UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period Ended ~~September 30, 2020~~March 31, 2021


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

Commission file number 1-12291

THE AES CORPORATION

(Exact name of registrant as specified in its charter)


Delaware						54-1163725
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


4300 Wilson Boulevard
Arlington,	Virginia	22203
(Address of principal executive offices)		(Zip Code)


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
Corporate Units	AESC	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 ☒ 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 ☒ 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 filer

☒

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 ☒

The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, on ~~November 4, 2020~~May 3, 2021 was ~~665,131,148.~~666,257,334.

The AES Corporation

Form 10-Q for the Quarterly Period ended ~~September 30, 2020~~March 31, 2021

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	76
	Notes to Condensed Consolidated Financial Statements	87
	Note 1 - Financial Statement Presentation	87
	Note 2 - Inventory	108

	Note 3 - Fair Value	8
	Note 3 4 - ~~Asset Retirement Obligations~~Derivative Instruments and Hedging Activities	11
	Note 4 5 - ~~Fair Value~~Financing Receivables	1112
	Note 5 6 - ~~Derivative Instruments~~Investments in and ~~Hedging Activities~~Advances to Affiliates	13
	Note 7 - Debt	13
	Note 8 - Commitments and Contingencies	14
	Note 6 9 - ~~Financing Receivables~~Leases	16
	Note 71 0 - ~~Investments in and Advances to Affiliates~~Redeemable Stock of Subsidiaries	17
	Note 81 1 - ~~Debt~~Equity	1817
	Note 91 2 - ~~Commitments and Contingencies~~Segments	19
	Note 101 3 - ~~Leases~~	20
	~~Note 11 - Redeemable Stock of Subsidiaries~~Revenue	21
	Note 121 4 - ~~Equity~~	21
	~~Note 13 - Segments~~Other Income and Expense	22
	Note 141 5 - ~~Revenue~~Asset Impairment Expense	22
	Note 1 6 - Income Taxes	22

	Note 1 7 - Held-for-Sale and Dispositions	23
	Note 1 8 - Acquisitions	24
	Note 15 19 - ~~Other Income~~Earnings Per Share	24
	Note 2 0 - Risks and ~~Expense~~Uncertainties	25
	Note ~~16 - Asset Impairment Expense~~2	251
	~~Note 17 - Income Taxes~~	26

	~~Note 18 - Held-for-Sale and Dispositions~~	26
	~~Note 19 - Acquisitions~~	28
	~~Note 20 - Earnings Per Share~~	28
	~~Note 21 - Risks and Uncertainties~~	28
	~~Note 22~~ - Subsequent Events	2925

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3026
	Executive Summary	3026

	Review of Consolidated Results of Operations	3429
	SBU Performance Analysis	4133
	Key Trends and Uncertainties	4838
	Capital Resources and Liquidity	5543
	Critical Accounting Policies and Estimates	6250

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6350

ITEM 4.	CONTROLS AND PROCEDURES	6552

PART II: OTHER INFORMATION		6654

ITEM 1.	LEGAL PROCEEDINGS	6654

ITEM 1A.	RISK FACTORS	6957

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	7157

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	7157

ITEM 4.	MINE SAFETY DISCLOSURES	7157

ITEM 5.	OTHER INFORMATION	7157

ITEM 6.	EXHIBITS	7157

SIGNATURES		7258

1 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

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 Pre-tax Contribution, a non-GAAP measure of operating performance
AES			The Parent Company and its subsidiaries and affiliates
AES Brasil			AES Tietê Energia S.A., formerly branded as AES Tietê
AES Indiana			Indianapolis Power & Light Company, formerly branded as IPL. AES Indiana is wholly-owned by IPALCO
AES Ohio			The Dayton Power & Light Company, formerly branded as DP&L. AES Ohio is wholly-owned by DPL


~~AFUDC~~AIMCo			~~Allowance for Funds Used During Construction~~Alberta Management Investment Corporation


AOCL			Accumulated Other Comprehensive Loss
ARO			Asset Retirement Obligations
ASC			Accounting Standards Codification
ASU			Accounting Standards Update




BTA			Best Technology Available
CAA			United States Clean Air Act
CAMMESA			Wholesale Electric Market Administrator in Argentina

CCR			Coal Combustion Residuals, which includes bottom ash, fly ash and air pollution control wastes generated at coal-fired generation plant sites


CECL			Current Expected Credit Loss
CO2			Carbon Dioxide


CSAPR			Cross-State Air Pollution Rule




~~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~~

EURIBOR			Euro Interbank Offered Rate
FASB			Financial Accounting Standards Board

FONINVEMEM			Fund for the Investment Needed to Increase the Supply of Electricity in the Wholesale Market in Argentina
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~~
IDEM			Indiana Department of Environmental Management
IPALCO			IPALCO Enterprises, Inc.
~~IPL~~			~~Indianapolis Power & Light Company~~
~~IURC~~			~~Indiana Utility Regulatory Commission~~


LIBOR			London Interbank Offered Rate
LNG			Liquid Natural Gas


MMBtu			Million British Thermal Units
~~MRO~~			~~Market Rate Option, a market-based plan that a utility may file with PUCO to establish SSO rates pursuant to Ohio law~~
MW			Megawatts
MWh			Megawatt Hours
NAAQS			National Ambient Air Quality Standards
NCI			Noncontrolling Interest

NM			Not Meaningful
NOV			Notice of Violation
NOX			Nitrogen Oxide
NPDES			National Pollutant Discharge Elimination System


OPGC			Odisha Power Generation Corporation, Ltd.
OTC Policy			Statewide Water Quality Control Policy on the Use of Coastal and Estuarine Waters for Power Plant Cooling



PPA			Power Purchase Agreement
PREPA			Puerto Rico Electric Power Authority
PUCO			The Public Utilities Commission of Ohio
RSU			Restricted Stock Unit


SBU			Strategic Business Unit
SEC			United States Securities and Exchange Commission


~~SEET~~			~~Significantly Excessive Earnings Test~~
SIP			State Implementation Plan
SO2			Sulfur Dioxide
SSO			Standard Service Offer
SWRCB			California State Water Resources Board

TCJA			Tax Cuts and Jobs Act
~~TDSIC~~			~~Transmission, Distribution, and Storage System Improvement Charge~~
U.S.			United States

USD			United States Dollar
VAT			Value-Added Tax
VIE			Variable Interest Entity

2 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

(Unaudited)


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020

		(in millions, except share and per share amounts)					(in millions, except share and per share amounts)
ASSETS	ASSETS					ASSETS
CURRENT ASSETS	CURRENT ASSETS					CURRENT ASSETS
Cash and cash equivalents	Cash and cash equivalents	$	1,505	$	1,029	Cash and cash equivalents	$	1,886	$	1,089
Restricted cash	Restricted cash	374		336		Restricted cash	325		297
Short-term investments	Short-term investments	384		400		Short-term investments	187		335
Accounts receivable, net of allowance for doubtful accounts of $13 and $20, respectively		1,404		1,479
Accounts receivable, net of allowance for doubtful accounts of $11 and $13, respectively						Accounts receivable, net of allowance for doubtful accounts of $11 and $13, respectively	1,342		1,300
Inventory	Inventory	474		487		Inventory	446		461
Prepaid expenses	Prepaid expenses	100		80		Prepaid expenses	105		102
Other current assets, net of allowance of $2 and $0, respectively		747		802
Other current assets, net of allowance of $0						Other current assets, net of allowance of $0	728		726
Current held-for-sale assets	Current held-for-sale assets	897		618		Current held-for-sale assets	1,218		1,104
Total current assets	Total current assets	5,885		5,231		Total current assets	6,237		5,414
NONCURRENT ASSETS	NONCURRENT ASSETS					NONCURRENT ASSETS
Property, Plant and Equipment:	Property, Plant and Equipment:					Property, Plant and Equipment:
Land	Land	416		447		Land	404		417
Electric generation, distribution assets and other	Electric generation, distribution assets and other	25,872		25,383		Electric generation, distribution assets and other	25,660		26,707
Accumulated depreciation	Accumulated depreciation	(8,135)		(8,505)		Accumulated depreciation	(8,342)		(8,472)
Construction in progress	Construction in progress	4,134		5,249		Construction in progress	4,776		4,174
Property, plant and equipment, net	Property, plant and equipment, net	22,287		22,574		Property, plant and equipment, net	22,498		22,826
Other Assets:	Other Assets:					Other Assets:
Investments in and advances to affiliates	Investments in and advances to affiliates	787		966		Investments in and advances to affiliates	785		835
Debt service reserves and other deposits	Debt service reserves and other deposits	502		207		Debt service reserves and other deposits	395		441
Goodwill	Goodwill	1,059		1,059		Goodwill	1,146		1,061
Other intangible assets, net of accumulated amortization of $316 and $307, respectively		614		469
Other intangible assets, net of accumulated amortization of $343 and $330, respectively						Other intangible assets, net of accumulated amortization of $343 and $330, respectively	797		827
Deferred income taxes	Deferred income taxes	336		156		Deferred income taxes	235		288

Loan receivable, net of allowance of $31 and $0, respectively		1,260		1,351
Other noncurrent assets, net of allowance of $23 and $0, respectively		1,537		1,635

Other noncurrent assets, net of allowance of $20 and $21, respectively						Other noncurrent assets, net of allowance of $20 and $21, respectively	1,878		1,660
Noncurrent held-for-sale assets						Noncurrent held-for-sale assets	1,232		1,251
Total other assets	Total other assets	6,095		5,843		Total other assets	6,468		6,363
TOTAL ASSETS	TOTAL ASSETS	$	34,267	$	33,648	TOTAL ASSETS	$	35,203	$	34,603
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
CURRENT LIABILITIES	CURRENT LIABILITIES					CURRENT LIABILITIES
Accounts payable	Accounts payable	$	1,103	$	1,311	Accounts payable	$	832	$	1,156
Accrued interest	Accrued interest	264		201		Accrued interest	227		191
Accrued non-income taxes	Accrued non-income taxes	242		253		Accrued non-income taxes	286		257
Deferred income	Deferred income	611		34		Deferred income	299		438
Accrued and other liabilities	Accrued and other liabilities	1,197		987		Accrued and other liabilities	1,173		1,223

Non-recourse debt, including $420 and $337, respectively, related to variable interest entities		1,841		1,868
Non-recourse debt, including $346 and $336, respectively, related to variable interest entities						Non-recourse debt, including $346 and $336, respectively, related to variable interest entities	1,505		1,430

Current held-for-sale liabilities	Current held-for-sale liabilities	519		442		Current held-for-sale liabilities	699		667
Total current liabilities	Total current liabilities	5,777		5,096		Total current liabilities	5,021		5,362
NONCURRENT LIABILITIES	NONCURRENT LIABILITIES					NONCURRENT LIABILITIES
Recourse debt	Recourse debt	3,969		3,391		Recourse debt	3,365		3,446
Non-recourse debt, including $5,817 and $3,872, respectively, related to variable interest entities		15,536		14,914
Non-recourse debt, including $3,945 and $3,918, respectively, related to variable interest entities						Non-recourse debt, including $3,945 and $3,918, respectively, related to variable interest entities	15,014		15,005

Deferred income taxes	Deferred income taxes	926		1,213		Deferred income taxes	1,136		1,100

Other noncurrent liabilities	Other noncurrent liabilities	3,119		2,917		Other noncurrent liabilities	3,110		3,241

Noncurrent held-for-sale liabilities						Noncurrent held-for-sale liabilities	856		857
Total noncurrent liabilities	Total noncurrent liabilities	23,550		22,435		Total noncurrent liabilities	23,481		23,649
Commitments and Contingencies (see Note 9)
Commitments and Contingencies (see Note 8)						Commitments and Contingencies (see Note 8)
Redeemable stock of subsidiaries	Redeemable stock of subsidiaries	867		888		Redeemable stock of subsidiaries	1,033		872
EQUITY	EQUITY					EQUITY
THE AES CORPORATION STOCKHOLDERS’ EQUITY	THE AES CORPORATION STOCKHOLDERS’ EQUITY					THE AES CORPORATION STOCKHOLDERS’ EQUITY
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 818,159,674 issued and 665,131,148 outstanding at September 30, 2020 and 817,843,916 issued and 663,952,656 outstanding at December 31, 2019)		8		8
Preferred stock (without par value, 50,000,000 shares authorized; 1,043,050 issued and outstanding at March 31, 2021)						Preferred stock (without par value, 50,000,000 shares authorized; 1,043,050 issued and outstanding at March 31, 2021)	1,043		0
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 818,616,804 issued and 666,257,334 outstanding at March 31, 2021 and 818,398,654 issued and 665,370,128 outstanding at December 31, 2020)						Common stock ($0.01 par value, 1,200,000,000 shares authorized; 818,616,804 issued and 666,257,334 outstanding at March 31, 2021 and 818,398,654 issued and 665,370,128 outstanding at December 31, 2020)	8		8
Additional paid-in capital	Additional paid-in capital	7,480		7,776		Additional paid-in capital	7,241		7,561
Accumulated deficit	Accumulated deficit	(998)		(692)		Accumulated deficit	(828)		(680)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,628)		(2,229)		Accumulated other comprehensive loss	(2,237)		(2,397)
Treasury stock, at cost (153,028,526 and 153,891,260 shares at September 30, 2020 and December 31, 2019, respectively)		(1,858)		(1,867)
Treasury stock, at cost (152,359,470 and 153,028,526 shares at March 31, 2021 and December 31, 2020, respectively)						Treasury stock, at cost (152,359,470 and 153,028,526 shares at March 31, 2021 and December 31, 2020, respectively)	(1,850)		(1,858)
Total AES Corporation stockholders’ equity	Total AES Corporation stockholders’ equity	2,004		2,996		Total AES Corporation stockholders’ equity	3,377		2,634
NONCONTROLLING INTERESTS	NONCONTROLLING INTERESTS	2,069		2,233		NONCONTROLLING INTERESTS	2,291		2,086
Total equity	Total equity	4,073		5,229		Total equity	5,668		4,720
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	34,267	$	33,648	TOTAL LIABILITIES AND EQUITY	$	35,203	$	34,603

See Notes to Condensed Consolidated Financial Statements.

3 | The AES Corporation

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020

		(in millions, except share and per share amounts)										(in millions, except share and per share amounts)
Revenue:	Revenue:									Revenue:
Regulated	Regulated	$	680	$	799	$	2,016	$	2,308	Regulated		$	707	$	712
Non-Regulated	Non-Regulated	1,865		1,826		5,084		5,450		Non-Regulated		1,928		1,626
Total revenue	Total revenue	2,545		2,625		7,100		7,758		Total revenue		2,635		2,338
Cost of Sales:	Cost of Sales:									Cost of Sales:
Regulated	Regulated	(548)		(633)		(1,675)		(1,873)		Regulated		(582)		(592)
Non-Regulated	Non-Regulated	(1,241)		(1,291)		(3,638)		(4,096)		Non-Regulated		(1,389)		(1,239)
Total cost of sales	Total cost of sales	(1,789)		(1,924)		(5,313)		(5,969)		Total cost of sales		(1,971)		(1,831)
Operating margin	Operating margin	756		701		1,787		1,789		Operating margin		664		507
General and administrative expenses	General and administrative expenses	(41)		(41)		(119)		(136)		General and administrative expenses		(46)		(38)
Interest expense	Interest expense	(290)		(250)		(741)		(788)		Interest expense		(190)		(233)
Interest income	Interest income	64		81		198		242		Interest income		68		70
Loss on extinguishment of debt	Loss on extinguishment of debt	(54)		(65)		(95)		(126)		Loss on extinguishment of debt		(1)		(1)
Other expense	Other expense	(20)		(9)		(27)		(35)		Other expense		(16)		(4)
Other income	Other income	6		78		60		126		Other income		43		45
Gain (loss) on disposal and sale of business interests		(90)		16		(117)		9
Loss on disposal and sale of business interests										Loss on disposal and sale of business interests		(5)		0

Asset impairment expense	Asset impairment expense	(849)		0		(855)		(116)		Asset impairment expense		(473)		(6)
Foreign currency transaction gains (losses)	Foreign currency transaction gains (losses)	2		(87)		20		(69)		Foreign currency transaction gains (losses)		(35)		24
Other non-operating expense	Other non-operating expense	0		0		(202)		0		Other non-operating expense		0		(44)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES		(516)		424		(91)		896
Income tax benefit (expense)		147		(130)		(55)		(302)
Net equity in earnings (losses) of affiliates		(112)		4		(106)		3
INCOME (LOSS) FROM CONTINUING OPERATIONS		(481)		298		(252)		597
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES										INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES		9		320
Income tax expense										Income tax expense		(8)		(89)
Net equity in losses of affiliates										Net equity in losses of affiliates		(30)		(2)

Gain from disposal of discontinued businesses		0		0		3		1

NET INCOME (LOSS)	NET INCOME (LOSS)	(481)		298		(249)		598		NET INCOME (LOSS)		(29)		229

Less: Net loss (income) attributable to noncontrolling interests and redeemable stock of subsidiaries		148		(88)		(23)		(217)
Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries										Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries		(119)		(85)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	(333)	$	210	$	(272)	$	381	NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION		$	(148)	$	144
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
Income (loss) from continuing operations, net of tax		$	(333)	$	210	$	(275)	$	380
Income from discontinued operations, net of tax		0		0		3		1
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION		$	(333)	$	210	$	(272)	$	381

BASIC EARNINGS PER SHARE:	BASIC EARNINGS PER SHARE:									BASIC EARNINGS PER SHARE:

NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	(0.50)	$	0.32	$	(0.41)	$	0.57	NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS		$	(0.22)	$	0.22
DILUTED EARNINGS PER SHARE:	DILUTED EARNINGS PER SHARE:									DILUTED EARNINGS PER SHARE:

NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	(0.50)	$	0.32	$	(0.41)	$	0.57	NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS		$	(0.22)	$	0.22
DILUTED SHARES OUTSTANDING	DILUTED SHARES OUTSTANDING	665		667		665		667		DILUTED SHARES OUTSTANDING		666		668

See Notes to Condensed Consolidated Financial Statements.

4 | The AES Corporation

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019				2021		2020

		(in millions)										(in millions)
NET INCOME (LOSS)	NET INCOME (LOSS)	$	(481)	$	298	$	(249)	$	598	NET INCOME (LOSS)		$	(29)	$	229

Foreign currency translation activity:	Foreign currency translation activity:									Foreign currency translation activity:
Foreign currency translation adjustments, net of $0 income tax for all periods	Foreign currency translation adjustments, net of $0 income tax for all periods	30		(75)		(105)		(67)		Foreign currency translation adjustments, net of $0 income tax for all periods		(69)		(152)
Reclassification to earnings, net of $0 income tax for all periods	Reclassification to earnings, net of $0 income tax for all periods	80		0		78		23		Reclassification to earnings, net of $0 income tax for all periods		0		0
Total foreign currency translation adjustments	Total foreign currency translation adjustments	110		(75)		(27)		(44)		Total foreign currency translation adjustments		(69)		(152)
Derivative activity:	Derivative activity:									Derivative activity:
Change in derivative fair value, net of income tax benefit (expense) of $(8), $44, $139 and $97, respectively		23		(178)		(471)		(375)
Reclassification to earnings, net of income tax expense of $10, $6, $24 and $9, respectively		27		17		84		36
Change in derivative fair value, net of income tax benefit (expense) of $(67) and $133, respectively										Change in derivative fair value, net of income tax benefit (expense) of $(67) and $133, respectively		243		(448)
Reclassification to earnings, net of income tax expense of $7 and $8, respectively										Reclassification to earnings, net of income tax expense of $7 and $8, respectively		23		32
Total change in fair value of derivatives	Total change in fair value of derivatives	50		(161)		(387)		(339)		Total change in fair value of derivatives		266		(416)
Pension activity:	Pension activity:									Pension activity:

Change in pension adjustments due to net actuarial gain (loss) for the period, net of $0 income tax for all periods		0		0		0		2
Reclassification to earnings, net of income tax expense of $0, $0, $1 and $13, respectively		1		0		1		27
Change in pension adjustments due to net actuarial gain (loss) for the period, net of income tax benefit of $1 and $0, respectively										Change in pension adjustments due to net actuarial gain (loss) for the period, net of income tax benefit of $1 and $0, respectively		1		0
Reclassification to earnings, net of $0 income tax for all periods										Reclassification to earnings, net of $0 income tax for all periods		0		0
Total pension adjustments	Total pension adjustments	1		0		1		29		Total pension adjustments		1		0
OTHER COMPREHENSIVE INCOME (LOSS)	OTHER COMPREHENSIVE INCOME (LOSS)	161		(236)		(413)		(354)		OTHER COMPREHENSIVE INCOME (LOSS)		198		(568)
COMPREHENSIVE INCOME (LOSS)	COMPREHENSIVE INCOME (LOSS)	(320)		62		(662)		244		COMPREHENSIVE INCOME (LOSS)		169		(339)
Less: Comprehensive loss (income) attributable to noncontrolling interests and redeemable stock of subsidiaries	Less: Comprehensive loss (income) attributable to noncontrolling interests and redeemable stock of subsidiaries	166		(40)		106		(123)		Less: Comprehensive loss (income) attributable to noncontrolling interests and redeemable stock of subsidiaries		(151)		21
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	(154)	$	22	$	(556)	$	121	COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION		$	18	$	(318)

See Notes to Condensed Consolidated Financial Statements.

5 | The AES Corporation

Condensed Consolidated Statements of Changes in Equity

(Unaudited)


		Nine Months Ended September 30, 2020																					Three Months Ended March 31, 2021
		Common Stock			Treasury Stock			Additional Paid-In Capital				Accumulated Deficit			Accumulated Other Comprehensive Loss				Noncontrolling Interests				Preferred Stock						Common Stock					Treasury Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Noncontrolling Interests
		Shares	Amount		Shares	Amount								Shares								Amount			Shares			Amount		Shares			Amount
		(in millions)																					(in millions)
Balance at January 1, 2020		817.8	$	8	153.9	$	(1,867)			$	7,776						$	(692)			$	(2,229)		$	2,233
Net income		0	0		0	0		0				144			0				82
Total foreign currency translation adjustment, net of income tax		0	0		0	0		0				0			(96)				(56)
Total change in derivative fair value, net of income tax		0	0		0	0		0				0			(366)				(25)

Total other comprehensive loss		—	—		—	—		—				—			(462)				(81)
Cumulative effect of a change in accounting principle (1)		0	0		0	0		0				(35)			0				(16)
Fair value adjustment ~~(2)~~(1)		0	0		0	0		(7)				0			0				0

Distributions to noncontrolling interests		0	0		0	0		0				0			0				(33)

Dividends declared on AES common stock ($0.1433/share)		0	0		0	0		(95)				0			0				0

Issuance and exercise of stock-based compensation benefit plans, net of income tax		0.1	0		(0.8)	9		(11)				0			0				0
Sales to noncontrolling interests		0	0		0	0		(1)				0			0				1
Acquisitions of noncontrolling interests		—	0		0	0		2				0			(1)				(8)

Balance at March 31, 2020		817.9	$	8	153.1	$	(1,858)	$	7,664			$	(583)		$	(2,692)			$	2,178
Balance at January 1, 2021																						Balance at January 1, 2021	0			$	0		818.4		$	8		153.0	$	(1,858)	$	7,561	$	(680)	$	(2,397)	$	2,086
Net income (loss)	Net income (loss)	0	0		0	0		0				(83)			0				83			Net income (loss)	0			0			0		0			0	0		0		(148)		0		119
Total foreign currency translation adjustment, net of income tax		0	0		0	0		0				0			17				(2)
Total change in derivative fair value, net of income tax		0	0		0	0		0				0			(18)				(2)

Total other comprehensive loss		—	—		—	—		—				—			(1)				(4)
Cumulative effect of a change in accounting principle		0	0		0	0		0				1			0				0

Distributions to noncontrolling interests		0	0		0	0		0				0			0				(89)

Issuance and exercise of stock-based compensation benefit plans, net of income tax		0	0		(0.1)	0		5				0			0				0
Sales to noncontrolling interests		0	0		0	0		(2)				0			0				14
Acquisitions of noncontrolling interests		0	0		0	0		3				0			0				(2)

Balance at June 30, 2020		817.9	$	8	153.0	$	(1,858)	$	7,670			$	(665)		$	(2,693)			$	2,180
Net loss		0	0		0	0		0				(333)			0				(153)
Total foreign currency translation adjustment, net of income tax	Total foreign currency translation adjustment, net of income tax	0	0		0	0		0				0			114				(4)			Total foreign currency translation adjustment, net of income tax	0			0			0		0			0	0		0		0		(53)		(16)
Total change in derivative fair value, net of income tax	Total change in derivative fair value, net of income tax	0	0		0	0		0				0			65				(12)			Total change in derivative fair value, net of income tax	0			0			0		0			0	0		0		0		219		27
Total pension adjustments, net of income tax	Total pension adjustments, net of income tax	0	0		0	0		0				0			0				1			Total pension adjustments, net of income tax	0			0			0		0			0	0		0		0		0		1
Total other comprehensive income (loss)	Total other comprehensive income (loss)	0	0		0	0		0				0			179				(15)			Total other comprehensive income (loss)	—			—			—		—			—	—		—		—		166		12

Fair value adjustment (2)		0	0		0	0		10				0			0				0
Fair value adjustment ~~(2)~~(1)																						Fair value adjustment ~~(2)~~(1)	0			0			0		0			0	0		33		0		0		0

Distributions to noncontrolling interests	Distributions to noncontrolling interests	0	0		0	0		0				0			0				(66)			Distributions to noncontrolling interests	0			0			0		0			0	0		0		0		0		(17)
Acquisitions of noncontrolling interests																						Acquisitions of noncontrolling interests	0			0			0		0			0	0		(5)		0		(6)		(3)
Contributions from noncontrolling interests																						Contributions from noncontrolling interests	0			0			0		0			0	0		0		0		0		94
Sales to noncontrolling interests																						Sales to noncontrolling interests	0			0			0		0			0	0		0		0		0		0

Dividends declared on AES common stock ($0.1433/share)		0	0		0	0		(95)				0			0				0
Issuance of preferred stock																						Issuance of preferred stock	1.0			1,043			0		0			0	0		(235)		0		0		0

Dividends declared on common stock ($0.1505/share)																						Dividends declared on common stock ($0.1505/share)	0			0			0		0			0	0		(101)		0		0		0

Issuance and exercise of stock-based compensation benefit plans, net of income tax	Issuance and exercise of stock-based compensation benefit plans, net of income tax	0.2	0		0	0		2				0			0				0			Issuance and exercise of stock-based compensation benefit plans, net of income tax	0			0			0.2		0			(0.7)	8		(12)		0		0		0
Sales to noncontrolling interests		0	0		0	0		(19)				0			0				47
Acquisitions of noncontrolling interests		0	0		0	0		(88)				0			(114)				(37)
Issuance of preferred shares in subsidiaries		0	0		0	0		0				0			0				113

Balance at September 30, 2020		818.1	$	8	153.0	$	(1,858)	$	7,480			$	(998)		$	(2,628)			$	2,069
Balance at March 31, 2021																						Balance at March 31, 2021	1.0			$	1,043		818.6		$	8		152.3	$	(1,850)	$	7,241	$	(828)	$	(2,237)	$	2,291

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


	Three Months Ended March 31, 2020
	Preferred Stock			Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Noncontrolling Interests
	Shares	Amount		Shares	Amount		Shares	Amount
	(in millions)
Balance at January 1, 2020	0	$	0	817.8	$	8	153.9	$	(1,867)	$	7,776	$	(692)	$	(2,229)	$	2,233
Net income	0	0		0	0		0	0		0		144		0		82
Total foreign currency translation adjustment, net of income tax	0	0		0	0		0	0		0		0		(96)		(56)
Total change in derivative fair value, net of income tax	0	0		0	0		0	0		0		0		(366)		(25)

Total other comprehensive loss	—	—		—	—		—	—		—		—		(462)		(81)
Cumulative effect of a change in accounting principle (1)	0	0		0	0		0	0		0		(35)		0		(16)
Fair value adjustment (2)	0	0		0	0		0	0		(7)		0		0		0


Distributions to noncontrolling interests	0	0		0	0		0	0		0		0		0		(33)

Dividends declared on common stock ($0.1433/share)	0	0		0	0		0	0		(95)		0		0		0

Issuance and exercise of stock-based compensation benefit plans, net of income tax	0	0		0.1	0		(0.8)	9		(11)		0		0		0
Sales to noncontrolling interests	0	0		0	0		0	0		(1)		0		0		1
Acquisitions of noncontrolling interests	0	0		0	0		0	0		2		0		(1)		(8)

Balance at March 31, 2020	0	$	0	817.9	$	8	153.1	$	(1,858)	$	7,664	$	(583)	$	(2,692)	$	2,178

(1) Includes $39 million adjustment due to ASC 326 adoption, partially offset by $4 million adjustment due to ASC 842 adoption at sPower. See Note 1—Financial Statement Presentation—New Accounting Pronouncements ~~Adoptedin 2020~~ ~~for further information.~~

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

~~6 | The AES Corporation~~

Nine Months Ended September 30, 2019
Common Stock Treasury Stock Additional
Paid-In
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Noncontrolling
Interests
Shares Amount Shares Amount
(in millions)
Balance at January 1, 2019 817.2 $ 8 154.9 $ (1,878) $ 8,154 $ (1,005) $ (2,071) $ 2,396
Net income 0 0 0 0 0 154 0 81
Total foreign currency translation adjustment, net of income tax 0 0 0 0 0 0 4 (5)
Total change in derivative fair value, net of income tax 0 0 0 0 0 0 (37) (18)
Total pension adjustments, net of income tax 0 0 0 0 0 0 1 0
Total other comprehensive loss — — — — — — (32) (23)
Cumulative effect of a change in accounting principle (1)
0 0 0 0 0 12 (4) 0
Fair value adjustment (2)
0 0 0 0 (6) 0 0 0
Distributions to noncontrolling interests 0 0 0 0 0 0 0 (40)
Dividends declared on AES common stock ($0.1365/share) 0 0 0 0 (91) 0 0 0
Issuance and exercise of stock-based compensation benefit plans, net of income tax 0.4 0 (1) 11 (17) 0 0 0
Sales to noncontrolling interests 0 0 0 0 (1) 0 0 1
Balance at March 31, 2019 817.6 $ 8 153.9 $ (1,867) $ 8,039 $ (839) $ (2,107) $ 2,415
Net income 0 0 0 0 0 17 0 52
Total foreign currency translation adjustment, net of income tax 0 0 0 0 0 0 27 5
Total change in derivative fair value, net of income tax 0 0 0 0 0 0 (95) (22)
Total pension adjustments, net of income tax 0 0 0 0 0 0 28 0
Total other comprehensive income (loss) — — — — — — (40) (17)
Cumulative effect of a change in accounting principle (1)
0 0 0 0 0 (2) 0 0
Fair value adjustment (2)
0 0 0 0 (11) 0 0 0
Distributions to noncontrolling interests 0 0 0 0 0 0 0 (198)
Issuance and exercise of stock-based compensation benefit plans, net of income tax 0.1 0 0 0 10 0 0 0
Sales to noncontrolling interests 0 0 0 0 0 0 0 8
Balance at June 30, 2019 817.7 $ 8 153.9 $ (1,867) $ 8,038 $ (824) $ (2,147) $ 2,260
Net income 0 0 0 0 0 210 0 96
Total foreign currency translation adjustment, net of income tax 0 0 0 0 0 0 (54) (21)
Total change in derivative fair value, net of income tax 0 0 0 0 0 0 (134) (23)
Total pension adjustments, net of income tax 0 0 0 0 0 0 0 0
Total other comprehensive income (loss) — — — — — — (188) (44)
Fair value adjustment (2)
0 0 0 0 (2) 0 0 0
Distributions to noncontrolling interests 0 0 0 0 0 0 0 (75)
Contributions from noncontrolling interests 0 0 0 0 0 0 0 7
Dividends declared on AES common stock ($0.1365/share) 0 0 0 0 (90) 0 0 0
Issuance and exercise of stock-based compensation benefit plans, net of income tax 0.1 0 0 0 3 0 0 0
Sales to noncontrolling interests 0 0 0 0 (1) 0 0 2
Balance at September 30, 2019 817.8 $ 8 153.9 $ (1,867) $ 7,948 $ (614) $ (2,335) $ 2,246

~~(1)~~ ~~See Note~~ 1~~—Financial Statement Presentation—New Accounting Pronouncements~~ in Item 8.—Financial Statements and Supplementary Data of our ~~2019~~2020 Form 10-K for further information.

