derivatives Adjustment	(2		)	—								(3		)	(2		)						—			1
Adjusted Operating Margin	$	107		$	121		$	(14	)	-12	%	$	290		$	335		$	(45	)	-13	%	$	89		$	75		$	14	19	%
Adjusted PTC	$	74		$	92		$	(18	)	-20	%	$	197		$	248		$	(51	)	-21	%	$	59		$	48		$	11	23	%
Proportional Free Cash Flow	$	91		$	259		$	(168	)	-65	%	$	98		$	391		$	(293	)	-75	%
Free Cash Flow																							$	65		$	13		$	52	NM
Free Cash Flow Attributable to NCI																							$	8		$	—		$	8	NM

_____________________________


⁽¹⁾	See Item 1.—Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.

Operating Margin for the three months ended ~~September 30, 2016 decreased~~March 31, 2017 increased by $8$12 million, or ~~5%, primarily due to lower availability in Puerto Rico.~~

Adjusted Operating Margin decreased by $14 million due to the driver above as well as additional impacts of NCI and excluding unrealized gains and losses on derivatives. As of September 30, 2016, AES owns 90% of Changuinola and 49% of its other generation facilities in Panama, 90% of Andres and Los Mina (92% in 2015) and 45% of Itabo (46% in 2015) in the Dominican Republic, 99% of TEG/TEP and 55% of Merida in Mexico, and a weighted average of 77% of its businesses in El Salvador.

Adjusted PTC decreased by $18 million, driven by the decrease of $14 million in Adjusted Operating Margin as described above and lower interest income due to lower accounts receivable balance in the Dominican Republic.

Proportional Free Cash Flow decreased by $168 million, primarily driven by $177 million in collections of overdue receivables in the Dominican Republic in September 2015, and the $14 million decrease in Adjusted Operating Margin described above. These negative impacts were partially offset by a favorable change in working capital in Puerto Rico of $17 million, primarily driven by the timing of collections.

~~Operating Margin for the nine months ended September 30, 2016 decreased by $46 million, or 11%~~13%, which was driven primarily by the following (in millions):

Mexico
Lower availability and related costs $ (12 )
Other (3 )
Total Mexico Decrease (15 )
Puerto Rico
Lower availability (10 )
Other (4 )
Total Puerto Rico Decrease (14 )
Panama
Expenses related to the ongoing construction of a natural gas generation plant and a liquefied natural gas terminal (15 )
Lower generation and higher energy purchases driven by weaker hydrological conditions (10 )
Commencement of power barge operations at the end of March 2015 11
Other 1
Total Panama Decrease (13 )
Other business drivers (4 )
Total MCAC SBU Operating Margin Decrease $ (46 )



Mexico
Lower maintenance and higher availability	$	9
Higher margin due to higher energy prices and lower fuel prices	3
Other	6
Total Mexico Increase	18
Puerto Rico
Higher fixed and other costs	(5		)
Total Puerto Rico Decrease	(5		)
Other Business Drivers	(1		)
Total MCAC SBU Operating Margin Increase	$	12

Adjusted Operating Margin ~~decreased~~increased by ~~$45~~$14 million due to the drivers above, adjusted for the impact of NCI and excluding unrealized gains and losses on derivatives. As of September 30, 2016, AES owns 90% of Changuinola and 49% of its other generation facilities in Panama, 90% of Andres and Los Mina (92% in 2015) and 45% of Itabo (46% in 2015) in the Dominican Republic, 99% of TEG/TEP and 55% of Merida in Mexico, and a weighted average of 77% of its businesses in El Salvador.

Adjusted PTC ~~decreased~~increased by ~~$51~~$11 million, driven by the ~~decrease~~increase of ~~$45~~$14 million in Adjusted Operating Margin as described above, ~~and lower~~partially offset by higher interest ~~income~~expenses due to ~~lower accounts receivables balance~~an increase in loan balances in the Dominican Republic.

~~Proportional~~ Free Cash Flow ~~decreased~~increased by ~~$293~~$52 million, ~~primarily~~of which $8 million was attributable to NCI. The increase in Free Cash Flow was driven by ~~$177~~$30 million ~~in collections~~ of ~~overdue receivables~~lower tax payments in the Dominican Republic primarily related to withholding taxes paid on distributions to AES Affiliates in ~~September 2015,~~ the ~~$45~~prior year, the $12 million ~~decrease~~increase in ~~Adjusted~~ Operating Margin described above, ~~lower collections of $40 million in Puerto Rico due to lower sales, higher income tax payments of $14 million in El Salvador as a result of higher taxable income in 2015,~~ and ~~$13~~$6 million of ~~higher withholding taxes paid on dividend distributions to AES affiliates in the Dominican Republic.~~lower maintenance capital expenditures.

EUROPE SBU

The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and ~~Proportional~~ Free Cash Flow (in millions) ~~for our Europe SBU~~ for the periods indicated:


	Three Months Ended September 30,											Nine Months Ended September 30,											Three Months Ended March 31,
	2016			2015			$ Change			% Change		2016			2015			$ Change			% Change		2017			2016			$ Change			% Change
Operating Margin	$	54		$	59		$	(5	)	-8	%	$	184		$	226		$	(42	)	-19	%	$	80		$	83		$	(3	)	-4	%
Noncontrolling Interests Adjustment(1)	(8		)	(7		)						(23		)	(21		)						(10		)	(7		)
Derivatives Adjustment	(10		)	—								(5		)	1								(3		)	—
Adjusted Operating Margin	$	36		$	52		$	(16	)	-31	%	$	156		$	206		$	(50	)	-24	%	$	67		$	76		$	(9	)	-12	%
Adjusted PTC	$	24		$	45		$	(21	)	-47	%	$	127		$	171		$	(44	)	-26	%	$	55		$	69		$	(14	)	-20	%
Proportional Free Cash Flow	$	43		$	33		$	10		30	%	$	462		$	207		$	255		NM
Free Cash Flow																							$	86		$	81		$	5		6	%
Free Cash Flow Attributable to NCI																							$	7		$	5		$	2		40	%

~~Including unfavorable FX impacts of $7 million,~~ _____________________________


⁽¹⁾	See Item 1.—Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.

Operating Margin for the three months ended ~~September 30, 2016~~March 31, 2017 decreased by $5$3 million, or 8%4%, which was driven primarily by the following (in millions):


Maritza
Lower contracted capacity prices due to PPA amendment	$	(6	)	$	(5	)
Lower availability as well as higher fixed costs due to planned outages	(5		)
Other	(1		)	(2		)
Total Maritza Decrease	(12		)	(7		)
Kilroot
Higher availability due to lower planned outages offset by lower plant dispatch	4
Lower depreciation due to impairment in prior year	3
Other	2
Total Kilroot Increase	9
Other business drivers	(2		)
Other Business Drivers				4
Total Europe SBU Operating Margin Decrease	$	(5	)	$	(3	)

Adjusted Operating Margin decreased by ~~$16~~$9 million due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives. ~~As of September 30, 2016, AES owns 89% of Kavarna in Bulgaria, and 37% and 36% respectively, of the Amman East and IPP4 projects in Jordan.~~

Adjusted PTC decreased by ~~$21~~$14 million, driven by the decrease of ~~$16~~$9 million in Adjusted Operating Margin described above, as well as ~~the sale of~~lower interest income in Kavarna and a ~~solar project~~partial sell down in ~~Spain~~Jordan in ~~2015.~~February 2016.

~~Proportional~~ Free Cash Flow increased by ~~$10~~$5 million, of which $2 million was attributable to NCI. The increase in Free Cash Flow was primarily driven by ~~$44~~$6 million of increased collections at Maritza from NEK, net of payments to the fuel supplier. This favorable increase was partially offset by the $16 million decrease in Adjusted Operating Margin, an $8 million decrease in CO₂ ~~allowances~~lower non-recoverable environmental expenditures due to ~~a price decrease,~~construction projects that were completed in 2016 at Kilroot and ~~higher collections of $5 million in 2015 at Kavarna.~~Ballylumford.

Including unfavorable FX impacts of $30 million, Operating Margin for the nine months ended September 30, 2016 decreased by $42 million, or 19%, which was driven primarily by the following (in millions):

Kazakhstan
FX impact $ (27 )
Total Kazakhstan Decrease (27 )
Maritza
Lower contracted capacity prices due to PPA amendment (14 )
Other (1 )
Total Maritza Decrease (15 )
Total Europe SBU Operating Margin Decrease $ (42 )

Adjusted Operating Margin decreased by $50 million due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives. As of September 30, 2016, AES owns 89% of Kavarna in Bulgaria, and 37% and 36% respectively, of the Amman East and IPP4 projects in Jordan.

~~Adjusted PTC decreased by $44 million, driven by the decrease of $50 million in Adjusted Operating Margin described above,partially offset by lower interest expense in Bulgaria due to less debt and a non-recurring provision in Kazakhstan in 2015.~~

Proportional Free Cash Flow increased by $255 million, primarily driven by $337 million of increased collections at Maritza from NEK, net of payments to the fuel supplier (MMI). This favorable increase was partially offset by the $50 million decrease in Adjusted Operating Margin, a $25 million decrease in CO₂ ~~allowances due to a price decrease, and higher payments of $7 million at Kavarna due to the settlement of overdue invoices to the national grid operator.~~

ASIA SBU

The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and ~~Proportional~~ Free Cash Flow (in millions) ~~for our Asia SBU~~ for the periods indicated:


	Three Months Ended September 30,											Nine Months Ended September 30,										Three Months Ended March 31,
	2016			2015			$ Change			% Change		2016			2015			$ Change		% Change		2017			2016			$ Change			% Change
Operating Margin	$	41		$	33		$	8		24	%	$	124		$	104		$	20	19	%	$	40		$	37		$	3		8	%
Noncontrolling Interests Adjustment(1)	(22		)	(17		)						(66		)	(55		)					(21		)	(20		)
Adjusted Operating Margin	$	19		$	16		$	3		19	%	$	58		$	49		$	9	18	%	$	19		$	18		$	1		6	%
Adjusted PTC	$	22		$	24		$	(2	)	-8	%	$	70		$	66		$	4	6	%	$	22		$	22		$	—		NM
Proportional Free Cash Flow	$	48		$	50		$	(2	)	-4	%	$	110		$	59		$	51	86	%
Free Cash Flow																						$	81		$	87		$	(6	)	-7	%
Free Cash Flow Attributable to NCI																						$	41		$	44		$	(3	)	-7	%

_____________________________


⁽¹⁾	See Item 1.—Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.

There were no significant drivers for the change in Operating Margin, Adjusted Operating Margin, and Adjusted PTC for the three months ended ~~September 30, 2016 increased by $8 million, or 24%, due~~March 31, 2017 as compared to ~~better availability at Mong Duong in Vietnam.~~the three months ended March 31, 2016.

Adjusted Operating Margin increased by $3 million due to Operating Margin adjusted for the impact of NCI. As of September 30, 2016, AES owns 51% of Masinloc, prior to its sale in January 2016 AES owned 90% of Kelanitissa and 51% of Mong Duong.

Adjusted PTC decreased by $2 million, primarily driven by higher interest expense and lower interest income at Mong Duong partially offset by the increase of $3 million in Adjusted Operating Margin described above.

~~Proportional~~ Free Cash Flow decreased by $2$6 million, of which $3 million was attributable to NCI. The decrease in Free Cash Flow was primarily driven by ~~a $7~~$9 million ~~decrease~~ in ~~Masinloc~~higher working capital ~~due~~at Mong Duong related to ~~timing, which was partially offset by the $3~~increased dispatch in Q1 2017, and $4 million ~~increase~~ in ~~Adjusted Operating Margin as described above.~~

~~Operating margin for the nine months ended September 30, 2016 increased by $20 million, or 19%, which was driven primarily by the following (in millions):~~

Mong Duong
Impact of full year operations for 2016 compared to commencement of principal operations in April 2015 $ 16
Total Mong Duong Increase 16
Other business drivers 4
Total Asia SBU Operating Margin Increase $ 20

~~Adjusted Operating Margin increased by $9 million~~higher working capital at Masinloc due to the ~~driver above adjusted for the impact~~timing of ~~NCI. As of September 30, 2016, AES owns 51% of Masinloc, prior to its sale in January 2016 AES owned 90% of Kelanitissa and 51% of Mong Duong.~~

~~Adjusted PTC increased by $4 million, primarily driven by the increase of $9 million in Adjusted Operating Margin described above.~~

Proportional Free Cash Flow increased by $51 million, primarily driven by a decrease of $28 million in working capital requirements at Mong Duong due to a build up in the prior year in preparation for commencement of plant operations, and an increase in Adjusted Operating Margin of $30 million (net of proportional non-cash service concession expense of $21 million).coal purchases. These ~~positive impacts~~decreases were partially offset by ~~higher proportional interest expense of $13~~$8 million ~~as interest is no longer capitalized as part of service concession asset expenditures.~~in lower maintenance capital expenditures at Masinloc.

Key Trends and Uncertainties

During the remainder of ~~2016~~2017 and beyond, we expect to face the following challenges at certain of our businesses. Management expects that improved operating performance at certain businesses, growth from new businesses and global cost reduction initiatives may lessen or offset their impact. If these favorable effects do not occur, or if the challenges described below and elsewhere in this section impact us more significantly than we currently anticipate, or if volatile foreign currencies and commodities move more unfavorably, then these adverse ~~factors, a combination of~~

factors (or other adverse factors unknown to us) may have a material impact on our operating margin, net income attributable to The AES Corporation and cash flows. We continue to monitor our operations and address challenges as they arise.

~~Macroeconomic and Political~~

During the past few years, economic conditions in some countries where our subsidiaries conduct business have deteriorated. Global economic conditions remain volatile and could have an adverse impact on our businesses in the event these recent trends continue.

~~Brazil~~ ~~— Dilma Rousseff was removed from office as Brazil’s president on August 31, 2016. At this time Michel~~

Temer was confirmed as president until December 2018. President Temer, with majority congressional support, has committed to implement the fiscal reforms needed in order to improve the country’s finances. If enacted, these market reforms would improve the economic outlook, which may benefit our businesses in Brazil.Regulatory

In ~~June 2016, AES announced the sale of the Company’s 100% ownership interest~~March 2017, DPL, in ~~AES Sul.~~conjunction with various intervening parties, filed an amendment to its January 2017 settlement in its ESP rate case (the “Amended Settlement”). The ~~sale~~Amended Settlement is due to a recent portfolio evaluation where it was determined that AES Sul is no longer aligned with the Company’s strategic goals and therefore its disposal is part of a strategic shift in the Brazil distribution sector. The Company concluded the sale on October 31, 2016 and will realize an after-tax loss on disposal of approximately $700 million, subject to ~~adjustments~~approval by the PUCO, would provide for a six-year electric security plan, and includes, but is not limited to, the ~~final sale proceeds,~~following:

Bypassable standard offer energy rates for DP&L’s customers based on competitive bid auctions;

A three-year non-bypassable Distribution Modernization Rider designed to collect $105 million in revenue per year which could be extended by the ~~fourth quarter of 2016.~~PUCO for an additional two years. The cumulative impact on earnings of the impairment and loss on sale is expected to be approximately $1.1 billion. This includes the reclassification of approximately $1 billion of cumulative foreign currency translation losses, resulting in an expected net reduction to AES equity of approximately $100 million.

~~United Kingdom~~ — On June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit”. As a result of the referendum, it is expected that the British government will begin negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unclear what the long-term global implicationsDistribution Modernization Rider will be it is possible that the European or U.K. economy could weaken and our businesses may experience a decline in demand. While the full impact of the Brexit is uncertain, these changes may adversely affect our operations and financial results. The most immediate impact has been a devaluation of the pound and euro against the U.S. dollar. For 2016 and 2017, the Company has hedged against these foreign currency movements, however, the impact could be greater in future years.

~~Puerto Rico~~ ~~— Our subsidiaries in Puerto Rico have long term PPAs with state-owned PREPA. Due to the ongoing economic situation in the territory, PREPA faces significant financial challenges.~~

On June 28, 2014, the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (the “Recovery Act”) was signed into law, which allows public corporations, including PREPA, to adjust their debts. As a result of this event, on July 6, 2014, PREPA entered into a Forbearance Agreement with its lenders in order to permit an opportunity for negotiation of a possible financial restructuring of PREPA. In February 2015, the negotiating position of PREPA was weakened when the federal court deemed the Recovery Act unconstitutional. The Supreme Court upheld the federal court’s opinion on June 13, 2016. Despite this setback, PREPA managed to extend the expiration of the Forbearance Agreement several times, achieving in December 2015 certain preliminary restructuring agreements, called Restructuring Support Agreements (“RSAs”). Under these agreements, bondholders would take a reduction in principal after exchanging their bonds for new securities that would be backed by a special charge on clients’ bills. For its part, the utility would receive five-year debt-service relief, while freeing up cash to modernize its power plants.

On June 28, 2016, PREPA authorized the issuance of the restructuring bonds, based on the approval of the Puerto Rico Energy Commission of a transition charge and adjustment mechanism that PREPA had proposed to payused for the utility’s securitized debt. PREPA is expecting to complete this new bond issuance by December 31, 2016. As a result of the impending restructuring, Fitch has downgraded PREPA’s bonds to “C”, from “CC”, causing the downgrade of AES Puerto Rico, as PREPA is our only off taker.

On June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. PROMESA creates a structure for exercising federal oversight over the fiscal affairs of U.S. territories and allows for the establishment of an Oversight Board with broad powers of budgetary and financial control over Puerto Rico. PROMESA also creates procedures for adjusting debts accumulated by the Puerto Rico government and, potentially, other territories. Finally, PROMESA expedites the approval of key energy projects and other critical projects in Puerto Rico. The impact PROMESA will have on PREPA’s contracts and PPA is uncertain.

Other than the downgrade of AES Puerto Rico discussed above, there have been no adverse impacts to AES Puerto Rico due to PREPA’s financial challenges. If PREPA continues to face challenges, or those challenges worsen, or otherwise impact PREPA’s ability to make payments to AES Puerto Rico, there could be a material impact on the Company.

