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~~June 30, ~~2018~~2019



¨☐	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~~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~~



Registrant's telephone number, including area code:	(703)	522-1315



Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	AES	New York Stock Exchange

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~~ xYes☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ~~Yes~~ xYes☒ No ¨☐

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



Large accelerated filerx	☒	Accelerated filer¨	☐	Smaller reporting company¨	☐	Emerging growth company¨	☐	Non-accelerated filer¨	☐

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 30, 2018~~July 31, 2019 was ~~662,297,479.~~663,849,562.

THE AES CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2018~~2019

TABLE OF CONTENTS



Glossary of Terms		1

PART I: FINANCIAL INFORMATION		2

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Changes in Equity	5
	Condensed Consolidated Statements of Cash Flows	57
	Notes to Condensed Consolidated Financial Statements	68
	Note 1 - Financial Statement Presentation	68
	Note 2 - Inventory	10
	Note 3 - Asset Retirement Obligation	10
	Note 4 - Fair Value	10
	Note 45 - Derivative Instruments and Hedging Activities	13
	Note 56 - Financing Receivables	1415
	Note 67 - Investments in and Advances to Affiliates	15
	Note 78 - Debt	15
	~~Note 8 - Commitments and Contingencies~~	16
	Note 9 - ~~Redeemable Stock of Subsidiaries~~Commitments and Contingencies	1817
	Note 10 - ~~Equity~~Leases	18
	Note 11 - ~~Segments~~Redeemable Stock of Subsidiaries	1920
	Note 12 - ~~Revenue~~Equity	20
	Note 13 - Segments	21
	Note 1314 - Revenue	22
	Note 15 - Other Income and Expense	2324
	Note 1416 - Asset Impairment Expense	24
	Note 1517 - Income Taxes	24
	Note 1618 - Discontinued Operations	25
	Note 1719 - Held-for-Sale and Dispositions	25
	Note 20 - Acquisitions	26
	Note 1821 - ~~Acquisitions~~Earnings Per Share	2726
	Note 1922 - ~~Earnings Per Share~~Subsequent Events	2827

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
	Executive Summary	3028
	Review of Consolidated Results of Operations	3230
	SBU Performance Analysis	3936
	Key Trends and Uncertainties	4543
	Capital Resources and Liquidity	4846
	Critical Accounting Policies and Estimates	5453

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5453

ITEM 4.	CONTROLS AND PROCEDURES	5755

PART II: OTHER INFORMATION		5857

ITEM 1.	LEGAL PROCEEDINGS	5857

ITEM 1A.	RISK FACTORS	60

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	60

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	60

ITEM 4.	MINE SAFETY DISCLOSURES	60

ITEM 5.	OTHER INFORMATION	60

ITEM 6.	EXHIBITS	60

SIGNATURES		61

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~~Pre-tax Contribution, a non-GAAP measure of operating performance
AFS	Available For Sale
AFUDC	Allowance for Funds Used During Construction
AOCI	Accumulated Other Comprehensive Income
AOCL	Accumulated Other Comprehensive Loss
ARO	Asset Retirement Obligations
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
BBL	Barrel
CAA	United States Clean Air Act
CAMMESA	Wholesale Electric Market Administrator in Argentina
~~CHP~~CCR	~~Combined Heat~~Coal Combustion Residuals, which includes bottom ash, fly ash and ~~Power~~air pollution control wastes generated at coal-fired generation plant sites.
COFINS	Contribution for the Financing of Social Security
~~DG Comp~~DMP	~~Directorate-General for Competition~~Distribution Modernization Plan
DMR	Distribution Modernization Rider
DP&L	The Dayton Power & Light Company
DPL	DPL Inc.
EPA	United States Environmental Protection Agency
EPC	Engineering, Procurement and Construction
ESP	Electric Security Plan
EU	European Union
EURIBOR	Euro Interbank Offered Rate
FASB	Financial Accounting Standards Board
FX	Foreign Exchange
GAAP	Generally Accepted Accounting Principles in the United States
GHG	Greenhouse Gas
GILTI	Global Intangible Low Taxed Income
GW	Gigawatts
HLBV	Hypothetical Liquidation Book Value
HPP	Hydropower Plant
IPALCO	IPALCO Enterprises, Inc.
IPL	Indianapolis Power & Light Company
~~ISO~~IURC	~~Independent System Operator~~Indiana Utility Regulatory Commission
LIBOR	London Interbank Offered Rate
LNG	Liquid Natural Gas
MMBtu	Million British Thermal Units
MW	Megawatts
MWh	Megawatt Hours
NAAQS	National Ambient Air Quality Standards
NCI	Noncontrolling Interest
~~NEK~~	~~Natsionalna Elektricheska Kompania (state-owned electricity public supplier in Bulgaria)~~
NM	Not Meaningful
NOV	Notice of Violation
NO_X NPDES	~~Nitrogen Oxides~~
~~OPGC~~	~~Odisha Power Generation Corporation~~National Pollutant Discharge Elimination System
PIS	Program of Social Integration
PPA	Power Purchase Agreement
PREPA	Puerto Rico Electric Power Authority
PUCO	The Public Utilities Commission of Ohio
RSU	Restricted Stock Unit
~~RTO~~	~~Regional Transmission Organization~~
SBU	Strategic Business Unit
SEC	United States Securities and Exchange Commission
SEET	Significantly Excessive Earnings Test
SIP	State Implementation Plan
SO₂	Sulfur Dioxide
TBTU	Trillion British Thermal Units
TCJA	Tax Cuts and Jobs Act
U.S.	United States
UK	United Kingdom
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, 2018			December 31, 2017			June 30, 2019			December 31, 2018
	(in millions, except share and per share data)						(in millions, except share and per share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,187		$	949		$	1,169		$	1,166
Restricted cash	441			274			438			370
Short-term investments	401			424			410			313
Accounts receivable, net of allowance for doubtful accounts of $16 and $10, respectively	1,510			1,463
Accounts receivable, net of allowance for doubtful accounts of $22 and $23, respectively							1,538			1,595
Inventory	562			562			496			577
Prepaid expenses	97			62			98			130
Other current assets	706			630			811			807
Current held-for-sale assets	111			2,034			557			57
Total current assets	5,015			6,398			5,517			5,015
NONCURRENT ASSETS
Property, Plant and Equipment:
Land	470			502			453			449
Electric generation, distribution assets and other	25,055			24,119			24,824			25,242
Accumulated depreciation	(8,033		)	(7,942		)	(8,440		)	(8,227		)
Construction in progress	3,616			3,617			4,728			3,932
Property, plant and equipment, net	21,108			20,296			21,565			21,396
Other Assets:
Investments in and advances to affiliates	1,277			1,197			1,086			1,114
Debt service reserves and other deposits	494			565			346			467
Goodwill	1,059			1,059			1,059			1,059
Other intangible assets, net of accumulated amortization of $472 and $441, respectively	400			366
Other intangible assets, net of accumulated amortization of $389 and $457, respectively							460			436
Deferred income taxes	88			130			122			97
Service concession assets, net of accumulated amortization of $0 and $206, respectively	—			1,360
Loan receivable	1,441			—			1,388			1,423
Other noncurrent assets	1,607			1,741			1,695			1,514
Total other assets	6,366			6,418			6,156			6,110
TOTAL ASSETS	$	32,489		$	33,112		$	33,238		$	32,521
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,299		$	1,371		$	1,234		$	1,329
Accrued interest	272			228			194			191
Accrued non-income taxes							212			250
Accrued and other liabilities	1,151			1,232			897			962
Non-recourse debt, includes $368 and $1,012, respectively, related to variable interest entities	1,308			2,164
Non-recourse debt, including $333 and $479, respectively, related to variable interest entities							1,087			1,659
Current held-for-sale liabilities	17			1,033			418			8
Total current liabilities	4,047			6,028			4,042			4,399
NONCURRENT LIABILITIES
Recourse debt	3,815			4,625			3,915			3,650
Non-recourse debt, includes $2,832 and $1,358, respectively, related to variable interest entities	14,273			13,176
Non-recourse debt, including $3,339 and $2,922 respectively, related to variable interest entities							14,753			13,986
Deferred income taxes	1,214			1,006			1,233			1,280
Other noncurrent liabilities	2,552			2,595			2,931			2,723
Total noncurrent liabilities	21,854			21,402			22,832			21,639
Commitments and Contingencies (see Note 8)
Commitments and Contingencies (see Note 9)
Redeemable stock of subsidiaries	879			837			896			879
EQUITY
THE AES CORPORATION STOCKHOLDERS’ EQUITY
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 817,203,691 issued and 662,297,479 outstanding at September 30, 2018 and 816,312,913 issued and 660,388,128 outstanding at December 31, 2017)	8			8
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 817,688,854 issued and 663,797,594 outstanding at June 30, 2019 and 817,203,691 issued and 662,298,096 outstanding at December 31, 2018)							8			8
Additional paid-in capital	8,328			8,501			8,038			8,154
Accumulated deficit	(1,133		)	(2,276		)	(824		)	(1,005		)
Accumulated other comprehensive loss	(2,020		)	(1,876		)	(2,147		)	(2,071		)
Treasury stock, at cost (154,906,212 and 155,924,785 shares at September 30, 2018 and December 31, 2017, respectively)	(1,878		)	(1,892		)
Treasury stock, at cost (153,891,260 and 154,905,595 shares at June 30, 2019 and December 31, 2018, respectively)							(1,867		)	(1,878		)
Total AES Corporation stockholders’ equity	3,305			2,465			3,208			3,208
NONCONTROLLING INTERESTS	2,404			2,380			2,260			2,396
Total equity	5,709			4,845			5,468			5,604
TOTAL LIABILITIES AND EQUITY	$	32,489		$	33,112		$	33,238		$	32,521

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 June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018

	(in millions, except per share amounts)												(in millions, except per share amounts)
Revenue:
Regulated	$	777		$	853		$	2,215		$	2,449		$	724		$	716		$	1,509		$	1,438
Non-Regulated	2,060			1,840			5,899			5,438			1,759			1,821			3,624			3,839
Total revenue	2,837			2,693			8,114			7,887			2,483			2,537			5,133			5,277
Cost of Sales:
Regulated	(638		)	(704		)	(1,856		)	(2,088		)	(605		)	(617		)	(1,240		)	(1,218		)
Non-Regulated	(1,528		)	(1,349		)	(4,331		)	(3,979		)	(1,376		)	(1,320		)	(2,805		)	(2,803		)
Total cost of sales	(2,166		)	(2,053		)	(6,187		)	(6,067		)	(1,981		)	(1,937		)	(4,045		)	(4,021		)
Operating margin	671			640			1,927			1,820			502			600			1,088			1,256
General and administrative expenses	(43		)	(52		)	(134		)	(155		)	(49		)	(35		)	(95		)	(91		)
Interest expense	(255		)	(297		)	(799		)	(860		)	(273		)	(263		)	(538		)	(544		)
Interest income	79			63			231			185			82			76			161			152
Loss on extinguishment of debt	(11		)	(49		)	(187		)	(44		)	(51		)	(6		)	(61		)	(176		)
Other expense	(29		)	(36		)	(42		)	(67		)	(14		)	(4		)	(26		)	(13		)
Other income	10			16			30			103			18			7			48			20
Gain (loss) on disposal and sale of businesses	(21		)	(1		)	856			(49		)
Gain (loss) on disposal and sale of business interests													(3		)	89			(7		)	877
Asset impairment expense	(74		)	(2		)	(166		)	(260		)	(116		)	(92		)	(116		)	(92		)
Foreign currency transaction gains (losses)	5			22			(44		)	14			22			(30		)	18			(49		)
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES	332			304			1,672			687			118			342			472			1,340
Income tax expense	(146		)	(93		)	(509		)	(246		)	(57		)	(132		)	(172		)	(363		)
Net equity in earnings of affiliates	6			24			31			33
Net equity in earnings (losses) of affiliates													5			14			(1		)	25
INCOME FROM CONTINUING OPERATIONS	192			235			1,194			474			66			224			299			1,002
Income (loss) from operations of discontinued businesses, net of income tax expense of $0, $17, $2 and $24, respectively	(4		)	26			(9		)	35
Gain from disposal of discontinued businesses, net of income tax expense of $2, $0, $44 and $0, respectively	3			—			199			—
Loss from operations of discontinued businesses, net of income tax expense of $0, $2, $0, and $2, respectively													—			(4		)	—			(5		)
Gain from disposal of discontinued businesses, net of income tax expense of $0, $42, $0, and $42, respectively													1			196			1			196
NET INCOME	191			261			1,384			509			67			416			300			1,193
Noncontrolling interests:
Less: Income from continuing operations attributable to noncontrolling interests and redeemable stocks of subsidiaries	(90		)	(88		)	(311		)	(298		)
Less: Loss (income) from discontinued operations attributable to noncontrolling interests	—			(21		)	2			(30		)
Less: Income from continuing operations attributable to noncontrolling interests and redeemable stock of subsidiaries													(50		)	(128		)	(129		)	(221		)
Less: Loss from discontinued operations attributable to noncontrolling interests													—			2			—			2
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	101		$	152		$	1,075		$	181		$	17		$	290		$	171		$	974
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
Income from continuing operations, net of tax	$	102		$	147		$	883		$	176		$	16		$	96		$	170		$	781
Income (loss) from discontinued operations, net of tax	(1		)	5			192			5
Income from discontinued operations, net of tax													1			194			1			193
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	101		$	152		$	1,075		$	181		$	17		$	290		$	171		$	974
BASIC EARNINGS PER SHARE:
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.15		$	0.22		$	1.33		$	0.27		$	0.02		$	0.15		$	0.26		$	1.18
Income from discontinued operations attributable to The AES Corporation common stockholders, net of tax	—			0.01			0.29			0.01			—			0.29			—			0.29
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	0.15		$	0.23		$	1.62		$	0.28		$	0.02		$	0.44		$	0.26		$	1.47
DILUTED EARNINGS PER SHARE:
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.15		$	0.22		$	1.33		$	0.27		$	0.02		$	0.15		$	0.26		$	1.18
Income from discontinued operations attributable to The AES Corporation common stockholders, net of tax	—			0.01			0.29			0.01			—			0.29			—			0.29
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	0.15		$	0.23		$	1.62		$	0.28		$	0.02		$	0.44		$	0.26		$	1.47
DILUTED SHARES OUTSTANDING	665			663			664			662			667			664			667			664
DIVIDENDS DECLARED PER COMMON SHARE	$	0.13		$	0.12		$	0.26		$	0.24

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018

	(in millions)												(in millions)
NET INCOME	$	191		$	261		$	1,384		$	509		$	67		$	416		$	300		$	1,193
Foreign currency translation activity:
Foreign currency translation adjustments, net of income tax benefit of $2, $1, $3 and $0, respectively	(42		)	80			(159		)	29
Reclassification to earnings, net of $0 income tax	(3		)	—			(1		)	98
Foreign currency translation adjustments, net of income tax benefit of $0, $1, $0 and $1, respectively													9			(142		)	8			(117		)
Reclassification to earnings, net of $0 income tax for all periods													23			18			23			2
Total foreign currency translation adjustments	(45		)	80			(160		)	127			32			(124		)	31			(115		)
Derivative activity:
Change in derivative fair value, net of income tax benefit (expense) of $(3), $(6), $(3) and $15, respectively	15			5			32			(42		)
Reclassification to earnings, net of income tax benefit (expense) of $(7), $5, $(15) and $(6), respectively	21			1			67			50
Change in derivative fair value, net of income tax benefit of $35, $15, $53 and $0, respectively													(129		)	(40		)	(197		)	17
Reclassification to earnings, net of income tax expense of $1, $9, $3 and $8, respectively													9			36			19			46
Total change in fair value of derivatives	36			6			99			8			(120		)	(4		)	(178		)	63
Pension activity:
Reclassification to earnings, net of income tax expense of $0, $4, $2 and $10, respectively	1			7			5			20
Change in pension adjustments due to net actuarial gain (loss) for the period, net of $0 income tax for all periods													2			—			2			—
Reclassification to earnings, net of income tax expense of $13, $2, $13 and $2, respectively													26			2			27			4
Total pension adjustments	1			7			5			20			28			2			29			4
OTHER COMPREHENSIVE INCOME (LOSS)	(8		)	93			(56		)	155
OTHER COMPREHENSIVE LOSS													(60		)	(126		)	(118		)	(48		)
COMPREHENSIVE INCOME	183			354			1,328			664			7			290			182			1,145
Less: Comprehensive income attributable to noncontrolling interests	(114		)	(127		)	(416		)	(360		)
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	69		$	227		$	912		$	304
Less: Comprehensive income attributable to noncontrolling interests and redeemable stock of subsidiaries													(30		)	(180		)	(83		)	(302		)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION													$	(23	)	$	110		$	99		$	843

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION

Condensed Consolidated Statements of Changes in Equity

(Unaudited)



	Six Months Ended June 30, 2019
	Common Stock			Treasury Stock					Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests
	Shares	Amount		Shares		Amount			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests
	(in millions)
Balance at January 1, 2019	817.2	$	8	154.9		$	(1,878	)	$	8,154		$	(1,005	)	$	(2,071	)	$	2,396
Net income	—	—		—		—			—			154			—			81
Total foreign currency translation adjustment, net of income tax	—	—		—		—			—			—			4			(5		)
Total change in derivative fair value, net of income tax	—	—		—		—			—			—			(37		)	(18		)
Total pension adjustments, net of income tax	—	—		—		—			—			—			1			—
Total other comprehensive income (loss)	—	—		—		—			—			—			(32		)	(23		)
Cumulative effect of a change in accounting principle ⁽¹⁾	—	—		—		—			—			12			(4		)	—
Fair value adjustment ⁽²⁾	—	—		—		—			(6		)	—			—			—
Distributions to noncontrolling interests	—	—		—		—			—			—			—			(40		)
Dividends declared on common stock ($0.1365/share)	—	—		—		—			(91		)	—			—			—
Issuance and exercise of stock-based compensation benefit plans, net of income tax	0.4	—		(1	)	11			(17		)	—			—			—
Sale of subsidiary shares to noncontrolling interests	—	—		—		—			(1		)	—			—			1
Balance at March 31, 2019	817.6	$	8	153.9		$	(1,867	)	$	8,039		$	(839	)	$	(2,107	)	$	2,415
Net income	—	—		—		—			—			17			—			52
Total foreign currency translation adjustment, net of income tax	—	—		—		—			—			—			27			5
Total change in derivative fair value, net of income tax	—	—		—		—			—			—			(95		)	(22		)
Total pension adjustments, net of income tax	—	—		—		—			—			—			28			—
Total other comprehensive income (loss)	—	—		—		—			—			—			(40		)	(17		)
Cumulative effect of a change in accounting principle ⁽¹⁾	—	—		—		—			—			(2		)	—			—
Fair value adjustment ⁽²⁾	—	—		—		—			(11		)	—			—			—
Distributions to noncontrolling interests	—	—		—		—			—			—			—			(198		)
Issuance and exercise of stock-based compensation benefit plans, net of income tax	0.1	—		—		—			10			—			—			—
Sale of subsidiary shares to noncontrolling interests	—	—		—		—			—			—			—			8
Balance at June 30, 2019	817.7	$	8	153.9		$	(1,867	)	$	8,038		$	(824	)	$	(2,147	)	$	2,260


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


⁽²⁾	Adjustment to record the redeemable stock of Colon at fair value.



	Six Months Ended June 30, 2018
	Common Stock			Treasury Stock					Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests
	Shares	Amount		Shares		Amount			Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interests
	(in millions)
Balance at January 1, 2018	816.3	$	8	155.9		$	(1,892	)	$	8,501		$	(2,276	)	$	(1,876	)	$	2,380
Net income	—	—		—		—			—			684			—			98
Total foreign currency translation adjustment, net of income tax	—	—		—		—			—			—			3			6
Total change in derivative fair value, net of income tax	—	—		—		—			—			—			44			23
Total pension adjustments, net of income tax	—	—		—		—			—			—			2			—
Total other comprehensive income (loss)	—	—		—		—			—			—			49			29
Cumulative effect of a change in accounting principle ⁽¹⁾	—	—		—		—			—			67			19			81
Fair value adjustment ⁽²⁾	—	—		—		—			(6		)	—			—			—
Disposition of business interests ⁽³⁾	—	—		—		—			—			—			—			(249		)
Distributions to noncontrolling interests	—	—		—		—			—			—			—			(9		)
Contributions from noncontrolling interests	—	—		—		—			—			—			—			1
Dividends declared on common stock ($0.13/share)	—	—		—		—			(86		)	—			—			—
Issuance and exercise of stock-based compensation benefit plans, net of income tax	—	—		(1	)	13			(12		)	—			—			—
Sale of subsidiary shares to noncontrolling interests	—	—		—		—			—			—			—			1
Balance at March 31, 2018	816.3	$	8	154.9		$	(1,879	)	$	8,397		$	(1,525	)	$	(1,808	)	$	2,332
Net income	—	—		—		—			—			290			—			128
Total foreign currency translation adjustment, net of income tax	—	—		—		—			—			—			(176		)	52
Total change in derivative fair value, net of income tax	—	—		—		—			—			—			(6		)	2
Total pension adjustments, net of income tax	—	—		—		—			—			—			2			—
Total other comprehensive income (loss)	—	—		—		—			—			—			(180		)	54
Cumulative effect of a change in accounting principle ⁽¹⁾	—	—		—		—			—			1			—			—
Fair value adjustment⁽²⁾	—	—		—		—			1			—			—			—
Distributions to noncontrolling interests	—	—		—		—			—			—			—			(176		)
Contributions from noncontrolling interests	—	—		—		—			—			—			—			4
Issuance and exercise of stock-based compensation benefit plans, net of income tax	0.1	—		—		—			5			—			—			—
Sale of subsidiary shares to noncontrolling interests	—	—		—		—			(1		)	—			—			6
Balance at June 30, 2018	816.4	$	8	154.9		$	(1,879	)	$	8,402		$	(1,234	)	$	(1,988	)	$	2,348


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


⁽²⁾	Adjustment to record the redeemable stock of Colon at fair value.


⁽³⁾	See Note 19—Held-for-Sale and Dispositions for further information.

THE AES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2018			2017			2019			2018

	(in millions)						(in millions)
OPERATING ACTIVITIES:
Net income	$	1,384		$	509		$	300		$	1,193
Adjustments to net income:
Depreciation and amortization	770			884			512			512
Loss (gain) on disposal and sale of businesses	(856		)	49
Loss (gain) on disposal and sale of business interests							7			(877		)
Impairment expenses	172			260			116			93
Deferred income taxes	221			(3		)	15			183
Provisions for contingencies	1			30
Loss on extinguishment of debt	187			44			61			176
Net loss on sales of assets	23			34
Gain on sale of discontinued operations	(243		)	—
Loss on sale and disposal of assets							16			2
Net gain from disposal and impairments of discontinued businesses							—			(238		)
Other	206			73			143			126
Changes in operating assets and liabilities
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(125		)	(279		)	10			6
(Increase) decrease in inventory	(13		)	(66		)	25			(33		)
(Increase) decrease in prepaid expenses and other current assets	15			140			26			(75		)
(Increase) decrease in other assets	(22		)	(266		)	11			15
Increase (decrease) in accounts payable and other current liabilities	(29		)	162			(29		)	(90		)
Increase (decrease) in income taxes payable, net and other taxes payable	(61		)	(4		)
Increase (decrease) in income tax payables, net and other tax payables							(175		)	(62		)
Increase (decrease) in other liabilities	51			134			(24		)	(17		)
Net cash provided by operating activities	1,681			1,701			1,014			914
INVESTING ACTIVITIES:
Capital expenditures	(1,592		)	(1,587		)	(1,070		)	(994		)
Acquisitions of businesses, net of cash and restricted cash acquired, and equity method investments	(66		)	(590		)
Proceeds from the sale of businesses, net of cash and restricted cash sold, and equity method investments	1,796			39
Acquisitions of business interests, net of cash and restricted cash acquired							—			(42		)
Proceeds from the sale of business interests, net of cash and restricted cash sold							229			1,808
Proceeds from the sale of assets	15			—			17			15
Sale of short-term investments	1,010			2,942			330			418
Purchase of short-term investments	(1,215		)	(2,673		)	(424		)	(938		)
Contributions to equity affiliates	(101		)	(49		)
Contributions and loans to equity affiliates							(173		)	(90		)
Other investing	(37		)	(37		)	(22		)	(57		)
Net cash used in investing activities	(190		)	(1,955		)
Net cash provided by (used in) investing activities							(1,113		)	120
FINANCING ACTIVITIES:
Borrowings under the revolving credit facilities	1,434			1,489			897			1,133
Repayments under the revolving credit facilities	(1,595		)	(851		)	(598		)	(1,042		)
Issuance of recourse debt	1,000			1,025			—			1,000
Repayments of recourse debt	(1,781		)	(1,353		)	(3		)	(1,781		)
Issuance of non-recourse debt	1,509			2,703			2,581			1,192
Repayments of non-recourse debt	(1,139		)	(1,731		)	(2,281		)	(841		)
Payments for financing fees	(32		)	(96		)	(37		)	(25		)
Distributions to noncontrolling interests	(199		)	(263		)	(146		)	(128		)
Contributions from noncontrolling interests and redeemable security holders	40			59			16			28
Dividends paid on AES common stock	(258		)	(238		)	(181		)	(172		)
Payments for financed capital expenditures	(186		)	(100		)	(110		)	(120		)
Proceeds from sales to noncontrolling interests	—			60
Other financing	44			(26		)	(30		)	27
Net cash provided by (used in) financing activities	(1,163		)	678			108			(729		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(50		)	21			(2		)	(20		)
(Increase) decrease in cash, cash equivalents and restricted cash of discontinued operations and held-for-sale businesses	56			(107		)	(57		)	69
Total increase in cash, cash equivalents and restricted cash	334			338
Total increase (decrease) in cash, cash equivalents and restricted cash							(50		)	354
Cash, cash equivalents and restricted cash, beginning	1,788			1,960			2,003			1,788
Cash, cash equivalents and restricted cash, ending	$	2,122		$	2,298		$	1,953		$	2,142
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of amounts capitalized	$	683		$	797		$	478		$	522
Cash payments for income taxes, net of refunds	313			291			236			209
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Partial reinvestment of consideration from the sPower transaction (see Note 7)							58			—
Non-cash acquisition of intangible assets	$	14		$	—		—			5
Non-cash contributions of assets and liabilities for Fluence acquisition	20			—
Non-cash exchange of debentures for the acquisition of the Guaimbê Solar Complex (see Note 18—Acquisitions)	119			—
Conversion of Alto Maipo loans and accounts payable into equity (see Note 10—Equity)	—			279
Non-cash contributions of assets and liabilities for the Fluence transaction (see Note 19)							—			20

See Notes to Condensed Consolidated Financial Statements.

THE AES CORPORATION

Notes to Condensed Consolidated Financial Statements

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018

(Unaudited)

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 classified as discontinued operations as discussed in Note 16~~—Discontinued Operations. Certain prior period amounts have been reclassified to comply with newly adopted accounting standards. See further detail in the new accounting pronouncements discussion.~~

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, 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, changes in equity and cash flows. The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, are not necessarily indicative of expected results for the year ending December 31, ~~2018.~~2019. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the ~~2017~~2018 audited consolidated financial statements and notes thereto, which are included in the ~~2017~~2018 Form 10-K filed with the SEC on February 26, ~~2018~~2019 (the ~~“2017~~“2018 Form 10-K”).

Cash, Cash Equivalents, and Restricted Cash — The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Consolidated Balance Sheet that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows (in millions):


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Cash and cash equivalents	$	1,187	$	949	$	1,169	$	1,166
Restricted cash	441		274		438		370
Debt service reserves and other deposits	494		565		346		467
Cash, Cash Equivalents, and Restricted Cash	$	2,122	$	1,788	$	1,953	$	2,003

New Accounting Pronouncements Adopted in ~~2018~~2019 — The following table provides a brief description of recent accounting pronouncements that had an impact on the Company’s consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a 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
~~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 costs associated with defined benefit plans and updates the guidance so that only the service cost component will be eligible for capitalization.~~ ~~Transition method: retrospective for presentation of non-service cost and prospective for the change in capitalization.~~	~~January 1, 2018~~	For the three and nine months ended September 30, 2017, $2 million and $1 million of gains primarily related to the expected return on plan assets were reclassified from Costs of Sales to Other Expense, respectively.
2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets	This standard clarifies the scope and application of ASC 610-20 on the sale, transfer, and derecognition of nonfinancial assets and in substance nonfinancial assets to non-customers, including partial sales. It also provides guidance on how gains and losses on transfers of nonfinancial assets and in substance nonfinancial assets to non-customers are recognized. The standard also clarifies that the derecognition of businesses is under the scope of ASC 810. The standard must be adopted concurrently with ASC 606, however an entity will not have to apply the same transition method as ASC 606. ~~Transition method: modified retrospective.~~	~~January 1, 2018~~	As more transactions will not meet the definition of a business due to the adoption of ASU 2017-01, more dispositions or partial sales will be out of the scope of ASC 810 and will be under this standard.



~~2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business~~	The standard requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and if that threshold is met, the set is not a business. As a second step, at least one substantive process should exist to be considered a business. ~~Transition method: prospective.~~	~~January 1, 2018~~	Some acquisitions and dispositions will now fall under a different accounting model. This will reduce the number of transactions that are accounted for as business combinations and therefore future acquired goodwill.
~~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~~	For the nine months ended September 30, 2017, cash provided by operating activities increased by $12 million, cash used in investing activities decreased by $327 million, and cash provided by financing activities was unchanged.
~~2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~	The standard significantly revises an entity’s accounting related to (1) classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosures of financial instruments. ~~Transition method: modified retrospective. Prospective for equity investments without readily determinable fair value.~~	~~January 1, 2018~~	~~No material impact upon adoption of the standard.~~
~~2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-10, 2017-13, Revenue from Contracts with Customers (Topic 606)~~	~~See discussion of the ASU below.~~	~~January 1, 2018~~	~~See impact upon adoption of the standard below.~~

On January 1, 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers," and its subsequent corresponding updates ("ASC 606"). Under this standard, 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. The Company applied the modified retrospective method of adoption to the contracts that were not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the previous revenue recognition standard. For contracts that were modified before January 1, 2018, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.

~~The cumulative effect to our January 1, 2018 Condensed Consolidated Balance Sheet resulting from the adoption of ASC 606 was as follows (in millions):~~

Condensed Consolidated Balance Sheet
Balance at
December 31, 2017
Adjustments Due to ASC 606
Balance at
January 1, 2018
Assets
Other current assets $ 630
$ 61
$ 691
Deferred income taxes 130
(24 ) 106
Service concession assets, net 1,360
(1,360 ) —
Loan receivable —
1,490
1,490
Equity
Accumulated deficit (2,276 ) 67
(2,209 )
Accumulated other comprehensive loss (1,876 ) 19
(1,857 )
Noncontrolling interest 2,380
81
2,461

The Mong Duong II power plant in Vietnam is the primary driver of changes in revenue recognition under the new standard. This plant is operated under a build, operate, and transfer contract and will be transferred to the Vietnamese government after the completion of a 25-year PPA. Under the previous revenue recognition standard, construction costs were deferred to a service concession asset, which was expensed in proportion to revenue recognized for the construction element over the term of the PPA. Under ASC 606, construction revenue and associated costs are recognized as construction activity occurs. As construction of the plant was substantially completed in 2015, revenues and costs associated with the construction were recognized through retained earnings, and the service concession asset was derecognized. A loan receivable was recognized for the future expected payments for the construction performance obligation. As the payments for the construction performance obligation occur over a 25-year term, a significant financing element was determined to exist which is accounted for

~~under the effective interest rate method. The other performance obligation to operate and maintain the facility is measured based on the capacity made available.~~

The impact to our Condensed Consolidated Balance Sheet as of September 30, 2018 resulting from the adoption of ASC 606 as compared to the previous revenue recognition standard was as follows (in millions):

September 30, 2018
Condensed Consolidated Balance Sheet As Reported Balances Without Adoption of ASC 606 Adoption Impact
Assets
Other current assets $ 706
$ 641
$ 65
Deferred income taxes 88
112
(24 )
Service concession assets, net —
1,287
(1,287 )
Loan receivable 1,441
—
1,441
TOTAL ASSETS 32,489
32,294
195
Equity
Accumulated deficit (1,133 ) (1,231 ) 98
Accumulated other comprehensive loss (2,020 ) (2,038 ) 18
Noncontrolling interest 2,404
2,325
79
TOTAL LIABILITIES AND EQUITY 32,489
32,294
195

The impact to our Condensed Consolidated Statement of Operations for the three and six months ended September 30, 2018 resulting from the adoption of ASC 606 as compared to the previous revenue recognition standard was as follows (in millions):

Three Months Ended September 30, 2018
Condensed Consolidated Statement of Operations As Reported Balances Without Adoption of ASC 606 Adoption Impact
Total revenue $ 2,837
$ 2,855
$ (18 )
Total cost of sales (2,166 ) (2,180 ) 14
Operating margin 671
675
(4 )
Interest income 79
64
15
Income from continuing operations before taxes and equity in earnings of affiliates 332
321
11
Income tax expense (146 ) (147 ) 1
INCOME FROM CONTINUING OPERATIONS 192
180
12
NET INCOME 191
179
12
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION 101
89
12

Nine Months Ended September 30, 2018
Condensed Consolidated Statement of Operations As Reported Balances Without Adoption of ASC 606 Adoption Impact
Total revenue $ 8,114
$ 8,168
$ (54 )
Total cost of sales (6,187 ) (6,227 ) 40
Operating margin 1,927
1,941
(14 )
Interest income 231
186
45
Income from continuing operations before taxes and equity in earnings of affiliates 1,672
1,641
31
Income tax expense (509 ) (509 ) —
INCOME FROM CONTINUING OPERATIONS 1,194
1,163
31
NET INCOME 1,384
1,353
31
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION 1,075
1,044
31

~~New Accounting Pronouncements Issued But Not Yet Effective~~ — The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s consolidated financial statements once adopted. 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 Issued But Not Yet Effective~~
~~ASU Number and Name~~	~~Description~~	~~Date of Adoption~~	~~Effect on the financial statements upon adoption~~
2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract	This standard aligns the accounting for implementation costs incurred for a cloud computing arrangement that is a service with the requirement for capitalizing implementation costs associated with developing or obtaining internal-use software. ~~Transition method: retrospective or prospective.~~	~~January 1, 2020. Early adoption is permitted.~~	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
2018-02, Income Statement — Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from AOCI	This amendment allows a reclassification of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from AOCI to retained ~~earnings.~~earnings at the election of the filer. Because this amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.	January 1, ~~2019. Early adoption is permitted.~~ 2019	The Company ~~is currently evaluating~~has not elected to reclassify any amounts to retained earnings. The Company’s accounting policy for releasing the ~~impact of adopting the standard~~income tax effects from AOCI occurs on ~~its consolidated financial statements.~~a portfolio basis.
2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities	The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item. Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures.	January 1, ~~2019. Early adoption is permitted.~~2019	The ~~Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Accounting for Certain Financial Instruments and Certain Mandatorily Redeemable Noncontrolling Interests	~~Part 1~~adoption of this standard ~~changes~~resulted in a $4 million decrease to accumulated deficit.