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

76 | The AES Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020

		(in millions)					(in millions)
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net income (loss)	Net income (loss)	$	(249)	$	598	Net income (loss)	$	(29)	$	229
Adjustments to net income (loss):	Adjustments to net income (loss):					Adjustments to net income (loss):
Depreciation and amortization	Depreciation and amortization	803		774		Depreciation and amortization	275		268
Loss (gain) on disposal and sale of business interests		117		(9)
Loss on disposal and sale of business interests						Loss on disposal and sale of business interests	5		0
Impairment expense	Impairment expense	1,057		116		Impairment expense	473		50
Deferred income taxes	Deferred income taxes	(342)		4		Deferred income taxes	21		2

Loss on extinguishment of debt	Loss on extinguishment of debt	95		126		Loss on extinguishment of debt	1		1
Loss (gain) on sale and disposal of assets		(37)		21
Gain on sale and disposal of assets						Gain on sale and disposal of assets	(20)		(42)

Loss of affiliates, net of dividends						Loss of affiliates, net of dividends	36		8
Other	Other	250		278		Other	77		0
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(Increase) decrease in accounts receivable	(40)		27		(Increase) decrease in accounts receivable	(79)		(40)
(Increase) decrease in inventory	(Increase) decrease in inventory	(15)		(3)		(Increase) decrease in inventory	14		23
(Increase) decrease in prepaid expenses and other current assets	(Increase) decrease in prepaid expenses and other current assets	33		(17)		(Increase) decrease in prepaid expenses and other current assets	22		(23)
(Increase) decrease in other assets	(Increase) decrease in other assets	(252)		1		(Increase) decrease in other assets	31		(79)
Increase (decrease) in accounts payable and other current liabilities	Increase (decrease) in accounts payable and other current liabilities	(98)		(12)		Increase (decrease) in accounts payable and other current liabilities	(337)		(99)
Increase (decrease) in income tax payables, net and other tax payables	Increase (decrease) in income tax payables, net and other tax payables	62		(124)		Increase (decrease) in income tax payables, net and other tax payables	(92)		36
Increase (decrease) in deferred income	Increase (decrease) in deferred income	606		25		Increase (decrease) in deferred income	(142)		29
Increase (decrease) in other liabilities	Increase (decrease) in other liabilities	97		(30)		Increase (decrease) in other liabilities	(3)		10
Net cash provided by operating activities	Net cash provided by operating activities	2,087		1,775		Net cash provided by operating activities	253		373
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:
Capital expenditures	Capital expenditures	(1,375)		(1,628)		Capital expenditures	(432)		(576)
Acquisitions of business interests, net of cash and restricted cash acquired	Acquisitions of business interests, net of cash and restricted cash acquired	(94)		(56)		Acquisitions of business interests, net of cash and restricted cash acquired	0		(10)
Proceeds from the sale of business interests, net of cash and restricted cash sold		41		226

Proceeds from the sale of assets	Proceeds from the sale of assets	17		23		Proceeds from the sale of assets	0		15
Sale of short-term investments	Sale of short-term investments	439		524		Sale of short-term investments	257		254
Purchase of short-term investments	Purchase of short-term investments	(546)		(572)		Purchase of short-term investments	(130)		(277)
Contributions and loans to equity affiliates	Contributions and loans to equity affiliates	(286)		(258)		Contributions and loans to equity affiliates	(64)		(115)

Other investing	Other investing	(52)		30		Other investing	(18)		(26)
Net cash used in investing activities	Net cash used in investing activities	(1,856)		(1,711)		Net cash used in investing activities	(387)		(735)
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Borrowings under the revolving credit facilities	Borrowings under the revolving credit facilities	2,099		1,469		Borrowings under the revolving credit facilities	792		1,194
Repayments under the revolving credit facilities	Repayments under the revolving credit facilities	(1,515)		(1,041)		Repayments under the revolving credit facilities	(793)		(315)
Issuance of recourse debt	Issuance of recourse debt	1,619		0		Issuance of recourse debt	7		0
Repayments of recourse debt	Repayments of recourse debt	(1,596)		(449)		Repayments of recourse debt	(7)		(18)
Issuance of non-recourse debt	Issuance of non-recourse debt	4,229		3,580		Issuance of non-recourse debt	307		406
Repayments of non-recourse debt	Repayments of non-recourse debt	(3,451)		(2,978)		Repayments of non-recourse debt	(320)		(92)
Payments for financing fees	Payments for financing fees	(79)		(69)		Payments for financing fees	(5)		(5)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	(194)		(255)		Distributions to noncontrolling interests	(17)		(22)
Acquisitions of noncontrolling interests	Acquisitions of noncontrolling interests	(240)		0		Acquisitions of noncontrolling interests	(13)		0
Contributions from noncontrolling interests and redeemable security holders		0		15
Contributions from noncontrolling interests						Contributions from noncontrolling interests	94		0

Issuance of preferred shares in subsidiaries		113		0

Issuance of preferred stock						Issuance of preferred stock	1,017		0
Dividends paid on AES common stock	Dividends paid on AES common stock	(286)		(272)		Dividends paid on AES common stock	(100)		(95)
Payments for financed capital expenditures	Payments for financed capital expenditures	(59)		(126)		Payments for financed capital expenditures	(1)		(10)

Other financing	Other financing	17		(7)		Other financing	32		(13)
Net cash provided by (used in) financing activities		657		(133)
Net cash provided by financing activities						Net cash provided by financing activities	993		1,030
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(33)		(28)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(22)		(32)
Increase in cash, cash equivalents and restricted cash of held-for-sale businesses		(46)		(65)
Total increase (decrease) in cash, cash equivalents and restricted cash		809		(162)
(Increase) decrease in cash, cash equivalents and restricted cash of held-for-sale businesses						(Increase) decrease in cash, cash equivalents and restricted cash of held-for-sale businesses	(58)		2
Total increase in cash, cash equivalents and restricted cash						Total increase in cash, cash equivalents and restricted cash	779		638
Cash, cash equivalents and restricted cash, beginning	Cash, cash equivalents and restricted cash, beginning	1,572		2,003		Cash, cash equivalents and restricted cash, beginning	1,827		1,572
Cash, cash equivalents and restricted cash, ending	Cash, cash equivalents and restricted cash, ending	$	2,381	$	1,841	Cash, cash equivalents and restricted cash, ending	$	2,606	$	2,210
SUPPLEMENTAL DISCLOSURES:	SUPPLEMENTAL DISCLOSURES:					SUPPLEMENTAL DISCLOSURES:
Cash payments for interest, net of amounts capitalized	Cash payments for interest, net of amounts capitalized	$	618	$	681	Cash payments for interest, net of amounts capitalized	$	167	$	163
Cash payments for income taxes, net of refunds	Cash payments for income taxes, net of refunds	258		296		Cash payments for income taxes, net of refunds	50		52
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:	SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:					SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Refinancing of non-recourse debt at Mong Duong (see Note 8)		0		1,081
Contributions to equity affiliates (see Note 7)		0		62
Partial reinvestment of consideration from the sPower transaction (see Note 7)		0		58

Non-cash consideration transferred for the Clean Energy transaction (see Note 18)						Non-cash consideration transferred for the Clean Energy transaction (see Note 18)	119		0
Dividends declared but not yet paid						Dividends declared but not yet paid	101		95

See Notes to Condensed Consolidated Financial Statements.

87 | Notes to Condensed Consolidated Financial Statements | ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

Notes to Condensed Consolidated Financial Statements

For the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

(Unaudited)

1. FINANCIAL STATEMENT PRESENTATION

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~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of expected results for the year ending December 31, ~~2020.~~2021. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the ~~2019~~2020 audited consolidated financial statements and notes thereto, which are included in the ~~2019~~2020 Form 10-K filed with the SEC on February ~~27, 2020~~24, 2021 (the ~~“2019~~“2020 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, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	1,505	$	1,029	Cash and cash equivalents	$	1,886	$	1,089
Restricted cash	Restricted cash	374		336		Restricted cash	325		297
Debt service reserves and other deposits	Debt service reserves and other deposits	502		207		Debt service reserves and other deposits	395		441
Cash, Cash Equivalents, and Restricted Cash	Cash, Cash Equivalents, and Restricted Cash	$	2,381	$	1,572	Cash, Cash Equivalents, and Restricted Cash	$	2,606	$	1,827

ASC 326 - Financial Instruments - Credit Losses - The following table represents the rollforward of the allowance for credit losses for the period indicated (in millions):


Three Months Ended March 31, 2021	Accounts Receivables (1)		Mong Duong Loan Receivable (2)		Argentina Receivables		Other		Total
CECL Reserve Balance at beginning of period	$	9	$	32	$	20	$	1	$	62
Current Period Provision	0		0		1		0		1
Write-offs charged against allowance	(3)		0		0		0		(3)

Foreign Exchange	0		0		(1)		0		(1)
CECL Reserve Balance at end of period	$	6	$	32	$	20	$	1	$	59


Three Months Ended March 31, 2020	Accounts Receivables (1)		Mong Duong Loan Receivable (2)		Argentina Receivables		Other		Total
CECL Reserve Balance at beginning of period	$	4	$	34	$	29	$	1	$	68
Current Period Provision	2		0		1		0		3
Write-offs charged against allowance	(1)		0		0		0		(1)

Foreign Exchange	0		0		(2)		0		(2)
CECL Reserve Balance at end of period	$	5	$	34	$	28	$	1	$	68

(1)Excludes operating lease receivable allowances and contractual dispute allowances of $5 million and $15 million as of March 31, 2021 and March 31, 2020, respectively. Those reserves are not in scope under ASC 326.

(2)Mong Duong Loan Receivable credit losses allowance was reclassified toheld-for-sale assetson the Consolidated Balance Sheet as of March 31, 2021.

New Accounting Pronouncements Adopted in ~~2020~~2021 — 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 wereCompany assessed and determined ~~to be either not applicable or~~that the new accounting pronouncements adopted 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~~
~~2016-02, 2018-01, 2018-10, 2018-11, 2018-20, 2019-01, Leases (Topic 842)~~	ASC 842 was adopted by sPower on January 1, 2020. sPower was not required to adopt ASC 842 using the public adoption date, as sPower is an equity method investee that meets the definition of a public business entity only by virtue of the inclusion of its summarized financial information in the Company’s SEC filings.	~~January 1, 2020~~	~~The adoption of this standard resulted in a $4 million decrease to accumulated deficit attributable to the AES Corporation stockholders’ equity.~~
~~2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~	~~See discussion of the ASU below.~~	~~January 1, 2020~~	~~See impact upon adoption of the standard below.~~

~~ASC 326~~ — ~~Financial Instruments~~ — ~~Credit Losses~~

98 | Notes to Condensed Consolidated Financial Statements—(Continued) | ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

other receivables, held-to-maturity debt securities, loans, and other instruments, entities are required to use a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for credit losses. For available-for-sale debt securities with unrealized losses, entities measure credit losses as it was done under previous GAAP, except that unrealized losses due to credit-related factors are now recognized as an allowance on the balance sheet with a corresponding adjustment to earnings in the income statement.

The Company applied the modified retrospective method of adoption for ASC 326. Under this transition method, the Company applied the transition provisions starting at the date of adoption. The cumulative effect of the adoption of ASC 326 on our January 1, 2020 Condensed Consolidated Balance Sheet was as follows (in millions):

Condensed Consolidated Balance Sheet
Balance at
December 31, 2019
Adjustments Due to ASC 326
Balance at
January 1, 2020
Assets
Accounts receivable, net of allowance for doubtful accounts of $20 $ 1,479 $ 0 $ 1,479
Other current assets (1)
802 (2) 800
Deferred income taxes 156 9 165
Loan receivable, net of allowance of $32 1,351 (32) 1,319
Other noncurrent assets (2)
1,635 (30) 1,605
Liabilities and Equity
Accumulated deficit $ (692) $ (39) $ (731)
Noncontrolling interests 2,233 (16) 2,217

~~_________________________~~

~~(1)Other current assets include the short-term portion of the Mong Duong loan receivable.~~

~~(2)Other noncurrent assets include Argentina financing receivables.~~

~~Mong Duong —~~ The Mong Duong II power plant in Vietnam is the primary driver of changes in credit reserves under the new standard. This plant is operated under a build, operate, and transfer (“BOT”) contract and will be transferred to the Vietnamese government after the completion of a 25-year PPA. A loan receivable was recognized in 2018 upon the adoption of ASC 606 in order to account for the future expected payments for the construction performance obligation portion of the BOT contract. 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. Historically, the Company has not incurred any losses on this arrangement, of which no directly comparable assets exist in the market. In order to determine expected credit losses under ASC 326 arising from this $1.4 billion loan receivable as of January 1, 2020, the Company considered average historical default and recovery rates on similarly rated sovereign bonds, which formed an initial basis for developing a probability of default, net of expected recoveries, to be applied as a key credit quality indicator for this arrangement. A resulting estimated loss rate of 2.4% was applied to the weighted-average remaining life of the loan receivable, after adjustments for certain asset-specific characteristics, including the Company’s status as a large foreign direct investor in Vietnam, Mong Duong’s status as critical energy infrastructure in Vietnam, and cash flows from the operations of the plant, which are under the Company’s control until the end of the BOT contract. As a result of this analysis, the Company recognized an opening CECL reserve of $34 million as an adjustment to ~~Accumulated deficit~~ ~~and~~ ~~Noncontrolling interests~~ ~~as of January 1, 2020.~~

~~Argentina —~~ ~~Exposure to~~CAMMESA, the administrator of the wholesale energy market in Argentina, is the driver of credit reserves in Argentina. As discussed in Note 7 of the Company’s 2019 Form 10-K, the Company has credit exposures through the FONINVEMEM Agreements, other agreements related to resolutions passed by the Argentine government in which AES Argentina will receive compensation for investments in new generation plants and technologies, as well as regular accounts receivable balances. The timing of collections depends on corresponding agreements and collectability of these receivables are assessed on an ongoing basis.

Collection of the principal and interest on these receivables is subject to various business risks and uncertainties, including, but not limited to, the continued 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. Historically, the Company has not incurred any credit-related losses on these receivables. In order to determine expected credit losses under ASC 326, the Company considered historical default probabilities utilizing similarly rated sovereign bonds and historic recovery rates for Argentine government bond defaults. This information formed an initial basis for developing a probability of default, net of expected recoveries, to be applied as a key credit quality indicator across the underlying financing receivables. A resulting estimated weighted average loss rate of 41.2% was applied to the remaining balance of these receivables, after adjustments for certain asset-specific characteristics, including AES Argentina’s role in providing critical energy infrastructure to Argentina, our history of collections on these receivables, and the average term that the receivables are expected to be outstanding. As a result of this analysis, the Company recognized an opening CECL reserve of $29 million as an adjustment to ~~Accumulated deficit~~ ~~as of January 1, 2020.~~

~~10 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

~~Other financial assets~~— Application of ASC 326 to the Company’s $1.5 billion of trade accounts receivable and $326 million of available-for-sale debt securities at January 1, 2020 did not result in any material adjustments, primarily due to the short-term duration and high turnover of these financial assets. Additionally, a large portion of our trade accounts receivables and amounts reserved for doubtful accounts under legacy GAAP arise from arrangements accounted for as an operating lease under ASC 842, which are excluded from the scope of ASC 326.

As discussed in Note 7 of the Company’s 2019 Form 10-K, AES Gener recorded $33 million of noncurrent receivables pertaining to revenues recognized on regulated energy contracts that were impacted by the Stabilization Fund created by the Chilean government in October 2019. It is expected that these noncurrent receivables will be collected prior to December 31, 2027. However, given the investment grade rating of Chile and the history of zero credit losses for regulated customers, management determined that no incremental CECL reserves were required to be recognized as of January 1, 2020.

~~The following table represents the rollforward of the allowance for credit losses from January 1, 2020 to September 30, 2020 (in millions):~~

Rollforward of CECL Reserves by Portfolio Segment Reserve at January 1, 2020 Current Period Provision Write-offs charged against allowance Recoveries Collected Foreign Exchange Reserve at September 30, 2020
Accounts Receivable (1)
$ 4 $ 9 $ (9) $ 5 $ 0 $ 9
Mong Duong Loan Receivable 34 0 0 (1) 0 33
Argentina Receivables 29 1 0 (2) (6) 22
Other 1 0 0 0 0 1
Total CECL Reserves $ 68 $ 10 $ (9) $ 2 $ (6) $ 65

~~_____________________________~~

~~(1)~~Excludes operating lease receivable allowances and contractual dispute allowances of $16 million and $4 million as of January 1, 2020 and September 30, 2020, respectively. Those reserves are not in scope under ASC 326.

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

2020-06, Debt - Debt with conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Equity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Equity’s Own Equity	The amendments in this update affect entities that issue convertible instruments and/or contracts indexed to and potentially settled in an entity’s own equity. The new ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation.	For fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2020-04 and 2021-01, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The ~~standard provides~~amendments in these updates provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate ~~reform. This standard is~~reform, and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These amendments are effective for a limited period of time (March 12, 2020 - December ~~21,~~31, 2022).	Effective for all entities as of March 12, 2020 through December 31, 2022.	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
~~2019-12, Income Taxes (Topic 740): Simplifying the Accounting For Income Taxes~~	The standard removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ~~Transition Method: various~~	~~January 1, 2021. Early adoption is permitted.~~	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.

2. INVENTORY

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

September 30, 2020 December 31, 2019
Fuel and other raw materials $ 227 $ 230
Spare parts and supplies 247 257
Total $ 474 $ 487

~~11 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

~~3. ASSET RETIREMENT OBLIGATIONS~~

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.

During the nine months ended September 30, 2020, the Company increased the asset retirement obligation and corresponding asset at Hawaii by $12 million in conjunction with the shortened useful life of the coal plant resulting from the passage of Senate Bill 2629, which prohibits issuing or renewing permits for coal power plants after December 31, 2022 and calls for ceasing all coal burning for electricity generation by that date.

During the nine months ended September 30, 2019, the Company increased the asset retirement obligation and corresponding asset at IPL by $80 million and decreased the asset retirement obligation at DPL by $23 million. The increase at IPL reflects an increase to estimated ash pond closure costs, including groundwater remediation as required by the EPA under the Resource Conservation and Recovery Act. The decrease at DPL was due to reductions in estimated closure costs associated with ash ponds and landfills, resulting in a reduction to ~~Cost of Sales~~ ~~on the Condensed Consolidated Statement of Operations as the related plants were no longer in service.~~


	March 31, 2021		December 31, 2020
Fuel and other raw materials	$	214	$	223
Spare parts and supplies	232		238
Total	$	446	$	461

4.3. FAIR VALUE

The fair value of current financial assets and liabilities, debt service reserves, and other deposits approximate their reported carrying amounts. The estimated fair values of the Company’s assets and liabilities have been determined using available market information. Because these amounts are 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 5—Fair Value in Item 8.—Financial Statements and Supplementary Data of our ~~2019~~2020 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 were 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, 2020 December 31, 2019
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Assets
DEBT SECURITIES:
Available-for-sale:
Certificates of deposit $ 0 $ 312 $ 0 $ 312 $ 0 $ 326 $ 0 $ 326
EQUITY SECURITIES:
Mutual funds 25 47 0 72 22 61 0 83
DERIVATIVES:
Interest rate derivatives 0 3 0 3 0 31 0 31
Foreign currency derivatives 0 21 79 100 0 17 93 110
Commodity derivatives 0 20 2 22 0 28 2 30
Total derivatives — assets 0 44 81 125 0 76 95 171
TOTAL ASSETS $ 25 $ 403 $ 81 $ 509 $ 22 $ 463 $ 95 $ 580
Liabilities
DERIVATIVES:
Interest rate derivatives $ 0 $ 415 $ 267 $ 682 $ 0 $ 144 $ 184 $ 328
Cross-currency derivatives 0 15 12 27 0 10 11 21
Foreign currency derivatives 0 37 0 37 0 44 0 44
Commodity derivatives 0 23 1 24 0 29 2 31
Total derivatives — liabilities 0 490 280 770 0 227 197 424
TOTAL LIABILITIES $ 0 $ 490 $ 280 $ 770 $ 0 $ 227 $ 197 $ 424

9 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020


	March 31, 2021								December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
DEBT SECURITIES:
Available-for-sale:
Unsecured debentures	$	0	$	0	$	0	$	0	$	0	$	21	$	0	$	21
Certificates of deposit	0		151		0		151		0		238		0		238

Total debt securities	0		151		0		151		0		259		0		259
EQUITY SECURITIES:
Mutual funds	29		15		0		44		28		51		0		79

Total equity securities	29		15		—		44		28		51		—		79
DERIVATIVES:
Interest rate derivatives	0		87		1		88		0		13		0		13
Cross-currency derivatives	0		7		5		12		0		5		0		5
Foreign currency derivatives	0		21		98		119		0		15		146		161
Commodity derivatives	0		28		1		29		0		8		2		10
Total derivatives — assets	0		143		105		248		0		41		148		189
TOTAL ASSETS	$	29	$	309	$	105	$	443	$	28	$	351	$	148	$	527
Liabilities
DERIVATIVES:
Interest rate derivatives	$	0	$	173	$	167	$	340	$	0	$	374	$	236	$	610
Cross-currency derivatives	0		2		8		10		0		2		2		4
Foreign currency derivatives	0		23		0		23		0		43		0		43
Commodity derivatives	0		82		0		82		0		22		0		22
Total derivatives — liabilities	0		280		175		455		0		441		238		679
TOTAL LIABILITIES	$	0	$	280	$	175	$	455	$	0	$	441	$	238	$	679

As of ~~September 30, 2020,~~March 31, 2021, all available-for-sale debt securities had stated maturities within one year. There were no other-than-temporary impairments of marketable securities during the three ~~and nine~~ months ended ~~September 30, 2019, and as of January 1, 2020, credit-related~~March 31, 2021. Credit-related impairments are recognized in earnings under ASC 326. ~~See Note 1—Financial Statement Presentation~~ ~~for further information.~~ Gains and losses on the sale of

~~12 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

investments are determined using the specific-identification method. The following table presents gross proceeds from the sale of available-for-sale securities during the periods indicated (in millions):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Gross proceeds from sale of available-for-sale securities $ 97 $ 193 $ 410 $ 517


	Three Months Ended March 31,
		2021		2020
Gross proceeds from sale of available-for-sale securities		$	245	$	258

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~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (presented net by type of derivative in millions). Transfers between Level 3 and Level 2 principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.


Three Months Ended September 30, 2020		Interest Rate		Cross Currency		Foreign Currency		Commodity		Total
Balance at July 1		$	(286)	$	(23)	$	76	$	1	$	(232)
Three Months Ended March 31, 2021												Three Months Ended March 31, 2021	Interest Rate		Cross Currency		Foreign Currency		Commodity		Total
Balance at January 1												Balance at January 1	$	(236)	$	(2)	$	146	$	2	$	(90)
Total realized and unrealized gains (losses):	Total realized and unrealized gains (losses):											Total realized and unrealized gains (losses):
Included in earnings	Included in earnings	0		0		8		1		9		Included in earnings	2		(1)		(29)		0		(28)
Included in other comprehensive income — derivative activity	Included in other comprehensive income — derivative activity	(8)		3		3		0		(2)		Included in other comprehensive income — derivative activity	37		0		(10)		0		27

Included in regulatory (assets) liabilities		0		0		0		(1)		(1)

Settlements	Settlements	12		9		(9)		1		13		Settlements	12		0		(9)		(1)		2
Transfers of assets (liabilities), net into Level 3		0		0		0		0		0

Transfers of (assets)/liabilities, net out of Level 3	Transfers of (assets)/liabilities, net out of Level 3	13		0		1		0		14		Transfers of (assets)/liabilities, net out of Level 3	19		0		0		0		19
Balance at September 30		$	(269)	$	(11)	$	79	$	2	$	(199)
Balance at March 31												Balance at March 31	$	(166)	$	(3)	$	98	$	1	$	(70)
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	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	$	0	$	0	$	0	$	1	$	1	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	$	2	$	0	$	(39)	$	0	$	(37)

Three Months Ended September 30, 2019 Interest Rate Cross Currency Foreign Currency Commodity Total
Balance at July 1 $ (243) $ 0 $ 192 $ 4 $ (47)
Total realized and unrealized gains (losses):
Included in earnings 0 0 (54) (2) (56)
Included in other comprehensive income — derivative activity (37) 0 (10) 0 (47)
Included in regulatory (assets) liabilities 0 0 0 (2) (2)
Settlements 2 0 (15) (1) (14)
Transfers of assets (liabilities), net into Level 3 0 (6) 0 0 (6)
Transfers of (assets) liabilities, net out of Level 3 45 0 0 0 45
Balance at September 30 $ (233) $ (6) $ 113 $ (1) $ (127)
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 $ 0 $ 0 $ (62) $ (2) $ (64)

Nine Months Ended September 30, 2020 Interest Rate Cross Currency Foreign Currency Commodity Total
Balance at January 1 $ (184) $ (11) $ 94 $ (1) $ (102)
Total realized and unrealized gains (losses):
Included in earnings 2 0 10 2 14
Included in other comprehensive income — derivative activity (79) (10) 4 0 (85)
Included in regulatory (assets) liabilities 0 0 0 1 1
Settlements 20 10 (30) 0 0
Transfers of assets (liabilities), net into Level 3 (28) 0 0 0 (28)
Transfers of (assets)/liabilities, net out of Level 3 0 0 1 0 1
Balance at September 30 $ (269) $ (11) $ 79 $ 2 $ (199)
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 $ 0 $ 0 $ (13) $ 2 $ (11)


Nine Months Ended September 30, 2019		Interest Rate		Cross Currency		Foreign Currency		Commodity		Total
Three Months Ended March 31, 2020												Three Months Ended March 31, 2020	Interest Rate		Cross Currency		Foreign Currency		Commodity		Total
Balance at January 1	Balance at January 1	$	(140)	$	0	$	199	$	4	$	63	Balance at January 1	$	(184)	$	(11)	$	94	$	(1)	$	(102)
Total realized and unrealized gains (losses):	Total realized and unrealized gains (losses):											Total realized and unrealized gains (losses):
Included in earnings	Included in earnings	(1)		0		(52)		(2)		(55)		Included in earnings	2		0		12		1		15
Included in other comprehensive income — derivative activity	Included in other comprehensive income — derivative activity	(113)		0		(10)		0		(123)		Included in other comprehensive income — derivative activity	(53)		(18)		7		0		(64)

Included in regulatory (assets) liabilities		0		0		0		(3)		(3)

Settlements	Settlements	5		0		(24)		0		(19)		Settlements	1		0		(14)		0		(13)
Transfers of assets (liabilities), net into Level 3	Transfers of assets (liabilities), net into Level 3	(32)		(6)		0		0		(38)		Transfers of assets (liabilities), net into Level 3	(35)		0		0		0		(35)
Transfers of (assets) liabilities, net out of Level 3		48		0		0		0		48
Balance at September 30		$	(233)	$	(6)	$	113	$	(1)	$	(127)
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		$	0	$	0	$	(69)	$	(2)	$	(71)

Balance at March 31												Balance at March 31	$	(269)	$	(29)	$	99	$	0	$	(199)
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												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	$	0	$	0	$	4	$	1	$	5

1310 | Notes to Condensed Consolidated Financial Statements—(Continued) | ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

The following table summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of ~~September 30, 2020~~March 31, 2021 (in millions, except range amounts):

Type of Derivative

Fair Value

Unobservable Input

Amount or Range (Weighted Average)

Type of Derivative

Fair Value

Unobservable Input

Amount or Range (Weighted Average)

Interest rate

(269)

Subsidiaries’ credit spreads

3.6% - 4.7% (4.6%)

Interest rate

(166)

Subsidiaries’ credit spreads

0.6% - 3.3% (3.3%)

Cross-currency

(11)

Subsidiaries’ credit spreads

3.8

Cross-currency

(3)

Subsidiaries’ credit spreads

3.6

Foreign currency:

Argentine peso

Argentine peso to U.S. dollar currency exchange rate after one year

79 - 853 (343)

Argentine peso

Argentine peso to U.S. dollar currency exchange rate after one year

93 - 640 (286)

Commodity:

Other

Total

(199)

Total

(70)

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, shown as pre-tax loss below, is measured by comparing the fair value at the evaluation date to the then-latest available carrying amount and is included in Asset impairment expense or Other non-operating expense, as applicable, on the Condensed Consolidated Statements of Operations. 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 Pre-tax Loss
Nine Months Ended September 30, 2020 Level 1 Level 2 Level 3
Equity method investments:
OPGC (2)
03/31/2020 $ 195 $ 0 $ 0 $ 152 $ 43
OPGC (3)
06/30/2020 272 0 104 0 158
Long-lived assets held and used
AES Gener 08/01/2020 1,087 0 0 306 781
Hawaii 08/31/2020 114 0 0 76 38
Estrella del Mar I 09/30/2020 44 0 0 14 30


	Measurement Date	Carrying Amount		Fair Value						Pre-tax Loss
Three Months Ended March 31, 2021				Level 1		Level 2		Level 3





Long-lived assets held and used
Puerto Rico	03/31/2021	$	548	$	0	$	0	$	73	$	475

Measurement Date
Carrying Amount (1)
Fair Value Pre-tax Loss
Nine Months Ended September 30, 2019 Level 1 Level 2 Level 3
Dispositions and held-for-sale businesses: (4)
Kilroot and Ballylumford 04/12/2019 $ 232 $ 0 $ 118 $ 0 $ 115


	Measurement Date	Carrying Amount (1)		Fair Value						Pre-tax Loss
Three Months Ended March 31, 2020				Level 1		Level 2		Level 3




Equity method investments:
OPGC	3/31/2020	$	195	$	0	$	0	$	152	$	43

_____________________________

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

~~(2)Excludes~~adjustment and excluding $115 million of cumulative translation adjustment ~~(debit balance) in the carrying value.~~balance.

~~(3)Includes $114 million of cumulative translation adjustment (debit balance) in the carrying value. Pre-tax loss is limited to the carrying value of the equity method investment excluding CTA.~~

~~(4)Per the Company’s policy, pre-tax loss is limited to the impairment of long-lived assets. Any additional losses are recognized on completion of the sale. See Note 18—Held-for-Sale and Dispositions~~ ~~for further information.~~

~~14 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

The following table summarizes the significant unobservable inputs used in the Level 3 measurement of long-lived assets held and used measured on a nonrecurring basis during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 (in millions, except range amounts):

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

~~Equity method investments:~~

~~OPGC~~ ~~(1)~~

~~152~~

~~Expected present value~~

~~Annual dividend growth~~

~~(25)% to 40% (2%)~~

~~Weighted-average cost of equity~~

Long-lived assets held and used:

~~AES Gener~~Puerto Rico

~~306~~$

Discounted cash flow

Annual revenue growth

~~(90)~~(80)% to ~~10% (-2%)~~8%

~~Variable~~Annual variable margin

~~(94)%~~37% to ~~24% (-3%)~~97%

Weighted-average cost of capital

~~7% to 10%~~

~~Hawaii~~

~~Discounted cash flow~~

~~Monthly revenue growth~~

~~(12)% to 13% (0%)~~18.2%

~~Pre-tax operating margin~~

~~24% to 35% (29%)~~

~~Weighted-average cost of capital~~

~~10% to 13%~~

~~Estrella del Mar I~~

~~Comparable market transactions~~

~~Sale price per kilowatt (USD)~~

~~$160 to $520 ($315)~~

~~Age of unit when sold (years)~~

~~15 to 25 (18)~~

Total

~~548~~73

~~_____________________________~~

~~(1)~~Fair value measurement performed as of March 31, 2020, which included the Level 3 inputs shown above. The fair value measurement performed at June 30, 2020 included only Level 2 inputs; therefore, it is not included in this table.

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 the periods indicated, but for which fair value is disclosed:

September 30, 2020
Carrying
Amount
Fair Value
Total Level 1 Level 2 Level 3
Assets:
Accounts receivable — noncurrent (1)
$ 183 $ 296 $ 0 $ 0 $ 296
Liabilities: Non-recourse debt 17,377 18,987 0 16,053 2,934
Recourse debt 3,969 2,461 0 2,461 0

11 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020

December 31, 2019
Carrying
Amount
Fair Value
Total Level 1 Level 2 Level 3
Assets:
Accounts receivable — noncurrent (1)
$ 98 $ 145 $ 0 $ 0 $ 145
Liabilities: Non-recourse debt 16,712 16,579 0 15,804 775
Recourse debt 3,396 3,529 0 3,529 0


		March 31, 2021
		Carrying Amount		Fair Value
				Total		Level 1		Level 2		Level 3
Assets:	Accounts receivable — noncurrent (1)	$	100	$	187	$	0	$	0	$	187
Liabilities:	Non-recourse debt	16,429		17,783		4		14,790		2,989
	Recourse debt	3,365		3,438		0		3,438		0


		December 31, 2020
		Carrying Amount		Fair Value
				Total		Level 1		Level 2		Level 3
Assets:	Accounts receivable — noncurrent (1)	$	97	$	197	$	0	$	0	$	197
Liabilities:	Non-recourse debt	16,354		18,403		5		15,301		3,097
	Recourse debt	3,446		3,677		0		3,677		0

_____________________________

(1)These amounts primarily relate to amounts due from CAMMESA, the administrator of the wholesale electricity market in Argentina, and amounts impacted by the Stabilization Fund enacted by the Chilean government, 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 $9$3 million and ~~$11~~$4 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

5.4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

For further information on the Company’s derivative and hedge accounting policies, see Note 1—General and Summary of Significant Accounting Policies—Derivative Instruments and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the ~~2019~~2020 Form 10-K.

~~15 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

Volume of Activity — The following tables present the Company’s maximum notional (in millions) over the remaining contractual period by type of derivative as of ~~September 30, 2020,~~March 31, 2021, regardless of whether they are in qualifying cash flow hedging relationships, and the dates through which the maturities for each type of derivative range:


Interest Rate and Foreign Currency Derivatives	Interest Rate and Foreign Currency Derivatives	Maximum Notional Translated to USD		Latest Maturity	Interest Rate and Foreign Currency Derivatives	Maximum Notional Translated to USD		Latest Maturity
Interest rate (LIBOR and EURIBOR)	Interest rate (LIBOR and EURIBOR)	$	4,750	2047	Interest rate (LIBOR and EURIBOR)	$	5,110	2059
Cross-currency swaps (Chilean Unidad de Fomento and Chilean peso)		191		2029
Cross-currency swaps (Chilean Unidad de Fomento and Brazilian Real)					Cross-currency swaps (Chilean Unidad de Fomento and Brazilian Real)	260		2028
Foreign Currency:	Foreign Currency:				Foreign Currency:
Argentine peso	Argentine peso	103		2026	Argentine peso	5		2026
Chilean peso	Chilean peso	129		2022	Chilean peso	41		2023
Colombian peso	Colombian peso	133		2022	Colombian peso	137		2023
Mexican peso		217		2020
Euro	Euro	131		2023	Euro	112		2023
Mexican Peso					Mexican Peso	89		2021
Brazilian Real					Brazilian Real	65		2022
Others, primarily with weighted average remaining maturities of a year or less	Others, primarily with weighted average remaining maturities of a year or less	34		2022	Others, primarily with weighted average remaining maturities of a year or less	3		2022


Commodity Derivatives	Commodity Derivatives	Maximum Notional	Latest Maturity	Commodity Derivatives	Maximum Notional	Latest Maturity
Natural Gas (in MMBtu)	Natural Gas (in MMBtu)	30	2021	Natural Gas (in MMBtu)	104	2029
Power (in MWhs)	Power (in MWhs)	10	2024	Power (in MWhs)	7	2043
Coal (in Tons or Metric Tons)	Coal (in Tons or Metric Tons)	9	2027	Coal (in Tons or Metric Tons)	8	2027

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 the periods indicated (in millions):


Fair Value	Fair Value	September 30, 2020						December 31, 2019						Fair Value	March 31, 2021						December 31, 2020
Assets	Assets	Designated		Not Designated		Total		Designated		Not Designated		Total		Assets	Designated		Not Designated		Total		Designated		Not Designated		Total
Interest rate derivatives	Interest rate derivatives	$	3	$	0	$	3	$	31	$	0	$	31	Interest rate derivatives	$	86	$	2	$	88	$	13	$	0	$	13

Cross-currency derivatives														Cross-currency derivatives	12		0		12		5		0		5
Foreign currency derivatives	Foreign currency derivatives	20		80		100		31		79		110		Foreign currency derivatives	29		90		119		40		121		161
Commodity derivatives	Commodity derivatives	0		22		22		0		30		30		Commodity derivatives	2		27		29		2		8		10
Total assets	Total assets	$	23	$	102	$	125	$	62	$	109	$	171	Total assets	$	129	$	119	$	248	$	60	$	129	$	189
Liabilities	Liabilities													Liabilities
Interest rate derivatives	Interest rate derivatives	$	673	$	9	$	682	$	323	$	5	$	328	Interest rate derivatives	$	332	$	8	$	340	$	506	$	104	$	610
Cross-currency derivatives	Cross-currency derivatives	27		0		27		21		0		21		Cross-currency derivatives	10		0		10		4		0		4
Foreign currency derivatives	Foreign currency derivatives	14		23		37		22		22		44		Foreign currency derivatives	4		19		23		8		35		43
Commodity derivatives	Commodity derivatives	0		24		24		2		29		31		Commodity derivatives	0		82		82		0		22		22
Total liabilities	Total liabilities	$	714	$	56	$	770	$	368	$	56	$	424	Total liabilities	$	346	$	109	$	455	$	518	$	161	$	679

September 30, 2020 December 31, 2019
Fair Value Assets Liabilities Assets Liabilities
Current $ 68 $ 335 $ 72 $ 126
Noncurrent 57 435 99 298
Total $ 125 $ 770 $ 171 $ 424


~~Credit Risk-Related Contingent Features(1)~~	~~September 30, 2020~~
~~Present value of liabilities subject to collateralization~~	$	19
~~Cash collateral held by third parties or in escrow~~	19

~~_____________________________~~

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


	March 31, 2021				December 31, 2020
Fair Value	Assets		Liabilities		Assets		Liabilities
Current	$	72	$	166	$	51	$	236
Noncurrent	176		289		138		443
Total	$	248	$	455	$	189	$	679

1612 | Notes to Condensed Consolidated Financial Statements—(Continued) | ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Cash flow hedges
Gains (losses) recognized in AOCL
Interest rate derivatives $ 20 $ (186) $ (532) $ (450)
Equity in earnings 0 0 (43) 0
Cross-currency derivatives 11 (19) (25) (10)
Foreign currency derivatives 0 (20) (14) (14)
Commodity derivatives 0 3 4 2
Total $ 31 $ (222) $ (610) $ (472)
Gains (losses) reclassified from AOCL into earnings
Interest rate derivatives $ (38) $ (8) $ (83) $ (25)
Cross-currency derivatives 4 (11) (11) (5)
Foreign currency derivatives (3) (4) (16) (15)
Commodity derivatives 0 0 2 0
Total $ (37) $ (23) $ (108) $ (45)
Gains reclassified from AOCL to earnings due to discontinuance of hedge accounting (1)
$ 0 $ 0 $ 0 $ 2
Gains (losses) recognized in earnings related to
Not designated as hedging instruments:
Interest rate derivatives $ 0 $ (2) $ (1) $ (6)
Foreign currency derivatives 8 (39) 30 (33)
Commodity derivatives and other (56) (2) (50) 2
Total $ (48) $ (43) $ (21) $ (37)

~~_____________________________~~

~~(1)~~ ~~Cash flow hedge was discontinued on a cross-currency swap because the underlying debt was prepaid.~~


	Three Months Ended March 31,
		2021		2020
Cash flow hedges
Gains (losses) recognized in AOCL
Interest rate derivatives		$	309	$	(530)

Cross-currency derivatives		2		(39)
Foreign currency derivatives		(1)		(12)

Total		$	310	$	(581)
Losses reclassified from AOCL into earnings
Interest rate derivatives		$	(24)	$	(15)
Cross-currency derivatives		(1)		(17)
Foreign currency derivatives		(3)		(8)
Commodity derivatives		(2)		0
Total		$	(30)	$	(40)

Loss reclassified from AOCL to earnings due to impairment of assets		$	(4)	$	0
Gains (losses) recognized in earnings related to

Not designated as hedging instruments:
Interest rate derivatives		$	60	$	0
Foreign currency derivatives		(11)		40
Commodity derivatives and other		(93)		6
Total		$	(44)	$	46

AOCL is expected to decrease pre-tax income from continuing operations for the ~~twelve~~three months ended ~~September 30, 2021~~March 31, 2022 by ~~$108~~$85 million, primarily due to interest rate derivatives.