~~United States of America~~ ~~— The outcome of the 2016 U.S. elections could result in significant changes to U.S. environmental policies, energy policies and tax laws, the impact of which is uncertain.~~

~~Philippines~~ ~~— In October 2016, President Rodrigo Duterte announced a change in policy towards the U.S, the impact of which on our businesses in the Philippines is uncertain.~~

~~Macroeconomic and Political~~ — ~~Summary~~

~~If global economic conditions deteriorate further, it could also affect the prices we receive for the electricity we~~

generate or transmit. Utility regulators or parties to our generation contracts may seek to lower our prices based on prevailing market conditions pursuant to PPAs, concession agreements or other contracts as they come up for renewal or reset. In addition, rising fuel and other costs coupled with contractual price or tariff decreases could restrict our ability to operate profitably in a given market. Additionally, we operate in multiple countries and as such are subject to volatility in exchange rates at the subsidiary level and between our functional currency, the U.S. Dollar, and currencies of the countries in which we operate. The above mentioned market drivers have already impacted us significantly in 2016 and we expect them to continue to do so during the remainder of the year. See Item 3.—~~Quantitative and Qualitative Disclosures About Market Risk~~ ~~for further information. Each of these factors,~~continuing debt repayment plan as well as ~~those discussed above, could result in a decline in~~ the ~~value of our assets including those at the businesses we operate, our equity investments~~modernization and ~~projects under development that could result in asset impairments that could be material to our operations. We continue to monitor our projects and businesses.~~

~~Regulatory~~

In March 2016, the IURC issued an order authorizing IPL to increase its basic rates and charges by approximately $31 million annually. The order also authorized IPL to collect, over a ten-year period, approximately $118 million of previously deferred regulatory assets related to IPL’s participation in the regional transmission organization known as MISO. Such deferred costs will be amortized to expense over ten years. The rate order also authorized an increase in IPL’s depreciation rates of $24 million annually compared to the twelve months ended June 30, 2014, which is the period upon which the rate increase was calculated. IPL also received approval to implement three new rate riders for current recovery of ongoing MISO costs, capacity costs and sharing of wholesale sales margins with customers at 50%. The order approved recovery of IPL’s pension expenses and return on IPL’s discretionary pension fundings. As partmaintenance of the ~~order,~~transmission and distribution infrastructure;

A non-bypassable Distribution Investment Rider to recover incremental distribution capital investments;

A commitment by the ~~IURC also noted that they found IPL’s service company cost allocations~~Company to ~~be reasonable~~separate DP&L’s generation assets from its transmission and directed IPL to request FERC to review its Service Company allocations. The IURC also closed their investigation into IPL’s underground network. Some of the intervening parties in the IURC rate case have filed petitions for reconsideration of the IURC's March 2016 order with respect to certain issues. The IURC has not yet acted on those petitions. In addition, the Indiana Office of Utility Consumer Counselor and some other intervening parties have filed notices of appeal of the order.

~~In June 2016, the Supreme Court of Ohio issued an opinion to repeal the current electric security plan (“ESP”) of DPL which had been~~distribution assets (if approved by ~~the Public Utilities Commission~~FERC) within 180 days of Ohio (“PUCO”) in September 2013 and was in effect for the years 2014-2016 (“ESP 2”). ESP 2, among other matters, permitted DPL to collect a non-bypassable service stability rider (“SSR”) equal to approximately $9 million per month for each of those years. In the opinion, the court briefly stated, without expanding upon the basis, that the PUCO’s approval of ~~ESP 2 was reversed~~the Amended Settlement;

A commitment to commence the sale process of the Company’s ownership interests in the Zimmer, Miami Fort and Conesville coal-fired generation plants; and

Restrictions on DPL making dividend or tax sharing payments, various other riders, and competitive retail market enhancements.

A hearing on the ~~authority of one of~~Amended Settlement was held in April 2017. A final decision by the court’s prior rulings in a separate case not involving DPL. In view of that reversal, on July 27, 2016, DPL filed a motion to withdraw its ESP 2 and implement rates consistent with those in effect under its June 2009 ESP (“ESP 1”).

PUCO granted DPL’s request on August 26, 2016, thereby terminating ESP 2 and implementing the provisions, terms and conditions of ESP 1 until the rates consistent with the outcome of DPL’s pending ESP filed in February 2016 (“ESP 3”) become effective. The impact of reverting to the ESP 1 rates is ~~not~~ expected ~~to be material during this interim period.~~

On September 23, 2016, DP&L filed to withdraw its request for a Reliable Electricity Rider (“RER”) in the pending ESP 3 case. On October 11, 2016, DP&L filed an amended application supporting the alternative to the RER proposed in its initial ESP filing, named the Distribution Modernization Rider (“DMR”), requesting to recover $145 million per year for seven years.mid-year 2017. There can be no assurance that ~~ESP 3~~the Amended Settlement will be approved as filed, or on a timely ~~basis. If ESP 3 is not approved on a timely~~ basis, orand if the final ESP 3 provides for terms that are more adverse than those submitted in DP&L's ~~application,~~settlement, our results of operations, financial condition and cash flows could be materially impacted.

~~Operational~~Alto Maipo

~~Sensitivity to Hydrological Conditions~~ ~~— Our hydroelectric generation facilities are sensitive to changes~~During 2016, Alto Maipo experienced difficulties in the ~~weather, particularly~~execution of the ~~level~~project which resulted in potential cost overruns up to 22% of ~~water inflows into generation facilities. At times, dry hydrological conditions in Panama, Brazil, Colombia~~the original $2 billion budget. These overages led to a series of negotiations with the intention to restructure the project’s existing financial structure and Chile have presented challenges for our businesses in these markets. There is a risk that low rainfall and water inflows could reduce reservoir levels, generation output, and increase prices for electricity. Alternatively, wet conditions could also have an adverse impact by depressing spot prices for excess energy sales for generation businesses. For distribution businesses, wet conditions could result in lowered demand as well as floods and other damage which could disrupt service and require emergency repairs. Future hydrology conditions are always uncertain, but currentlyobtain additional funding. On March 17, 2017, the Company ~~does not expect~~completed the legal and financial restructuring of Alto Maipo. As part of this restructuring, AES Gener simultaneously acquired the 40% ownership interest of the noncontrolling shareholder and sold a 6.7% interest in the projects to the construction contractor. After completion of the sale, the Company has an effective 62% economic interest in Alto Maipo. As part of the restructuring, the Company amended certain milestones with regards to construction. If the Company is unable to meet these milestones, there could be a material impact ~~due to hydrology in 2016.~~

~~Foreign Exchange and Commodities~~

~~Our businesses are exposed to and proactively manage market risk. Our primary market risk exposure is~~ to the ~~price~~financing and value of ~~commodities, particularly electricity, oil, natural gas, coal, and environmental credits. In 2015, large declines in commodities and appreciation in~~ the USD had a significant impact on our results. During the nine months ended September 30, 2016, commodities and FX have remained volatile; continued volatility in these markets could have a material impact on our full year 2016 results.project. For additional information, refer to Item ~~3.—~~1A—~~Quantitative and Qualitative Disclosures About Market~~ Risk Factors. of the 2016 Form 10-K.

Impairments

Long-lived Assets — ~~Due to decreased wind production and a decline in forward power curves~~During the three months ended March 31, 2017, the Company ~~tested~~recognized asset impairment expense of $66 million at the ~~recoverability of its long-lived assets~~Stuart and Killen Stations at ~~Buffalo Gap I, II,~~DP&L, and ~~III during~~$8 million at the ~~nine months ended September 30, 2016.~~Tait Energy Storage in the PJM market. See Note 14—Asset Impairment Expense included in Item 1.—Financial Statements of this Form 10-Q for further information. After recognizing these asset impairment ~~expense at Buffalo Gap I and II,~~expenses, the carrying value of the long-lived asset groups, ~~at Buffalo Gap I, II, and III totaled $241 million at September 30, 2016.~~

~~During the nine months ended September 30, 2016, the Company recognized an asset impairment expense of $235 million at DPL. See Note 14—Asset Impairment Expense~~ ~~included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for further information. After recognizing this asset impairment expense at DPL, the carrying value of the long-lived asset groups at DPL,~~ including those that were assessed and not impaired, totaled ~~$1.1 billion~~$44 million at ~~September 30, 2016.~~March 31, 2017.

Events or changes in circumstances that may necessitate further recoverability tests and potential impairments of long-lived assets may include, but are not limited to, adverse changes in the regulatory environment, unfavorable changes in power prices or fuel costs, increased competition due to additional capacity in the grid, technological advancements, declining trends in demand, or an expectation that it is more likely than not that the asset will be disposed of before the end of its previously estimated useful life.

~~Construction~~Functional Currency

~~During~~In February 2017, the ~~third quarter~~Argentina Ministry of ~~2016,~~Energy issued Resolution 19/2017 which established changes to the ~~Alto Maipo project~~energy price framework. As a result of this resolution, the tariff structure now has prices set in ~~Chile experienced technical difficulties~~USD, rather than Argentine Pesos, and eliminates the retention of unpaid amounts and the accumulation of receivables with CAMMESA. Concurrent with the establishment of the new price framework, AES Argentina issued bonds of $300 million denominated in ~~construction which resulted~~USD. Given these significant changes in ~~an increase in projected costs~~economic facts and circumstances, the Company

changed the functional currency of ~~10%~~the Argentina businesses from the Argentine Peso to ~~20% over~~ the ~~original $2 billion budget. The additional cost~~USD. Changes to the energy framework could have a material impact on the Company.

Foreign Exchange and Commodities

Our businesses are exposed to and proactively manage market risk. Our primary market risk exposure is ~~expected~~ to ~~be funded through a combination~~the price of ~~non-recourse debt~~commodities, particularly electricity, oil, natural gas, coal, and ~~sponsors' equity. The Company’s subsidiary, AES Gener, is currently working with its partner,~~environmental credits, as well as ~~external lenders,~~FX rates. Volatility in these prices and FX rates can have a material impact on our full year 2017 results. For additional information, refer to ~~secure additional funding for the completion of the project. Currently, the Company's indirect equity interest in the project is 40%~~Item 3.—Quantitative and Qualitative Disclosures About Market Risk.

Environmental

The Company is subject to numerous environmental laws and regulations in the jurisdictions in which it operates. ~~The Company expenses environmental regulation compliance costs as incurred unless the underlying expenditure qualifies for capitalization under its property, plant and equipment policies.~~ The Company faces certain risks and uncertainties related to these environmental laws and regulations, including existing and potential GHG legislation or regulations, and actual or potential laws and regulations pertaining to water discharges, waste management (including disposal of coal combustion byproducts) and certain air emissions, such as SO₂, NO_x, particulate matter and mercury. Such risks and uncertainties could result in increased capital expenditures or other compliance costs which could have a material adverse effect on certain of our U.S. or international subsidiaries and our consolidated results of operations. For further information about these risks, see Item 1A.—Risk Factors—Our businesses are subject to stringent environmental laws and regulations; Our businesses are subject to enforcement initiatives from environmental regulatory agencies; and Regulators, politicians, non-governmental organizations and other private parties have expressed concern about greenhouse gas, or GHG, emissions and the potential risks associated with climate change and are taking actions which could have a material adverse impact on our consolidated results of operations, financial condition and cash flows included in the ~~2015~~2016 Form 10-K. The following discussion of the impact of environmental laws and regulations on the Company updates the discussion provided in Item 1.—Business—Environmental and Land Use Regulations of the ~~2015~~2016 Form 10-K.

~~Update on CSAPR~~Updates to Greenhouse Gas Emissions Discussion— ~~On September 7, 2016, the EPA finalized an update~~We refer to the ~~CSAPR to address~~discussion in Item 1.—Business—United States Environmental and Land-Use Regulations—Greenhouse Gas Emissions in the ~~2008 ozone NAAQS ("CSAPR Update Rule"). CSAPR addresses the "good neighbor" provision~~Company’s 2016 Form 10-K for a discussion of the CAA, which prohibits sources within each state from emitting any air pollutant in an amount which will contribute significantly to any other state’s nonattainment, or interference with maintenance of, any NAAQS. The final rule finds that NOEPA’s CO_x2 ~~ozone season~~ emissions in 22 states (including Indiana, Maryland, Ohio and Oklahoma) affect the ability of downwind states to attain and maintain the 2008 ozone NAAQS. For these 22 states, the EPA is issuing federal implementation plans that generally update existing CSAPR NO_x ~~ozone season emission budgets~~rules for new electric generating units, ~~within these~~or GHG NSPS, as well as the CO₂ emissions rules for existing power plants, called the CPP. Both the GHG NSPS and the CPP are being challenged by several states and ~~implement these budgets through modifications~~industry groups in the D.C. Circuit. The challenges to the ~~existing CSAPR~~

NO_x ~~ozone season allowance trading program. Implementation will start~~CPP have been fully briefed and argued but oral argument has not yet taken place on the GHG NSPS. On March 28, 2017, the EPA filed a motion in the D.C. Circuit to hold the challenges to both the CPP and the GHG NSPS in abeyance in light of an Executive Order signed the same day. The Executive Order instructs the EPA Administrator to review the GHG NSPS and CPP and “if appropriate...as soon as practicable...publish for notice and comment proposed rules suspending, revising, or rescinding those rules.” On April 4, 2017, ~~ozone season (May—September 2017). Affected facilities will receive fewer ozone season NO~~_x ~~allowances in 2017 and later, resulting~~the EPA published a notice in the ~~need~~Federal Register to ~~purchase additional allowances. At this time, we cannot predict what~~announce that it is initiating administrative reviews of both the ~~impact will be with respect to these new standards~~CPP and ~~requirements, but it could be material if certain facilities will need to purchase additional allowances based on reduced allocations.~~

~~Selenium Rule~~—IPL’s NPDES permits may be updated to include Selenium water quality based effluent limits based on a site specific evaluation process which includes determining if there is a reasonable potential to exceed the ~~revised final Selenium water quality standards for the specific receiving water body utilizing actual and/or project discharge information for the IPL generating facilities. As~~GHG NSPS as a result ~~it is not yet possible to~~of the Executive Order.

We cannot predict ~~the total impacts of this final rule~~ at this time ~~including any~~the likely outcome of EPA’s review of either the CPP or the GHG NSPS. By order of the U.S. Supreme Court, the CPP has been stayed pending resolution of the challenges to ~~such~~the rule. Due to the future uncertainty of the CPP, we cannot at this time determine the impact on our operations or consolidated financial results, but we believe the cost to comply with the CPP, should it be upheld and implemented in its current or a substantially similar form, could be material. The GHG NSPS remains in effect at this time, and, absent further action from the EPA that rescinds or substantively revises the NSPS, it could impact any Company plans to construct and/or modify or reconstruct electric generating units in some locations.

Update to Water Discharges Discussion — As further discussed in Item 1.—Business—United States Environmental and Land-Use Regulations—Water Discharges in the Company’s 2016 Form 10-K, the EPA published a final rule in June 2015 defining federal jurisdiction over waters of the U.S. This rule, which became effective on August 28, 2015, may expand or otherwise change the number and types of waters or features subject to federal permitting. On October 9, 2015, the U.S. Court of Appeals for the Sixth Circuit (the “Sixth Circuit”) issued an order to temporarily stay the “Waters of the U.S.” rule nationwide while that court determines whether it has authority to hear the challenges that had been brought by multiple states against the rule. As of April 2017, the Sixth Circuit’s stay remains in place, while the court’s February 2016 decision that challenges to the rule belong in the appellate courts is being appealed to the U.S. Supreme Court. On February 28, 2017, the EPA and the Army Corps of Engineers published in the Federal Register a notice of intent to review and rescind or revise the “Waters of the U.S.” rule, as required by an Executive Order signed that same day. We cannot predict the outcome of ~~any such challenges. However,~~this review, but if ~~additional capital expenditures are necessary, they~~the rule is ultimately implemented in its current or substantially similar form and survives the legal challenges, it could ~~be material. IPL would seek recovery~~have a material impact on our business, financial condition or results of ~~these capital expenditures; however, there is no guarantee it would be successful in this regard.~~operations.

Capital Resources and Liquidity

Overview — As of ~~September 30, 2016,~~March 31, 2017, the Company had unrestricted cash and cash equivalents of ~~$1.3~~$1.6 billion, of which ~~$42~~$52 million was held at the Parent Company and qualified holding companies. The Company also had ~~$596~~$634 million in short-term investments, held primarily at subsidiaries. In addition, we had restricted cash and debt service reserves of ~~$935~~$904 million. The Company also had non-recourse and recourse aggregate principal amounts of debt outstanding of ~~$15.9~~$15.8 billion and ~~$4.9~~$4.5 billion, respectively. Of the approximately $1.1 billion of our current non-recourse debt, $1.0 billion was presented as such because it is due in the next 12 months and $134 million relates to debt considered in default due to covenant violations. The defaults are not payment defaults, but are instead technical defaults triggered by failure to comply with other covenants and/or conditions such as (but not limited to) failure to meet information covenants, complete construction or milestones in an allocated time, and meet minimum or maximum financial ratios, or other requirements contained in the non-recourse debt documents of the Company.

We expect ~~such~~ current maturities of non-recourse debt will be repaid from net cash provided by operating activities of the subsidiary to which the debt relates, through opportunistic refinancing activity, or some combination thereof. None of our recourse debt matures within the next twelve months. From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management believes that such securities are attractively priced. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors. The amounts involved in any such repurchases may be material.

We rely mainly on long-term debt obligations to fund our construction activities. We have, to the extent available at acceptable terms, utilized non-recourse debt to fund a significant portion of the capital expenditures and investments required to construct and acquire our electric power plants, distribution companies and related assets. Our non-recourse financing is designed to limit cross-default risk to the Parent Company or other subsidiaries and affiliates. Our non-recourse long-term debt is a combination of fixed and variable interest rate instruments. Generally, a portion or all of the variable rate debt is fixed through the use of interest rate swaps. In addition, the debt is typically denominated in the currency that matches the currency of the revenue expected to be generated from the benefiting project, thereby reducing currency risk. In certain cases, the currency is matched through the use of derivative instruments. The majority of our non-recourse debt is funded by international commercial banks, with debt capacity supplemented by multilaterals and local regional banks.

