THE AES CORPORATION

AES
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AES CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

05/06/2021 | 06:05am


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 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 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
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, first quarter diluted earnings per share from
continuing operations decreased $0.44 to a loss of $0.22. This decrease reflects
higher impairments in the current period, unrealized losses on foreign currency
derivatives in Argentina, and the prior year impacts of a gain on sale of land
in the U.S. and incremental capitalized interest in Chile; partially offset by
higher margins at our South America SBU largely due to net gains from early
contract terminations at 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 $0.01 to $0.28, mainly due to the
prior year impacts of a gain on sale of land in the U.S. and incremental
capitalized interest in Chile, and a higher adjusted tax rate in the current
year; partially offset by the commencement of operations of the Southland Energy
CCGTs, higher generation at Chivor due to 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 interest rates.


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



[[Image Removed: aes-20210331_g2.jpg]]
(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 2020.




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28 | The AES Corporation | 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.
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 2021, the Company was awarded or signed 1,088 MW of renewables
and energy storage under long-term PPAs:
•459 MW of solar, 359 MW of wind, 35 MW of energy storage, and 24 MW of hydro in
the United States; and
•211 MW of wind in Brazil.
•The Company's backlog of 6,926 MW of renewables now includes:
•2,570 MW under construction and expected on-line through 2024; and
•4,356 MW of renewables signed under long-term PPAs, including a 10-year
agreement to supply Google's data centers in Virginia with 500 MW of 24/7
carbon-free energy.
•The Company secured a 20-year agreement for 34 TBTU of excess throughput LNG
capacity in Central America, and expects to contract the remaining 45 TBTU in
the near-future.
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 40%
annually.
•In April, Fluence 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 ownership
and improve functionality.


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29 | The AES Corporation | March 31, 2021 Form 10-Q
Review of Consolidated Results of Operations (unaudited)



Three


Months Ended March



31,



(in millions, except per share amounts) 2021 2020 $ change % change
Revenue:
US and Utilities SBU $ 949 $ 971 $ (22) -2 %
South America SBU 884 712 172 24 %
MCAC SBU 535 432 103 24 %
Eurasia SBU 270 225 45 20 %
Corporate and Other 24 28 (4) -14 %
Eliminations (27) (30) 3 10 %
Total Revenue 2,635 2,338 297 13 %
Operating Margin:
US and Utilities SBU 107 120 (13) -11 %
South America SBU 352 177 175 99 %
MCAC SBU 122 140 (18) -13 %
Eurasia SBU 59 51 8 16 %
Corporate and Other 32 32 - - %
Eliminations (8) (13) 5 38 %
Total Operating Margin 664 507 157 31 %
General and administrative expenses (46) (38) (8) 21 %
Interest expense (190) (233) 43 -18 %
Interest income 68 70 (2) -3 %
Loss on extinguishment of debt (1) (1) - - %
Other expense (16) (4) (12) NM
Other income 43 45 (2) -4 %
Loss on disposal and sale of business interests (5) - (5) NM

Asset impairment expense (473) (6) (467) NM
Foreign currency transaction gains (losses) (35) 24 (59) NM
Other non-operating expense - (44) 44 -100 %
Income tax expense (8) (89) 81 -91 %
Net equity in losses of affiliates (30) (2) (28) NM
INCOME (LOSS) FROM CONTINUING OPERATIONS (29) 229 (258) NM


Less: Net income attributable to noncontrolling interests
and redeemable stock of subsidiaries


(119) (85) (34) 40 %
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION $ (148) $ 144 $ (292) NM

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.


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30 | The AES Corporation | March 31, 2021 Form 10-Q
Consolidated Revenue and Operating Margin
Three Months Ended March 31, 2021



Revenue
(in millions)
[[Image Removed: aes-20210331_g3.jpg]]
Consolidated Revenue - Revenue increased $297 million, or 13%, for the three
months ended March 31, 2021, compared to the three months ended March 31, 2020.
Excluding the unfavorable FX impact of $28 million, primarily in South America,
this increase was driven by:
•$212 million in South America primarily driven by the revenue recognized at
Angamos for the early termination of contracts with Minera Escondida and Minera
Spence
, and by higher availability in Colombia from higher reservoir levels;
•$104 million in 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 higher sales and generation in
Bulgaria.
These favorable impacts were partially offset by a decrease of $22 million in US
and Utilities driven by unrealized losses from open positions of commodity
derivatives at Southland, partially offset by higher sales at Southland Energy
due to the timing of the commencement of the PPA periods.
Operating Margin
(in millions)
[[Image Removed: aes-20210331_g4.jpg]]
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:
•$201 million in South America primarily due to the drivers discussed above.
This favorable impact was partially offset by a decrease of:
•$17 million in MCAC driven by a decrease in generation in Panama primarily due
to the disconnection of the Estrella del Mar I power barge in the prior year,
decreased availability and higher fixed costs in Mexico, and decreased
availability in the Dominican Republic due to an outage at Itabo, partially
offset by higher LNG sales in the Dominican Republic driven by the Eastern
Pipeline COD in 2020; and
•$13 million in US and Utilities primarily due to the drivers discussed above.