6.5. FINANCING RECEIVABLES

Receivables with contractual maturities of greater than one year are considered financing receivables. The following table presents financing receivables by country as of the dates indicated (in millions). As the Company applied the modified retrospective method of adoption for ASC 326 effective January 1, 2020, CECL reserves are included in the receivable balance as of September 30, 2020. See Note 1—~~Financial Statement Presentation~~ ~~for further information.~~:


		September 30, 2020						December 31, 2019			March 31, 2021						December 31, 2020
		Gross Receivable		Allowance		Net Receivable		Receivable			Gross Receivable		Allowance		Net Receivable		Gross Receivable		Allowance		Net Receivable
Argentina										Argentina	$	46	$	8	$	38	$	48	$	9	$	39
Chile	Chile	$	106	$	0	$	106	$	33	Chile	38		0		38		31		0		31
Argentina		52		11		41		64

U.S.		18		0		18		0

Other	Other	27		0		27		12		Other	27		0		27		31		0		31
Total	Total	$	203	$	11	$	192	$	109	Total	$	111	$	8	$	103	$	110	$	9	$	101

Chile — AES Gener has recorded noncurrent receivables pertaining to revenues recognized on regulated energy contracts that were impacted by the Stabilization Fund created by the Chilean government in October ~~2019.~~2019, in conjunction with the Tariff Stabilization Law. Historically, the government updated the prices for these contracts every six months to reflect the indexation the contracts have to exchange rates and commodities prices. The Stabilization Fund does not allow the pass-through of these contractual indexation updates to customers beyond the pricing in effect at July 1, 2019, until new lower-cost renewable contracts are incorporated into pricing in 2023. Consequently, costs incurred in excess of the July 1, 2019 price will be accumulated and borne by generators. ~~It is expected that these noncurrent~~

AES Gener executed an agreement in December 2020 for the sale of the receivables ~~will be~~generated pursuant the Tariff Stabilization Law, of which $55 million was collected ~~prior to December 31, 2027.~~in 2021.

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.

1713 | Notes to Condensed Consolidated Financial Statements—(Continued) | ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

~~United States —~~ In March 2020, the Company completed the sale and leaseback of land held by AES Redondo Beach, a gas-fired generating facility in California. A portion of the sale proceeds were deferred over a future period. It is expected that the noncurrent receivables will be collected by December 2021. See Note 18—~~Held-for-Sale and Dispositions~~ ~~for further information about the sale.~~

7.6. INVESTMENTS IN AND ADVANCES TO AFFILIATES

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


		50%-or-Less-Owned Affiliates				Majority-Owned Unconsolidated Subsidiaries					Three Months Ended March 31,
Nine Months Ended September 30,		2020		2019		2020		2019
Three Months Ended March 31,										Three Months Ended March 31,	2021		2020
Revenue	Revenue	$	1,404	$	807	$	1	$	12	Revenue	$	506	$	370
Operating margin (loss)	Operating margin (loss)	203		87		(2)		(2)		Operating margin (loss)	32		55
Net loss	Net loss	(444)		(65)		(3)		(7)		Net loss	(17)		(11)

sPower — On February 1, 2021, the Company substantially completed the merger of the sPower and AES Distributed Energy development platforms to form AES Clean Energy Development, a consolidated entity, which will serve as the development vehicle for all future renewable projects in the U.S. Since the sPower development platform was carved-out of AES’ existing equity method investment, this transaction resulted in a $77 million decrease in the carrying value of the sPower investment. See Note 18—Acquisitions for further information. As the Company still does not control sPower after the transaction, it continues to be accounted for as an equity method investment and is reported in the US and Utilities SBU reportable segment.

Guacolda — In September 2020, Guacolda management reviewed the recoverability of the Guacolda asset group and determined the undiscounted cash flows did not exceed the carrying amount. Impairment indicators were identified primarily as a result of inability to re-contract Guacolda’s generation after expiration of its existing PPAs driven by lower energy prices in Chile and reduced forecasted cash flows resulting from decarbonization initiatives of the Chilean Government. Guacolda recognized a long-lived asset impairment at the investee level, which negatively impacted the Company's Net equity in ~~earnings (losses)~~losses of affiliates by ~~$120~~$127 million. As a result, the Company’s basis in its investment in Guacolda was reduced to zero and the equity method of accounting was suspended. As of ~~September 30, 2020,~~March 31, 2021, the Company has not recognized ~~$114~~$95 million of equity method losses which were in excess of the Company’s carrying amount.

In February 2021, AES Gener entered into an agreement to sell its 50% ownership interest in Guacolda for $34 million. The sale is subject to regulatory approval and is expected to close in the second quarter of 2021. The Guacolda equity method investment is reported in the South America SBU reportable segment.

OPGC — In ~~December 2019,~~March 2020, an other-than-temporary impairment was identified at OPGC primarily due to the estimated market value of the Company's investment and ~~other negative developments impacting future expected cash flows at~~ the ~~investee.~~economic slowdown. A calculation of the fair value of the Company’s investment in OPGC was required to evaluate whether there was a loss in the carrying value of the investment. Based on management’s estimate of fair value of ~~$212~~$152 million, the Company recognized an other-than-temporary impairment of ~~$92 million in December 2019. In March 2020, management’s updated estimate of fair value was $152 million and the Company recognized an additional other-than-temporary impairment of~~ $43 million ~~due to the economic slowdown.~~

In June 2020, the Company agreed to sell its entire 49% stake in OPGC resulting in an additional other-than-temporary impairment of $158 million. The sale is expected to close in the fourth quarter of 2020. Total other-than-temporary impairment for the nine months ended September 30, 2020 was $201 million, recognized in Other non-operating expense. As a result, the Company’s basis in its investment in OPGC was reduced to zero and the equity method of accounting was suspended. The OPGC equity method investment is reported in the Eurasia SBU reportable segment.

~~Energía Natural Dominicana Enadom —~~ In September 2019, AES Andres completed an agreement with Energas Group to establish a joint venture for the purpose of selling natural gas and related terminal services, storage, regasification, and transportation to customers in the Dominican Republic. Gas Natural del Este (subsequently renamed Energía Natural Dominicana Enadom), a wholly-owned subsidiary of the joint venture, acquired the Eastern Pipeline development project from AES Andres for total consideration of $55 million, resulting in a gain of $2 million. The transaction was considered a contribution of a nonfinancial asset in exchange for a noncontrolling interest in the joint venture. As the Company does not control the joint venture, it is accounted for as an equity method investment and is reported in the MCAC SBU reportable segment.

~~Simple Energy~~— In July 2019, Simple Energy merged with Tendril, a previously unrelated party, to form Uplight, a new company that offers a comprehensive platform for utility customer engagement. As part of this merger, the Company contributed its ownership interest in Simple Energy and $53 million of cash in exchange for an ownership interest in the merged company. This transaction resulted in a gain on sale of $12 million and a total investment in Uplight of $98 million. As the Company does not control Uplight, it is accounted for as an equity method investment and reported as part of Corporate and Other.

~~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

~~18 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

~~from 50% to approximately 26%. The sPower equity method investment is reported in the US and Utilities SBU reportable segment.~~

8.7. DEBT

Recourse Debt

During the first quarter of 2020, the Company drew $840 million on revolving lines of credit at the Parent Company, of which approximately $250 million was used to enhance our liquidity position due to the uncertain economic conditions surrounding the COVID-19 pandemic, and the remaining $590 million was used for other general corporate purposes. ~~During the second and third quarters of 2020, the Parent Company drew an additional $600 million and repaid $695 million on these revolving lines of credit.~~ The entire $250 million related to the COVID-19 pandemic was repaid during the second quarter of 2020. ~~As of September 30, 2020, we had approximately $710 million of outstanding indebtedness on the Parent Company credit facility at a weighted average interest rate of 1.86%.~~

In May 2020, the Company issued $900 million aggregate principal of 3.30% senior secured notes due in 2025 and $700 million of 3.95% senior secured notes due in 2030. The Company used the net proceeds from these issuances

14 | Notes to purchase via tender offer a portion of the 4.00% senior notes due in 2021, the 4.50% senior notes due in 2023, and the 4.875% senior notes due in 2023. Subsequent to the tender offers, the Company redeemed the remaining balance of its 4.00% and 4.875% senior notes due inCondensed Consolidated Financial Statements—(Continued) | March 31, 2021 and ~~2023, respectively, and $7 million of the remaining 4.50% senior notes due in 2023. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $37 million.~~2020

In September 2019, the Company prepaid $343 million aggregate principal of its LIBOR + 1.75% existing senior secured term loan due in 2022 and $100 million of its 4.875% senior unsecured notes due in 2023. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $5 million.

Non-Recourse Debt

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company’s subsidiaries had the following significant debt transactions:

Subsidiary Transaction Period Issuances Repayments Loss on Extinguishment of Debt
Southland (1)
Q1, Q2 $ 283 $ 0 $ 0
Gener Q1, Q2 90 (8) 0
DPL (2)
Q2, Q3 555 (520) (34)
Tietê Q2, Q3 260 (1) 0
IPALCO Q2 475 (470) (2)
Mong Duong Q2 150 0 0
Panama (3)
Q3 1,485 (1,228) (16)
Cochrane Q3 485 (445) (1)
Angamos Q3 0 (309) (7)

~~_____________________________~~

~~(1)Issuances relate to the June 2017 long-term non-recourse debt financing to fund the Southland repowering construction projects.~~

~~(2)Includes transactions at DPL and its subsidiary, DP&L.~~

~~(3)Repayments relate to existing obligations at AES Panama, Changuinola, and Colon.~~

Subsidiary

Transaction Period

Issuances

AES Brasil

140

~~Panama~~ — In August 2020, AES Panama issued $1.4 billion aggregate principal of 4.375% senior secured notes and a $105 million term loan due in 2030 and 2023, respectively. The proceeds from the issuance were used to prepay $447 million, $171 million, and $610 million of outstanding indebtedness at AES Panama, Changuinola, and Colon, respectively. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $16 million for the nine months ended September 30, 2020.

~~Cochrane~~ — In July 2020, Cochrane issued $485 million aggregate principal of 6.25% senior secured notes due in 2034. The net proceeds from the issuance were used to prepay the outstanding principal of $445 million plus accrued interest on its senior secured facility agreement executed in 2019.

~~DPL~~ — In April 2019, DPL issued $400 million aggregate principal of 4.35% senior unsecured notes due in 2029. The net proceeds from the issuance were used to redeem $400 million of the $780 million aggregate principal outstanding of its 7.25% senior unsecured notes due in 2021. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $43 million for the nine months ended September 30, 2019.

In June 2020, DPL issued $415 million aggregate principal of 4.125% senior secured notes due in 2025. In July 2020, the net proceeds from the issuance were used to prepay the outstanding principal of $380 million of its

~~19 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

~~7.25% senior unsecured notes due in 2021. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $34 million for the nine months ended September 30, 2020.~~

~~IPALCO~~ — In April 2020, IPALCO issued $475 million aggregate principal of 4.25% senior secured notes due in 2030. The net proceeds from the issuance were used to prepay the outstanding principal of $405 million of its 3.45% senior unsecured notes and a $65 million term loan both due in July 2020. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $2 million for the nine months ended September 30, 2020.

~~Mong Duong~~ — In August 2019, Mong Duong refinanced $1.1 billion aggregate principal of its existing senior secured notes due in 2029 with variable interest rates ranging from LIBOR + 2.25% to LIBOR + 4.15% in exchange for a fixed rate loan with a newly formed SPV, accounted for as an equity affiliate, due in 2029 with interest rates that vary from 4.41% to 7.18%. This refinancing was a non-cash transaction as the SPV acquired all of the outstanding rights and obligations of the original Mong Duong lenders. As a result of these transactions, the Company recognized a loss on extinguishment of debt of $31 million for the nine months ended September 30, 2019.

~~DP&L~~ — In June 2019, DP&L issued $425 million aggregate principal of 3.95% First Mortgage Bonds due in 2049. The net proceeds from the issuance were used to prepay the outstanding principal of $435 million under its variable rate $445 million credit agreement due in 2022.

Non-Recourse Debt in Default — The following table summarizes the Company’s subsidiary non-recourse debt in default (in millions) as of ~~September 30, 2020.~~March 31, 2021. Due to the defaults, these amounts are included in the current portion of non-recourse debt:


Subsidiary	Subsidiary	Primary Nature of Default	Debt in Default		Net Assets		Subsidiary	Primary Nature of Default	Debt in Default		Net Assets
AES Puerto Rico	AES Puerto Rico	Covenant	$	258	$	263	AES Puerto Rico	Covenant	$	238	$	(207)
AES Ilumina (Puerto Rico)	AES Ilumina (Puerto Rico)	Covenant	31		26		AES Ilumina (Puerto Rico)	Covenant	31		24
AES Jordan Solar	AES Jordan Solar	Covenant	7		2		AES Jordan Solar	Covenant	7		4
Total	Total		$	296			Total		$	276

The above defaults are not payment defaults. In Puerto Rico, the subsidiary non-recourse debt defaults were triggered by failure to comply with covenants or other requirements contained in the non-recourse debt documents due to the bankruptcy of the 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 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently completed fiscal quarters. As of ~~September 30, 2020,~~March 31, 2021, the Company had 0 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.

9.8. 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 no more than 15 years.

The following table summarizes the Parent Company’s contingent contractual obligations as of ~~September 30, 2020.~~March 31, 2021. 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.

~~20 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~


Contingent Contractual Obligations	Contingent Contractual Obligations	Amount (in millions)		Number of Agreements	Maximum Exposure Range for Each Agreement (in millions)	Contingent Contractual Obligations	Amount (in millions)		Number of Agreements	Maximum Exposure Range for Each Agreement (in millions)
Guarantees and commitments	Guarantees and commitments	$	1,273	63	$0 — 157	Guarantees and commitments	$	1,776	73	$0 — 400
Letters of credit under the unsecured credit facility		114		25	$1 — 56
Letters of credit under the senior secured credit facility		16		15	$0 — 6
Letters of credit under the unsecured credit facilities						Letters of credit under the unsecured credit facilities	114		22	$0 — 56
Letters of credit under the revolving credit facility						Letters of credit under the revolving credit facility	84		23	$0 — 62
Surety bond						Surety bond	1		1	$1

Total	Total	$	1,403	103		Total	$	1,975	119

During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company paid letter of credit fees ranging from 1% to 3% per annum on the outstanding amounts of letters of credit.

15 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020

Contingencies

Environmental — The Company periodically reviews its obligations as they relate to compliance with environmental laws, including site restoration and remediation. For each of the periods ended ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company recognized liabilities of $4$5 million for projected environmental remediation costs. 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 30, 2020.~~March 31, 2021. In aggregate, the Company estimates the range of potential losses related to environmental matters, where estimable, to be up to $11 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 ~~$14~~$27 million and ~~$55~~$28 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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 30, 2020.~~March 31, 2021. 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 ~~$241~~$253 million and ~~$481~~$940 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.

Tietê GSF Settlement— In December 2020, ANEEL published a regulation establishing the terms and conditions for compensation to Tietê for the non-hydrological risk charged to hydro generators through the incorrect application of the GSF mechanism from 2013 until 2018. In accordance with the regulation, this compensation will be in the form of a concession extension period of 2.7 years. As a result, the previously recognized contingent liabilities related to GSF payments were updated to reflect the Company's best estimate for the fair value of compensation to be received from the concession extension offered in conjunction with the regulation. This compensation was estimated to have a fair value of $184 million, and was recorded as a reversal of Non-RegulatedCost of Sales on the Consolidated Statements of Operations for the year ended December 31, 2020. The concession extension also met the criteria for recognition as a definite-lived intangible asset, which will be amortized from the date of the agreement until the end of the new concession period. The value of the concession extension was based on a preliminary time-value equivalent calculation made by the CCEE and subsequent adjustments requested by Tietê, which was determined to be fair value. In March 2021, the CCEE’s final calculation of fair value was $190 million and the Company recognized an additional reversal of Non-RegulatedCost of Sales of $6 million. Both the concession extension period and its equivalent asset value are subject to a final agreement between ANEEL and AES.

~~10.~~

16 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020

9. LEASES

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~~receipts 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~~receipts from such contracts are recognized as lease revenue on a straight-line basis over the lease term, whereas variable lease ~~payments~~receipts are recognized when earned.

The following table presents lease revenue from operating leases in which the Company is the lessor for the periods indicated (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Lease Income		2020		2019		2020		2019
Operating Lease Income										Operating Lease Income	2021		2020
Total Lease Revenue	Total Lease Revenue	$	154	$	152	$	442	$	460	Total Lease Revenue	$	143	$	135
Less: Variable Lease Payments		24		23		58		59
Less: Variable Lease Revenue										Less: Variable Lease Revenue	14		11
Total Non-Variable Lease Revenue	Total Non-Variable Lease Revenue	$	130	$	129	$	384	$	401	Total Non-Variable Lease Revenue	$	129	$	124

The following table presents the underlying gross assets and accumulated depreciation of operating leases included in Property, Plant and Equipment for the periods indicated (in millions):


Property, Plant and Equipment	March 31, 2021		December 31, 2020
Gross Assets	$	2,588	$	3,103
Accumulated Depreciation	(773)		(1,011)
Net Assets (1)	$	1,815	$	2,092

(1)The decrease in net assets is primarily related to the asset impairment at Puerto Rico. See Note 15—Asset Impairment Expense for further information.

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

~~21 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

recognized any early terminations as of ~~September 30, 2020.~~March 31, 2021. 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 lease receipts as of ~~September 30, 2020~~March 31, 2021 for the remainder of ~~2020~~2021 through ~~2024~~2025 and thereafter (in millions):


		Future Cash Receipts for					Future Cash Receipts for
		Sales-Type Leases		Operating Leases			Sales-Type Leases (1)		Operating Leases
2020		$	1	$	126
2021	2021	2		483		2021	$	15	$	361
2022	2022	2		467		2022	20		467
2023	2023	2		403		2023	20		404
2024	2024	2		404		2024	20		404
2025						2025	20		405
Thereafter	Thereafter	38		1,436		Thereafter	309		1,032
Total	Total	$	47	$	3,319	Total	$	404	$	3,073
Less: Imputed interest	Less: Imputed interest	(25)				Less: Imputed interest	(184)
Present value of total lease receipts	Present value of total lease receipts	$	22			Present value of total lease receipts	$	220

(1)The sales-type lease receivable balance is primarily related to AES Energy Storage Alamitos project that commenced in January 2021.

Battery Storage Lease Arrangements — The Company is constructing and operating projects that pair BESS with solar energy systems, which allows the project more flexibility on when to provide energy to the grid. The Company will enter into PPAs for the full output of the facility that allow customers the ability to determine when to charge and discharge the BESS. These arrangements include both lease and non-lease elements under ASC 842, with the BESS component constituting a sales-type lease. Upon commencement of the lease, the book value of the leased asset is removed from the balance sheet and a net investment in sales-type lease is recognized based on the present value of fixed payments under the contract and the residual value of the underlying asset. Due to the variable nature of lease payments under these contracts, the Company recorded losses at commencement of sales-type leases of $13 million for the three months ended March 31, 2021. These amounts are recognized in Other expense in the Consolidated Statement of Operations. See Note 14—Other Income and Expense for further information. The Company recognized lease income on sales-type leases through interest income of $4 million for the three months ended March 31, 2021.

~~11.~~

17 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020

10. 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, 2020		December 31, 2019			March 31, 2021		December 31, 2020
IPALCO common stock	IPALCO common stock	$	618	$	618	IPALCO common stock	$	618	$	618
Colon quotas (1)	Colon quotas (1)	189		210		Colon quotas (1)	180		194
IPL preferred stock		60		60
AES Clean Energy Development common stock						AES Clean Energy Development common stock	175		0
AES Indiana preferred stock						AES Indiana preferred stock	60		60

Total redeemable stock of subsidiaries	Total redeemable stock of subsidiaries	$	867	$	888	Total redeemable stock of subsidiaries	$	1,033	$	872

_____________________________

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

~~Colon~~AES Clean Energy Development — ~~Our~~On February 1, 2021, the Company substantially completed the merger of the sPower and AES Distributed Energy development platforms to form AES Clean Energy Development, which will serve as the development vehicle for all future renewable projects in the U.S. As part of the transaction, AlMCo, our existing partner in ~~Colon made capital contributions of $10 million during~~ the ~~nine months ended September 30, 2019. NaN contributions were made~~sPower equity method investment, received a 25% minority ownership interest in ~~2020.~~the newly formed entity along with certain partnership rights, though not currently in effect, that would enable AIMCo to exit in the future. As a result, the minority ownership interest is considered temporary equity. Any subsequent ~~adjustments~~changes in the redemption value of the exit rights will be recognized in permanent equity. See Note 18—Acquisitions for further information.

11. EQUITY

Equity Units

In March 2021, the Company issued 10,430,500 Equity Units with a total notional value of $1,043 million. Each Equity Unit has a stated amount of $100 and was initially issued as a Corporate Unit, consisting of a forward stock purchase contract (“2024 Purchase Contracts”) and a 10% undivided beneficial ownership interest in one share of 0% Series A Cumulative Perpetual Convertible Preferred Stock, with a liquidation preference of $1,000 per share (“Series A Preferred Stock”). The Company received approximately $1 billion proceeds from the Equity Units, net of underwriting costs and commissions, before offering expenses, and issued 1,043,050 shares of Series A Preferred Stock, recording $1,043 million in preferred stock on the Condensed Consolidated Balance Sheet. The proceeds will be used for the development of the AES renewable businesses, U.S. utility businesses, LNG infrastructure, and for other developments determined by management.

Convertible Preferred Stock — The Series A Preferred Stock will initially not bear any dividends and the liquidation preference of the convertible preferred stock will not accrete. The Series A Preferred Stock has no maturity date, and will remain outstanding unless converted by holders or redeemed by the Company. Holders of the shares of the convertible preferred stock will have limited voting rights.

The Series A Preferred Stock is pledged as collateral to ~~allocate earnings~~support holders’ purchase obligations under the 2024 Purchase Contracts and can be remarketed. In connection with any successful remarketing, the Company may increase the dividend rate increase the conversion rate, and modify the earliest redemption date for the convertible preferred stock. After any successful remarketing in connection with which the dividend rate on the convertible preferred stock is increased, the Company will pay cumulative dividends on the convertible preferred stock, if declared by the board of directors, quarterly in arrears from the applicable remarketing settlement date.

Holders of Corporate Units may create Treasury Units or Cash Settled Units from their Corporate Units as provided in the Purchase Contract Agreement by substituting Treasury securities or cash, respectively, for the Convertible Preferred Stock comprising a part of the Corporate Units.

Prior to ~~our partner,~~February 15, 2024, the Series A Preferred Stock may be converted at the option of the holder only under limited circumstances in connection with a fundamental change, as defined in the certificate of designations of the Series A Preferred Stock. On and after February 15, 2024, the Series A Preferred Stock may be converted freely at the option of the holder. The conversion rate is initially 31.5428 shares of common stock per one share of Series A Preferred Stock, which is equivalent to an initial conversion price of approximately $31.70 per share of common stock. Upon conversion, the Company will deliver in respect of each $1,000 liquidation preference of the Series A Preferred Stock being converted (i) one share of the Company’s Series B Preferred Stock or, ~~measure~~solely with respect to conversions in connection with a redemption, up to $1,000 in cash and (ii) shares of common stock, if any, in respect of any conversion value in excess of the ~~investment~~liquidation preference of the preferred stock being converted.

18 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020

The Company may not redeem the Series A Preferred Stock prior to March 22, 2024. At the election of the Company, on or after March 22, 2024, the Company may redeem for cash, all or any portion of the outstanding shares of the Series A Preferred Stock at ~~fair~~a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends.

2024 Purchase Contracts — The 2024 Purchase Contracts obligate the holders to purchase, on February 15, 2024, for a price of $100 in cash, a maximum number of 57,215,465 shares of the Company’s common stock (subject to customary anti-dilution adjustments). The 2024 Purchase Contract holders may elect to settle their obligation early, in cash. The Series A Preferred Stock is pledged as collateral to guarantee the holders’ obligations to purchase common stock under the terms of the 2024 Purchase Contracts. The initial settlement rate determining the number of shares that each holder must purchase will not exceed the maximum settlement rate of 3.864, determined over a market value averaging period preceding February 15, 2024.

The settlement rate will be calculated using an initial reference price of $25.88, equal to the last reported sale price of the Company’s common stock on March 4, 2021. If the applicable market value of the Company’s common stock is less than or equal to the reference price, the settlement rate will be the maximum settlement rate; and if the applicable market value of common stock is greater than the reference price, the settlement rate will be a number of shares of the Company’s common stock equal to $100 divided by the applicable market value. Upon settlement of the 2024 Purchase Contracts, the Company expects to receive additional cash proceeds of $1 billion.

The Company will pay the holders of the 2024 Purchase Contracts quarterly payments (“Contract Adjustment Payments”) at a rate of 6.875% per annum, payable quarterly in arrears on February 15, May 15, August 15, and November 15, commencing on May 15, 2021. The $205 million present value of the Contract Adjustment Payments reduced additional paid-in capital at inception. As each quarterly Contract Adjustment Payment is made, the related liability is reduced and the difference between the cash payment and the present value will ~~be classified as temporary equity each reporting period as it is probable~~accrete to interest expense, approximately $5 million over the three-year term.

The holders can settle the purchase contracts early, for cash, subject to certain exceptions and conditions in the prospectus supplement. Upon early settlement of any purchase contracts, the Company will deliver the number of shares of its common stock equal to 85% of the number of shares of common stock that ~~the shares will become redeemable.~~would have otherwise been deliverable.

~~12. EQUITY~~

Equity Transactions with Noncontrolling Interests

AES Gener— ~~In September~~On December 29, 2020, AES Gener ~~completed the sale~~commenced a preemptive rights offering for its existing shareholders to subscribe for up to 1.98 billion of newly issued shares to fund its renewable growth program. The period ended on February 5, 2021 and Inversiones Cachagua SpA, an AES subsidiary, subscribed for 1.35 billion shares at a ~~portion~~cost of ~~its stake in Cochrane. The transaction included the issuance of preferred shares and the sale of 5% of its stake in the subsidiary for $113~~$205 million, ~~which decreased the Company’s economic~~increasing AES’ indirect beneficial interest in ~~Cochrane~~AES Gener from 67% to ~~38%~~67.1%. ~~As the Company maintained control after the sale, Cochrane continues to be consolidated by the Company within~~The noncontrolling interest holders subscribed for 629 million shares, resulting in additional capital contributions of $94 million. AES Gener is reported in the South America SBU reportable segment.

AES ~~Tietê~~Brasil — In August 2020,, AES ~~Holdings~~Holding Brasil Ltda. (“AHB”) committed to migrate AES Tietê to the Novo Mercado, which is a listing segment of the Brazilian stock exchange that requires equity capital to be composed only of common shares. On December 18, 2020, the AES Tietê board approved a proposal for the corporate reorganization and exchange of shares issued by AES Tietê with newly issued shares of AES Brasil, a formerly wholly-owned entity of AES Tietê, with the intent to list AES Brasil on Novo Mercado as the 100% shareholder of AES Tietê. The reorganization and the exchange of shares was completed on March 26, 2021, and the ~~acquisition~~shares issued by AES Brasil started trading on Novo Mercado on March 29, 2021. The Company maintains majority representation on AES Brasil’s board of directors, and as such, continues to consolidate AES Brasil’s results in the South America SBU reportable segment.

During the first quarter of 2021, through multiple transactions, AHB acquired an additional ~~18.5%~~1.2% ownership in AES ~~Tietê~~Brasil for ~~$240 million which~~$13 million. These transactions increased the Company’s economic interest in AES ~~Tietê~~Brasil to ~~42.9%. This transaction~~45.3% and resulted in a ~~$202~~$10 million decrease in Parent Company ~~Stockholders’~~Stockholder’s Equity due to a decrease in additional paid-in-capital of ~~$88~~$4 million and the reclassification of accumulated other comprehensive losses from NCI to AOCL of ~~$114~~$6 million. ~~As the Company maintained control after the sale,~~ AES ~~Tietê continues to be consolidated by the Company within~~Brasil is reported in 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~~three months ended ~~September 30, 2020~~March 31, 2021 (in millions):

Foreign currency translation adjustment, net Unrealized derivative gains (losses), net Unfunded pension obligations, net Total
Balance at the beginning of the period $ (1,721) $ (470) $ (38) $ (2,229)
Other comprehensive loss before reclassifications (43) (388) (1) (432)
Amount reclassified to earnings 78 69 1 148
Other comprehensive income (loss) 35 (319) 0 (284)
Reclassification from NCI due to share repurchases (109) (2) (4) (115)
Balance at the end of the period $ (1,795) $ (791) $ (42) $ (2,628)

2219 | Notes to Condensed Consolidated Financial Statements—(Continued) | ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~


	Foreign currency translation adjustment, net		Unrealized derivative gains (losses), net		Unfunded pension obligations, net		Total
Balance at the beginning of the period	$	(1,644)	$	(699)	$	(54)	$	(2,397)
Other comprehensive income (loss) before reclassifications	(53)		202		0		149
Amount reclassified to earnings	0		17		0		17
Other comprehensive income (loss)	(53)		219		0		166
Reclassification from NCI due to share repurchases	(5)		0		(1)		(6)
Balance at the end of the period	$	(1,702)	$	(480)	$	(55)	$	(2,237)

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	AOCL Components	Affected Line Item in the Condensed Consolidated Statements of Operations		Three Months Ended September 30,								Nine Months Ended September 30,						AOCL Components		Affected Line Item in the Condensed Consolidated Statements of Operations			Three Months Ended March 31,
			2020			2019				2020				2019								2021		2020
Foreign currency translation adjustment, net

			Gain (loss) on disposal and sale of business interests			$	(80)			$	0			$	(78)			$	(23)

		Net income (loss) attributable to The AES Corporation		$	(80)			$	0			$	(78)			$	(23)

Derivative gains (losses), net	Derivative gains (losses), net																	Derivative gains (losses), net
		Non-regulated revenue		$	0			$	0			$	(1)			$	0
		Non-regulated cost of sales		(1)				(1)				0				(11)					Non-regulated cost of sales						(1)			(1)
		Interest expense		(42)				(8)				(89)				(23)				Interest expense					(16)			(16)
		Gain (loss) on disposal and sale of business interests		0				0				0				1
		Foreign currency transaction gains (losses)		9				(14)				(14)				(11)				Asset impairment expense					(4)			0
		Income (loss) from continuing operations before taxes and equity in earnings of affiliates		(34)				(23)				(104)				(44)				Foreign currency transaction gains (losses)					(3)			(23)
		Income tax benefit (expense)		10				6				24				10				Income (loss) from continuing operations before taxes and equity in earnings of affiliates					(24)			(40)
		Net equity in earnings (losses) of affiliates		(3)				0				(4)				(2)				Income tax benefit (expense)					7			8
		Income (loss) from continuing operations		(27)				(17)				(84)				(36)				Net equity in earnings (losses) of affiliates					(6)			0
		Less: Net loss (income) attributable to noncontrolling interests and redeemable stock of subsidiaries		26				2				15				3				Income (loss) from continuing operations					(23)			(32)
		Net income (loss) attributable to The AES Corporation		$	(1)			$	(15)			$	(69)			$	(33)			Less: Net loss (income) attributable to noncontrolling interests and redeemable stock of subsidiaries					6			6
Amortization of defined benefit pension actuarial loss, net
																				Net income (loss) attributable to The AES Corporation					$	(17)		$	(26)

		Non-regulated cost of sales		$	(1)			$	0			$	(1)			$	0

		Other expense		0				0				(1)				(1)
		Gain (loss) on disposal and sale of business interests		0				0				0				(26)
		Income (loss) from continuing operations before taxes and equity in earnings of affiliates		(1)				0				(2)				(27)
		Income tax benefit (expense)		0				0				1				0

		Net income (loss) attributable to The AES Corporation		$	(1)			$	0			$	(1)			$	(27)
Total reclassifications for the period, net of income tax and noncontrolling interests	Total reclassifications for the period, net of income tax and noncontrolling interests			$	(82)			$	(15)			$	(148)			$	(83)	Total reclassifications for the period, net of income tax and noncontrolling interests							$	(17)		$	(26)

Common Stock Dividends — The Parent Company paid dividends of ~~$0.1433~~$0.1505 per outstanding share to its common stockholders during the first ~~second and third quarters~~quarter of ~~2020~~2021 for dividends declared in December ~~2019, February 2020 and July 2020, respectively.~~2020.