Given our long-term debt obligations, the Company is subject to interest rate risk on debt balances that accrue interest at variable rates. When possible, the Company will borrow funds at fixed interest rates or hedge its variable rate debt to fix its interest costs on such obligations. In addition, the Company has historically tried to maintain at least 70% of its consolidated long-term obligations at fixed interest rates, including fixing the interest rate through the use of interest rate swaps. These efforts apply to the notional amount of the swaps compared to the amount of related underlying debt. Presently, the Parent Company’s only material unhedged exposure to variable interest rate debt relates to indebtedness under its floating rate senior unsecured notes due ~~2019.~~2019 and drawings, if any, under its senior secured credit facility. On a consolidated basis, of the Company’s ~~$20.8~~$20.3 billion of total debt outstanding as of ~~September 30, 2016,~~March 31, 2017, approximately ~~$3.9~~$3.2 billion bore interest at variable rates that were not subject to a derivative instrument which fixed the interest rate. Brazil holds $1.4 billion of our floating rate non-recourse exposure as we have no ability to fix local debt interest rates efficiently.

In addition to utilizing non-recourse debt at a subsidiary level when available, the Parent Company provides a portion, or in certain instances all, of the remaining long-term financing or credit required to fund development, construction or acquisition of a particular project. These investments have generally taken the form of equity investments or intercompany loans, which are subordinated to the project’s non-recourse loans. We generally obtain the funds for these investments from our cash flows from operations, proceeds from the sales of assets and/

or the proceeds from our issuances of debt, common stock and other securities. Similarly, in certain of our businesses, the Parent Company may provide financial guarantees or other credit support for the benefit of counterparties who have entered into contracts for the purchase or sale of electricity, equipment or other services with our subsidiaries or lenders. In such circumstances, if a business defaults on its payment or supply obligation, the Parent Company will be responsible for the business’ obligations up to the amount provided for in the relevant guarantee or other credit support. At ~~September 30, 2016,~~March 31, 2017, the Parent Company had provided outstanding financial and performance-related guarantees ~~indemnities~~ or other credit support commitments to or for the benefit of our businesses, which were limited by the terms of the agreements, of approximately ~~$524~~$484 million in aggregate (excluding those collateralized by letters of credit and other obligations discussed below). These amounts exclude normal and customary representations and warranties in agreements for the sale of assets (including ownership in associated legal entities) where the associated risk is considered to be nominal.

As a result of the Parent Company’s ~~below-investment-grade~~below investment grade rating, counterparties may be unwilling to accept our general unsecured commitments to provide credit support. Accordingly, with respect to both new and existing commitments, the Parent Company may be required to provide some other form of assurance, such as a letter of credit, to backstop or replace our credit support. The Parent Company may not be able to provide adequate assurances to such counterparties. To the extent we are required and able to provide letters of credit or other collateral to such counterparties, this will reduce the amount of credit available to us to meet our other liquidity needs. At ~~September 30, 2016,~~March 31, 2017, we had $185 million in letters of credit outstanding provided under our unsecured credit

facility, $6 million in letters of credit outstanding provided under our senior secured credit facility, ~~$146 million in letters of credit outstanding under unsecured credit facilities~~ and $3 million in cash collateralized letters of credit outstanding outside of our senior secured credit facility. These letters of credit operate to guarantee performance relating to certain project development activities ~~construction activities~~ and ~~subsidiary~~business operations. During the quarter ended ~~September 30, 2016,~~March 31, 2017, the Company paid letter of credit fees ranging from ~~0.2%~~0.25% to ~~2.5%~~2.25% per annum on the outstanding amounts.

We expect to continue to seek, where possible, non-recourse debt financing in connection with the assets or businesses that we or our affiliates may develop, construct or acquire. However, depending on local and global market conditions and the unique characteristics of individual businesses, non-recourse debt may not be available on economically attractive terms or at all. If we decide not to provide any additional funding or credit support to a subsidiary project that is under construction or has near-term debt payment obligations and that subsidiary is unable to obtain additional non-recourse debt, such subsidiary may become insolvent, and we may lose our investment in that subsidiary. Additionally, if any of our subsidiaries lose a significant customer, the subsidiary may need to withdraw from a project or restructure the non-recourse debt financing. If we or the subsidiary choose not to proceed with a project or are unable to successfully complete a restructuring of the non-recourse debt, we may lose our investment in that subsidiary.

Many of our subsidiaries depend on timely and continued access to capital markets to manage their liquidity needs. The inability to raise capital on favorable terms, to refinance existing indebtedness or to fund operations and other commitments during times of political or economic uncertainty may have material adverse effects on the financial condition and results of operations of those subsidiaries. In addition, changes in the timing of tariff increases or delays in the regulatory determinations under the relevant concessions could affect the cash flows and results of operations of our businesses.

Long-Term Receivables — As of ~~September 30, 2016,~~March 31, 2017, the Company had approximately ~~$245 million and $37~~$302 million of accounts receivable classified as Noncurrent assets—other ~~and~~ ~~Current assets—Accounts receivable~~, ~~respectively,~~primarily related to certain of its generation businesses in Argentina and the United States, ~~and~~ its utility business in Brazil. ~~The~~These noncurrent ~~portion primarily consists~~receivables mostly consist of accounts receivable in Argentina that, pursuant to amended agreements or government resolutions, have collection periods that extend beyond ~~September 30, 2017,~~March 31, 2018, or one year from the latest balance sheet date. The majority of Argentinian receivables have been converted into long-term financing for the construction of power plants. See Note 5—Financing Receivables included in Part I—Item 1.—Financial Statements of this Form 10-Q and Item 1.—Business—Argentina—Regulatory ~~Matters—Argentina~~Framework included in our ~~2015~~2016 Form 10-K for further information.

Consolidated Cash Flows

The following table reflects the changes in operating, investing, and financing cash flows for the comparative three ~~and nine~~ month periods (in millions):


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
Cash flows provided by (used in):	2016			2015			$ Change			2016			2015			$ Change			2017			2016			$ Change
Operating activities	$	819		$	915		$	(96	)	$	2,182		$	1,505		$	677		$	703		$	640		$	63
Investing activities	(543		)	(569		)	26			(1,869		)	(1,639		)	(230		)	(340		)	(548		)	208
Financing activities	(215		)	97			(312		)	(258		)	86			(344		)	(79		)	(180		)	101

Operating Activities

The following table summarizes the key components of our consolidated operating cash ~~flows:~~flows (in millions):


	Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March 31,
(in millions)	2016		2015			$ Change			2016			2015			$ Change
																		2017			2016			$ Change
Net Income	$	229	$	203		$	26		$	(84	)	$	721		$	(805	)	$	98		$	74		$	24
Depreciation and amortization	291		283			8			877			880			(3		)	291			290			1
Impairment expenses	79		231			(152		)	475			276			199			168			161			7
Loss on the extinguishment of debt	16		20			(4		)	12			165			(153		)
Gain on extinguishment of debt																		(17		)	(4		)	(13		)
Other adjustments to net income	14		(15		)	29			438			(50		)	488			61			(20		)	81
Non-cash adjustments to net income	400		519			(119		)	1,802			1,271			531			503			427			76
Net income, adjusted for non-cash items	$	629	$	722		$	(93	)	$	1,718		$	1,992		$	(274	)	$	601		$	501		$	100
Net change in operating assets and liabilities ⁽¹⁾	$	190	$	193		$	(3	)	$	464		$	(487	)	$	951		$	102		$	139		$	(37	)
Net Cash Provided by Operating Activities⁽²⁾	$	819	$	915		$	(96	)	$	2,182		$	1,505		$	677
Net cash provided by operating activities⁽²⁾																		$	703		$	640		$	63

⁽¹⁾~~Refer to the table below for explanations of the variance in operating assets and liabilities.~~_____________________________


⁽¹⁾	Refer to the table below for explanations of the variance in operating assets and liabilities (also referred to as “working capital” in Segment Operating Cash Flow Analysis).


⁽²⁾	Amounts included in the table above include the results of discontinued operations, where applicable.

⁽²⁾~~Amounts included in the table above include the results of discontinued operations, where applicable.~~

~~The variance of $3 million in changes~~Net change in operating assets and liabilities decreased by $37 million for the three months ended ~~September 30, 2016~~March 31, 2017 compared to the three months ended ~~September 30, 2015~~March 31, 2016, which was primarily driven ~~by:~~by (in millions):

Decreases in: (in millions)
Other assets, primarily long-term regulatory assets at Eletropaulo and service concession assets at Vietnam $ 223
Accounts payable and other current liabilities, primarily at Eletropaulo and Kelanitissa (69 )
Increases in:
Accounts receivable, primarily at Andres and Itabo (161 )
Other operating assets and liabilities 4
Total decrease in cash from changes in operating assets and liabilities $ (3 )

~~The variance of $951 million in changes in operating assets and liabilities for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was driven by:~~

Decreases in: (in millions)
Accounts receivable, primarily at Maritza and Eletropaulo $ 649
Prepaid expenses and other current assets, primarily regulatory assets at Eletropaulo and Sul 293
Other assets, primarily long-term regulatory assets at Eletropaulo and service concession assets at Vietnam 866
Accounts payable and other current liabilities, primarily at Eletropaulo and Sul (805 )
Income taxes payable, net and other taxes payable, primarily at Tietê and Chivor (144 )
Increases in:
Other liabilities 45
Other operating assets and liabilities 47
Total increase in cash from changes in operating assets and liabilities $ 951



Increases in:
Prepaid expenses and other current assets, primarily at Sul as a result of amortization of short-term regulatory assets and energy and regulatory charges in 2016 that did not recur in 2017 due to sale of Sul. Increase is also attributable to short term regulatory assets primarily at El Salvador and DPL, and prepayments of gas purchases at Andres	$	(154	)
Income taxes payable, net, and other taxes payable, primarily at Tietê, Gener, and in the Dominican Republic	186
Decreases in:
Other liabilities, primarily due to higher deferrals into regulatory liabilities related to energy costs in 2016 compared to 2017 at Eletropaulo	(66		)
Other	(3		)
Total decrease in cash from changes in operating assets and liabilities	$	(37	)

Investing Activities

Net cash used in investing activities decreased by ~~$26~~$208 million for the three months ended ~~September 30, 2016,~~March 31, 2017, compared to the three months ended ~~September 30, 2015,~~March 31, 2016, which was primarily driven ~~by:~~by (in millions):


Decreases in:	(in millions)
Capital expenditures ⁽¹⁾	$	4		$	166
Proceeds from the sales of businesses, net of cash sold (primarily related to the sales of Solar Spain and Armenia Mountain in Q3 2015)	(93		)
Proceeds from the sales of businesses, net of cash sold (primarily related to the sales of DPLER, Kelanitissa and Jordan in Q1 2016)				(111		)
Net purchases of short-term investments	106			296
Increases In:
Restricted cash, debt service and other assets	28			(118		)
Other investing activities	(19		)	(25		)
Total decrease in net cash used in investing activities	$	26		$	208

_____________________________


⁽¹⁾	Refer to the tables below for a breakout of capital expenditures by type and ~~by primary business driver.~~

~~Net cash used in investing activities increased $230 million for the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015, which was primarily driven by:~~

Increases in: (in millions)
Capital expenditures ⁽¹⁾
$ (83 )
Proceeds from the sales of businesses, net of cash sold (primarily related to the sale of DPLER) 61
Net purchases of short-term investments (128 )
Restricted cash, debt service and other assets (63 )
Other investing activities (17 )
Total increase in net cash used in investing activities $ (230 )


⁽¹⁾	~~Refer to the tables below for a breakout of capital expenditures by type and by~~ primary business driver.

Capital Expenditures

The following table summarizes the Company's capital expenditures for growth investments, maintenance, and environmental reported in investing cash activities for the periods ~~indicated:~~indicated (in millions):


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(In millions)	2016			2015			$ Change			2016			2015			$ Change
																			2017			2016			$ Change
Growth Investments	$	(339	)	$	(349	)	$	10		$	(1,126	)	$	(1,091	)	$	(35	)	$	(304	)	$	(392	)	$	88
Maintenance	(141		)	(110		)	(31		)	(458		)	(414		)	(44		)	(146		)	(161		)	15
Environmental ⁽¹⁾	(35		)	(60		)	25			(186		)	(182		)	(4		)	(24		)	(87		)	63
Total capital expenditures	$	(515	)	$	(519	)	$	4		$	(1,770	)	$	(1,687	)	$	(83	)	$	(474	)	$	(640	)	$	166

_____________________________


⁽¹⁾	Includes both recoverable and non-recoverable environmental capital expenditures. See Non-GAAP ~~Proportional~~ Measures—Free Cash Flow for more information.

Cash used for capital expenditures decreased by $4$166 million for the three months ended ~~September 30, 2016,~~March 31, 2017, compared to the three months ended ~~September 30, 2015,~~March 31, 2016, which was primarily driven ~~by:~~by (in millions):

Increases in: (in millions)
Growth expenditures at the MCAC SBU, primarily due to the timing of construction activities related to the natural gas-fired generation plant in Panama and the LNG terminal at Andres $ (67 )
Growth expenditures at the Asia SBU, primarily related to investments at Masinloc related to the construction of a coal-fired plant and battery storage projects (36 )
Maintenance and environmental expenditures at the Brazil SBU, primarily due to expenditures related to the quality indicators recovery plan at Eletropaulo (18 )
Decreases in:
Growth expenditures at the US SBU, primarily due to lower spending related to the CCGT and Transmission & Distribution projects at IPALCO 70
Growth expenditures at the Andes SBU, primarily due to lower spending related to Cochrane, the Andes solar plant, and the Angamos desalinization plant; partially offset by higher investments in the Alto Maipo construction project 50
Other capital expenditures 5
Total decrease in net cash used for capital expenditures $ 4

~~Cash used for capital expenditures increased by $83 million for the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015, which was primarily driven by:~~

Increases in: (in millions)
Growth expenditures at the MCAC SBU, primarily due to the timing of construction activities related to the natural gas-fired generation plant in Panama and construction activities related to the Combined Cycle project at Los Mina $ (171 )
Growth expenditures at the Asia SBU, primarily related to investments at Masinloc related to the construction of a coal-fired plant and battery storage projects (64 )
Growth expenditures at the US SBU, primarily due to additional spending related to the CCGT and battery storage projects at IPALCO (48 )
Maintenance and environmental expenditures at the Brazil SBU, primarily due to expenditures related to the quality indicators recovery plan and system modernization at Eletropaulo (33 )
Decreases in:
Growth expenditures at the Andes SBU, primarily due to lower spending related to Cochrane, the Andes solar plant, and the Angamos desalinization plant; partially offset by higher investments in the Alto Maipo construction project 244
Other capital expenditures (11 )
Total increase in net cash used for capital expenditures $ (83 )



Decreases in:
Growth expenditures at the US SBU, primarily due to lower spending related to the CCGT at IPL	$	81
Maintenance and environmental expenditures at the US SBU, primarily due to lower spending at IPL on the NPDES and Harding Street refueling projects, as well as decreased spending on MATS and CCR compliance due to project completion	67
Growth expenditures at the Andes SBU, primarily due to lower spending related to Cochrane, the Andes solar plant, and the Angamos desalinization plant	30
Increases in:
Growth expenditures at the Brazil SBU, primarily due to the quality indicators recovery plan and an increase in productivity commitments at Eletropaulo	(12		)
Growth expenditures at the MCAC SBU, primarily due to the timing of construction activities related to the Colon project, partially offset by Combined Cycle project at DPP in Los Mina	(10		)
Other capital expenditures	10
Total decrease in net cash used for capital expenditures	$	166

Financing Activities

Net cash used in financing activities ~~increased $312~~decreased $101 million for the three months ended ~~September 30, 2016,~~March 31, 2017, compared to the three months ended ~~September 30, 2015,~~March 31, 2016, which was primarily driven ~~by:~~by (in millions):

(in millions)
Increase in net borrowing under the revolving credit facilities, primarily at the Parent Company, partially offset by a decrease in net repayments under the revolving credit facilities at the US SBU $ 209
Increase in repayment of recourse debt at Parent Company ⁽¹⁾
(197 )
Decrease in net issuance of non-recourse debt, primarily at the Andes, Brazil and US SBUs (412 )
Decrease in purchases of treasury stock by the Parent Company 101
Other financing activities (13 )
Total increase in net cash used in financing activities $ (312 )


⁽¹⁾	~~See Note 7—Debtin Item 1—Financial Statements~~ ~~of this Form 10-Q for more information regarding significant recourse debt transactions.~~

~~Net cash used in financing activities increased $344 million for the nine months ended September 30, 2016, compared to the nine months ended September 30, 2015, which was primarily driven by:~~



Decreases in:
Purchases of treasury stock by the Parent Company	$	79
Distributions to noncontrolling interests, primarily at the Brazil SBU	45
Proceeds from the sale of redeemable stock of subsidiaries at IPALCO	(134		)
Increases in:
Net issuance of non-recourse debt, primarily at the Andes, MCAC and Asia SBUs	361
Repayments of recourse debt at the Parent Company ⁽¹⁾	(225		)
Other financing activities	(25		)
Total decrease in net cash used in financing activities	$	101

(in millions)
Decrease in purchases of treasury stock by the Parent Company $ 329
Decrease in net repayments of recourse debt at the Parent Company ⁽¹⁾
32
Decrease in net issuance of non-recourse debt, primarily at the Andes and Asia SBUs (415 )
Decrease in proceeds from the sale of redeemable stock of subsidiaries at IPALCO (327 )
Increase in net borrowing under the revolving credit facilities, primarily at the Parent Company 190
Increase in distributions to noncontrolling interests, primarily at the Brazil SBU (174 )
Other financing activities 21
Total increase in net cash used in financing activities $ (344 )
_____________________________


⁽¹⁾	See Note 7—Debt in Item 1—Financial Statements of this Form 10-Q for more information regarding significant recourse debt transactions.