2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-10, 2017-13, Revenue from Contracts with Customers (Topic 606)	ASC 606 was adopted by sPower on January 1, 2019. sPower was not required to adopt ASC 606 using the ~~classification~~public adoption date, as sPower is an equity method investee that meets the definition of ~~certain equity-linked~~a public business entity only by virtue of the inclusion of its summarized financial ~~instruments when assessing whether~~information in the ~~instrument~~Company’s SEC filings. Under the previous revenue standard, the payment received by sPower for the transfer of Incentive Tax Credits related to projects was deferred and recognized in revenue over time. Under ASC 606, this payment is ~~indexed to an entity’s own stock.~~ ~~Transition method: retrospective.~~ recognized at a point in time.	January 1, ~~2019. Early adoption is permitted.~~2019	The ~~Company is currently evaluating the impact~~adoption of ~~adopting the~~this standard ~~on its consolidated financial statements.~~
~~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 for the premium on certain callable debt securities~~resulted in a $6 million decrease to accumulated deficit attributable 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.~~
~~2017-04, 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.~~	~~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. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. 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.~~AES Corporation stockholders’ equity.
2016-02, 2018-01, 2018-10, 2018-11, 2018-20, 2019-01, Leases (Topic 842)	See discussion of the ASU below.	January 1, ~~2019. Early~~2019	See impact upon adoption ~~is permitted.~~	~~The Company will adopt~~of the standard ~~on January 1, 2019; see below for the evaluation of the impact of its adoption on the consolidated financial statements.~~below.

~~ASU 2016-02~~On January 1, 2019, the Company adopted ASC 842 Leases and its subsequent corresponding updates ~~will require~~(“ASC 842”). Under this standard, lessees are required to recognize assets and liabilities for most leases on the balance sheet, and recognize expenses in a manner similar to the ~~current~~prior accounting method. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance ~~also~~ eliminates ~~the current~~previous real estate-specific provisions.

The standard must be adopted using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements (January 1, 2017). The FASB amended the standard to add an optional transition method that allows entities to continue to apply the guidance in ASC 840 Leases in the comparative periods presented in the year they adopt the new lease standard. Under this transition method, the Company will apply the transition provisions on January 1, 2019. At transition, lessees and lessors are permitted to make an election to apply a package of practical expedients that allow them not to reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) whether initial direct costs for any expired or existing leases qualify for capitalization under ASC 842. These three practical expedients must be elected as a package and must be consistently applied to all leases. Furthermore, entities are also permitted to make an election to use hindsight when determining lease term and lessees can elect to use hindsight when assessing the impairment of right-of-use assets.

The Company has established a task force focused on the identification of contracts that would be under the scope of the new standard and on the assessment and measurement of the right-of-use asset and related liability. Additionally, the implementation team has been working on the configuration of a lease accounting tool that will support the implementation and the subsequent accounting. The implementation of this tool is in the latest phase and it is expected to be completed by the effective date. The implementation team is also in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard.

The Company has preliminarily concluded that it will use the package of practical expedients at transition. The main impact expected as of the effective date is the recognition of right-of-use assets and related liabilities for all contracts that contain a lease and for which the Company is the lessee. However, the income statement presentation and the expense recognition pattern are not expected to change.

Under ASC 842, ~~it is expected that~~ fewer contracts ~~will~~ contain a lease. However, due to the elimination of ~~today's~~the real estate-specific guidance and changes to certain lessor classification criteria, more leases ~~will~~ qualify as sales-type leases and direct financing leases. Under these two models, a lessor ~~will derecognize~~derecognizes the asset and ~~will recognize~~recognizes a lease receivable. According to ASC 842, the lease receivable includes the fair value of the asset after the contract period, but does not include variable payments ~~that depend~~such as margin on the ~~use~~sale of ~~the asset (e.g. Mwh produced by a facility).~~energy. Therefore, the lease receivable could be ~~lower~~significantly different than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized lease receivable and the carrying amount of the underlying asset is recognized as a gain/loss at lease commencement.

During the course of adopting ASC 842, the Company applied various practical expedients including:

The package of practical expedients (applied to all leases) that allowed lessees and lessors not to reassess:


a.	whether any expired or existing contracts are or contain leases,


b.	lease classification for any expired or existing leases, and


c.	whether initial direct costs for any expired or existing leases qualify for capitalization under ASC 842.

The transition practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and

The transition practical expedient for lessees that allowed businesses to not separate lease and non-lease components. The Company applied the practical expedient to all classes of underlying assets when valuing right-of-use assets and lease liabilities. Contracts where the Company is the lessor were separated between the lease and non-lease components.

The Company applied the modified retrospective method of adoption and elected to continue to apply the guidance in ASC 840 Leases to the comparative periods presented in the year of adoption. Under this transition method, the Company applied the transition provisions starting at the date of adoption. The cumulative effect of the adoption of ASC 842 on our January 1, 2019 Condensed Consolidated Balance Sheet was as follows (in millions):



Condensed Consolidated Balance Sheet	Balance at December 31, 2018		Adjustments Due to ASC 842		Balance at January 1, 2019
Assets
Other noncurrent assets	$	1,514	$	253	$	1,767
Liabilities
Accrued and other liabilities	962		27		989
Other noncurrent liabilities	2,723		226		2,949

The primary impact of adoption was due to the recognition of a right-of-use-asset and lease liability for an operating land lease in Panama associated with the Colon LNG power plant and regasification terminal.

New Accounting Pronouncements Issued But Not Yet Effective — The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s consolidated financial statements once adopted. 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 Issued But Not Yet Effective
ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption
2016-13, 2018-19, 2019-04, 2019-05, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	See discussion of the ASU below.	January 1, 2020. Early adoption is permitted only as of January 1, 2019.	The Company will adopt the standard on January 1, 2020; see below for the evaluation of the impact of the adoption on the consolidated financial statements.

ASU 2016-13 and its subsequent corresponding updates will update the impairment model for financial assets measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. There are various transition methods available upon adoption.

The Company is ~~assessing how this guidance~~currently evaluating the impact of adopting the standard on its consolidated financial statements; however, it is expected that the new current expected credit loss model will ~~apply to new renewable contracts executed or modified after~~primarily impact the ~~effective date where all~~calculation of the ~~payments are contingent~~Company’s expected credit losses on the ~~level~~loan receivable at Mong Duong, financing receivables at Argentina, and general trade accounts receivable. The standard will also impact the classification of ~~production and is also evaluating~~expected credit losses (if any) to be recognized on the ~~related impact to the allocation of earnings under HLBV accounting.~~consolidated balance sheet for available-for-sale debt securities.

2. INVENTORY

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


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Fuel and other raw materials	$	278	$	284	$	236	$	300
Spare parts and supplies	284		278		260		277
Total	$	562	$	562	$	496	$	577

3. ASSET RETIREMENT OBLIGATION

During the six months ended June 30, 2019, the Company decreased the asset retirement obligation at DPL by $23 million, resulting in a reduction to Cost of Sales on the Condensed Consolidated Statement of Operations as the related plants are no longer in service. This decrease was due to reductions in estimated closure costs associated with ash ponds and landfills. The Company uses the cost approach to determine the initial value of ARO liabilities, which is estimated by discounting expected cash outflows to their present value using market-based rates at the initial recording of the liabilities. Cash outflows are based on the approximate future disposal costs as determined by market information, historical information or other management estimates. Subsequent downward revisions of ARO liabilities are discounted using the market-based rates that existed when the liability was initially recognized.

4. 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 values of the Company’s assets and liabilities 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. For further information on our valuation techniques and policies, see Note 4—Fair Value in Item 8.—Financial Statements and Supplementary Data of our ~~2017~~2018 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 dates indicated (in millions). For the Company’s investments in marketable debt 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, 2018								December 31, 2017								June 30, 2019								December 31, 2018
	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
DEBT SECURITIES:
Available-for-sale:
Unsecured debentures	$	—	$	60	$	—	$	60	$	—	$	207	$	—	$	207	$	—	$	1	$	—	$	1	$	—	$	5	$	—	$	5
Certificates of deposit	—		270		—		270		—		153		—		153		—		334		—		334		—		243		—		243
Total debt securities	—		330		—		330		—		360		—		360		—		335		—		335		—		248		—		248
EQUITY SECURITIES:
Mutual funds	21		45		—		66		20		52		—		72		21		64		—		85		19		49		—		68
Other equity securities	—		3		—		3		—		—		—		—
Total equity securities	21		48		—		69		20		52		—		72		21		64		—		85		19		49		—		68
DERIVATIVES:
Interest rate derivatives	—		65		5		70		—		15		—		15		—		—		—		—		—		28		1		29
Cross-currency derivatives	—		26		—		26		—		29		—		29		—		11		—		11		—		6		—		6
Foreign currency derivatives	—		22		221		243		—		29		240		269		—		21		192		213		—		18		199		217
Commodity derivatives	—		9		8		17		—		30		5		35		—		24		4		28		—		6		4		10
Total derivatives — assets	—		122		234		356		—		103		245		348		—		56		196		252		—		58		204		262
TOTAL ASSETS	$	21	$	500	$	234	$	755	$	20	$	515	$	245	$	780	$	21	$	455	$	196	$	672	$	19	$	355	$	204	$	578
Liabilities
DERIVATIVES:
Interest rate derivatives	$	—	$	60	$	101	$	161	$	—	$	111	$	151	$	262	$	—	$	159	$	243	$	402	$	—	$	67	$	141	$	208
Cross-currency derivatives	—		2		—		2		—		3		—		3		—		3		—		3		—		5		—		5
Foreign currency derivatives	—		54		—		54		—		30		—		30		—		29		—		29		—		41		—		41
Commodity derivatives	—		4		—		4		—		19		1		20		—		24		—		24		—		3		—		3
Total derivatives — liabilities	—		120		101		221		—		163		152		315		—		215		243		458		—		116		141		257
TOTAL LIABILITIES	$	—	$	120	$	101	$	221	$	—	$	163	$	152	$	315	$	—	$	215	$	243	$	458	$	—	$	116	$	141	$	257

As of ~~September~~June 30, ~~2018,~~2019, all AFS debt securities had stated maturities within one year. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, no other-than-temporary impairments of marketable securities were recognized in earnings or Other Comprehensive Income. Gains and losses on the sale of investments are determined using the specific-identification method. The following table presents gross proceeds from the sale of AFS securities during the periods indicated (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Gross proceeds from sale of AFS securities ⁽¹⁾
$ 713
$ 365
$ 1,127
$ 1,158



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Gross proceeds from sale of AFS securities	$	176	$	267	$	324	$	414

~~_____________________________~~


⁽¹⁾	~~Three and nine months ended September 30, 2018 include $119 million non-cash proceeds from non-convertible debentures at Guaimbê Solar Complex. See Note 18—Acquisitions for further information.~~

The following tables present a reconciliation of net derivative assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 (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, 2018 Interest Rate Foreign Currency Commodity Total
Balance at July 1 $ (111 ) $ 219
$ 10
$ 118
Total realized and unrealized gains (losses):
Included in other comprehensive income — derivative activity 12
—
—
12
Included in regulatory liabilities —
—
(2 ) (2 )
Settlements 3
2
—
5
Balance at September 30 $ (96 ) $ 221
$ 8
$ 133
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 $ 1
$ 2
$ —
$ 3



Three Months Ended June 30, 2019	Interest Rate			Foreign Currency			Commodity		Total
Balance at April 1	$	(182	)	$	194		$	2	$	14
Total realized and unrealized gains (losses):
Included in earnings	(1		)	(1		)	1		(1		)
Included in other comprehensive income — derivative activity	(75		)	—			—		(75		)
Included in regulatory (assets) liabilities	—			—			1		1
Settlements	2			(1		)	—		1
Transfers of assets/(liabilities), net into Level 3	(1		)	—			—		(1		)
Transfers of (assets)/liabilities, net out of Level 3	14			—			—		14
Balance at June 30	$	(243	)	$	192		$	4	$	(47	)
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	)	$	1	$	(1	)

Three Months Ended September 30, 2017 Interest Rate Foreign Currency Commodity Total
Balance at July 1 $ (195 ) $ 239
$ 9
$ 53
Total realized and unrealized gains (losses):
Included in earnings (5 ) 12
—
7
Included in other comprehensive income — derivative activity (2 ) —
—
(2 )
Settlements 10
(9 ) (3 ) (2 )
Balance at September 30 $ (192 ) $ 242
$ 6
$ 56
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 $ (1 ) $ 3
$ —
$ 2



Three Months Ended June 30, 2018	Interest Rate			Foreign Currency			Commodity			Total
Balance at April 1	$	(129	)	$	225		$	3		$	99
Total realized and unrealized gains (losses):
Included in earnings	13			3			—			16
Included in other comprehensive income — derivative activity	1			—			—			1
Included in regulatory (assets) liabilities	—			—			9			9
Settlements	4			(9		)	(2		)	(7		)
Balance at June 30	$	(111	)	$	219		$	10		$	118
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	$	15		$	(5	)	$	—		$	10



Six Months Ended June 30, 2019	Interest Rate			Foreign Currency			Commodity			Total
Balance at January 1	$	(140	)	$	199		$	4		$	63
Total realized and unrealized gains (losses):
Included in earnings	(1		)	(5		)	1			(5		)
Included in other comprehensive income — derivative activity	(88		)	—			—			(88		)
Included in regulatory (assets) liabilities	—			—			(1		)	(1		)
Settlements	4			(2		)	—			2
Transfers of assets/(liabilities), net into Level 3	(23		)	—			—			(23		)
Transfers of (assets)/liabilities, net out of Level 3	5			—			—			5
Balance at June 30	$	(243	)	$	192		$	4		$	(47	)
Total 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	$	—		$	(6	)	$	—		$	(6	)

Nine Months Ended September 30, 2018 Interest Rate Foreign Currency Commodity Total
Balance at January 1 $ (151 ) $ 240
$ 4
$ 93
Total realized and unrealized gains (losses):
Included in earnings 28
(3 ) 1
26
Included in other comprehensive income — derivative activity 48
—
—
48
Included in regulatory liabilities —
—
6
6
Settlements 12
(16 ) (3 ) (7 )
Transfers of assets/(liabilities), net into Level 3 1
—
—
1
Transfers of (assets)/liabilities, net out of Level 3 (34 ) —
—
(34 )
Balance at September 30 $ (96 ) $ 221
$ 8
$ 133
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 $ 32
$ (19 ) $ 1
$ 14


Nine Months Ended September 30, 2017	Interest Rate			Foreign Currency			Commodity			Total
Six Months Ended June 30, 2018													Interest Rate			Foreign Currency			Commodity			Total
Balance at January 1	$	(179	)	$	255		$	5		$	81		$	(151	)	$	240		$	4		$	93
Total realized and unrealized gains (losses):
Included in earnings	(5		)	12			(1		)	6			27			(3		)	1			25
Included in other comprehensive income — derivative activity	(29		)	—			—			(29		)	32			—			—			32
Included in regulatory liabilities	—			—			10			10
Included in regulatory (assets) liabilities													—			—			9			9
Settlements	28			(25		)	(8		)	(5		)	10			(18		)	(4		)	(12		)
Transfers of assets/(liabilities), net into Level 3	(7		)	—			—			(7		)	(3		)	—			—			(3		)
Balance at September 30	$	(192	)	$	242		$	6		$	56
Total 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	$	—		$	(12	)	$	—		$	(12	)
Transfers of (assets)/liabilities, net out of Level 3													(26		)	—			—			(26		)
Balance at June 30													$	(111	)	$	219		$	10		$	118
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													$	31		$	(21	)	$	1		$	11

The following table summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of ~~September~~June 30, ~~2018~~2019 (in millions, except range amounts):


Type of Derivative	Fair Value			Unobservable Input	Amount or Range (Weighted Average)	Fair Value			Unobservable Input	Amount or Range (Weighted Average)
Interest rate	$	(96	)	Subsidiaries’ credit spreads	1.78% to 4.38% (3.63%)	$	(243	)	Subsidiaries’ credit spreads	1.78% - 4.38% (3.9%)
Foreign currency:
Argentine Peso	221			Argentine peso to USD currency exchange rate after one year	42.08 to 166.5 (99.21)
Argentine peso						192			Argentine peso to U.S. dollar currency exchange rate after one year	56 - 202 (130)
Commodity:
Other	8					4
Total	$	133				$	(47	)

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

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 the then-latest available carrying amount. The following table summarizes our major categories of assets measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):

Measurement Date
Carrying Amount (1)
Fair Value Pretax Loss
Nine months ended September 30, 2018 Level 1 Level 2 Level 3
Equity Method Investments
Elsta 09/30/2018 $ 21
$ —
$ 16
$ —
$ 5
Long-lived assets held and used: ⁽²⁾

U.S. generation facility 09/30/2018 185
—
—
33
156



	Measurement Date	Carrying Amount (1)		Fair Value						Pre-tax Loss
Six Months Ended June 30, 2019	Measurement Date	Carrying Amount (1)		Level 1		Level 2		Level 3		Pre-tax Loss
Dispositions and held-for-sale businesses: ⁽²⁾
Kilroot and Ballylumford	04/12/2019	$	232	$	—	$	118	$	—	$	115

Measurement Date
Carrying Amount (1)
Fair Value Pretax Loss
Nine Months Ended September 30, 2017 Level 1 Level 2 Level 3
Long-lived assets held and used: ⁽²⁾

DPL 02/28/2017 $ 77
$ —
$ —
$ 11
$ 66
Other 02/28/2017 15
—
—
7
8
Held-for-sale businesses: ⁽³⁾

Kazakhstan Hydroelectric 06/30/2017 190
—
92
—
92
Kazakhstan 03/31/2017 171
—
29
—
94



	Measurement Date	Carrying Amount (1)		Fair Value						Pre-tax Loss
Six Months Ended June 30, 2018	Measurement Date	Carrying Amount (1)		Level 1		Level 2		Level 3		Pre-tax Loss
Long-lived assets held and used: ⁽³⁾
Shady Point	06/30/2018	$	210	$	—	$	—	$	127	$	83

_____________________________


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


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


⁽³⁾	Per the Company’s policy, ~~pretax~~pre-tax loss is limited to the impairment of long-lived assets. Any additional loss will be recognized on completion of the sale. See Note 1719—Held-for-Sale and Dispositions for further information.


⁽³⁾	See Note 16—Asset Impairment Expense for further information.

When determining the fair value of the U.S. generation facility’s long-lived assets, the Company used the market approach based on prices and unobservable inputs from transactions involving comparable assets as the inputs for the Level 3 nonrecurring measurement.

~~Asset Retirement Obligation~~ — During the nine months ended September 30, 2018, the Company increased the asset retirement obligation at IPL by $53 million. This increase was due to ash pond closure costs and revised closure dates associated with an EPA rule regulating CCR and additional coal pile remediation costs. The Company uses the cost approach to determine the fair value of ARO liabilities, which is estimated by discounting expected cash outflows to their present value using market based rates at the initial recording of the liabilities. Cash outflows are based on the approximate future disposal costs as determined by market information, historical information or other management estimates. These inputs to the fair value of the ARO liabilities would be considered Level 3 inputs under the fair value hierarchy.

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

The 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~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, but for which fair value is disclosed:


		September 30, 2018											June 30, 2019
		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⁾	$	105	$	224	$	—	$	—	$	224	Accounts receivable — noncurrent ⁽¹⁾	$	76	$	176	$	—	$	—	$	176
Liabilities:	Non-recourse debt	15,581		15,429		—		12,699		2,730		Non-recourse debt	15,840		15,896		—		14,751		1,145
	Recourse debt	3,820		3,901		—		3,901		—		Recourse debt	3,920		4,060		—		4,060		—


		December 31, 2017											December 31, 2018
		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⁾	$	163	$	217	$	—	$	6	$	211	Accounts receivable — noncurrent ⁽¹⁾	$	100	$	209	$	—	$	—	$	209
Liabilities:	Non-recourse debt	15,340		15,890		—		13,350		2,540		Non-recourse debt	15,645		16,225		—		13,524		2,701
	Recourse debt	4,630		4,920		—		4,920		—		Recourse debt	3,655		3,621		—		3,621		—

_____________________________

⁽¹⁾

These amounts primarily 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 ~~$14~~$15 million and ~~$31~~$16 million as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

4.5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

For further information on the Company’s derivative and ~~hedging~~hedge accounting policies, see Note 1—General and Summary of Significant Accounting Policies—Derivatives and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the ~~2017~~2018 Form 10-K.

Volume of Activity — The following ~~table presents~~tables present the Company’s maximum notional (in millions) over the remaining contractual period by type of derivative as of ~~September~~June 30, ~~2018,~~2019, 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 Maximum Notional Translated to USD Latest Maturity
Interest rate (LIBOR and EURIBOR) $ 4,499
2042
Cross-currency swaps (Chilean Unidad de Fomento and Chilean peso) 376
2029
Foreign Currency:
Argentine peso 73
2026
Chilean peso 334
2021
Colombian peso 163
2020
Brazilian real 80
2019
Others, primarily with weighted average remaining maturities of a year or less 246
2021



Interest Rate and Foreign Currency Derivatives	Maximum Notional Translated to USD		Latest Maturity
Interest rate (LIBOR and EURIBOR)	$	6,174	2044
Cross-currency swaps (Chilean Unidad de Fomento and Chilean peso)	304		2029
Foreign Currency:
Argentine peso	49		2026
Chilean peso	223		2022
Colombian peso	223		2022
Brazilian real	17		2019
Others, primarily with weighted average remaining maturities of a year or less	216		2021



Commodity Derivatives	Maximum Notional	Latest Maturity
Natural Gas (in MMBtu)	57	2020
Power (in MWhs)	10	2020
Coal (in Tons or Metric Tons)	10	2027
Fuel Oil (in BBL)	1	2020

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~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 (in millions):


Fair Value	September 30, 2018						December 31, 2017						June 30, 2019						December 31, 2018
Assets	Designated		Not Designated		Total		Designated		Not Designated		Total		Designated		Not Designated		Total		Designated		Not Designated		Total
Interest rate derivatives	$	68	$	2	$	70	$	15	$	—	$	15	$	—	$	—	$	—	$	29	$	—	$	29
Cross-currency derivatives	26		—		26		29		—		29		11		—		11		6		—		6
Foreign currency derivatives	—		243		243		8		261		269		—		213		213		—		217		217
Commodity derivatives	—		17		17		5		30		35		—		28		28		—		10		10
Total assets	$	94	$	262	$	356	$	57	$	291	$	348	$	11	$	241	$	252	$	35	$	227	$	262
Liabilities
Interest rate derivatives	$	159	$	2	$	161	$	125	$	137	$	262	$	393	$	9	$	402	$	205	$	3	$	208
Cross-currency derivatives	2		—		2		3		—		3		3		—		3		5		—		5
Foreign currency derivatives	29		25		54		1		29		30		11		18		29		28		13		41
Commodity derivatives	—		4		4		9		11		20		2		22		24		—		3		3
Total liabilities	$	190	$	31	$	221	$	138	$	177	$	315	$	409	$	49	$	458	$	238	$	19	$	257


	September 30, 2018				December 31, 2017				June 30, 2019				December 31, 2018
Fair Value	Assets		Liabilities		Assets		Liabilities		Assets		Liabilities		Assets		Liabilities
Current	$	74	$	69	$	84	$	211	$	53	$	80	$	75	$	51
Noncurrent	282		152		264		104		199		378		187		206
Total	$	356	$	221	$	348	$	315	$	252	$	458	$	262	$	257

As of ~~September~~June 30, 2019 and December 31, 2018, all derivative instruments subject to credit risk-related contingent features were in an asset position.

Credit Risk-Related Contingent Features ⁽¹⁾
December 31, 2017
Present value of liabilities subject to collateralization $ 15
Cash collateral held by third parties or in escrow 9

~~_____________________________~~


⁽¹⁾	~~Based on the credit rating of certain subsidiaries~~

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Effective portion of cash flow hedges
Cash flow hedges
Gains (losses) recognized in AOCL
Interest rate derivatives	$	26		$	(6	)	$	81		$	(79	)	$	(170	)	$	8		$	(264	)	$	55
Cross-currency derivatives	3			12			(2		)	14			4			(24		)	9			(5		)
Foreign currency derivatives	(11		)	(4		)	(44		)	(15		)	3			(39		)	6			(33		)
Commodity derivatives	—			9			—			23			(1		)	—			(1		)	—
Total	$	18		$	11		$	35		$	(57	)	$	(164	)	$	(55	)	$	(250	)	$	17
Gains (losses) reclassified from AOCL into earnings
Interest rate derivatives	$	(12	)	$	(19	)	$	(42	)	$	(63	)	$	(9	)	$	(14	)	$	(17	)	$	(30	)
Cross-currency derivatives	(8		)	14			(26		)	18			(1		)	(28		)	6			(18		)
Foreign currency derivatives	(8		)	(1		)	(9		)	(24		)	—			(2		)	(11		)	(1		)
Commodity derivatives	—			10			(5		)	13			—			(1		)	—			(5		)
Total	$	(28	)	$	4		$	(82	)	$	(56	)	$	(10	)	$	(45	)	$	(22	)	$	(54	)
Loss reclassified from AOCL to earnings due to discontinuance of hedge accounting ⁽¹⁾	$	—		$	—		$	—		$	(16	)	$	2		$	—		$	2		$	—
Gains (losses) recognized in earnings related to
Ineffective portion of cash flow hedges	$	—		$	4		$	(3	)	$	4		$	—		$	(3	)	$	—		$	(3	)
Not designated as hedging instruments:
Interest rate derivatives													(2		)	—			$	(4	)	$	—
Foreign currency derivatives	(10		)	5			144			(13		)	11			46			6			154
Commodity derivatives and other	2			1			33			7			2			22			4			31
Total	$	(8	)	$	6		$	177		$	(6	)	$	11		$	68		$	6		$	185

_____________________________


⁽¹⁾	Cash flow hedge was discontinued on a cross-currency swap because itthe underlying debt was ~~probable the forecasted transaction will not occur.~~prepaid.

AOCL is expected to decrease pre-tax income from continuing operations for the twelve months ended ~~September~~June 30, ~~2019~~2020 by $66 million, primarily due to interest rate derivatives.

5.6. FINANCING RECEIVABLES

Receivables with contractual maturities of greater than one year are considered financing receivables. The Company’s financing receivables are primarily related to amended agreements or government resolutions that are

due from CAMMESA, the administrator of the wholesale electricity market in Argentina. The following table presents financing receivables by country as of the dates indicated (in millions):


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
Argentina	$	83	$	177	$	84	$	93
Panama	27		—
Other	9		17		7		23
Total	$	119	$	194	$	91	$	116

Argentina — Collection of the principal and interest on these receivables is subject to various business risks and uncertainties, including, but not limited to, the 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.

6.7. 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,				Six Months Ended June 30,
50%-or-less-Owned Affiliates	2018		2017		2019			2018
Revenue	$	734	$	532	$	481		$	485
Operating margin	119		91		55			78
Net income	36		44
Net income (loss)					(30		)	31

sPower— In April 2019, the Company closed on the sale of approximately 48% of its interest in a portfolio of sPower’s operating assets for $173 million, subject to customary purchase price adjustments, of which $58 million was used to pay down debt at sPower. This sale resulted in a pre-tax gain on sale of business interests of $28

million. After the sale, the Company’s ownership interest in this portfolio of sPower’s operating assets decreased from 50% to approximately 26%. The sPower equity method investment is reported in the US and Utilities SBU reportable segment.

Simple Energy— In April 2018, the Company invested ~~$35~~$35 million in Simple Energy, a provider of utility-branded marketplaces and omni-channel instant rebates. As the Company does not control Simple Energy, the investment is accounted for as an equity method investment and is reported as part of Corporate and Other.

~~Fluence —~~ ~~On January 1, 2018, Siemens and AES closed on the creation of the Fluence joint venture~~ In July 2019, Simple Energy merged with each party holding a 50% ownership interest. The Company contributed $7 million in cash and $20 million in non-cash assets from the AES Advancion energy storage development business as consideration for the transaction, and received an equity interest in Fluence with a fair value of $50 million.Tendril to form Uplight. See Note 1722—~~Held-for-Sale and Dispositions~~Subsequent Events for further discussion. Fluence is a global energy storage technology and services company. As the Company does not control Fluence, the investment is accounted for as an equity method investment. The Fluence equity method investment is reported as part of Corporate and Other.

~~sPower —~~ In February 2017, the Company and Alberta Investment Management Corporation (“AIMCo”) entered into an agreement to acquire FTP Power LLC (“sPower”). In July 2017, AES closed on the acquisition of its 48% ownership interest in sPower for $461 million. In November 2017, AES acquired an additional 2% ownership interest in sPower for $19 million. As the Company does not control sPower, the investment is accounted for as an equity method investment. The sPower portfolio includes solar and wind projects in operation, under construction, and in development located in the United States. The sPower equity method investment is reported in the US and Utilities SBU reportable segment.

7.8. DEBT

Recourse Debt

In March 2018, the Company ~~repurchased~~purchased via tender offers $671 million aggregate principal of its existing 5.50% senior unsecured notes due in 2024 and $29 million of its existing 5.50% senior unsecured notes due in 2025. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $44 million for the ~~nine~~six months ended ~~September~~June 30, 2018.

In March 2018, the Company issued $500 million aggregate principal of 4.00% senior notes due in 2021 and $500 million of 4.50% senior notes due in ~~2023~~.2023. The Company used the proceeds from these issuances to ~~repurchase~~purchase via tender offer in full the $228 million balance of its 8.00% senior notes due in 2020 and the $690 ~~million~~ million balance of its 7.375% senior notes due in 2021. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $125 million for the ~~nine~~six months ended ~~September~~June 30, 2018.

Non-Recourse Debt

During the six months ended June 30, 2019, the Company’s subsidiaries had the following significant debt transactions:



Subsidiary	Transaction Period	Issuances		Repayments			Loss on Extinguishment of Debt
Gener ⁽¹⁾	Q1, Q2	$	550	$	(450	)	$	(11	)
Southland ⁽²⁾	Q1, Q2	252		—			—
DPL ⁽³⁾	Q2	825		(835		)	(43		)
Tiete	Q2	574		(553		)	(3		)

_____________________________


⁽¹⁾	Repayments in June 2019 complete the tender offer initiated in March 2019 on existing notes.


⁽²⁾	Issuances relate to the June 2017 long-term non-recourse debt financing to fund the Southland re-powering construction projects.


⁽³⁾	Includes transactions at DPL and its subsidiary, DP&L.

DP&L — In ~~August 2017, the Company~~June 2019, DP&L issued ~~$500 million aggregate principal amount of 5.125% senior notes due in~~

~~2027. The Company used these proceeds to redeem at par $240~~$425 million aggregate principal of 3.95% senior secured notes due in 2049. The net proceeds from the issuance were used to prepay the outstanding principal of $435 million under its ~~existing LIBOR + 3.00%~~variable rate $445 million credit agreement due in 2022.