On ~~October 9, 2020,~~February 19, 2021, the Board of Directors declared a quarterly common stock dividend of ~~$0.1433~~$0.1505 per share payable on ~~November 16, 2020,~~May 14, 2021, to shareholders of record at the close of business on ~~October~~April 30, ~~2020.~~2021.

~~13.~~12. SEGMENTS

The segment reporting structure uses the Company’s management reporting structure as its foundation to reflect how the Company manages the businesses internally and is mainly organized by geographic regions, which provides a socio-political-economic understanding of our business. The management reporting structure is organized by 4 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 4 operating segments are aligned with its 4 reportable segments corresponding to its SBUs.

Corporate and Other — Included in “Corporate and 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 4 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, and gains and losses recognized at commencement of sales-type leases; (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)~~(f) net gains at Angamos, one of our businesses in the South America SBU, associated with the early contract terminations with Minera Escondida and Minera Spence. 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

~~23 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

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

20 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020

write-off of intercompany balances, as applicable. All intra-segment activity has been eliminated within the segment. Inter-segment activity has been eliminated within the total consolidated results.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Total Revenue	Total Revenue	2020		2019		2020		2019		Total Revenue		2021		2020
US and Utilities SBU	US and Utilities SBU	$	1,061	$	1,130	$	2,945	$	3,125	US and Utilities SBU		$	949	$	971
South America SBU	South America SBU	850		828		2,273		2,438		South America SBU		884		712
MCAC SBU	MCAC SBU	442		470		1,255		1,398		MCAC SBU		535		432
Eurasia SBU	Eurasia SBU	195		197		634		801		Eurasia SBU		270		225
Corporate and Other	Corporate and Other	49		14		191		39		Corporate and Other		24		28
Eliminations	Eliminations	(52)		(14)		(198)		(43)		Eliminations		(27)		(30)
Total Revenue	Total Revenue	$	2,545	$	2,625	$	7,100	$	7,758	Total Revenue		$	2,635	$	2,338


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Total Adjusted PTC	Total Adjusted PTC	2020		2019		2020		2019		Total Adjusted PTC		2021		2020
Income (loss) from continuing operations before taxes and equity in earnings of affiliates		$	(516)	$	424	$	(91)	$	896
Income from continuing operations before taxes and equity in earnings of affiliates										Income from continuing operations before taxes and equity in earnings of affiliates		$	9	$	320
Add: Net equity in earnings (losses) of affiliates	Add: Net equity in earnings (losses) of affiliates	(112)		4		(106)		3		Add: Net equity in earnings (losses) of affiliates		(30)		(2)
Less: (Income) loss from continuing operations before taxes, attributable to noncontrolling interests		197		(124)		(40)		(304)
Less: Income from continuing operations before taxes, attributable to noncontrolling interests										Less: Income from continuing operations before taxes, attributable to noncontrolling interests		(163)		(119)
Pre-tax contribution	Pre-tax contribution	(431)		304		(237)		595		Pre-tax contribution		(184)		199
Unrealized derivative and equity securities losses		26		69		24		78
Unrealized derivative and equity securities losses (gains)										Unrealized derivative and equity securities losses (gains)		69		(16)
Unrealized foreign currency losses (gains)	Unrealized foreign currency losses (gains)	(4)		31		(7)		49		Unrealized foreign currency losses (gains)		6		9
Disposition/acquisition losses (gains)	Disposition/acquisition losses (gains)	100		(17)		130		(3)		Disposition/acquisition losses (gains)		(15)		1
Impairment expense		657		1		878		124
Impairment losses										Impairment losses		475		53
Loss on extinguishment of debt	Loss on extinguishment of debt	55		38		103		95		Loss on extinguishment of debt		6		4
Net gains from early contract terminations at Angamos	Net gains from early contract terminations at Angamos	(72)		0		(72)		0		Net gains from early contract terminations at Angamos		(110)		0

Total Adjusted PTC	Total Adjusted PTC	$	331	$	426	$	819	$	938	Total Adjusted PTC		$	247	$	250


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Total Adjusted PTC	Total Adjusted PTC	2020		2019		2020		2019		Total Adjusted PTC		2021		2020
US and Utilities SBU	US and Utilities SBU	$	185	$	187	$	313	$	427	US and Utilities SBU		$	44	$	71
South America SBU	South America SBU	122		139		381		360		South America SBU		88		119
MCAC SBU	MCAC SBU	57		185		201		298		MCAC SBU		61		78
Eurasia SBU	Eurasia SBU	40		19		133		114		Eurasia SBU		51		44
Corporate and Other	Corporate and Other	(77)		(95)		(220)		(251)		Corporate and Other		(7)		(58)
Eliminations	Eliminations	4		(9)		11		(10)		Eliminations		10		(4)
Total Adjusted PTC	Total Adjusted PTC	$	331	$	426	$	819	$	938	Total Adjusted PTC		$	247	$	250


Total Assets	Total Assets	September 30, 2020		December 31, 2019		Total Assets	March 31, 2021		December 31, 2020
US and Utilities SBU	US and Utilities SBU	$	14,222	$	13,334	US and Utilities SBU	$	14,483	$	14,464
South America SBU	South America SBU	11,088		11,314		South America SBU	11,343		11,329
MCAC SBU	MCAC SBU	5,061		4,770		MCAC SBU	4,934		4,847
Eurasia SBU	Eurasia SBU	3,626		3,990		Eurasia SBU	3,603		3,621

Corporate and Other	Corporate and Other	270		240		Corporate and Other	840		342
Total Assets	Total Assets	$	34,267	$	33,648	Total Assets	$	35,203	$	34,603

2421 | Notes to Condensed Consolidated Financial Statements—(Continued) | ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

~~14.~~13. REVENUE

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

Three Months Ended September 30, 2020
US and Utilities SBU South America SBU MCAC SBU Eurasia SBU Corporate, Other and Eliminations Total
Regulated Revenue
Revenue from contracts with customers $ 674 $ 0 $ 0 $ 0 $ 0 $ 674
Other regulated revenue 6 0 0 0 0 6
Total regulated revenue 680 0 0 0 0 680
Non-Regulated Revenue
Revenue from contracts with customers 378 848 417 134 (3) 1,774
Other non-regulated revenue (1)
3 2 25 61 0 91
Total non-regulated revenue 381 850 442 195 (3) 1,865
Total revenue $ 1,061 $ 850 $ 442 $ 195 $ (3) $ 2,545
Three Months Ended September 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 $ 788 $ 0 $ 0 $ 0 $ 0 $ 788
Other regulated revenue 11 0 0 0 0 11
Total regulated revenue 799 0 0 0 0 799
Non-Regulated Revenue
Revenue from contracts with customers 245 822 447 141 (1) 1,654
Other non-regulated revenue (1)
86 6 23 56 1 172
Total non-regulated revenue 331 828 470 197 0 1,826
Total revenue $ 1,130 $ 828 $ 470 $ 197 $ 0 $ 2,625


		Nine Months Ended September 30, 2020													Three Months Ended March 31, 2021
		US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate, Other and Eliminations		Total			US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate, Other and Eliminations		Total
Regulated Revenue	Regulated Revenue													Regulated Revenue
Revenue from contracts with customers	Revenue from contracts with customers	$	1,987	$	0	$	0	$	0	$	0	$	1,987	Revenue from contracts with customers	$	698	$	0	$	0	$	0	$	0	$	698

Other regulated revenue	Other regulated revenue	29		0		0		0		0		29		Other regulated revenue	9		0		0		0		0		9
Total regulated revenue	Total regulated revenue	2,016		0		0		0		0		2,016		Total regulated revenue	707		0		0		0		0		707
Non-Regulated Revenue	Non-Regulated Revenue													Non-Regulated Revenue
Revenue from contracts with customers	Revenue from contracts with customers	742		2,267		1,181		461		(7)		4,644		Revenue from contracts with customers	224		883		510		209		(3)		1,823

Other non-regulated revenue (1)	Other non-regulated revenue (1)	187		6		74		173		0		440		Other non-regulated revenue (1)	18		1		25		61		0		105
Total non-regulated revenue	Total non-regulated revenue	929		2,273		1,255		634		(7)		5,084		Total non-regulated revenue	242		884		535		270		(3)		1,928
Total revenue	Total revenue	$	2,945	$	2,273	$	1,255	$	634	$	(7)	$	7,100	Total revenue	$	949	$	884	$	535	$	270	$	(3)	$	2,635

		Nine Months Ended September 30, 2019													Three Months Ended March 31, 2020
		US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate, Other and Eliminations		Total			US and Utilities SBU		South America SBU		MCAC SBU		Eurasia SBU		Corporate, Other and Eliminations		Total
Regulated Revenue	Regulated Revenue													Regulated Revenue
Revenue from contracts with customers	Revenue from contracts with customers	$	2,272	$	0	$	0	$	0	$	0	$	2,272	Revenue from contracts with customers	$	703	$	0	$	0	$	0	$	0	$	703

Other regulated revenue	Other regulated revenue	36		0		0		0		0		36		Other regulated revenue	9		0		0		0		0		9
Total regulated revenue	Total regulated revenue	2,308		0		0		0		0		2,308		Total regulated revenue	712		0		0		0		0		712
Non-Regulated Revenue	Non-Regulated Revenue													Non-Regulated Revenue
Revenue from contracts with customers	Revenue from contracts with customers	598		2,429		1,331		609		(3)		4,964		Revenue from contracts with customers	163		711		408		171		(2)		1,451

Other non-regulated revenue (1)	Other non-regulated revenue (1)	219		9		67		192		(1)		486		Other non-regulated revenue (1)	96		1		24		54		0		175
Total non-regulated revenue	Total non-regulated revenue	817		2,438		1,398		801		(4)		5,450		Total non-regulated revenue	259		712		432		225		(2)		1,626
Total revenue	Total revenue	$	3,125	$	2,438	$	1,398	$	801	$	(4)	$	7,758	Total revenue	$	971	$	712	$	432	$	225	$	(2)	$	2,338

(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. The contract liabilities from contracts with customers were ~~$699~~$376 million and ~~$117~~$531 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we recognized revenue of ~~$12~~$183 million and $9$10 million, respectively, that was included in the corresponding contract liability balance at the beginning of the periods.

~~25 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

In August 2020, AES Gener reached an agreement with Minera Escondida and Minera Spence to early terminate two PPAs of the Angamos coal-fired plant in Chile, further accelerating AES Gener's decarbonization strategy. As a result of the termination payment, Angamos recognized a contract liability of $655 million, of which $55 million will be derecognized each month through the end of the remaining performance obligation in August 2021. As of ~~September 30, 2020,~~March 31, 2021, the remaining contract liability is ~~$546~~$219 million.

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~~As of March 31, 2021, approximately $1.3 billion of contract consideration related to the construction, but not yet collected through the 25 year PPA, was reflected as a loan receivable, net of CECL reserve of ~~$33 million,~~$32 million. Mong Duong met the held-for-sale criteria and the loan receivable balance was reclassified to held-for-sale assets as of ~~September 30, 2020.~~March 31, 2021. Of the loan receivable balance, $83 million was classified as Current held-for-sale assets and $1.2 billion was classified as Noncurrent held-for-sale assets on the Consolidated Balance Sheet.

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 30, 2020,~~March 31, 2021, the aggregate amount of transaction price allocated to remaining performance obligations was $11 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-fifth of the remaining performance obligations in 2020 and 2021, with the remainder recognized thereafter.

~~15.~~

22 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020

14. 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, 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 March 31,
			2020		2019		2020		2019					2021		2020

Other Income	Other Income	Gain on sale of assets (1)	$	0	$	0	$	43	$	0	Other Income	Gain on remeasurement to acquisition-date fair value (1)		$	36	$	0
												Gain on sale of assets (2)		0		43
		Gain on insurance proceeds (2)	0		73		0		108

		Other	6		5		17		18			Other		7		2
		Total other income	$	6	$	78	$	60	$	126		Total other income		$	43	$	45

Other Expense	Other Expense	Legal contingencies and settlements	$	12	$	0	$	14	$	1	Other Expense	Loss on commencement of sales-type leases (3)		$	13	$	0

		Loss on sale and disposal of assets	4		5		6		19
		Non-service pension and other postretirement costs	0		4		1		13			Loss on sale and disposal of assets		3		1
		Other	4		0		6		2
		Total other expense	$	20	$	9	$	27	$	35		Other		0		3
												Total other expense		$	16	$	4

_____________________________

(1)Related to the remeasurement of our existing equity interest in sPower’s development platform as part of the step acquisition to form AES Clean Energy Development. See Note 18—Acquisitions for further information.

(2) Primarily associated with the gain on sale of Redondo Beach land at Southland. See Note 1817—Held-for-Sale and Dispositions for further information.

~~(2)~~(3) ~~Associated with recoveries~~ Related to a loss recognized at commencement of a sales-type lease at AES Distributed Energy. See Note 9—Leases for ~~property damage at the Andres facility in the Dominican Republic from a lightning incident in September 2018 and the upgrade of the tunnel lining at Changuinola.~~further information.

~~16.~~15. ASSET IMPAIRMENT EXPENSE

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
AES Gener $ 781 $ 0 $ 781 $ 0
Hawaii 38 0 38 0
Estrella del Mar I 30 0 30 0
Kilroot and Ballylumford 0 0 0 115
Other 0 0 6 1
Total $ 849 $ 0 $ 855 $ 116


	Three Months Ended March 31,
		2021		2020
Puerto Rico		$	475	$	0














Other		(2)		6
Total		$	473	$	6

~~AES Gener~~Puerto Rico — New factors arose in the first quarter of 2021 associated with the economic costs and operational and reputational risks of disposal of coal combustion residuals off island. In ~~August 2020, AES Gener reached~~addition, new legislative initiatives surrounding the prohibition of coal generation assets in Puerto Rico were introduced. Collectively, these factors along with management’s decision on how to best achieve our stated decarbonization goals resulted in an ~~agreement~~indicator of impairment at our asset group in Puerto Rico. As such, management performed a recoverability test in accordance with ~~Minera Escondida~~ASC 360 and ~~Minera Spence to early terminate two PPAs~~concluded that Puerto Rico’s undiscounted cash flows did not exceed the carrying value of the Angamos coal-fired plant in Chile, further accelerating AES Gener’s decarbonization strategy. AES Gener also announced its intention to accelerate the retirement of the Ventanas 1 and Ventanas 2 coal-fired plants. Management will no longer be pursuing a contracting strategy for these assets and the plants will primarily be utilized as peaker plants and for grid stability. Due to these developments, the Company performed an impairment analysis and determined that the carrying amounts of these asset ~~groups were not recoverable. As a result, the Company recognized asset impairment expense of $781 million. AES Gener is reported in the South America SBU reportable segment.~~

~~26 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

~~Hawaii~~— In July 2020, the Hawaii State Legislature passed Senate Bill 2629 which will prohibit AES Hawaii from generating electricity from coal after December 31, 2022. As this will restrict the Company from contracting the asset beyond the expiration of its existing PPA, management reassessed the economic useful life of the generation facility. A decrease in the useful life was identified as an impairment indicator.group. The ~~Company performed an impairment analysis and determined that the carrying amount~~fair value of the asset group was ~~not recoverable. As~~determined to be $73 million, resulting in a ~~result, the Company recognized asset~~pre-tax impairment ~~expense~~loss of ~~$38~~approximately $475 million. ~~Hawaii~~Puerto Rico is reported in the US and Utilities SBU reportable segment.

~~Estrella del Mar I —~~ In August 2020, the Estrella del Mar I power barge was disconnected from the Panama grid and AES Panama is currently evaluating its options for the asset. Upon disconnection, the Company concluded that the barge was no longer part of the AES Panama asset group and performed an impairment analysis. The Company determined that the carrying amount of the asset was not recoverable and recognized asset impairment expense of $30 million. Estrella del Mar I is reported in the MCAC SBU reportable segment.

~~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 18~~—Held-for-Sale and Dispositions~~ ~~for further information.~~

~~17.~~16. 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~~rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 were ~~28%~~89% and ~~(60)%, respectively. The effective tax rates for the three and nine months ended September 30, 2019 were 31% and 34%~~28%, respectively. The difference between the Company’s effective tax rates for the ~~2020~~2021 and ~~2019~~2020 periods and the U.S. statutory tax rate of 21% related primarily to U.S. taxes on foreign earnings, foreign tax rate differentials, the impacts of foreign currency fluctuations at certain foreign subsidiaries, nondeductible expenses, and valuation allowance.

The impact of foreign currency devaluation in Mexico was approximately ~~$11~~$19 million of discrete tax benefit for the ~~nine~~three months ended ~~September 30,~~March 31, 2020.

~~The impact of foreign currency devaluation in Argentina was approximately $11 million~~

23 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and ~~$17 million of discrete tax expense for the three and nine month periods ended September 30, 2019, respectively.~~2020

For the three and nine months ended September 30, 2020, the Company recognized discrete tax benefit of approximately $28 million and $20 million, respectively, on the Company’s investment in Guacolda for equity earnings losses primarily associated with the impairment of long-lived assets. For the nine months ended September 30, 2020, the Company also recognized discrete tax expense of $21 million as a result of incremental capitalized interest in Chile and discrete tax expense of approximately $25 million as a result of incremental deferred taxes relating to DPL.

~~18.~~17. HELD-FOR-SALE AND DISPOSITIONS

Held-for-Sale

AES Tietê Inova Soluções — In February 2021, the Company signed an agreement to sell its ownership in AES Inova Soluções, an investment platform in distributed solar generation, for $18 million. The sale is expected to close in the second quarter of 2021. On a consolidated basis, the carrying value of the investment held-for-sale as of March 31, 2021 was $14 million. Pre-tax income attributable to AES was immaterial for the three months ended March 31, 2021 and March 31, 2020, respectively. AES Tietê Inova Soluções is reported in the South America SBU reportable segment.

Mong Duong — In December 2020, the Company entered into an agreement to sell its entire 51% ownership interest in Mong Duong, a coal-fired plant in Vietnam, and 51% equity interest in Mong Duong Finance Holdings B.V, an SPV accounted for as an equity affiliate. The sale is subject to regulatory approval and is expected to close in early 2022. As of March 31, 2021, the Mong Duong plant and SPV were classified as held-for-sale, but did not meet the criteria to be reported as discontinued operations. On a consolidated basis, the carrying value of the plant and SPV held-for-sale as of March 31, 2021 was $503 million. Mong Duong is reported in the Eurasia SBU reportable segment.

Estrella del Mar I — The Estrella del Mar I power barge met the held-for-sale criteria as of December 31, 2020, but did not meet criteria to be reported as discontinued operations. On a consolidated basis, the carrying value of the power barge held-for-sale as of March 31, 2021 was $16 million. Estrella del Mar I is reported in the MCAC SBU reportable segment.

Itabo — In June 2020, the Company entered into an agreement to sell its 43% ownership interest in Itabo, a coal-fired plant and gas turbine in Dominican Republic, for $101 million. ~~The~~On April 8, 2021, the Company completed the sale ~~is subject to regulatory approval~~for $88 million, reflecting dividends distributed by Itabo and ~~is expected to close in the fourth quarter of 2020.~~customary adjustments. As of ~~September 30, 2020,~~March 31, 2021, Itabo was classified as held-for-sale, but did not meet the criteria to be reported as discontinued operations. On a consolidated basis, the carrying value of the Itabo facility held-for-sale as of ~~September 30, 2020~~March 31, 2021 was ~~$211~~$201 million. Itabo is reported in the MCAC SBU reportable segment.

~~27 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

Jordan — In ~~February 2019,~~November 2020, the Company ~~entered into~~signed an agreement to sell ~~its 36%~~26% ownership interest in two generation plants, IPP1 and IPP4, and a solar plant in Jordan. In December 2019, the original sales agreement expired, and in April 2020, one of the potential buyers withdrew from the transaction due to the uncertain economic conditions surrounding the COVID-19 pandemic. The Company continues with an active process to complete the sale of its controlling interest in IPP1 and IPP4 ~~and believes~~for $58 million. The sale is expected to close in the second quarter of 2021. After completion of the sale, ~~remains probable. However,~~the Company will retain a 10% ownership interest in IPP1 and IPP4, which will be accounted for as an equity method investment. As of ~~June 30, 2020,~~March 31, 2021, the ~~solar plant no longer met the held-for-sale criteria. As such, the solar plant was reclassified as held and used as of June 30, 2020. The~~ generation plants ~~remain~~were classified as held-for-sale, but do not meet the criteria to be reported as discontinued operations. On a consolidated basis, the carrying value of the plants held-for-sale as of ~~September 30, 2020~~March 31, 2021 was ~~$167~~$159 million. Jordan is reported in the Eurasia SBU reportable segment.

~~Pre-tax~~Excluding any impairment charges, pre-tax income attributable to AES of businesses held-for-sale was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)		2021		2020
Mong Duong										Mong Duong		15		15
Itabo	Itabo	$	9	$	9	$	28	$	23	Itabo		6		11
Jordan	Jordan	5		5		15		13		Jordan		5		5
Estrella Del Mar I										Estrella Del Mar I		0		3
Total	Total	$	14	$	14	$	43	$	36	Total		$	26	$	34

Dispositions

~~Uruguaiana —~~ In September 2020, the Company completed the sale of its entire interest in AES Uruguaiana, resulting in a pre-tax loss on sale of $90 million, primarily due to the write-off of cumulative translation adjustments. As part of the sale agreement, the Company has guaranteed payment of certain contingent liabilities and provided indemnifications to the buyer which were estimated to have a fair value of $22 million. The sale did not meet the criteria to be reported as discontinued operations. Prior to its sale, Uruguaiana was reported in the South America SBU reportable segment.

~~Kazakhstan Hydroelectric —~~ Affiliates of the Company (the “Affiliates”) previously operated Shulbinsk HPP and Ust-Kamenogorsk HPP (the “HPPs”), two hydroelectric plants in Kazakhstan, under a concession agreement with the Republic of Kazakhstan (“ROK”). In April 2017, the ROK initiated the process to transfer these plants back to the ROK. The ROK indicated that arbitration would be necessary to determine the correct Return Share Transfer Payment ("RST") and, rather than paying the Affiliates, deposited the RST into an escrow account. In exchange, the Affiliates transferred 100% of the shares in the HPPs to the ROK, under protest and with a full reservation of rights. In February 2018, the Affiliates initiated the arbitration process in international court to recover at least $75 million of the RST placed in escrow, based on the September 30, 2017 RST calculation.

In May 2020, the arbitrator issued a final decision in favor of the Affiliates, awarding the Affiliates a net amount of damages of approximately $45 million, which has been collected. AES recorded the remaining $30 million as a loss on sale during the quarter ended June 30, 2020. Prior to their transfer, the Kazakhstan HPPs were reported in the Eurasia SBU reportable segment.

Redondo Beach Land — In March 2020, the Company completed the sale of land held by AES Redondo Beach, a gas-fired generating facility in California. The land’s carrying value was $24 million, resulting in a pre-tax gain on sale of $41 million, reported in Other income on the Condensed Consolidated Statement of Operations. AES Redondo Beach will lease back the land from the purchaser for the remainder of the generation facility’s useful life. Redondo Beach is reported in the US and Utilities SBU reportable segment.

~~Kilroot~~

24 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and ~~Ballylumford~~ 2020

18. ACQUISITIONS

AES Clean Energy Development — ~~In June 2019,~~On February 1, 2021, the Company substantially completed the ~~sale~~merger of ~~its entire 100%~~the sPower and AES Distributed Energy development platforms to form AES Clean Energy Development, which will serve as the development vehicle for all future renewable projects in the U.S. As part of the transaction, AES acquired an additional 25% ownership interest in the ~~Kilroot coal~~sPower development platform from AIMCo, our existing partner in the sPower equity method investment, in exchange for a 25% ownership interest in specifically identified development entities of Distributed Energy, certain future exit rights in the new partnership, and ~~oil-fired plant and energy storage facility~~$7 million of cash.

The sPower development platform was carved-out of AES’ existing equity method investment. AES’ basis in the portion of assets transferred was $77 million, and the ~~Ballylumford gas-fired plant~~contribution to AES Clean Energy Development resulted in a corresponding decrease in the ~~United Kingdom for $118 million, resulting in a pre-tax loss on sale~~carrying value 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.sPower investment. See Note 166—~~Asset Impairment Expense~~Investments in and Advances to Affiliates for further information. The sPower development assets transferred were remeasured at their acquisition-date fair values, resulting in the recognition of a $36 million million gain, recorded in Other income on the Condensed Consolidated Statement of Operations. The Company recorded $81 million in Goodwill as of the acquisition date, representing the difference between the fair value of the consideration transferred, the noncontrolling interest in the sPower development platform, and the acquisition-date fair value of the Company’s previously held equity interest and the fair value of the identifiable assets acquired and liabilities assumed. The Company has recorded preliminary amounts for the purchase price allocation; however, the Company may continue to make adjustments pertaining to the valuation of the transaction, certain development project assets, and associated deferred taxes during the measurement period.

~~Shady Point —~~Subsequent to the closing of the transaction, AES holds a 75% ownership interest in AES Clean Energy Development. AIMCo holds the remaining 25% minority interest along with certain partnership rights, though currently not in effect, that would enable AIMCo to exit in the future. AIMCo’s minority interest is recorded as temporary equity in ~~In May 2019,~~Redeemable stock of subsidiaries on the ~~Company completed the sale~~Condensed Consolidated Balance Sheet. See Note 10—Redeemable Stock of ~~Shady Point, a U.S. coal-fired generating facility,~~Subsidiaries for ~~$29 million. The sale did not meet the criteria to be reported as discontinued operations. Prior to its sale, Shady Point was~~further information. AES Clean Energy Development is reported in the US and Utilities SBU reportable segment.

~~28 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

19. ~~ACQUISITIONS~~

~~Penonome I~~— In May 2020, AES Panama completed the acquisition of the Penonome I wind farm from Goldwind International for $80 million. The transaction was accounted for as an asset acquisition, therefore the consideration transferred, plus transaction costs, was allocated to the individual assets and liabilities assumed based on their relative fair values. Any differences arising from post-closing adjustments will be allocated accordingly. Penonome I is reported in the MCAC SBU reportable segment.

~~Los Cururos~~— In September 2019, AES Gener entered into an agreement to purchase the Los Cururos wind farm and transmission lines in Chile from EPM Chile S.A. for total consideration of $143 million, including $5 million in working capital adjustments paid in the first quarter of 2020. The transaction was accounted for as an asset acquisition, therefore the consideration transferred, plus transaction costs, was 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. Los Cururos is reported in the South America SU reportable segment.

~~20.~~ 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. The effect of such potential common stock is computed using the treasury stock 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~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ where income represents the numerator and weighted average shares represent the denominator.


Three Months Ended September 30,		2020					2019
(in millions, except per share data)		Loss		Shares	$ per Share		Income		Shares	$ per Share

BASIC EARNINGS (LOSS) PER SHARE
Income (loss) from continuing operations attributable to The AES Corporation common stockholders		$	(333)	665	$	(0.50)	$	210	664	$	0.32
EFFECT OF DILUTIVE SECURITIES

Restricted stock units		0		0	0		0		3	0
DILUTED EARNINGS (LOSS) PER SHARE		$	(333)	665	$	(0.50)	$	210	667	$	0.32

Nine Months Ended September 30,		2020					2019

Three Months Ended March 31,												Three Months Ended March 31,	2021					2020
(in millions, except per share data)	(in millions, except per share data)	Loss		Shares	$ per Share		Income		Shares	$ per Share		(in millions, except per share data)	Loss		Shares	$ per Share		Income		Shares	$ per Share

BASIC EARNINGS (LOSS) PER SHARE	BASIC EARNINGS (LOSS) PER SHARE											BASIC EARNINGS (LOSS) PER SHARE
Income (loss) from continuing operations attributable to The AES Corporation common stockholders	Income (loss) from continuing operations attributable to The AES Corporation common stockholders	$	(275)	665	$	(0.41)	$	380	663	$	0.57	Income (loss) from continuing operations attributable to The AES Corporation common stockholders	$	(148)	666	$	(0.22)	$	144	664	$	0.22
EFFECT OF DILUTIVE SECURITIES	EFFECT OF DILUTIVE SECURITIES											EFFECT OF DILUTIVE SECURITIES

Stock options	Stock options	0		0	0		0		1	0		Stock options	0		0	0		0		1	0
Restricted stock units	Restricted stock units	0		0	0		0		3	0		Restricted stock units	0		0	0		0		3	0
DILUTED EARNINGS PER SHARE		$	(275)	665	$	(0.41)	$	380	667	$	0.57
DILUTED EARNINGS (LOSS) PER SHARE												DILUTED EARNINGS (LOSS) PER SHARE	$	(148)	666	$	(0.22)	$	144	668	$	0.22

The calculation of diluted earnings per share excluded 1 million outstanding stock awards for the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, which would be anti-dilutive. These stock awards could potentially dilute basic earnings per share in the future.

For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, the calculation of diluted earnings per share excluded 65 million outstanding stock awards because their impact would be anti-dilutive given the loss from continuing operations. These stock awards could potentially dilute basic earnings per share in the future. Had the Company generated income, 34 million potential shares of common stock related to the stock awards would have been included in diluted weighted-average shares outstanding.

25 | Notes to Condensed Consolidated Financial Statements—(Continued) | March 31, 2021 and 2020

~~21.~~

As described in Note 11—Equity, the Company issued $1,043 million in Equity Units in March 2021, consisting of $1,043 million of Series A Preferred Stock and the 2024 Purchase Contracts. Prior to February 15, 2024, the Series A Preferred Stock may be converted at the option of the holder only in connection with a fundamental change. On and after February 15, 2024, the Series A Preferred Stock may be converted freely at the option of the holder. Upon conversion, the Company will deliver to the holder with respect to each share of Series A Preferred Stock being converted (i) a share of our Series B Preferred Stock, or, solely with respect to conversions in connection with a redemption, cash and (ii) shares of our common stock, if any, in respect of any conversion value in excess of the liquidation preference of the preferred stock being converted. The conversion rate is initially 31.5428 shares of common stock per one share of Series A Preferred Stock, which is equivalent to an initial conversion price of approximately $31.70 per share of common stock. The Series A Preferred Stock is excluded from the denominator of the diluted earnings per share calculation on the basis that the Series A Preferred Stock will be settled in cash except to the extent that the conversion value exceeds its liquidation preference. Therefore, before any redemption or conversion, the shares of common stock that would be required to settle the applicable conversion value in excess of the liquidation preference, if the Company elects to settle such excess in shares of common stock, would be included in the denominator of diluted earnings per share in periods in which they are dilutive. The shares related to the convertible preferred stock were anti-dilutive during March 2021.

20. RISKS AND UNCERTAINTIES

COVID-19 Pandemic — The COVID-19 pandemic has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. ~~For the three and nine months ended September 30, 2020, the COVID-19 pandemic has had an impact on demand for electricity and, as a result, on the financial results and operations of the Company.~~ The magnitude and duration of

~~29 | Notes to Condensed Consolidated Financial Statements—(Continued) | September 30, 2020 and 2019~~

the COVID-19 pandemic is unknown at this time and may have material and adverse effects on our results of operations, financial condition, and cash flows in future periods.

~~Goodwill~~Mountain View —In April 2021, a triggering event for potential impairment related to re-powering the site was identified for the Mountain View Power Partners generation facility. The ~~Company considers a reporting unit at risk of~~ impairment ~~when its fair value does not exceed its~~analysis is ongoing, and the carrying amount ~~by more than 10%. During~~of the ~~annual goodwill impairment test performed~~fixed assets is approximately $75 million as of October 1, 2019, the Company determined that the fair value of its Gener reporting unit exceeded its carrying value by 3%. Therefore, Gener's $868 million goodwill balance is considered "at risk", largely dueMarch 31, 2021. There was no impact to the ~~Chilean Government's announcement to phase out coal generation by 2040, and a decline in long-term energy prices.~~

Asconsolidated financial statements as of March 31, 2021 as a result of the ~~long-lived asset impairments at Gener during the third quarter~~identification of ~~2020, the Company determined there was a~~this triggering event requiring a reassessment of goodwill impairment at September 1, 2020. The Company determined the fair value of its Gener reporting unit exceeded its carrying value by 13%. Although the fair value exceeds its carrying value by more than 10%, the Company continues to monitor the Gener reporting unit for potential interim goodwill impairment triggering events.

The Company monitors its reporting units at risk of impairment for interim impairment indicators, and believes that the estimates and assumptions used in the calculations are reasonable as of September 30, 2020. Should the fair value of any of the Company’s reporting units fall below its carrying amount because of reduced operating performance, market declines, changes in the discount rate, regulatory changes, or other adverse conditions, goodwill impairment charges may be necessary in future periods.event.

~~22.~~21. SUBSEQUENT EVENTS

~~Southland Energy~~ Itabo — On ~~October 23, 2020,~~April 8, 2021, the Company ~~signed an agreement to sell 35%~~completed the sale of its 43% ownership interest in Itabo, a coal-fired plant and gas turbine in Dominican Republic, for $88 million. See Note 17—Held-for-Sale and Dispositions for further information.

Cubico Wind Complex Acquisition — On April 30, 2021, AES Brasil completed the ~~Southland repowering assets (“Southland Energy”)~~acquisition of the Cubico Wind Complex and the Santos Wind Complex for ~~$424~~$109 million, subject to customary ~~purchase price~~working capital adjustments. The transaction ~~is expected to close during the fourth quarter of 2020~~was financed through AES Brasil, and ~~is expected to~~will be ~~accounted for as an equity transaction, with no gain or loss recognized in the financial statements. Southland Energy will continue to be consolidated by the Company and is~~ reported in the ~~US and Utilities SBU reportable segment.~~South America SBU.

3026 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

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 ~~2019~~2020 Form 10-K.

Forward-Looking Information

The following discussion may contain forward-looking statements regarding us, our business, prospects and our results of operations, including our expectations regarding the impact of the COVID-19 pandemic on our business, 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. These statements include, but are not limited to, statements regarding management’s intents, beliefs, and current expectations and typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” “forecast,” “target,” “will,” “would,” “intend,” “believe,” “project,” “estimate,” “plan,” and similar words. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute current expectations based on reasonable assumptions. Factors that could cause or contribute to such differences include, but are not limited to, those described in Item 1A.—Risk Factors of this Form 10-Q, Item 1A.—Risk Factors and Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~2019~~2020 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). For additional information regarding our business, see Item 1.—Business of our ~~2019~~2020 Form 10-K.

We have two lines of business: generation and utilities. Each of our SBUs participates in our first business line, generation, in which we own and/or operate power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries. Our US and Utilities SBU participates in our second business line, utilities, in which 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.