~~Reconciliation of Proportional Free Cash Flow (a non-GAAP measure)~~

We define Proportional Free Cash Flow as cash flows from operating activities (adjusted for service concession asset capital expenditures), less maintenance capital expenditures (including non-recoverable environmental capital expenditures and net of reinsurance proceeds), adjusted for the estimated impact of NCI. The proportionate share of cash flows and related adjustments attributable to NCI in our subsidiaries comprise the proportional adjustment factor presented in the reconciliation below. Upon the Company’s adoption of the accounting guidance for service concession arrangements effective January 1, 2015, capital expenditures related to service concession assets that would have been classified as investing activities on the Condensed Consolidated Statement of Cash Flows are now classified as operating activities. See Note 1~~—Financial Statement Presentation~~ ~~included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for further information on the adoption of this guidance.~~

Beginning in the quarter ended March 31, 2015, the Company changed the definition of Proportional Free Cash Flow to exclude the cash flows for capital expenditures related to service concession assets that are now classified within net cash provided by operating activities on the Condensed Consolidated Statement of Cash Flows. The proportional adjustment factor for these capital expenditures is presented in the reconciliation below.

We exclude environmental capital expenditures that are expected to be recovered through regulatory, contractual or other mechanisms. An example of recoverable environmental capital expenditures is IPALCO’s investment in MATS-related environmental upgrades that are recovered through a tracker. See Item 1.~~—Business—US SBU—IPALCO—Environmental Matters~~ ~~included in our 2015 Form 10-K for details of these investments.~~

The GAAP measure most comparable to proportional free cash flow is cash flows from operating activities. We believe that proportional free cash flow better reflects the underlying business performance of the Company, as it measures the cash generated by the business, after the funding of maintenance capital expenditures, that may be available for investing or repaying debt or other purposes. Factors in this determination include the impact of NCI, where AES consolidates the results of a subsidiary that is not wholly owned by the Company.

The presentation of free cash flow has material limitations. Proportional free cash flow should not be construed as an alternative to cash from operating activities, which is determined in accordance with GAAP. Proportional free cash flow does not represent our cash flow available for discretionary payments because it excludes certain payments that are required or to which we have committed, such as debt service requirements and dividend payments. Our definition of proportional free cash flow may not be comparable to similarly titled measures presented by other companies.

(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Calculation of Proportional Free Cash Flow 2016 2015 $ Change 2016 2015 $ Change
Net Cash provided by operating activities $ 819
915
$ (96 ) $ 2,182
$ 1,505
$ 677
Add: capital expenditures related to service concession assets ⁽¹⁾
1
77
(76 ) 27
148
(121 )
Adjusted Operating Cash Flow $ 820
$ 992
$ (172 ) $ 2,209
$ 1,653
$ 556
Less: proportional adjustment factor - operating cash activities ^{(2) (3)}
(313 ) (276 ) (37 ) (787 ) (361 ) (426 )
Proportional Adjusted Operating Cash Flow $ 507
$ 716
$ (209 ) $ 1,422
$ 1,292
$ 130
Less: proportional maintenance capital expenditures, net of reinsurance proceeds ⁽²⁾
(96 ) (80 ) (16 ) (322 ) (310 ) (12 )
Less: proportional non-recoverable environmental capital expenditures ^{(2) (4)}
(11 ) (15 ) 4
(30 ) (34 ) 4
Proportional Free Cash Flow $ 400
$ 621
$ (221 ) $ 1,070
$ 948
$ 122

~~____________________________~~

⁽¹⁾

~~Service concession asset expenditures excluded from proportional free cash flow non-GAAP metric.~~

⁽²⁾

Segment Operating Cash Flow Analysis

The proportional adjustment factor, proportional maintenance capital expenditures (net of reinsurance proceeds) and proportional non-recoverable environmental capital expenditures are calculated by multiplying the percentage owned by noncontrolling interests for each entity by its corresponding consolidated cash flow metric and are totaled to the resulting figures. For example, Parent Company A owns 80% of Subsidiary Company B, a consolidated subsidiary. Thus, Subsidiary Company B has a 20% noncontrolling interest. Assuming a consolidated net cash flow from operating activities of $100 from Subsidiary B, the proportional adjustment factor for Subsidiary B would equal ($20), or $100 x (20%). The Company calculates the proportional adjustment factor for each consolidated business in this manner and then sums these amounts to determine the total proportional adjustment factor used in the reconciliation. The proportional adjustment factor may differ from the proportion of income attributable to noncontrolling interests as a result of (a) non-cash items which impact income but not cash and (b) AES' ownership interest in the subsidiary where such items occur.


⁽³⁾	Includes proportional adjustment amount for service concession asset expenditures of $1 million and $39 million for the three months ended September 30, 2016 and 2015, as well as, $14 million and $76 million for the nine months ended September 30, 2016 and 2015, respectively.


⁽⁴⁾	Excludes IPALCO's proportional recoverable environmental capital expenditures of $22 million and $35 million for the three months ended September 30, 2016 and 2015, as well as, $116 million and $121 million for the nine months ended September 30, 2016 and 2015, respectively.

Operating Cash Flow ~~and Proportional Free Cash Flow Analysis~~by SBU ⁽¹⁾


Operating Cash Flow by Segment	Three Months Ended September 30,									Nine Months Ended September 30,
(in millions)	2016			2015			$ Change			2016			2015			$ Change
																			Three Months Ended March 31,
																			2017			2016			$ Change
US	$	291		$	277		$	14		$	691		$	655		$	36		$	151		$	207		$	(56	)
Andes	157			225			(68		)	300			281			19			132			38			94
Brazil	173			73			100			582			36			546			267			241			26
MCAC	142			361			(219		)	202			559			(357		)	85			39			46
Europe	68			57			11			523			269			254			90			92			(2		)
Asia	103			23			80			206			(19		)	225			81			72			9
Corporate	(115		)	(101		)	(14		)	(322		)	(276		)	(46		)	(103		)	(49		)	(54		)
Total	$	819		$	915		$	(96	)	$	2,182		$	1,505		$	677
Total SBUs																			$	703		$	640		$	63

Proportional Free Cash Flow by Segment Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2016 2015 $ Change 2016 2015 $ Change
US $ 219
$ 218
$ 1
$ 469
$ 477
$ (8 )
Andes 92
134
(42 ) 152
131
21
Brazil 24
31
(7 ) 106
(36 ) 142
MCAC 91
259
(168 ) 98
391
(293 )
Europe 43
33
10
462
207
255
Asia 48
50
(2 ) 110
59
51
Corporate (117 ) (104 ) (13 ) (327 ) (281 ) (46 )
Total $ 400
$ 621
$ (221 ) $ 1,070
$ 948
$ 122

~~____________________________~~_____________________________


⁽¹⁾	Operating ~~cash flow and proportional free~~ cash flow as presented above include the effects of intercompany transactions with other segments except for interest, tax sharing, charges for management fees and transfer pricing.

US SBU

The ~~following table summarizes~~decrease in Operating Cash Flow ~~and Proportional Free Cash Flow for our US SBU for~~of $56 million was driven primarily by the ~~periods indicated:~~following (in millions):

(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Calculation of Proportional Free Cash Flow 2016 2015 $ Change 2016 2015 $ Change
Net Cash Provided by Operating Activities $ 291
$ 277
$ 14
$ 691
$ 655
$ 36
Less: proportional adjustment factor on operating cash activities (35 ) (26 ) (9 ) (72 ) (33 ) (39 )
Proportional Adjusted Operating Cash Flow 256
251
5
619
622
(3 )
Less: proportional maintenance capital expenditures, net of reinsurance proceeds (35 ) (31 ) (4 ) (146 ) (142 ) (4 )
Less: proportional non-recoverable environmental capital expenditures ⁽¹⁾
(2 ) (2 ) —
(4 ) (3 ) (1 )
Proportional Free Cash Flow $ 219
$ 218
$ 1
$ 469
$ 477
$ (8 )

~~____________________________~~


⁽¹⁾	Excludes IPALCO's proportional recoverable environmental capital expenditures of $22 million and $35 million for the three months ended September 30, 2016 and 2015, as well as $116 million and $121 million for the nine months ended September 30, 2016 and 2015, respectively.



US SBU Q1 2017 vs. Q1 2016
Lower operating margin, net of a decrease in depreciation of $9	$	(10	)
Higher inventory purchases in Q1 2017, due primarily to inventory optimization efforts in Q1 2016	(30		)
Timing of payments for purchased power and other general accounts payable	(34		)
Lower collections at DPL, primarily due to the settlement of receivable balances at DPLER upon its sale in Q1 2016	(17		)
Higher collections at IPL, primarily due to higher A/R balances in December 2016 resulting from favorable weather and the 2016 rate order	18
Lower payments for interest expense, primarily at DPL	10
Other	7
Total US SBU Operating Cash Decrease	$	(56	)

~~Three months ended September 30, 2016~~:ANDES SBU

The increase in Operating Cash Flow of ~~$14~~$94 million was driven primarily by the ~~following:~~following (in millions):

US SBU Quarter-over-Quarter (in millions)
Higher operating margin, net of non-cash items (primarily depreciation of $5) $ 37
Timing of payments for accounts payable and consumption of inventory, primarily due to lower fuel inventory purchases from inventory optimization efforts 34
Lower payments for interest expense, primarily due to debt repayments at DPL, and lower interest rates 5
Timing of receivables collections, primarily due to higher rates at IPL, favorable weather in Q3 2016, and the impact of DPLER’s declining customer base in 2015 (37 )
Impact of competitive bid deposits received from suppliers in 2015 to participate in DP&L’s auction (20 )
Other (5 )
Total US SBU Operating Cash Increase $ 14



Andes SBU Q1 2017 vs. Q1 2016
Higher operating margin, net of increased depreciation of $12	$	35
Lower working capital requirements at Gener, due primarily to the timing of collections	49
Lower tax payments, primarily at Gener due to the receipt of an income tax refund in Q1 2017 and withholding taxes paid in Q1 2016 on dividends to AES affiliates	32
Increased collections in Argentina resulting primarily from the commencement of commercial operations at the Guillermo Brown plant	17
Lower collections at Chivor related to increased sales from Q4 2015 (collected in Q1 2016)	(35		)
Increase in interest payments at Cochrane, which are no longer capitalized	(8		)
Other	4
Total Andes SBU Operating Cash Increase	$	94

Proportional Free Cash Flow increased by $1 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests and reflective of an increase in the proportional adjustment factor as a result of the additional sell-down of IPL in 2016.

~~Nine months ended September 30, 2016~~:BRAZIL SBU

The increase in Operating Cash Flow of ~~$36~~$26 million was driven primarily by the ~~following:~~following (in millions):

US SBU Year-over-Year (in millions)
Consumption of inventory, primarily due to lower fuel inventory purchases from inventory optimization efforts $ 90
Lower payments for interest expense, primarily due to debt repayments at DPL, and lower interest rates 27
Net impact of receivable settlements related to the 2016 sale of DPLER and the 2015 sale of MC²
17
Timing of receivables collections, primarily due to higher rates at IPL, favorable weather in Q3 2016, and the impact of DPLER’s declining customer base in 2015 (68 )
Impact of competitive bid deposits received from suppliers in 2015 to participate in DP&L’s auction (20 )
Lower operating margin, net of non-cash items (primarily depreciation of $28 and $18 impact of IPL’s new rates) (9 )
Other (1 )
Total US SBU Operating Cash Increase $ 36

Proportional Free Cash Flow decreased by $8 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests and reflective of an increase in the proportional adjustment factor as a result of the additional sell-down of IPL in 2016.

~~ANDES SBU~~

~~The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Andes SBU for the periods indicated:~~

(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Calculation of Proportional Free Cash Flow 2016 2015 $ Change 2016 2015 $ Change
Net Cash Provided by Operating Activities $ 157
$ 225
$ (68 ) $ 300
$ 281
$ 19
Less: proportional adjustment factor on operating cash activities (50 ) (74 ) 24
(97 ) (85 ) (12 )
Proportional Adjusted Operating Cash Flow 107
151
(44 ) 203
196
7
Less: proportional maintenance capital expenditures, net of reinsurance proceeds (13 ) (13 ) —
(45 ) (45 ) —
Less: proportional non-recoverable environmental capital expenditures (2 ) (4 ) 2
(6 ) (20 ) 14
Proportional Free Cash Flow $ 92
$ 134
$ (42 ) $ 152
$ 131
$ 21

~~Three months ended September 30, 2016~~:

~~The decrease in Operating Cash Flow of $68 million was driven primarily by the following:~~

Andes SBU Quarter-over-Quarter (in millions)
Higher operating margin, net of non-cash impacts (primarily depreciation of $5) $ 43
Lower VAT refunds due to projects entering COD at Cochrane (73 )
Higher payments to fuel suppliers in Chile (29 )
Lower collections at the CTSN plant in Argentina (11 )
Other 2
Total Andes SBU Operating Cash Decrease $ (68 )

~~Proportional Free Cash Flow decreased by $42 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests.~~

~~Nine months ended September 30, 2016~~:

~~The increase in Operating Cash Flow of $19 million was driven primarily by the following:~~

Andes SBU Year-over-Year (in millions)
Higher operating margin, net of non-cash impacts (primarily depreciation of $8) $ 67
Impact from a prior year payment to unwind an interest rate swap as part of the Ventanas refinancing in July 2015 38
Higher collections at Chivor related to increased sales from Q4 2015 27
Increase in collections from CAMMESA in Argentina associated with remuneration of major maintenance costs 12
Lower interest expense due primarily to Ventanas refinancing 6
Lower VAT refunds due to projects entering COD at Cochrane (85 )
Higher tax payments in Chile, primarily withholding taxes paid on Chilean distributions to AES affiliates (29 )
Increase in income tax payments due to higher taxable income in Colombia (29 )
Other 12
Total Andes SBU Operating Cash Increase $ 19

Proportional Free Cash Flow increased $21 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests, as well as a $14 million net decrease in proportional maintenance and non-recoverable environmental capital expenditures primarily from lower payments for emissions reduction equipment at the Tocopilla and Ventanas Plants.

~~BRAZIL SBU~~

~~The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Brazil SBU for the periods indicated:~~

(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Calculation of Proportional Free Cash Flow 2016 2015 $ Change 2016 2015 $ Change
Net Cash Provided by Operating Activities $ 173
$ 73
$ 100
$ 582
$ 36
$ 546
Less: proportional adjustment factor on operating cash activities (131 ) (31 ) (100 ) (422 ) (32 ) (390 )
Proportional Adjusted Operating Cash Flow 42
42
—
160
4
156
Less: proportional maintenance capital expenditures, net of reinsurance proceeds (18 ) (11 ) (7 ) (54 ) (40 ) (14 )
Proportional Free Cash Flow $ 24
$ 31
$ (7 ) $ 106
$ (36 ) $ 142

~~Three months ended September 30, 2016~~:

~~The increase in Operating Cash Flow of $100 million was driven primarily by the following:~~

Brazil SBU Quarter-over-Quarter (in millions)
Lower operating margin⁽¹⁾, net of non-cash items (primarily depreciation of $5 and $28 of contingency items at Eletropaulo)
$ (62 )
Timing of non-income tax payments (78 )
Timing of collections on energy sales in the current year 146
Collections of higher costs deferred in net regulatory assets in the prior year at Eletropaulo and Sul as a result of unfavorable hydrology in prior periods 118
Other (24 )
Total Brazil SBU Operating Cash Increase $ 100

~~____________________________~~

⁽¹⁾ Includes the results of AES Sul, which is excluded from continuing operations in the Condensed Consolidated Statements of Operations but is included within operating cash flow on the Condensed Consolidated Statements of Cash Flows. See Note 16 of Item 1.—~~Notes to Condensed Consolidated Financial Statements~~ ~~within this Form 10-Q for further information.~~

~~Proportional Free Cash Flow decreased by $7 million primarily due to an increase in proportional maintenance capital expenditures.~~

~~Nine months ended September 30, 2016~~:

~~The increase in Operating Cash Flow of $546 million was driven primarily by the following:~~

Brazil SBU Year-over-Year (in millions)
Lower operating margin ⁽¹⁾, net of non-cash items (primarily lower depreciation of $10 and a net $63 impact from contingency items at Eletropaulo)
$ (254 )
Timing of payments at Eletropaulo and Sul related to regulatory charges and tariff flags due to improved hydrology in 2016 (603 )
Timing of non-income tax payments (19 )
Collections of higher costs deferred in net regulatory assets in the prior year at Eletropaulo and Sul as a result of unfavorable hydrology in prior periods 980
Timing of collections on energy sales in the current year 406
Lower energy purchases at Tietê in the current year as result of favorable hydrology 92
Other (56 )
Total Brazil SBU Operating Cash Increase $ 546

~~____________________________~~

~~Proportional Free Cash Flow increased by $142 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests.~~

~~MCAC SBU~~

~~The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our MCAC SBU for the periods indicated:~~

(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Calculation of Proportional Free Cash Flow 2016 2015 $ Change 2016 2015 $ Change
Net Cash Provided by Operating Activities $ 142
$ 361
$ (219 ) $ 202
$ 559
$ (357 )
Less: proportional adjustment factor on operating cash activities (33 ) (89 ) 56
(51 ) (121 ) 70
Proportional Adjusted Operating Cash Flow 109
272
(163 ) 151
438
(287 )
Less: proportional maintenance capital expenditures, net of reinsurance proceeds (18 ) (12 ) (6 ) (51 ) (45 ) (6 )
Less: proportional non-recoverable environmental capital expenditures —
(1 ) 1
(2 ) (2 ) —
Proportional Free Cash Flow $ 91
$ 259
$ (168 ) $ 98
$ 391
$ (293 )

~~Three months ended September 30, 2016~~:

~~The decrease in Operating Cash Flow of $219 million was driven primarily by the following:~~

MCAC SBU Quarter-over-Quarter (in millions)
Collection over overdue receivables in September 2015 from distribution companies in the Dominican Republic $ (243 )
Favorable changes in working capital at Puerto Rico, primarily driven by the timing of collections 17
Other 7
Total MCAC SBU Operating Cash Decrease $ (219 )

~~Proportional Free Cash Flow decreased by $168 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests.~~

~~Nine months ended September 30, 2016~~:

~~The decrease in Operating Cash Flow of $357 million was driven primarily by the following:~~

MCAC SBU Year-over-Year (in millions)
Collection over overdue receivables in September 2015 from distribution companies in the Dominican Republic $ (243 )
Lower collections from the off-taker in Puerto Rico, primarily due to lower sales from Q4 2015 (40 )
Lower operating margin, net of non-cash items (primarily depreciation of $8) (41 )
Higher income tax payment as a result of higher taxable income in 2015 vs. 2014 in El Salvador (17 )
Higher withholding taxes paid on dividend distributions to AES affiliates in the Dominican Republic (16 )
Total MCAC SBU Operating Cash Decrease $ (357 )