DPL — In April 2019, DPL issued $400 million aggregate principal of 4.35% senior unsecured notes due in ~~2019 and repurchased $217~~2029. The net proceeds from the issuance were used to redeem, at par, $400 million of the $780 million aggregate principal outstanding of its ~~existing 8.00%~~7.25% senior unsecured notes due in ~~2020. As a result of the latter transactions, the Company recognized a loss on extinguishment of debt of $36 million for the nine months ended September 30, 2017.~~

In May 2017, the Company closed on $525 million aggregate principal LIBOR + 2.00% secured term loan due in 2022. In June 2017, the Company used these proceeds to redeem at par all $517 million aggregate principal of its existing Term Convertible Securities. As a result of the latter transaction, the Company recognized a net loss on extinguishment of debt of $6 million for the three and six months ended September 30, 2017.

In March 2017, the Company repurchased via tender offers $276 million aggregate principal of its existing 7.375% senior unsecured notes due in 2021 and $24 million of its existing 8.00% senior unsecured notes due in 2020.2021. As a result of these transactions, the Company recognized a loss on extinguishment of debt of ~~$47~~$43 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

~~Non-Recourse Debt~~

~~During the nine months ended September 30, 2018, the Company’s subsidiaries had the following significant debt transactions:~~

Subsidiary Transaction Period Issuances Repayments Loss on Extinguishment of Debt
Southland Q1, Q2, Q3 $ 587
$ —
$ —
Tietê Q1 385
(231 ) —
Alto Maipo Q2 104
—
—
DPL Q2 —
(106 ) (6 )
Gener Q3 —
(104 ) (7 )
Angamos Q3 —
(98 ) —

~~AES Argentina~~ — In February 2017, AES Argentina issued $300 million aggregate principal of unsecured and unsubordinated notes due in 2024. The net proceeds from this issuance were used for the prepayment of $75 million of non-recourse debt related to the construction of the San Nicolas Plant resulting in a gain on extinguishment of debt of approximately ~~$65 million~~.2019.

Non-Recourse Debt in Default — The current portion of non-recourse debt includes the following subsidiary debt in default as of ~~September~~June 30, ~~2018~~2019 (in millions).


Subsidiary	Primary Nature of Default	Debt in Default		Net Assets		Primary Nature of Default	Debt in Default		Net Assets
AES Puerto Rico	Covenant	$	322	$	135	Covenant	$	303	$	153
AES Ilumina (Puerto Rico)	Covenant	35		17		Covenant	33		19
		$	357
AES Jordan Solar						Covenant	6		3
Total							$	342

The above defaults are not payment defaults. ~~All of~~In Puerto Rico, the subsidiary non-recourse 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 in an allocated time, meet certain minimum or maximum financial ratios, or other requirements contained in the non-recourse debt documents due to the bankruptcy of the ~~applicable subsidiary.~~offtaker.

The AES Corporation’s recourse debt agreements include cross-default clauses that will trigger if a subsidiary or group of subsidiaries for which the non-recourse debt is in default provides ~~more than~~ 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently completed fiscal quarters. As of ~~September~~June 30, ~~2018,~~2019, the Company had no defaults which resulted in or were 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.

8.9. COMMITMENTS AND CONTINGENCIES

Guarantees, Letters of Credit and Commitments — In connection with certain project financings, acquisitions and dispositions, power 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 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 1815 years.

The following table summarizes the Parent Company’s contingent contractual obligations as of ~~September~~June 30, ~~2018.~~2019. Amounts presented in the following table represent the Parent Company’s current undiscounted exposure to guarantees and the 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.

Contingent Contractual Obligations
Amount
(in millions)
Number of Agreements Maximum Exposure Range for Individual Agreements (in millions)
Guarantees and commitments $ 435
21
<$1 — 68
Letters of credit under the unsecured credit facility 348
6
$2 — 247
Letters of credit under the senior secured credit facility 43
25
<$1 — 14
Asset sale related indemnities ⁽¹⁾
27
1
$27
Total $ 853
53



Contingent Contractual Obligations	Amount (in millions)		Number of Agreements	Maximum Exposure Range for Individual Agreements (in millions)
Guarantees and commitments	$	656	37	$0 — 157
Letters of credit under the unsecured credit facility	325		10	$1 — 247
Letters of credit under the senior secured credit facility	116		31	$0 — 49
Asset sale related indemnities ⁽¹⁾	12		1	$12
Total	$	1,109	79

_____________________________


⁽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~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company paid letter of credit fees ranging from 1% to 3% 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. For ~~each period~~the periods ended ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company ~~had~~ recognized liabilities of $4 million and $5 million for projected environmental remediation ~~costs.~~costs, respectively. Due to the uncertainties associated with environmental assessment and remediation activities, future costs of compliance or remediation 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~~June 30, ~~2018.~~2019. In aggregate, the Company estimates the range of potential losses ~~where estimable,~~ related to environmental matters, where estimable, to be up to $16 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 recognized aggregate liabilities for all claims of approximately ~~$48~~$56 million and ~~$50~~$53 million as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. 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 regulatory matters and commercial disputes in international jurisdictions. 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.

Where 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~~June 30, ~~2018.~~2019. The material contingencies where a loss is reasonably possible primarily include disputes with offtakers, suppliers and EPC contractors; alleged breaches of contract; alleged violation of laws and regulations; income tax and non-income tax matters with tax authorities; and

regulatory matters. In aggregate, the Company estimates the range of potential losses, where estimable, related to these reasonably possible material contingencies to be between ~~$99~~$52 million and ~~$127~~$461 million. The amounts considered reasonably possible do not include the amounts accrued, as discussed above. These material contingencies do not include income tax-related contingencies which are considered part of our uncertain tax positions.

10. LEASES

LESSEE — The Company has operating and finance leases for energy production facilities, land, office space, transmission lines, vehicles and other operating equipment. Operating leases with an initial term of 12 months or less are not recorded on the balance sheet, but are expensed on a straight-line basis over the lease term. The Company’s leases do not contain any material residual value guarantees, restrictive covenants or subleases.

Right-of-use assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized on commencement of the lease based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use the subsidiaries’ incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The right-of-use asset also includes any lease payments made and excludes lease incentives that are paid or payable to the lessee at commencement. The lease term includes the option to extend or terminate the lease if it is reasonably certain that the option will be exercised.

Right-of-use assets are long term by nature. The following table summarizes the amounts recognized on the Condensed Consolidated Balance Sheets related to lease asset and liability balances as of the period indicated (in millions):



	Consolidated Balance Sheet Classification	June 30, 2019
Assets
Right-of-use assets — finance leases	Electric generation, distribution assets and other	$	8
Right-of-use assets — operating leases	Other noncurrent assets	253
Total right-of-use assets		$	261
Liabilities
Finance lease liabilities (current)	Non-recourse debt (current liabilities)	$	1
Finance lease liabilities (noncurrent)	Non-recourse debt (noncurrent liabilities)	9
Total finance lease liabilities		10
Operating lease liabilities (current)	Accrued and other liabilities	16
Operating lease liabilities (noncurrent)	Other noncurrent liabilities	263
Total operating lease liabilities		279
Total lease liabilities		$	289

The following table summarizes supplemental balance sheet information related to leases as of the period indicated:



Lease Term and Discount Rate	June 30, 2019
Weighted-average remaining lease term — finance leases	15.9 years
Weighted-average remaining lease term — operating leases	22.8 years
Weighted-average discount rate — finance leases	9.20	%
Weighted-average discount rate — operating leases	6.90	%

The following table summarizes the components of lease expense recognized in Cost of Sales on the Condensed Consolidated Statements of Operations for the period indicated (in millions):



Components of Lease Cost	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	14	$	27
Finance lease cost
Amortization of right-of-use assets	1		1
Variable and short-term lease costs	2		3
Total lease cost	$	17	$	31

Operating cash outflows from operating leases included in the measurement of lease liabilities were $12 million and $26 million for the three and six months ended June 30, 2019, respectively.

The following table shows the future minimum lease payments under operating and finance leases for continuing operations together with the present value of the net minimum lease payments as of June 30, 2019 for the remainder of 2019 through 2023 and thereafter (in millions):



	Maturity of Lease Liabilities
	Finance Leases			Operating Leases
2019	$	1		$	14
2020	2			28
2021	1			26
2022	1			27
2023	1			26
Thereafter	10			483
Total	16			604
Less: Imputed interest	(6		)	(325		)
Present value of total minimum lease payments	$	10		$	279

The following table shows the future minimum lease payments under operating and capital leases together with the present value of the net minimum lease payments under capital leases as of December 31, 2018 for 2019 through 2023 and thereafter (in millions) under the prior lease accounting guidance:



	Future Commitments for
December 31,	Capital Leases			Operating Leases
2019	$	1		$	74
2020	1			38
2021	1			25
2022	1			26
2023	1			25
Thereafter	7			455
Total	$	12		$	643
Less: Imputed interest	(6		)
Present value of total minimum lease payments	$	6

LESSOR — The Company has operating leases for certain generation contracts that contain provisions to provide capacity to a customer, which is a stand-ready obligation to deliver energy when required by the customer. Capacity payments are generally considered lease elements as they cover the majority of available output from a facility. The allocation of contract payments between the lease and non-lease elements is made at the inception of the lease. Lease payments from such contracts are recognized as lease revenue on a straight-line basis over the lease term, whereas variable lease payments are recognized when earned. Lease revenue included in the Condensed Consolidated Statements of Operations was $155 million and $308 million for the three and six months ended June 30, 2019, of which $24 million and $36 million was related to variable lease payments. Underlying gross assets and accumulated depreciation of operating leases included in Property, Plant and Equipment on the Condensed Consolidated Balance Sheet were $3.2 billion and $1.1 billion, respectively, as of June 30, 2019.

The option to extend or terminate a lease is based on customary early termination provisions in the contract, such as payment defaults, bankruptcy, and lack of performance on energy delivery. The Company has not recognized any early terminations as of June 30, 2019. Certain leases may provide for variable lease payments based on usage or index-based (e.g., the U.S. Consumer Price Index) adjustments to lease payments.

The following table shows the future minimum lease receipts as of June 30, 2019 for the remainder of 2019 through 2023 and thereafter (in millions):



	Future Cash Receipts for
	Sales-Type Leases			Operating Leases
2019	$	1		$	256
2020	2			502
2021	2			474
2022	2			459
2023	2			395
Thereafter	40			1,823
Total	49			$	3,909
Less: Imputed interest	(27		)
Present value of total minimum lease receipts	$	22

9.11. REDEEMABLE STOCK OF SUBSIDIARIES

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


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
IPALCO common stock	$	618	$	618	$	618	$	618
Colon quotas ⁽¹⁾	201		159		218		201
IPL preferred stock	60		60		60		60
Total redeemable stock of subsidiaries	$	879	$	837	$	896	$	879

_____________________________


⁽¹⁾	Characteristics of quotas are similar to common stock.

Colon — Our partner in Colon made capital contributions of ~~$34~~$10 million and ~~$30~~$24 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. 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.

~~10.~~12. EQUITY

~~Changes in Equity~~ ~~— The following table 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, 2018 Nine Months Ended September 30, 2017
The Parent Company Stockholders’ Equity NCI Total Equity The Parent Company Stockholders’ Equity NCI Total Equity
Balance at the beginning of the period $ 2,465
$ 2,380
$ 4,845
$ 2,794
$ 2,906
$ 5,700
Net income 1,075
309
1,384
181
328
509
Total foreign currency translation adjustment, net of income tax (232 ) 72
(160 ) 117
10
127
Total change in derivative fair value, net of income tax 64
35
99
5
3
8
Total pension adjustments, net of income tax 5
—
5
1
19
20
Cumulative effect of a change in accounting principle ⁽¹⁾
87
81
168
31
—
31
Fair value adjustment ⁽²⁾
(4 ) —
(4 ) (19 ) —
(19 )
Disposition of businesses ⁽³⁾
—
(250 ) (250 ) —
—
—
Distributions to noncontrolling interests —
(253 ) (253 ) —
(261 ) (261 )
Contributions from noncontrolling interests —
6
6
—
17
17
Dividends declared on common stock (172 ) —
(172 ) (158 ) —
(158 )
Issuance and exercise of stock-based compensation 18
—
18
12
—
12
Sale of subsidiary shares to noncontrolling interests (1 ) 21
20
22
47
69
Acquisition of subsidiary shares from noncontrolling interests —
—
—
200
(85 ) 115
Less: Net loss attributable to redeemable stock of subsidiaries —
3
3
—
9
9
Balance at the end of the period $ 3,305
$ 2,404
$ 5,709
$ 3,186
$ 2,993
$ 6,179

~~_____________________________~~


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


⁽²⁾	~~Adjustment to record the redeemable stock of Colon at fair value.~~


⁽³⁾	~~See Note 17—Held-for-Sale and Dispositions~~ ~~for further information.~~

~~Equity Transactions with Noncontrolling Interests~~

~~Dominican Republic~~ — On September 28, 2017, Linda Group, an investor-based group in the Dominican Republic acquired an additional 5% of our Dominican Republic business for $60 million, pre-tax. This transaction resulted in a net increase of $25 million to the Company’s additional paid-in capital and noncontrolling interest, respectively. No gain or loss was recognized in net income as the sale was not considered a sale of in-substance real estate. As the Company maintained control after the sale, our businesses in the Dominican Republic continue to be consolidated by the Company within the MCAC SBU reportable segment.

~~Alto Maipo~~ — On March 17, 2017, AES Gener 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, for a de minimis payment, and sold a 6.7% interest in the project 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 South America SBU reportable segment.

Accumulated Other Comprehensive Loss — The following table summarizes the changes in AOCL by component, net of tax and NCI, for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 (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	$	(1,486	)	$	(333	)	$	(57	)	$	(1,876	)	$	(1,721	)	$	(300	)	$	(50	)	$	(2,071	)
Other comprehensive income (loss) before reclassifications	(231		)	9			—			(222		)	8			(150		)	2			(140		)
Amount reclassified to earnings	(1		)	55			5			59			23			18			27			68
Other comprehensive income (loss)	(232		)	64			5			(163		)	31			(132		)	29			(72		)
Cumulative effect of a change in accounting principle	—			19			—			19			—			(4		)	—			(4		)
Balance at the end of the period	$	(1,718	)	$	(250	)	$	(52	)	$	(2,020	)	$	(1,690	)	$	(436	)	$	(21	)	$	(2,147	)

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


AOCL Components		Affected Line Item in the Condensed Consolidated Statements of Operations	Three Months Ended September 30,						Nine Months Ended September 30,							Affected Line Item in the Condensed Consolidated Statements of Operations	Three Months Ended June 30,						Six Months Ended June 30,
AOCL Components			2018			2017			2018			2017					2019			2018			2019			2018
Foreign currency translation adjustment, net	Foreign currency translation adjustment, net														Foreign currency translation adjustment, net
		Gain (loss) on disposal and sale of businesses	$	3		$	—		$	19		$	(98	)		Gain (loss) on disposal and sale of business interests	$	(23	)	$	—		$	(23	)	$	16
		Net gain from disposal of discontinued businesses	—			—			(18		)	$	—			Net gain from disposal of discontinued operations	—			(18		)	—			$	(18	)
		Net income attributable to The AES Corporation	$	3		$	—		$	1		$	(98	)		Net income attributable to The AES Corporation	$	(23	)	$	(18	)	$	(23	)	$	(2	)
Unrealized derivative gains (losses), net
Derivative gains (losses), net															Derivative gains (losses), net
																Non-regulated revenue	$	—		$	(1	)	$	—		$	(5	)
																Non-regulated cost of sales	(1		)	(1		)	(10		)	(2		)
		Non-regulated revenue	$	(1	)	$	12		$	(6	)	$	22			Interest expense	(7		)	(12		)	(15		)	(27		)
		Non-regulated cost of sales	(1		)	(2		)	$	(3	)	(11		)		Gain (loss) on disposal and sale of business interests	1			—			1			—
		Interest expense	(11		)	(20		)	$	(38	)	(63		)		Foreign currency transaction gains (losses)	(2		)	(31		)	3			(20		)
		Foreign currency transaction gains (losses)	(15		)	14			$	(35	)	(4		)		Income from continuing operations before taxes and equity in earnings of affiliates	(9		)	(45		)	(21		)	(54		)
		Income from continuing operations before taxes and equity in earnings of affiliates	(28		)	4			(82		)	(56		)		Income tax expense	2			9			4			8
		Income tax expense	7			(5		)	15			6				Net equity in earnings (losses) of affiliates	(2		)	—			(2		)	—
		Income from continuing operations	(21		)	(1		)	(67		)	(50		)		Income from continuing operations	(9		)	(36		)	(19		)	(46		)
		Less: Income from continuing operations attributable to noncontrolling interests and redeemable stock of subsidiaries	1			1			12			10				Less: Income from continuing operations attributable to noncontrolling interests and redeemable stock of subsidiaries	1			8			1			11
		Net income attributable to The AES Corporation	$	(20	)	$	—		$	(55	)	$	(40	)		Net income attributable to The AES Corporation	$	(8	)	$	(28	)	$	(18	)	$	(35	)
Amortization of defined benefit pension actuarial loss, net	Amortization of defined benefit pension actuarial loss, net														Amortization of defined benefit pension actuarial loss, net
		General and administrative expenses	$	(1	)	$	—		$	(2	)	$	1			Other expense	$	—		$	(1	)	$	(1	)	$	(2	)
		Other expense	—			(1		)	(1		)	(1		)		Gain (loss) on disposal and sale of business interests	(26		)	—			(26		)	—
		Income from continuing operations before taxes and equity in earnings of affiliates	(1		)	(1		)	(3		)	—				Income from continuing operations before taxes and equity in earnings of affiliates	(26		)	(1		)	(27		)	(2		)
		Income from continuing operations	(1		)	(1		)	(3		)	—				Income from continuing operations	(26		)	(1		)	(27		)	(2		)
		Net income (loss) from operations of discontinued businesses	—			(6		)	—			(20		)		Loss from operations of discontinued businesses	—			1			—			—
		Net gain from disposal of discontinued operations	—			—			(2		)	—				Net gain from disposal of discontinued operations	—			(2		)	—			(2		)
		Net income	(1		)	(7		)	(5		)	(20		)		Net income	(26		)	(2		)	(27		)	(4		)
		Less: Loss (income) from discontinued operations attributable to noncontrolling interest	—			6			—			16				Net income attributable to The AES Corporation	$	(26	)	$	(2	)	$	(27	)	$	(4	)
		Net income attributable to The AES Corporation	$	(1	)	$	(1	)	$	(5	)	$	(4	)
Total reclassifications for the period, net of income tax and noncontrolling interests	Total reclassifications for the period, net of income tax and noncontrolling interests		$	(18	)	$	(1	)	$	(59	)	$	(142	)	Total reclassifications for the period, net of income tax and noncontrolling interests		$	(57	)	$	(48	)	$	(68	)	$	(41	)

Common Stock Dividends — The Parent Company paid dividends of ~~$0.13~~$0.1365 per outstanding share to its common stockholders during the first ~~second~~ and ~~third~~second quarters of ~~2018~~2019 for dividends declared in December ~~2017,~~2018 and February ~~and July 2018,~~2019, respectively.

On ~~October 5, 2018,~~July 12, 2019, the Board of Directors declared a quarterly common stock dividend of ~~$0.13~~$0.1365 per share payable on ~~November~~August 15, ~~2018,~~2019, to shareholders of record at the close of business on ~~November~~August 1, ~~2018.~~2019.

~~11.~~13. 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 mainly organized by geographic regions, which provides a socio-political-economic understanding of our business. During the first quarter of 2018, the Andes and Brazil SBUs were merged in order to leverage scale and are now reported together as part of the South America SBU. Further, Puerto Rico and El Salvador businesses, formerly part of the MCAC SBU, were combined with the US SBU, which is now reported as the US and Utilities SBU. The management reporting structure is organized by four SBUs led by our President and Chief Executive Officer: US and Utilities, South America, MCAC, and Eurasia SBUs. Using the accounting guidance on segment reporting, the Company determined that its four operating segments are aligned with its four reportable segments corresponding to its SBUs. ~~All prior period results have been retrospectively revised to reflect the new segment reporting structure.~~

Corporate and Other — ~~The results of the Fluence and Simple Energy equity affiliates are included~~Included in “Corporate and ~~Other.” Also included~~Other” are the results of the AES self-insurance company and certain equity affiliates, corporate overhead costs which are not directly associated with the operations of our four reportable segments, and 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 pre-tax 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 and equity securities; (b) unrealized foreign currency gains or losses; (c) gains, losses, benefits and costs associated with dispositions and acquisitions of business interests, including early plant closures; (d) losses due to impairments; (e) gains, losses and costs due to the early retirement of debt; and (f) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation. 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 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 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,
Total Revenue 2018 2017 2018 2017
US and Utilities SBU $ 1,230
$ 1,086
$ 3,252
$ 3,179
South America SBU 923
834
2,664
2,377
MCAC SBU 462
397
1,276
1,120
Eurasia SBU 224
380
935
1,204
Corporate and Other 7
9
21
29
Eliminations (9 ) (13 ) (34 ) (22 )
Total Revenue $ 2,837
$ 2,693
$ 8,114
$ 7,887

Three Months Ended September 30, Nine Months Ended September 30,
Total Adjusted PTC 2018 2017 2018 2017
Income from continuing operations before taxes and equity in earnings of affiliates $ 332
$ 304
$ 1,672
$ 687
Add: Net equity in earnings of affiliates 6
24
31
33
Less: Income from continuing operations before taxes, attributable to noncontrolling interests (116 ) (112 ) (409 ) (405 )
Pre-tax contribution 222
216
1,294
315
Unrealized derivative and equity securities losses (gains) 16
(8 ) 4
(7 )
Unrealized foreign currency losses (gains) (7 ) (21 ) 42
(54 )
Disposition/acquisition losses (gains) 17
1
(822 ) 109
Impairment expense 80
2
172
264
Losses (gains) on extinguishment of debt (1 ) 48
177
43
Restructuring costs —
—
3
—
Total Adjusted PTC $ 327
$ 238
$ 870
$ 670


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
Total Adjusted PTC	2018			2017			2018			2017
Total Revenue													2019			2018			2019			2018
US and Utilities SBU	$	167		$	138		$	363		$	288		$	976		$	995		$	1,995		$	2,022
South America SBU	128			67			381			289			765			846			1,610			1,741
MCAC SBU	81			91			215			209			478			406			928			814
Eurasia SBU	37			61			175			218			265			292			604			711
Corporate, Other and Eliminations	(86		)	(119		)	(264		)	(334		)
Total Adjusted PTC	$	327		$	238		$	870		$	670
Corporate and Other													16			5			25			14
Eliminations													(17		)	(7		)	(29		)	(25		)
Total Revenue													$	2,483		$	2,537		$	5,133		$	5,277

Total Assets September 30, 2018 December 31, 2017
US and Utilities SBU $ 11,971
$ 11,297
South America SBU 11,049
10,874
MCAC SBU 4,477
4,087
Eurasia SBU 4,588
4,557
Assets held-for-sale 111
2,034
Corporate and Other 293
263
Total Assets $ 32,489
$ 33,112



	Three Months Ended June 30,						Six Months Ended June 30,
Total Adjusted PTC	2019			2018			2019			2018
Income from continuing operations before taxes and equity in earnings of affiliates	$	118		$	342		$	472		$	1,340
Add: Net equity in earnings (losses) of affiliates	5			14			(1		)	25
Less: Income from continuing operations before taxes, attributable to noncontrolling interests	(71		)	(167		)	(180		)	(293		)
Pre-tax contribution	52			189			291			1,072
Unrealized derivative and equity securities losses (gains)	6			(24		)	9			(12		)
Unrealized foreign currency losses	7			52			18			49
Disposition/acquisition losses (gains)	5			(61		)	14			(839		)
Impairment expense	121			92			123			92
Loss on extinguishment of debt	49			7			57			178
Restructuring costs	—			—			—			3
Total Adjusted PTC	$	240		$	255		$	512		$	543



	Three Months Ended June 30,						Six Months Ended June 30,
Total Adjusted PTC	2019			2018			2019			2018
US and Utilities SBU	$	118		$	76		$	240		$	196
South America SBU	106			117			221			253
MCAC SBU	63			81			113			134
Eurasia SBU	39			55			95			138
Corporate and Other	(84		)	(71		)	(156		)	(169		)
Eliminations	(2		)	(3		)	(1		)	(9		)
Total Adjusted PTC	$	240		$	255		$	512		$	543



Total Assets	June 30, 2019		December 31, 2018
US and Utilities SBU	$	12,550	$	12,286
South America SBU	11,290		10,941
MCAC SBU	4,602		4,462
Eurasia SBU	4,341		4,538
Corporate and Other	455		294
Total Assets	$	33,238	$	32,521

~~12.~~14. REVENUE

Revenue is earned from the sale of electricity from our utilities and the production and sale of electricity and capacity from our generation facilities. Revenue is recognized upon the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities.

~~Utilities~~— Our utilities sell electricity directly to end-users, such as homes and businesses, and bill customers directly. The majority of our utility contracts have a single performance obligation, as the promises to transfer energy, capacity, and other distribution and/or transmission services are not distinct. Additionally, as the performance obligation is satisfied over time as energy is delivered, and the same method is used to measure progress, the performance obligation meets the criteria to be considered a series. Utility revenue is classified as regulated on the Condensed Consolidated Statements of Operations.

In exchange for the right to sell or distribute electricity in a service territory, our utility businesses are subject to government regulation. This regulation sets the framework for the prices (“tariffs”) that our utilities are allowed to charge customers for electricity. Since tariffs are determined by the regulator, the price that our utilities have the right to bill corresponds directly with the value to the customer of the utility's performance completed in each period. The Company also has some month-to-month contracts. Revenue under these contracts is recognized using an output method measured by the MWh delivered each month, which best depicts the transfer of goods or services to the customer, at the approved tariff.

The Company has businesses where it sells and purchases power to and from ISOs and RTOs. Our utility businesses generally purchase power to satisfy the demand of customers that is not contracted through separate PPAs. In these instances, the Company accounts for these transactions on a net hourly basis because the transactions are settled on a net hourly basis. In limited situations, a utility customer may choose to receive generation services from a third-party provider, in which case the Company may serve as a billing agent for the provider and recognize revenue on a net basis.

~~Generation —~~ Most of our generation fleet sells electricity under contracts to customers such as utilities, industrial users, and other intermediaries. Our generation contracts, based on specific facts and circumstances, can have one or more performance obligations as the promise to transfer energy, capacity, and other services may or may not be distinct depending on the nature of the market and terms of the contract. Similar to our utilities businesses, as the performance obligations are generally satisfied over time and use the same method to measure progress, the performance obligations meet the criteria to be considered a series. In measuring progress toward satisfaction of a performance obligation, the Company applies the "right to invoice" practical expedient when available, and recognizes revenue in the amount to which the Company has a right to consideration from a customer that corresponds directly with the value of the performance completed to date. Revenue from generation businesses is classified as non-regulated on the Condensed Consolidated Statements of Operations.

For contracts determined to have multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price using a market or expected cost plus margin approach. Additionally, the Company allocates variable consideration to one or more, but not all, distinct goods or services that form part of a single performance obligation when (1) the variable consideration relates specifically to the efforts to transfer the distinct good or service and (2) the variable consideration depicts the amount to which the Company expects to be entitled in exchange for transferring the promised good or service to the customer.

Revenue from generation contracts is recognized using an output method, as energy and capacity delivered best depicts the transfer of goods or services to the customer. Performance obligations including energy or ancillary services (such as operations and maintenance and dispatch services) are generally measured by the MWh delivered. Capacity, which is a stand-ready obligation to deliver energy when required by the customer, is measured using MWs. In certain contracts, if plant availability exceeds a contractual target, the Company may receive a performance bonus payment, or if the plant availability falls below a guaranteed minimum target, we may incur a

~~non-availability penalty. Such bonuses or penalties represent a form of variable consideration and are estimated and recognized when it is probable that there will not be a significant reversal.~~

In assessing whether variable quantities are considered variable consideration or an option to acquire additional goods and services, the Company evaluates the nature of the promise and the legally enforceable rights in the contract. In some contracts, such as requirement contracts, the legally enforceable rights merely give the customer a right to purchase additional goods and services which are distinct. In these contracts, the customer's action results in a new obligation, and the variable quantities are considered an option.

When energy or capacity is sold or purchased in the spot market or to ISOs, the Company assesses the facts and circumstances to determine gross versus net presentation of spot revenues and purchases. Generally, the nature of the performance obligation is to sell surplus energy or capacity above contractual commitments, or to purchase energy or capacity to satisfy deficits. Generally, on an hourly basis, a generator is either a net seller or a net buyer in terms of the amount of energy or capacity transacted with the ISO. In these situations, the Company recognizes revenue for the hours where the generator is a net seller and cost of sales for the hours where the generator is a net buyer.

Certain generation contracts contain operating leases where capacity payments are generally considered the lease elements. In such cases, the allocation between the lease and non-lease elements is made at the inception of the lease following the guidance in ASC 840. Minimum lease payments from such contracts are recognized as revenue on a straight-line basis over the lease term whereas contingent rentals are recognized when earned. Lease revenue is presented separately from revenue from contracts with customers below.

The following table presents our revenue from contracts with customers and other revenue for the periods indicated (in millions):


	Three Months Ended September 30, 2018													Three Months Ended June 30, 2019
	US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate and Other/ Eliminations			Total		US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate, Other and Eliminations			Total
Regulated Revenue
Revenue from contracts with customers	$	759	$	—	$	—	$	—	$	—		$	759	$	706	$	—	$	—	$	—	$	—		$	706
Other regulated revenue	18		—		—		—		—			18		18		—		—		—		—			18
Total regulated revenue	$	777	$	—	$	—	$	—	$	—		$	777	724		—		—		—		—			724
Non-Regulated Revenue
Revenue from contracts with customers	$	386	$	922	$	440	$	152	$	(2	)	$	1,898	180		764		455		201		(2		)	1,598
Other non-regulated revenue ⁽¹⁾	67		1		22		72		—			162		72		1		23		64		1			161
Total non-regulated revenue	$	453	$	923	$	462	$	224	$	(2	)	$	2,060	252		765		478		265		(1		)	1,759
Total revenue	$	1,230	$	923	$	462	$	224	$	(2	)	$	2,837	$	976	$	765	$	478	$	265	$	(1	)	$	2,483

														Three Months Ended June 30, 2018
														US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate, Other and Eliminations			Total
Regulated Revenue
Revenue from contracts with customers														$	706	$	—	$	—	$	—	$	—		$	706
Other regulated revenue														10		—		—		—		—			10
Total regulated revenue														716		—		—		—		—			716
Non-Regulated Revenue
Revenue from contracts with customers														180		845		384		218		—			1,627
Other non-regulated revenue ⁽¹⁾														99		1		22		74		(2		)	194
Total non-regulated revenue														279		846		406		292		(2		)	1,821
Total revenue														$	995	$	846	$	406	$	292	$	(2	)	$	2,537

Nine Months Ended September 30, 2018
US and Utilities SBU South America SBU MCAC SBU Eurasia SBU Corporate and Other/ Eliminations Total
Regulated Revenue
Revenue from contracts with customers $ 2,176
$ —
$ —
$ —
$ —
$ 2,176
Other regulated revenue 39
—
—
—
—
39
Total regulated revenue $ 2,215
$ —
$ —
$ —
$ —
$ 2,215
Non-Regulated Revenue
Revenue from contracts with customers $ 774
$ 2,661
$ 1,211
$ 701
$ (11 ) $ 5,336
Other non-regulated revenue ⁽¹⁾
263
3
65
234
(2 ) 563
Total non-regulated revenue $ 1,037
$ 2,664
$ 1,276
$ 935
$ (13 ) $ 5,899
Total revenue $ 3,252
$ 2,664
$ 1,276
$ 935
$ (13 ) $ 8,114



	Six Months Ended June 30, 2019
	US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate, Other and Eliminations			Total
Regulated Revenue
Revenue from contracts with customers	$	1,484	$	—	$	—	$	—	$	—		$	1,484
Other regulated revenue	25		—		—		—		—			25
Total regulated revenue	1,509		—		—		—		—			1,509
Non-Regulated Revenue
Revenue from contracts with customers	353		1,607		884		468		(2		)	3,310
Other non-regulated revenue ⁽¹⁾	133		3		44		136		(2		)	314
Total non-regulated revenue	486		1,610		928		604		(4		)	3,624
Total revenue	$	1,995	$	1,610	$	928	$	604	$	(4	)	$	5,133

	Six Months Ended June 30, 2018
	US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate, Other and Eliminations			Total
Regulated Revenue
Revenue from contracts with customers	$	1,417	$	—	$	—	$	—	$	—		$	1,417
Other regulated revenue	21		—		—		—		—			21
Total regulated revenue	1,438		—		—		—		—			1,438
Non-Regulated Revenue
Revenue from contracts with customers	388		1,739		771		549		(9		)	3,438
Other non-regulated revenue ⁽¹⁾	196		2		43		162		(2		)	401
Total non-regulated revenue	584		1,741		814		711		(11		)	3,839
Total revenue	$	2,022	$	1,741	$	814	$	711	$	(11	)	$	5,277

⁽¹⁾ Other non-regulated revenue primarily includes lease and derivative revenue not accounted for under ASC 606.