Executive Summary

Compared with last year, ~~third~~first quarter diluted earnings per share from continuing operations decreased ~~$0.82~~$0.44 to a loss of ~~$0.50.~~$0.22. This decrease reflects higher impairments ~~and losses on sales~~ in the current period, unrealized losses on foreign currency derivatives in Argentina, and ~~lower contributions from our MCAC SBU largely due to~~the prior year ~~net insurance recoveries;~~impacts of a gain on sale of land in the U.S. and incremental capitalized interest in Chile; partially offset by ~~lower income tax expense and~~ higher margins at our South America SBU largely due to net gains from early contract terminations at ~~Angamos.~~Angamos and higher generation at Chivor due to the life extension project completed in the prior year, lower Parent interest expense due to realized gains on de-designated interest rate swaps and lower interest rates, gain on remeasurement of our interest in sPower’s development platform, the prior year other-than-temporary impairment at OPGC, and lower income tax expense.

Adjusted EPS, a non-GAAP measure, decreased ~~$0.06~~$0.01 to ~~$0.42,~~$0.28, mainly due to ~~lower contributions from our MCAC SBU largely due to~~the prior year ~~net insurance recoveries, partially offset by a lower adjusted tax rate.~~

~~Compared with last year, diluted earnings per share from continuing operations for the nine months ended September 30, 2020 decreased $0.98 to a loss~~impacts of $0.41. This decrease reflects higher impairments and losses on sales in the current period, lower contributions from our US and Utilities SBU primarily driven by the realization of the anticipated impact of COVID-19 on demand and lower regulated rates as a result of the changes in DP&L’s ESP, and prior year net insurance recoveries; partially offset by lower income tax expense, higher margins at our South America and MCAC SBUs largely due to net gains from early contract terminations at Angamos and higher availability and improved hydrology in Panama, respectively, a gain on sale of land in the U.S., and incremental capitalized interest in Chile, and a ~~positive impact~~higher adjusted tax rate in ~~Chile~~the current year; partially offset by the commencement of operations of the Southland Energy CCGTs, higher generation at Chivor due to ~~incremental capitalized interest.~~

~~Adjusted EPS, a non-GAAP measure, decreased $0.06 to $0.96, mainly~~the life extension project completed in the prior year, and lower Parent interest expense due to realized gains on de-designated interest rate swaps and lower ~~contributions from our~~interest rates.

3127 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

US and Utilities SBU primarily driven by the realization of the anticipated impact of COVID-19 on demand and lower regulated rates as a result of the changes in DP&L’s ESP, and prior year net insurance recoveries; partially offset by a lower adjusted tax rate, higher margins at our MCAC SBU largely due to higher availability and improved hydrology in Panama, a gain on sale of land in the U.S., and a positive impact in Chile due to incremental capitalized interest.

~~32 | The AES Corporation | September 30, 2020 Form 10-Q~~



(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.
(2) GWh sold in ~~2019.~~2020.

3328 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

Overview of Strategic Performance

AES is leading the industry's transition to clean energy by investing in sustainable growth and innovative solutions. The Company is taking advantage of favorable trends in clean power generation, transmission and distribution, and LNG infrastructure to deliver superior results.

~~Sustainable Growth~~: Through its presence in key growth markets, AES is well-positioned to benefit from the global transition toward a more sustainable power generation mix.

•In year-to-date ~~2020, the Company completed construction of 1,754 MW of new projects, including:~~

◦~~1,299 MW Southland repowering project in Southern California;~~

◦~~100 MW Vientos Bonaerenses wind facility in Argentina;~~

◦~~100 MW Vientos Neuquinos wind facility in Argentina;~~

◦~~80 MW Andes 2a solar facility in Chile;~~

◦~~75 MW Pleinmont 1 solar facility in Virginia;~~

◦~~57 MW of solar and solar plus storage in the U.S. at AES Distributed Energy;~~

◦~~28 MW Na Pua Makani wind facility in Hawaii;~~

◦~~10 MW Alfalfal Virtual Reservoir energy storage facility in Chile; and~~

◦~~5 MW Opico solar facility in El Salvador.~~

•~~In year-to-date 2020,~~2021, the Company was awarded or signed ~~2,093~~1,088 MW of renewables and energy storage under long-term PPAs:

◦~~1,173~~459 MW of solar, 359 MW of wind, ~~and solar at AES Gener in Chile and Colombia;~~

◦~~542~~35 MW of energy storage, ~~solar~~ and ~~solar plus storage~~24 MW of hydro in the ~~U.S.;~~United States; and

◦~~187 MW of wind at AES Tietê in Brazil;~~

◦~~109~~211 MW of wind in ~~Mexico; and~~

◦~~82 MW of wind and solar in Panama and the Dominican Republic.~~Brazil.

•The Company's backlog of ~~6,806~~6,926 MW of renewables now includes:

◦~~2,168~~2,570 MW under construction and expected on-line through ~~2021;~~2024; and

◦~~4,638~~4,356 MW of renewables signed under long-term PPAs, ~~or awarded.~~including a 10-year agreement to supply Google’s data centers in Virginia with 500 MW of 24/7 carbon-free energy.

•The Company ~~has reduced its coal-fired generation~~secured a 20-year agreement for 34 TBTU of excess throughput LNG capacity in Central America, and expects to ~~29% of total generation volume (proforma for asset sales and retirements announced~~contract the remaining 45 TBTU in ~~2020) and is on track to further reduce its coal-fired generation to less than 10% by year-end 2030.~~the near-future.

◦In November 2020, the Company announced the retirement of 1,158 MW of coal-fired generation, which will decrease the Company's generation from coal by 5 percentage points, to approximately 29% of its total generation.

▪~~630 MW Petersburg Units 1 and 2 in Indiana;~~

▪~~322 MW Ventanas Units 1 and 2 in Chile; and~~

▪~~206 MW AES Hawaii.~~

~~Innovative Solutions:~~ The Company is developing and deploying innovative solutions such as battery-based energy storage, digital customer interfaces and energy management.

•Fluence, the Company's joint venture with Siemens, is the global leader in the fast-growing energy storage market, which is expected to increase by ~~15 to 20 GW~~40% annually.

◦In ~~year-to-date 2020,~~April, Fluence ~~signed 690 MW~~agreed to partner with Northvolt, the leading European battery developer and manufacturer, to develop sustainable, next-generation battery systems for grid-scale energy storage, to lower total cost of ~~new contracts, bringing its total delivered or awarded to 2.4 GW.~~

~~Superior Results:~~ ~~By investing in sustainable growth~~ownership and ~~offering innovative solutions to customers, the Company is transforming its business mix to deliver superior results.~~

•~~The Company has a resilient and diversified portfolio of electric generation and utilities with credit-worthy offtakers and an average contract life of 14 years.~~improve functionality.

3429 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

Review of Consolidated Results of Operations (unaudited)


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March 31,
(in millions, except per share amounts)	(in millions, except per share amounts)	2020		2019		$ change		% change		2020		2019		$ change		% change		(in millions, except per share amounts)		2021		2020		$ change		% change
Revenue:	Revenue:																	Revenue:
US and Utilities SBU	US and Utilities SBU	$	1,061	$	1,130	$	(69)	-6	%	$	2,945	$	3,125	$	(180)	-6	%	US and Utilities SBU		$	949	$	971	$	(22)	-2	%
South America SBU	South America SBU	850		828		22		3	%	2,273		2,438		(165)		-7	%	South America SBU		884		712		172		24	%
MCAC SBU	MCAC SBU	442		470		(28)		-6	%	1,255		1,398		(143)		-10	%	MCAC SBU		535		432		103		24	%
Eurasia SBU	Eurasia SBU	195		197		(2)		-1	%	634		801		(167)		-21	%	Eurasia SBU		270		225		45		20	%
Corporate and Other	Corporate and Other	49		14		35		NM		191		39		152		NM		Corporate and Other		24		28		(4)		-14	%
Eliminations	Eliminations	(52)		(14)		(38)		NM		(198)		(43)		(155)		NM		Eliminations		(27)		(30)		3		10	%
Total Revenue	Total Revenue	2,545		2,625		(80)		-3	%	7,100		7,758		(658)		-8	%	Total Revenue		2,635		2,338		297		13	%
Operating Margin:	Operating Margin:																	Operating Margin:
US and Utilities SBU	US and Utilities SBU	235		234		1		—	%	491		621		(130)		-21	%	US and Utilities SBU		107		120		(13)		-11	%
South America SBU	South America SBU	337		250		87		35	%	707		637		70		11	%	South America SBU		352		177		175		99	%
MCAC SBU	MCAC SBU	137		179		(42)		-23	%	411		361		50		14	%	MCAC SBU		122		140		(18)		-13	%
Eurasia SBU	Eurasia SBU	42		32		10		31	%	142		136		6		4	%	Eurasia SBU		59		51		8		16	%
Corporate and Other	Corporate and Other	23		(6)		29		NM		70		23		47		NM		Corporate and Other		32		32		—		—	%
Eliminations	Eliminations	(18)		12		(30)		NM		(34)		11		(45)		NM		Eliminations		(8)		(13)		5		38	%
Total Operating Margin	Total Operating Margin	756		701		55		8	%	1,787		1,789		(2)		—	%	Total Operating Margin		664		507		157		31	%
General and administrative expenses	General and administrative expenses	(41)		(41)		—		—	%	(119)		(136)		17		-13	%	General and administrative expenses		(46)		(38)		(8)		21	%
Interest expense	Interest expense	(290)		(250)		(40)		16	%	(741)		(788)		47		-6	%	Interest expense		(190)		(233)		43		-18	%
Interest income	Interest income	64		81		(17)		-21	%	198		242		(44)		-18	%	Interest income		68		70		(2)		-3	%
Loss on extinguishment of debt	Loss on extinguishment of debt	(54)		(65)		11		-17	%	(95)		(126)		31		-25	%	Loss on extinguishment of debt		(1)		(1)		—		—	%
Other expense	Other expense	(20)		(9)		(11)		NM		(27)		(35)		8		-23	%	Other expense		(16)		(4)		(12)		NM
Other income	Other income	6		78		(72)		-92	%	60		126		(66)		-52	%	Other income		43		45		(2)		-4	%
Gain (loss) on disposal and sale of business interests		(90)		16		(106)		NM		(117)		9		(126)		NM
Loss on disposal and sale of business interests																		Loss on disposal and sale of business interests		(5)		—		(5)		NM

Asset impairment expense	Asset impairment expense	(849)		—		(849)		NM		(855)		(116)		(739)		NM		Asset impairment expense		(473)		(6)		(467)		NM
Foreign currency transaction gains (losses)	Foreign currency transaction gains (losses)	2		(87)		89		NM		20		(69)		89		NM		Foreign currency transaction gains (losses)		(35)		24		(59)		NM
Other non-operating expense	Other non-operating expense	—		—		—		—		(202)		—		(202)		NM		Other non-operating expense		—		(44)		44		-100	%
Income tax benefit (expense)		147		(130)		277		NM		(55)		(302)		247		-82	%
Net equity in earnings (losses) of affiliates		(112)		4		(116)		NM		(106)		3		(109)		NM
Income tax expense																		Income tax expense		(8)		(89)		81		-91	%
Net equity in losses of affiliates																		Net equity in losses of affiliates		(30)		(2)		(28)		NM
INCOME (LOSS) FROM CONTINUING OPERATIONS	INCOME (LOSS) FROM CONTINUING OPERATIONS	(481)		298		(779)		NM		(252)		597		(849)		NM		INCOME (LOSS) FROM CONTINUING OPERATIONS		(29)		229		(258)		NM

Gain from disposal of discontinued businesses		—		—		—		—		3		1		2		NM
NET INCOME (LOSS)		(481)		298		(779)		NM		(249)		598		(847)		NM

Less: Net loss (income) attributable to noncontrolling interests and redeemable stock of subsidiaries		148		(88)		236		NM		(23)		(217)		194		-89	%

Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries																		Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries		(119)		(85)		(34)		40	%
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION	$	(333)	$	210	$	(543)	NM		$	(272)	$	381	$	(653)	NM		NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION		$	(148)	$	144	$	(292)	NM
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
Income (loss) from continuing operations, net of tax		$	(333)	$	210	$	(543)	NM		$	(275)	$	380	$	(655)	NM
Income from discontinued operations, net of tax		—		—		—		—		3		1		2		NM
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION		$	(333)	$	210	$	(543)	NM		$	(272)	$	381	$	(653)	NM

Net cash provided by operating activities	Net cash provided by operating activities	$	1,267	$	761	$	506	66	%	$	2,087	$	1,775	$	312	18	%	Net cash provided by operating activities		$	253	$	373	$	(120)	-32	%

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.

3530 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

Consolidated Revenue and Operating Margin

Three Months Ended ~~September 30, 2020~~March 31, 2021

Revenue

(in millions)

Consolidated Revenue — Revenue ~~decreased $80~~increased $297 million, or 3%13%, for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the three months ended ~~September 30, 2019.~~March 31, 2020. Excluding the unfavorable FX impact of ~~$51~~$28 million, primarily in South America, this ~~decrease~~increase was driven by:

•$69 million in US and Utilities mainly driven by a decrease in energy pass-through rates and lower demand due to the COVID-19 pandemic in El Salvador, lower fuel revenues and lower retail sales demand at IPL mostly as a result of the COVID-19 pandemic, and lower regulated rates as a result of the changes in DP&L’s ESP. These decreases were partially offset by increased capacity sales at Southland Energy due to commencement of the PPAs; and

•$19 million in MCAC mainly driven by the disconnection of the Estrella del Mar I power barge from the grid in Panama, lower contract prices driven by lower LNG index prices at the Colon combined cycle facility in Panama, and lower generation in Mexico.

~~These unfavorable impacts were partially offset by an increase of $70~~212 million in South America ~~mainly~~primarily driven by the revenue recognized at Angamos for the early termination of contracts with Minera Escondida and Minera ~~Spence.~~

~~Operating Margin~~

(Spence, and by higher availability in ~~millions)~~

~~Consolidated Operating Margin~~— Operating margin increased $55 million, or 8%, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. Excluding the unfavorable FX impact of $15 million, this increase was mainly driven by:Colombia from higher reservoir levels;

•$~~103~~104 million in ~~South America~~MCAC driven by higher LNG sales in the Dominican Republic, and higher pass-through fuel prices in Mexico; and

•$32 million in Eurasia mainly driven by ~~the drivers discussed above, partially offset by lower margin~~higher sales and generation in ~~Colombia due to drier hydrology.~~Bulgaria.

These favorable impacts were partially offset by a decrease of ~~$41 million in MCAC mainly driven by prior year insurance recoveries associated with the lightning incident at the Andres facility in 2018 and current year outage due to Andres steam turbine failure.~~

~~36 | The AES Corporation | September 30, 2020 Form 10-Q~~

~~Nine Months Ended September 30, 2020~~

~~Revenue~~

~~(in millions)~~

~~Consolidated Revenue~~— Revenue decreased $658 million, or 8%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. Excluding the unfavorable FX impact of $148 million, primarily in South America, this decrease was driven by:

•~~$180~~$22 million in US and Utilities ~~mainly~~ driven by ~~a decrease in energy pass-through rates and lower demand due to the COVID-19 pandemic in El Salvador, lower regulated rates as a result~~unrealized losses from open positions of ~~the changes in DP&L’s ESP, and lower retail sales demand~~commodity derivatives at ~~both IPL and DPL primarily due to milder weather and COVID-19 pandemic impacts. These decreases were~~Southland, partially offset by ~~increased capacity~~higher sales at Southland Energy due to the timing of the commencement of the ~~PPAs;~~PPA periods.

Operating Margin

(in millions)

Consolidated Operating Margin— Operating margin increased $157 million, or 31%, for the three months ended March 31, 2021, compared to the three months ended March 31, 2020. Excluding the unfavorable FX impact of $23 million, primarily in South America, this increase was mainly driven by:

•$~~168~~201 million in ~~Eurasia mainly driven~~South America primarily due to the drivers discussed above.

This favorable impact was partially offset by ~~the sale of the Northern Ireland businesses in June 2019;~~a decrease of:

•$~~120~~17 million in MCAC ~~mainly~~ driven by ~~lower~~a decrease in generation ~~and volume pass-through fuel revenue~~ in ~~Mexico,~~Panama primarily due to the disconnection of the Estrella del Mar I power barge ~~from~~in the ~~grid~~prior year, decreased availability and higher fixed costs in ~~Panama, lower market prices, spot sales~~Mexico, and ~~demand~~decreased availability in the Dominican Republic ~~and lower PPA prices~~due to an outage at Itabo, partially offset by higher LNG sales in the Dominican Republic driven by ~~lower LNG index prices at~~ the ~~Colon combined cycle facility~~Eastern Pipeline COD in ~~Panama;~~2020; and

•$39 million in South America mainly driven by drier hydrology and lower generation in Colombia due to a life extension project being performed at the Chivor hydro plant, lower pass-through coal prices in Chile, and lower energy and capacity prices (Resolution 31/2020) in Argentina, partially offset by revenue recognized at Angamos for the early termination of contracts with Minera Escondida and Minera Spence and recovery of previously expensed payments from customers in Chile.

~~Operating Margin~~

~~(in millions)~~

~~Consolidated Operating Margin~~— Operating margin decreased $2 million for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. Excluding the unfavorable FX impact of $39 million, primarily in South America, this decrease was driven by:

•~~$130~~13 million in US and Utilities ~~mostly due to lower regulated rates as a result of the changes in DP&L’s ESP and lower retail sales demand~~ primarily due to ~~milder weather, lower capacity sales due to~~ the ~~retirement of units at Southland, a favorable revision to the ARO at DPL in 2019, lower demand due to the COVID-19 pandemic in El Salvador, and increased rock ash disposal at Puerto Rico.~~drivers discussed above.

~~These unfavorable impacts were partially offset by an increase of:~~

3731 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

•$109 million in South America primarily due to revenue recognized at Angamos for the early termination of contracts with Minera Escondida and Minera Spence and recovery of previously expensed payments from customers in Chile. These impacts were partially offset by drier hydrology in Colombia and the impact of a life extension project being performed at the Chivor hydro plant; and

•$50 million in MCAC mostly in Panama due to improved hydrology, higher availability at the Colon combined cycle facility and at Changuinola due to the tunnel lining upgrade in 2019, partially offset by prior year insurance recoveries associated with the lightning incident at the Andres facility in 2018 and current year outage due to Andres steam turbine failure.

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 ~~remained flat at $41~~increased $8 million, or 21%, to $46 million for the three months ended ~~September 30, 2020 and 2019.~~

~~General and administrative expenses decreased $17 million, or 13%,~~March 31, 2021, compared to ~~$119~~$38 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020, ~~compared to $136 million for the nine months ended September 30, 2019,~~ primarily due to abusiness development activity, including costs at Clean Energy that had previously been incurred at sPower and reported within earnings from equity affiliates, and higher ~~reallocation of information technology costs to the SBUs.~~people costs.

Interest expense

Interest expense ~~increased $40~~decreased $43 million, or ~~16%~~18%, to ~~$290~~$190 million for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$250~~$233 million for the three months ended September 30, 2019. This increase is primarily driven by lower capitalized interest due to the commencement of operations at the Alamitos and Huntington Beach facilities in February 2020 and a higher inflation rate in Brazil resulting in higher monetary correction for liabilities, partially offset by lower interest rates due to refinancing at the Parent Company.

~~Interest expense decreased $47 million, or 6%, to $741 million for the nine months ended September 30, 2020, compared to $788 million for the nine months ended September 30, 2019.~~March 31, 2020. This decrease is primarily due to ~~incremental capitalized~~realized gains on de-designated interest ~~in Chile~~rate swaps and lower interest rates ~~due~~related to refinancing at the Parent Company, partially offset by incremental capitalized interest in Chile in the prior period and lower capitalized interest due to the commencement of operations at the Alamitos and Huntington Beach facilities in February 2020.

Interest income

Interest income decreased ~~$17~~$2 million, or ~~21%~~3%, to ~~$64~~$68 million for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$81~~$70 million for the three months ended ~~September 30, 2019~~March 31, 2020 with no material drivers.

Other income and expense

Other income decreased ~~$44~~$2 million, or ~~18%~~4%, to $198 million for the nine months ended September 30, 2020, compared to $242 million for the nine months ended September 30, 2019. This decrease is primarily due to the decrease of the LIBOR rate on receivables in Argentina, a lower loan receivable balance at Mong Duong, and a lower average interest rate in Brazil.

~~Loss on extinguishment of debt~~

~~Loss on extinguishment of debt decreased $11 million, or 17%, to $54~~$43 million for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$65~~$45 million for the three months ended ~~September 30, 2019. This decrease was~~March 31, 2020, primarily due to ~~losses~~the prior year gain on sale of ~~$31~~Redondo Beach land at Southland. This was partially offset by the current year gain on remeasurement of our equity interest in the sPower development platform to its acquisition-date fair value, recognized as part of the merger to form AES Clean Energy Development.

Other expense increased $12 million ~~at Mong Duong and $28 million at Colon resulting from the refinancing and redemption of senior notes in 2019 compared~~ to ~~losses of $34 million at DPL and~~ $16 ~~million at AES Panama, Changuinola, and Colon in 2020.~~

~~Loss on extinguishment of debt decreased $31 million, or 25%, to $95~~ million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$126~~$4 million for the ~~nine~~three months ended ~~September 30, 2019. This decrease was~~March 31, 2020, primarily due to ~~losses of $31 million at Mong Duong, $28 million at Colon, and $11 million at Gener in 2019, partially offset by~~ a loss recognized at commencement of ~~$37 million~~a sales-type lease at ~~the Parent Company resulting from the redemption of senior notes in 2020.~~AES Distributed Energy.

See Note 8—14—~~Debt~~Other Income and Expense and Note 18—Acquisitions included in Item 1.—Financial Statements of this Form 10-Q for further information.

~~Other income and expense~~

Other income decreased $72 million, or 92%, to $6 million for the three months ended September 30, 2020, compared to $78 million for the three months ended September 30, 2019 primarily due to the prior year gains on

~~38 | The AES Corporation | September 30, 2020 Form 10-Q~~

~~insurance recoveries associated with property damage at the Andres facility and upgrading the tunnel lining at Changuinola.~~

Other income decreased $66 million, or 52%, to $60 million for the nine months ended September 30, 2020, compared to $126 million for the nine months ended September 30, 2019. This decrease was primarily due to prior year gains on insurance recoveries associated with property damage at the Andres facility and upgrading the tunnel lining at Changuinola, partially offset by the current year gain on sale of Redondo Beach land at Southland.

Other expense increased $11 million to $20 million for the three months ended September 30, 2020, compared to $9 million for the three months ended September 30, 2019 primarily due to compliance with an arbitration decision.

Other expense decreased $8 million, or 23%, to $27 million for the nine months ended September 30, 2020, compared to $35 million for the nine months ended September 30, 2019, primarily due to the disposal of tunnel lining at Changuinola in 2019 and lower defined benefit plan costs at IPL, partially offset by compliance with an arbitration decision.

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

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

Loss on disposal and sale of business interests was ~~$90~~$5 million for the three months ended ~~September 30, 2020,~~March 31, 2021, primarily due to ~~the~~additional loss on the sale of ~~Uruguaiana, as compared to a~~Uruguaiana. There was no gain ~~of $16 million for the three months ended September 30, 2019, primarily due to the 2019 gain on the merger of Simple Energy to form Uplight.~~

~~Loss~~or loss on disposal and sale of business ~~interests was $117 million for~~interest during the ~~nine~~three months ended September 30, 2020, primarily due to the loss on sale of Uruguaiana and the settlement of arbitration related to the sale of the Kazakhstan HPPs, as compared to a gain of $9 million for the nine months ended September 30, 2019, primarily due to the gain on sale of a portion of our interest in sPower’s operating assets and the gain on the merger of Simple Energy to form Uplight, partially offset by the loss on sale of Kilroot and Ballylumford.

~~See Note 18—Held-for-Sale and Dispositions~~ ~~and Note 7—Investments in and Advances to Affiliates~~ ~~included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for further information.~~March 31, 2020.

Asset impairment expense

Asset impairment expense ~~was $849~~increased $467 million to $473 million for the three months ended ~~September 30, 2020, primarily consisting of a $781~~March 31, 2021, compared to $6 million impairment related to certain coal-fired plants at AES Gener, as well as impairments of the generation facility in Hawaii and the Estrella del Mar I power barge in Panama. There was no asset impairment expense duringfor the three months ended ~~September 30, 2019.~~

~~Asset impairment expense increased $739 million to $855 million for the nine months ended September 30, 2020, compared to $116 million for the nine months ended September 30, 2019.~~March 31, 2020. This increase was primarily due to a ~~$781~~$475 million impairment ~~related to certain coal-fired plants~~ at ~~AES Gener, as well as impairments~~Puerto Rico associated with the economic costs and reputational risks of ~~the generation facility in Hawaii and the Estrella del Mar I power barge in Panama, partially offset by a prior year impairment~~disposal of ~~$115 million as a result of Kilroot and Ballylumford being classified as held-for-sale.~~coal combustion residuals off island.

See Note ~~16—~~15—Asset Impairment Expense included in Item 1.—Financial Statements of this Form 10-Q for further information.

Foreign currency transaction gains (losses)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)		2021		2020
Chile	Chile	$	3	$	8	$	13	$	9	Chile		$	8	$	22
Dominican Republic		—		3		9		2
Corporate		4		(10)		8		(9)

Argentina	Argentina	(4)		(83)		(11)		(69)		Argentina		(41)		3

Other	Other	(1)		(5)		1		(2)		Other		(2)		(1)
Total (1)	Total (1)	$	2	$	(87)	$	20	$	(69)	Total (1)		$	(35)	$	24

(1)Includes losses of $19 million and gains of ~~$2 million and losses of $41~~$39 million on foreign currency derivative contracts for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and gains of $20 million and losses of $24 million on foreign currency derivative contracts for the nine months ended September 30, 2020 and 2019,~~ respectively.

~~The Company recognized net foreign currency transaction gains of $2 million for the three months ended September 30, 2020 with no material drivers.~~

3932 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

The Company recognized net foreign currency transaction ~~gains~~losses of ~~$20~~$35 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, primarily due to ~~realized~~unrealized losses on foreign currency derivatives related to government receivables in Argentina, partially offset by unrealized derivative gains on foreign currency derivatives in South America due to the depreciating Colombian peso, gains in the Dominican Republic due to the depreciating Dominican peso, and gains at the Parent Company resulting from the appreciation of intercompany receivables denominated in Euro, partially offset in Argentina due to depreciating receivables denominated in the Argentine peso.

The Company recognized net foreign currency transaction ~~losses~~gains of ~~$87 million and $69~~$24 million for the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020, primarily ~~driven by~~due to realized and unrealized ~~losses~~gains on foreign currency derivatives ~~related~~in South America due to ~~government receivables in Argentina, unrealized losses associated with~~ the ~~devaluation of long-term receivables denominated in the Argentine peso, and unrealized losses at the Parent Company resulting from the depreciation of intercompany receivables denominated in Euro.~~depreciating Colombian peso.

Other non-operating expense

Other non-operating expense was ~~$202~~$44 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020. In March 2020, the Company recognized a $43 million other-than-temporary impairment of the OPGC equity method investment due to the economic slowdown. ~~In June 2020, the Company agreed to sell its entire stake in the OPGC investment, resulting in an additional other-than-temporary impairment of $158 million.~~ There were no other non-operating expenses during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2021.

See Note 7—6—Investments in and Advances to Affiliates included in Item 1.—Financial Statements of this Form 10-Q for further information.

Income tax ~~benefit (expense)~~expense

Income tax expense decreased ~~$277~~$81 million, or 91%, to ~~benefit of $147~~$8 million for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~expense of $130~~$89 million for the three months ended ~~September 30, 2019.~~March 31, 2020. The Company’s effective tax rates were ~~28%~~89% and ~~31%~~28% for the three months ended ~~September 30,~~March 31, 2021 and 2020, and 2019, respectively. The third quarter 2020 effective tax rate was impacted by the tax benefit on the Company’s investment in Guacolda relating to equity earnings losses for the impairment of long-lived assets. Partially offsetting this tax benefit was an unfavorable impact from the loss on sale of the Company’s entire interest in AES Uruguaiana. The third quarter 2019 effective tax rate was impacted by nondeductible unrealized losses on foreign currency derivatives related to government receivables in Argentina.

Income tax expense decreased $247 million, or 82%, to $55 million for the nine months ended September 30, 2020, compared to $302 million for the nine months ended September 30, 2019. The Company’s effective tax rates were (60)% and 34% for the nine months ended September 30, 2020 and 2019, respectively. This net ~~change~~increase in the effective tax rate was primarily due to the impact of the ~~other-than-temporary~~asset impairment ~~of the OPGC equity method investment and the loss on sale of the Company’s entire interest~~at Puerto Rico in ~~AES Uruguaiana. These impacts were partially offset~~2021. The prior year effective tax rate was impacted by the recognition of ~~the 2020~~ tax benefit related to a depreciating Peso in certain of our ~~Argentine~~Mexican subsidiaries, ~~as well as~~partially offset by the ~~aforementioned~~ impact of the ~~Company’s investment in Guacolda.~~other-than-temporary impairment of the OPGC equity method investment.

See Note 7—15—Asset Impairment Expense included in Item 1.—Financial Statements of this Form 10-Q for details of the asset impairment and Note 6—Investments In and Advances to Affiliates included in Item 1.—Financial Statements of this Form 10-Q for ~~details of~~further information regarding the other-than-temporary impairment. ~~See Note 18 —Held-for-Sale and Dispositions~~ ~~included in Item 1.—Financial Statements~~ ~~of this Form 10-Q for details of the sale of AES Uruguaiana.~~

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, our foreign earnings may be subjected to incremental U.S. taxation under the 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)~~losses of affiliates

Net equity in ~~earnings~~losses of affiliates ~~decreased $116~~increased $28 million to ~~losses of $112~~$30 million for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~earnings of $4~~$2 million for the three months ended ~~September 30, 2019.~~March 31, 2020. This increase was primarily driven by a ~~$120 million~~ decrease in earnings at ~~Gener~~Mesa La Paz of $13 million due to ~~a long-lived asset impairment at its investee, Guacolda.~~

~~Net equity in earnings~~higher income taxes caused by the fluctuation of ~~affiliates decreased $109 million to losses of $106 million for~~ the ~~nine months ended September 30, 2020, compared to earnings of $3 million for the nine months ended September 30, 2019. This was primarily driven by~~Mexican peso and a ~~$93 million~~ decrease in earnings at ~~Gener mainly due to a long-lived asset impairment at its investee,~~ Guacolda ~~and a $38~~of $8 million ~~decrease in earnings at sPower~~ due to the ~~impairment~~suspension of ~~certain development projects.~~equity method accounting in September 2020.

See Note 6—

~~40 | The AES Corporation | September 30, 2020~~Investments in and Advances to Affiliates included in Item 1.—Financial Statements of this Form 10-Q for further information.

Net income ~~(loss)~~ attributable to noncontrolling interests and redeemable stock of subsidiaries

Net income attributable to noncontrolling interests and redeemable stock of subsidiaries ~~decreased $236~~increased $34 million, or 40%, to ~~a loss of $148~~$119 million for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~income of $88~~$85 million for the three months ended ~~September 30, 2019.~~March 31, 2020. This ~~decrease~~increase was primarily due to:

•~~Lower~~Higher earnings in Chile due to ~~long-lived asset impairments at Gener, partially offset by~~ net gains from early contract terminations at ~~Angamos;~~

•~~Lower earnings in Panama primarily~~Angamos, partially offset by higher interest expense due to ~~current~~prior year ~~asset impairment~~incremental capitalized interest; and ~~loss on extinguishment of debt;~~

•Higher ~~interest expense due to higher inflation, impacting liability balances at Tietê;~~

•~~Prior year insurance recoveries net of outages at Andres;~~

•~~HLBV allocation of losses to noncontrolling interests at Distributed Energy; and~~

•~~Lower~~ earnings in Colombia due to ~~drier hydrology~~the life extension project at the Chivor hydroelectric ~~plant.~~plant completed in the prior year.

These increases were partially offset by:

•~~Prior year losses on extinguishment of debt at Mong Duong and Colon.~~

Net income attributable to noncontrolling interests and redeemable stock of subsidiaries decreased $194 million, or 89%, to $23 million for the nine months ended September 30, 2020, compared to $217 million for the nine months ended September 30, 2019. This decrease was primarily due to:

•Lower earnings in ~~Chile~~Panama due to ~~long-lived asset impairments at Gener, partially offset by net gains from early contract terminations at Angamos and lower interest expense due to incremental capitalized interest;~~the disconnection of the Estrella del Mar power barge.

•~~Lower earnings in Colombia due to drier hydrology and a life extension project at the Chivor hydroelectric plant;~~

•~~Prior year insurance recoveries net of outages at Andres; and~~

•~~HLBV allocation of losses to noncontrolling interests at Distributed Energy.~~

~~These increases were partially offset by:~~

33 | The AES Corporation | March 31, 2021 Form 10-Q

•~~Prior year losses on extinguishment of debt at Mong Duong and Colon.~~

Net income (loss) attributable to The AES Corporation

Net income attributable to The AES Corporation decreased ~~$543~~$292 million, to a loss of ~~$333~~$148 million for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to income of ~~$210~~$144 million for the three months ended ~~September 30, 2019.~~March 31, 2020. This decrease was primarily due to:

•Long-lived asset ~~impairments~~impairment at ~~Gener, Guacolda, Hawaii and Panama;~~

•~~Loss on sale of Uruguaiana;~~Puerto Rico;

•Prior year ~~net insurance recoveries~~gain on sale of land held by AES Redondo Beach at ~~Andres; and~~Southland;

•~~Losses on extinguishment of debt at DPL and Panama.~~

~~These decreases were partially offset by:~~

•~~Lower income tax expense;~~

•~~Prior year unrealized~~Unrealized losses on foreign currency derivatives related to government receivables in Argentina;

•~~Higher margins at our South America SBU;~~ and

•Prior year ~~losses on extinguishment of debt at Mong Duong and Colon.~~

Net income attributable to The AES Corporation decreased $653 million to a loss of $272 million for the nine months ended September 30, 2020, compared to income of $381 million for the nine months ended September 30, 2019. This decrease was primarily due to:

•~~Long-lived asset impairments at Gener, Guacolda, Hawaii and Panama;~~

•~~Other-than-temporary impairment of OPGC;~~

~~41 | The AES Corporation | September 30, 2020 Form 10-Q~~

•~~Lower margins at our US and Utilities SBU;~~

•~~Losses on sale of Uruguaiana and the Kazakhstan HPPs as a result of the final arbitration decision;~~

•~~Prior year net insurance recoveries at Andres; and~~

•~~Losses on extinguishment of debt at the Parent Company.~~incremental capitalized interest in Chile.

These decreases were partially offset by:

•~~Lower income tax expense;~~

•~~Prior year impairments of Kilroot and Ballylumford;~~

•~~Prior year unrealized losses on foreign currency derivatives related to government receivables in Argentina;~~

•Higher margins at our South America SBU due to net gains from early contract terminations at Angamos;

•Lower Parent interest expense due to realized gains on de-designated interest rate swaps and ~~MCAC SBUs;~~lower interest rates;

•Prior year ~~losses on extinguishment of debt~~other-than-temporary impairment at ~~Mong Duong and Colon;~~

•~~Lower interest expense due to incremental capitalized interest in Chile; and~~OPGC;

•Gain on ~~sale~~remeasurement of ~~land held by AES Redondo Beach at Southland.~~our equity interest in the sPower development platform to acquisition-date fair value; and

•Lower income tax expense.