~~Proportional Free Cash Flow decreased by $293 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests.~~



Brazil SBU Q1 2017 vs. Q1 2016
Higher operating margin, net of increased depreciation of $10	$	74
Receipt of YPF legal settlement	60
Lower tax payments at Tietê resulting from lower taxable income in 2016 vs. 2015	58
Timing of payments for energy purchases at Eletropaulo due to lower energy costs and lower regulatory charges from improved hydrology in 2017	51
Timing of collections at Tietê due to higher energy sales under bilateral contracts	21
Higher collections in the prior year of costs deferred in net regulatory assets at Eletropaulo as a result of unfavorable hydrology in prior periods	(132		)
Lower collections of accounts receivable at Eletropaulo due primarily to higher tariff flags in 2016	(69		)
Increase in pension contributions at Eletropaulo	(15		)
Lack of operating cash flow from AES Sul, which was sold in 2016	(11		)
Other	(11		)
Total Brazil SBU Operating Cash Increase	$	26

~~EUROPE~~MCAC SBU

~~The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Europe SBU for the periods indicated:~~

(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Calculation of Proportional Free Cash Flow 2016 2015 $ Change 2016 2015 $ Change
Net Cash Provided by Operating Activities $ 68
$ 57
$ 11
$ 523
$ 269
$ 254
Less: proportional adjustment factor on operating cash activities (8 ) (6 ) (2 ) (24 ) (23 ) (1 )
Proportional Adjusted Operating Cash Flow 60
51
9
499
246
253
Less: proportional maintenance capital expenditures, net of reinsurance proceeds (10 ) (11 ) 1
(19 ) (31 ) 12
Less: proportional non-recoverable environmental capital expenditures (7 ) (7 ) —
(18 ) (8 ) (10 )
Proportional Free Cash Flow $ 43
$ 33
$ 10
$ 462
$ 207
$ 255

~~Three months ended September 30, 2016~~:

The increase ~~in Operating Cash Flow of $11 million was driven primarily by the following:~~

Europe SBU Quarter-over-Quarter (in millions)
Increase in collections at Maritza from NEK (off-taker), net of payments to MMI (fuel supplier) $ 44
Lower operating margin, net of non-cash items (primarily unrealized gain on designated hedge of $10) (28 )
Decrease in CO₂ allowances due to a price decrease
(8 )
Other 3
Total Europe SBU Operating Cash Increase $ 11

~~Proportional Free Cash Flow increased by $10 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests.~~

~~Nine months ended September 30, 2016~~:

~~The increase in Operating Cash Flow of $254 million was driven primarily by the following:~~

Europe SBU Year-over-Year (in millions)
Increase in collections at Maritza from NEK (off-taker), net of payments to MMI (fuel supplier) $ 337
Lower operating margin, net of non cash items (primarily lower depreciation of $16) (63 )
Decrease in CO2 allowances due to a price decrease (25 )
Higher payments at Bulgaria Wind due to the settlement of overdue invoices to the national grid operator (7 )
Other 12
Total Europe SBU Operating Cash Increase $ 254

~~Proportional Free Cash Flow increased $255 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests.~~

~~ASIA SBU~~

~~The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Asia SBU for the periods indicated:~~

(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Calculation of Proportional Free Cash Flow 2016 2015 $ Change 2016 2015 $ Change
Net Cash Provided by Operating Activities $ 103
$ 23
$ 80
$ 206
$ (19 ) $ 225
Add: capital expenditures related to service concession assets ⁽¹⁾
1
77
(76 ) 27
148
(121 )
Adjusted Operating Cash Flow 104
100
4
233
129
104
Less: proportional adjustment factor on operating cash activities ⁽²⁾
(56 ) (50 ) (6 ) (121 ) (67 ) (54 )
Proportional Adjusted Operating Cash Flow 48
50
(2 ) 112
62
50
Less: proportional maintenance capital expenditures, net of reinsurance proceeds —
—
—
(2 ) (3 ) 1
Proportional Free Cash Flow $ 48
$ 50
$ (2 ) $ 110
$ 59
$ 51

⁽¹⁾~~Service concession asset expenditures are included in operating cash flows but are excluded from the calculation of proportional free cash flows.~~

⁽²⁾ Includes proportional adjustment for service concession asset expenditures of $1 million and $39 million for the three months ended September 30, 2016 and 2015, as well as $14 million and $76 million for the nine months ended September 30, 2016 and 2015, respectively.

~~Three months ended September 30, 2016~~:

~~The increase in Operating Cash Flow of $80 million was driven primarily by the following:~~

Asia SBU Quarter-over-Quarter (in millions)
Reduction in service concession asset expenditures at Mong Duong $ 76
Other 4
Total Asia SBU Operating Cash Increase $ 80

Proportional Free Cash Flow decreased by $2 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests and exclusive of the $76 million favorable decrease in service concession asset expenditures, which are excluded from the calculation of proportional free cash flows.

~~Nine months ended September 30, 2016~~:

~~The increase in Operating Cash Flow of $225 million was driven primarily by the following:~~

Asia SBU Year-over-Year (in millions)
Decrease in working capital requirements at Mong Duong as the plant was fully operational in 2016 $ 56
Higher operating margin, net of non-cash service concession expense 61
Reduction in service concession asset expenditures, net of previously capitalized interest payments 94
Higher interest income as a result of the financing component under service concession accounting 23
Other (9 )
Total Asia SBU Operating Cash Increase $ 225

Proportional Free Cash Flow increased by $51 million primarily due to the drivers above, adjusted for the impact of noncontrolling interests and exclusive of the $121 million favorable decrease in service concession asset expenditures, which are excluded from the calculation of proportional free cash flows.

~~CORPORATE AND OTHER~~

~~The following table summarizes Operating Cash Flow and Proportional Free Cash Flow for our Corporate and Other operations for the periods indicated:~~

(in millions) Three Months Ended September 30, Nine Months Ended September 30,
Calculation of Proportional Free Cash Flow 2016 2015 $ Change 2016 2015 $ Change
Net Cash Used by Operating Activities $ (115 ) $ (101 ) $ (14 ) $ (322 ) $ (276 ) $ (46 )
Proportional Adjusted Operating Cash Flow (115 ) (101 ) (14 ) (322 ) (276 ) (46 )
Less: proportional maintenance capital expenditures, net of reinsurance proceeds (2 ) (2 ) —
(5 ) (4 ) (1 )
Less: proportional non-recoverable environmental capital expenditures —
(1 ) 1
—
(1 ) 1
Proportional Free Cash Flow $ (117 ) $ (104 ) $ (13 ) $ (327 ) $ (281 ) $ (46 )

~~Three months ended September 30, 2016~~:

~~The decrease in Operating Cash Flow of $14 million was driven primarily by the following:~~

Corporate and Other Quarter-over-Quarter (in millions)
Timing of annual property insurance premiums received from SBUs due to change in policy year to a calendar year basis $ (24 )
Timing of payments for people-related costs 11
Other (1 )
Total Corporate and Other Operating Cash Decrease $ (14 )

~~Proportional Free Cash Flow decreased by $13 million primarily due to the drivers above.~~

~~Nine months ended September 30, 2016~~:

~~The decrease~~ in Operating Cash Flow of $46 million was driven primarily by the ~~following:~~following (in millions):

Corporate and Other Year-over-Year (in millions)
Timing of annual property insurance premiums received from SBUs $ 36
Lower interest payments due principal repayments on debt 17
Decrease in cash from net settlements of oil derivatives (8 )
Timing of payments for reinsurance costs (14 )
Timing of intercompany settlements with SBUs (20 )
Higher payments for people-related costs, primarily due to inflation, health benefit costs, and severance (26 )
Other (31 )
Total Corporate and Other Operating Cash Decrease $ (46 )



MCAC SBU Q1 2017 vs. Q1 2016
Higher operating margin, net of increased depreciation of $1	$	13
Lower tax payments in the Dominican Republic, due primarily to withholding taxes paid in Q1 2016 on dividends to AES Affiliates	30
Timing of payments for energy purchases and general accounts payable in the Dominican Republic	30
Timing of energy purchases deferred into regulatory assets in El Salvador	(29		)
Other	2
Total MCAC SBU Operating Cash Increase	$	46

~~Proportional Free~~

EUROPE SBU

The decrease in Operating Cash Flow ~~decreased~~of $2 million was driven primarily by ~~$46~~the following (in millions):



Europe SBU Q1 2017 vs. Q1 2016
Lower operating margin, net of lower depreciation of $1	$	(4	)
Increase in working capital requirements at Bulgaria Wind mainly due to collections of outstanding receivables from the off-taker in 2016	(8		)
Lower tax payments at Kilroot, primarily due to additional taxes paid in 2016 resulting from a loan derecognition	6
Decrease in working capital requirements at Ballylumford, primarily due to collections of higher sales occurring in Q4 2016	6
Other	(2		)
Total Europe SBU Operating Cash Decrease	$	(2	)

ASIA SBU

The increase in Operating Cash Flow of $9 million was driven primarily ~~due to~~by the ~~drivers above.~~following (in millions):



Asia SBU Q1 2017 vs. Q1 2016
Decrease in service concession asset expenditures	$	23
Increase in working capital requirements at Mong Duong due to increased dispatch in Q1 2017	(9		)
Increase in working capital requirements at Masinloc, primarily due to the timing of coal purchases	(4		)
Other	(1		)
Total Asia SBU Operating Cash Increase	$	9

CORPORATE AND OTHER

The decrease in Operating Cash Flow of $54 million was driven primarily by the following (in millions):



Corporate and Other Q1 2017 vs. Q1 2016
Increase in realized losses on oil hedges	$	(35	)
Timing of intercompany settlements with SBUs	(15		)
Higher payments for people-related costs and associated payroll taxes	(23		)
Timing of annual property insurance premiums received from SBUs	31
Other	(12		)
Total Corporate and Other Operating Cash Decrease	$	(54	)

Parent Company Liquidity

The following discussion is included as a useful measure of the liquidity available to The AES Corporation, or the Parent Company, given the non-recourse nature of most of our indebtedness. Parent Company Liquidity as outlined below is a non-GAAP measure and should not be construed as an alternative to cash and cash equivalents which ~~are~~is determined in accordance with GAAP as a measure of ~~liquidity,~~liquidity. Cash and ~~are~~cash equivalents is disclosed in the Condensed Consolidated Statements of Cash Flows. Parent Company Liquidity may differ from similarly titled measures used by other companies.

The principal sources of liquidity at the Parent Company level are dividends and other distributions from our subsidiaries, including refinancing proceeds; proceeds from debt and equity financings at the Parent Company level, including availability under our credit facility; and proceeds from asset sales.

Cash requirements at the Parent Company level are primarily ~~(1)~~ to fund interest; ~~(2)~~ principal repayments of debt; ~~(3) acquisitions; (4)~~ construction commitments; ~~(5)~~ other equity commitments; ~~(6)~~ common stock ~~repurchases and dividends; (7)~~repurchases; acquisitions; taxes; ~~and (8)~~ Parent Company overhead and development ~~costs.~~costs; and dividends on common stock.

The Company defines Parent Company Liquidity as cash available to the Parent Company plus available borrowings under existing credit facility. The cash held at qualified holding companies represents cash sent to

subsidiaries of the Company domiciled outside of the U.S. Such subsidiaries have no contractual restrictions on their ability to send cash to the Parent Company. Parent Company Liquidity is reconciled to its most directly comparable GAAP financial measure, cash and cash equivalents, at the periods indicated as follows (in millions):


	September 30, 2016				December 31, 2015			March 31, 2017			December 31, 2016
Consolidated cash and cash equivalents	$	1,325			$	1,257		$	1,588		$	1,305
Less: Cash and cash equivalents at subsidiaries	(1,283		)		(857		)	(1,536		)	(1,205		)
Parent and qualified holding companies’ cash and cash equivalents	42				400			52			100
Commitments under Parent credit facilities	800				800			800			800
Less: Letters of credit under the credit facilities	(6		)		(62		)	(6		)	(6		)
Less: Borrowings under the credit facilities	(275		)	⁽¹⁾	—			(127		)	—
Borrowings available under Parent credit facilities	519				738			667			794
Total Parent Company Liquidity	$	561			$	1,138		$	719		$	894

~~_____________________________~~


⁽¹⁾	~~The Company redeemed its $181 million senior unsecured notes due 2017 using proceeds from the borrowings under senior secured credit facility which it intends to repay in the fourth quarter of 2016.~~

The Company paid dividends of ~~$0.11~~$0.12 per share to its common stockholders during the first ~~second and third quarters~~quarter of ~~2016~~2017 for dividends declared in December ~~2015, and February and July 2016, respectively.~~2016. While we intend to continue payment of dividends, and believe we will have sufficient liquidity to do so, we can provide no assurance that we will continue to pay dividends, or if continued, the amount of such dividends.

Recourse Debt

Our total recourse debt was ~~$4.9~~$4.5 billion and ~~$5.0~~$4.7 billion as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. See Note 7—Debt in Item 1.—Financial Statements of this Form 10-Q and Note ~~12—~~11—Debt in Item 8.—Financial Statements and Supplementary Data of our ~~2015~~2016 Form 10-K for additional detail.

While we believe that our sources of liquidity will be adequate to meet our needs for the foreseeable future, this belief is based on a number of material assumptions, including, without limitation, assumptions about our ability to access the capital markets, ~~(see Item 2.—Key Trends and Uncertainties~~), the operating and financial performance of our subsidiaries, currency exchange rates, power market pool prices, and the ability of our subsidiaries to pay dividends. In addition, our subsidiaries’ ability to declare and pay cash dividends to us (at the Parent Company level) is subject to certain limitations contained in loans, governmental provisions and other agreements. We can provide no assurance that these sources will be available when needed or that the actual cash requirements will not be greater than anticipated. We have met our interim needs for shorter-term and working capital financing at the Parent Company level with our senior secured credit facility. See Item 1A.—Risk Factors—The AES Corporation is a holding company and its ability to make payments on its outstanding indebtedness, including its public debt securities, is dependent upon the receipt of funds from its subsidiaries by way of dividends, fees, interest, loans or otherwise of the Company’s ~~2015~~2016 Form 10-K for additional information.

Various debt instruments at the Parent Company level, including our senior secured credit facility, contain certain restrictive covenants. The covenants provide for — among other items — ~~(1)~~ limitations on other indebtedness; ~~(2)~~ liens, investments and ~~guarantees,~~guarantees; limitations on dividends, stock repurchases and other equity transactions; ~~(3)~~ restrictions and limitations on mergers and acquisitions, sales of assets, leases, transactions with affiliates and off-balance sheet and derivative arrangements; ~~(4)~~ maintenance of certain financial ratios; and ~~(5)~~ financial and other reporting requirements. As of ~~September 30, 2016,~~March 31, 2017, we were in compliance with these covenants at the Parent Company level.

Non-Recourse Debt

While the lenders under our non-recourse debt financings generally do not have direct recourse to the Parent Company, defaults thereunder can still have important consequences for our results of operations and liquidity, including, without limitation:

~~Reducing~~reducing our cash flows as the subsidiary will typically be prohibited from distributing cash to the Parent Company during the time period of any default;

~~Triggering~~triggering our obligation to make payments under any financial guarantee, letter of credit or other credit support we have provided to or on behalf of such subsidiary;

~~Causing~~causing us to record a loss in the event the lender forecloses on the assets; and

~~Triggering~~triggering defaults in our outstanding debt at the Parent Company.

For example, our senior secured credit facility and outstanding debt securities at the Parent Company include events of default for certain bankruptcy-related events involving material subsidiaries. In addition, our ~~senior secured~~revolving credit ~~facility~~agreement at the Parent Company includes events of default related to payment defaults and accelerations of outstanding debt of material subsidiaries.

Some of our subsidiaries are currently in default with respect to all or a portion of their outstanding indebtedness. The total non-recourse debt classified as current in the accompanying Condensed Consolidated Balance Sheets amounts to $1.1 billion. The portion of current debt related to such defaults was $134 million at September 30, 2016, all of which was non-recourse debt related to two subsidiaries — Kavarna and Sogrinsk. See Note 7—~~Debt~~ ~~in Item 1.—Financial Statements~~ ~~of this Form 10-Q for additional detail.~~

None of the subsidiaries that are currently in default are subsidiaries that met the applicable definition of materiality under AES’ corporate debt agreements as of September 30, 2016, in order for such defaults to trigger an event of default or permit acceleration under AES’ indebtedness. However, as a result of additional dispositions of assets, other significant reductions in asset carrying values or other matters in the future that may impact our financial position and results of operations or the financial position of the individual subsidiary, it is possible that one or more of these subsidiaries could fall within the definition of a “material subsidiary” and thereby upon an acceleration trigger an event of default and possible acceleration of the indebtedness under the Parent Company’s outstanding debt securities. A material subsidiary is defined in the Company’s senior secured credit facility as any business that contributed 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently ended fiscal quarters.

As of ~~September 30, 2016, none of the~~March 31, 2017, there are no defaults ~~listed above individually or in the aggregate results~~which result in or isare at risk of triggering a cross-default under the recourse debt of the Company.

Critical Accounting Policies and Estimates

The condensed consolidated financial statements of AES are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. The Company’s significant accounting policies are described in Note 1—General and Summary of Significant Accounting Policies of our ~~2015~~2016 Form 10-K. The Company’s critical accounting estimates are described in Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~2015~~2016 Form 10-K. An accounting estimate is considered critical if the estimate requires management to make an assumption about matters that were highly uncertain at the time the estimate was made, different estimates reasonably could have been used, or if changes in the estimate that would have a material impact on the Company’s financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Company has reviewed and determined that these remain as critical accounting policies as of and for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Overview Regarding Market Risks — Our ~~generation and utility~~ businesses are exposed to and proactively manage market risk. Our primary market risk exposure is to the price of commodities, particularly electricity, oil, natural gas, coal and environmental credits. In addition, our businesses are ~~also~~ exposed to lower electricity prices due to increased competition, including from renewable sources such as wind and solar, as a result of lower costs of entry and lower variable costs. We operate in multiple countries and as such, are subject to volatility in exchange rates at varying degrees at the subsidiary level and between our functional currency, the U.S. Dollar, and currencies of the countries in which we operate. We are also exposed to interest rate fluctuations due to our issuance of debt and related financial instruments.