~~_____________________________~~


⁽¹⁾	~~Other non-regulated revenue primarily includes lease and derivative revenue not accounted for under ASC 606.~~

Contract Balances — The timing of revenue recognition, billings, and cash collections results in accounts receivable and contract liabilities. Accounts receivable represent unconditional rights to consideration and consist of both billed amounts and unbilled amounts typically resulting from sales under long-term contracts when revenue recognized exceeds the amount billed to the customer. We bill both generation and utilities customers on a contractually agreed-upon schedule, typically at periodic intervals (e.g., monthly). The calculation of revenue earned but not yet billed is based on the number of days not billed in the month, the estimated amount of energy delivered during those days and the estimated average price per customer class for that month.

Our contract liabilities consist of deferred revenue which is classified as current or noncurrent based on the timing of when we expect to recognize revenue. The current portion of our contract liabilities is reported in ~~Accrued and other liabilities~~ ~~and the noncurrent portion is reported in~~ ~~Other noncurrent liabilities~~ ~~on the Condensed Consolidated Balance Sheets.~~ The contract liabilities from contracts with customers were ~~$116~~$127 million and ~~$131~~$109 million as of ~~September~~June 30, ~~2018~~2019 and ~~January 1,~~December 31, 2018, respectively.

OfDuring the ~~$131 million of contract liabilities reported at January 1, 2018, $33 million was recognized as revenue during the nine~~six months ended ~~September~~June 30, ~~2018.~~2019 and 2018, we recognized revenue of $7 million and $29 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.

A significant financing arrangement exists for our Mong Duong plant in Vietnam. The plant was constructed under a build, operate, and transfer contract and will be transferred to the Vietnamese government after the completion of a 25 year PPA. The performance obligation to construct the facility was substantially completed in 2015. Approximately $1.4 billion of contract consideration related to the construction, but not yet collected through the 25 year PPA, was reflected as a loan receivable as of ~~September~~June 30, ~~2018.~~2019.

Remaining Performance Obligations — The transaction price allocated to remaining performance obligations represents future consideration for unsatisfied (or partially unsatisfied) performance obligations at the end of the reporting period. As of ~~September~~June 30, ~~2018,~~2019, the aggregate amount of transaction price allocated to remaining performance obligations was ~~$16~~$15 million, primarily consisting of fixed consideration for the sale of renewable energy credits (RECs) in long-term contracts in the U.S. We expect to recognize revenue on approximately ~~one-quarter~~one-fifth of the remaining performance obligations in ~~2018 and~~ 2019, with the remainder recognized thereafter. ~~The Company has elected to apply the optional disclosure exemptions under ASC 606. Therefore, the amount above excludes contracts with an original length~~

For further information on our accounting policies concerning contract balances and remaining performance obligations, see Note 18—Revenue in Item 8.—Financial Statements and Supplementary Data of one year or less, contracts for which we recognize revenue based on the amount we have the right to invoice for services performed, and variable consideration allocated entirely to a wholly unsatisfied performance obligation when the consideration relates specifically to our efforts to satisfy the performance obligation and depicts the amount to which we expect to be entitled. As such, consideration for energy is excluded from the amounts above as the variable consideration relates to the amount of energy delivered and reflects the value the Company expects to receive for the energy transferred. Estimates of revenue expected to be recognized in future periods also exclude unexercised customer options to purchase additional goods or services that do not represent material rights to the customer.2018 Form 10-K.

~~13.~~

15. OTHER INCOME AND EXPENSE

Other income generally includes gains on insurance recoveries in excess of property damage, gains on asset sales and liability extinguishments, favorable judgments on 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, losses on legal contingencies, defined benefit plan non-service costs, 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 June 30,				Six Months Ended June 30,
		2018		2017		2018		2017			2019		2018		2019		2018
Other Income	Legal settlements ⁽¹⁾	$	—	$	—	$	—	$	60	Gain on insurance proceeds ⁽¹⁾	$	12	$	—	$	35	$	—
	Allowance for funds used during construction (US Utilities)	1		7		8		20		Allowance for funds used during construction (US Utilities)	1		2		2		7
	Other	9		9		22		23		Other	5		5		11		13
	Total other income	$	10	$	16	$	30	$	103	Total other income	$	18	$	7	$	48	$	20

Other Expense	Loss on sale and disposal of assets ⁽²⁾	$	20	$	5	$	25	$	26	Loss on sale and disposal of assets	$	9	$	3	$	14	$	5
	Water rights write-off	—		15		—		18		Non-service pension and other postretirement costs	5		1		9		6
	Allowance for other receivables	—		15		—		15		Other	—		—		3		2
	Other	9		1		17		8		Total other expense	$	14	$	4	$	26	$	13
	Total other expense	$	29	$	36	$	42	$	67

_____________________________


⁽¹⁾ ⁽¹⁾Associated with recoveries for property damage at the Andres facility in the Dominican Republic for a lightning incident that occurred in September 2018.	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.


⁽²⁾	~~In September 2018, the Company recorded a $20 million loss due to damage associated with a lightning incident at the Andres facility in the Dominican Republic.~~

~~14.~~16. ASSET IMPAIRMENT EXPENSE

The following table presents our asset impairment expense by asset group for the periods indicated (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
U.S. generation facility $ 73
$ —
$ 156
$ —
Kazakhstan hydroelectric —
2
—
92
Kazakhstan CHPs —
—
—
94
DPL —
—
—
66
Other 1
—
10
8
Total $ 74
$ 2
$ 166
$ 260



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Kilroot and Ballylumford	$	115	$	—	$	115	$	—
Shady Point	—		83		—		83
Other	1		9		1		9
Total	$	116	$	92	$	116	$	92

~~U.S. generation~~Kilroot and Ballylumford — In April 2019, the Company entered into an agreement to sell its entire 100% interest in the Kilroot coal and oil-fired plant and energy storage facility and the Ballylumford gas-fired plant in the United Kingdom. Upon meeting the held-for-sale criteria, the Company performed an impairment analysis and determined that the carrying value of the asset group of $232 million was greater than its fair value less costs to sell of $114 million. As a result, the Company recognized asset impairment expense of $115 million. The Company completed the sale of Kilroot and Ballylumford in June 2019. Prior to their sale, Kilroot and Ballylumford were reported in the Eurasia SBU reportable segment. See Note 19—Held-for-Sale and Dispositions for further information.

Shady Point — In June 2018, the Company tested the recoverability of its long-lived assets at Shady Point, a coal-fired generation facility in the U.S. due to an unfavorable economic outlook resulting in uncertainty around future cash flows. The Company determined that the carrying amount of the asset group ~~including long-lived assets,~~ was not recoverable. The asset group was determined to have a fair value of ~~$127~~$127 million ~~as of June 30, 2018~~ using a combination of the income and market approaches. As a result, the Company recognized an asset impairment expense of ~~$83 million. The generation facility is reported in the US and Utilities SBU reportable segment.~~

$83 million. In ~~the third quarter of~~December 2018, as a result of updated assumptions regarding the future use of the assets, management’s expectations of future cash flows for the facility decreased. Given updated inputs, the asset group was determined to have a fair value of $55 million as of September 30, 2018 and additional impairment expense of $73 million was recognized. Given the uncertainty regarding the future use of the asset group, the Company ~~will continue~~entered into an agreement to ~~monitor the economic outlook for the facility on an ongoing basis.~~

~~DPL~~ — In March 2017, the Board of Directors of DPL approved the retirement of the DPL operated and co-owned Stuart coal-fired and diesel-fired generating units, and the Killen coal-fired generating unit and combustion turbine on or before June 1, 2018. The Company performed an impairment analysis and determined that the carrying amounts of the facilities were not recoverable. The Stuart and Killen asset groups were determined to have fair values of $3 million and $8 million, respectively, using the income approach. As a result, the Company recognized total asset impairment expense of $66 million. The Stuart and Killen units were retiredsell Shady Point, which was completed in May ~~2018.~~2019. Prior to ~~their retirement, Stuart and Killen were~~the sale, Shady Point was reported in the US and Utilities SBU reportable segment. See Note 1719—Held-for-Sale and Dispositions~~for further information.~~

~~Kazakhstan hydroelectric~~ — In April 2017, the Government of Kazakhstan stated the concession agreements would not be extended for Shulbinsk HPP and Ust-Kamenogorsk HPP, two hydroelectric plants in Kazakhstan, and initiated the process to transfer these plants back to the government. The Company performed an impairment analysis and determined that the carrying value of the asset group of $190 million, which included cumulative translation losses of $100 million, was greater than its fair value less costs to sell of $92 million. As a result, the Company recognized asset impairment expense of $92 million limited to the carrying value of the long-lived assets. The Company completed the transfer of the plants in October 2017. Prior to their transfer, the Kazakhstan hydroelectric plants were reported in the Eurasia SBU reportable segment.

~~Kazakhstan CHPs~~ — 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. Upon meeting the held-for-sale criteria in the first quarter of 2017, the Company performed an impairment analysis and determined that the carrying value of the asset group of $171 million, which included cumulative translation losses of $92 million, was greater than its fair value less costs to sell of $29 million. As a result, the Company recognized asset impairment expense of $94 million limited to the carrying value of the long-lived assets. The Company completed the sale of its interest in the Kazakhstan CHP plants in April 2017. Prior to their sale, the plants were reported in the Eurasia SBU reportable segment. See Note 17~~—Held-for-Sale and Dispositions~~ for further information.

~~15.~~17. INCOME TAXES

The Company’s provision for income taxes is based on the estimated annual effective tax rate, plus discrete items. The effective tax rates for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2018~~2019 were ~~44%~~48% and ~~30%~~36%, respectively. The effective tax rates for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 were ~~31%~~39% and ~~36%~~27%, respectively. The difference between the Company’s effective tax rates for the ~~2018~~2019 and ~~2017~~2018 periods and the U.S. statutory tax ~~rates~~rate of 21% ~~and 35%, respectively,~~ related primarily to U.S. taxes on foreign earnings, foreign tax

rate differentials, the impacts of foreign currency fluctuations at certain foreign subsidiaries, and nondeductible expenses.

~~The Tax Cuts and Jobs Act (“The TCJA”) was enacted on December 22, 2017. The TCJA reduced~~In the first quarter of 2019, the U.S. ~~federal corporate income tax rate from 35%~~Treasury issued final regulations related to ~~21%, required companies to pay a~~the one-time transition tax ~~on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign sourced earnings. We are applying~~which further amended the guidance ~~in Staff Accounting Bulletin No. 118 (“SAB 118”) when accounting for the enactment date effect~~ of the ~~TCJA. We recognized~~proposed regulations. As a ~~reasonable estimate of the tax effects of the TCJA as of December 31, 2017. In the third quarter of 2018, the Company~~result, we recorded ~~$33~~$3 million of discrete tax expense increasing the provisional adjustment to the U.S. one-time transition tax to $708 million. However, as of September 30, 2018, our accounting is not complete. Our estimates may also be affected as we gain a more thorough understanding of the TCJA, including proposed regulations released by the U.S. Treasury Department on August 1 related to the one-time transition tax. We expect to complete our analysis of the final impacts of the TCJA in the ~~fourth~~first quarter. ~~For further discussion on the TCJA, see Note 20—Income Taxes~~ ~~in Item 8.—Financial Statements and Supplementary Data~~ ~~of our 2017 Form 10-K.~~

In the first quarter of 2018, the Company completed the sale of its entire 51% equity interest in Masinloc, resulting in pre-tax gain of approximately ~~$773~~$777 million. The sale resulted in approximately $155 million of discrete tax expense in the U.S. under the new GILTI provision, which subjects the earnings of foreign subsidiaries to current U.S. taxation to the extent those earnings exceed an allowable return. See Note 1719—Held-for-Sale and Dispositions for details of the sale.

In the second quarter of 2018, the Company completed the sale of Electrica Santiago for total proceeds of ~~$287~~$307 million, subject to customary post-closing adjustments, resulting in a pre-tax gain on sale of ~~$69 million after post-closing adjustments.~~$89 million. The sale resulted in approximately ~~$25~~$31 million of discrete tax expense. See Note 1719—Held-for-Sale and Dispositions for details of the sale.

The impact of foreign currency devaluation in Argentina was approximately $16 million and $38 million of discrete tax expense for the three and nine month periods ended September 30, 2018, respectively. The same amounts for the three and nine month periods ended September 30, 2017 are $4 million and $8 million, respectively.

~~16.~~18. DISCONTINUED OPERATIONS

Due to a portfolio evaluation in the first half of 2016, management decided to pursue a strategic shift ~~of its distribution companies in Brazil, Sul and Eletropaulo,~~ to reduce the Company's exposure to the Brazilian distribution market. ~~The disposals of Sul and Eletropaulo were completed in October 2016 and June 2018, respectively.~~

~~In November~~During 2017, Eletropaulo, ~~converted its preferred shares into ordinary shares and transitioned~~ the ~~listing of those shares to~~Company’s remaining distribution business in Brazil, met the Novo Mercado, which is a listing segment of the Brazilian stock exchange with the highest standards of corporate governance. Upon conversion of the preferred shares into ordinary shares, AES no longer controlled Eletropaulo, but maintained significant influence over the business. As a result, the Company deconsolidated Eletropaulo. After deconsolidation, the Company's 17% ownership interest was reflected as an equity method investment. The Company recorded an after-tax loss on deconsolidation of $611 million, which primarily consisted of $455 million related to cumulative translation losses and $243 million related to pension losses reclassified from AOCL.

~~In December 2017, all the remaining~~ criteria ~~were met for Eletropaulo~~ to qualify as a discontinued ~~operation. Therefore,~~operation and its results of operations ~~and financial position~~ were reported as ~~such in the consolidated financial statements for all periods presented.~~such.

In June 2018, the Company completed the sale of its entire 17% ownership interest in Eletropaulo through a bidding process hosted by the Brazilian securities regulator, CVM. Gross proceeds of $340 million were received at our subsidiary in Brazil, subject to the payment of taxes. Upon disposal of Eletropaulo, the Company recorded a pre-tax gain on sale of ~~$243~~$238 million (after-tax ~~$199~~$196 million). ~~Prior to its classification as discontinued operations, Eletropaulo was reported in the South America SBU reportable segment.~~

~~The following table summarizes the carrying amounts of the major classes of assets and liabilities of discontinued operations at December 31, 2017 (in millions):~~

December 31, 2017
Assets of discontinued operations and held-for-sale businesses:
Investments in and advances to affiliates ⁽¹⁾
$ 86
Total assets of discontinued operations $ 86
Other assets of businesses classified as held-for-sale ⁽²⁾
1,948
Total assets of discontinued operations and held-for-sale businesses $ 2,034
Liabilities of discontinued operations and held-for-sale businesses:
Other liabilities of businesses classified as held-for-sale ⁽²⁾
1,033
Total liabilities of discontinued operations and held-for-sale businesses $ 1,033

~~_____________________________~~


⁽¹⁾	~~Represents the Company's 17% ownership interest in Eletropaulo.~~


⁽²⁾	~~Electrica Santiago, the DPL Peaker Assets and Masinloc were classified as held-for-sale as of December 31, 2017. See Note 17—Held-for-Sale and Dispositions~~ ~~for further information.~~

Excluding the gain on sale, income from discontinued operations and cash flows from operating and investing activities of discontinued operations were immaterial for the three and ~~nine~~six months ended ~~September~~June 30, 2018.

~~The following table summarizes the major line items constituting income from~~ Prior to its classification as discontinued operations, ~~for~~Eletropaulo was reported in the ~~three and nine months ended September 30, 2017 (in millions):~~

Income from discontinued operations, net of tax: Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Revenue — regulated $ 945
$ 2,726
Cost of sales (876 ) (2,573 )
Other income and expense items that are not major (26 ) (94 )
Income from discontinued operations $ 43
$ 59
Less: Net income attributable to noncontrolling interests (21 ) (30 )
Income from discontinued operations attributable to The AES Corporation $ 22
$ 29
Income tax expense (17 ) (24 )
Income from discontinued operations, net of tax $ 5
$ 5

~~The following table summarizes the operating and investing cash flows from discontinued operations for the three and nine months ended September 30, 2017 (in millions):~~

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Cash flows provided by operating activities of discontinued operations $ 129
$ 254
Cash flows used in investing activities of discontinued operations (61 ) (181 )

South America SBU reportable segment.

~~17.~~19. HELD-FOR-SALE AND DISPOSITIONS

Held-for-Sale

~~Compañia Transmisora del Norte Grande~~Jordan — In ~~June 2018, AES Gener~~February 2019, the Company entered into an agreement to sell its 36% ownership interest in two generation plants, IPP1 and IPP4, and a solar project under construction in Jordan for $86 million, plus capital contributions to the ~~transmission lines held by Compañia Transmisora del Norte Grande (“CTNG”) for $220 million, subject to customary purchase price adjustments.~~solar project of approximately $5 million. The sale ~~is subject to regulatory approval~~of IPP1 and isIPP4 and the sale of the solar project are expected to close during the ~~fourth quarter~~second half of ~~2018.~~2019. As of ~~September~~June 30, ~~2018, CTNG was~~2019, IPP1 and IPP4 were classified as held-for-sale, but did not meet the criteria to be reported as discontinued operations. ~~CTNG’s~~The solar project under construction did not meet the held-for-sale criteria. On a consolidated basis, the carrying value ~~at September~~of the plants held-for-sale as of June 30, ~~2018~~2019 was ~~$99~~$115 million. ~~CTNG is reported in the South America SBU reportable segment.~~ Pre-tax income attributable to AES was immaterial for the three and ~~nine~~six months ended ~~September~~June 30, 2019 and 2018. Jordan is reported in the Eurasia SBU reportable segment.

Redondo Beach — In October 2018, the Company entered into an agreement to sell land held by AES Redondo Beach, a gas-fired generating facility in California. The sale is expected to close during the second half of 2019. As of June 30, 2019, the $24 million carrying value of the land held by Redondo Beach was classified as held-for-sale. Redondo Beach is reported in the US and ~~September 30, 2017, respectively.~~Utilities SBU reportable segment.

Dispositions

Kilroot and Ballylumford — In June 2019, the Company completed the sale of its entire 100% interest in the Kilroot coal and oil-fired plant and energy storage facility and the Ballylumford gas-fired plant in the United Kingdom for $118 million, subject to customary post-closing adjustments, resulting in a pre-tax loss on sale of $33 million primarily due to the write-off of cumulative translation adjustments and accumulated other comprehensive income balances. The sale did not meet the criteria to be reported as discontinued operations. Prior to the sale, Kilroot and Ballylumford were reported in the Eurasia SBU reportable segment. See Note 16—Asset Impairment Expense for further information.

Shady Point — In May 2019, the Company completed the sale of Shady Point, a U.S. coal-fired generating facility, for $29 million. The sale did not meet the criteria to be reported as discontinued operations. Prior to its sale, Shady Point was reported in the US and Utilities SBU reportable segment. See Note 16—Asset Impairment Expense for further information.

Electrica Santiago — In May 2018, AES Gener completed the sale of Electrica Santiago for total ~~consideration~~proceeds of ~~$287~~$307 million, ~~including a contingent liability of $9 million,~~subject to customary post-closing adjustments, resulting in a pre-tax gain on sale of ~~$69 million after post-closing adjustments.~~$89 million. Electrica Santiago consisted of four gas and diesel-fired generation plants in Chile. The sale did not meet the criteria to be reported as discontinued operations. Prior to its sale, Electrica Santiago was reported in the South America SBU reportable segment.

Stuart and Killen — In May 2018, DPL retired the co-owned Stuart coal-fired and diesel-fired generating units, and the Killen coal-fired generating unit and combustion turbine. Prior to their retirement, Stuart and Killen were reported in the US and Utilities SBU reportable segment. ~~See Note 14—Asset Impairment Expense~~ ~~for further information.~~

Masinloc — In March 2018, the Company completed the sale of its entire 51% equity interest in Masinloc for cash proceeds of $1.05 billion, resulting in a pre-tax gain on sale of ~~$773~~$777 million ~~after post-closing adjustments and~~subject to U.S. ~~tax expense of $155 million.~~income tax. Masinloc consisted of a coal-fired generation plant in operation, a coal-fired generation plant under construction, and an energy storage facility all located in the Philippines. The sale did not meet the criteria to be reported as discontinued operations. Prior to its sale, Masinloc was reported in the Eurasia SBU reportable segment.

DPL peaker assets — In March 2018, DPL completed the sale of six of its combustion turbine and diesel-fired generation facilities and related assets ("DPL peaker assets") for total proceeds of $239 million, inclusive of estimated working capital and subject to customary post-closing adjustments, resulting in a loss on sale of $2 million. The sale did not meet the criteria to be reported as discontinued operations. Prior to their sale, the DPL peaker assets were reported in the US and Utilities SBU reportable segment.

Beckjord facility — In February 2018, DPL transferred its interest in Beckjord, a coal-fired generation facility retired in 2014, including its obligations to remediate the facility and its site. The transfer resulted in cash expenditures of $15 million, inclusive of disposal charges, and a loss on disposal of $12 million. Prior to the transfer, Beckjord was reported in the US and Utilities SBU reportable segment.

Advancion Energy Storage — In January 2018, the Company deconsolidated the AES Advancion energy storage development business and contributed it to the Fluence joint venture, resulting in a gain on sale of $23 million. ~~See Note 6—Investments in and Advances to Affiliates~~ ~~for further discussion.~~ Prior to the transfer, the AES Advancion energy storage development business was reported as part of Corporate and Other.

~~Kazakhstan CHPs~~— In April 2017, the Company completed the sale of Ust-Kamenogorsk CHP and Sogrinsk CHP, its combined heating and power coal plants in Kazakhstan, for net proceeds of $24 million. The Company recognized a pre-tax loss on sale of $48 million, primarily related to cumulative translation losses. The sale did not meet the criteria to be reported as discontinued operations. Prior to their sale, the Kazakhstan CHP plants were reported in the Eurasia SBU reportable segment. See Note 14~~—Asset Impairment Expense~~ ~~for further information.~~

Excluding any impairment charges or gain/loss on sale, pre-tax income (loss) attributable to AES of disposed businesses was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
(in millions)	2018		2017		2018		2017		2019			2018		2019			2018
Masinloc	$	—	$	26	$	9	$	78
Kilroot and Ballylumford									$	(5	)	$	3	$	(1	)	$	19
Stuart and Killen ⁽¹⁾	8		9		38		1		3			23		31			30
DPL peaker assets	—		11		7		12
Other	—		2		5		23		(2		)	6		(3		)	27
Total	$	8	$	48	$	59	$	114	$	(4	)	$	32	$	27		$	76

____________________________

~~_____________________________~~


⁽¹⁾⁽¹⁾ The Company entered into contracts to buy back all open capacity years for Stuart and Killen at prices lower than the PJM capacity revenue prices. As such, the Company continues to earn capacity margin.	The Company entered into contracts to buy back all open capacity years for Stuart and Killen at prices lower than the PJM capacity revenue prices. As such, the Company continues to earn capacity margin.

~~18.~~20. ACQUISITIONS

~~Guaimbê Solar Complex —~~ In September 2018, AES Tietê completed the acquisition of the Guaimbê Solar Complex (“Guaimbê”) from Cobra do Brasil for $152 million, subject to post-closing adjustments, comprised of the exchange of $119 million of non-convertible debentures in project financing and additional cash consideration of $33 million. The transaction was accounted for as an asset acquisition, therefore the consideration transferred, plus transaction costs, were allocated to the individual assets acquired and liabilities assumed based on their relative fair values. Any differences arising from post-closing adjustments will be allocated accordingly. Guaimbê is reported in the South America SBU reportable segment.

Alto Sertão IIIII — In ~~August 2017,~~April 2019, the Company ~~completed the acquisition of~~entered into an agreement to purchase from Renova Energia S.A. the Alto Sertão IIIII Wind Complex ~~(“Alto Sertão II”) from Renova Energia S.A for $179 million, plus the assumption~~as well as a pipeline of ~~$346 million of non-recourse debt. At closing, the Company made a cash payment of $143 million, which excluded holdbacks related~~wind power projects in development in Brazil, subject to ~~indemnifications. In September 2018, an additional $12 million was paid to settle a portion of the remaining indemnification liability. In the first quarter of 2018, the Company finalized the~~certain precedent conditions and customary purchase price allocation related to the acquisition of Alto Sertão II. There were no significant adjustments made to the preliminary purchase price allocation recorded in the third quarter of 2017 when the acquisition was completed. The assets acquired and liabilities assumed at the acquisition date were recorded at fair value, including a contingent liability for earn-out payments of $18 million, based on the final purchase price allocation at March 31, 2018. Subsequent changes to the fair value of the earn-out payments will be reflected in earnings. Alto Sertão II is reported in the South Americaadjustments.

~~SBU reportable segment.~~

~~19.~~21. EARNINGS PER SHARE

Basic and diluted earnings per share are based on the 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 and stock ~~options and convertible securities.~~options. The effect of such potential common stock is computed using the treasury stock ~~method or the if-converted method, as applicable.~~method.

The following table is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation for income from continuing operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, where income represents the numerator and weighted average shares represent the denominator.

Three Months Ended September 30, 2018 2017
(in millions, except per share data) Income Shares $ per Share Income Shares $ per Share

BASIC EARNINGS PER SHARE
Income from continuing operations attributable to The AES Corporation common stockholders $ 102
662
$ 0.15
$ 147
660
$ 0.22
EFFECT OF DILUTIVE SECURITIES

Restricted stock units —
3
—
—
3
—
DILUTED EARNINGS PER SHARE $ 102
665
$ 0.15
$ 147
663
$ 0.22

Nine Months Ended September 30, 2018 2017
(in millions, except per share data) Income Shares $ per Share Income Shares $ per Share

BASIC EARNINGS PER SHARE
Income from continuing operations attributable to The AES Corporation common stockholders $ 883
661
$ 1.33
$ 176
660
$ 0.27
EFFECT OF DILUTIVE SECURITIES
Restricted stock units —
3
—
—
2
—
DILUTED EARNINGS PER SHARE $ 883
664
$ 1.33
$ 176
662
$ 0.27



Three Months Ended June 30,	2019					2018
(in millions, except per share data)	Income		Shares	$ per Share		Income		Shares	$ per Share

BASIC EARNINGS PER SHARE
Income from continuing operations attributable to The AES Corporation common stockholders	$	16	664	$	0.02	$	96	661	$	0.15
EFFECT OF DILUTIVE SECURITIES
Restricted stock units	—		3	—		—		3	—
DILUTED EARNINGS PER SHARE	$	16	667	$	0.02	$	96	664	$	0.15


Six Months Ended June 30,	2019					2018
(in millions, except per share data)	Income		Shares	$ per Share		Income		Shares	$ per Share

BASIC EARNINGS PER SHARE
Income from continuing operations attributable to The AES Corporation common stockholders	$	170	663	$	0.26	$	781	661	$	1.18
EFFECT OF DILUTIVE SECURITIES
Stock options	—		1	—		—		—	—
Restricted stock units	—		3	—		—		3	—
DILUTED EARNINGS PER SHARE	$	170	667	$	0.26	$	781	664	$	1.18

The calculation of diluted earnings per share excluded stock awards ~~and convertible debentures~~ which would be anti-dilutive. The calculation of diluted earnings per share excluded 21 million and 64 million stock awards outstanding for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, that could potentially dilute basic earnings per share in the future.

22. SUBSEQUENT EVENTS

Simple Energy — On July 1, 2019, the Company completed the merger of Simple Energy with Tendril to form Uplight, a new company that offers a comprehensive platform for utility customer engagement. AES contributed $53 million in cash and its interest in Simple Energy to the merger. As the Company does not control Uplight, it will be accounted for as an equity method investment and reported as part of Corporate and Other.

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

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 ~~2017~~2018 Form 10-K.

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 ~~2017~~2018 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 four market-oriented SBUs: US and Utilities (United States, Puerto Rico and El Salvador); South America (Chile, Colombia, Argentina and Brazil); MCAC (Mexico, Central America and the Caribbean); and Eurasia (Europe and Asia). During the first quarter of 2018, the Andes and Brazil SBUs were merged in order to leverage scale and are now reported together as part of the South America SBU. Further, Puerto Rico and El Salvador businesses, formerly part of the MCAC SBU, were combined with the US SBU, which is now reported as

~~the US and Utilities SBU.~~ For additional information regarding our business, see Item 1.—Business of our ~~2017~~2018 Form 10-K.

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. The generation lines of business are reported within all four of our SBUs and the utilities lines of business are reported within our US and Utilities SBU.

Executive Summary

Compared with last year, ~~the results~~diluted earnings per share from continuing operations for the three months ended ~~September~~June 30, ~~2018 reflect increased margins~~2019 decreased $0.13 to $0.02. This decrease was primarily due to ~~higher tariffs~~the prior year gain on sale of Electrica Santiago, losses on extinguishment of debt, lower generation in Argentina ~~new contracts~~ and Chile, lower ~~fixed costs~~availability in ~~Chile,~~Panama and lost margin due to sold businesses. These decreases were partially offset by lower income tax expense, higher ~~contract sales and prices in Colombia, and higher regulated rates and higher dispatch at~~contributions from the US and Utilities SBU and foreign currency transaction gains in the current year as compared to losses in the prior year in Argentina.

Adjusted EPS, a non-GAAP measure, increased $0.01 to $0.26, primarily due to a lower effective tax rate, partially offset by ~~the sale of the Masinloc power plant in March of 2018.~~lower margins.

~~Margins increased~~Compared with last year, diluted earnings per share from continuing operations for the ~~nine~~six months ended ~~September~~June 30, ~~2018 compared~~2019 decreased $0.92 to $0.26. This decrease was primarily due to the prior year ~~primarily~~gains on asset sales and dispositions, lower generation in Argentina and Chile, lower availability in Panama and lost margin due to sold businesses. These decreases were partially offset by lower losses on extinguishment of debt, higher ~~tariffs in Argentina, new contracts in Chile, higher contracted energy sales in the Dominican Republic, higher contract sales and prices in Colombia, and higher regulated rates and energy sales at~~contributions from the US and Utilities SBU and foreign currency transaction gains in the current year as compared to losses in the prior year in Argentina.

Adjusted EPS, a non-GAAP measure, increased $0.01 to $0.53, primarily due to a lower effective tax rate and lower interest on Parent Company debt, partially offset by ~~the sale of the Masinloc power plant in March of 2018.~~lower margins.

~~_____________________________~~

____________________________


⁽¹⁾	See Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—SBU Performance Analysis—Non-GAAP Measures for reconciliation and definition.

~~Three Months Ended September 30, 2018~~

Compared with the third quarter of the prior year, diluted earnings per share decreased $0.07 to $0.15, primarily due to a current year impairment in the U.S. and a charge to true-up the provisional estimate of U.S. tax reform. These decreases were partially offset by a prior year loss on extinguishment of debt, lower interest on Parent Company debt, and higher margins discussed above.

~~Adjusted EPS, a non-GAAP measure, increased $0.12, or 52%, to $0.35, primarily driven by higher margins discussed above, lower interest on Parent Company debt, and a lower effective tax rate.~~

~~Nine Months Ended September 30, 2018~~

Compared with the first nine months of the prior year, diluted earnings per share increased $1.06 to $1.33 primarily due to the current year gains on sales of Masinloc and Electrica Santiago, prior year loss on sale of the Kazakhstan CHPs, impairments at DP&L and in Kazakhstan, lower interest on Parent Company debt, and higher margins discussed above. These increases were partially offset by a current year impairment in the U.S., unrealized FX losses, a charge to true-up the provisional estimate of U.S. tax reform, current year losses on extinguishment of debt, and a favorable legal settlement at Uruguaiana in the prior year.

Adjusted EPS, a non-GAAP measure, increased $0.23, or 35%, to $0.88, primarily driven by higher margins discussed above, lower interest on Parent Company debt, and a lower effective tax rate, which was partially offset by the prior year favorable impact of a legal settlement at Uruguaiana.

Overview of ~~Q3 2018 Results and~~ Strategic Performance

~~Strategic Priorities~~ — In the first half of 2019, we continued to make substantial progress on our strategic priorities of improving our credit profile, investing in new technologies and greening our portfolio, in order to deliver attractive risk-adjusted returns to our shareholders.

We are on track to attain investment grade ratings in 2020.

As a result of executing on our strategy, we continue to ~~improve the returns from~~target a 50% reduction in carbon intensity by 2022 and a 70% reduction by 2030, both off a 2016 base. These initiatives will also reduce our ~~existing portfolio and position AES for long-term, sustainable growth. Our growth pipeline continues to increase, driven by our focus on select markets and taking advantage~~coal-fired generation below 30% of our ~~cost competitiveness, scale, existing businesses and relationships.~~total generation volume by 2022.

Year-to-date, we signed long-term contracts for 1 GW of renewable capacity, bringing our backlog to 6.8 GW.