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.

During the ~~quarter~~year ended ~~September 30,~~December 31, 2020, the Company changed the definitions of Adjusted Operating Margin, Adjusted PTC, and Adjusted EPS to exclude net gains at Angamos, one of our businesses in the South America SBU, associated with the early contract terminations with Minera Escondida and Minera Spence. We believe the inclusion of the effects of this non-recurring transaction would result in a lack of comparability in our results of operations and would distort the metrics that our investors use to measure us.

During the ~~year~~three months ended ~~December~~March 31, ~~2019,~~2021, the Company changed the definitions of Adjusted Operating Margin, Adjusted PTC, and Adjusted EPS to ~~exclude gains~~remove the adjustment for costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and ~~losses recognized at commencement of sales-type leases. We~~office consolidation. As this adjustment was specific to the major restructuring program announced by the Company in 2018, we believe ~~these transactions are economically similar to sales of business interests~~removing this adjustment from our non-GAAP definitions provides simplification and ~~excluding these gains or losses better reflects the underlying business performance of the Company.~~clarity for our investors.

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; ~~(c) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations,~~ and ~~office consolidation; and (d)~~(c) net gains at Angamos, one of our businesses in the South America SBU, associated with the early contract terminations with Minera Escondida and Minera Spence. 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.

4234 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Reconciliation of Adjusted Operating Margin (in millions)	Reconciliation of Adjusted Operating Margin (in millions)	2020		2019		2020		2019		Reconciliation of Adjusted Operating Margin (in millions)		2021		2020
Operating Margin	Operating Margin	$	756	$	701	$	1,787	$	1,789	Operating Margin		$	664	$	507
Noncontrolling interests adjustment (1)	Noncontrolling interests adjustment (1)	(207)		(194)		(530)		(491)		Noncontrolling interests adjustment (1)		(209)		(169)
Unrealized derivative losses	Unrealized derivative losses	26		2		9		—		Unrealized derivative losses		44		(12)
Disposition/acquisition losses	Disposition/acquisition losses	14		4		18		14		Disposition/acquisition losses		2		2
Net gains from early contract terminations at Angamos	Net gains from early contract terminations at Angamos	(72)		—		(72)		—		Net gains from early contract terminations at Angamos		(110)		—

Total Adjusted Operating Margin	Total Adjusted Operating Margin	$	517	$	513	$	1,212	$	1,312	Total Adjusted Operating Margin		$	391	$	328

_______________________

(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, and gains and losses recognized at commencement of sales-type leases; (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)~~(f) net gains at Angamos, one of our businesses in the South America SBU, associated with the early contract terminations with Minera Escondida and Minera Spence. 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.

~~43 | The AES Corporation | September 30, 2020 Form 10-Q~~

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 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 or retire debt, ~~or implement restructuring initiatives,~~and the non-recurring nature of the impact of the early contract terminations at Angamos, 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. 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

35 | The AES Corporation | March 31, 2021 Form 10-Q

The AES Corporation, which is determined in accordance with GAAP.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Reconciliation of Adjusted PTC (in millions)	Reconciliation of Adjusted PTC (in millions)	2020		2019		2020		2019		Reconciliation of Adjusted PTC (in millions)		2021		2020
Income (loss) from continuing operations, net of tax, attributable to The AES Corporation	Income (loss) from continuing operations, net of tax, attributable to The AES Corporation	$	(333)	$	210	$	(275)	$	380	Income (loss) from continuing operations, net of tax, attributable to The AES Corporation		$	(148)	$	144
Income tax expense (benefit) from continuing operations attributable to The AES Corporation	Income tax expense (benefit) from continuing operations attributable to The AES Corporation	(98)		94		38		215		Income tax expense (benefit) from continuing operations attributable to The AES Corporation		(36)		55
Pre-tax contribution	Pre-tax contribution	(431)		304		(237)		595		Pre-tax contribution		(184)		199
Unrealized derivative and equity securities losses		26		69		24		78
Unrealized derivative and equity securities losses (gains)										Unrealized derivative and equity securities losses (gains)		69		(16)
Unrealized foreign currency losses (gains)	Unrealized foreign currency losses (gains)	(4)		31		(7)		49		Unrealized foreign currency losses (gains)		6		9
Disposition/acquisition losses (gains)	Disposition/acquisition losses (gains)	100		(17)		130		(3)		Disposition/acquisition losses (gains)		(15)		1
Impairment expense		657		1		878		124
Impairment losses										Impairment losses		475		53
Loss on extinguishment of debt	Loss on extinguishment of debt	55		38		103		95		Loss on extinguishment of debt		6		4
Net gains from early contract terminations at Angamos	Net gains from early contract terminations at Angamos	(72)		—		(72)		—		Net gains from early contract terminations at Angamos		(110)		—

Total Adjusted PTC	Total Adjusted PTC	$	331	$	426	$	819	$	938	Total Adjusted PTC		$	247	$	250

~~44 | The AES Corporation | September 30, 2020 Form 10-Q~~

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, and gains and losses recognized at commencement of sales-type leases; (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; (g)~~ net gains at Angamos, one of our businesses in the South America SBU, associated with the early contract terminations with Minera Escondida and Minera Spence; and ~~(h)~~(g) tax benefit or expense related to the enactment effects of 2017 U.S. tax law 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 or retire debt, ~~or implement restructuring activities,~~the one-time impact of the 2017 U.S. tax law reform and subsequent period adjustments related to enactment effects, and the non-recurring nature of the impact of the early contract terminations at Angamos, 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 September 30, Nine Months Ended September 30,
Reconciliation of Adjusted EPS 2020 2019 2020 2019
Diluted earnings (loss) per share from continuing operations $ (0.50) $ 0.32 $ (0.41) $ 0.57
Unrealized derivative and equity securities losses 0.04 (1) 0.10 (2) 0.04 (1) 0.12 (2)
Unrealized foreign currency losses (gains) — 0.05 (3) (0.01) 0.06 (3)
Disposition/acquisition losses (gains) 0.15 (4) (0.03) (5) 0.20 (6) —
Impairment expense 0.98 (7) — 1.31 (8) 0.19 (9)
Loss on extinguishment of debt 0.08 (10) 0.06 (11) 0.15 (12) 0.14 (13)
Net gains from early contract terminations at Angamos (0.11) (14) — (0.11) (14) —
U.S. Tax Law Reform Impact — — 0.02 (15) 0.01
Less: Net income tax benefit (0.22) (16) (0.02) (0.23) (16) (0.07) (17)
Adjusted EPS $ 0.42 $ 0.48 $ 0.96 $ 1.02

36 | The AES Corporation | March 31, 2021 Form 10-Q


	Three Months Ended March 31,
Reconciliation of Adjusted EPS		2021			2020
Diluted earnings (loss) per share from continuing operations		$	(0.22)		$	0.22
Unrealized derivative and equity securities losses (gains)		0.10		(1)	(0.02)
Unrealized foreign currency losses		0.01			0.01
Disposition/acquisition gains		(0.02)		(2)	—
Impairment losses		0.71		(3)	0.08		(4)
Loss on extinguishment of debt		0.01			—
Net gains from early contract terminations at Angamos		(0.16)		(5)	—


Less: Net income tax benefit		(0.15)		(6)	—
Adjusted EPS		$	0.28		$	0.29

_____________________________

(1)~~Amounts~~Amount primarily ~~relate~~relates to ~~unrealized derivative losses at Southland of $20 million, or $0.03 per share, for the three months ended September 30, 2020, and~~ unrealized derivative losses in Argentina mainly associated with foreign currency derivatives on government receivables of ~~$18~~$38 million, or ~~$0.03~~$0.06 per share, ~~for the nine months ended September 30, 2020.~~and net unrealized derivative losses on power and commodities swaps at Southland of $33 million, or $0.05 per share.

(2)~~Amounts~~Amount primarily ~~relate~~relates to ~~unrealized derivative losses~~gain on remeasurement of our equity interest in ~~Argentina~~sPower to acquisition-date fair value of ~~$71~~$36 million, or ~~$0.11~~$0.05 per share, ~~and $77 million, or $0.12 per share, for the three and nine months ended September 30, 2019, respectively, mainly associated with foreign currency derivatives on government receivables.~~

~~(3)Amounts primarily relate to unrealized FX losses in Argentina~~partially offset by day-one loss recognized at commencement of ~~$11~~a sales-type lease at AES Distributed Energy of $13 million, or $0.02 per ~~share, and $23~~share.

(3)Amount primarily relates to asset impairment at Puerto Rico of $475 million, or ~~$0.03~~$0.71 per ~~share, for the three and nine~~share.

~~45 | The AES Corporation | September 30, 2020 Form 10-Q~~

months ended September 30, 2019, respectively, mainly associated with the devaluation of long-term receivables denominated in Argentine pesos; and unrealized FX losses at the Parent Company of $18 million, or $0.03 per share, and $22 million, or $0.03 per share, for the three and nine months ended September 30, 2019, respectively, mainly associated with intercompany receivables denominated in Euro.

(4)Amount primarily relates to ~~loss on sale~~other-than-temporary impairment of ~~Uruguaiana~~OPGC of ~~$85~~$43 million, or ~~$0.13 per share, and advisor fees associated with the successful acquisition of additional ownership interest in Tietê of $9 million, or $0.01~~$0.06 per share.

(5)Amount ~~primarily~~ relates to gain on sale of ownership interest in Simple Energy as part of the Uplight merger of $13 million, or $0.02 per share, and realized derivative gains associated with the sale of Kilroot and Ballylumford of $7 million, or $0.01 per share.

~~(6)~~Amount primarily relates to loss on sale of Uruguaiana of $85 million, or $0.13 per share, loss on sale of the Kazakhstan HPPs of $30 million, or $0.05 per share, as result of the final arbitration decision, and advisor fees associated with the successful acquisition of additional ownership interest in Tietê of $9 million, or $0.01 per share.

~~(7)~~Amount primarily relates to asset impairments at Gener of $523 million, or $0.78 per share, at our Guacolda equity affiliate impacting equity earnings by $81 million, or $0.12 per share, at Hawaii of $38 million, or $0.06 per share, and at Panama of $15 million, or $0.02 per share.

~~(8)~~Amount primarily relates to asset impairments at Gener of $527 million, or $0.79 per share, other-than-temporary impairment of OPGC of $201 million, or $0.30 per share, impairment at our Guacolda equity affiliate impacting equity earnings by $81 million, or $0.12 per share, impairment at Hawaii of $38 million, or $0.06 per share, impairment at Panama of $15 million, or $0.02 per share, and impairments at our sPower equity affiliate, impacting equity earnings by $16 million, or $0.02 per share.

~~(9)Amount primarily relates to asset impairments at Kilroot and Ballylumford of $115 million, or $0.17 per share.~~

~~(10)Amount primarily relates to losses on early retirement of debt at DPL of $32 million, or $0.05 per share, Panama of $11 million, or $0.02 per share, and Angamos of $10 million, or $0.01 per share.~~

~~(11)Amount primarily relates to losses on early retirement of debt at Mong Duong of $16 million, or $0.02 per share, and Colon of $14 million, or $0.02 per share.~~

~~(12)~~Amount primarily relates to losses on early retirement of debt at the Parent Company of $37 million, or $0.06 per share, DPL of $32 million, or $0.05 per share, Panama of $11 million, or $0.02 per share, and Angamos of $10 million, or $0.02 per share.

~~(13)Amount primarily relates to losses on early retirement of debt at DPL of $45 million, or $0.07 per share, Mong Duong of $16 million, or $0.02 per share, and Colon of $14 million, or $0.02 per share.~~

~~(14)Amounts primarily relate~~ to net gains at Angamos associated with the early contract terminations with Minera Escondida and Minera Spence of ~~$72~~$110 million, or ~~$0.11~~$0.16 per share.

~~(15)Amount represents adjustment to tax law reform remeasurement due to incremental deferred taxes related to DPL of $16 million, or $0.02 per share.~~

~~(16)Amounts primarily relate to income tax benefits associated with the impairments at Gener and Guacolda of $147 million, or $0.22 per share.~~

~~(17)~~(6)Amount primarily relates to income tax benefits associated with the ~~impairments~~impairment at ~~Kilroot and Ballylumford~~Puerto Rico of ~~$17~~$119 million, or ~~$0.03~~$0.18 per share, ~~and~~partially offset by income tax ~~benefits~~expense related to net gains at Angamos associated with ~~losses on~~the early ~~retirement~~contract terminations with Minera Escondida and Minera Spence of ~~debt at DPL, Mong Duong and Colon of $24~~$28 million, or $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 March 31,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change				2021		2020		$ Change		% Change
Operating Margin	Operating Margin	$	235	$	234	$	1	—	%	$	491	$	621	$	(130)	-21	%	Operating Margin		$	107	$	120	$	(13)	-11	%
Adjusted Operating Margin (1)	Adjusted Operating Margin (1)	237		209		28		13	%	434		548		(114)		-21	%	Adjusted Operating Margin (1)		126		84		42		50	%
Adjusted PTC (1)	Adjusted PTC (1)	185		187		(2)		-1	%	313		427		(114)		-27	%	Adjusted PTC (1)		44		71		(27)		-38	%

_____________________________

(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 ~~2019~~2020 Form 10-K for the respective ownership interest for key businesses.

Operating Margin for the three months ended ~~September 30, 2020 increased $1~~March 31, 2021 decreased $13 million, or 11%, which was driven primarily by the following (in millions):



~~Increase~~Decrease at Southland ~~Energy~~mainly due to ~~the CCGT units beginning commercial operations during Q1 2020~~higher unrealized losses from open positions of commodity derivatives	$	58 (44)
~~Decrease~~Increase at Southland Energy primarily due to CCGT units operating a full quarter in 2021 and the commencement of the PPA periods, partially offset by decrease in gain from commodity derivatives	29
Increase at DPL due to ~~lower~~higher regulated retail margin primarily due to ~~changes to DP&L’s ESP and lower~~higher volumes from ~~milder~~favorable weather and higher transmission rates	~~(15)~~7
Decrease at IPL primarily due to lower retail margin driven by lower volumes from milder weather and lower demand from the impact of COVID-19, partially offset by lower maintenance expense due to timing and the extent of outages	~~(12)~~
Decrease at Southland driven by higher losses from commodity derivatives and lower capacity sales due to unit retirements, partially offset by an increase in spot sales primarily due to favorable weather impact during Q3 2020 and lower depreciation expense	~~(9)~~
~~Decrease at Hawaii primarily driven by lower availability due to outages and higher expenses related to the shortened useful life of the coal plant~~	~~(8)~~

Other	~~(13)~~(5)
Total US and Utilities SBU Operating Margin ~~Increase~~Decrease	$	1 (13)

Adjusted Operating Margin increased ~~$28~~$42 million primarily due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on ~~derivatives and costs associated with dispositions of business interests.~~derivatives.

Adjusted PTC decreased $2$27 million, primarily driven by ~~increased interest expense~~the gain in 2020 on sale of land held by AES Redondo Beach at Southland ~~Energy due to lower capitalized interest following completion of the CCGT units~~ and a decrease ~~in allocation of earnings from equity affiliates driven by renewable projects that came online in 2019~~ at sPower primarily related to higher allocated losses from tax equity partnerships in 2021, partially offset by the increase in Adjusted Operating Margin described above.

~~Operating Margin for the nine months ended September 30, 2020 decreased $130 million, or 21%, which was driven primarily by the following (in millions):~~

~~46 | The AES Corporation | September 30, 2020 Form 10-Q~~



~~Decrease at DPL due to lower regulated retail margin primarily due to changes to DP&L’s ESP and lower volumes mainly due to milder weather~~	$	~~(59)~~
Decrease at Southland driven by lower capacity sales due to unit retirements and higher losses from commodity derivatives, partially offset by lower depreciation expense and by an increase in spot sales primarily due to favorable weather impact	~~(33)~~
~~Decrease at DPL due to a credit to depreciation expense in 2019 as a result of a reduction to an ARO liability and lower capacity margins at DPL’s closed plants~~	~~(31)~~
Decrease at IPL primarily due to lower retail margin driven by lower volumes from milder weather and lower demand from the impact of COVID-19, partially offset by lower maintenance expense due to timing and the extent of outages	~~(17)~~
~~Decrease in El Salvador mainly driven by lower demand due to the impact of COVID-19~~	~~(15)~~
~~Decrease at Hawaii primarily driven by lower availability due to outages and higher expenses related to the shortened useful life of the coal plant~~	~~(12)~~
~~Decrease in Puerto Rico mainly driven by an increase of rock ash disposal~~	~~(10)~~
~~Increase at Southland Energy due to the CCGT units beginning commercial operations during Q1 2020~~	61

~~Other~~	~~(14)~~
~~Total US and Utilities SBU Operating Margin Decrease~~	$	~~(130)~~

Adjusted Operating Margin decreased $114 million primarily due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives and costs associated with dispositions of business interests.

Adjusted PTC decreased $114 million, primarily driven by the decrease in Adjusted Operating Margin described above, increased interest expense primarily at Southland Energy due to lower capitalized interest following completion of the CCGT units, and a decrease in allocation of earnings from equity affiliates driven by renewable projects that came online in 2019 at sPower, partially offset by a gain on sale of land held by AES Redondo Beach at Southland and an increase at Distributed Energy due to the HLBV allocation of noncontrolling interest earnings.

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 March 31,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change				2021		2020		$ Change		% Change
Operating Margin	Operating Margin	$	337	$	250	$	87	35	%	$	707	$	637	$	70	11	%	Operating Margin		$	352	$	177	$	175	99	%
Adjusted Operating Margin (1)	Adjusted Operating Margin (1)	147		145		2		1	%	351		358		(7)		-2	%	Adjusted Operating Margin (1)		112		95		17		18	%
Adjusted PTC (1)	Adjusted PTC (1)	122		139		(17)		-12	%	381		360		21		6	%	Adjusted PTC (1)		88		119		(31)		-26	%

_____________________________

37 | The AES Corporation | March 31, 2021 Form 10-Q

Operating Margin for the three months ended ~~September 30, 2020~~March 31, 2021 increased ~~$87~~$175 million, or ~~35%~~99%, which was driven primarily by the following (in millions):


Increase in Chile primarily related to early contract terminations at Angamos in Q3 2020	$	~~129~~154
~~Drier hydrology~~Higher margin in Colombia related to higher reservoir level as a result of the life extension project executed during Q1 2020	39
Lower energy and capacity prices partially offset by commencement of operations of wind facilities in Argentina	(13)
Lower margin in Brazil primarily due to local currency depreciation and higher energy purchases, partially offset by higher ~~contract sales~~margin from wind facilities.	~~(30)~~(5)
~~Decrease in Brazil mainly associated with depreciation of the Brazilian real and Tietê advisor costs, partially offset by lower energy purchases and higher renewable generation~~	~~(14)~~
~~Other~~	2
Total South America SBU Operating Margin Increase	$	87175

Adjusted Operating Margin increased $2$17 million due to the drivers above, adjusted for NCI and the net gains on early contract terminations at Angamos.

Adjusted PTC decreased ~~$17~~$31 million, mainly driven by ~~an increase~~higher realized foreign currency losses at Argentina and the impact of gains on foreign currency derivative instruments booked at Chile in the prior period, higher interest expense ~~in Brazil~~primarily associated with ~~higher inflation rates~~incremental capitalized interest at Alto Maipo in the prior period, and lower ~~interest income~~equity earnings at Guacolda due to the suspension of equity method accounting in ~~Argentina primarily related~~September 2020. See Note 6—Investments in and Advances to ~~lower interest rates,~~Affiliates included in Item 1.—Financial Statements of this Form 10-Q for further information. These negative impacts were partially offset by the increase in Adjusted Operating Margin described above.

~~Operating Margin for the nine months ended September 30, 2020 increased $70 million, or 11%, which was driven primarily by the following (in millions):~~


~~Increase in Chile primarily related to early contract terminations at Angamos~~	$	~~127~~
~~Recovery of previously expensed payments from customers in Chile~~	53
~~Lower reservoir levels as a result of the life extension project at Chivor during Q1 2020 and drier hydrology in Colombia~~	~~(94)~~
~~Decrease in Brazil mainly associated with depreciation of Brazillian real and Tietê advisor costs, partially offset by lower energy purchases at lower prices and higher renewable generation~~	~~(11)~~
~~Other~~	~~(5)~~
~~Total South America SBU Operating Margin Increase~~	$	70

~~Adjusted Operating Margin decreased $7 million due to the drivers above, adjusted for NCI and the net gains on early contract terminations at Angamos.~~

~~47 | The AES Corporation | September 30, 2020 Form 10-Q~~

Adjusted PTC increased $21 million, mainly driven by a decrease in interest expense due to incremental capitalized interest at Alto Maipo and higher equity earnings from Guacolda mostly related to better operating results. These positive impacts were partially offset by realized FX in Argentina, lower interest income primarily driven by lower interest rates on CAMMESA receivables, and the decrease in Adjusted Operating Margin described above.

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 March 31,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change				2021		2020		$ Change		% Change
Operating Margin	Operating Margin	$	137	$	179	$	(42)	-23	%	$	411	$	361	$	50	14	%	Operating Margin		$	122	$	140	$	(18)	-13	%
Adjusted Operating Margin (1)	Adjusted Operating Margin (1)	93		128		(35)		-27	%	282		263		19		7	%	Adjusted Operating Margin (1)		84		93		(9)		-10	%
Adjusted PTC (1)	Adjusted PTC (1)	57		185		(128)		-69	%	201		298		(97)		-33	%	Adjusted PTC (1)		61		78		(17)		-22	%

_____________________________

Operating Margin for the three months ended ~~September 30, 2020~~March 31, 2021 decreased ~~$42~~$18 million, or ~~23%~~13%, which was driven primarily by the following (in millions):


Decrease in ~~the Dominican Republic related to the Andres facility due to steam turbine failure~~Panama mainly driven by Estrella del Mar I power barge disconnection in July 2020, ~~and lower energy costs and business interruption insurance recovered~~partially offset by wind project acquired in ~~2019~~Q2 2020	$	~~(45)~~(10)
Decrease in ~~Panama~~Dominican Republic at Itabo driven by lower ~~margin at the Estrella del Mar I power barge mainly~~availability due to ~~disconnection from the grid~~extended planned outage in ~~August 2020~~2021, offset by lower depreciation	~~(16)~~(7)
~~Higher~~Decrease in Mexico driven by lower availability ~~in Panama mainly due to the outage in 2019 related to Changuinola's tunnel lining upgrade~~and higher fixed costs	16 (6)
Increase in ~~Panama~~Dominican Republic driven by ~~improved hydrology resulting~~higher availability due to the outage of Andres in 2020 and higher ~~net~~LNG sales driven by Eastern Pipeline COD in 2020, partially offset by lower contract and spot ~~market sales~~margin in Andres and DPP	136
Other	~~(10)~~(1)
Total MCAC SBU Operating Margin Decrease	$	~~(42)~~(18)

Adjusted Operating Margin decreased ~~$35~~$9 million due to the drivers above, adjusted for NCI.

Adjusted PTC decreased ~~$128~~$17 million, mainly driven by the decrease in Adjusted Operating Margin described above and ~~insurance recoveries associated with property damage at Andres and Changuinola~~lower equity earnings in ~~2019.~~

~~Operating Margin for the nine months ended September 30, 2020 increased $50 million, or 14%, which was driven primarily by the following (in millions):~~


~~Higher availability in Panama~~Mexico mainly ~~due to the outage in 2019 related to Changuinola's tunnel lining upgrade~~	$	44
~~Increase in Panama driven by improved hydrology resulting in higher net spot market sales~~	40
~~Increase in Panama driven by higher availability, higher energy sales margin and lower fixed costs at the Colon combined cycle plant~~	20
~~Decrease in the Dominican Republic related to Andres facility due to steam turbine failure in 2020 and business interruption insurance recovered in 2019~~	~~(52)~~
~~Decrease in Panama driven by lower margin at the Estrella de Mar I power barge mainly due to disconnection from the grid in August 2020~~	~~(12)~~
~~Other~~	10
~~Total MCAC SBU Operating Margin Increase~~	$	50

~~Adjusted Operating Margin increased $19 million~~ due to higher income tax as a result of the ~~drivers above, adjusted for NCI.~~

~~Adjusted PTC decreased $97 million, mainly driven by~~fluctuation of the ~~insurance recoveries associated with property damage at Andres and Changuinola~~Mexican peso in ~~2019, partially offset by~~ the ~~increase in Adjusted Operating Margin described above.~~prior period.

4838 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

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 March 31,
		2020		2019		$ Change		% Change		2020		2019		$ Change		% Change				2021		2020		$ Change		% Change
Operating Margin	Operating Margin	$	42	$	32	$	10	31	%	$	142	$	136	$	6	4	%	Operating Margin		$	59	$	51	$	8	16	%
Adjusted Operating Margin (1)	Adjusted Operating Margin (1)	34		26		8		31	%	108		110		(2)		-2	%	Adjusted Operating Margin (1)		44		38		6		16	%
Adjusted PTC (1)	Adjusted PTC (1)	40		19		21		NM		133		114		19		17	%	Adjusted PTC (1)		51		44		7		16	%

_____________________________

Operating Margin for the three months ended ~~September 30, 2020~~March 31, 2021 increased ~~$10~~$8 million, or ~~31%~~16%, which was driven primarily by the following (in millions):


Improved operational performance and ~~lower maintenance costs~~Euro appreciation in ~~Vietnam~~Maritza	$	5
~~Higher generation, lower maintenance costs, and better availability at Maritza~~	46
Other	12
Total Eurasia SBU Operating Margin Increase	$	108

Adjusted Operating Margin increased $8$6 million due to the drivers above, adjusted for NCI.

Adjusted PTC increased ~~$21~~$7 million, mainly driven by the increase ~~in Adjusted Operating Margin described above and a positive variance in OPGC equity earnings.~~

~~Operating Margin for the nine months ended September 30, 2020 increased $6 million, or 4%, which was driven primarily by the following (in millions):~~


~~Improved operational performance and lower maintenance costs in Vietnam~~	$	7
~~Impact of the sale of Kilroot and Ballylumford businesses in June 2019~~	~~(6)~~
~~Other~~	5
~~Total Eurasia SBU Operating Margin Increase~~	$	6

~~Adjusted Operating Margin decreased $2 million due to the drivers above, adjusted for NCI.~~

~~Adjusted PTC increased $19 million, mainly driven by lower interest expense due to regular debt repayments in Bulgaria and a positive variance in OPGC equity earnings, partially offset by the decrease~~ in Adjusted Operating Margin described above.

Key Trends and Uncertainties

During the remainder of ~~2020~~2021 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. For the risk factors related to our business, see Item 1.—Business and Item 1A.—Risk Factors of our ~~2019~~2020 Form 10-K.

COVID-19 Pandemic

~~Since December 2019, the~~The COVID-19 pandemic has impacted global economic activity, including electricity and energy consumption, and caused significant volatility ~~and negative pressure~~ in financial markets. ~~For the quarter ending September 30, 2020, we continued to experience impacts from the pandemic.~~ The following discussion highlights our assessment of the impacts of the pandemic on our current financial and operating status, and our financial and operational outlook based on information known as of this filing. Also see ~~Part II,~~ Item ~~1A—~~1A.—Risk Factors of ~~this~~our 2020 Form ~~10-Q.~~10-K.

~~Business Continuity~~ ~~— As~~Throughout the COVID-19 pandemic ~~progresses,~~ we ~~are taking a variety of measures to ensure~~have conducted our ability to generate, transmit, distribute and sell electric energy, to ensure the health and safety of our employees, contractors, customers and communities and to provide essential services to the communities in which we operate. We continue our essential operations ~~and have been conducting them~~ without significant disruption. ~~Most of our management and administrative personnel are able to work remotely, and we have not experienced significant~~

~~49 | The AES Corporation | September 30, 2020 Form 10-Q~~

~~issues affecting our operations or ability to maintain effective internal controls and produce reliable financial information.~~

~~Demand~~ — We derive approximately 85% of our total revenues from our regulated utilities and long-term sales and supply contracts or PPAs at our generation businesses, which contributes to a relatively stable revenue and cost structure at most of our businesses. ~~The~~In 2020, the impact of the COVID-19 pandemic on the energy market materialized in our operational locations in the second quarter and ~~has been~~was generally better than our revised expectations for the ~~third quarter. Our~~second of half of the year. Across our global portfolio, our utilities businesses ~~experienced~~have generally performed in line with our expectations consistent with a ~~low single digit percentage decline~~recovery from the COVID-19 pandemic in the ~~third~~first quarter ~~while our international businesses have experienced mid-single digit demand decreases. However, our business model outside~~ of utilities is primarily based on take-or-pay contracts or tolling agreements, with limited exposure to demand. Additionally, any uncontracted portion of our generation business is exposed to increased price risk resulting from lower demand associated with the pandemic. We are also experiencing a decline in electricity spot prices in some of our markets due to lower system demand.2021. While we cannot predict the length and magnitude of the pandemic or how it could impact global economic conditions, a delayed or disrupted recovery with respect to demand may adversely impact our financial results for ~~2020.~~2021.

~~Liquidity~~ — Our liquidity position remains strong. As of September 30, 2020 we had $2.4 billion in cash and restricted cash deposits and $384 million in short-term investments. Total Parent Company Liquidity was $300 million at September 30, 2020, with a limited amount of recourse debt due for repayment prior to 2025.

~~Also see Part I, Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Resources and Liquidity~~ ~~of this Form 10-Q.~~

~~Credit Exposures~~ ~~— We continue to monitor and manage our credit exposures in a prudent manner.~~ Our credit exposures have continued in-line with historical levels ~~with some modest deterioration in days sales outstanding from utility customers, primarily in El Salvador in~~and within the second quarter of 2020 and, to a lesser extent, in the U.S. These impacts are expected to be partially offset by recoveries through U.S. regulatory rate-making mechanisms and a combination of the securitization of customer payment moratorium receivables and agreements with the generating companies in El Salvador.customary 45-60 day grace period. We have not experienced any material credit-related impacts from our PPA offtakers ~~in the first three quarters of 2020; however, we may be exposed~~due to ~~heightened credit-related risks that develop over the remainder of 2020 if some of our offtakers experience further challenges from COVID-19 impacts. We expect significant economic disruptions from~~ the COVID-19 ~~pandemic to continue for the remainder of 2020. If these disruptions continue beyond 2020, further deterioration in our credit exposures and customer collections could result.~~pandemic.

~~Supply Chainand Development~~ — Our supply chain management has remained robust during this challenging time and we continue to closely manage and monitor developments. ~~We currently have an adequate supply of solar panels and lithium-ion batteries in our inventory to fulfill the majority of our current project needs for 2020.~~ We continue to experience certain minor delays in some of our development projects, primarily in permitting processes and the implementation of interconnections, due to governments and other authorities having limited capacity to perform their functions.

~~CARES Act~~ —

39 | The ~~Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by~~AES Corporation | March 31, 2021 Form 10-Q

The Company continues to monitor the ~~U.S. Congress and signed into law on March 27, 2020. While we currently expect a limited~~potential impact ~~from this legislation~~of the COVID-19 pandemic on our ~~business, certain elements such as~~financial results and operations.

Additionally, governments continue to look for ways to increase revenues,which could result in tax law changes in the ~~deductibility of interest may provide some cash benefits in the near term.~~future.

Macroeconomic and Political

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

~~Argentina~~— In the run up to the 2019 Presidential elections, the Argentine peso devalued significantly and the government of Argentina imposed capital controls and announced a restructuring of Argentina’s debt payments. Restrictions on the flow of capital have limited the availability of international credit, and economic conditions in Argentina have further deteriorated, triggering additional devaluation of the Argentine peso and a deterioration of the country’s risk profile.

On October 27, 2019, Alberto Fernández was elected president. The new administration has been evaluating solutions to the Argentine economic crisis. On February 27, 2020, the Secretariat of Energy passed Resolution No. 31/2020 that includes the denomination of tariffs in local currency indexed by local inflation (currently delayed due to

~~50 | The AES Corporation | September 30, 2020 Form 10-Q~~

~~the COVID-19 pandemic), and reductions in capacity payments received by generators. These regulatory changes are expected to have a negative impact on our financial results.~~

On April 17, 2020, the government of Argentina presented a debt restructuring proposal to international creditors. On May 22, 2020, Argentina did not make a scheduled interest payment on its public debt, triggering a sovereign debt default. On August 4, 2020, Argentina reached an agreement with three groups of its major foreign private creditors to restructure this debt, which was substantially completed in September.

Although the situation remains challenging, it has not had a material impact on our current exposures to date, and payments on the long-term receivables for the FONINVEMEM Agreements are current. For further information, see Note 7~~—Financing Receivables~~ ~~in Item 8—Financial Statements and Supplementary Data~~ ~~of the 2019 Form 10-K.~~

Chile — In ~~October 2019,~~recent years, Chile ~~saw~~has experienced significant ~~protests associated with economic conditions~~social unrest resulting in an October 2020 referendum that determined that a new constitution will be drafted by a constitutional convention following further votes expected in May 2021 and in 2022. In addition, other initiatives to address the ~~declaration~~social unrest are under consideration and could result in regulatory or policy changes that may affect our results of ~~a state of emergency~~operations in ~~several major cities.~~Chile.

In November 2019, the Chilean government enacted Law 21,185 that establishes a Stabilization Fund for regulated energy prices. ~~Historically, the government updated the prices for regulated energy contracts every six months to reflect the indexation the contracts have to exchange rates~~As discussed in Item 7—Management’s Discussion and ~~commodities prices. The new law freezes regulated prices~~Analysis of Financial Condition and ~~does not allow the pass-through~~Results of these contractual indexation updates to customers beyond the pricing in effect at July 1, 2019, until new lower-cost renewable contracts are incorporated into pricing in 2023. Consequently, costs incurred in excessOperations—Key Trends and Uncertainties of the ~~July 1, 2019 price will be accumulated and borne by generators.~~2020 Form 10-K, AES Gener ~~has deferred collection of $87 million of revenue as of September 30, 2020. It is expected such amounts deferred will be fully repaid to generators prior to~~executed an agreement in December ~~31, 2027.~~

~~In response to~~2020 for the social unrest, the Chilean government agreed to hold a referendum on the country’s constitution. A national plebiscite to determine whether the constitution should be amended was originally scheduled for April 26, 2020, but was delayed due to the COVID-19 pandemic. The referendum took place on October 25, 2020 and it was determined that a new constitution will be drafted by a constitutional convention. A second vote will be held alongside municipal and gubernatorial elections in April 2021 to elect the memberssale of the ~~constitutional convention. A third vote,~~receivables generated pursuant the Tariff Stabilization Law, of which ~~is expected to occur~~$55 million was collected in ~~2022, would accept or reject the new constitution after it is drafted.~~

~~Other initiatives to address the concerns of the protesters are under consideration by Congress and could result in regulatory changes that may affect our results of operations in Chile.~~2021.