The disclosures presented in this Item 3 are based upon a number of assumptions; actual effects may differ. The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 shall apply to the disclosures contained in this Item 3. For further information regarding market risk, see Item 1A.—Risk Factors, Our financial position and results of operations may fluctuate significantly due to

fluctuations in currency exchange rates experienced at our foreign operations;, Our businesses may incur substantial costs and liabilities and be exposed to price volatility as a result of risks associated with the ~~wholesale~~ electricity markets, which could have a material adverse effect on our financial performance; and We may not be adequately hedged against our exposure to changes in commodity prices or interest rates of the ~~2015~~2016 Form 10-K.

Commodity Price Risk — Although we prefer to hedge our exposure to the impact of market fluctuations in the price of electricity, fuels and environmental credits, some of our generation businesses operate under short-term sales or under contract sales that leave an unhedged exposure on some of our capacity or through imperfect fuel pass-throughs. In our utility businesses, we may be exposed to commodity price movements depending on our excess or shortfall of generation relative to load obligations and sharing or pass-through mechanisms. These businesses subject our operational results to the volatility of prices for electricity, fuels and environmental credits in competitive markets. We employ risk management strategies to hedge our financial performance against the effects of fluctuations in energy commodity prices. The implementation of these strategies can involve the use of physical and financial commodity contracts, futures, swaps and options.

~~When hedging the output~~ At our generation businesses for 2017-2019, 75% to 80% of our ~~generation assets, we utilize contract strategies that lock~~variable margin is hedged against changes in ~~the spread per MWh between~~commodity prices. At our utility businesses for 2017-2019, 85% to 90% of our variable ~~costs and the price at which the electricity can be sold.~~ margin is insulated from changes in commodity prices.

The portion of our sales and purchases that are not subject to such agreements or contracted businesses where indexation is not perfectly matched to business drivers will be exposed to commodity price risk. When hedging the output of our generation assets, we utilize contract sales that lock in the spread per MWh between variable costs and the price at which the electricity can be sold.

AES businesses will see changes in variable margin performance as global commodity prices shift. ~~We have entered into hedges to partially mitigate the exposure of variable margin to commodity moves. As of September 30, 2016, the portfolio’s adjusted~~For 2017, we project pretax earnings exposure ~~for the remainder of 2016 with~~on a 10% move in commodity prices would be approximately $5$10 million for U.S. power (DPL), ~~and less than~~ $5 million for natural gas, less than $5 million for oil and $5 million for coal. Our estimates exclude correlation of oil with coal or natural gas. For example, a decline in oil or natural gas prices can be accompanied by a decline in coal price if commodity prices are correlated. In aggregate, the Company’s downside exposure occurs with lower oil, lower natural gas, and higher coal prices. Exposures at individual businesses will

change as new contracts or financial hedges are executed, and our sensitivity to changes in commodity prices generally increases in later years with reduced hedge levels at some of our businesses.

Commodity prices affect our businesses differently depending on the local market characteristics and risk management strategies. Spot power prices, contract indexation provisions and generation costs can be directly or indirectly affected by movements in the price of natural gas, oil and coal. We have some natural offsets across our businesses such that low commodity prices may benefit certain businesses and be a cost to others. Exposures are not perfectly linear or symmetric. The sensitivities are affected by a number of local or indirect market factors. Examples of these factors include hydrology, local energy market supply/demand balances, regional fuel supply issues, regional competition, bidding strategies and regulatory interventions such as price caps. Operational flexibility changes the shape of our sensitivities. For instance, certain power plants may limit downside exposure by reducing dispatch in low market environments. Volume variation also affects our commodity exposure. The volume sold under contracts or retail concessions can vary based on weather and economic conditions resulting in a higher or lower volume of sales in spot markets. Thermal unit availability and hydrology can affect the generation output available for sale and can affect the marginal unit setting power prices.

In the US SBU, the generation businesses are largely contracted but may have residual risk to the extent contracts are not perfectly indexed to the business drivers. IPL primarily generates energy to meet its retail customer demand however it opportunistically sells ~~power~~surplus economic energy into wholesale markets at ~~wholesale once retail demand is served, so retail sales demand may affect commodity exposure.~~market prices. Additionally, at DPL, ~~open access allows~~competitive retail markets permit our ~~retail~~ customers to ~~switch~~select alternative energy suppliers or elect to ~~alternative suppliers; falling~~remain in aggregated customer pools for which energy ~~prices may increase~~is supplied by third party suppliers through a competitive auction process. DPL participates in these auctions held by other utilities and sells the ~~rate of switching; DPL sells generation in excess~~remainder of its ~~retail demand under short-term sales.~~economic energy into the wholesale market. Given that natural gas-fired generators ~~set power~~generally get energy prices for many markets, higher natural gas prices tend to expand our coal fixed margins. ~~The positive impact on~~Our non-contracted generation margins ~~will be moderated if~~are impacted by many factors including the growth in natural gas-fired ~~generators set the market price only during some periods.~~generation plants, new energy supply from renewable sources, and increasing energy efficiency.

In the Andes SBU, our business in Chile owns assets in the central and northern regions of the country and has a portfolio of contract sales in both. In the central region, the contract sales generally cover the efficient generation from our coal-fired and hydroelectric assets. Any residual spot price risk will primarily be driven by the amount of hydrological inflows. In the case of low hydroelectric generation, spot price exposure is capped by the ability to dispatch our natural gas/diesel assets the price of which depends on fuel pricing at the time required. There is a small amount of coal generation in the northern region that is not covered by the portfolio of contract sales and therefore subject to spot price risk. In both regions, generators with oil or oil-linked fuel generally set power prices. In Colombia, we operate under a short-term sales strategy and have commodity exposure to unhedged volumes. Because we own hydroelectric assets there, contracts are not indexed to fuel.

In the Brazil SBU, the hydroelectric generating facility is covered by contract sales. Under normal hydrological volatility, spot price risk is mitigated through a regulated sharing mechanism across all hydroelectric generators in the country. Under drier conditions, the sharing mechanism may not be sufficient to cover the ~~business’~~business' contract ~~position;~~position, and therefore it may have to purchase power at spot prices driven by the cost of thermal generation.

In the MCAC SBU, our businesses have commodity exposure on unhedged volumes. Panama is highly contracted under a portfolio of fixed volume contract sales. To the extent hydrological inflows are greater than or less than the contract sales volume, the business will be sensitive to changes in spot power prices which may be driven by oil prices in some time periods. In the Dominican Republic, we own natural gas-fired assets contracted under a portfolio of contract sales and a coal-fired asset contracted with a single contract, and both contract and spot prices may move with commodity prices. Additionally, the contract levels do not always match our generation availability and our assets may be sellers of spot prices in excess of contract levels or a net buyer in the spot market to satisfy contract obligations.

In the Europe SBU, our Kilroot facility operates on a short-term sales ~~strategy.~~strategy. To the extent that sales are unhedged, the commodity risk at our Kilroot business is to the clean dark spread, —which is the difference between electricity price and our coal-based variable dispatch cost including emissions. Natural gas-fired generators set power prices for many periods, so higher natural gas prices generally expand margins and higher coal or emissions prices reduce them. Similarly, increased wind ~~generation~~generators displaces higher cost generation, reducing ~~Kilroot’s~~Kilroot's margins, and vice versa.

In the Asia SBU, our Masinloc business is a coal-fired generation facility which hedges its output under a portfolio of contract sales that are indexed to fuel prices, with generation in excess of contract volume or shortfalls of generation relative to contract volumes settled in the spot market. Low oil prices may be a driver of margin compression since oil affects spot power sale ~~prices.~~prices sold in the spot market. Our Mong Duong business has

minimal exposure to commodity price risk as it has no merchant exposure and fuel is subject to a pass-through mechanism.

Foreign Exchange Rate Risk — In the normal course of business, we are exposed to foreign currency risk and other foreign operations risks that arise from investments in foreign subsidiaries and affiliates. A key component of these risks stems from the fact that some of our foreign subsidiaries and affiliates utilize currencies other than our consolidated reporting currency, the U.S. ~~Dollar.~~Dollar ("USD"). Additionally, certain of our foreign subsidiaries and affiliates have entered into monetary obligations in the ~~U.S. Dollar~~USD or currencies other than their own functional currencies. We have varying degrees of exposure to changes in the exchange rate between the ~~U.S. Dollar~~USD and the following currencies: Argentine Peso, British Pound, Brazilian Real, ~~British Pound,~~ Chilean Peso, Colombian Peso, Dominican Peso, Euro, Indian Rupee, ~~Kazakhstani~~Kazakhstan Tenge, Mexican Peso and Philippine Peso. These subsidiaries and affiliates have attempted to limit potential FXforeign exchange exposure by entering into revenue contracts that adjust to changes in FXforeign exchange rates. We also use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations.

~~We have entered~~AES enters into cash flow hedges to ~~partially mitigate~~protect economic value of the ~~exposure~~business and minimize impact of ~~earnings translated into~~foreign exchange rate fluctuations to AES portfolio. While protecting cash flows, the ~~U.S. Dollar~~hedging strategy is also designed to reduce forward looking earnings foreign exchange volatility. Due to variation of timing and amount between cash distribution and earnings exposure, the hedge impact may not fully cover the earnings exposure on a realized basis which could result in greater volatility in earnings. The largest FXforeign exchange risks over a 12-month ~~forward-looking~~forward- looking period stem from the following currencies: ~~Argentine~~Brazilian Real, Euro, Colombian Peso, British Pound, ~~Brazilian Real, Colombian Peso, Euro,~~ and Kazakhstani Tenge. As of ~~September 30, 2016,~~March 31, 2017, assuming a 10% ~~U.S. Dollar~~USD appreciation, ~~adjusted pretax earnings~~cash distributions attributable to foreign subsidiaries exposed to movement in the exchange rate of the ~~Argentine Peso,~~Brazilian Real, British Pound, Colombian Peso, ~~Brazilian Real,~~Euro and Kazakhstani Tenge ~~Euro and British Pound impacts~~each are projected to be reduced by less than $5 million for ~~each currency for the remainder of 2016.~~2017. These numbers have been produced by applying a one-time 10% ~~U.S. Dollar~~USD appreciation to forecasted exposed ~~pretax earnings~~cash distributions for ~~2016~~2017 coming from the respective subsidiaries exposed to the currencies listed above, net of the impact of outstanding hedges and holding all other variables constant. The numbers presented above are net of any transactional gains/losses. These sensitivities may change in the future as new hedges are executed or existing hedges are unwound. Additionally, updates to the forecasted ~~pretax earnings~~cash distributions exposed to FXforeign exchange risk may result in further modification. The sensitivities presented do not capture the impacts of any administrative market restrictions or currency inconvertibility.

Interest Rate Risks — We are exposed to risk resulting from changes in interest rates as a result of our issuance of variable and fixed-rate debt, as well as interest rate swap, cap, ~~and~~ floor and option agreements.

Decisions on the fixed-floating debt ~~ratio~~mix are made to be consistent with the risk factors faced by individual businesses or plants. Depending on whether a plant’s capacity payments or revenue stream is fixed or varies with inflation, we partially hedge against interest rate fluctuations by arranging fixed-rate or variable-rate financing. In certain cases, particularly for non-recourse financing, we execute interest rate swap, cap and floor agreements to effectively fix or limit the interest rate exposure on the underlying financing. Most of our interest rate risk is related to non-recourse financings at our businesses.

As of ~~September 30, 2016,~~March 31, 2017, the portfolio’s pretax earnings exposure for ~~the remainder of 2016~~2017 to a one-time 100-basis-point increase in interest rates for our Argentine Peso, Brazilian Real, Colombian Peso, Euro, Kazakhstani Tenge and ~~U.S. Dollar~~USD denominated debt would be approximately $5$25 million ~~based on the impact of a one time, 100-basis-point upward shift in interest rates~~ on interest expense for the debt denominated in these currencies. ~~The~~These amounts do not take into account the historical correlation between these interest rates.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures — The Company, under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of its “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2016,~~March 31, 2017, to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Controls over Financial Reporting — There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in certain claims, suits and legal proceedings in the normal course of business. The Company has accrued for litigation and claims where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company believes, based upon information it currently possesses and taking into account established reserves for estimated liabilities and its insurance coverage, that the ultimate outcome of these proceedings and actions is unlikely to have a material adverse effect on the Company's financial statements. It is reasonably possible, however, that some matters could be decided unfavorably to the Company and could require the Company to pay damages or make expenditures in amounts that could be material but cannot be estimated as of ~~September 30, 2016.~~March 31, 2017

In 1989, Centrais Elétricas Brasileiras S.A. (“Eletrobrás”) filed suit in the Fifth District Court in the state of Rio de Janeiro (“FDC”) against Eletropaulo Eletricidade de São Paulo S.A. (“EEDSP”) relating to the methodology for calculating monetary adjustments under the parties' financing agreement. In April 1999, the FDC found ~~for~~in favor of Eletrobrás and in September 2001, Eletrobrás initiated an execution suit in the FDC to collect approximately R$~~1.93~~2 billion ($~~593~~635 million) from Eletropaulo as estimated by Eletropaulo (or approximately R$~~2.4~~2.61 billion ($~~737~~829 million) ~~plus legal costs according to Eletrobrás~~ as of ~~December 2015)~~September 2016, as estimated by Eletrobrás, and possibly legal costs) and a lesser amount from an unrelated company, Companhia de Transmissão de Energia Elétrica Paulista (“CTEEP”) (Eletropaulo and CTEEP were spun off of EEDSP pursuant to its privatization in 1998). In November 2002, the FDC rejected Eletropaulo's defenses in the execution suit. On appeal, the case was remanded to the FDC for further proceedings to determine whether Eletropaulo is liable for the debt. In December 2012, the FDC issued a decision that Eletropaulo is liable for the debt. However, that decision was annulled on appeal and the case was remanded to the FDC for further proceedings. On remand at the FDC, the FDC appointed an accounting expert to analyze the issues in the case. In September 2015, the expert issued a preliminary report concluding that Eletropaulo is liable for the debt, without quantifying the debt. Eletropaulo thereafter submitted questions to the expert and reports rebutting the expert's preliminary ~~report.~~report (“Rebuttal Reports”). In April 2016, Eletrobrás requested that the expert determine both the criteria to calculate the debt and the amount of the debt. ~~The~~In April 2017, the FDC ~~is considering whether~~ordered the ~~criteria can be determined~~expert to comment on Eletropaulo’s Rebuttal Reports and to analyze the questions presented by the parties. It is unclear when the expert ~~or must be determined by the FDC. After that issue is resolved,~~ t~~he expert may issue a final report.~~will respond. Ultimately, a decision will be issued by the FDC, which will be free to reject or adopt in whole or in part the expert's report. If the FDC again determines that Eletropaulo is liable for the debt, Eletrobrás will be entitled to resume the execution suit in the FDC. If Eletrobrás does so, Eletropaulo will be required to provide security for its alleged liability. In addition, in February 2008, CTEEP filed a lawsuit in the FDC against Eletrobrás and Eletropaulo seeking a declaration that CTEEP is not liable for any debt under the financing agreement. Eletropaulo believes it has meritorious defenses to the claims asserted against it and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts. If Eletrobrás requests the seizure of the security noted above and the FDC grants such request (or if a court determines that Eletropaulo is liable for the debt), Eletropaulo's results of operations may be materially adversely affected and, in turn, the Company's results of operations may also be materially adversely affected. Eletropaulo and the Company could face a loss of earnings and/or cash flows and may have to provide loans or equity to support affected businesses or projects, restructure them, write down their value, and/or face the possibility that Eletropaulo cannot continue operations or provide returns consistent with our expectations, any of which could have a material impact on the Company.

In September 1996, a public civil action was asserted against Eletropaulo and Associação Desportiva Cultural Eletropaulo (the “Associação”) relating to alleged environmental damage caused by construction of the Associação near Guarapiranga Reservoir. The initial decision that was upheld by the Appellate Court of the state of São Paulo in 2006 found that Eletropaulo should repair the alleged environmental damage by demolishing certain construction and reforesting the area, and either sponsor an environmental project which would cost approximately R$2 million ($~~521~~635 thousand) as of December 31, 2015, or pay an indemnification amount of approximately R$15 million ($45 million). Eletropaulo has appealed this decision to the Supreme Court and the Supreme Court affirmed the decision of the Appellate Court. Following the Supreme Court's decision, the case has been remanded to the court of first instance for further proceedings and to monitor compliance by the defendants with the terms of the decision. In January 2014, Eletropaulo informed the court that it intended to comply with the court's decision by donating a green area inside a protection zone and restore watersheds, the aggregate cost of which is expected to be approximately R$2 million ($~~521~~635 thousand). Eletropaulo also requested that the court add the current owner of the land where the Associação facilities are located, Empresa Metropolitana de Águas e Energia S.A. (“EMAE”), as a party to the lawsuit and order EMAE to perform the demolition and reforestation aspects of the court's decision. In July 2014, the court requested the Secretary of the Environment for the State of São Paulo to notify the court of its opinion regarding the acceptability of the green areas to be donated by Eletropaulo to the State of São Paulo. In January 2015, the Secretary of the Environment for the State of São Paulo notified Eletropaulo and the court that it

would not accept Eletropaulo's proposed green areas donation. Instead of such green areas donation, the Secretary of the Environment proposed in March 2015 that Eletropaulo undertake an environmental project to offset the alleged environmental damage. Since March 2015, Eletropaulo and the Secretary of Environment have been working together to define an environmental project, which will be submitted for approval by the Public Prosecutor. The cost of such project is currently estimated to be R$3 million ($~~897 thousand)~~1 million).