~~Improving Risk Profile~~
●	Closed sales of Philippines businesses in March 2018 and Eletropaulo in Brazil in June 2018 and signed an agreement to sell-down 24% of our interest in sPower’s operating portfolio in October 2018, at attractive valuations
●	~~Allocated $1 billion to prepay Parent debt and strengthen credit ratings~~
	○	~~Upgraded by S&P to BB+ in March 2018, by Fitch to BB+ in May 2018 and by Moody’s to Ba1 in June 2018~~
●	~~AES Gener restructured the 531 MW Alto Maipo hydroelectric project under construction in Chile in May 2018~~
●	~~DPL successfully completed its distribution rate case with an order from the Ohio Commission and began collecting new rates on October 1, 2018~~
●	~~In October, IPL received an order from the Indiana Utility Regulatory Commission, authorizing new rates to become effective on December 5, 2018~~



~~Efficiency~~
●	~~On track to achieve $100 million cost savings program~~



~~Profitable Growth~~
●	~~5,701 MW backlog, including 3,836 MW under construction and 1,865 MW of renewables signed to long-term PPAs~~
	○	~~Completed 671 MW Eagle Valley CCGT in Indiana in April 2018 and 381 MW Colon CCGT in Panama in September 2018~~
●	~~Year-to-date, Fluence energy storage joint venture awarded more than 250 MW of new projects~~

Our energy storage joint venture, Fluence, surpassed 1 GW of capacity delivered or awarded, including 424 MW awarded year-to-date.

Review of Consolidated Results of Operations (unaudited)


	Three Months Ended September 30,											Nine Months Ended September 30,											Three Months Ended June 30,											Six Months Ended June 30,
(in millions, except per share amounts)	2018			2017			$ change			% change		2018			2017			$ change			% change		2019			2018			$ change			% change		2019			2018			$ change			% change
Revenue:
US and Utilities SBU	$	1,230		$	1,086		$	144		13	%	$	3,252		$	3,179		$	73		2	%	$	976		$	995		$	(19	)	-2	%	$	1,995		$	2,022		$	(27	)	-1	%
South America SBU	923			834			89			11	%	2,664			2,377			287			12	%	765			846			(81		)	-10	%	1,610			1,741			(131		)	-8	%
MCAC SBU	462			397			65			16	%	1,276			1,120			156			14	%	478			406			72			18	%	928			814			114			14	%
Eurasia SBU	224			380			(156		)	-41	%	935			1,204			(269		)	-22	%	265			292			(27		)	-9	%	604			711			(107		)	-15	%
Corporate and Other	7			9			(2		)	-22	%	21			29			(8		)	-28	%	16			5			11			NM		25			14			11			79	%
Eliminations	(9		)	(13		)	4			31	%	(34		)	(22		)	(12		)	-55	%	(17		)	(7		)	(10		)	NM		(29		)	(25		)	(4		)	-16	%
Total Revenue	2,837			2,693			144			5	%	8,114			7,887			227			3	%	2,483			2,537			(54		)	-2	%	5,133			5,277			(144		)	-3	%
Operating Margin:
US and Utilities SBU	225			205			20			10	%	570			514			56			11	%	175			154			21			14	%	387			345			42			12	%
South America SBU	250			190			60			32	%	754			612			142			23	%	171			249			(78		)	-31	%	387			504			(117		)	-23	%
MCAC SBU	144			142			2			1	%	379			336			43			13	%	107			132			(25		)	-19	%	182			235			(53		)	-23	%
Eurasia SBU	34			101			(67		)	-66	%	175			342			(167		)	-49	%	41			52			(11		)	-21	%	104			141			(37		)	-26	%
Corporate and Other	(4		)	1			(5		)	NM		32			16			16			100	%	9			14			(5		)	-36	%	29			36			(7		)	-19	%
Eliminations	22			1			21			NM		17			—			17			NM		(1		)	(1		)	—			—	%	(1		)	(5		)	4			80	%
Total Operating Margin	671			640			31			5	%	1,927			1,820			107			6	%	502			600			(98		)	-16	%	1,088			1,256			(168		)	-13	%
General and administrative expenses	(43		)	(52		)	9			-17	%	(134		)	(155		)	21			-14	%	(49		)	(35		)	(14		)	40	%	(95		)	(91		)	(4		)	4	%
Interest expense	(255		)	(297		)	42			-14	%	(799		)	(860		)	61			-7	%	(273		)	(263		)	(10		)	4	%	(538		)	(544		)	6			-1	%
Interest income	79			63			16			25	%	231			185			46			25	%	82			76			6			8	%	161			152			9			6	%
Loss on extinguishment of debt	(11		)	(49		)	38			-78	%	(187		)	(44		)	(143		)	NM		(51		)	(6		)	(45		)	NM		(61		)	(176		)	115			-65	%
Other expense	(29		)	(36		)	7			-19	%	(42		)	(67		)	25			-37	%	(14		)	(4		)	(10		)	NM		(26		)	(13		)	(13		)	100	%
Other income	10			16			(6		)	-38	%	30			103			(73		)	-71	%	18			7			11			NM		48			20			28			NM
Gain (loss) on disposal and sale of businesses	(21		)	(1		)	(20		)	NM		856			(49		)	905			NM
Gain (loss) on disposal and sale of business interests																							(3		)	89			(92		)	NM		(7		)	877			(884		)	NM
Asset impairment expense	(74		)	(2		)	(72		)	NM		(166		)	(260		)	94			-36	%	(116		)	(92		)	(24		)	26	%	(116		)	(92		)	(24		)	26	%
Foreign currency transaction gains (losses)	5			22			(17		)	-77	%	(44		)	14			(58		)	NM		22			(30		)	52			NM		18			(49		)	67			NM
Income tax expense	(146		)	(93		)	(53		)	57	%	(509		)	(246		)	(263		)	NM		(57		)	(132		)	75			-57	%	(172		)	(363		)	191			-53	%
Net equity in earnings of affiliates	6			24			(18		)	-75	%	31			33			(2		)	-6	%
Net equity in earnings (losses) of affiliates																							5			14			(9		)	-64	%	(1		)	25			(26		)	NM
INCOME FROM CONTINUING OPERATIONS	192			235			(43		)	-18	%	1,194			474			720			NM		66			224			(158		)	-71	%	299			1,002			(703		)	-70	%
Income (loss) from operations of discontinued businesses, net of income tax expense of $0, $17, $2 and $24, respectively	(4		)	26			(30		)	NM		(9		)	35			(44		)	NM
Gain from disposal of discontinued businesses, net of income tax expense of $2, $0, $44 and $0, respectively	3			—			3			NM		199			—			199			NM
Loss from operations of discontinued businesses, net of income tax expense of $0, $2, $0, and $2, respectively																							—			(4		)	4			-100	%	—			(5		)	5			-100	%
Gain from disposal of discontinued businesses, net of income tax expense of $0, $42, $0, and $42, respectively																							1			196			(195		)	-99	%	1			196			(195		)	-99	%
NET INCOME	191			261			(70		)	-27	%	1,384			509			875			NM		67			416			(349		)	-84	%	300			1,193			(893		)	-75	%
Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries	(90		)	(109		)	19			-17	%	(309		)	(328		)	19			-6	%
Noncontrolling interests:
Less: Income from continuing operations attributable to noncontrolling interests and redeemable stock of subsidiaries																							(50		)	(128		)	78			-61	%	(129		)	(221		)	92			-42	%
Less: Loss from discontinued operations attributable to noncontrolling interests																							—			2			(2		)	-100	%	—			2			(2		)	-100	%
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	101		$	152		$	(51	)	-34	%	$	1,075		$	181		$	894		NM		$	17		$	290		$	(273	)	-94	%	$	171		$	974		$	(803	)	-82	%
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
Income from continuing operations, net of tax	$	102		$	147		$	(45	)	-31	%	$	883		$	176		$	707		NM		$	16		$	96		$	(80	)	-83	%	$	170		$	781		$	(611	)	-78	%
Income (loss) from discontinued operations, net of tax	(1		)	5			(6		)	NM		192			5			187			NM
Income from discontinued operations, net of tax																							1			194			(193		)	-99	%	1			193			(192		)	-99	%
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	101		$	152		$	(51	)	-34	%	$	1,075		$	181		$	894		NM		$	17		$	290		$	(273	)	-94	%	$	171		$	974		$	(803	)	-82	%
Net cash provided by operating activities	$	767		$	739		$	28		4	%	$	1,681		$	1,701		$	(20	)	-1	%	$	324		$	399		$	(75	)	-19	%	$	1,014		$	914		$	100		11	%
DIVIDENDS DECLARED PER COMMON SHARE	$	0.13		$	0.12		$	0.01		8	%	$	0.26		$	0.24		$	0.02		8	%

Components of Revenue, Cost of Sales, and Operating Margin — 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 expenses, 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

Three ~~months ended September~~Months Ended June 30, ~~2018~~2019

Revenue

(in millions)

Consolidated Revenue — Revenue ~~increased $144~~decreased $54 million, or 5%2%, for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to the three months ended ~~September~~June 30, ~~2017.~~2018. Excluding the unfavorable FX impact of ~~$41~~$34 million, primarily in South America, this ~~increase~~decrease was driven by:

$~~144~~57 million in South America mainly driven by lower generation and prices in Argentina, and lower contract sales and generation in Chile;

$19 million in US and Utilities mainly driven ~~primarily~~ by the closure of generation facilities at DPL and Shady Point and lower demand at IPL due to weather, partially offset by price increases due to the 2018 distribution rate orders at IPL and DPL and higher market energy sales at ~~Southland as well as higher wholesale~~Southland; and ~~retail volumes~~

$17 million in Eurasia mainly driven by lower generation at ~~IPL,~~Kilroot primarily due to planned outages.

These unfavorable impacts were partially offset by ~~the sale and closure~~an increase of ~~several generation facilities at DPL; and~~


•	~~$125 million in South America mainly due to higher contract and spot sales in Colombia and Chile, higher generation at Gener due to planned maintenance in 2017 andhigher capacity prices in Argentina resulting from the 2017 market reforms; and~~

~~$69~~$72 million in MCAC driven ~~primarily~~ by ~~higher availability due to improved hydrology in Panama and~~ the commencement of operations of the Colon combined cycle facility in September 2018.

Operating Margin

(in millions)

Consolidated Operating Margin— Operating margin decreased $98 million, or 16%, for the three months ended June 30, 2019, compared to the three months ended June 30, 2018. Excluding the unfavorable FX impact of $8 million, this decrease was driven by:

$72 million in South America primarily due to the drivers discussed above;

$25 million in MCAC due to the outage at Changuinola as a result of upgrading the tunnel lining, partially offset by the commencement of operations at Colon; and

$9 million in Eurasia primarily due to the drivers discussed above.

These ~~favorable~~unfavorable impacts were partially offset by ~~$155~~an increase of $21 million in US and Utilities mostly due to the 2018 distribution rate order at DPL and higher market energy sales at Southland.

Six Months Ended June 30, 2019

Revenue

(in millions)

Consolidated Revenue— Revenue decreased $144 million, or 3%, for the six months ended June 30, 2019, compared to the six months ended June 30, 2018. Excluding the unfavorable FX impact of $87 million, primarily in South America, this decrease was driven by:

$80 million in Eurasia primarily due to the sale of the Masinloc power plant in March 2018;

$73 million in South America primarily driven by lower generation and prices in Argentina and lower contract sales and generation in Chile; and

$27 million in US and Utilities primarily driven by the closure of generation facilities at DPL and Shady Point, partially offset by price increases due to the 2018 ~~as well as~~distribution rate orders at IPL and DPL.

These unfavorable impacts were partially offset by an increase of $116 million in MCAC driven by the ~~sale~~commencement of operations of the ~~Kazakhstan CHPs and expiration of the Kazakhstan HPP concession agreement~~Colon combined cycle facility in ~~2017.~~

September 2018.

Operating Margin

(in millions)

Consolidated Operating Margin — Operating margin ~~increased $31~~decreased $168 million, or 5%13%, for the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the ~~three~~six months ended ~~September~~June 30, ~~2017. Excluding the unfavorable impact of FX of $1 million, this increase was driven by:~~

•~~$60 million in South America mostly due to the drivers discussed above; and~~

~~$20 million in US & Utilities due to the drivers discussed above, partially offset by higher costs related to early plant closures at DPL.~~

~~These favorable impacts were partially offset by a decrease of $67 million in Eurasia mostly due to the sale of businesses discussed above.~~

~~Nine months ended September 30, 2018~~

~~Revenue~~

~~(in millions)~~

~~Consolidated Revenue— Revenue increased $227 million, or 3%, for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017.~~2018. Excluding the unfavorable FX impact of ~~$14~~$23 million, primarily in South America, ~~partially offset by Eurasia,~~ this ~~increase~~decrease was driven by:

$~~336~~99 million in South America primarily due to ~~higher capacity prices in Argentina resulting from market reforms enacted in 2017 as well as higher contract sales and prices in Colombia and Chile;~~the drivers discussed above;

$~~159~~53 million in MCAC due to the outage at Changuinola as a result of the tunnel lining upgrade and lower hydrology in Panama as compared to the prior year, partially offset by the commencement of operations at Colon; and

$32 million in Eurasia primarily due to ~~higher pass-through fuel prices in Mexico, increased availability driven by improved hydrology in Panama,~~the drivers discussed above and ~~higher contracted energy sales in Dominican Republic~~lower generation at Kilroot due to ~~commencement of the combined cycle operations at Los Mina in June 2017; and~~

$73 million in US and Utilities driven primarily by higher regulated rates approved in November 2017 and favorable weather at DPL and higher market energy sales at Southland, partially offset at DPL due to the sale and closure of several generation facilities.planned outages.

These ~~favorable~~unfavorable impacts were partially offset by ~~decreases~~an increase of ~~$308 million in Eurasia due to the sale of the Masinloc power plant in March 2018, as well as the sale of the Kazakhstan CHPs and expiration of the Kazakhstan HPP concession agreement in 2017.~~

~~Operating Margin~~

~~(in millions)~~

~~Consolidated Operating Margin~~— Operating margin increased $107 million, or 6%, for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. Excluding the favorable impact of FX of $12 million, primarily driven by Eurasia, this increase was driven by increases of:

~~$139 million in South America due to the drivers discussed above;~~

~~$56~~$42 million in US and Utilities mostly due to the ~~drivers discussed above;~~2018 distribution rate orders at IPL and

~~$43 million in MCAC mostly due~~ DPL and a revision to the ~~drivers discussed above.~~

~~These favorable impacts were partially offset by a decrease of $178 million in Eurasia due to the drivers discussed above, and the unfavorable impact of MTM derivative adjustments~~ARO at ~~Kilroot.~~

DPL.

See Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—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 $9~~increased $14 million, or ~~17%~~40%, to ~~$43~~$49 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$52~~$35 million for the three months ended ~~September~~June 30, ~~2017,~~2018, primarily due to ~~reduced people costs,~~the timing of allocation of intercompany charges from Corporate to the businesses in 2018, higher professional fees and ~~business development.~~people costs.

General and administrative expenses ~~decreased $21~~increased $4 million, or ~~14%~~4%, to ~~$134~~$95 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$155~~$91 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, primarily due to ~~reduced people costs and~~higher professional fees.

Interest expense

Interest expense ~~decreased $42~~increased $10 million, or ~~14%~~4%, to ~~$255~~$273 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$297~~$263 million for the three months ended June 30, 2018, primarily due to lower capitalized interest since the commencement of operations at the Eagle Valley CCGT natural gas plant in April 2018 and Colon combined cycle facility in September ~~30, 2017,~~2018, and the loss of hedge accounting at Alto Maipo in 2018, which resulted in favorable unrealized mark-to-market adjustments recognized within interest expense, offset by favorable foreign currency translation and inflation rates at Tietê.

Interest expense decreased ~~$61~~$6 million, or 7%1%, to ~~$799~~$538 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$860~~$544 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017. These decreases were~~2018, primarily due to the reduction of debt mainly at the Parent Company, ~~IPL,~~favorable foreign currency translation and ~~DPL, favorable impacts from~~inflation rates at Tietê, offset by lower capitalized interest ~~rate swaps~~since the commencement of operations at the Eagle Valley CCGT natural gas plant in April 2018 and ~~increased capitalized interest~~Colon combined cycle facility in September 2018, and the loss of hedge accounting at Alto Maipo ~~and the sale of Masinloc~~ in ~~March~~ 2018, ~~partially offset by an increase~~which resulted in ~~debt at Tietê related to the construction of solar plants and the acquisition of Alto Sertão in August 2017.~~favorable unrealized mark-to-market adjustments recognized within interest expense.

Interest income

Interest income increased ~~$16~~$6 million, or ~~25%~~8%, to ~~$79~~$82 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$63~~$76 million for the three months ended ~~September~~June 30, ~~2017,~~2018, and increased ~~$46~~$9 million, or ~~25%~~6%, to ~~$231~~$161 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$185~~$152 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017. These increases were~~2018, primarily ~~due to~~driven by a higher average interest rate on CAMMESA receivables in Argentina and an increase in outstanding receivables at Los Mina in the ~~higher financing component of contract consideration as a result of the adoption of the new revenue recognition standard.~~Dominican Republic.

Loss on extinguishment of debt

Loss on extinguishment of debt ~~decreased $38~~increased $45 million ~~or 78%,~~ to ~~$11~~$51 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$49~~$6 million for the three months ended ~~September~~June 30, ~~2017.~~2018. This increase was primarily due to losses of $43 million at DPL in 2019 resulting from the redemption of senior notes compared to losses of $6 million at DPL in 2018.

Loss on extinguishment of debt decreased $115 million, or 65%, to $61 million for the six months ended June 30, 2019, compared to $176 million for the six months ended June 30, 2018. This decrease was primarily due to losses of ~~$38 million and $9~~$169 million at the Parent Company ~~and IPALCO, respectively, in 2017 compared to a $7 million loss at Gener in 2018.~~

Loss on extinguishment of debt increased $143 million to $187 million for the nine months ended September 30, 2018, compared to $44 million for the nine months ended September 30, 2017. This increase was primarily due to an increase in losses at the Parent Company of $77 millionresulting from the redemption of senior notes in 2018 compared to ~~a gain on early retirement~~losses of ~~debt~~$43 million at ~~AES Argentina~~DPL resulting from the redemption of ~~$65~~senior notes and losses of $11 million at Gener in ~~2017.~~2019.

See Note 7—8—Debt included in Item 1.—Financial Statements of this Form 10-Q for further information.

Other income and expense

Other income ~~decreased $6~~increased $11 million ~~or 38%,~~ to ~~$10~~$18 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$16~~$7 million for the three months ended ~~September~~June 30, ~~2017.~~2018, and increased $28 million to $48 million for the six months ended June 30, 2019, compared to $20 million for the six months ended June 30, 2018. This ~~decrease~~increase was primarily due to ~~a decrease in~~gains on insurance recoveries associated with property damage at the ~~allowance for equity funds used during construction at IPALCO as a result of decreased construction activity.~~

Other income decreased $73 million, or 71%, to $30 million for the nine months ended September 30, 2018, compared to $103 million for the nine months ended September 30, 2017. This decrease was primarily due to the 2017 favorable settlement of legal proceedings at Uruguaiana related to YPF's breach of the parties’ gas supply agreement.Andres facility.

Other expense ~~decreased $7~~increased $10 million ~~or 19%,~~ to ~~$29~~$14 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$36~~$4 million for the three months ended ~~September~~June 30, ~~2017.~~2018, and increased $13 million to $26 million for the six months ended June 30, 2019, compared to $13 million for the six months ended June 30, 2018. This ~~decrease~~increase was primarily due to the write-off of water rights for projects that were no longer being pursued and the recognition of a full allowance on a non-trade receivable in the South America SBU in 2017, partially offset by a loss resulting from damage associated with a lightning incident at the Andres facility in the Dominican Republic in 2018.

Other expense decreased $25 million, or 37%, to $42 million for the nine months ended September 30, 2018, compared to $67 million for the nine months ended September 30, 2017. This decrease was primarily due to the

~~loss on~~ disposal of ~~assets~~tunnel lining at DPL as a result of the decision made in 2017 to close the coal-fired and diesel-fired generating units at Stuart and Killen on or before June 1, 2018, the write-off of water rights for projects that were no longerChanguinola which is being pursued, and the recognition of a full allowance on a non-trade receivable in the South America SBU in 2017, partially offset by a loss resulting from damage associated with a lightning incident at the Andres facility in the Dominican Republic in 2018.upgraded.

See Note ~~13—~~15—Other Income and Expense included in Item 1.—Financial Statements of this Form 10-Q for further information.

Gain (loss) on disposal and sale of ~~businesses~~business interests

Loss on disposal and sale of ~~businesses increased $20 million to $21~~business interests was $3 million for the three months ended ~~September~~June 30, ~~2018~~2019 as compared to $1a gain of $89 million for the three months ended ~~September~~June 30, ~~2017~~2018 primarily due to ~~post-closing adjustments~~the 2019 loss on sale of Kilroot and Ballylumford, partially offset by the 2019 gain on sale of a portion of our interest in sPower’s operating assets, compared to the 2018 gain on sale of Electrica Santiago.

Loss on disposal and sale of business interests was $7 million for the six months ended June 30, 2019 as compared to a gain of $877 million for the six months ended June 30, 2018 primarily due to the loss on sale of Kilroot and Ballylumford, partially offset by the gain on sale of a portion of our interest in sPower’s operating assets in 2019, compared to the gains on sale of Masinloc and Electrica Santiago in 2018.

Gain (loss) on disposal and sale of businesses increased $905 million to a gain of $856 million for the nine months ended September 30, 2018, as compared to a loss of $49 million for the nine months ended September 30, 2017. This increase was primarily due to the gain on sale of $773 million for the sale of Masinloc and $69 million for the sale of Electrica Santiago in 2018 compared to a loss on sale of $48 million for the sale of the Kazakhstan CHPs in 2017.

See Note ~~17—~~19—Held-for-Sale and Dispositions and Note 7—Investments in and Advances to Affiliatesincluded in Item 1.—Financial Statements of this Form 10-Q for further information.

Asset impairment expense

Asset impairment expense increased ~~$72~~$24 million to ~~$74~~$116 million for the three and six months ended ~~September~~June 30, ~~2018,~~2019, compared to $2$92 million for the three and six months ended ~~September~~June 30, ~~2017, due to a current period impairment in the U.S.~~2018, due to an ~~updated unfavorable economic outlook resulting in additional decreased future cash flows at~~impairment of $115 million as a ~~generation facility.~~

Asset impairment expense decreased $94 million, or 36%, to $166 million for the nine months ended September 30, 2018, compared to $260 million for the nine months ended September 30, 2017, primarily due toresult of Kilroot and Ballylumford being classified as held-for-sale. This increase was partially offset by a prior year impairment of ~~$186~~$83 million recognized in Kazakhstan due to the classification of the CHPs and HPPs as held-for-sale and at DPL as a result of the decision to close the coal-fired and diesel-fired generating units at Stuart and Killen, partially offset by impairments in the current year in the U.S. due to an unfavorable economic outlook ~~resulting in decreased~~creating uncertainty around future cash flows at ~~a generation facility.~~Shady Point.

See Note ~~14—~~16—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 June 30,						Six Months Ended June 30,
(in millions)	2018				2017			2018			2017			2019			2018			2019		2018
Argentina														$	11		$	(33	)	$	14	$	(46	)
Corporate	$	(2	)		$	4		$	17		$	(1	)	9			12			1		19
Argentina	(2		)		9			(47		)	4
Colombia	—				(15		)	(1		)	(26		)
Chile	4				9			(11		)	4			(1		)	(8		)	1		(15		)
Bulgaria	(1		)	—	5			(4		)	12
Philippines	—				4			(1		)	10
Other	6				6			3			11			3			(1		)	2		(7		)
Total ⁽¹⁾	$	5			$	22		$	(44	)	$	14		$	22		$	(30	)	$	18	$	(49	)


⁽¹⁾	Includes $6$13 million and $44 million of gains on foreign currency derivative contracts for the three months ended ~~September~~June 30, 2019 and 2018, respectively, and ~~$37~~$17 million and $31 million of gains ~~and $37 million of losses~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

The Company recognized net foreign currency transaction gains of $5 million for the three months ended September 30, 2018, primarily due to unrealized gains associated with the devaluation of payables denominated in Chilean pesos at Angamos and Cochrane, partially offset by the devaluation of long-term receivables denominated in Argentine pesos.

The Company recognized net foreign currency transaction losses of $44 million for the nine months ended September 30, 2018, primarily due to the devaluation of long-term receivables denominated in Argentine pesos, partially offset by gains at the Parent Company related to foreign currency derivatives.

The Company recognized net foreign currency transaction gains of $22 million for the three months ended ~~September~~June 30, ~~2017,~~2019, primarily ~~due to the appreciation of the Chilean peso, and~~driven by realized gains on foreign currency derivatives related to government receivables in Argentina and gains at ~~Argentina, partially offset by losses on foreign currency derivatives at Colombia due to a change~~the Parent Company resulting from the appreciation of intercompany receivables denominated in ~~functional currency.~~Euro.

The Company recognized net foreign currency transaction gains of ~~$14~~$18 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, primarily driven by realized gains on foreign currency derivative related to government receivables in Argentina.

The Company recognized net foreign currency transaction losses of $30 million and $49 million for the three and six months ended June 30, 2018, respectively, primarily due to unrealized losses associated with the ~~amortization~~devaluation of ~~frozen embedded derivatives at~~long-term receivables denominated in the ~~Philippines,~~Argentine peso and ~~appreciation of the euro at Bulgaria,~~their associated derivatives. These losses were partially offset by ~~losses on~~gains at the Parent Company related to foreign currency ~~derivatives at Colombia due to a change in functional currency.~~derivatives.

Income tax expense

Income tax expense ~~increased $53~~decreased $75 million, or 57%, to ~~$146~~$57 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$93~~$132 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The Company’s effective tax rates were ~~44%~~48% and ~~31%~~39% for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. This net increase was primarily due to ~~a 2018 adjustment to~~ the ~~provisional U.S. one-time transition tax recorded in~~2019 asset impairments and the ~~fourth quarter of 2017, as well as unfavorable foreign currency effects at certain of our Argentine subsidiaries during the third quarter of 2018. See Note~~ 15~~—Income Taxes~~ ~~included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for details~~2019 nondeductible loss on ~~the adjustment to the one-time transition tax.~~

Income tax expense increased $263 million to $509 million for the nine months ended September 30, 2018, compared to $246 million for the nine months ended September 30, 2017. The Company’s effective tax rates were 30% and 36% for the nine months ended September 30, 2018 and 2017, respectively. This net decrease in the effective tax rate was primarily due to the impact of the sale of Kilroot and Ballylumford in the ~~Company’s entire 51% equity interest in Masinloc.~~United Kingdom. See Note ~~17—~~16— Asset Impairment ExpenseandNote 19—Held-for-Sale and Dispositions included in Item 1.—Financial Statements of this Form 10-Q for ~~further information.~~details and impacts of the impairments and sale, respectively.

Income tax expense decreased $191 million, or 53%, to $172 million for the six months ended June 30, 2019, compared to $363 million for the six months ended June 30, 2018. The Company’s effective tax rates were 36% and 27% for the six months ended June 30, 2019 and 2018, respectively. This net increase was primarily due to the 2018 impact ~~was partially offset by~~of the sale of the Company’s entire 51% equity interest in Masinloc, as well as the aforementioned ~~2018 adjustment to~~2019 asset impairments and nondeductible loss on sale. See Note 19— Held-for-Sale and Dispositions andNote

17—Income Taxes included in Item 1.—Financial Statements of this Form 10-Q for details and impacts of the ~~provisional U.S. one-time transition tax and unfavorable foreign currency effects at certain of our Argentine subsidiaries.~~sale.

Our effective tax rate reflects the tax effect of significant operations outside the U.S., which are generally taxed at rates different than the U.S. statutory rate of 21%. Furthermore, ~~a greater proportion of~~ our foreign earnings may be ~~subject~~subjected to ~~current~~incremental U.S. taxation under the ~~new tax rules enacted in the fourth quarter of 2017. The regulations governing those rules have not yet been finalized.~~GILTI rules. 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.

Net equity in earnings (losses) of affiliates

Net equity in earnings of affiliates decreased ~~$18~~$9 million, or 64%, to $6$5 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$24~~$14 million for the three months ended ~~September~~June 30, ~~2017.~~2018. This decrease was primarily due to ~~more projects achieving commercial operations in 2017 compared to 2018~~decreased earnings at sPower ~~which was purchased~~driven by 2018 unrealized derivative gains and higher 2019 interest expense due to the timing of completed projects and higher revenues at OPGC in the ~~third~~second quarter of ~~2017; losses at Fluence, which was formed in the first quarter of 2018; and decreased income~~2018, partially offset by increased earnings at Guacolda.

Net equity in earnings (losses) of affiliates decreased $2$26 million to ~~$31~~a loss of $1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$33~~earnings of $25 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. This decrease was primarily due to ~~losses~~decreased earnings at ~~Fluence~~sPower driven by 2018 unrealized derivative gains and ~~decreased income at Guacolda,~~higher 2019 interest expense due to the timing of completed projects and the acquisition and consolidation of certain Distributed Energy non-controlling interests in late 2018, partially offset by increased ~~income at OPGC and~~ earnings at ~~sPower.~~Guacolda.

Net income from discontinued operations

Net income from discontinued operations ~~decreased $27~~was $192 million ~~to a net loss of $1~~and $191 million for the three and six months ended ~~September~~June 30, 2018, ~~compared to net income from discontinued operations of $26 million for the three months ended September 30, 2017,~~respectively, primarily due to the gain on sale of Eletropaulo in the second quarter of 2018.

Net income from discontinued operations increased $155 million to $190 million for the nine months ended September 30, 2018, compared to $35 million for the nine months ended September 30, 2017, primarily due to the after-tax gain on sale of Eletropaulo of $199 million, partially offset by the income from operations of Eletropaulo prior to its deconsolidation in November 2017.

See Note ~~16—~~18—Discontinued Operations included in Item 1.—Financial Statements of this Form 10-Q for further information regarding the Eletropaulo discontinued operations.

Net income attributable to noncontrolling interests and redeemable stock of subsidiaries

Net income attributable to noncontrolling interests and redeemable stock of subsidiaries decreased ~~$19~~$76 million, or ~~17%~~60%, to ~~$90~~$50 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$109~~$126 million for the three months ended ~~September~~June 30, ~~2017.~~2018. This decrease was primarily due to:

Prior year gain on sale of Electrica Santiago;

HLBV allocation of losses to noncontrolling interests at Distributed Energy;


•	Lower earnings in Panama primarily due to the outage at Changuinola as a result of upgrading the tunnel lining. See Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties—Changuinola Tunnel Leak of this Form 10-Q for further information; and

Lower earnings ~~due to the deconsolidation of Eletropaulo in November 2017 and the sale of Masinloc in March 2018.~~

~~These decreases were partially offset by:~~

~~Higher earnings due to project completions in Panama; and~~

~~Higher earnings in Colombia~~at Tietê primarily due to higher ~~contract sales and prices.~~volume of energy purchases to fulfill our contractual obligations.

Net income attributable to noncontrolling interests and redeemable stock of subsidiaries decreased ~~$19~~$90 million, or 6%41%, to ~~$309~~$129 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$328~~$219 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. This decrease was primarily due to:

Prior year gain on sale of Electrica Santiago;

HLBV allocation of losses to noncontrolling interests at Distributed Energy;


•	Lower earnings in Panama primarily due to lower hydrology and the outage at Changuinola as a result of upgrading the tunnel lining. See Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties—Changuinola Tunnel Leak of this Form 10-Q for further information;

Lower earnings due to the sale of Masinloc in March 2018; and

Lower earnings at Tietê primarily due to lower spot prices and higher ~~interest expense due~~volume of energy purchases to ~~non-recourse debt issued in 2018 and the assumption of debt for the acquisition of Alto Sertão in August 2017;~~fulfill our contractual obligations.

~~Prior year favorable impact of a legal settlement at Uruguaiana; and~~

~~Lower earnings due to the deconsolidation of Eletropaulo in November 2017 and the sale of Masinloc in March 2018.~~

~~These decreases were partially offset by:~~

~~Current year gain on sale of Electrica Santiago;~~

~~Higher earnings in Colombia primarily due to higher contract sales and prices; and~~


•	~~Higher earnings in Vietnam due to the adoption of the new revenue recognition standard (See Note 1—Financial Statement Presentation~~ ~~included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for further information).~~

Net income attributable to The AES Corporation

Net income attributable to The AES Corporation decreased ~~$51~~$273 million, or ~~34%,~~94% to ~~$101~~$17 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$152~~$290 million for the three months ended ~~September~~June 30, ~~2017.~~2018. This decrease was primarily due to:

Prior year gains on the sales of Eletropaulo (reflected within discontinued operations) and Electrica Santiago, net of tax;

Current year ~~impairment in the U.S.;~~

~~Charge to true-up the provisional estimate of U.S. tax reform;~~

~~Post-closing adjustments to the gain~~impairments and loss on sale at Kilroot and Ballylumford;

Current year loss on extinguishment of ~~Electrica Santiago;~~debt at DPL; and

Lower margins ~~in the current year~~ at our South America, MCAC and Eurasia ~~SBU as a result of the sales of Masinloc and Kazakhstan.~~SBUs.