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 ~~2019~~2020 Form 10-K, our subsidiaries in Puerto Rico have a long-term 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 ~~$258~~$238 million and $31 million, respectively, continue to be in technical default and are classified as current as of ~~September 30, 2020~~March 31, 2021 as a result of PREPA’s bankruptcy filing in July 2017. The Company is in compliance with its debt payment obligations as of ~~September 30, 2020.~~March 31, 2021.

The Company's receivable balances in Puerto Rico as of ~~September 30, 2020~~March 31, 2021 totaled ~~$51~~$53 million, of which $1 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~~New factors arose in the ~~information available as~~first quarter of 2021 associated with the ~~filing date, management believes~~economic costs and operational and reputational risks of disposal of coal combustion residuals off island. In addition, new legislative initiatives surrounding the prohibition of coal generation assets in Puerto Rico were introduced. Collectively, these factors along with management’s decision on how to best achieve our decarbonization goals resulted in an indicator of impairment at its asset group in Puerto Rico. The Company performed an impairment analysis and determined that the carrying amount of ~~our~~its coal-fired long-lived assets ~~in Puerto Rico~~was not recoverable. As a result, the Company recognized asset impairment expense of ~~$536 million is recoverable as of September 30, 2020.~~$475 million.

Reference Rate Reform — As discussed in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties of the ~~2019~~2020 Form 10-K, in July 2017, the UK Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In the U.S., the Alternative Reference Rate Committee at the Federal Reserve identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR; alternative reference rates in other key markets are under development. On November 30, 2020, the ICE Benchmark Association ("IBA") announced it had begun consultation on its intention to cease publication of two specific LIBOR rates by December 31, 2021, while extending the timeline for the overnight, one-month, three-month, six-month, and 12-month USD LIBOR rates through June 30, 2023. On March 5, 2021, IBA published a feedback statement for the consultation, announcing its intention to cease the publication of these rates on the specified dates. AES holds a substantial amount of debt and derivative contracts referencing LIBOR as an interest rate benchmark. Although the full impact of the reform remains unknown, we have begun to engage with AES counterparties to discuss specific action items to be undertaken in order to prepare for amendments when they become due.

~~United States~~Global Tax ~~Law Reform~~Legislation — ~~Our interpretation of the 2017 Tax Cuts~~The macroeconomic and ~~Jobs Act (“TCJA”) may change as~~political environments in the U.S. ~~Treasury~~ and ~~the Internal Revenue Service issue additional guidance.~~some countries where our subsidiaries conduct business have changed during 2020 and 2021. This could result in significant impacts to tax law. For example, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021. The $1.9 trillion Act includes COVID-19 relief as well as broader stimulus, but also includes several revenue-raising and business tax provisions. Two corporate income tax increases partially offset the cost of the

5140 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

~~Company is reviewing final~~bill: the elimination of a beneficial foreign tax credit rule, set to take effect in 2021, and ~~proposed regulations on business interest expense deductions that were published~~the expansion of executive compensation deduction limits effective in 2027.

Further, in the ~~Federal Register on September 14, 2020.~~first quarter of 2021, President Biden announced the “American Jobs Plan”, a $2 trillion spending package that would include funding for clean energy focused infrastructure investments, and the “Made in America Tax Plan”, which seeks to increase the U.S. corporate tax rate and effect international tax reforms. Additionally, Congressional democrats introduced the “No Tax Breaks for Offshoring” and “Stop Tax Haven Abuse Acts”, both of which seek to increase U.S. taxes related to the non-U.S. activities of U.S. headquartered companies. The ~~final interest regulations~~Company believes it would benefit from the clean energy initiatives though the tax implications may be unfavorable in the short term. Additional details regarding these potential changes in law are effective for the Company on January 1, 2021, unless adopted earlier, while the proposed regulations would be effective prospectively if ultimately made final. Also, the Company currently anticipates election of the GILTI high-tax exclusion under the final regulations published on July 23, 2020. This election is expected to reduce GILTI income from, among others, certain subsidiaries in Chile and the Dominican Republic. Should these subsidiaries fail to qualify for the exclusion under the regulations, the Company’s U.S. taxable income and consolidated income tax expense for 2020 and future years may be materially impacted. These regulations may materially impact our 2020 and future year effective tax rates and future cash tax obligations. Additionally, the Company continues to monitor the potential COVID-19 impact on our financial results and operations, which may resultmade available in the ~~need to record a valuation allowance against deferred tax assets in the jurisdictions where we operate.~~second quarter.

Decarbonization Initiatives

Several initiatives have been announced by regulators and offtakers 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. The shift to renewables has caused certain customers to migrate to other low-carbon energy solutions and this trend may continue. Certain of our contracts contain clauses designed to compensate for early contract terminations, but we cannot guarantee full recovery. 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, result in a reduction of the estimated useful life of certain coal facilities, or have 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 phase-out. Under the agreement, Ventanas 1 (114 MW) will cease operation in November 2022 and Ventanas 2 (208 MW) in May 2024; however, AES Gener has announced its intention to accelerate the disconnection of these units. ~~These units will~~On December 26, 2020, the Chilean government issued Supreme Decree Number 42, which allows coal plants to remain connected to the grid asin “strategic ~~operating reserve”~~reserve status” for ~~up to~~ five years after ceasing operations, ~~will~~ receive a reduced capacity payment, and ~~will be dispatched,~~dispatch, if necessary, to ensure the electric system’s reliability. On December 29, 2020, Ventanas 1 ceased operation and entered "strategic reserve status." Ventanas 2 is also expected to enter "strategic reserve status" in August 2021.

Considering the information available as of the filing date, management believes the carrying amount of our coal-fired long-lived assets in Chile of $1.9 billion is recoverable as of ~~September 30, 2020.~~March 31, 2021.

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. ~~Unless the Act is amended or a waiver from its provisions is obtained, AES Puerto Rico will need to convert fuel sources to continue operating.~~ PREPA and AES Puerto Rico have ~~begun discussing conversion options,~~discussed various strategic alternatives, but have not reached any ~~plan would be subject~~agreement. As described under Macroeconomic and Political above, additional factors arose in the first quarter of 2021 with respect to ~~lender and regulatory approval, including~~the disposal of coal combustion residuals, which contributed to the Company recognizing an asset impairment expense of $475 million.

Hawaii — In July 2020, the Hawaii State Legislature passed Senate Bill 2629 that prohibits AES Hawaii from generating electricity from coal after December 31, 2022. This bill will restrict the Company from contracting the asset beyond the expiration of its existing PPA. Considering the information available as of the ~~Oversight Board that filed for bankruptcy on behalf~~filing date, management believes the carrying amount of ~~PREPA.~~our coal-fired long-lived assets in Hawaii of $30 million is recoverable as of March 31, 2021.

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 ~~2019~~2020 Form 10-K.

~~Hawaii~~ — In July 2020, the Hawaii State Legislature passed a bill that will prohibit AES Hawaii from generating electricity from coal after December 31, 2022. As this will restrict the Company from contracting the asset beyond the expiration of its existing PPA, management reassessed the economic useful life of the generation facility. A decrease in the useful life was identified as an impairment indicator. The Company performed an impairment analysis and determined that the carrying amount of the asset group was not recoverable. As a result, the Company recognized asset impairment expense of $38 million. Hawaii is reported in the US and Utilities SBU reportable segment.

5241 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

Regulatory

~~DP&L Rate Case~~AES Maritza PPA Review — ~~Ohio law requires utilities~~DG Comp is conducting a preliminary review of whether AES Maritza’s PPA with NEK is compliant with the European Union's State Aid rules. No formal investigation has been launched by DG Comp to ~~file either an ESP or MRO~~date. However, AES has begun engaging in discussions with the DG Comp case team and the Government of Bulgaria (“GoB”) to attempt to reach a negotiated resolution of DG Comp’s review (“PPA Discussions”). Separately, earlier this year, GoB submitted its proposed plan for the reform and liberalization of its electricity market to the European Commission (the “Market Reform Plan”). The proposed Market Reform Plan is part of GoB’s plan to ~~establish SSO rates. From November 1, 2017 through December 18, 2019, DP&L operated pursuant to an approved ESP plan,~~introduce a market-wide capacity remuneration mechanism, which ~~was initially filed on March 13, 2017 (“ESP 3”). On November 21, 2019,~~would require approval by DG Comp. The Market Reform Plan proposes a deadline of June 30, 2021 for the ~~PUCO issued~~termination of AES Maritza’s PPA, and anticipates discussions with AES Maritza about that issue. There can be no assurance that, as part of the PPA Discussions, the other parties will not seek a ~~supplemental order modifying ESP 3, and as~~prompt termination of the PPA.

We do not believe termination of the PPA is justified. Nevertheless, the PPA Discussions will involve a ~~result DP&L filed a Notice~~range of ~~Withdrawal of its ESP 3 Application and requested to revert~~potential outcomes, including but not limited to the ~~ESP rates that were in effect prior~~termination of the PPA and payment of some level of compensation to ESP 3 (“ESP 1 Rates”). The Notice of Withdrawal was approved by the PUCO on December 18, 2019. The PUCO order required, among other things, DP&L to conduct both an ESP v. MRO Test to validate that the ESP is more favorable in the aggregate than whatAES Maritza. Any negotiated resolution would be ~~experienced under an MRO, and a prospective SEET, both of which were filed with the PUCO on April 1, 2020. DP&L is also~~ subject to ~~an annual retrospective SEET. On October 23, 2020, DP&L entered into a Stipulation~~mutually acceptable terms, lender consent, and ~~Recommendation with~~DG Comp approval. At this time, we cannot predict the ~~staff~~outcome of the ~~PUCO and certain other parties with respect~~PPA Discussions or when those discussions will conclude. Nor can we predict how DG Comp might resolve its review if the PPA Discussions fail to among other matters, DP&L’s applications pending at the PUCO for (i) approval of DP&L’s plan to modernize its distribution grid (the “Smart Grid Plan”), (ii) findings that DP&L passed the SEET for 2018 and 2019, and (iii) findings that DP&L’s current electric security plan, ESP 1, satisfies the SEET and the more favorable in the aggregate (“MFA”) regulatory test. The settlement is subject to, and conditioned upon, approval by the PUCO. The settlement would provide, among other items, for the following:

•Approval of the Smart Grid Plan outlined in the Smart Grid Plan application filed by DP&L with the PUCO, as modified by the terms of the settlement, including, subject to offsetting operational benefits and certain other conditions, a return on and recovery of up to $249 million of Smart Grid Plan Phase 1 capital investments and recovery of operational and maintenance expenses through DP&L’s existing Infrastructure Investment Rider (“IIR”) for a term of four years, under an aggregate cap of approximately $268 million on the amount of such investments and expenses that is recoverable, and an acknowledgement that DP&L may file a subsequent application with the PUCO within three years seeking approvals for Phase 2 of the Smart Grid Plan;

•A commitment by DP&L to invest in a Customer Information System and supporting technologies during Phase 1 of the Smart Grid Plan, with return on and of prudently incurred capital investments and operational and maintenance expenses, including deferred operational and maintenance expense amounts, in a future rate case;

•~~A determination that ESP 1 satisfies the prospective SEET and the MFA regulatory test;~~

•~~A recommendation by parties to the Settlement that the PUCO also finds that DP&L satisfies the retrospective SEET for 2018 and 2019;~~

•A commitment to file an application with the PUCO no later than October 1, 2023 for a new ESP that does not seek to implement certain nonbypassable charges, including those related to provider of last resort risks, stability, or financial integrity;

•~~DP&L shareholder funding,~~result in an ~~aggregate amount of approximately $30 million over four years, for certain economic development discounts, incentives,~~agreement concerning the agency’s review. AES Maritza believes that its PPA is legal and ~~grants~~in compliance with all applicable laws, and it will take all actions necessary to certain commercial and industrial customers, including hospitals and manufacturers, assistance for low-income customers as well as the residents and businesses of the City of Dayton, and promotion of solar and resiliency development within DP&L’s service territory.

~~Certain parties which intervened in the ESP proceedings have filed petitions for rehearing of the recent PUCO ESP order, some of which seek to eliminate DP&L's RSC from~~protect its ~~rates and others to re-implement ESP 3 without the DMR. The ultimate outcome of these petitions~~interests, whether through negotiated agreement or otherwise. However, there can be no assurance that this matter will be resolved favorably; if it is ~~unknown and~~not, there could ~~have~~be a material adverse effect on ~~DP&L’s~~the Company’s financial condition, results of ~~operations, financial condition~~operation, and cash flows.

Considering the information available as of the filing date, management believes the carrying value of our long-lived assets at Maritza of approximately $1 billion is recoverable as of March 31, 2021.

AES Indiana Replacement Generation— On February 26, 2021, as a result of the plans to retire approximately 630 MW of coal-fired generation at Petersburg units 1 and 2 in 2021 and 2023, respectively, AES Indiana filed a petition with the IURC for approvals and cost recovery associated with these retirements, including: (1) approval of AES Indiana’s creation of regulatory assets for the net book value of Petersburg units 1 and 2 upon retirement; (2) amortization of the regulatory assets based upon AES Indiana’s depreciation rates; and (3) recovery of the regulatory assets through inclusion in AES Indiana’s rate base and ongoing amortization in AES Indiana’s future rate cases.

AES Indiana Excess Distributed Generation Rates— On March 1, 2021, AES Indiana filed a petition with the IURC for approval of its proposed rate for the procurement of excess distributed generation (“EDG”) and related customer EDG credit issues. The ~~parties signing~~EDG rate will replace the ~~above-referenced Settlement have agreed~~current net metering program and will be offered beginning July 2022, when net metering is no longer available to ~~withdraw their respective petitions if the Settlement is~~new customers.

AES Ohio Transmission Service— In March 2020, AES Ohio filed an application for a formula-based rate for its transmission service, which was approved ~~by the PUCO without material modification.~~

~~On January 23,~~and made effective May 3, 2020, ~~DP&L~~subject to further proceeding and potential refunds. In December 2020, a unanimous settlement was reached regarding these rates and filed with the ~~PUCO requesting approval to defer its decoupling costs consistent with the methodology~~FERC, which was approved in its Distribution Rate Case. If approved, deferral would be effective December 18, 2019 and going forward would reduce impacts of weather, energy efficiency programs, and economic changes in customer demand.

~~TDSIC~~ — On March 4, 2020, the IURC issued an order approving projects under IPL's TDSIC Plan, which is a seven-year plan for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027. On October 14, 2020, the IURC approved the TDSIC rider, which will be reflected in rates effective November 2020.on April 15, 2021.

~~53 | The AES Corporation | September 30, 2020 Form 10-Q~~

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.

Impairments

Long-lived Assets ~~and Equity Affiliates~~ — ~~In August 2020, AES Gener reached an agreement with Minera Escondida and Minera Spence to early terminate two PPAs of~~During the Angamos coal-fired plant in Chile. AES Gener also announced its intention to accelerate the retirement of the Ventanas 1 and Ventanas 2 coal-fired plants. Management will no longer be pursuing a contracting strategy for these assets and the plants will primarily be utilized as peaker plants and for grid stability. Due to these developments, the Company performed an impairment analysis and determined that the carrying amounts of these asset groups were not recoverable. As a result,three months ended March 31, 2021, the Company recognized asset impairment expense of ~~$781~~$473 million.

~~During the nine months ended September 30, 2020, the Company recognized asset and other-than-temporary impairment expenses of $1.1 billion, inclusive of the asset impairment noted above.~~ See Note 7—~~Investments In and Advances To Affiliates~~ ~~and Note 16~~15—Asset Impairment Expense included in Item 1.—Financial Statements of this Form 10-Q for further information. After recognizing ~~these~~this impairment ~~expenses,~~expense, the carrying value of long-lived assets that were assessed for impairment totaled ~~$2.2 billion~~$260 million at ~~September 30, 2020.~~

~~Goodwill~~ —The Company considers a reporting unit at risk of impairment when its fair value does not exceed its carrying amount by 10%. In 2019, the Company determined that the fair value of its Gener reporting unit exceeded its carrying value by 3% at the October 1st measurement date. Therefore, the goodwill at Gener is considered “at risk” largely due to the Chilean government’s announcement to phase out coal generation by 2040, and a decline in long-term energy prices.

As a result of the long-lived asset impairments at Gener during the third quarter of 2020, the Company determined there was a triggering event requiring a reassessment of goodwill impairment at September 1, 2020. The Company determined the fair value of its Gener reporting unit exceeded its carrying value by 13%. Although the fair value exceeds its carrying value by more than 10%, the Company continues to monitor the Gener reporting unit for potential interim goodwill impairment triggering events.

While the duration and severity of the impacts of the COVID-19 pandemic remain unknown, further deterioration in the global market could result in changes to assumptions utilized in the goodwill assessment. Impairments would negatively impact our consolidated results of operations and net worth. See Item 1A.—~~Risk Factors~~ ~~of the 2019 Form 10-K for further information.~~March 31, 2021.

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, evolving industry expectations to transition away from fossil fuel sources for generation, or an expectation it is more likely than not the asset will be disposed of before the

42 | The AES Corporation | March 31, 2021 Form 10-Q

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 residuals) and certain air emissions, such as SO2, NOx, particulate matter, mercury and 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; and 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 ~~2019~~2020 Form 10-K.

~~54 | The AES Corporation | September 30, 2020 Form 10-Q~~

CSAPR — CSAPR addresses the “good neighbor” provision of the CAA, which prohibits sources within each state from emitting any air pollutant in an amount which will contribute significantly to any other state’s nonattainment, or interference with maintenance of, any NAAQS. The CSAPR required significant reductions in SO2 and NOx emissions from power plants in many states ~~including those~~ in which subsidiaries of the Company operate. The Company is required to comply with the CSAPR in certain states, including Indiana and Maryland. The CSAPR is implemented, in part, through a market-based program under which compliance may be achievable through the acquisition and use of emissions allowances created by the EPA. The Company complies with CSAPR through operation of existing controls and purchases of allowances on the open market, as needed.

OnIn October ~~26,~~ 2016, the EPA published a final rule to update the CSAPR to address the 2008 ozone NAAQS (“CSAPR Update Rule”). The CSAPR Update Rule found that NOx ozone season emissions in 22 states (including Indiana, Maryland, Ohio, and ~~Maryland)~~Pennsylvania) affected the ability of downwind states to attain and maintain the 2008 ozone NAAQS, and, accordingly, the EPA issued federal implementation plans that both updated existing CSAPR NOx ozone season emission budgets for electric generating units within these states and implemented these budgets through modifications to the CSAPR NOx ozone season allowance trading program. Implementation started in the 2017 ozone season (May-September 2017). Affected facilities ~~began to~~ receive fewer ozone season NOx allowances in 2017 and later, possibly resulting in the need to purchase additional allowances. Additionally, on September 13, 2019, the D.C. Circuit remanded a portion of October 2016 CSAPR Update Rule to the EPA. On ~~October~~March 15, ~~2020,~~2021, the EPA released a pre-publication ~~proposed~~version of a final rule ~~addressing 21 states’ (including~~to address the 2020 D.C. Circuit decision. The EPA is issuing new or amended federal implementation plans for 12 states, including Indiana, Maryland, Ohio, and ~~Indiana) outstanding “good neighbor” obligations~~Pennsylvania, with ~~respect~~revised CSAPR NOx ozone season emission budgets for electric generating units within these states via a new CSAPR NOx Ozone Season Group 3 Trading Program. Implementation is expected to begin during the 2021 ozone season (May through September 2021) with an effective date 60 days following publication in the Federal Register of the ~~2008~~final rule. AES Indiana facilities and AES Warrior Run in Maryland will receive fewer ozone ~~NAAQS~~season NOx allowances for future NOx Ozone Seasons likely beginning in 2021 and ~~we are currently reviewing~~later, possibly resulting in the ~~proposed rule.~~need to purchase additional allowances. In addition, subject sources in these states will be required to surrender an equivalent number of previously allocated 2021-2024 Group 2 allowances by deadlines expected to occur in 2021. This requirement applies inclusive of assets and allowances that have since been sold and/or retired, including former AES assets in Ohio and Pennsylvania. While AES no longer operates electric generating units subject to the revised CSAPR Update Rule in Ohio or Pennsylvania, certain prior AES sources in these states will be required to surrender an equivalent number of previously allocated 2021-2024 Group 2 allowances.

While the Company's additional CSAPR compliance costs to date have been immaterial, the future availability of and cost to purchase allowances to meet the emission reduction requirements is uncertain at this time, but it could be ~~material if certain facilities will need to purchase additional allowances based on reduced allocations.~~material.

Climate Change Regulation — On July 8, 2019, the EPA published the final Affordable Clean Energy (“ACE”) Rule, along with associated revisions to implementing regulations, in addition to final revocation of the ~~Clean Power Plan.~~CPP. The ACE Rule determines that heat rate improvement measures are the Best System of Emissions Reductions for existing coal-fired electric generating units. The final rule requires states with existing coal-fired electric generating units to develop state plans to establish CO2 emission limits for designated facilities. ~~IPL~~AES Indiana Petersburg and AES Warrior Run have coal-fired electric generating units that may be impacted by this regulation. On February 19,

43 | The AES Corporation | March 31, 2021 Form 10-Q

2020, Indiana published a First Notice for the Indiana ACE Rule indicating that IDEM intends to determine the best system of emissions reductions and CO2 standards for affected units. However, the impact remains largely uncertain because state plans have not yet been developed.

~~Waste Management~~ — On ~~October~~January 19, ~~2015,~~2021, the D.C. Circuit vacated and remanded to the EPA the ACE Rule, although the parties have an ~~EPA rule regulating CCR under~~opportunity to request a rehearing at the ~~Resource Conservation and Recovery Act as nonhazardous solid waste became effective. The rule established nationally applicable minimum criteria for~~D.C. Circuit or seek a review of the disposal of CCR in new and currently operating landfills and surface impoundments, including location restrictions, design and operating criteria, groundwater monitoring, corrective action and closure requirements and post-closure care. The primary enforcement mechanisms under this regulation would be actions commenceddecision by the ~~states and private lawsuits.~~U.S. Supreme Court. On ~~December 16, 2016,~~March 5, 2021, the ~~Water Infrastructure Improvements for~~D.C. Circuit issued the ~~Nation Act ("WIN Act") was signed into law. This includes provisions to implement~~partial mandate effectuating the ~~CCR rule through a state permitting program, or if~~vacatur of the ~~state chooses~~ACE Rule. In effect, the CPP will not ~~to participate, a possible federal permit program. The EPA has indicated that it will implement a phased approach to amending the CCR Rule. On August 14, 2019,~~take effect while the EPA ~~published proposed amendments~~is addressing the remand of the ACE rule by promulgating a new Section 111(d) rule to ~~the CCR rule relating to the CCR rule’s criteria for determining beneficial use and the regulation~~regulate greenhouse gases from existing electric generating units. The impact of CCR piles, among other revisions. On August 28, 2020, the EPA published final amendments to the CCR Rule titled “A Holistic Approach To Closure Part A: Deadline To Initiate Closure.” On March 3, 2020, the EPA published proposed amendments to the CCR rule titled “A Holistic Approach to Closure Part B” (“Part B Rule”) which would address the beneficial use of CCR for closure of ash ponds subject to forced closure per the CCR Rule. On October 16, 2020, the EPA released a pre-publication final Part B Rule, indicating that the EPA will address the issue of beneficial use of CCR for closure of ash ponds subject to forced closure in a separate future rulemaking. This could impact IPL Petersburg’s ability to use CCR for closure of ash ponds. The CCR rule, current or proposed amendments to the CCR rule, the results of groundwater monitoring data or the outcome of CCR-related litigation could have a material impact on our business, financial condition and results of operations.

On January 2, 2020, Puerto Rico Senate Bill 1221 was signed by the Puerto Rico Governor into law and became effective as Act 5-2020. Act 5-2020 prohibits the disposal and unencapsulated beneficial use of CCR, places restrictions on storage of CCR in Puerto Rico, and requires the Puerto Rico Department of Natural and Environmental Resources to develop implementation regulations. On October 5, 2020, the Puerto Rico Department of Natural and Environmental Resources released proposed implementinggreenhouse gas emissions regulations ~~which we are currently~~

remains uncertain.

~~55 | The AES Corporation | September 30, 2020 Form 10-Q~~

~~reviewing. It is not yet possible to determine whether this might have a material impact on our business, financial condition and results of operations.~~

Cooling Water Intake — The Company's facilities are subject to a variety of rules governing water use and discharge. In particular, the Company's U.S. facilities are subject to the CWA Section 316(b) rule issued by the EPA that seeks to protect fish and other aquatic organisms by requiring existing steam electric generating facilities to utilize the BTA for cooling water intake structures. On August 15, 2014, the EPA published its final standards to protect fish and other aquatic organisms drawn into cooling water systems at large power plants. These standards require certain subject facilities to choose among seven BTA options to reduce fish impingement. In addition, facilities that withdraw at least 125 million gallons per day for cooling purposes must conduct studies to assist permitting authorities to determine which site-specific controls, if any, are required to reduce entrainment. It is possible that this decision-making process, which includes permitting and public input, could result in the need to install closed cycle cooling systems (closed-cycle cooling towers), or other technology. Finally, the standards require that new units added to an existing facility to increase generation capacity are required to reduce both impingement and entrainment. It is not yet possible to predict the total impacts of this final rule at this time, including any challenges to such final rule and the outcome of any such challenges. However, if additional capital expenditures are necessary, they could be material.

Power plants are required to comply with the more stringent of state or federal requirements. At present, the California state requirements are more stringent and have earlier compliance dates than the federal EPA requirements, and are therefore applicable to the Company's California assets. On September 1, 2020, in response to a request by the state’s energy, utility, and grid operators and regulators, the SWRCB approved amendments to its OTC Policy. The SWRCB OTC Policy previously required the shutdown and permanent retirement of all remaining OTC generating units at AES Alamitos, AES Huntington Beach and AES Redondo Beach by December 31, 2020. The amendment extends the deadline for shutdown and retirement of AES Alamitos and AES Huntington Beach’s remaining OTC generating units to December 31, 2023 and extends the deadline for shutdown and retirement of AES Redondo Beach’s remaining OTC generating units to December 31, 2021 (the “AES Redondo Beach Extension”). The respective facilities’ National Pollutant Discharge Elimination System permits have been revised to allow the remaining OTC generating units at AESAL, AESHB, and AESRB to continue operation beyond December 31, 2020 and in accordance with the current OTC Policy. In October 2020, the cities of Redondo Beach and Hermosa Beach filed a state court lawsuit challenging the AES Redondo Beach Extension. The outcome of the lawsuit is unclear. On March 16, 2021 the State Advisory Committee on Cooling Water Intake Structures (SACCWIS) released their draft 2021 report to SWRCB. The report summarizes the State of California’s current electrical grid reliability needs and recommends a two-year extension to the compliance schedule for Redondo Beach to address system-wide grid reliability needs. The SWRCB has yet to make the final recommendation to amend the OTC Policy. The new air-cooled combined cycle gas turbine generators were constructed at the AES Alamitos and AES Huntington Beach generating stations, and there is currently no plan to replace the OTC generating units at the AES Redondo Beach generating station following the retirement. Revisions to respective facilities’ NPDES permits are in process to allow the remaining OTC generating units at AES Alamitos, AES Huntington Beach, and AES Redondo Beach to continue operation beyond December 31, 2020 and in accordance with the amended OTC Policy.

~~Water Discharges~~ — On November 3, 2015, the EPA published its final ELG rule to reduce toxic pollutants discharged into waters of the U.S. by power plants. These effluent limitations for existing and new sources include dry handling of fly ash, closed-loop or dry handling of bottom ash, and more stringent effluent limitations for flue gas de-sulfurization wastewater. The required compliance timelines for existing sources was to be established between November 1, 2018 and December 31, 2023. On September 18, 2017, the EPA published a final rule delaying certain compliance dates of the ELG rule for two years while it administratively reconsiders the rule. On April 12, 2019, the U.S. Court of Appeals for the Fifth Circuit vacated and remanded portions of the EPA’s 2015 ELG Rule related to legacy wastewaters and combustion residual leachate. The 2015 ELG Rule was subject to legal challenge and the EPA reconsidered the effluent limitation guidelines for flue gas desulfurization wastewater and bottom ash transport water. On October 13, 2020, the EPA published a final rule tilted “Steam Electric Reconsideration Rule” revising the 2015 ELG guidelines for flue gas desulfurization wastewater and bottom ash transport water. It is too early to determine whether these revisions or future revisions to the ELG rule will have a material impact on our business or results of operations.

~~On April 23, 2020, the U.S. Supreme Court issued a decision in the~~ ~~Hawaii Wildlife Fund v. County of Maui~~ case related to whether a Clean Water Act permit is required when pollutants originate from a point source but are conveyed to navigable waters through a nonpoint source such as groundwater. The Court held that discharges to groundwater require a permit if the addition of the pollutants through groundwater is the functional equivalent of a direct discharge from the point source into navigable waters. We are reviewing this decision and it is too early to determine whether this decision may have a material impact on our business, financial condition or results of operations.

Capital Resources and Liquidity

Overview

As of ~~September 30, 2020,~~March 31, 2021, the Company had unrestricted cash and cash equivalents of ~~$1.5~~$1.9 billion, of which

~~56 | The AES Corporation | September 30, 2020 Form 10-Q~~

~~$26~~ $565 million was held at the Parent Company and qualified holding companies. The Company had ~~$384~~$187 million in short-term investments, held primarily at subsidiaries, and restricted cash and debt service reserves of ~~$876~~$720 million. The Company also had non-recourse and recourse aggregate principal amounts of debt outstanding of ~~$17.4~~$16.4 billion and ~~$4.0~~$3.4 billion, respectively. Of the ~~approximately $1.8~~$1.5 billion of our current non-recourse debt, ~~$1.5~~$1.2 billion was presented as such because it is due in the next twelve months and ~~$296~~$276 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 covenants or other requirements contained in the non-recourse debt documents, of which ~~$289~~$269 million is 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

44 | The AES Corporation | March 31, 2021 Form 10-Q

of the subsidiary to which the debt relates, through opportunistic refinancing activity, or some combination thereof. We have no 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 drawings ~~of $710 million~~ under its ~~senior secured~~revolving credit facility. However, as of March 31, 2021, the Parent Company does not have any outstanding drawings under its revolving credit facility. On a consolidated basis, of the Company’s ~~$21.7~~$20.1 billion of total gross debt outstanding as of ~~September 30, 2020,~~March 31, 2021, approximately ~~$4.6~~$2.5 billion bore interest at variable rates that were not subject to a derivative instrument which fixed the interest rate. Brazil holds ~~$756~~$736 million of our floating rate non-recourse exposure as we have no ability to fix local debt interest rates efficiently.

In addition to utilizing non-recourse debt at a subsidiary level when available, the Parent Company provides a portion, or in certain instances all, of the remaining long-term financing or credit required to fund development, construction, or acquisition of a particular project. These investments have generally taken the form of equity investments or intercompany loans, which are subordinated to the project’s non-recourse loans. We generally obtain the funds for these investments from our cash flows from operations, proceeds from the sales of assets and/or the proceeds from our issuances of debt, common stock and other securities. Similarly, in certain of our businesses, the Parent Company may provide financial guarantees or other credit support for the benefit of counterparties who have entered into contracts for the purchase or sale of electricity, equipment, or other services with our subsidiaries or lenders. In such circumstances, if a business defaults on its payment or supply obligation, the Parent Company will be responsible for the business’ obligations up to the amount provided for in the relevant guarantee or other credit support. At ~~September 30, 2020,~~March 31, 2021, 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 ~~$1.3~~$1.8 billion in aggregate (excluding those collateralized by letters of credit and other obligations discussed below).

As a result of the Parent Company’s split rating, some counterparties may be unwilling to accept our general unsecured commitments to provide credit support. Accordingly, with respect to both new and existing commitments, the Parent Company may be required to provide some other form of assurance, such as a letter of credit, to backstop or replace our credit support. The Parent Company may not be able to provide adequate assurances to such counterparties. To the extent we are required and able to provide letters of credit or other collateral to such counterparties, this will reduce the amount of credit available to us to meet our other liquidity needs. ~~At September 30, 2020,~~As of March 31, 2021, we had $114 million in letters of credit outstanding provided under our unsecured credit facility and ~~$16~~

~~57 | The AES Corporation | September 30, 2020 Form 10-Q~~

$84 million in letters of credit outstanding provided under our ~~senior secured~~revolving 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 30, 2020,~~March 31, 2021, 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

45 | The AES Corporation | March 31, 2021 Form 10-Q

to obtain additional non-recourse debt, such subsidiary may become insolvent, and we may lose our investment in that subsidiary. Additionally, if any of our subsidiaries lose a significant customer, the subsidiary may need to withdraw from a project or restructure the non-recourse debt financing. If we or the subsidiary choose not to proceed with a project or are unable to successfully complete a restructuring of the non-recourse debt, we may lose our investment in that subsidiary.

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

Long-Term Receivables

As of ~~September 30, 2020,~~March 31, 2021, the Company had approximately ~~$203~~$111 million of gross accounts receivable classified as Other noncurrent assets. These noncurrent receivables mostly consist of accounts receivable in ~~Chile~~Argentina and ~~Argentina~~Chile that, pursuant to amended agreements or government resolutions, have collection periods that extend beyond ~~September 30, 2021,~~March 31, 2022, or one year from the latest balance sheet date. The majority of Argentine receivables have been converted into long-term financing for the construction of power plants. Noncurrent receivables in Chile pertain primarily to revenues recognized on regulated energy contracts that were impacted by the Stabilization Fund created by the Chilean government. A portion relates to the extension of existing PPAs with the addition of renewable energy. ~~The majority of Argentine receivables have been converted into long-term financing for the construction of power plants.~~ See Note 65—Financing Receivables in Item 1.—Financial Statements and Key Trends and Uncertainties—Macroeconomic and Political—Chile in Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q and Item 1.—Business—South America SBU—Argentina—Regulatory Framework and Market Structure included in our ~~2019~~2020 Form 10-K for further information.

As of ~~September 30, 2020,~~March 31, 2021, the Company had approximately $1.3 billion of ~~gross~~ 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~~25-year term of the plant’s PPA. In December 2020, Mong Duong met the held-for-sale criteria and the loan receivable balance, net of CECL reserve, was reclassified to held-for-sale assets. As of March 31, 2021, $83 million of the loan receivable balance was classified as Current held-for-sale assets and $1.2 billion was classified as Noncurrent held-for-sale assets on the Condensed Consolidated Balance Sheets. See Note 1413—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~~three months ended ~~September 30, 2020~~March 31, 2021 were proceeds from issuance of Equity Units, debt financings, sales of short-term investments, and cash flows from operating activities. The primary uses of cash in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2021 were repayments of debt, capital expenditures, and purchases of short-term investments.

The primary sources of cash for the Company in the three months ended March 31, 2020 were debt financings, cash ~~flow~~flows from operating activities, and sales of short-term investments. The primary uses of cash in the ~~nine~~three months ended ~~September 30,~~March 31, 2020 ~~and the nine months ended September 30, 2019~~ were capital expenditures, repayments of debt, ~~capital expenditures,~~ and purchases of short-term investments.