In December 2001, ~~Gridco Ltd. (“Gridco”)~~GRIDCO served a notice to arbitrate pursuant to the Indian Arbitration and Conciliation Act of 1996 on the Company, AES Orissa Distribution Private Limited (“AES ODPL”), and Jyoti Structures (“Jyoti”) pursuant to the terms of the shareholders agreement between ~~Gridco,~~GRIDCO, the Company, AES ODPL, Jyoti and the Central Electricity Supply Company of Orissa Ltd. (“CESCO”), an affiliate of the Company. In the arbitration, ~~Gridco~~GRIDCO asserted that a comfort letter issued by the Company in connection with the Company's indirect investment in CESCO obligates the Company to provide additional financial support to cover all of CESCO's financial obligations to ~~Gridco. Gridco~~GRIDCO. GRIDCO appeared to be seeking approximately $189 million in damages, plus undisclosed penalties and interest, but a detailed alleged damage analysis was not filed by ~~Gridco.~~GRIDCO. The Company counterclaimed against ~~Gridco~~GRIDCO for damages. In June 2007, a 2-to-1 majority of the arbitral tribunal rendered its award rejecting ~~Gridco's~~GRIDCO's claims and holding that none of the respondents, the Company, AES ODPL, or Jyoti, had any liability to ~~Gridco.~~GRIDCO. The respondents' counterclaims were also rejected. A majority of the tribunal later awarded the respondents, including the Company, some of their costs relating to the arbitration. ~~Gridco~~GRIDCO filed challenges of the tribunal's awards with the local Indian court. ~~Gridco's~~GRIDCO's challenge of the costs award has been dismissed by the court, but its challenge of the liability award remains pending. The Company believes that it has meritorious defenses to the claims asserted against it and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.

In March 2003, the office of the Federal Public Prosecutor for the State of São Paulo, Brazil (“MPF”) notified Eletropaulo that it had commenced an inquiry into the BNDES financings provided to AES Elpa and AES Transgás, the rationing loan provided to Eletropaulo, changes in the control of Eletropaulo, sales of assets by Eletropaulo, and the quality of service provided by Eletropaulo to its customers. The MPF requested various documents from Eletropaulo relating to these matters. In July 2004, the MPF filed a public civil lawsuit in the Federal Court of São Paulo (“FCSP”) alleging that BNDES violated Law 8429/92 (“the Administrative Misconduct Act”) and BNDES's internal rules by: (1) approving the AES Elpa and AES Transgás loans; (2) extending the payment terms on the AES Elpa and AES Transgás loans; (3) authorizing the sale of Eletropaulo's preferred shares at a stock-market auction; (4) accepting Eletropaulo's preferred shares to secure the loan provided to Eletropaulo; and (5) allowing the restructurings of Light Serviços de Eletricidade S.A. and Eletropaulo. The MPF also named AES Elpa and AES Transgás as defendants in the lawsuit because they allegedly benefited from BNDES's alleged violations. In May 2006, the FCSP ruled that the MPF could pursue its claims based on the first, second, and fourth alleged violations noted above. The MPF subsequently filed an interlocutory appeal with the Federal Court of Appeals (“FCA”) seeking to require the FCSP to consider all five alleged violations. In April 2015, the FCA issued a decision holding that the FCSP should consider all five alleged violations. AES Elpa and AES Brasiliana (the successor of AES Transgás) have appealed the April 2015 decision to the Superior Court of Justice. The lawsuit remains pending before the FCSP. AES Elpa and AES Brasiliana believe they have meritorious defenses to the allegations asserted against them and will defend themselves vigorously in these proceedings; however, there can be no assurances that they will be successful in their efforts.

Pursuant to their environmental audit, AES Sul and AES Florestal discovered 200 barrels of solid creosote waste and other contaminants at a pole factory that AES Florestal had been operating. The conclusion of the audit was that a prior operator of the pole factory, Companhia Estadual de Energia (“CEEE”), had been using those contaminants to treat the poles that were manufactured at the factory. On their initiative, AES Sul and AES Florestal communicated with Brazilian authorities and CEEE about the adoption of containment and remediation measures. In March 2008, the State Attorney of the state of Rio Grande do Sul, Brazil filed a public civil action against AES Sul, AES Florestal and CEEE seeking an order requiring the companies to recover the contaminated area located on the grounds of the pole factory and an indemnity payment of approximately R$6 million ($2 million) to the state's Environmental Fund. In October 2011, the State Attorney Office filed a request for an injunction ordering the defendant companies to contain and remove the contamination immediately. The court granted injunctive relief on October 18, 2011, but determined only that defendant CEEE was required to proceed with the removal work. In May 2012, CEEE began the removal work in compliance with the injunction. The removal costs are estimated to be approximately R$60 million ($1719 million) and the work was completed in February 2014. In parallel with the removal activities, a court-appointed expert investigation took place, which was concluded in May 2014. The court-appointed expert final report was presented to the State Attorneys in October 2014, and in January 2015 to the defendant companies. In March 2015, AES Sul and AES Florestal submitted comments and supplementary questions regarding the expert report. The Company believes that it has meritorious defenses to the claims asserted against it

and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.

In May 2008, the Tax Authority initiated a collection suit against Eletropaulo, seeking to collect approximately R$230 million ($73 million) in PIS taxes (as estimated by Eletropaulo) for the period of March ~~2009, AES Uruguaiana Empreendimentos S.A.~~1996 to December 1998. Unfavorable decisions on the merits were issued by the First Instance Court (“~~AESU”~~FIC”) and the Second Instance Court (“SIC”) in ~~Brazil initiated arbitration against YPF S.A. (“YPF”) seeking damages~~January 2011 and ~~other relief relating to YPF's breach of the parties' gas supply agreement (“GSA”). Thereafter, in~~ April 2009, YPF initiated arbitration against AESU and two unrelated parties, Companhia de Gas do Estado do Rio Grande do Sul and Transportador de Gas del Mercosur S.A. (“TGM”), claiming that AESU wrongfully terminated the GSA and caused the termination of a transportation agreement (“TA”) between YPF and TGM (“YPF Arbitration”). YPF sought an unspecified amount of damages from AESU, a declaration that YPF's performance was excused under the GSA due to certain alleged force majeure events, or, in the alternative, a declaration2015, respectively. Subsequently, Eletropaulo requested that the ~~GSA~~SIC remit the case to the Superior Court of Justice (“STJ”) and the ~~TA should be terminated without a finding of liability against YPF because of~~Supreme Federal Court (“STF”). In March 2017, the allegedly onerous obligations imposed on YPF by those agreements. In addition, in the YPF Arbitration, TGM asserted that if it was determined that AESU was responsible for the termination of the GSA, AESU was liable for TGM's alleged losses, including losses under the TA. In April 2011, the arbitrations were consolidated into a single proceeding. In May 2013, the arbitral tribunal issued a liability award in AESU's favor. Thereafter, in April 2016, the tribunal issued a damages award in AESU’s favor. YPF has initiated separate proceedings in Argentina challenging the liability award and the damages award, respectively. In December 2015, an Argentine appellate court issued a decision purporting to annul the liability award. AESU has appealed to the Supreme Court of Argentina. With respect to the damages award, it is unclear when the Argentine appellate court will issue a decision on whether to annul that award. Also, AESU has initiated an action in New York federal court seeking to recognize the liability award. YPFSIC rejected Eletropaulo’s request. Eletropaulo has requested that an SIC panel review the ~~Argentine appellate court sanction AESU~~March 2017 decision. In addition, Eletropaulo has appealed that decision to the STJ and STF. Also, in April 2017, in a related execution proceeding, the FIC asked the Tax Authority to advise on whether it intends to pursue collection. In response, the Tax Authority may request that Eletropaulo replace its bank guarantee with a cash deposit of the amount in dispute into a judicial account (currently, the bank guarantee is in place as security for ~~its pursuit of relief in the New York federal court. AESU~~Eletropualo’s alleged obligation). If necessary, Eletropaulo will contest any request that it must make a cash deposit. Eletropaulo believes it has meritorious ~~claims and~~ defenses and will ~~assert them vigorously;~~defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.

In October 2009, IPL received a NOV and Finding of Violation from the EPA pursuant to the CAA Section 113(a). The NOV alleges violations of the CAA at IPL's three primarily coal-fired electric generating facilities dating back to 1986. The alleged violations primarily pertain to the Prevention of Significant Deterioration and nonattainment New Source Review requirements under the CAA. ~~Since receiving the letter,~~ IPL management ~~has~~previously met with EPA staff regarding possible resolutions of the NOV. At this time, we cannot predict the ultimate resolution of this matter. However, settlements and litigated outcomes of similar cases have required companies to pay civil penalties, install additional pollution control technology on coal-fired electric generating units, retire existing generating units, and invest in additional environmental projects. A similar outcome in this case could have a material impact to IPL and could, in turn, have a material impact on the Company. IPL would seek recovery of any operating or capital expenditures related to air pollution control technology to reduce regulated air emissions; however, there can be no assurances that it would be successful in that regard.

In November 2009, April 2010, December 2010, April 2011, June 2011, August 2011, November 2011, and October 2014, substantially similar personal injury lawsuits were filed by a total of 50 residents and decedent estates in the Dominican Republic against the Company, AES Atlantis, Inc., AES Puerto Rico, LP, AES Puerto Rico, Inc., and AES Puerto Rico Services, Inc., in the Superior Court for the state of Delaware. In each lawsuit, the plaintiffs alleged that the coal combustion by-products of AES Puerto Rico's power plant were illegally placed in the Dominican Republic from October 2003 through March 2004 and subsequently caused the plaintiffs' birth defects, other personal injuries, and/or deaths. The plaintiffs did not quantify their alleged damages. The Superior Court subsequently stayed all lawsuits but the November 2009 lawsuit. In March 2016, the parties reached a settlement in principle to resolve all eight lawsuits and thereafter executed a definitive settlement agreement. In May 2016, the Superior Court approved the settlement. The AES defendants are seeking indemnification of the settlement amount, but there can be no assurance of collection. If the AES defendants are unable to recover the settlement amount in its entirety, it may have a material adverse impact on net income attributable to AES.

In June 2011, the São Paulo Municipal Tax Authority (the “Tax Authority”) filed 60 tax assessments in São Paulo administrative court against Eletropaulo, seeking to collect services tax (“ISS”) that allegedly had not been paid on revenues for services rendered by Eletropaulo. Eletropaulo challenged the assessments on the grounds that the revenues at issue were not subject to ISS. In October 2013, the First Instance Administrative Court (“FIAC”) determined that Eletropaulo was liable for ISS, interest, and related penalties totaling approximately R$3.3 billion ($1 billion) as estimated by Eletropaulo. Eletropaulo thereafter appealed to the Second Instance Administrative Court (“SIAC”). In January 2016, the Tax Authority ~~reduced the total amount~~nullified most of the ISS ~~assessments to~~sought from Eletropaulo. In January 2017, the SIAC issued a decision confirming the reduction and rejecting certain other amounts of ISS as time-barred, but finding that Eletropaulo was liable for the remainder of ISS totaling approximately R$~~257~~200 million ($7964 million). The ~~reduced~~Tax Authority appealed the SIAC’s decision on the time-barred amounts, totaling approximately R$16 million ($5 million) (“Time-Barred Amounts”), to the Municipal Council of Taxes (“MCT Proceeding”). With respect to the R$200 million, in March 2017, the Tax Authority canceled most of that amount (“March 2017 Cancelation”), and initiated an execution lawsuit to collect the remainder of ~~ISS remains under consideration by~~R$67 million ($21 million) (“Execution Lawsuit”). Along with the ~~SIAC. No tax~~Time-Barred Amounts, the March 2017 Cancelation will be reviewed in the ongoing MCT Proceeding. The Execution Lawsuit is ~~due while the appeal is pending.~~also ongoing. Eletropaulo believes it has meritorious defenses and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.

In January 2012, the Brazil Federal Tax Authority issued an assessment alleging that AES Tietê had paid PIS and

COFINS taxes from 2007 to 2010 at a lower rate than the tax authority believed was applicable. AES Tietê challenged the assessment on the grounds that the tax rate was set in the applicable legislation. In April 2013, the ~~First Instance Administrative Court~~FIAC determined that AES Tietê should have calculated the taxes at the higher rate and that AES Tietê was liable for unpaid taxes, interest, and penalties totaling approximately R$~~950~~970 million ($~~292~~308 million) as estimated by AES Tietê. AES Tietê appealed to the SIAC. In January 2015, the SIAC issued a decision in AES Tietê's favor, finding that AES Tietê was not liable for unpaid taxes. The public prosecutor subsequently filed an appeal, which was denied as untimely. The Tax Authority thereafter filed a motion for clarification of the SIAC's decision, which was denied in September 2016. The Tax Authority ~~may seek to appeal.~~later filed a special appeal (“Special Appeal”), which was rejected as untimely in October 2016. The Tax Authority thereafter filed an interlocutory appeal with the Superior Administrative Court (“SAC”). In March 2017, the President of the SAC determined that the SAC would analyze the Special Appeal on timeliness and, if required, the merits. AES Tietê has challenged the Special Appeal. AES Tietê believes it has meritorious defenses to the claim and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.

In August 2012, Fondo Patrimonial de las Empresas Reformadas (“FONPER”) (the Dominican instrumentality that holds the Dominican Republic's shares in Empresa Generadora de Electricidad Itabo, S.A. (“Itabo”)) filed a criminal complaint against certain current and former employees of AES. The criminal proceedings include a related civil component initiated against, among others, Coastal Itabo, Ltd. (“Coastal”) (the AES affiliate shareholder of Itabo) and New Caribbean Investment, S.A. (“NC”) (the AES affiliate that manages Itabo). FONPER asserts claims relating to the alleged mismanagement of Itabo and seeks approximately $270 million in damages. The Dominican District Attorney (“DA”) thereafter admitted the criminal complaint and requested that the Dominican Republic's Cámara de Cuentas (“Cámara”) perform an audit of the allegations in the criminal complaint. In October 2015, the Cámara issued its final report, determining that the contested actions of the AES employees were in accordance with Dominican law. Further, in August 2012, Coastal and NC (“Claimants”) initiated an international arbitration proceeding against FONPER and the Dominican Republic (“Respondents”), seeking a declaration that the Claimants had acted lawfully and in accordance with the relevant contracts with the Respondents in relation to the management of Itabo. The Claimants also sought a declaration that the criminal complaint was a breach of the relevant contracts between the parties, including the obligation to arbitrate disputes. The Claimants further sought damages from the Respondents relating to their breach of contract. The Respondents denied the claims and challenged the jurisdiction of the arbitral tribunal. In September 2016, pursuant to an agreement with the Respondents, the Claimants withdrew their claims in the arbitration without prejudice.

In January 2015, DPL received NOVs from the EPA alleging violations of opacity at Stuart and Killen Stations, and in October 2015, IPL received a similar NOV alleging violations at Petersburg Station. In February 2017, EPA issued a second NOV for DPL Stuart Station, alleging violations of opacity in 2016. Moreover, in February 2016, IPL received an NOV from the EPA alleging violations of New Source Review (“NSR”) and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Station. It is too early to determine whether the NOVs could have a material impact on our business, financial condition or results of our operations. IPL would seek recovery of any operating or capital expenditures, but not fines or penalties, related to air pollution control technology to reduce regulated air emissions; however, there can be no assurances that we would be successful in this regard.

In July 2015, BTG Pactual (“BTG”) initiated arbitration against AES Tietê under the parties' PPA. BTG claimed that AES Tietê breached the PPA by purchasing more power than it was entitled to take under the PPA. BTG sought to recover the payments that AES Tietê received from its spot-market sales of BTG's power, totaling approximately R$30 million ($9 million). BTG also sought to terminate the PPA and to collect a termination payment of approximately R$560 million ($172 million). AES Tietê placed R$30 million ($9 million) into escrow, with a full reservation of rights. AES Tietê responded to the arbitration demand, contesting the claims against it. In October 2016, the parties settled their dispute.

In September 2015, AES Southland Development, LLC and AES Redondo Beach, LLC filed a lawsuit against the California Coastal Commission (the “CCC”) over the CCC's determination that the site of AES Redondo Beach included approximately 5.93 acres of CCC-jurisdictional wetlands. The CCC has asserted that AES Redondo Beach has improperly installed and operated water pumps affecting the alleged wetlands in violation of the California Coastal Act and Redondo Beach Local Coastal Program and has ordered AES Redondo Beach to restore the site. Additional potential outcomes of the CCC determination could include an order requiring AES Redondo Beach to fund a wetland mitigation project and/or pay fines or penalties. AES Redondo Beach believes that it has meritorious arguments and intends to vigorously prosecute such lawsuit, but there can be no assurances that it will be successful.

In October 2015, Ganadera Guerra, S.A. (“GG”) and Constructora Tymsa, S.A. (“CT”) filed separate lawsuits against AES Panama in the local courts of Panama. The claimants allege that AES Panama profited from a hydropower facility (La Estrella) being partially located on land owned initially by GG and currently by CT, and that AES Panama must pay compensation for its use of the land. The damages sought from AES Panama are approximately ~~$680~~$685 million (GG) and $100 million (CT). In October 2016, the court dismissed GG's claim because of GG's failure to comply with a court order requiring GG to disclose certain information. GG has refiled its lawsuit. Also, there are ongoing administrative proceedings

concerning whether AES Panama is entitled to acquire an easement over the land and whether AES Panama can continue to occupy the land. AES Panama believes it has meritorious defenses and claims and will assert them vigorously; however, there can be no assurances that it will be successful in its efforts.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Part I—Item 1A.—Risk Factors of our ~~2015~~2016 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

No repurchases were made by the AES Corporation of its common stock during the ~~third~~first quarter of ~~2016. See Note 11—Equity—Stock Repurchase Program included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for further information.~~2017.

~~As of September 30, 2016, $264 million remained available for repurchase under the Program.~~ The ~~authorization permits~~Board has authorized the Company to repurchase stock through a variety of methods, including open market repurchases, purchases by contract (including, without limitation, accelerated stock repurchase programs or 10b5-1 plans) and/or privately negotiated transactions. There iscan be no ~~assurance~~assurances as to the amount, timing or prices of repurchases, which may vary based on market conditions and other factors. The ~~stock repurchase program may~~Program does not have an expiration date and can be modified ~~extended~~ or terminated by the Board of Directors at any time. As of March 31, 2017, $246 million remained available for repurchase under the Program.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None~~None.