These decreases were partially offset by:

Prior year ~~loss~~impairment at Shady Point;

Current year gain on ~~extinguishment~~sale of ~~debt;~~a portion of our interest in sPower’s operating assets;

~~Lower interest~~Prior year unrealized foreign exchange losses primarily due to the devaluation of the Argentine peso;

Current year realized gains on ~~Parent Company debt;~~foreign currency derivatives related to government receivables in Argentina; and

Higher margins at our ~~South America and~~ US and Utilities ~~SBUs in the current year.~~SBU.

Net income attributable to The AES Corporation ~~increased $894~~decreased$803 million, or 82%, to ~~$1,075~~$171 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$181~~$974 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. This ~~increase~~decrease was primarily due to:

~~Current~~Prior year gains on the sales of Masinloc, Eletropaulo (reflected within discontinued operations), and Electrica Santiago, net of tax;

~~Prior~~Current year impairments and loss on sale at Kilroot and Ballylumford;

Current year loss on ~~sale~~extinguishment of ~~Kazakhstan CHPs;~~

~~Prior year asset impairments in Kazakhstan~~debt at DPL; and ~~DP&L;~~

Lower ~~interest on Parent Company debt; and~~

~~Higher~~ margins at our ~~US and Utilities,~~ South America, MCAC and ~~MCAC SBUs in the current year.~~Eurasia SBUs.

These ~~increases~~decreases were partially offset by:

~~Current~~Prior year loss on extinguishment of debt at the Parent Company;

Prior year impairment ~~in the U.S.;~~at Shady Point;

Current year ~~loss and prior year~~ gain on ~~extinguishment~~sale of ~~debt;~~a portion of our interest in sPower’s operating assets;

~~Current~~Prior year unrealized foreign exchange losses primarily due to the devaluation of the Argentine peso;

~~Prior~~Current year ~~favorable impact~~realized foreign exchange gains primarily due to the settlement of a ~~legal settlement~~tax liability at ~~Uruguaiana;~~Argentina;

Current year gains on insurance proceeds associated with the lightning incident at the Andres facility in 2018; and

~~Lower~~Higher margins ~~in the current year~~ at our ~~Eurasia SBU as a result of the sales of Masinloc~~US and ~~Kazakhstan.~~Utilities SBU.

SBU Performance Analysis

Non-GAAP Measures

Adjusted Operating Margin, Adjusted PTC and Adjusted EPS are non-GAAP supplemental measures that are used by management and external users of our condensed consolidated financial statements such as investors, industry analysts and lenders. ~~The Adjusted Operating Margin and Adjusted PTC by SBU for the three and nine months ended September 30, 2018 and September 30, 2017 are shown below.~~

Effective January 1, 2018, the Company changed the definition of Adjusted PTC and Adjusted EPS to exclude unrealized gains or losses from equity securities resulting from a newly effective accounting standard. We believe excluding these gains or losses provides a more accurate picture of continuing operations. Factors in this determination include the variability due to unrealized gains or losses related to equity securities remeasurement.

In addition, effective for the year beginning January 1, 2018, the Company no longer discloses Consolidated Free Cash Flow, as the Company believes this metric does not accurately reflect the Company's ownership interests in the underlying businesses given the high level of cash flow attributable to noncontrolling interests.

Adjusted Operating Margin

We define Adjusted Operating Margin as Operating Margin, adjusted for the impact of NCI, excluding (a) unrealized gains or losses related to derivative transactions; (b) benefits and costs associated with dispositions and acquisitions of business interests, including early plant closures; and (c) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation. The allocation of HLBV earnings to noncontrolling interests is not adjusted out of Adjusted Operating Margin. See Review of Consolidated Results of Operations for the definition of Operating Margin.

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 gains or losses related to derivative transactions and strategic decisions to dispose of or acquire business interests. 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,
2018 2017 2018 2017
Operating Margin $ 671
$ 640
$ 1,927
$ 1,820
Noncontrolling interests adjustment (160 ) (165 ) (502 ) (503 )
Unrealized derivative losses (gains) 4
(6 ) 11
(16 )
Disposition/acquisition losses 7
3
20
12
Restructuring costs —
—
3
—
Total Adjusted Operating Margin $ 522
$ 472
$ 1,459
$ 1,313



	Three Months Ended June 30,						Six Months Ended June 30,
Reconciliation of Adjusted Operating Margin (in millions)	2019			2018			2019			2018
Operating Margin	$	502		$	600		$	1,088		$	1,256
Noncontrolling interests adjustment ⁽¹⁾	(136		)	(166		)	(297		)	(342		)
Unrealized derivative losses (gains)	(2		)	(3		)	(2		)	7
Disposition/acquisition losses	5			4			10			13
Restructuring costs	—			—			—			3
Total Adjusted Operating Margin	$	369		$	435		$	799		$	937

_______________________


⁽¹⁾	The allocation of HLBV earnings to noncontrolling interests is not adjusted out of Adjusted Operating Margin.

Adjusted PTC

We define Adjusted PTC as pre-tax 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 and equity securities; (b) unrealized foreign currency gains or losses; (c) gains, losses, benefits and costs associated with dispositions and acquisitions of business interests, including early plant closures; (d) losses due to impairments; (e) gains, losses and costs due to the early retirement of debt; and (f) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation. 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 expenses in the ~~corporate~~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 of its segments. Factors in this determination include the variability due to unrealized gains or losses related to derivative transactions or equity securities remeasurement, unrealized foreign currency gains or losses, losses due to impairments and strategic decisions to dispose of or acquire business interests, retire debt or implement restructuring initiatives, 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. ~~Additionally, given~~Given its large number of businesses and complexity, the Company 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.

Adjusted PTC should not be construed as an alternative to income from continuing operations attributable to The AES Corporation, which is determined in accordance with GAAP.


													Three Months Ended June 30,					Six Months Ended June 30,
Reconciliation of Adjusted PTC (in millions)	Three Months Ended September 30,						Nine Months Ended September 30,						2019		2018			2019		2018
	2018			2017			2018			2017
Income from continuing operations, net of tax, attributable to The AES Corporation	$	102		$	147		$	883		$	176		$	16	$	96		$	170	$	781
Income tax expense attributable to The AES Corporation	120			69			411			139			36		93			121		291
Pretax contribution	222			216			1,294			315
Pre-tax contribution													52		189			291		1,072
Unrealized derivative and equity securities losses (gains)	16			(8		)	4			(7		)	6		(24		)	9		(12		)
Unrealized foreign currency losses (gains)	(7		)	(21		)	42			(54		)
Unrealized foreign currency losses													7		52			18		49
Disposition/acquisition losses (gains)	17			1			(822		)	109			5		(61		)	14		(839		)
Impairment expense	80			2			172			264			121		92			123		92
Losses (gains) on extinguishment of debt	(1		)	48			177			43
Loss on extinguishment of debt													49		7			57		178
Restructuring costs⁽¹⁾	—			—			3			—			—		—			—		3
Total Adjusted PTC	$	327		$	238		$	870		$	670		$	240	$	255		$	512	$	543

~~_____________________________~~


⁽¹⁾	~~In February 2018, the Company announced a reorganization as a part of its ongoing strategy to simplify its portfolio, optimize its cost structure and reduce its carbon intensity.~~

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 and equity securities; (b) unrealized foreign currency gains or losses; (c) gains, losses, benefits and costs associated with 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; (e) gains, losses and costs due to the early retirement of debt; (f) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation; and (g) tax benefit or expense related to the enactment effects of 2017 U.S. tax law ~~reform.~~reform and related regulations and any subsequent period adjustments related to enactment effects.

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 or equity securities remeasurement, unrealized foreign currency gains or losses, losses due to impairments and strategic decisions to dispose of or acquire business interests, retire debt or implement restructuring activities, which affect results in a given period or periods.

Adjusted EPS should not be construed as an alternative to diluted earnings per share from continuing operations, which is determined in accordance with GAAP.


																	Three Months Ended June 30,								Six Months Ended June 30,
Reconciliation of Adjusted EPS	Three Months Ended September 30,								Nine Months Ended September 30,								2019				2018				2019				2018
	2018				2017				2018				2017
Diluted earnings per share from continuing operations	$	0.15			$	0.22			$	1.33			$	0.27			$	0.02			$	0.15			$	0.26			$	1.18
Unrealized derivative and equity securities losses (gains)	0.02				(0.01		)		0.01				(0.01		)		0.01				(0.04		)		0.01				(0.02		)
Unrealized foreign currency losses (gains)	—				(0.03		)		0.06			⁽¹⁾	(0.08		)
Unrealized foreign currency losses																	0.02				0.08			⁽¹⁾	0.02				0.07			⁽²⁾
Disposition/acquisition losses (gains)	0.02				—				(1.24		)	⁽²⁾	0.16			⁽³⁾	0.01			⁽³⁾	(0.09		)	⁽⁴⁾	0.02			⁽³⁾	(1.26		)	⁽⁵⁾
Impairment expense	0.12			⁽⁴⁾	—				0.26			⁽⁵⁾	0.40			⁽⁶⁾	0.18			⁽⁶⁾	0.14			⁽⁷⁾	0.18			⁽⁶⁾	0.14			⁽⁷⁾
Losses (gains) on extinguishment of debt	—				0.07			⁽⁷⁾	0.27			⁽⁸⁾	0.06			⁽⁹⁾
Loss on extinguishment of debt																	0.07			⁽⁸⁾	0.01				0.09			⁽⁸⁾	0.27			⁽⁹⁾
U.S. Tax Law Reform Impact	0.05			⁽¹⁰⁾	—				0.05			⁽¹⁰⁾	—				—				—				0.01				—
Less: Net income tax expense (benefit)	(0.01		)		(0.02		)		0.14			⁽¹¹⁾	(0.15		)	⁽¹²⁾	(0.05		)	⁽¹⁰⁾	—				(0.06		)	⁽¹⁰⁾	0.14			⁽¹¹⁾
Adjusted EPS	$	0.35			$	0.23			$	0.88			$	0.65			$	0.26			$	0.25			$	0.53			$	0.52

_____________________________


⁽¹⁾	Amount primarily relates to unrealized FX losses of $20 million, or $0.03 per share, associated with the devaluation of long-term receivables denominated in Argentine pesos, and unrealized FX losses of $9$16 million, or ~~$0.01~~$0.02 per share, on intercompany receivables denominated in ~~Euros~~Euro at the Parent Company.


⁽²⁾	Amount primarily relates to unrealized FX losses of $22 million, or $0.03 per share, associated with the devaluation of long-term receivables denominated in Argentine pesos, and unrealized FX losses of $12 million, or $0.02 per share, associated with the devaluation of receivables denominated in Chilean pesos.


⁽³⁾	Amount primarily relates to loss on sale of Kilroot and Ballylumford of $31 million, or $0.05 per share, partially offset by gain on sale of a portion of our interest in sPower’s operating assets of $28 million, or $0.04 per share.


⁽⁴⁾	Amount primarily relates to gain on sale of ~~Masinloc of $773 million, or $1.16 per share, gain on sale of~~ Electrica Santiago of ~~$36~~$49 million, or ~~$0.05~~$0.07 per share, and realized derivative gains associated with the sale of Eletropaulo of ~~$21~~$17 million, or $0.03 per share.


⁽³⁾	Amount primarily relates to loss on sale of Kazakhstan CHPs of $48 million, or $0.07 per share, realized derivative losses associated with the sale of Sul of $38 million, or $0.06 per share, and costs associated with early plant closures at DPL of $20 million, or $0.03 per share.


⁽⁴⁾	~~Amount primarily relates to the asset impairment at a U.S. generation facility of $73 million, or $0.11 per share.~~


⁽⁵⁾	Amount primarily relates to ~~the asset impairment at a U.S. generation facility~~gain on sale of ~~$156~~Masinloc of $777 million, or ~~$0.23~~$1.17 per share, gain on sale of Electrica Santiago of $49 million, or $0.07 per share, and realized derivative gains associated with the sale of Eletropaulo of $17 million, or $0.03 per share.


⁽⁶⁾	Amount primarily relates to asset impairments at ~~Kazakhstan HPPs~~Kilroot and Ballylumford of ~~$92~~$115 million, or ~~$0.14 per share, Kazakhstan CHPs of $94 million, or $0.14 per share, and DPL of $66 million, or $0.10~~$0.17 per share.


⁽⁷⁾	Amount primarily relates to ~~loss on early retirement~~the asset impairment at Shady Point of ~~debt at the Parent Company of $38~~$83 million, or ~~$0.06~~$0.13 per share.


⁽⁸⁾	Amount primarily relates to loss on early retirement of debt at ~~the Parent Company~~DPL of ~~$169~~$45 million, or ~~$0.25~~$0.07 per share.


⁽⁹⁾	Amount primarily relates to ~~losses~~loss on early retirement of debt at the Parent Company of ~~$92~~$169 million, or ~~$0.14~~$0.26 per ~~share, partially offset by the gain on early retirement of debt at AES Argentina of $65 million, or $0.10 per~~ share.


⁽¹⁰⁾	Amount primarily relates to ~~a charge to true-up~~income tax benefits associated with the ~~provisional estimate~~impairments at Kilroot and Ballylumford of ~~U.S. tax reform of $33~~$23 million, or ~~$0.05~~$0.03 per share, and income tax benefits associated with the loss on early retirement of debt at DPL of $11 million, or $0.02 per share.

⁽¹¹⁾

Amount primarily relates to the income tax expense under the GILTI provision associated with ~~gain~~the gains on ~~sale~~sales of business interests, primarily Masinloc, of $155 million, or $0.23 per share, and income tax expense associated with the gain on sale of Electrica Santiago of ~~$19~~$23 million, or ~~$0.03~~$0.04 per share; partially offset by income tax benefits associated with the loss on early retirement of debt at the Parent Company of $52 million, or $0.08 per share, and income tax benefits associated with the impairment at ~~a U.S. generation facility~~Shady Point of ~~$35~~$26 million, or ~~$0.05 per share.~~


⁽¹²⁾	~~Amount primarily relates to the income tax benefit associated with asset impairments of $82 million, or $0.12~~$0.04 per share.

US AND UTILITIES SBU

The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC (in millions) for the periods indicated:


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2018		2017		$ Change		% Change		2018		2017		$ Change		% Change		2019		2018		$ Change		% Change		2019		2018		$ Change		% Change
Operating Margin	$	225	$	205	$	20	10	%	$	570	$	514	$	56	11	%	$	175	$	154	$	21	14	%	$	387	$	345	$	42	12	%
Adjusted Operating Margin⁽¹⁾	209		177		32		18	%	523		454		69		15	%	157		134		23		17	%	339		314		25		8	%
Adjusted PTC⁽¹⁾	167		138		29		21	%	363		288		75		26	%	118		76		42		55	%	240		196		44		22	%

_____________________________


⁽¹⁾	A non-GAAP financial measure, adjusted for the impact of NCI. See SBU Performance Analysis—Non-GAAP Measures for definition and Item 1.—Business included in our ~~2017~~2018 Form 10-K for the respective ownership interest for key businesses.

Operating Margin for the three months ended ~~September~~June 30, ~~2018~~2019 increased ~~$20~~$21 million, or ~~10%~~14%, which was driven primarily by the following (in millions):

Increase at Southland driven by higher market energy sales, partially offset by a decrease in capacity sales and lower ancillary services due to the expiration of long-term agreements $ 22
Increase at DPL primarily due to higher regulated rates following the approval of the 2017 ESP and favorable weather 15
Impact of the sale and closure of generation plants at DPL (18 )
Other 1
Total US and Utilities SBU Operating Margin Increase $ 20



Increase at DPL due to the 2018 distribution rate order, including the decoupling rider which is designed to eliminate the impacts of weather and demand	$	12
Increase at Southland primarily due to higher energy sales into the spot market	11
Increase at Warrior Run mainly due to a reduction in maintenance cost driven by the timing of planned outages	9
Decrease due to the sale and closure of generation facilities at DPL and Shady Point	(14		)
Other	3
Total US and Utilities SBU Operating Margin Increase	$	21

Adjusted Operating Margin increased ~~$32~~$23 million primarily due to the drivers above, adjusted for ~~a $10 million~~NCI and excluding unrealized ~~loss~~gains and losses on ~~coal derivatives in Hawaii.~~derivatives.

Adjusted PTC increased ~~$29~~$42 million, primarily driven by the increase in Adjusted Operating Margin described ~~above.~~above, an increase in the Company's share of earnings at Distributed Energy and an increase in earnings from equity affiliates driven by sPower, excluding unrealized losses related to derivative contracts.

Operating Margin for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 increased ~~$56~~$42 million, or ~~11%~~12%, which was driven primarily by the following (in millions):

Increase at DPL primarily due to higher regulated rates following the approval of the 2017 ESP and favorable weather $ 37
Increase at Southland driven by higher market energy sales, partially offset by a decrease in capacity sales and lower ancillary services due to the expiration of long-term agreements 20
Increase at El Salvador primarily due to a new tariff regime effective in 2018 10
Impact of the sale and closure of generation plants at DPL (5 )
Other (6 )
Total US and Utilities SBU Operating Margin Increase $ 56



Increase at IPL primarily due to higher retail margin driven by higher rates following the 2018 rate order	$	27
Increase at DPL due to a credit to depreciation expense as a result of a reduction in the ARO liability at DPL's closed plants, Stuart and Killen	23
Increase at DPL due to the 2018 distribution rate order, including the decoupling rider which is designed to eliminate the impacts of weather and demand	18
Increase at Southland primarily due to higher energy sales into the spot market	8
Decrease due to the sale and closure of generation facilities at DPL and Shady Point	(34		)
Total US and Utilities SBU Operating Margin Increase	$	42

Adjusted Operating Margin increased ~~$69~~$25 million primarily due to the drivers above, adjusted for ~~a $10 million~~NCI and excluding unrealized ~~loss~~gains and losses on ~~coal derivatives in Hawaii.~~derivatives.

Adjusted PTC increased ~~$75~~$44 million, primarily driven by the increase in Adjusted Operating Margin described ~~above.~~above, an increase in the Company's share of earnings at Distributed Energy and lower interest expense at DPL, partially offset by a decrease in AFUDC at the Eagle Valley CCGT project.

SOUTH AMERICA SBU

The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC (in millions) for the periods indicated:


	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended June 30,									Six Months Ended June 30,
	2018		2017		$ Change		% Change		2018		2017		$ Change		% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
Operating Margin	$	250	$	190	$	60	32	%	$	754	$	612	$	142	23	%	$	171	$	249	$	(78	)	-31	%	$	387	$	504	$	(117	)	-23	%
Adjusted Operating Margin⁽¹⁾	156		116		40		34	%	455		347		108		31	%	93		144		(51		)	-35	%	213		299		(86		)	-29	%
Adjusted PTC⁽¹⁾	128		67		61		91	%	381		289		92		32	%	106		117		(11		)	-9	%	221		253		(32		)	-13	%

_____________________________


⁽¹⁾	A non-GAAP financial measure, adjusted for the impact of NCI. See SBU Performance Analysis—Non-GAAP Measures for definition and Item 1.—Business included in our ~~2017~~2018 Form 10-K for the respective ownership interest for key businesses.

Operating Margin for the three months ended ~~September~~June 30, ~~2018 increased $60~~2019 decreased $78 million, or ~~32%~~31%, which was driven primarily by the following (in millions):

Increase in Colombia mainly related to higher contract prices and higher contract and spot sales $ 21
Lower fixed costs at Gener primarily associated with planned maintenance performed in Q3 2017 21
Increase in Argentina primarily due to higher regulated tariffs resulting from market reforms enacted in 2017 and lower fixed costs primarily due to the devaluation of the Argentine peso 18
Increase mainly associated with the commencement of new PPAs in Chile 18
Impact of the sale of Electrica Santiago (15 )
Other (3 )
Total South America SBU Operating Margin Increase $ 60



Decrease in Chile primarily due to lower contracted energy sales and lower generation primarily due to availability	$	(19	)
Decrease in Argentina primarily driven by lower generation, and lower energy and capacity prices as defined by resolution 1/2019, which modified generators remuneration schemes	(16		)
Decrease at Tietê primarily driven by higher volume of energy purchases to fulfill our contractual obligations	(16		)
Decrease in Colombia primarily driven by lower generation and lower contract prices, offset by an increase in spot prices	(10		)
Decrease due to the depreciation of the Colombian peso and Brazilian real against the US dollar, offset by savings in fixed costs as a result of the depreciation of the Argentine peso	(6		)
Decrease due to the sale of Electrica Santiago and the transmission lines in 2018	(5		)
Other	(6		)
Total South America SBU Operating Margin Decrease	$	(78	)

Adjusted Operating Margin ~~increased $40~~decreased $51 million due to the drivers above, adjusted for NCI.

Adjusted PTC ~~increased $61~~decreased $11 million, mainly driven by the ~~increase~~decrease in Adjusted Operating Margin described above, partially offset by realized FX gains in Argentina associated with the settlement of the income tax liability denominated in the Argentine peso, and higher realized FX gains associated with FX forward instruments in 2018 and lower interest ~~and other expenses in Chile driven by~~expense associated with the ~~full allowance of a non-trade receivable in Argentina due to collection uncertainties recognized in the prior year and the write-off of water rights~~debt prepayment program, both at ~~Gener resulting from a business development project no longer pursued in the prior year, partially offset by higher foreign currency losses in Argentina.~~Gener.

Operating Margin for the ~~nine~~six months ended ~~September~~June 30, ~~2018 increased $142~~2019 decreased $117 million, or 23%, which was driven primarily by the following (in millions):

Increase in Argentina primarily due to higher regulated tariffs resulting from market reforms enacted in 2017 and lower fixed costs primarily due to the devaluation of the Argentine peso $ 62
Increase in Colombia mainly related to higher contract prices 48
Increase in Chile due to the commencement of new PPAs 40
Lower fixed costs at Gener primarily associated with planned maintenance performed in 2017 16
Impact of the sale of Electrica Santiago (28 )
Other 4
Total South America SBU Operating Margin Increase $ 142



Decrease in Argentina primarily driven by lower generation, and lower energy and capacity prices as defined by resolution 1/2019, which modified generators remuneration schemes	$	(37	)
Decrease in Chile primarily due to lower contracted energy sales and lower generation primarily due to availability	(19		)
Decrease due to the depreciation of the Colombian peso and Brazilian real against the US dollar, offset by savings in fixed costs as a result of the depreciation of the Argentine peso	(18		)
Decrease at Tietê primarily driven by lower spot prices and higher volume of energy purchases to fulfill our contractual obligations	(18		)
Decrease due to the sale of Electrica Santiago and the transmission lines in 2018	(13		)
Decrease in Colombia primarily driven by lower generation and lower contract prices, offset by an increase in spot prices	(8		)
Other	(4		)
Total South America SBU Operating Margin Decrease	$	(117	)

Adjusted Operating Margin ~~increased $108~~decreased $86 million due to the drivers above, adjusted for ~~NCI and excluding restructuring charges.~~NCI.

Adjusted PTC ~~increased $92~~decreased $32 million, mainly ~~due to~~driven by the ~~increase~~decrease in Adjusted Operating Margin described above, partially offset by lower realized FX losses in Argentina associated with accounts receivable denominated in the Argentine peso, and higher realized FX gains associated with FX forward instruments in 2018 and lower interest ~~and other expenses in Chile, partially offset by a $28 million decrease~~expense associated with ~~a gain recognized in~~ the ~~prior year from the settlement of a legal dispute with YPF~~debt prepayment program, both at ~~Uruguaiana, higher interest expense~~

~~in Brazil, and higher realized foreign currency losses in Argentina.~~Gener.

MCAC SBU

The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC (in millions) for the periods indicated:


	Three Months Ended September 30,									Nine Months Ended September 30,								Three Months Ended June 30,									Six Months Ended June 30,
	2018		2017		$ Change			% Change		2018		2017		$ Change		% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
Operating Margin	$	144	$	142	$	2		1	%	$	379	$	336	$	43	13	%	$	107	$	132	$	(25	)	-19	%	$	182	$	235	$	(53	)	-23	%
Adjusted Operating Margin⁽¹⁾	106		109		(3		)	-3	%	282		263		19		7	%	81		102		(21		)	-21	%	135		176		(41		)	-23	%
Adjusted PTC⁽¹⁾	81		91		(10		)	-11	%	215		209		6		3	%	63		81		(18		)	-22	%	113		134		(21		)	-16	%

_____________________________


⁽¹⁾	A non-GAAP financial measure, adjusted for the impact of NCI. See SBU Performance Analysis—Non-GAAP Measures for definition and Item 1.—Business included in our ~~2017~~2018 Form 10-K for the respective ownership interest for key businesses.

Operating Margin for the three months ended ~~September~~June 30, ~~2018 increased $2~~2019 decreased $25 million, or 1%19%, which was driven primarily by the following (in millions):

Higher availability driven by improved hydrology in Panama $ 6
Higher energy costs in Dominican Republic due to the lightning incident at the Andres facility (6 )
Other 2
Total MCAC SBU Operating Margin Increase $ 2



Lower availability due to the outage of Changuinola for the tunnel lining upgrade	$	(31	)
Higher sales in Panama driven by the commencement of operations at the Colon combined cycle facility in September 2018	11
Other	(5		)
Total MCAC SBU Operating Margin Decrease	$	(25	)

Adjusted Operating Margin decreased $3$21 million due to the drivers above, adjusted for NCI.

Adjusted PTC decreased ~~$10~~$18 million, mainly driven by the decreasein Adjusted Operating Margin as described above and the write-off of the lining that is being upgraded in the Changuinola tunnel, partially offset by ~~lower capitalized interest~~gains on insurance proceeds due to ~~project completions~~the lightning incident at the Andres facility in ~~Panama.~~September 2018.

Operating Margin for the ~~nine~~six months ended ~~September~~June 30, ~~2018 increased by $43~~2019 decreased $53 million, or ~~13%~~23%, which was driven primarily by the following (in millions):

Higher contracted energy sales in Dominican Republic mainly driven by the commencement of operations at the Los Mina combined cycle facility in June 2017 and lower forced maintenance outages $ 30
Higher availability driven by improved hydrology in Panama 23
Higher energy costs in Dominican Republic due to the lightning incident at the Andres facility (6 )
Other (4 )
Total MCAC SBU Operating Margin Increase $ 43



Lower availability due to the outage of Changuinola for the tunnel lining upgrade	$	(50	)
Lower availability driven by lower hydrology in Panama	(22		)
Higher sales in Panama driven by the commencement of operations at the Colon combined cycle facility in September 2018	20
Other	(1		)
Total MCAC SBU Operating Margin Decrease	$	(53	)

Adjusted Operating Margin ~~increased $19~~decreased $41 million due to the drivers above, adjusted for NCI.

Adjusted PTC ~~increased $6~~decreased $21 million, mainly driven by the ~~increase~~decrease in Adjusted Operating Margin as described above and the write-off of the lining that is being upgraded in the Changuinola tunnel, partially offset by ~~lower capitalized interest~~gains on insurance proceeds due to ~~project completions~~the lightning incident at the Andres facility in ~~Panama and Dominican Republic, and lower foreign currency gains in Mexico.~~September 2018.

EURASIA SBU

The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC (in millions) for the periods indicated:


	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
	2018		2017		$ Change			% Change		2018		2017		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
Operating Margin	$	34	$	101	$	(67	)	-66	%	$	175	$	342	$	(167	)	-49	%	$	41	$	52	$	(11	)	-21	%	$	104	$	141	$	(37	)	-26	%
Adjusted Operating Margin⁽¹⁾	31		67		(36		)	-54	%	152		235		(83		)	-35	%	32		43		(11		)	-26	%	84		121		(37		)	-31	%
Adjusted PTC⁽¹⁾	37		61		(24		)	-39	%	175		218		(43		)	-20	%	39		55		(16		)	-29	%	95		138		(43		)	-31	%

_____________________________


⁽¹⁾	A non-GAAP financial measure, adjusted for the impact of NCI. See SBU Performance Analysis—Non-GAAP Measures for definition and Item 1.—Business included in our ~~2017~~2018 Form 10-K for the respective ownership interest for key businesses.

~~Including neutral FX impact,~~

Operating Margin for the three months ended ~~September~~June 30, ~~2018~~2019 decreased ~~$67~~$11 million, or ~~66%~~21%, which was driven primarily by the following (in millions):

Impact of the sale of Masinloc power plant in March 2018 $ (39 )
Decrease in Vietnam due to adoption of the new revenue recognition standard in 2018 and higher maintenance expense

(12 )
Impact of the sale of the Kazakhstan CHPs and the expiration of HPP concession in 2017

(8 )
Other (8 )
Total Eurasia SBU Operating Margin Decrease $ (67 )



Lower generation due to outages and lower dispatch at Kilroot	$	(10	)
Closure of B station at Ballylumford power plant	(7		)
Other	6
Total Eurasia SBU Operating Margin Decrease	$	(11	)

Adjusted Operating Margin decreased ~~$36~~$11 million due to the drivers ~~above, adjusted for NCI and excluding unrealized gains and losses on derivatives.~~

above.

Adjusted PTC decreased ~~$24~~$16 million, driven by the decrease in the Adjusted Operating Margin ~~discussed~~described above ~~partially offset by positive impact~~and a decrease in ~~Vietnam due to increased interest income from the higher financing component of contract consideration as a result of adoption of the new revenue recognition standard~~earnings at OPGC, our equity affiliate in ~~2018.~~India.

~~Including favorable FX impacts of $10 million,~~ Operating Margin for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 decreased ~~$167~~$37 million, or ~~49%~~26%, which was driven primarily by the following (in millions):

Impact of the sale of Masinloc power plant in March 2018

$ (87 )
Impact of the sale of the Kazakhstan CHPs and the expiration of HPP concession in 2017

(36 )
Decrease in Vietnam due to adoption of the new revenue recognition standard in 2018 and higher maintenance costs

(26 )
Unfavorable MTM valuation of commodity swaps in Kilroot (18 )
Total Eurasia SBU Operating Margin Decrease $ (167 )



Impact of the sale of the Masinloc power plant in March 2018	$	(25	)
Lower generation due to outages and lower dispatch at Kilroot	(24		)
Closure of B station at Ballylumford power plant	(15		)
Lower depreciation at the Jordan plants due to their classification as held-for-sale	8
Lower general and administrative expense due to restructuring	7
Other	12
Total Eurasia SBU Operating Margin Decrease	$	(37	)

Adjusted Operating Margin decreased ~~$83~~$37 million due to the drivers ~~above, adjusted for NCI and excluding unrealized gains and losses on derivatives and costs due to early plant closures.~~above.

Adjusted PTC decreased $43 million, driven primarily by the decrease in the Adjusted Operating Margin ~~discussed~~described above ~~partially offset by the positive impact~~and a decrease in ~~Vietnam due to increased interest income from the higher financing component of contract consideration as a result of adoption of the new revenue recognition standard~~earnings at OPGC, our equity affiliate in ~~2018.~~India.

Key Trends and Uncertainties

During the remainder of ~~2018~~2019 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 (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.

~~Alto Maipo~~

~~As discussed in~~ For the risk factors related to our business, see Item 7—~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~1.—Business ~~Key Trends~~ and ~~Uncertainties~~Item 1A.—Risk Factors of ~~the 2017~~our 2018 Form 10-K, Alto Maipo has experienced construction difficulties which have resulted in increased projected costs over the original $2 billion budget. Construction at the project is continuing, and the project is 70% complete.10-K.

In February 2018, Alto Maipo entered into a new construction contract with Strabag. The new contract is fixed-price and lump sum, transfers geological and construction risk to Strabag and provides a date certain for completion with strong performance and completion guarantees.

In May 2018, Alto Maipo and the project’s senior lenders executed the financial restructuring of the project. The restructuring, among other things, includes additional funding commitments of up to $400 million by AES Gener, of which $200 million will be contributed and matched by an equal contribution of debt by the project lenders and another $200 million will be contributed by AES Gener towards the completion of the project, once the lenders have disbursed $688 million of their commitments and only to the extent needed to fund project costs. Any unused portion of AES Gener’s commitment will be used to prepay project debt.

If Alto Maipo is unable to meet certain construction milestones, there could be a material impact to the financing and value of the project which could have a material impact on the Company. The carrying value of long-lived assets and deferred tax assets of Alto Maipo as of September 30, 2018 was approximately $1.9 billion and $50 million, respectively. Management believes the carrying value of the long-lived asset group is recoverable as of September 30, 2018. In addition, management believes it is more likely than not the deferred tax assets will be realized; however, they could be reduced if estimates of future taxable income are decreased.

~~Andres~~

On September 3, 2018, lightning affected the Andres 319 MW combined cycle natural gas facility in the Dominican Republic (“the Plant”) resulting in significant damage to its steam turbine and generator. As a result of this event, a loss of $20 million was recorded during the third quarter 2018. The Company has business interruption and property damage insurance coverage, subject to pre-defined deductibles, under its existing programs.