5846 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

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


		Nine Months Ended September 30,					Three Months Ended March 31,
Cash Sources:	Cash Sources:	2020		2019		Cash Sources:	2021		2020
Issuance of preferred stock						Issuance of preferred stock	$	1,017	$	—
Borrowings under the revolving credit facilities						Borrowings under the revolving credit facilities	792		1,194
Issuance of non-recourse debt	Issuance of non-recourse debt	$	4,229	$	3,580	Issuance of non-recourse debt	307		406
Borrowings under the revolving credit facilities		2,099		1,469
Sale of short-term investments						Sale of short-term investments	257		254
Net cash provided by operating activities	Net cash provided by operating activities	2,087		1,775		Net cash provided by operating activities	253		373

Contributions from noncontrolling interests						Contributions from noncontrolling interests	94		—
Issuance of recourse debt	Issuance of recourse debt	1,619		—		Issuance of recourse debt	7		—
Sale of short-term investments		439		524
Issuance of preferred shares in subsidiaries		113		—

Proceeds from the sale of business interests, net of cash and restricted cash sold		41		226
Proceeds from the sale of assets						Proceeds from the sale of assets	—		15
Other	Other	34		68		Other	32		2
Total Cash Sources	Total Cash Sources	$	10,661	$	7,642	Total Cash Sources	$	2,759	$	2,244

Cash Uses:	Cash Uses:					Cash Uses:
Repayments of non-recourse debt		$	(3,451)	$	(2,978)
Repayments of recourse debt		(1,596)		(449)
Repayments under the revolving credit facilities	Repayments under the revolving credit facilities	(1,515)		(1,041)		Repayments under the revolving credit facilities	$	(793)	$	(315)
Capital expenditures	Capital expenditures	(1,375)		(1,628)		Capital expenditures	(432)		(576)
Repayments of non-recourse debt						Repayments of non-recourse debt	(320)		(92)
Purchase of short-term investments	Purchase of short-term investments	(546)		(572)		Purchase of short-term investments	(130)		(277)
Dividends paid on AES common stock	Dividends paid on AES common stock	(286)		(272)		Dividends paid on AES common stock	(100)		(95)
Contributions and loans to equity affiliates	Contributions and loans to equity affiliates	(286)		(258)		Contributions and loans to equity affiliates	(64)		(115)
Distributions to noncontrolling interests						Distributions to noncontrolling interests	(17)		(22)
Acquisitions of noncontrolling interests	Acquisitions of noncontrolling interests	(240)		—		Acquisitions of noncontrolling interests	(13)		—
Distributions to noncontrolling interests		(194)		(255)
Acquisitions of business interests, net of cash and restricted cash acquired		(94)		(56)
Payments for financed capital expenditures		(59)		(126)
Repayments of recourse debt						Repayments of recourse debt	(7)		(18)

Other	Other	(210)		(169)		Other	(104)		(96)
Total Cash Uses	Total Cash Uses	$	(9,852)	$	(7,804)	Total Cash Uses	$	(1,980)	$	(1,606)
Net increase (decrease) in Cash, Cash Equivalents, and Restricted Cash		$	809	$	(162)
Net increase in Cash, Cash Equivalents, and Restricted Cash						Net increase in Cash, Cash Equivalents, and Restricted Cash	$	779	$	638

Consolidated Cash Flows

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


		Nine Months Ended September 30,							Three Months Ended March 31,
Cash flows provided by (used in):	Cash flows provided by (used in):	2020		2019		$ Change		Cash flows provided by (used in):	2021		2020		$ Change
Operating activities	Operating activities	$	2,087	$	1,775	$	312	Operating activities	$	253	$	373	$	(120)
Investing activities	Investing activities	(1,856)		(1,711)		(145)		Investing activities	(387)		(735)		348
Financing activities	Financing activities	657		(133)		790		Financing activities	993		1,030		(37)

Operating Activities

Net cash provided by operating activities ~~increased $312~~decreased $120 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

Operating Cash Flows (1)

(in millions)

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

(2)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.

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

5947 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

•Adjusted net income ~~decreased $214~~increased $323 million primarily due to ~~lower margins at our US and Utilities SBU and prior year insurance proceeds associated with the lightning incident at the Andres facility in 2018. These impacts were partially offset by~~ higher margins at our South America and Eurasia SBUs and decreases in income tax expense and interest expense, partially offset by lower margins at our MCAC and US and Utilities SBUs.

•Working capital requirements ~~decreased $526~~increased $443 million, primarily due to ~~an increase~~the timing of the GSF liability payment at Tietê and a decrease in deferred income at Angamos ~~as a result of the~~due to revenue recognized from early contract terminations with Minera Escondida and Minera ~~Spence.~~Spence in the prior year.

Investing Activities

Net cash used in investing activities ~~increased $145~~decreased $348 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

Investing Cash Flows

(in millions)

•Proceeds from dispositions decreased $185 million, primarily due to the sales of the Kilroot and Ballylumford plants in the United Kingdom and the sale of a portion of our interest in a portfolio of sPower’s operating assets in 2019, partially offset by proceeds received in 2020 for the transfer of the Kazakhstan HPPs upon the final arbitration decision.

•~~Cash used for~~ short-term investing activities increased ~~$59~~$150 million, primarily at Tietê as a result of lower net short-term investment ~~sales~~purchases in ~~2020.~~2021.

•~~The $154~~Contributions and loans to equity affiliates decreased $51 million, ~~impact from other investing activities is largely~~primarily due to project funding requirements at sPower in the prior ~~year insurance proceeds associated with the lightning incident at the Andres facility in 2018.~~year.

•Capital expenditures decreased ~~$253~~$144 million, discussed further below.

Capital Expenditures

(in millions)

~~60 | The AES Corporation | September 30, 2020 Form 10-Q~~

•Growth expenditures decreased ~~$162~~$115 million, primarily driven by the ~~timing~~completion of ~~payments for the Southland repowering project,~~ renewable energy projects in Argentina, Alto Maipo, and ~~a pipeline project at Andres,~~Distributed Energy, as well as the completion of ~~solar projects at Tietê and~~ the ~~Colon LNG facility in Panama.~~Southland repowering project. This impact was partially offset by higher investments at IPALCO and DPL and in ~~solar~~renewable projects at ~~Distributed Energy~~AES Gener and ~~Gener.~~Clean Energy.

•Maintenance expenditures decreased ~~$78~~$25 million, primarily due to prior year expenditures at Andres as a result of the steam turbine lightning damage, and ~~in Panama as a result of the Changuinola tunnel lining upgrade, as well as~~ due to the timing of payments in the prior year related to projects at IPALCO.

•Environmental expenditures decreased ~~$13~~$4 million, primarily due to the timing of payments in the prior year related to projects at ~~Gener and~~ IPALCO.

48 | The AES Corporation | March 31, 2021 Form 10-Q

Financing Activities

Net cash provided by financing activities ~~increased $790~~decreased $37 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

Financing Cash Flows

(in millions)

See ~~Note 8—~~Notes 7—Debtand 11—Equity in Item 1—Financial Statements of this Form 10-Q for more information regarding significant debt and equity transactions.

•The ~~$472 million~~$1 billion impact from ~~recourse debt transactions~~issuance of preferred stock is ~~primarily~~ due to ~~higher net borrowings~~the issuance of Equity Units at the Parent Company.

•The ~~$185~~$94 million impact from contributions from noncontrolling interests is primarily due to contributions from minority interests at AES Gener.

•The $695 million impact from Parent Company revolver transactions is primarily due to higher net ~~borrowings~~repayments in ~~2020 for general corporate cash management activities.~~the current year.

•The ~~$176~~$328 million impact from non-recourse debt transactions is primarily due to ~~higher~~lower net borrowings at Southland Energy, Panama, Argentina, and ~~Vietnam, and a decrease in net repayments at Tietê and DPL,~~AES Gener, partially offset by an increase in net ~~repayments at Gener and decrease in net~~ borrowings at ~~Southland.~~AES Brasil.

•The ~~$113~~$185 million impact from ~~issuance of preferred shares in subsidiaries~~non-recourse revolver transactions is primarily due to ~~proceeds from~~lower net borrowings at AES Gener and in the ~~issuance of preferred shares to minority interests of Cochrane.~~

•~~The $240 million impact from acquisitions of noncontrolling interests is due to the acquisition of an additional 18.5% ownership interest in AES Tietê.~~Dominican Republic.

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~~Cash and cash equivalents, which is determined in accordance with 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 revolving 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.

~~61 | The AES Corporation | September 30, 2020 Form 10-Q~~

The Company defines Parent Company Liquidity as cash available to the Parent Company, including cash at qualified holding companies, plus available borrowings under our existing credit facility. The cash held at qualified holding companies represents cash sent to subsidiaries of the Company domiciled outside of the U.S. Such subsidiaries have no contractual restrictions on their ability to send cash to the Parent Company. Parent Company Liquidity is reconciled to its most directly comparable GAAP financial measure, ~~cash~~Cash and cash equivalents, at the periods indicated as follows (in millions):

September 30, 2020 December 31, 2019
Consolidated cash and cash equivalents $ 1,505 $ 1,029
Less: Cash and cash equivalents at subsidiaries (1,479) (1,016)
Parent Company and qualified holding companies’ cash and cash equivalents 26 13
Commitments under the Parent Company credit facility 1,000 1,000
Less: Letters of credit under the credit facility (16) (19)
Less: Borrowings under the credit facility (710) (180)
Borrowings available under the Parent Company credit facility 274 801
Total Parent Company Liquidity $ 300 $ 814

49 | The AES Corporation | March 31, 2021 Form 10-Q


	March 31, 2021		December 31, 2020
Consolidated cash and cash equivalents	$	1,886	$	1,089
Less: Cash and cash equivalents at subsidiaries	(1,321)		(1,018)
Parent Company and qualified holding companies’ cash and cash equivalents	565		71
Commitments under the Parent Company credit facility	1,000		1,000
Less: Letters of credit under the credit facility	(84)		(77)
Less: Borrowings under the credit facility	—		(70)
Borrowings available under the Parent Company credit facility	916		853
Total Parent Company Liquidity	$	1,481	$	924

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. ~~We expect that the Parent Company credit facilities’ borrowings will be repaid by the end of year.~~

The Parent Company paid dividends of ~~$0.1433~~$0.1505 per outstanding share to its common stockholders during the first ~~second and third quarters~~quarter of ~~2020~~2021 for dividends declared in December ~~2019, February 2020 and July 2020, respectively.~~2020. While we intend to continue payment of dividends, and believe we will have sufficient liquidity to do so, we can provide no assurance that we will continue to pay dividends, or if continued, the amount of such dividends.

Recourse Debt

Our total recourse debt was ~~$4.0 billion and~~ $3.4 billion as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, respectively.~~2020. See Note 8—7—Debt in Item 1.—Financial Statements of this Form 10-Q and Note 11—Debt in Item 8.—Financial Statements and Supplementary Data of our ~~2019~~2020 Form 10-K for additional detail.

We believe that our sources of liquidity will be adequate to meet our needs for the foreseeable future. This belief is based on a number of material assumptions, including, without limitation, assumptions about our ability to access the capital markets, 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~~revolving credit facility. See Item 1A.—Risk Factors—The AES ~~Corporation is a holding company and its~~Corporation’s ability to make payments on its outstanding indebtedness is dependent upon the receipt of funds from ~~its~~our subsidiaries ~~by way of dividends, fees, interest, loans or otherwise~~ of the Company’s ~~2019~~2020 Form 10-K for additional information.

Various debt instruments at the Parent Company level, including our ~~senior secured~~revolving credit facility, contain certain restrictive covenants. The covenants provide for, among other items, limitations on other 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 30, 2020,~~March 31, 2021, 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

~~62 | The AES Corporation | September 30, 2020 Form 10-Q~~

•triggering defaults in our outstanding debt at the Parent Company.

For example, our ~~senior secured~~revolving 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

50 | The AES Corporation | March 31, 2021 Form 10-Q

Balance Sheets amounts to ~~$1.8~~$1.5 billion. The portion of current debt related to such defaults was ~~$296~~$276 million at ~~September 30, 2020,~~March 31, 2021, all of which was non-recourse debt related to three subsidiaries — AES Puerto Rico, AES Ilumina, and AES Jordan Solar. 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, of which ~~$289~~$269 million is due to the bankruptcy of the offtaker. See Note 8—7—Debt in Item 1.—Financial Statements of this Form 10-Q for additional detail.

None of the subsidiaries that are currently in default are subsidiaries that met the applicable definition of materiality under the Parent Company’s debt agreements as of ~~September 30, 2020,~~March 31, 2021, in order for such defaults to trigger an event of default or permit acceleration under 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 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~~revolving credit facility as any business that contributed 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently ended fiscal quarters. As of ~~September 30, 2020,~~March 31, 2021, 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.

The Company’s significant accounting policies are described in Note 1 — General and Summary of Significant Accounting Policies of our ~~2019~~2020 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 ~~2019~~2020 Form 10-K. An accounting estimate is considered critical if the estimate requires management to make an assumption about matters that were highly uncertain at the time the estimate was made, different estimates reasonably could have been used, or if changes in the estimate that would have a material impact on the Company’s financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Company has reviewed and determined that these remain as critical accounting policies as of and for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

~~On January 1, 2020, the Company adopted ASC 326~~ ~~Financial Instruments — Credit Losses~~ and its subsequent corresponding updates (“ASC 326”). The new standard updates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss (“CECL”) model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for credit losses. For available-for-sale debt securities with unrealized losses, entities measure credit losses as it was done under previous GAAP, except that unrealized losses due to credit-related factors are now recognized as an allowance on the balance sheet with a corresponding adjustment to earnings in the income statement.

The Company applied the modified retrospective method of adoption for ASC 326. Under this transition method, the Company applied the transition provisions starting at the date of adoption. Refer to Note 1 in Item 1—~~Financial Statements~~ ~~of this Form 10-Q for further information.~~

~~63 | The AES Corporation | September 30, 2020 Form 10-Q~~

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, the USD, 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 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~~Fluctuations in currency exchange rates ~~experienced at~~may impact our ~~foreign operations;~~financial results and position; Wholesale power prices are declining in many markets ~~and this~~which could ~~have a material adverse effect on~~impact our operations and opportunities for future growth; 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 ~~2019~~2020 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,

51 | The AES Corporation | March 31, 2021 Form 10-Q

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. 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 ~~2020,~~2021, we project pre-tax earnings exposure on a 10% move in commodity prices would be ~~less than~~ $5 million for power, less than ~~$(5)~~$5 million for ~~natural gas,~~oil, less than $(5) million for coal, and less than $5$(5) million for ~~oil.~~natural gas. 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, lower oil, 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. At Southland, our existing once-through cooling generation units (“Legacy Assets”) have been requested to continue operating beyond their current retirement date

~~64 | The AES Corporation | September 30, 2020 Form 10-Q~~

and the OTC policy establishing retirement deadlines has been extended for between one and three years. These assets have contracts in capacity and have seen incremental value in energy revenues.

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. The majority of our PPAs include mechanisms of indexation that adjust the price of energy based on fluctuations in the price of coal, with the specific indices and timing varying by contract, in order to mitigate changes in the price of fuel. For the portion of our contracts not indexed to the price of coal, we have implemented a hedging strategy based on international coal financial instruments for up to 3 years. In Colombia, we operate under a shorter-term sales strategy with spot market exposure for uncontracted volumes. Because we own hydroelectric assets there, contracts are not indexed to fuel. 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 and load-following PPA type structures, exposing the business to hydrology-based variance. To the extent hydrological inflows are greater than or less than the contract volumes, the business will be sensitive to changes in spot power prices which may be driven by oil and natural gas prices in some time periods. In the Dominican Republic, we own natural ~~gas- and coal-fired~~gas-fired assets contracted under a portfolio of contract sales, and both contract and spot prices may move with commodity prices. Additionally, the contract levels do not always match our generation ~~availability and~~availability; as such, our assets may be ~~sellers of~~selling the excess above contract levels at spot prices ~~in excess of contract levels~~ or ~~a net buyer~~buy the deficit in the spot market to satisfy ~~contract~~contractual obligations.

52 | The AES Corporation | March 31, 2021 Form 10-Q

In the Eurasia SBU, our assets operating in Vietnam and Bulgaria have minimal exposure to commodity price risk as it has no or minor 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 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, 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 foreign currency hedges to protect 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 distributions 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 ~~2020~~2021 stem from the following currencies: Brazilian real, Colombian peso, ~~Euro,~~ and ~~Indian rupee.~~Euro. As of ~~September 30, 2020,~~March 31, 2021, assuming a 10% USD appreciation, cash distributions attributable to foreign subsidiaries exposed to movement in the exchange rate ~~of the Brazilian real, Colombian peso, Euro, and Indian rupee each~~ are projected to be impacted by $5 million for Colombia peso, less than $5 ~~million.~~million for Brazilian real, and less than $5 million for Euro. These numbers have been produced by applying a one-time 10% USD appreciation to forecasted exposed cash distributions for ~~2020~~2021 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 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.

~~65 | The AES Corporation | September 30, 2020 Form 10-Q~~

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 30, 2020,~~March 31, 2021, the portfolio’s pre-tax earnings exposure for ~~2020~~2021 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 $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 Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2020,~~March 31, 2021, 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

53 | The AES Corporation | March 31, 2021 Form 10-Q

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. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

6654 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

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 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 30, 2020.~~March 31, 2021.

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 mitigate the contaminated area located on the grounds of the pole factory and an indemnity payment of approximately R$6 million ($1 million). In October 2011, the State Attorney 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 that only CEEE was required to 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 and remediation costs are estimated to be approximately R$10 million to R$41 million ($2 million to $7 million), and there could be additional costs which 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 of AES Sul, retained the potential liability relating to this matter. The Company believes that 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 2015, DPL received NOVs from the EPA alleging violations of opacity at Stuart and Killen Stations. In~~ February 2017, the EPA issued a ~~second~~ NOV for DPL Stuart Station, alleging violations of opacity in 2016. On May 31, 2018, Stuart ~~and Killen Stations were~~Station was retired, and on December 20, 2019, ~~they were~~it was transferred to an unaffiliated third-party purchaser, along with the associated environmental liabilities.

In October 2015, ~~IPL~~AES Indiana received a similar NOV alleging violations at Petersburg Station. In addition, in February 2016, ~~IPL~~AES Indiana received an NOV from the EPA alleging violations of ~~NSR~~New Source Review and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Station. On August 31, 2020, ~~IPL~~AES Indiana reached a settlement with the EPA, the DOJ and IDEM, resolving these purported violations of the CAA at Petersburg Station. The settlement agreement, in the form of a proposed judicial consent decree, includes, among other items, the following requirements: annual caps on NOx and SO2 emissions and more stringent emissions limits than ~~IPL's~~AES Indiana's current Title V air permit; payment of civil penalties totaling $1.5 million; a $5 million environmental mitigation project consisting of the construction and operation of a new, non-emitting source of generation at the site; expenditure of $0.3 million on a state-only environmentally beneficial project to preserve local, ecologically-significant lands; and retirement of Units 1 and 2 prior to July 1, 2023. If ~~IPL~~AES Indiana does not

6755 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

meet the retirement obligation, it must install a Selective Non-Catalytic Reduction System (SNCR) on Unit 4. The ~~Settlement Agreement~~proposed Consent Decree is subject to final review and approval by the U.S. District Court for the Southern District of Indiana, following a 30-day public comment period, which began upon publication in the Federal Register.On January 14, 2021, the United States and Indiana, on behalf of EPA and IDEM, respectively, filed a motion asking the court to enter the proposed Consent Decree, along with the United States’ response to the adverse public comments on the proposed settlements.

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. Potential outcomes of the CCC determination could include an order requiring AES Redondo Beach to perform a restoration and/or pay fines or penalties. AES Redondo Beach believes that it has meritorious arguments concerning the underlying CCC determination, but there can be no assurances that it will be successful. On March 27, 2020, AES Redondo Beach, LLC sold the site to an unaffiliated third-party purchaser that assumed the obligations contained within these proceedings. On May 26, 2020, CCC staff sent AES a ~~Notice of Violation (NOV)~~NOV directing AES to submit a Coastal Development Permit (“CDP”) application for the removal of the water pumps within the alleged wetlands. AES has submitted the CDP to the permitting authority, the City of Redondo Beach (“the City”), with respect to AES’s plans to disable or remove the pumps. The NOV also directed AES to submit technical analysis regarding additional water pumps located within onsite electrical vaults and a CDP application for their continued operation. AES has responded to the CCC, providing the requested analysis and seeking further discussion with the agency regarding the CDP. On October 14, 2020, the City deemed the CDP application to be complete and indicated a public hearing will be required, at which time AES must present additional information and analysis on the pumps within the alleged wetlands and the onsite electrical vaults.

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 alleged 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 were 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 refiled its lawsuit. Also, there were ongoing administrative proceedings concerning whether AES Panama is entitled to acquire an easement over the land and whether AES Panama could continue to occupy the land. In August 2020, the parties signed a settlement agreement and filed it with the court for acceptance. The settlement agreement was accepted by the court and, accordingly, the relevant land was transferred to AES Panama and the lawsuits were dismissed.

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. In April 2018, the SMA approved the Compliance Plan (“April 2018 Approval”). Among other things, the Compliance Plan as approved by the SMA requires Alto Maipo to obtain from the Environmental Evaluation Service (“SEA”) a definitive interpretation of the RCA’s provisions concerning the authorized times to operate certain vehicles. In addition, Alto Maipo must obtain the SEA’s final approval concerning the control, discharge, and treatment of Infiltration Water. Alto Maipo continues to seek the relevant final approvals from the SEA. A number of lawsuits have been filed in relation to the April 2018 Approval, some of which are still pending. In the last quarter, these lawsuits were consolidated into one process by The Second Environmental Tribunal of Santiago. To date, none of the lawsuits ~~has~~have negatively impacted the April 2018 Approval or the construction of the project. 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 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. CNM alleges that it is entitled to damages ranging from $70 million to $170 million (which include the LC Funds) plus interest and costs, based on various scenarios. Alto Maipo has contested these submissions. The evidentiary hearing in the First Arbitration took place May 20-31, 2019, and closing arguments were heard June 9-10, 2020.

~~68 | The AES Corporation | September 30, 2020 Form 10-Q~~

The parties are now awaiting the Tribunal’s decision in the First Arbitration. 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 holding AES Gener and the Company jointly and severally liable to pay any alleged net amounts that are found to be due to CNM in the First Arbitration or otherwise. The Second Arbitration has been consolidated into the First Arbitration. The arbitral tribunal has bifurcated the Second Arbitration to determine in the first instance the jurisdictional objections raised by AES Gener and the Company to CNM’s piercing claims. The hearing on the jurisdictional objections, which was

56 | The AES Corporation | March 31, 2021 Form 10-Q

previously scheduled, ~~for October 5-9, 2020,~~ has been postponed to a date to be determined. Each of Alto Maipo, AES Gener, and the Company believes it has meritorious claims and/or defenses and will pursue its interests vigorously; however, there can be no assurances that each 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 ~~a six-month period~~an opportunity to present reports and other evidence to challenge the grounds of the ruling. In September 2019, this period was extended for an additional six months, in order to allow the execution of a field test in the bay of Ventanas and was further extended in March 2020 to present additional evidence. AES Gener has completed its presentation of evidence and awaits the Maritime Prosecution Office’s decision of the case. 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 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. In August 2020, at the request of the relevant AES companies, the case was transferred to a different civil court. 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, which later amended (collectively, the “DNER Order”), alleging that AES Puerto Rico, LP (“AES Puerto Rico”) failed to comply with certain DNER requests for documents and information, that AES Puerto Rico has contaminated groundwater in excess of certain state water quality standards, and requesting AES Puerto Rico to submit a corrective/remedial action plan for DNER’s review and approval, among others. The DNER Order also proposes an administrative fine of $160,000. In April 2019, AES Puerto Rico timely filed its response to the DNER Order contesting the alleged violations and the proposed fine and also moved to dismiss the case. The Hearing Examiner assigned to the case denied AES Puerto Rico’s request for dismissal. In October 2019, the Hearing Examiner granted DNER's request to postpone the filing of the prehearing report and scheduling of the prehearing conference. The parties are currently discussing a potential resolution of the Order. AES Puerto Rico believes that it has meritorious defenses, but there are no assurances that it will be successful in defending this action should it proceed to a hearing.

In October 2019, the Superintendency of the Environment (the "SMA") notified AES Gener of certain alleged breaches associated with the environmental permit of the Ventanas Complex, initiating a sanctioning process through Exempt Resolution N° 1 / ROL D-129-2019. The alleged charges include exceeding generation limits, failing to reduce emissions during episodes of poor air quality, exceeding limits on discharges to the sea, and exceeding

~~69 | The AES Corporation | September 30, 2020 Form 10-Q~~

noise limits. As the charges are currently classified, the maximum fine is approximately $6.5 million. On October 14, 2019, the SMA notified AES Gener of other alleged breaches at the Guacolda Complex under Exempt Resolution N° 1 / ROL D-146-2019. These allegations include failure to comply with all measures to mitigate atmospheric emissions, failure to comply with mitigation measures to avoid solid fuel discharges to the sea, failure to perform temperature monitoring in intake and water discharge at Unit 3, and a one-day exceedance of the seawater discharge limits. As the Guacolda charges are currently classified, the maximum fine is approximately $4 million. For each complex, additional fines are possible if the SMA determines that non-compliance resulted in an economic benefit. AES Gener has submitted proposed "Compliance Programs" to the SMA for the Ventanas Complex and the Guacolda Complex, respectively. In August 2020, the Compliance Program for Guacolda Complex was approved by the SMA. Upon successful execution of the Compliance Program, the process is expected to conclude without sanctions and to not generate further actions. If the Ventanas Complex submission is approved by the SMA and satisfactorily fulfilled by AES Gener, the process is also expected to conclude without sanctions and to not generate further action.

In March 2020, Mexico’s Comisión Federal de Electricidad (“CFE”) served an arbitration demand upon AES Mérida III. CFE ~~alleges~~makes allegations that AES Mérida III is in breach of its obligations under a power and capacity purchase agreement (“Contract”) between the two parties, ~~and claims more than $180 million in alleged damages, relating~~which allegations related to CFE’s own failure to provide fuel within the specifications of the ~~contract. In May 2020,~~Contract. CFE seeks to recover approximately $190 million in payments made to AES Merida under the Contract as well as approximately $431 million in alleged damages for having to acquire power from alternative sources in the Yucatan Peninsula. AES Mérida has filed an answer denying liability to CFE and asserting a counterclaim for damages due to CFE’s breach of its obligations. ~~In August 2020, CFE amended its~~The parties submitted their respective initial ~~claim to seek $431 million~~briefs and supporting evidence in December 2020. After additional ~~damages for alleged harms to~~briefing, the ~~Yucatan Peninsula from April 2011 to December 2019.~~evidentiary hearing

57 | The AES ~~Mérida~~ Corporation | March 31, 2021 Form 10-Q

will ~~contest the claim.~~take place in November 2021. AES Mérida believes that it has meritorious defenses and claims and ~~intends to~~will assert them vigorously in the arbitration; however, there can be no assurances that it will be successful in its efforts.

ITEM 1A. RISK FACTORS

~~You should consider carefully the following risk factor, along with~~There have been no material changes to the risk factors disclosed in Item 1A.—Risk Factors of our ~~2019~~2020 Form ~~10-K and other information contained in or incorporated by reference in this Form 10-Q.~~10-K. Additional risks and uncertainties also may adversely affect our business and operations, including those discussed in Item 2.—Management's Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q. I~~n addition to our discussion in~~ ~~Item 2.—Management's Discussion and Analysis of Financial Condition and Results of Operations~~ and other sections of this report to address effects of the COVID-19 pandemic, we have provided an additional risk factor regarding the COVID-19 pandemic below. As discussed below, the impact of the COVID-19 pandemic can also exacerbate other risks discussed in ~~Item 1A.—Risk Factors~~ ~~of our 2019 Form 10-K~~ ~~and this report. The Risk Factors section in our 2019 Form 10-K otherwise remains current in all material respects.~~ ~~If any of the following events actually occur, our business, financial results and financial condition could be materially adversely affected~~. ~~We routinely encounter and address risks, some of which may cause our future results to be materially different than we presently anticipate.~~

The COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious diseases, could materially and adversely affect the operations, financial condition, and cash flows of our generation facilities, transmission and distribution systems and other businesses. Further, the COVID-19 pandemic has caused severe disruptions in the global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.

~~In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 150 countries, including every state in the United States.~~

The COVID-19 pandemic has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including those in our key markets, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Most of the countries in which AES operates have been and continue to be impacted by such restrictions. Many experts predict that the outbreak will trigger a period of global economic slowdown or a global recession. COVID-19 or another pandemic could have material and adverse effects on our results of operations, financial condition and cash flows due to, among other factors:

•~~further decline in customer demand as a result of general decline in business activity;~~

•further destabilization of the markets and decline in business activity negatively impacting customers’ ability to pay for our services when due or at all, including downstream impacts, whereby the utilities’ customers are unable to pay monthly bills or receiving a moratorium from payment obligations, resulting in inability on the part of utilities to make payments for power supplied by our generation companies;

~~70 | The AES Corporation | September 30, 2020 Form 10-Q~~

•decline in business activity causing our commercial and industrial customers to experience declining revenues and liquidity difficulties that impede their ability to pay for power supplied by our generation companies;

•government moratoriums or other regulatory or legislative actions that limit changes in pricing, delay or suspend customers’ payment obligations or permit extended payment terms applicable to customers of our utilities or to our offtakers under power purchase agreements, in particular, to the extent that such measures are not mitigated by associated government subsidies or other support to address any shortfall or deficiencies in payments;

•~~claims by our PPA counterparties for delay or relief from payment obligations or other adjustments, including claims based on force majeure or other legal grounds;~~

•~~further decline in spot electricity prices;~~

•~~the destabilization of the markets and decline in business activity negatively impacting our customer growth in our service territories at our utilities;~~

•negative impacts on the health of our essential personnel, especially if a significant number of them are affected by COVID-19, and on our operations as a result of implementing stay-at-home, quarantine, curfew and other social distancing measures;

•~~delays or inability to access, transport and deliver fuel to our generation facilities due to restrictions on business operations or other factors affecting us and our third-party suppliers;~~

•~~delays or inability to access equipment or the availability of personnel to perform planned and unplanned maintenance, which can, in turn, lead to disruption in operations;~~

•~~a deterioration in our ability to ensure business continuity, including increased cybersecurity attacks related to the work-from-home environment;~~

•~~further delays to our construction projects, including at our renewables projects, and the timing of the completion of renewables projects;~~

•~~delay or inability to receive the necessary permits for our development projects due to delays or shutdowns of government operations;~~

•~~delays in achieving our financial goals, strategy and digital transformation;~~

•deterioration of the credit profile of The AES Corporation and/or its subsidiaries and difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions, which could affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis;

•~~delays or inability to complete asset sales on anticipated terms or redeploy capital as set forth in our capital allocation plans;~~

•~~increased volatility in foreign exchange and commodity markets;~~

•~~deterioration of economic conditions, demand and other related factors resulting in impairments to goodwill or long-lived assets; and~~

•delay or inability in obtaining regulatory actions and outcomes that could be material to our business, including for recovery of COVID-19 related losses and the review and approval of our rates at our U.S. regulated utilities.

We will continue to review and modify our plans as conditions change. Despite our efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of this outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty that could adversely affect our generation facilities, transmission and distribution systems, development projects, energy storage sales by Fluence, and results of operations, financial condition and cash flows.

COVID-19 may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, such as those relating to our significant level of indebtedness, potential and existing defaults by subsidiaries, our need to generate sufficient cash flows to service our indebtedness, our ability to raise sufficient capital to fund development projects, our ability to comply with the covenants contained in the agreements that

~~71 | The AES Corporation | September 30, 2020 Form 10-Q~~

~~govern our indebtedness, and the impact of the impairment of goodwill or long-lived assets on our consolidated results.~~

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 30, 2020,~~March 31, 2021, $264 million remained available for repurchase under the Program. No repurchases were made by The AES Corporation of its common stock during the ~~third~~first quarter of ~~2020.~~2021.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



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 Gustavo Pimenta (filed herewith).
32.1						Section 1350 Certification of Andrés Gluski (filed herewith).
32.2						Section 1350 Certification of Gustavo Pimenta (filed herewith).






101						The AES Corporation Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2020,~~March 31, 2021, formatted in Inline XBRL (Inline Extensible Business Reporting Language): (i) the Cover Page, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Operations, (iv) Condensed Consolidated Statements of Comprehensive Income (Loss), (v) Condensed Consolidated Statements of Changes in Equity, (vi) Condensed Consolidated Statements of Cash Flows, and (vii) Notes to Condensed Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

7258 | The AES Corporation | ~~September 30, 2020~~March 31, 2021 Form 10-Q

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~~May 5, ~~2020~~2021

By:

/s/ GUSTAVO PIMENTA

Name:

Gustavo Pimenta

Title:

Executive Vice President and Chief Financial Officer (Principal Financial Officer)

By:

/s/ SHERRY L. KOHAN

Name:

Sherry L. Kohan

Title:

Vice President and Controller (Principal Accounting Officer)


Condensed Consolidated Balance Sheet	Balance at December 31, 2019		Adjustments Due to ASC 326		Balance at January 1, 2020
Assets
Accounts receivable, net of allowance for doubtful accounts of $20	$	1,479	$	0	$	1,479
Other current assets (1)	802		(2)		800
Deferred income taxes	156		9		165
Loan receivable, net of allowance of $32	1,351		(32)		1,319
Other noncurrent assets (2)	1,635		(30)		1,605
Liabilities and Equity
Accumulated deficit	$	(692)	$	(39)	$	(731)
Noncontrolling interests	2,233		(16)		2,217


Rollforward of CECL Reserves by Portfolio Segment	Reserve at January 1, 2020		Current Period Provision		Write-offs charged against allowance		Recoveries Collected		Foreign Exchange		Reserve at September 30, 2020
Accounts Receivable (1)	$	4	$	9	$	(9)	$	5	$	0	$	9
Mong Duong Loan Receivable	34		0		0		(1)		0		33
Argentina Receivables	29		1		0		(2)		(6)		22
Other	1		0		0		0		0		1
Total CECL Reserves	$	68	$	10	$	(9)	$	2	$	(6)	$	65


Three Months Ended September 30, 2019	Interest Rate		Cross Currency		Foreign Currency		Commodity		Total
Balance at July 1	$	(243)	$	0	$	192	$	4	$	(47)
Total realized and unrealized gains (losses):
Included in earnings	0		0		(54)		(2)		(56)
Included in other comprehensive income — derivative activity	(37)		0		(10)		0		(47)

Included in regulatory (assets) liabilities	0		0		0		(2)		(2)
Settlements	2		0		(15)		(1)		(14)
Transfers of assets (liabilities), net into Level 3	0		(6)		0		0		(6)
Transfers of (assets) liabilities, net out of Level 3	45		0		0		0		45
Balance at September 30	$	(233)	$	(6)	$	113	$	(1)	$	(127)
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	$	0	$	0	$	(62)	$	(2)	$	(64)