ITEM 6. EXHIBITS



~~4.1~~		Twentieth Supplemental Indenture, dated May 25, 2016, between The AES Corporation and Wells Fargo Bank, N.A., as Trustee is incorporated herein by reference to Exhibit 4.1 of the Company’s 8-K filed on May 25, 2016.
~~10.1~~		Amendment No.1, dated as of May 6, 2016, to the Sixth Amended and Restated Credit and Reimbursement Agreement, dated as of July 26, 2013 among The AES Corporation, a Delaware corporation, the Banks listed on the signature pages thereof and Citibank, N.A., as Administrative Agent and Collateral Agent is incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed on May 9, 2016.
31.1		Rule13a-14(a)/15d-14(a) Certification of Andrés Gluski (filed herewith).
31.2		Rule 13a-14(a)/15d-14(a) Certification of Thomas M. O’Flynn (filed herewith).
32.1		Section 1350 Certification of Andrés Gluski (filed herewith).
32.2		Section 1350 Certification of Thomas M. O’Flynn (filed herewith).
101.INS		XBRL Instance Document (filed herewith).
101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		THE AES CORPORATION (Registrant)

Date:	~~November 3, 2016~~May 5, 2017	By:	/s/ THOMAS M. O’FLYNN
			Name:	Thomas M. O’Flynn
			Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

		By:	/s/ FABIAN E. SOUZA
			Name:	Fabian E. Souza
			Title:	Vice President and Controller (Principal Accounting Officer)

6656



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

	(in millions)
NET INCOME (LOSS)	$	229		$	203		$	(84	)	$	721
Foreign currency translation activity:
Foreign currency translation adjustments, net of income tax benefit (expense) of $(1), $1, $0 and $1, respectively	(16		)	(513		)	232			(857		)
Total foreign currency translation adjustments	(16		)	(513		)	232			(857		)
Derivative activity:
Change in derivative fair value, net of income tax benefit (expense) of $(7), $22, $39 and $22, respectively	19			(70		)	(138		)	(73		)
Reclassification to earnings, net of income tax expense of $4, $0, $5 and $6, respectively	21			14			23			46
Total change in fair value of derivatives	40			(56		)	(115		)	(27		)
Pension activity:
Reclassification to earnings due to amortization of net actuarial loss, net of income tax expense of $2, $3, $4 and $8, respectively	3			4			10			13
Total pension adjustments	3			4			10			13
OTHER COMPREHENSIVE INCOME (LOSS)	27			(565		)	127			(871		)
COMPREHENSIVE INCOME (LOSS)	256			(362		)	43			(150		)
Less: Comprehensive (income) loss attributable to noncontrolling interests	(66		)	229			(94		)	56
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	190		$	(133	)	$	(51	)	$	(94	)



Three Months Ended September 30, 2016	Interest Rate			Foreign Currency			Commodity			Total
Balance at the beginning of the period	$	(421	)	$	271		$	11		$	(139	)
Total realized and unrealized gains (losses):
Included in earnings	(1		)	12			1			12
Included in other comprehensive income — derivative activity	6			—			—			6
Included in other comprehensive income — foreign currency translation activity	—			(5		)	—			(5		)
Settlements	17			(4		)	(3		)	10
Transfers of liabilities into Level 3	(2		)	—			—			(2		)
Transfers of liabilities out of Level 3	94			—			—			94
Balance at the end of the period	$	(307	)	$	274		$	9		$	(24	)
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	—		$	8		$	1		$	9



Three Months Ended September 30, 2015	Interest Rate			Foreign Currency			Commodity			Total
Balance at the beginning of the period	$	(191	)	$	222		$	17		$	48
Total realized and unrealized gains (losses):
Included in earnings	(1		)	19			—			18
Included in other comprehensive income — derivative activity	(33		)	—			—			(33		)
Included in other comprehensive income — foreign currency translation activity	—			(8		)	—			(8		)
Included in regulatory (assets) liabilities	—			—			(20		)	(20		)
Settlements	7			(2		)	12			17
Transfers of liabilities into Level 3	(65		)	—			—			(65		)
Balance at the end of the period	$	(283	)	$	231		$	9		$	(43	)
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	—		$	18		$	—		$	18



Subsidiary	Primary Nature of Default	Debt in Default		Net Assets
Kavarna (Bulgaria)	Covenant	$	129	$	(50	)
Sogrinsk (Kazakhstan)	Covenant	5		6
		$	134



Adjusted PTC ⁽¹⁾ (in millions)	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
US SBU	$	114		$	101		$	257		$	263
Andes SBU	134			150			279			322
Brazil SBU	6			15			18			97
MCAC SBU	74			92			197			248
Europe SBU	24			45			127			171
Asia SBU	22			24			70			66
Corporate and Other	(102		)	(112		)	(331		)	(330		)
Total Adjusted PTC	$	272		$	315		$	617		$	837
Non-GAAP Adjustments:
Unrealized derivative (losses) gains	(5		)	12			(1		)	29
Unrealized foreign currency losses	(3		)	(5		)	(12		)	(48		)
Disposition/acquisition gains	3			23			5			32
Impairment losses	(24		)	(139		)	(309		)	(175		)
Loss on extinguishment of debt	(20		)	(21		)	(26		)	(159		)
Pretax contribution	223			185			274			516
Income tax benefit (expense) attributable to The AES Corporation	(47		)	(10		)	(66		)	(113		)
Income from continuing operations, net of tax, attributable to The AES Corporation	$	176		$	175		$	208		$	403



DPL
Impact of lower wholesale prices and completion of DP&L’s transition to a competitive-bid market	$	(32	)
Decrease in RTO capacity and other revenues primarily due to lower capacity cleared in the auction	(16		)
Other	5
Total DPL Decrease	(43		)
US Generation
Southland from an increase in depreciation expense as a result of a change in estimated useful lives of the plants	(11		)
Impact from sale of Armenia Mountain in July 2015	(10		)
Warrior Run due to lower availability and higher maintenance cost primarily due to major outages in 2016	(9		)
Other	2
Total US Generation Decrease	(28		)
IPL
Higher retail margin driven by environmental revenues and higher rates due to a new rate order	28
Change in accrual resulting from the implementation of new rates	18
Other	(2		)
Total IPL Increase	44
Total US SBU Operating Margin Decrease	$	(27	)



Gener
Lower spot prices on energy and fuel purchases	$	44
Start of operations at Cochrane’s Unit 1 in July 2016	18
Other	(2		)
Total Gener Increase	60
Chivor
Lower spot sales prices	(9		)
Lower volume of spot sales	(8		)
Total Chivor Decrease	(17		)
Total Argentina Decrease	(2		)
Total Andes SBU Operating Margin Increase	$	41



Eletropaulo
Higher fixed costs mainly due to higher bad debt and employee-related costs	$	(17	)
Regulatory penalties contingency provision in 2015, partially offset by higher regulatory penalties in 2016	10
Other	(8		)
Total Eletropaulo Decrease	(15		)
Tietê
Lower rates for energy sold under new contracts	(24		)
Other	(5		)
Total Tietê Decrease	(29		)
Other business drivers	6
Total Brazil SBU Operating Margin Decrease	$	(38	)



Eletropaulo
Negative impact of reversal of contingent regulatory liability in 2015	$	(97	)
Higher fixed costs mainly due to higher bad debt and employee-related costs	(67		)
Lower demand mainly due to economic decline	(42		)
Higher regulatory penalties in 2016 partially offset by regulatory penalties contingency provision in 2015	(31		)
Higher tariffs	71
Other	(4		)
Total Eletropaulo Decrease	(170		)
Tietê
Lower rates for energy sold under new contracts	(183		)
Unfavorable FX impacts	(19		)
Lower rates for energy purchases mainly due to decrease in spot market prices	71
Other	(4		)
Total Tietê Decrease	(135		)
Other business drivers	(13		)
Total Brazil SBU Operating Margin Decrease	$	(318	)



Mexico
Lower availability and related costs	$	(12	)
Other	(3		)
Total Mexico Decrease	(15		)
Puerto Rico
Lower availability	(10		)
Other	(4		)
Total Puerto Rico Decrease	(14		)
Panama
Expenses related to the ongoing construction of a natural gas generation plant and a liquefied natural gas terminal	(15		)
Lower generation and higher energy purchases driven by weaker hydrological conditions	(10		)
Commencement of power barge operations at the end of March 2015	11
Other	1
Total Panama Decrease	(13		)
Other business drivers	(4		)
Total MCAC SBU Operating Margin Decrease	$	(46	)



Kazakhstan
FX impact	$	(27	)
Total Kazakhstan Decrease	(27		)
Maritza
Lower contracted capacity prices due to PPA amendment	(14		)
Other	(1		)
Total Maritza Decrease	(15		)
Total Europe SBU Operating Margin Decrease	$	(42	)



Mong Duong
Impact of full year operations for 2016 compared to commencement of principal operations in April 2015	$	16
Total Mong Duong Increase	16
Other business drivers	4
Total Asia SBU Operating Margin Increase	$	20



Decreases in:	(in millions)
Other assets, primarily long-term regulatory assets at Eletropaulo and service concession assets at Vietnam	$	223
Accounts payable and other current liabilities, primarily at Eletropaulo and Kelanitissa	(69		)
Increases in:
Accounts receivable, primarily at Andres and Itabo	(161		)
Other operating assets and liabilities	4
Total decrease in cash from changes in operating assets and liabilities	$	(3	)



Decreases in:	(in millions)
Accounts receivable, primarily at Maritza and Eletropaulo	$	649
Prepaid expenses and other current assets, primarily regulatory assets at Eletropaulo and Sul	293
Other assets, primarily long-term regulatory assets at Eletropaulo and service concession assets at Vietnam	866
Accounts payable and other current liabilities, primarily at Eletropaulo and Sul	(805		)
Income taxes payable, net and other taxes payable, primarily at Tietê and Chivor	(144		)
Increases in:
Other liabilities	45
Other operating assets and liabilities	47
Total increase in cash from changes in operating assets and liabilities	$	951



	(in millions)
Increase in net borrowing under the revolving credit facilities, primarily at the Parent Company, partially offset by a decrease in net repayments under the revolving credit facilities at the US SBU	$	209
Increase in repayment of recourse debt at Parent Company ⁽¹⁾	(197		)
Decrease in net issuance of non-recourse debt, primarily at the Andes, Brazil and US SBUs	(412		)
Decrease in purchases of treasury stock by the Parent Company	101
Other financing activities	(13		)
Total increase in net cash used in financing activities	$	(312	)



	(in millions)
Decrease in purchases of treasury stock by the Parent Company	$	329
Decrease in net repayments of recourse debt at the Parent Company ⁽¹⁾	32
Decrease in net issuance of non-recourse debt, primarily at the Andes and Asia SBUs	(415		)
Decrease in proceeds from the sale of redeemable stock of subsidiaries at IPALCO	(327		)
Increase in net borrowing under the revolving credit facilities, primarily at the Parent Company	190
Increase in distributions to noncontrolling interests, primarily at the Brazil SBU	(174		)
Other financing activities	21
Total increase in net cash used in financing activities	$	(344	)



Proportional Free Cash Flow by Segment	Three Months Ended September 30,									Nine Months Ended September 30,
(in millions)	2016			2015			$ Change			2016			2015			$ Change
US	$	219		$	218		$	1		$	469		$	477		$	(8	)
Andes	92			134			(42		)	152			131			21
Brazil	24			31			(7		)	106			(36		)	142
MCAC	91			259			(168		)	98			391			(293		)
Europe	43			33			10			462			207			255
Asia	48			50			(2		)	110			59			51
Corporate	(117		)	(104		)	(13		)	(327		)	(281		)	(46		)
Total	$	400		$	621		$	(221	)	$	1,070		$	948		$	122



US SBU Quarter-over-Quarter	(in millions)
Higher operating margin, net of non-cash items (primarily depreciation of $5)	$	37
Timing of payments for accounts payable and consumption of inventory, primarily due to lower fuel inventory purchases from inventory optimization efforts	34
Lower payments for interest expense, primarily due to debt repayments at DPL, and lower interest rates	5
Timing of receivables collections, primarily due to higher rates at IPL, favorable weather in Q3 2016, and the impact of DPLER’s declining customer base in 2015	(37		)
Impact of competitive bid deposits received from suppliers in 2015 to participate in DP&L’s auction	(20		)
Other	(5		)
Total US SBU Operating Cash Increase	$	14



US SBU Year-over-Year	(in millions)
Consumption of inventory, primarily due to lower fuel inventory purchases from inventory optimization efforts	$	90
Lower payments for interest expense, primarily due to debt repayments at DPL, and lower interest rates	27
Net impact of receivable settlements related to the 2016 sale of DPLER and the 2015 sale of MC²	17
Timing of receivables collections, primarily due to higher rates at IPL, favorable weather in Q3 2016, and the impact of DPLER’s declining customer base in 2015	(68		)
Impact of competitive bid deposits received from suppliers in 2015 to participate in DP&L’s auction	(20		)
Lower operating margin, net of non-cash items (primarily depreciation of $28 and $18 impact of IPL’s new rates)	(9		)
Other	(1		)
Total US SBU Operating Cash Increase	$	36



Andes SBU Quarter-over-Quarter	(in millions)
Higher operating margin, net of non-cash impacts (primarily depreciation of $5)	$	43
Lower VAT refunds due to projects entering COD at Cochrane	(73		)
Higher payments to fuel suppliers in Chile	(29		)
Lower collections at the CTSN plant in Argentina	(11		)
Other	2
Total Andes SBU Operating Cash Decrease	$	(68	)



Andes SBU Year-over-Year	(in millions)
Higher operating margin, net of non-cash impacts (primarily depreciation of $8)	$	67
Impact from a prior year payment to unwind an interest rate swap as part of the Ventanas refinancing in July 2015	38
Higher collections at Chivor related to increased sales from Q4 2015	27
Increase in collections from CAMMESA in Argentina associated with remuneration of major maintenance costs	12
Lower interest expense due primarily to Ventanas refinancing	6
Lower VAT refunds due to projects entering COD at Cochrane	(85		)
Higher tax payments in Chile, primarily withholding taxes paid on Chilean distributions to AES affiliates	(29		)
Increase in income tax payments due to higher taxable income in Colombia	(29		)
Other	12
Total Andes SBU Operating Cash Increase	$	19



Brazil SBU Quarter-over-Quarter	(in millions)
Lower operating margin⁽¹⁾, net of non-cash items (primarily depreciation of $5 and $28 of contingency items at Eletropaulo)	$	(62	)
Timing of non-income tax payments	(78		)
Timing of collections on energy sales in the current year	146
Collections of higher costs deferred in net regulatory assets in the prior year at Eletropaulo and Sul as a result of unfavorable hydrology in prior periods	118
Other	(24		)
Total Brazil SBU Operating Cash Increase	$	100



Brazil SBU Year-over-Year	(in millions)
Lower operating margin ⁽¹⁾, net of non-cash items (primarily lower depreciation of $10 and a net $63 impact from contingency items at Eletropaulo)	$	(254	)
Timing of payments at Eletropaulo and Sul related to regulatory charges and tariff flags due to improved hydrology in 2016	(603		)
Timing of non-income tax payments	(19		)
Collections of higher costs deferred in net regulatory assets in the prior year at Eletropaulo and Sul as a result of unfavorable hydrology in prior periods	980
Timing of collections on energy sales in the current year	406
Lower energy purchases at Tietê in the current year as result of favorable hydrology	92
Other	(56		)
Total Brazil SBU Operating Cash Increase	$	546



MCAC SBU Quarter-over-Quarter	(in millions)
Collection over overdue receivables in September 2015 from distribution companies in the Dominican Republic	$	(243	)
Favorable changes in working capital at Puerto Rico, primarily driven by the timing of collections	17
Other	7
Total MCAC SBU Operating Cash Decrease	$	(219	)



MCAC SBU Year-over-Year	(in millions)
Collection over overdue receivables in September 2015 from distribution companies in the Dominican Republic	$	(243	)
Lower collections from the off-taker in Puerto Rico, primarily due to lower sales from Q4 2015	(40		)
Lower operating margin, net of non-cash items (primarily depreciation of $8)	(41		)
Higher income tax payment as a result of higher taxable income in 2015 vs. 2014 in El Salvador	(17		)
Higher withholding taxes paid on dividend distributions to AES affiliates in the Dominican Republic	(16		)
Total MCAC SBU Operating Cash Decrease	$	(357	)



Europe SBU Quarter-over-Quarter	(in millions)
Increase in collections at Maritza from NEK (off-taker), net of payments to MMI (fuel supplier)	$	44
Lower operating margin, net of non-cash items (primarily unrealized gain on designated hedge of $10)	(28		)
Decrease in CO₂ allowances due to a price decrease	(8		)
Other	3
Total Europe SBU Operating Cash Increase	$	11



Europe SBU Year-over-Year	(in millions)
Increase in collections at Maritza from NEK (off-taker), net of payments to MMI (fuel supplier)	$	337
Lower operating margin, net of non cash items (primarily lower depreciation of $16)	(63		)
Decrease in CO2 allowances due to a price decrease	(25		)
Higher payments at Bulgaria Wind due to the settlement of overdue invoices to the national grid operator	(7		)
Other	12
Total Europe SBU Operating Cash Increase	$	254



Asia SBU Quarter-over-Quarter	(in millions)
Reduction in service concession asset expenditures at Mong Duong	$	76
Other	4
Total Asia SBU Operating Cash Increase	$	80



Asia SBU Year-over-Year	(in millions)
Decrease in working capital requirements at Mong Duong as the plant was fully operational in 2016	$	56
Higher operating margin, net of non-cash service concession expense	61
Reduction in service concession asset expenditures, net of previously capitalized interest payments	94
Higher interest income as a result of the financing component under service concession accounting	23
Other	(9		)
Total Asia SBU Operating Cash Increase	$	225



Corporate and Other Year-over-Year	(in millions)
Timing of annual property insurance premiums received from SBUs	$	36
Lower interest payments due principal repayments on debt	17
Decrease in cash from net settlements of oil derivatives	(8		)
Timing of payments for reinsurance costs	(14		)
Timing of intercompany settlements with SBUs	(20		)
Higher payments for people-related costs, primarily due to inflation, health benefit costs, and severance	(26		)
Other	(31		)
Total Corporate and Other Operating Cash Decrease	$	(46	)