On September 25, 2018, the Plant restarted operations running the gas turbine in simple cycle at partial load of approximately 120 MW. Management estimates that the Plant will operate the gas turbine in simple cycle at full

~~load of approximately 185 MW starting in the first quarter of 2019, and in combined cycle at full capacity by the fourth quarter of 2019.~~

To mitigate the impact of the reduced capacity in the local energy market, the Company is installing 120 MW of rental power (gas turbines) until the combined cycle facility is at full load. The rental units will be in operation in November of 2018.

~~Considering the information available as of the filing date, Management believes the carrying amount of our assets in Andres of $526 million is recoverable as of September 30, 2018.~~

Macroeconomic and Political

During the past few years, ~~economic conditions in~~ some countries where our subsidiaries conduct business have ~~destabilized. Changes in global economic conditions~~experienced macroeconomic and political changes. In the event these trends continue, there could ~~have~~be an adverse impact on our ~~businesses~~businesses.

United States Tax Law Reform — In light of the significant changes to the U.S. tax system enacted in 2017, the ~~event~~U.S. Treasury Department and Internal Revenue Service have issued numerous regulations. While certain regulations are now final, there are many regulations that are proposed and still others anticipated to be issued in proposed form. The final version of any regulations may vary from the proposed form. When final, these ~~recent trends continue.~~regulations may materially impact our effective tax rate. Certain of the proposed regulations, when final, may have retroactive effect to January 1, 2018 or January 1, 2019.

Puerto Rico — As discussed in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties of the ~~2017~~2018 Form 10-K, our subsidiaries in Puerto Rico have a long-term ~~PPAs~~PPA with state-owned PREPA, which has been facing economic challenges that could result in a material adverse effect on our business in Puerto Rico.

AES Puerto Rico and AES Ilumina’s non-recourse debt of ~~$322~~$303 million and ~~$35~~$33 million, respectively, continue to be in default and are classified as current as of ~~September~~June 30, ~~2018~~2019 as a result of PREPA´s bankruptcy filing in July 2017. The Company is in compliance with its debt payment obligations as of ~~September~~June 30, ~~2018.~~2019.

The Company's receivable balances in Puerto Rico as of June 30, 2019 totaled $71 million, of which $20 million was overdue. Despite the Title III protection, PREPA has been making substantially all of its payments to the generators in line with historical payment patterns.

Considering the information available as of the filing date, management believes the carrying amount of our long-lived assets in Puerto Rico of $547 million is recoverable as of June 30, 2019.

~~Regarding~~Argentina — On February 28, 2019, the ~~impacts~~Secretary of ~~Hurricanes Irma~~Energy in Argentina issued Resolution 1/2019 that modified the remuneration scheme for thermal generators as previously introduced by Resolution 19/2017. The entrance of renewable energy and ~~Maria~~efficient thermal generators in the market over the past few years supported the reduction of system costs and efficiency while fostering competition. Capacity prices for thermal generators will be subject to the actual dispatch of the generating facilities. Under Resolution 1/2019, the remuneration for energy is reduced by $1.6 per MWh for all thermal generation compared to Resolution 19/2017. For hydroelectric generation, there were no changes in capacity or energy prices. These measures are intended to help the government of Argentina reduce the subsidies and the financial deficit of the electric market. While the full impact of the price reduction on thermal generation in Argentina remains uncertain, it is not expected to have a material adverse effect on our results of operations or consolidated financial results.

United Kingdom — In June 2016, the UK held a referendum in which voters approved an exit from the EU, commonly referred to as “Brexit.” The UK is currently expected to exit the EU on October 31, 2019. While the full impact of Brexit remains uncertain, these changes are not expected to have a material adverse effect on our operations and consolidated financial results.

Decarbonization Initiatives

Several initiatives have been announced by regulators in recent years, with the intention of reducing GHG emissions generated by the energy industry. Our strategy of shifting towards clean energy platforms, including renewable energy, energy storage, LNG and modernized grids is designed to position us for continued growth while reducing our carbon intensity. Although the Company cannot currently estimate the financial impact of these decarbonization initiatives, new legislative or regulatory programs further restricting carbon emissions could require material capital expenditures or result in other material adverse effects on our financial results. For further discussion of our strategy of shifting towards clean energy platforms see Overview of Strategic Performance.

Chilean Decarbonization Plan —The Chilean government has announced an initiative to phase out coal power plants by 2040 and achieve carbon neutrality by 2050. On June 4, 2019, AES Gener signed an agreement with the Chilean government to cease the operation of two coal units for a total of 322 MW as part of the phasing out. Under the agreement, Ventanas 1 (114 MW) will cease operation in November 2022 and Ventanas 2 (208 MW) in May 2024. These units will remain connected to the grid as “strategic operating reserve” for up to five years after ceasing operations, will receive a reduced capacity payment and will be dispatched, if necessary, to ensure the electric system’s reliability. Considering the information available as of the filing date, management believes the carrying amount of our coal-fired long-lived assets in Chile of $2.9 billion is recoverable as of June 30, 2019.

Puerto Rico Energy Public Policy Act —On April 11, 2019, the Governor of Puerto Rico signed the Puerto Rico Energy Public Policy Act (“the Act”) establishing guidelines for grid efficiency and eliminating coal as a source for electricity generation by January 1, 2028. The Act supports the accelerated deployment of renewables through the Renewable Portfolio Standard and the conversion of coal generating facilities to other fuel sources, with compliance targets of 40% by 2025, 60% by 2040, and 100% by 2050. AES Puerto Rico’s long-term PPA with PREPA expires November 30, 2027. PREPA and AES Puerto Rico have begun discussing conversion options for the coal plant. Various potential technologies have been identified that could comply with the Act, while also ensuring a low cost for customers. Any conversion plan would be subject to lenders and regulatory approval, including that of the Oversight Board that filed for bankruptcy on behalf of PREPA. We considered the Act an indicator of impairment for the long-lived assets at AES Puerto Rico; however, the carrying value of the asset group was recoverable as of June 30, 2019. See Impairments for further information.

For further information about the risks associated with decarbonization initiatives, see Item 1A.—Risk Factors—Concerns about GHG emissions and the potential risks associated with climate change have led to increased regulation and other actions that could impact our businesses included in the 2018 Form 10-K.

Regulatory

DMR — On October 20, 2017, the PUCO approved DP&L’s 2017 ESP. On January 7, 2019, the Ohio Consumers' Counsel appealed to the Supreme Court of Ohio the 2017 ESP with respect to the bypassability of the Reconciliation Rider and the exclusion of the DMR from the SEET. That appeal remains pending.

Pursuant to the 2017 ESP, on January 22, 2019, DP&L filed a request with the PUCO for a two-year extension of its DMR through October 2022, in the proposed amount of $199 million for each of the two additional years. The extension request was set at a level expected to reduce debt obligations at both DP&L and DPL and to position

DP&L to make capital expenditures to maintain and modernize its electric grid. DP&L’s DMP investments are contingent upon the PUCO approving the two-year extension of its DMR.

On August 1, 2019, DP&L filed a supplemental brief with the PUCO focused on the applicability of a recent court decision involving another Ohio utility’s DMR which is similar to, but not identical to, DP&L’s DMR.

TDSIC — In 2013, Senate Enrolled Act 560, the Transmission, Distribution, and Storage System Improvement Charge ("TDSIC") statute, was signed into law. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a seven-year plan of eligible investments. Once the plan is approved by the IURC, eighty percent of eligible costs can be recovered using a periodic rate adjustment mechanism. The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include a return on, and of, the investment, including AFUDC, post-in-service carrying charges, operation and maintenance expenses, depreciation and property taxes. The remaining twenty percent of recoverable costs are to be deferred for future recovery in the public utility’s next general rate case. The periodic rate adjustment mechanism is capped at an annual increase of no more than two percent of total retail revenues.

On July 24, 2019, IPL filed a petition with the IURC for approval of a seven-year TDSIC Plan for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027. An IURC order is expected in the first half of 2020.

TCJA — In September ~~2017,~~2018, DP&L received an order from PUCO establishing new base distribution rates for DP&L. Under the approved terms of the order, DP&L agreed to file an application with PUCO to refund customers eligible excess accumulated deferred income taxes associated with the TCJA and any related regulatory liability. DP&L filed this application on March 1, 2019 and proposed to return a total of $65 million to customers. The timing and final amount to be returned to customers is unknown at this time.

Foreign Exchange Rates

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 USD, and currencies of the countries in which we operate. For additional information, refer to Item 3.—Quantitative and Qualitative Disclosures About Market Risk.

Andres

As discussed in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties of the ~~2017~~2018 Form 10-K, ~~AES Puerto Rico~~on September 3, 2018, lightning affected the Andres 319 MW combined cycle natural gas facility in the Dominican Republic (“the Plant”) resulting in significant damage to its steam turbine and generator. The Company has ~~resumed generation~~business interruption and property damage insurance coverage, subject to pre-defined deductibles, under its existing programs.

On September 25, 2018, the Plant restarted operations running the gas turbine in simple cycle at partial load of approximately 120 MW. The Plant began operating the gas turbine in simple cycle at full load of approximately 180 MW during the ~~first~~second quarter of ~~2018~~2019, and ~~continues~~is expected to ~~be the lowest cost and EPA compliant energy provider~~begin operating in ~~Puerto Rico and a critical supplier to PREPA.~~

~~The Company's receivable balances in Puerto Rico as of September 30, 2018 totaled $66 million, of which $17 million was overdue. Despite the disruption caused~~combined cycle at full capacity by the ~~hurricanes and~~fourth quarter of 2019. To mitigate the ~~Title III protection, PREPA has been making payments to~~impact of the ~~generators~~reduced capacity in ~~line with historical payment patterns.~~the local energy market, the Company installed 120 MW of rental power (gas turbines) until the combined cycle facility is at full load. The rental units were fully operational beginning in December 2018.

Considering the information available as of the filing date, ~~Management~~management believes the carrying amount of our long-lived assets in ~~Puerto Rico~~Andres of ~~$605~~$466 million is recoverable as of ~~September~~June 30, ~~2018.~~2019.

Changuinola Tunnel Leak

~~Argentina~~ As discussed in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations— During the second quarter of 2018, all of the three-year cumulative inflation rates commonly used to evaluate Argentina’s inflation exceeded 100%. Therefore, Argentina’s economy was determined to be highly inflationary. Since the tariffsKey Trends and debt at our primary businesses in Argentina are denominated in USD, the functional currency of those businesses is USD. As such, the determination that the Argentina economy is highly inflationary is not expected to have a material impact on the Company’s financial statements.

~~Chilean Energy Market~~ — The Company is in the preliminary stages of performing its annual goodwill impairment test, and has no reporting units considered to be "at risk" as of September 30, 2018. A reporting unit is considered "at risk" for the coming year when its fair value at the October 1^st measurement date is not higher than its carrying amount by 10%. Sustained downward pressure on long-term power prices in Chile could potentially put Gener’s goodwill balance at risk or could potentially be an indicator of other than temporary impairment of certain equity-method investments in future periods. The Gener goodwill balance was $868 million as of September 30, 2018. Impairments would negatively impact our consolidated results of operations and net worth. See Item 1A.— ~~Risk Factors~~Uncertainties of the ~~2017~~2018 Form 10-K, ~~for further information.~~

~~Regulatory~~

~~IPL Rate Case~~ ~~— On October 31, 2018, IPL received~~increased water levels were observed in a creek near the Changuinola power plant, a 223 MW hydroelectric power facility in Panama. After the completion of an assessment, the Company has confirmed loss of water in specific sections of the tunnel. To ensure the long-term performance of the facility, the affected units of the plant have been taken out of service in order ~~from~~to upgrade the ~~IURC approving an uncontested settlement agreement~~lining in a portion of the tunnel. This process began in January 2019 and may take up to ~~increase annual revenues by $44~~10 months to complete. As of June 30, 2019, it is estimated that about one third of the tunnel,1.6 kilometers, will require upgraded lining. As such, the Company has written off $12 million ~~or 3%, primarily~~corresponding to ~~recover~~the lining that is being upgraded. As of June 30, 2019, the Company capitalized $31 million of costs associated with the ~~CCGT at Eagle Valley, completed in the first half of 2018, and other construction projects. New base rates and charges are expected to be effective on December 5, 2018.~~new lining. The order also provides customers with approximately $50 million in benefits, including tax reform benefits associated with the TCJA, over a two-year period via a rate adjustment mechanism beginning in March 2019. The benefits accrued to date are recorded in ~~long-term regulatory liabilities as ofSeptember 30, 2018.~~

~~DP&L Rate Case~~ — In September 2018, DP&L received an order from the PUCO establishing new base distribution rates for DP&L (“the order”), which became effective October 1, 2018. The order approved, without modification, a stipulation and recommendation previously filed by DP&L, along with various intervening parties,Company has notified its

insurers of a potential claim and the PUCO staff. The order established a revenue requirement of $248 million for DP&L's electric service base distribution rates, which reflects an increase to distribution revenues of $30 million per year. In addition, the order authorizes DP&L to collect from customers costs related to qualified investments through a Distribution Investment Rider, changes the Decoupling Rider to reduce variability from the impact of weather and demand, partially resolves regulatory issues related to the TCJA, and authorizes DP&L to defer certain vegetation management costs for future collection.

~~Maritza PPA Review~~ ~~— The DG Comp continues to review whether Maritza’s PPA with NEK is compliant with the European Commission’s state aid rules. Although no formal investigation~~ has been launched by DG Comp to date, Maritza has engaged in discussions with the DG Comp case team and representatives of Bulgaria to discuss the agency’s review. In the near term, Maritza expects that it will engage in discussions with Bulgaria to attempt to reach a negotiated resolution concerning DG Comp’s review. The anticipated discussions could involve a range of potential outcomes, including but not limited to termination of the PPA and payment of some level of compensation to Maritza. Any negotiated resolution would be subject to mutually acceptable terms, lender consent, and DG Comp approval. At this time, we cannot predict the outcome of the anticipated discussions between Maritza and Bulgaria, nor can we predict how DG Comp might resolveasserted claims against its review if the discussions fail to result in an agreement concerning the review. Maritza believes that its PPA is legal and in compliance with all applicable laws, and it will take all actions necessary to protect its interests, whether through negotiated agreement or otherwise. However,construction contractor; however, there can be no ~~assurances that this matter will be resolved favorably; if it is not, there could be a material adverse impact on Maritza’s~~assurance of collection and the ~~Company’s respective financial statements.~~Company continues to monitor the situation.

Considering the information available as of the filing date, ~~Management~~management believes the carrying ~~value~~amount of our long-lived assets ~~at Maritza~~in Changuinola of ~~approximately $1.2 billion~~$539 million is recoverable as of ~~September~~June 30, ~~2018.~~

~~Foreign Exchange Rates~~

We operate in multiple countries and as such, are subject to volatility in exchange rates at the subsidiary level between our functional currency, USD, and currencies of the countries in which we operate. In 2018, the Argentine peso devalued significantly against the USD. Continued material devaluation of the Argentine peso against the USD could have an impact on our full year 2018 results. For additional information, refer to Item 3.—~~Quantitative and Qualitative Disclosures About Market Risk~~.2019.

Impairments

Long-lived Assets— — During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company recognized asset impairment expense of ~~$166 million.~~$116 million. See Note ~~14—~~16—Asset Impairment Expense included in Item 1.——Financial Statementsof this Form 10-Q for further information. After recognizing this asset impairment expense, the carrying value of the ~~asset groups,~~assets, including long-lived assets, and those ~~asset groups~~assets that were assessed and not impaired, totaled ~~$55~~$504 million at ~~September~~June 30, ~~2018.~~2019.

Events or changes in circumstances that may necessitate recoverability tests and potential impairments of long-lived assets or goodwill 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 it is more likely than not the asset will be disposed of before the end of its estimated useful life.

Environmental

The Company is subject to numerous environmental laws and regulations in the jurisdictions in which it operates. 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)~~residuals) and certain air emissions, such as SO₂, NO_x, particulate matter, mercury and ~~mercury.~~other hazardous air pollutants. 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 operations are subject to significant government regulation and our business and results of operations could be adversely affected by changes in the law or regulatory schemes; Several of our businesses are subject to potentially significant remediation expenses, enforcement initiatives, private party lawsuits and reputational risk associated with CCR; Our businesses are subject to stringent environmental laws, rules 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~~ Concerns about ~~greenhouse gas, or~~ GHG emissions and the potential risks associated with climate change have led to increased regulation and ~~are taking~~other actions ~~which~~that could ~~have a material adverse~~ impact on our ~~consolidated results of operations, financial condition and cash flows~~businesses included in the ~~2017~~2018 Form 10-K.

~~Waste Management~~Climate Change Regulation — — In the course of operations, the Company's facilities generate solid and liquid waste materials requiring eventual disposal or processing. The Company endeavors to ensure that all of its solid and

liquid wastes are managed in accordance with applicable national, regional, state and local regulations. In October 2015, an EPA rule became effective that regulates coal combustion residuals (“CCR”), which are produced by our coal-fired facilities. Some of those facilities dispose CCR on site in engineered, permitted landfills. The EPA rule established criteria for the beneficial use of CCR within the US, as well as nationally applicable minimum criteria for the disposal of CCR as nonhazardous solid waste in new and currently operating landfills and surface impoundments, and may impose closure and/or corrective action requirements for existing CCR landfills and impoundments under certain specified conditions. The EPA has indicated that they will implement a phased approach to amending the CCR rule with Phase One being finalized no later than JuneOn July 8, 2019, ~~and Phase Two no later than December 2019. While~~ the EPA published ~~final CCR Rule Amendments (Phase One, Part One) in~~ the Federal Register on July 30, 2018, the U.S. Court of Appeals for the District of Columbia issued a decision on August 21, 2018 on certain CCR related matters that may result in revisions to the current and proposed CCR amendments. The CCR rule, current or proposed amendments to the CCR rule, and the results of groundwater monitoring data could have a material impact on our business, financial condition or results of operations.

~~Climate Change Regulation~~ ~~— On August 31, 2018, EPA issued proposed emission guidelines for greenhouse gas emissions from existing electric utility generating units, known as the~~final Affordable Clean Energy ~~(ACE) Rule. In addition, the EPA proposed~~(“ACE”) Rule, along with associated revisions to implementing regulations, ~~and the New Source Review program. The proposed ACE Rule would replace the EPA’s 2015 Clean Power Plan and proposes,~~ in addition to ~~other matters, to determine~~final revocation of the Clean Power Plan. The ACE Rule determines that heat rate improvement measures are the ~~best system~~Best System of ~~emission reduction~~Emissions Reductions for existing coal-fired electric generating units. ~~We are still reviewing~~The final rule requires states with existing coal-fired electric generating units to develop state plans to establish CO₂emission limits for designated facilities. IPL Petersburg and AES Warrior Run have coal-fired electric generating units that may be impacted by this regulation; however, the ~~proposed ACE Rule and the proposed revisions and it is too early to determine the potential~~ impact ~~but any impact could be material.~~remains largely uncertain because state plans have not yet been developed.

Capital Resources and Liquidity

Overview —�� As of ~~September~~June 30, ~~2018,~~2019, the Company had unrestricted cash and cash equivalents of $1.2 billion, of which ~~$43~~$169 million was held at the Parent Company and qualified holding companies. The Company also had ~~$401~~$410 million in short-term investments, held primarily at ~~subsidiaries. In addition, we had~~subsidiaries, and restricted cash and debt service reserves of ~~$935~~$784 million. The Company also had non-recourse and recourse aggregate principal amounts of debt outstanding of ~~$15.6~~$15.8 billion and ~~$3.8~~$3.9 billion, respectively. Of the approximately $1.1 billion of our current non-recourse debt, $745 million was presented as such because it is due in the next twelve months and $342 million relates to debt considered in default due to covenant violations. None of the defaults are payment defaults, but are instead technical defaults triggered by failure to comply with other covenants or other conditions contained in the non-recourse debt documents due to the bankruptcy of the offtaker.

We expect current maturities of non-recourse debt to 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. We have $5 million of recourse debt which 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. 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 $363 million outstanding secured term loan due 2022 and drawings of $265 million under its senior secured credit facility. On a consolidated basis, of the Company’s ~~$19.8~~$20.2 billion of total gross debt outstanding as of ~~September~~June 30, ~~2018,~~2019, approximately ~~$3.1~~$3.4 billion bore interest at variable rates that were not subject to a derivative instrument which fixed the interest rate. Brazil holds ~~$660 million~~$1.1 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~~June 30, ~~2018,~~2019, the Parent Company had provided outstanding financial and performance-related guarantees or other credit support commitments to or for the benefit of our businesses, which were limited by the terms of the agreements, of approximately ~~$462~~$668 million in aggregate (excluding those collateralized by letters of credit and other obligations discussed below).

As a result of the Parent Company’s 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~~June 30, ~~2018,~~2019, we had ~~$348~~$325 million in letters of credit outstanding provided under our unsecured credit facility and ~~$43~~$116 million in letters of credit outstanding provided under our senior secured credit facility. These letters of credit operate to guarantee performance relating to certain project development and construction activities and business operations. During the quarter ended ~~September~~June 30, ~~2018,~~2019, the Company paid letter of credit fees ranging from 1% to 3% 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~~June 30, ~~2018,~~2019, the Company had approximately ~~$119~~$91 million of accounts receivable classified as Noncurrent assets—other~~, primarily related to certain of its generation businesses in Argentina and Panama.~~. These noncurrent receivables mostly consist of accounts receivable in Argentina that, pursuant to amended agreements or government resolutions, have collection periods that extend beyond ~~September~~June 30, ~~2019,~~2020, 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 56—Financing Receivables in Item 1.—Financial Statements of this Form 10-Q and Item 1.—Business—South America SBU—Argentina—Regulatory Framework included in our ~~2017~~2018 Form 10-K for further information.

As of ~~September~~June 30, ~~2018,~~2019, the Company had approximately $1.4 billion of loans receivable primarily related to a facility constructed under a build, operate, and transfer contract in Vietnam. This loan receivable represents contract consideration related to the construction of the facility, which was substantially completed in 2015, and will be collected over the 25 year term of the plant’s PPA. See Note 1214—Revenue in Item 1.—Financial Statements of this Form 10-Q for further information.

Cash Sources and Uses

The primary sources of cash for the Company in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 were ~~proceeds~~debt financings, cash flow from ~~the~~operating activities, and sales of ~~businesses, debt financings, and net income, adjusted for non-cash items.~~short-term investments. The primary uses of

cash in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 were repayments of debt, capital expenditures, and purchases of short-term investments.

The primary sources of cash for the Company in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were debt financings, ~~sales~~proceeds from sale of ~~short-term investments,~~business interests, and ~~net income, adjusted for non-cash items.~~cash flow from operating activities. The primary uses of cash in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 were repayments of debt, capital expenditures, and purchases of short-term ~~investments, and capital expenditures.~~investments.

A summary of cash-based activities are as follows (in millions):


	Nine Months Ended September 30,						Six Months Ended June 30,
Cash Sources:	2018			2017			2019			2018
Net income, adjusted for non-cash items ⁽¹⁾	$	1,865		$	1,880
Proceeds from the sales of businesses, net of cash & restricted cash sold	1,796			39
Issuance of non-recourse debt	1,509			2,703			$	2,581		$	1,192
Borrowings under revolving credit facilities	1,434			1,489
Net cash provided by operating activities							1,014			914
Borrowings under the revolving credit facilities							897			1,133
Sale of short-term investments	1,010			2,942			330			418
Proceeds from the sale of business interests, net of cash and restricted cash sold							229			1,808
Issuance of recourse debt	1,000			1,025			—			1,000
Other	155			140			33			139
Total Cash Sources	$	8,769		$	10,218		$	5,084		$	6,604

Cash Uses:
Repayments of non-recourse debt							$	(2,281	)	$	(841	)
Capital expenditures							(1,070		)	(994		)
Repayments under the revolving credit facilities							(598		)	(1,042		)
Purchase of short-term investments							(424		)	(938		)
Dividends paid on AES common stock							(181		)	(172		)
Contributions and loans to equity affiliates							(173		)	(90		)
Distributions to noncontrolling interests							(146		)	(128		)
Payments for financed capital expenditures							(110		)	(120		)
Repayments of recourse debt	$	(1,781	)	$	(1,353	)	(3		)	(1,781		)
Capital expenditures	(1,592		)	(1,587		)
Repayments under revolving credit facilities	(1,595		)	(851		)
Purchase of short-term investments	(1,215		)	(2,673		)
Repayments of non-recourse debt	(1,139		)	(1,731		)
Dividends paid on AES common stock	(258		)	(238		)
Distributions to noncontrolling interests	(199		)	(263		)
Increase in working capital ⁽²⁾	(184		)	(179		)
Payments for financed capital expenditures	(186		)	(100		)
Contributions to equity affiliates	(101		)	(49		)
Acquisitions of businesses, net of cash acquired, and equity method investments	(66		)	(590		)
Payments for financing fees	(32		)	(96		)
Other	(87		)	(170		)	(148		)	(144		)
Total Cash Uses	$	(8,435	)	$	(9,880	)	$	(5,134	)	$	(6,250	)
Net Increase in Cash, Cash Equivalents, and Restricted Cash	$	334		$	338
Net increase (decrease) in Cash, Cash Equivalents, and Restricted Cash							$	(50	)	$	354

~~_____________________________~~


⁽¹⁾	~~Refer to the table within the~~ ~~Operating Activities~~ ~~section below for a reconciliation of non-cash items affecting net income during the applicable period.~~


⁽²⁾	~~Refer to the table within the~~ ~~Operating Activities~~ ~~section below for explanations of the variance in working capital requirements.~~

Consolidated Cash Flows

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


	Nine Months Ended September 30,									Six Months Ended June 30,
Cash flows provided by (used in):	2018			2017			$ Change			2019			2018			$ Change
Operating activities	$	1,681		$	1,701		$	(20	)	$	1,014		$	914		$	100
Investing activities	(190		)	(1,955		)	1,765			(1,113		)	120			(1,233		)
Financing activities	(1,163		)	678			(1,841		)	108			(729		)	837

Operating Activities

Net cash provided by operating activities increased $100 million for the six months ended June 30, 2019, compared to the six months ended June 30, 2018.

Operating ~~Activities~~Cash Flows

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

Nine Months Ended September 30,
2018 2017 $ Change
Net income $ 1,384
$ 509
$ 875
Depreciation and amortization 770
884
(114 )
Loss (gain) on disposal and sale of businesses (856 ) 49
(905 )
Impairment expenses 172
260
(88 )
Deferred income taxes 221
(3 ) 224
Loss on extinguishment of debt 187
44
143
Gain on sale of discontinued operations (243 ) —
(243 )
Other adjustments to net income 230
137
93
Non-cash adjustments to net income 481
1,371
(890 )
Net income, adjusted for non-cash items $ 1,865
$ 1,880
$ (15 )
Changes in working capital ⁽¹⁾
$ (184 ) $ (179 ) $ (5 )
Net cash provided by operating activities ⁽²⁾
$ 1,681
$ 1,701
$ (20 )

~~_____________________________~~


⁽¹⁾	~~Refer to the table below for explanations of~~The change in adjusted net income is defined as the variance in net income, net of the total adjustments to net income as shown on the Condensed Consolidated Statements of Cash Flows in Item 1.—Financial Statements of this Form 10-Q.


⁽²⁾	The change in working capital ~~requirements, which are~~is defined as the variance in total changes in operating assets and liabilities as shown on the Condensed Consolidated Statements of Cash ~~Flows.~~Flows in Item 1.—Financial Statements of this Form 10-Q.


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

~~Cash provided by operating activities decreased by $20 million for the nine months ended September 30, 2018,~~Adjusted net income was consistent compared to the ~~nine months ended September 30, 2017, primarily driven by a~~ ~~$15 million~~ ~~decrease in~~ ~~Net income, adjusted for non-cash items, and a~~ ~~$5 million~~ ~~increase in working capital requirements.~~prior year.

~~The increase in working~~Working capital requirements decreased $100 million, primarily due to lower payments to suppliers and lower coal purchases at Gener, and higher collections of ~~$5 million~~overdue receivables from distribution companies in the Dominican Republic. These impacts were partially offset by higher payments for green taxes at Gener, and the ~~nine months ended September 30, 2018, compared to~~timing of payments in the ~~nine months ended September 30, 2017, was primarily driven by:~~

Increases in cash resulting from changes in:
Other assets, primarily related to the deconsolidation of Eletropaulo in Q4 2017 and collections from the offtaker at Vietnam related to the loan receivable recorded upon adoption of ASC 606 $ 244
Accounts receivable, primarily due to the deconsolidation of Eletropaulo in Q4 2017 and higher collections at Gener, Argentina, and Maritza 154
Decreases in cash resulting from changes in:
Accounts payable and other current liabilities, primarily due to the deconsolidation of Eletropaulo in Q4 2017 and the timing of payments on coal purchases at Gener, partially offset by the timing of payments on coal purchases at Puerto Rico (191 )
Prepaid expenses and other current assets, primarily due to prior year collections of net regulatory assets at Eletropaulo, which was deconsolidated in Q4 2017, and advance payments to gas suppliers at Colon (125 )
Other liabilities, primarily due to the deconsolidation of Eletropaulo in Q4 2017 (83 )
Other (4 )
Total decrease in operating cash flow from higher working capital requirements $ (5 )
prior year for taxes resulting from the gain on the sale of Eletropaulo.

Investing Activities

Net cash provided by investing activities ~~increased by $1.8~~decreased $1.2 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017, which was~~2018.

Investing Cash Flows

(in millions)

Proceeds from dispositions decreased $1.6 billion, primarily ~~driven~~due to the sales of Masinloc, Eletropaulo, Electrica Santiago and the DPL Peaker assets in 2018, partially offset by ~~(in millions):~~

Increases in:
Proceeds from the sales of businesses, net of cash and restricted cash sold, primarily due to the current year sales of Masinloc, Eletropaulo, Electrica Santiago and the DPL Peaker assets, partially offset by the sale of the Kazakhstan CHPs in 2017 and transaction costs incurred for the Beckjord sale $ 1,757
Capital expenditures ⁽¹⁾
(5 )
Decreases In:
Acquisitions of businesses, net of cash acquired, and equity method investees, primarily due to the acquisitions of sPower and Alto Sertão II in 2017 524
Cash resulting from net purchases and sales of short-term investments (474 )
Other investing activities (37 )
Total increase in net cash provided by investing activities $ 1,765

~~_____________________________~~


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

~~Capital Expenditures~~

~~The following table summarizes~~ the ~~Company's capital expenditures for growth investments, maintenance,~~sale of the Kilroot and ~~environmental reported~~Ballylumford plants in ~~investing cash activities (in millions):~~

Nine Months Ended September 30,
2018 2017 $ Change
Growth Investments $ 1,266
$ 1,109
$ 157
Maintenance 296
423
(127 )
Environmental 30
55
(25 )
Total capital expenditures $ 1,592
$ 1,587
$ 5
the United Kingdom and the sale of a portion of our interest in a portfolio of sPower’s operating assets in 2019.

Cash used for ~~capital~~short-term investing activities decreased $426 million, primarily due to the prior year purchases of non-convertible debentures at Tietê to provide project financing for the construction of the Guaimbê Solar Complex.

Capital expenditures increased $76 million, discussed further below.

Capital Expenditures

(in millions)

Growth expenditures were consistent compared to the prior year.

Maintenance expenditures increased by $5$91 million, primarily at Andres as a result of the steam turbine lightning damage, and at IPALCO due to the timing of payments for outage related expenses.

Environmental expenditures decreased by $12 million, primarily due to the timing of payments in the prior year related to projects at IPALCO.

Financing Activities

Net cash provided by financing activities increased $837 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017, which was primarily driven by (in millions):~~

Increases in:
Growth expenditures at the US and Utilities SBU, primarily due to increased spending for the Southland re-powering project $ 408
Decreases in:
Growth expenditures at the MCAC SBU, primarily related to the Colon project, and lower spending at Los Mina due to the completion of the Combined Cycle project (191 )
Maintenance and environmental expenditures at the South America SBU, primarily due to the deconsolidation of Eletropaulo in Q4 2017 (138 )
Growth expenditures at the South America SBU, primarily due to the deconsolidation of Eletropaulo in Q4 2017, partially offset by increased spending at Alto Maipo resulting from the Strabag agreement, and increased spending for the construction of the Boa Hora solar plant in Brazil (31 )
Other capital expenditures (43 )
Total increase in capital expenditures $ 5

2018.

Financing ~~Activities~~Cash Flows

~~Net cash used~~ (in ~~financing activities increased $1.8 billion~~millions)

See Note 8—Debtin Item 1—Financial Statements of this Form 10-Q for ~~the nine months ended September 30, 2018, compared~~more information regarding significant debt transactions.

The $778 million impact from recourse debt activity is primarily due to the ~~nine months ended September 30, 2017,~~accelerated net repayments of Parent Company debt in the prior year.

The $145 million impact from parent revolver transactions is primarily due to higher net borrowings in 2019 for general corporate cash management activities.

The $52 million impact from non-recourse debt transactions is primarily due to net repayments at Tietê and lower issuances at Southland and Colon, which ~~was~~were partially offset by net issuances at DPL, Argentina, Alto Maipo and Gener.

The $63 million impact from non-recourse revolver transactions is primarily ~~driven by (in millions):~~due to higher net borrowings at DPL.

Increases in:
Net repayments on revolving credit facilities at the Parent Company, IPALCO and DPL $ (922 )
Net repayments of recourse debt at the Parent Company (452 )
Net repayments of non-recourse debt at Angamos ⁽¹⁾
(132 )
Net issuance of non-recourse debt at Southland ⁽¹⁾
227
Net borrowing on revolving credit facilities at Gener 73
Decreases in:
Net issuance of non-recourse debt at AES Argentina, Tietê, DPL, Alto Maipo and Colon ⁽¹⁾
(584 )
Net repayments on revolving credit facilities at Los Mina and AES Andres 50
Other financing activities (64 )
Total increase in net cash used in financing activities $ (1,841 )

~~_____________________________~~


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

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 is determined in accordance with ~~GAAP as a measure of liquidity. Cash and cash equivalents is disclosed in the Condensed Consolidated Statements of Cash Flows.~~GAAP. 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 to fund interest and principal repayments of debt, construction commitments, other equity commitments, common stock repurchases, acquisitions, taxes, Parent Company overhead and development 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 plus cash at qualified holding companies. 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, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Consolidated cash and cash equivalents	$	1,187		$	949		$	1,169		$	1,166
Less: Cash and cash equivalents at subsidiaries	(1,144		)	(938		)	(1,000		)	(1,142		)
Parent Company and qualified holding companies’ cash and cash equivalents	43			11			169			24
Commitments under Parent Company credit facility	1,100			1,100			1,100			1,100
Less: Letters of credit under the credit facility	(43		)	(35		)	(116		)	(78		)
Less: Borrowings under the credit facility	(15		)	(207		)	(265		)	—
Borrowings available under Parent Company credit facility	1,042			858			719			1,022
Total Parent Company Liquidity	$	1,085		$	869		$	888		$	1,046

The Company utilizes its Parent Company credit facility for short term cash needs to bridge the timing of distributions from its subsidiaries throughout the year. ~~The Company is expecting~~We expect that the Parent Company credit facilities’ borrowings will be repaid by the end of ~~year, but can make no assurances this will occur as currently forecasted.~~year.

The Parent Company paid dividends of ~~$0.13~~$0.1365 per share to its common stockholders during ~~each of~~ the first ~~second,~~ and ~~third~~second quarters of ~~2018~~2019 for dividends declared in December ~~2017, February~~ 2018 and ~~July 2018,~~February 2019, respectively. 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 ~~$3.8~~$3.9 billion and ~~$4.6~~$3.7 billion as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. See Note 7—8—Debt in Item 1.—Financial Statements of this Form 10-Q and Note ~~11—~~10—Debt in Item 8.—Financial Statements and Supplementary Data of our ~~2017~~2018 Form 10-K for additional detail.

~~While we~~We believe that our sources of liquidity will be adequate to meet our needs for the foreseeable ~~future, this~~future. This belief is based on a number of material assumptions, including, without limitation, assumptions about our ability to access the capital markets, 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 ~~2017~~2018 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, — limitations on other ~~indebtedness;~~indebtedness, liens, investments and guarantees; limitations on dividends, stock repurchases and other equity transactions; restrictions and limitations on mergers and acquisitions, sales of assets, leases, transactions with affiliates and off-balance sheet and derivative arrangements; maintenance of certain financial ratios; and financial and other reporting requirements. As of ~~September~~June 30, ~~2018,~~2019, 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 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 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 us to record a loss in the event the lender forecloses on the assets; and

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 revolving credit 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 ~~$1.3~~$1.1 billion. The portion of current debt related to such defaults was ~~$357~~$342 million at ~~September~~June 30, ~~2018,~~2019, all of which was non-recourse debt related to ~~two~~three subsidiaries — AES Puerto Rico, AES Ilumina, and AES ~~Ilumina.~~Jordan Solar. See Note 7—8—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~~the Parent Company’s debt agreements as of ~~September~~June 30, ~~2018,~~2019, in order for such defaults to trigger an event of default or permit acceleration under ~~AES’~~the Parent Company’s 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 Parent 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~~June 30, ~~2018,~~2019, none of the defaults listed above individually or in the aggregate results in or is at risk of triggering a cross-default under the recourse debt of the Parent 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.

~~Revenue Recognition~~Leases — ~~We recognize revenue to depict~~Under the ~~transfer~~accounting standard for leases, the Company recognizes operating and finance right-of-use assets and lease liabilities on the Consolidated Balance Sheets for most leases with an initial term of ~~energy, capacity,~~greater than 12 months. Lease liabilities and other services to customers in an amount that reflects the consideration to which we expect to be entitled. In applying the revenue model, we determine whether the sale of energy, capacity, and other services represent a single performance obligationtheir corresponding right-of-use assets are recorded based on the ~~individual market and terms~~present value of lease payments over the ~~contract. Generally,~~expected lease term. Our subsidiaries’ incremental borrowing rates are used in determining the ~~promise~~present value of lease payments when the implicit rate is not readily determinable. Certain adjustments to ~~transfer energy and capacity represent a performance obligation that is satisfied over time and meets~~ the ~~criteria to~~right-of-use asset may be ~~accounted~~required for ~~as a series of distinct goods or services. Progress toward satisfaction of a performance obligation is measured using output methods,~~items such as ~~MWhs delivered~~prepayments, lease incentives or MWs made available, and when we are entitled to consideration in an amount that corresponds directly to the value of our performance completed to date, we recognize revenue in the amount to which we have the right to invoice.initial direct costs. For further information regarding the nature of our ~~revenue streams~~leases and our critical accounting policies ~~affecting revenue recognition,~~effecting leases, see Note ~~12—~~10—~~Revenue~~Leases included in Item 1.—Financial Statements of this Form 10-Q.

The Company’s ~~other~~ significant accounting policies are described in Note 1—General and Summary of Significant Accounting Policies of our ~~2017~~2018 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 ~~2017~~2018 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~~six months ended ~~September~~June 30, ~~2018.~~2019.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Overview Regarding Market Risks — Our 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 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, ~~USD,~~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, as amended (the “Exchange Act”) 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;~~operations, ~~Our businesses may incur substantial costs~~Wholesale power prices are declining in many markets and ~~liabilities and be exposed to price volatility as a result of risks associated with the electricity markets, which~~this could have a material adverse effect on our ~~financial performance~~operations and opportunities for future growth,~~; and~~ We may not be adequately hedged against our exposure to changes

in commodity prices or interest rates, and Certain of our businesses are sensitive to variations in weather and hydrology of the ~~2017~~2018 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.

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. For ~~2018,~~2019, we project pre-tax earnings exposure on a 10% move in commodity prices would be less than $5 million for U.S. power, less than $5 million for natural gas, less than $(5) million for oil, and approximately $(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 power, higher oil, ~~lower~~higher 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 and Utilities 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~~At Southland, our primary contracts are in capacity and it has seen incremental location value in energy to meet its retail customer demand however it opportunistically sells surplus economic energy into wholesale markets at market prices. Our non-contracted generation margins are impacted by many factors, including the growth in natural gas-fired generation plants, new energy supply from renewable sources,revenues; this will continue until 2020 when our Southland repowering project and ~~increasing energy efficiency~~.contract begin.

In the South America 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 ~~of the system~~ to dispatch ~~natural gas/~~our 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, under~~Under normal hydrology conditions, coal-firing generation sets the price. However, when there are spikes in price due to lower hydrology and higher demand, gas or oil-linked fuels generally set power prices. In Colombia, we operate under a ~~short-term~~shorter-term sales strategy and have commodity exposure to unhedged volumes. Because we own hydroelectric assets there, contracts are not indexed to fuel.

In Additionally, in Brazil, 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' contract 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 ~~financial PPAs, exposing the Company to hydrology variance.~~a portfolio of fixed volume contract sales. To the extent hydrological inflows are greater than or less than the contract ~~committed~~sales volume, the business will be sensitive to changes in spot power prices which may be driven by oil ~~or natural gas~~ 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 Eurasia SBU, our ~~Kilroot facility operates on a short-term sales 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 displaces higher cost generation, reducing Kilroot's margins, and vice versa. One coal-fired generating unit in Northern Ireland is expected to close in the fourth quarter of 2018 as a result of unfavorable capacity market conditions. 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 USD. Additionally, certain of our foreign subsidiaries and affiliates have entered into monetary obligations in ~~the~~ USD or currencies other than their own functional currencies. Certain of our foreign subsidiaries calculate and pay taxes in currencies other than their own functional currency.We have varying degrees of exposure to changes in the exchange rate between the USD and the following currencies: Argentine peso, ~~British pound,~~ Brazilian real, Chilean peso, Colombian peso, Dominican peso, Euro, Indian rupee, and Mexican peso. These subsidiaries and affiliates have attempted to limit potential foreign exchange exposure by entering into revenue contracts that adjust to changes in foreign exchange rates. We also use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations.

AES enters into ~~cash flow~~foreign currency hedges to protect ~~the~~ economic value of the business and minimize the impact of foreign exchange rate fluctuations to AES’ portfolio. While protecting cash flows, the 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 foreign exchange risks over the remaining period of ~~2018~~2019 stem from the following currencies: Argentine peso, Brazilian real, Colombian peso, Euro, and ~~Euro.~~Indian rupee. As of ~~September~~June 30, ~~2018,~~2019, assuming a 10% USD appreciation, cash distributions attributable to foreign subsidiaries exposed to movement in the exchange rate of the Euro, Argentine peso, Colombian peso, Brazilian real, and ~~Euro~~Indian rupee each are projected to be ~~reduced by $5 million, and the Colombian peso and Brazilian real each are projected to be reduced~~impacted by less than $5 ~~million for the remainder of 2018.~~million. These numbers have been produced by applying a one-time 10% USD appreciation to forecasted exposed cash distributions for ~~2018~~2019 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 cash distributions exposed to foreign 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 ~~Risk~~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, floor and option agreements.

Decisions on the fixed-floating debt 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~~June 30, ~~2018,~~2019, the portfolio’s pre-tax earnings exposure for ~~2018~~2019 to a one-time 100-basis-point increase in interest rates for our Argentine peso, Brazilian real, Chilean peso, Colombian peso, Euro, and USD

denominated debt would be approximately $5$10 million on interest expense for the debt denominated in these currencies. 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~~Exchange 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~~June 30, ~~2018,~~2019, 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~~when 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 condensed consolidated 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~~June 30, ~~2018.~~2019.

In December 2001, Grid Corporation of Odisha (“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, the Company, AES ODPL, Jyoti and the Central Electricity Supply Company of Orissa Ltd. (“CESCO”), an affiliate of the Company. In the arbitration, 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 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. The Company counterclaimed against GRIDCO for damages. In June 2007, a 2-to-1 majority of the arbitral tribunal rendered its award rejecting GRIDCO's claims and holding that none of the respondents, the Company, AES ODPL, or Jyoti, had any liability to 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 filed challenges of the tribunal's awards with the local Indian court. GRIDCO's challenge of the costs award has been dismissed by the court, but its challenge of the liability award remains pending. A hearing on the liability award has not taken place to date. 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.

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~~mitigate 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~~only CEEE was required to ~~proceed with~~perform the removal work. In May 2012, CEEE began the removal work in compliance with the injunction. The case is now awaiting judgment. The removal costs are estimated to be approximately R$6029 million ($158 million), and ~~the work was completed in February 2014. In parallel with the removal activities, a court-appointed expert investigation took place,~~there could be additional remediation costs 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.cannot be estimated at this time. In June 2016, the Company sold AES Sul to CPFL Energia S.A. and as part of the sale, AES Guaiba, a holding ~~Company~~company of AES Sul, retained the ~~liability.~~potential liability relating to this matter. The Company believes that ~~it has~~there are 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 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 ~~FIAC~~First Instance Administrative Court 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$~~1.19~~1.21 billion ($~~298~~316 million) as estimated by AES Tietê. AES Tietê appealed to the ~~SIAC.~~Second Instance Administrative Court (“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 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. AES Tietê challenged the Special Appeal. In May 2018, the SAC rejected the Special Appeal on the merits. In August 2018, the Tax Authority filed a

motion for clarification.In February 2019, the SAC rejected the motion. On July 18, 2019, the decision in AES Tietê’s favor became definitive. Though AES Tietê believes itthat the Tax Authority has ~~meritorious defenses~~now exhausted its remedies, AES Tietê will continue to follow this case in order to confirm that the ~~claim and will defend itself vigorously in~~alleged debt has been canceled from the Tax Authority’s database. Despite these ~~proceedings; however,~~developments, there can be no assurances that itthis dispute will be ~~successful~~resolved in ~~its efforts.~~AES Tietê’s favor.

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, the 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 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 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 $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.

In January 2017, the Superintendencia del Medio Ambiente (“SMA”) issued a Formulation of Charges asserting that Alto Maipo is in violation of certain conditions of the Environmental Approval Resolution (“RCA”) governing the construction of Alto Maipo’s hydropower project, for, among other things, operating vehicles at unauthorized times and failing to mitigate the impact of water infiltration during tunnel construction (“Infiltration Water”). In February 2017, Alto Maipo submitted a compliance plan (“Compliance Plan”) to the SMA which, if approved by the agency, would resolve the matter without materially impacting construction of the project. Thereafter, the SMA made three separate requests for information about the Compliance Plan, to which Alto Maipo duly responded. In April 2018, the SMA approved the Compliance Plan (“April 2018 Approval”). ~~Pursuant to~~Among other things, the Compliance Plan as approved by the SMA requires Alto Maipo ~~must~~to obtain from the Environmental Evaluation Service (“SEA”) an acceptable interpretation of the RCA’s provisions concerning the authorized times to operate certain vehicles. In addition, Alto Maipo must obtain the SEA’s approval concerning the control, discharge, and treatment of Infiltration Water. Alto Maipo continues to seek the relevant final approvals from the SEA. Furthermore, in May 2018, three lawsuits were filed with the Environmental Court of Santiago (“ECS”) challenging the April 2018 Approval. Alto Maipo does not believe that there are grounds to challenge the April 2018 Approval. The ECS has not decided the lawsuits to date. In July 2019, a separate lawsuit was filed in the Court of Appeals of Santiago (“CAS”) seeking emergency relief to invalidate the April 2018 Approval. Alto Maipo believes the lawsuit lacks merit. The CAS has not decided the lawsuit to date. If Alto Maipo complies with the requirements of the Compliance Plan, and if the above-referenced lawsuits are dismissed, the Formulation of Charges will be discharged without penalty. Otherwise, Alto Maipo could be subject to penalties, and the construction of the project could be negatively impacted. Alto Maipo will pursue its interests vigorously in these matters; however, there can be no assurances that it will be successful in its efforts.

In June 2017, Alto Maipo terminated one of its contractors, Constructora Nuevo Maipo S.A. (“CNM”), given CNM’s stoppage of tunneling works, its failure to produce a completion plan, and its other breaches of contract. Also, Alto Maipo drew $73 million under letters of credit (“LC Funds”) in connection with its termination of CNM. Alto

Maipo is pursuing arbitration against CNM to recover excess completion costs and other damages totaling ~~approximately $220~~at least $236 million (net of the LC Funds) relating to CNM’s breaches (“First Arbitration”). CNM denies liability and seeks a declaration that its termination was wrongful, damages that it alleges result from that termination, and other relief. ~~Recently,~~ CNM ~~made~~

~~submissions alleging~~alleges that it is entitled to damages ranging from ~~$90~~$70 million to ~~$150~~$170 million (which include the LC Funds) plus interest and ~~costs.~~costs, based on various scenarios. Alto Maipo ~~will contest~~has contested these submissions. The evidentiary hearing ~~is scheduled for~~in the First Arbitration took place May 20-31, 2019. Post-hearing briefs will be submitted in September 2019, and closing arguments may be scheduled thereafter. Also, in August 2018, CNM purported to initiate a separate arbitration against AES Gener and the Company (“Second Arbitration”). In the Second Arbitration, CNM seeks to pierce Alto Maipo’s corporate veil and appears to seek an award ~~requiring~~holding AES Gener and the Company jointly and severally liable to pay any amounts that are found to be due to CNM in the First Arbitration or otherwise. ~~Alto Maipo~~The Second Arbitration has ~~requested in~~been consolidated into the First ~~Arbitration an interim order restraining CNM from proceeding with~~Arbitration. The arbitral Tribunal has bifurcated the Second Arbitration ~~until~~to determine in the ~~conclusion of~~first instance the ~~First Arbitration. That request is pending. Separately,~~jurisdictional objections raised by AES Gener and the Company ~~requested that~~to CNM’s piercing claims. The hearing on the ~~relevant arbitral institution decide that the Second Arbitration shall not proceed, given that (among other reasons) there is no arbitration agreement between~~jurisdictional objections will take place in March 2020. Each of Alto Maipo, AES Gener, and the Company ~~and CNM. That request was not granted. Each of the above-referenced AES companies~~ believes it has meritorious claims and/or defenses and will pursue its interests vigorously; however, there can be no assurances that each ~~of the AES companies~~ will be successful in its efforts.

In October 2017, the Maritime Prosecution Office from Valparaíso issued a ruling alleging responsibility by AES Gener for the presence of coal waste on Ventanas beach, and proposed a fine before the Maritime Governor, of approximately $380,000. AES Gener submitted its statement of defense, denying the allegations. An evidentiary stage was concluded and then re-opened by order of the Maritime Governor on February 5, 2019 to allow AES Gener an opportunity to present reports and other evidence to challenge the grounds of the ruling. AES Gener believes that it has meritorious defenses to the allegations; however, there are no assurances that it will be successful in defending this action.

In February 2018, Tau Power B.V. and Altai Power LLP (collectively, “AES Claimants”) initiated arbitration against the Republic of Kazakhstan (“ROK”) for the ROK’s failure to pay approximately $75 million (“Return Transfer Payment”) for the return of two hydropower plants (“HPPs”) pursuant to a concession agreement. ~~In April 2018, the~~The ROK has responded by denying liability and asserting purported counterclaims concerning the annual payment provisions in the concession agreement, a bonus allegedly due for the 1997 takeover of the HPPs, and dividends paid by the HPPs. The ROK ~~has not fully quantified~~seeks to recover the Return Transfer Payment (which is in an escrow account maintained by a third party) and appears to be seeking over $500 million on its ~~counterclaims to date.~~counterclaims. The AES Claimants believe that the ROK’s defenses and counterclaims are without ~~merit.~~merit and have contested the ROK’s submissions on these issues. An arbitrator has been appointed to decide the case. The final evidentiary hearing ~~is scheduled for~~took place July ~~22-26,~~22 - 26, 2019. The AES Claimants will pursue their case and assert their defenses vigorously; however, there can be no assurances that they will be successful in their efforts.

In December 2018, a lawsuit was filed in Dominican Republic civil court against the Company, AES Puerto Rico, and three other AES affiliates. The lawsuit purports to be brought on behalf of over 100 Dominican claimants, living and deceased, and appears to seek relief relating to CCRs that were delivered to the Dominican Republic in 2004. The lawsuit generally alleges that the CCRs caused personal injuries and deaths and demands $476 million in alleged damages. The lawsuit does not identify, or provide any supporting information concerning, the alleged injuries of the claimants individually. Nor does the lawsuit provide any information supporting the demand for damages or explaining how the quantum was derived. The relevant AES companies believe that they have meritorious defenses to the claims asserted against them and will defend themselves vigorously in this proceeding; however, there can be no assurances that they will be successful in their efforts.

In February 2019, a separate lawsuit was filed in Dominican Republic civil court against the Company, AES Puerto Rico, two other AES affiliates, and an unaffiliated company and its principal. The lawsuit purports to be brought on behalf of over 200 Dominican claimants, living and deceased, and appears to seek relief relating to CCRs that were delivered to the Dominican Republic in 2003 and 2004. The lawsuit generally alleges that the CCRs caused personal injuries and deaths and demands $900 million in alleged damages. The lawsuit does not identify, or provide any supporting information concerning, the alleged injuries of the claimants individually. Nor does the lawsuit provide any information supporting the demand for damages or explaining how the quantum was derived. The relevant AES companies believe that they have meritorious defenses to the claims asserted against them and will defend themselves vigorously in this proceeding; however, there can be no assurances that they will be successful in their efforts.

In March 2019, the Puerto Rico Department of Natural and Environmental Resources (“DNER”) issued an Administrative Order, as amended (collectively, the “DNER Order”), alleging that AES Puerto Rico, LP failed to comply with certain DNER requests for documents and information and that AES Puerto Rico has contaminated groundwater in excess of certain state and federal water quality standards. The DNER Order imposes a fine of

$160,000. In April 2019, AES Puerto Rico timely filed its response to the DNER Order contesting the alleged violations and fine and also moved to dismiss the matter. AES Puerto Rico believes that it has meritorious defenses, but there are no assurances that it will be successful in defending this action.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in ~~Part I~~—Item 1A.—Risk Factors of our ~~2017~~2018 Form 10-K.

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

The 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 can be no assurances as to the amount, timing or prices of repurchases, which may vary based on market conditions and other factors. The Program does not have an expiration date and can be modified or terminated by the Board of Directors at any time. As of ~~September~~June 30, ~~2018,~~2019, $264 million remained available for repurchase under the Program. No repurchases were made by the AES Corporation of its common stock during the ~~third~~second quarter of ~~2018.~~2019.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



~~10.1~~		~~The AES Corporation Amended and Restated Executive Severance Plan dated October 5, 2018 (filed herewith)~~
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~~Gustavo Pimenta (filed herewith).
32.1		Section 1350 Certification of Andrés Gluski (filed herewith).
32.2		Section 1350 Certification of ~~Thomas M. O’Flynn~~Gustavo Pimenta (filed herewith).
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith).
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).
101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith).
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

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~~August 5, ~~2018~~2019	By:	/s/ T~~HOMAS~~ ~~M. O’FLYNN~~ GUSTAVO PIMENTA
			Name:	~~Thomas M. O’Flynn~~Gustavo Pimenta
			Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

		By:	/s/ SARAH R. BLAKE
			Name:	Sarah R. Blake
			Title:	Vice President and Controller (Principal Accounting Officer)



Condensed Consolidated Balance Sheet	Balance at December 31, 2017			Adjustments Due to ASC 606			Balance at January 1, 2018
Assets
Other current assets	$	630		$	61		$	691
Deferred income taxes	130			(24		)	106
Service concession assets, net	1,360			(1,360		)	—
Loan receivable	—			1,490			1,490
Equity
Accumulated deficit	(2,276		)	67			(2,209		)
Accumulated other comprehensive loss	(1,876		)	19			(1,857		)
Noncontrolling interest	2,380			81			2,461



	September 30, 2018
Condensed Consolidated Balance Sheet	As Reported			Balances Without Adoption of ASC 606			Adoption Impact
Assets
Other current assets	$	706		$	641		$	65
Deferred income taxes	88			112			(24		)
Service concession assets, net	—			1,287			(1,287		)
Loan receivable	1,441			—			1,441
TOTAL ASSETS	32,489			32,294			195
Equity
Accumulated deficit	(1,133		)	(1,231		)	98
Accumulated other comprehensive loss	(2,020		)	(2,038		)	18
Noncontrolling interest	2,404			2,325			79
TOTAL LIABILITIES AND EQUITY	32,489			32,294			195



	Three Months Ended September 30, 2018
Condensed Consolidated Statement of Operations	As Reported			Balances Without Adoption of ASC 606			Adoption Impact
Total revenue	$	2,837		$	2,855		$	(18	)
Total cost of sales	(2,166		)	(2,180		)	14
Operating margin	671			675			(4		)
Interest income	79			64			15
Income from continuing operations before taxes and equity in earnings of affiliates	332			321			11
Income tax expense	(146		)	(147		)	1
INCOME FROM CONTINUING OPERATIONS	192			180			12
NET INCOME	191			179			12
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	101			89			12



	Nine Months Ended September 30, 2018
Condensed Consolidated Statement of Operations	As Reported			Balances Without Adoption of ASC 606			Adoption Impact
Total revenue	$	8,114		$	8,168		$	(54	)
Total cost of sales	(6,187		)	(6,227		)	40
Operating margin	1,927			1,941			(14		)
Interest income	231			186			45
Income from continuing operations before taxes and equity in earnings of affiliates	1,672			1,641			31
Income tax expense	(509		)	(509		)	—
INCOME FROM CONTINUING OPERATIONS	1,194			1,163			31
NET INCOME	1,384			1,353			31
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	1,075			1,044			31



Three Months Ended September 30, 2017	Interest Rate			Foreign Currency			Commodity			Total
Balance at July 1	$	(195	)	$	239		$	9		$	53
Total realized and unrealized gains (losses):
Included in earnings	(5		)	12			—			7
Included in other comprehensive income — derivative activity	(2		)	—			—			(2		)
Settlements	10			(9		)	(3		)	(2		)
Balance at September 30	$	(192	)	$	242		$	6		$	56
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	$	(1	)	$	3		$	—		$	2



Derivatives	Maximum Notional Translated to USD		Latest Maturity
Interest rate (LIBOR and EURIBOR)	$	4,499	2042
Cross-currency swaps (Chilean Unidad de Fomento and Chilean peso)	376		2029
Foreign Currency:
Argentine peso	73		2026
Chilean peso	334		2021
Colombian peso	163		2020
Brazilian real	80		2019
Others, primarily with weighted average remaining maturities of a year or less	246		2021



Credit Risk-Related Contingent Features ⁽¹⁾	December 31, 2017
Present value of liabilities subject to collateralization	$	15
Cash collateral held by third parties or in escrow	9



	Nine Months Ended September 30, 2018									Nine Months Ended September 30, 2017
	The Parent Company Stockholders’ Equity			NCI			Total Equity			The Parent Company Stockholders’ Equity			NCI			Total Equity
Balance at the beginning of the period	$	2,465		$	2,380		$	4,845		$	2,794		$	2,906		$	5,700
Net income	1,075			309			1,384			181			328			509
Total foreign currency translation adjustment, net of income tax	(232		)	72			(160		)	117			10			127
Total change in derivative fair value, net of income tax	64			35			99			5			3			8
Total pension adjustments, net of income tax	5			—			5			1			19			20
Cumulative effect of a change in accounting principle ⁽¹⁾	87			81			168			31			—			31
Fair value adjustment ⁽²⁾	(4		)	—			(4		)	(19		)	—			(19		)
Disposition of businesses ⁽³⁾	—			(250		)	(250		)	—			—			—
Distributions to noncontrolling interests	—			(253		)	(253		)	—			(261		)	(261		)
Contributions from noncontrolling interests	—			6			6			—			17			17
Dividends declared on common stock	(172		)	—			(172		)	(158		)	—			(158		)
Issuance and exercise of stock-based compensation	18			—			18			12			—			12
Sale of subsidiary shares to noncontrolling interests	(1		)	21			20			22			47			69
Acquisition of subsidiary shares from noncontrolling interests	—			—			—			200			(85		)	115
Less: Net loss attributable to redeemable stock of subsidiaries	—			3			3			—			9			9
Balance at the end of the period	$	3,305		$	2,404		$	5,709		$	3,186		$	2,993		$	6,179



	December 31, 2017
Assets of discontinued operations and held-for-sale businesses:
Investments in and advances to affiliates ⁽¹⁾	$	86
Total assets of discontinued operations	$	86
Other assets of businesses classified as held-for-sale ⁽²⁾	1,948
Total assets of discontinued operations and held-for-sale businesses	$	2,034
Liabilities of discontinued operations and held-for-sale businesses:
Other liabilities of businesses classified as held-for-sale ⁽²⁾	1,033
Total liabilities of discontinued operations and held-for-sale businesses	$	1,033



	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Cash flows provided by operating activities of discontinued operations	$	129		$	254
Cash flows used in investing activities of discontinued operations	(61		)	(181		)



Increase at Southland driven by higher market energy sales, partially offset by a decrease in capacity sales and lower ancillary services due to the expiration of long-term agreements	$	22
Increase at DPL primarily due to higher regulated rates following the approval of the 2017 ESP and favorable weather	15
Impact of the sale and closure of generation plants at DPL	(18		)
Other	1
Total US and Utilities SBU Operating Margin Increase	$	20



Increase at DPL primarily due to higher regulated rates following the approval of the 2017 ESP and favorable weather	$	37
Increase at Southland driven by higher market energy sales, partially offset by a decrease in capacity sales and lower ancillary services due to the expiration of long-term agreements	20
Increase at El Salvador primarily due to a new tariff regime effective in 2018	10
Impact of the sale and closure of generation plants at DPL	(5		)
Other	(6		)
Total US and Utilities SBU Operating Margin Increase	$	56



Increase in Colombia mainly related to higher contract prices and higher contract and spot sales	$	21
Lower fixed costs at Gener primarily associated with planned maintenance performed in Q3 2017	21
Increase in Argentina primarily due to higher regulated tariffs resulting from market reforms enacted in 2017 and lower fixed costs primarily due to the devaluation of the Argentine peso	18
Increase mainly associated with the commencement of new PPAs in Chile	18
Impact of the sale of Electrica Santiago	(15		)
Other	(3		)
Total South America SBU Operating Margin Increase	$	60



Increase in Argentina primarily due to higher regulated tariffs resulting from market reforms enacted in 2017 and lower fixed costs primarily due to the devaluation of the Argentine peso	$	62
Increase in Colombia mainly related to higher contract prices	48
Increase in Chile due to the commencement of new PPAs	40
Lower fixed costs at Gener primarily associated with planned maintenance performed in 2017	16
Impact of the sale of Electrica Santiago	(28		)
Other	4
Total South America SBU Operating Margin Increase	$	142



Higher availability driven by improved hydrology in Panama	$	6
Higher energy costs in Dominican Republic due to the lightning incident at the Andres facility	(6		)
Other	2
Total MCAC SBU Operating Margin Increase	$	2



Impact of the sale of Masinloc power plant in March 2018	$	(39	)
Decrease in Vietnam due to adoption of the new revenue recognition standard in 2018 and higher maintenance expense	(12		)
Impact of the sale of the Kazakhstan CHPs and the expiration of HPP concession in 2017	(8		)
Other	(8		)
Total Eurasia SBU Operating Margin Decrease	$	(67	)



Increases in cash resulting from changes in:
Other assets, primarily related to the deconsolidation of Eletropaulo in Q4 2017 and collections from the offtaker at Vietnam related to the loan receivable recorded upon adoption of ASC 606	$	244
Accounts receivable, primarily due to the deconsolidation of Eletropaulo in Q4 2017 and higher collections at Gener, Argentina, and Maritza	154
Decreases in cash resulting from changes in:
Accounts payable and other current liabilities, primarily due to the deconsolidation of Eletropaulo in Q4 2017 and the timing of payments on coal purchases at Gener, partially offset by the timing of payments on coal purchases at Puerto Rico	(191		)
Prepaid expenses and other current assets, primarily due to prior year collections of net regulatory assets at Eletropaulo, which was deconsolidated in Q4 2017, and advance payments to gas suppliers at Colon	(125		)
Other liabilities, primarily due to the deconsolidation of Eletropaulo in Q4 2017	(83		)
Other	(4		)
Total decrease in operating cash flow from higher working capital requirements	$	(5	)



Increases in:
Proceeds from the sales of businesses, net of cash and restricted cash sold, primarily due to the current year sales of Masinloc, Eletropaulo, Electrica Santiago and the DPL Peaker assets, partially offset by the sale of the Kazakhstan CHPs in 2017 and transaction costs incurred for the Beckjord sale	$	1,757
Capital expenditures ⁽¹⁾	(5		)
Decreases In:
Acquisitions of businesses, net of cash acquired, and equity method investees, primarily due to the acquisitions of sPower and Alto Sertão II in 2017	524
Cash resulting from net purchases and sales of short-term investments	(474		)
Other investing activities	(37		)
Total increase in net cash provided by investing activities	$	1,765



Increases in:
Growth expenditures at the US and Utilities SBU, primarily due to increased spending for the Southland re-powering project	$	408
Decreases in:
Growth expenditures at the MCAC SBU, primarily related to the Colon project, and lower spending at Los Mina due to the completion of the Combined Cycle project	(191		)
Maintenance and environmental expenditures at the South America SBU, primarily due to the deconsolidation of Eletropaulo in Q4 2017	(138		)
Growth expenditures at the South America SBU, primarily due to the deconsolidation of Eletropaulo in Q4 2017, partially offset by increased spending at Alto Maipo resulting from the Strabag agreement, and increased spending for the construction of the Boa Hora solar plant in Brazil	(31		)
Other capital expenditures	(43		)
Total increase in capital expenditures	$	5



Increases in:
Net repayments on revolving credit facilities at the Parent Company, IPALCO and DPL	$	(922	)
Net repayments of recourse debt at the Parent Company	(452		)
Net repayments of non-recourse debt at Angamos ⁽¹⁾	(132		)
Net issuance of non-recourse debt at Southland ⁽¹⁾	227
Net borrowing on revolving credit facilities at Gener	73
Decreases in:
Net issuance of non-recourse debt at AES Argentina, Tietê, DPL, Alto Maipo and Colon ⁽¹⁾	(584		)
Net repayments on revolving credit facilities at Los Mina and AES Andres	50
Other financing activities	(64		)
Total increase in net cash used in financing activities	$	(1,841	)