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31 | The AES Corporation | March 31, 2021 Form 10-Q
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 increased $8 million, or 21%, to $46 million
for the three months ended March 31, 2021, compared to $38 million for the three
months ended March 31, 2020, primarily due to business development activity,
including costs at Clean Energy that had previously been incurred at sPower and
reported within earnings from equity affiliates, and higher people costs.
Interest expense
Interest expense decreased $43 million, or 18%, to $190 million for the three
months ended March 31, 2021, compared to $233 million for the three months ended
March 31, 2020. This decrease is primarily due to realized gains on
de-designated interest rate swaps and lower interest rates 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 $2 million, or 3%, to $68 million for the three months
ended March 31, 2021, compared to $70 million for the three months ended March
31, 2020
with no material drivers.
Other income and expense
Other income decreased $2 million, or 4%, to $43 million for the three months
ended March 31, 2021, compared to $45 million for the three months ended March
31, 2020
, primarily due to the prior year gain on sale of 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 to $16 million for the three months ended
March 31, 2021, compared to $4 million for the three months ended March 31,
2020
, primarily due to a loss recognized at commencement of a sales-type lease
at AES Distributed Energy.
See Note 14-Other Income and Expense and Note 18-Acquisitions included in
Item 1.-Financial Statements of this Form 10-Q for further information.
Loss on disposal and sale of business interests
Loss on disposal and sale of business interests was $5 million for the three
months ended March 31, 2021, primarily due to additional loss on the sale of
Uruguaiana. There was no gain or loss on disposal and sale of business interest
during the three months ended March 31, 2020.
Asset impairment expense
Asset impairment expense increased $467 million to $473 million for the three
months ended March 31, 2021, compared to $6 million for the three months ended
March 31, 2020. This increase was primarily due to a $475 million impairment at
Puerto Rico associated with the economic costs and reputational risks of
disposal of coal combustion residuals off island.
See Note 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 March 31,
(in millions) 2021 2020
Chile $ 8 $ 22

Argentina (41) 3

Other (2) (1)
Total (1) $ (35) $ 24



___________________________________________



(1)Includes losses of $19 million and gains of $39 million on foreign currency
derivative contracts for the three months ended March 31, 2021 and 2020,
respectively.



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32 | The AES Corporation | March 31, 2021 Form 10-Q
The Company recognized net foreign currency transaction losses of $35 million
for the three months ended March 31, 2021, primarily due to 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.
The Company recognized net foreign currency transaction gains of $24 million for
the three months ended March 31, 2020, primarily due to realized and unrealized
gains on foreign currency derivatives in South America due to the depreciating
Colombian peso.
Other non-operating expense
Other non-operating expense was $44 million for the three months ended 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.
There were no other non-operating expenses during the three months ended March
31, 2021
.
See Note 6- Investments in and Advances to Affiliates included in
Item 1.-Financial Statements of this Form 10-Q for further information.
Income tax expense
Income tax expense decreased $81 million, or 91%, to $8 million for the three
months ended March 31, 2021, compared to $89 million for the three months ended
March 31, 2020. The Company's effective tax rates were 89% and 28% for the three
months ended March 31, 2021 and 2020, respectively. This net increase in the
effective tax rate was primarily due to the impact of the asset impairment at
Puerto Rico in 2021. The prior year effective tax rate was impacted by the
recognition of tax benefit related to a depreciating Peso in certain of our
Mexican subsidiaries, partially offset by the impact of the other-than-temporary
impairment of the OPGC equity method investment.
See Note 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 further information regarding the other-than-temporary impairment.
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 losses of affiliates
Net equity in losses of affiliates increased $28 million to $30 million for the
three months ended March 31, 2021, compared to $2 million for the three months
ended March 31, 2020. This increase was primarily driven by a decrease in
earnings at Mesa La Paz of $13 million due to higher income taxes caused by the
fluctuation of the Mexican peso and a decrease in earnings at Guacolda of $8
million
due to the suspension of equity method accounting in September 2020.
See Note 6- Investments in and Advances to Affiliates included in
Item 1.-Financial Statements of this Form 10-Q for further information.
Net income attributable to noncontrolling interests and redeemable stock of
subsidiaries
Net income attributable to noncontrolling interests and redeemable stock of
subsidiaries increased $34 million, or 40%, to $119 million for the three months
ended March 31, 2021, compared to $85 million for the three months ended March
31, 2020
. This increase was primarily due to:
•Higher earnings in Chile due to net gains from early contract terminations at
Angamos, partially offset by higher interest expense due to prior year
incremental capitalized interest; and
•Higher earnings in Colombia due to the life extension project at the Chivor
hydroelectric plant completed in the prior year.
These increases were partially offset by:
•Lower earnings in Panama due to the disconnection of the Estrella del Mar power
barge.

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33 | The AES Corporation | March 31, 2021 Form 10-Q
Net income (loss) attributable to The AES Corporation
Net income attributable to The AES Corporation decreased $292 million, to a loss
of $148 million for the three months ended March 31, 2021, compared to income of
$144 million for the three months ended March 31, 2020. This decrease was
primarily due to:
•Long-lived asset impairment at Puerto Rico;
•Prior year gain on sale of land held by AES Redondo Beach at Southland;
•Unrealized losses on foreign currency derivatives related to government
receivables in Argentina; and
•Prior year incremental capitalized interest in Chile.
These decreases were partially offset by:
•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 lower interest rates;
•Prior year other-than-temporary impairment at OPGC;
•Gain on remeasurement of 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 year ended 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 three months ended March 31, 2021, the Company changed the
definitions of Adjusted Operating Margin, Adjusted PTC, and Adjusted EPS to
remove the adjustment for costs directly associated with a major restructuring
program, including, but not limited to, workforce reduction efforts,
relocations, and office consolidation. As this adjustment was specific to the
major restructuring program announced by the Company in 2018, we believe
removing this adjustment from our non-GAAP definitions provides simplification
and 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; and (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.


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



Three Months Ended



March 31,
Reconciliation of Adjusted Operating Margin (in millions) 2021 2020
Operating Margin $ 664 $ 507
Noncontrolling interests adjustment (1) (209) (169)
Unrealized derivative losses 44 (12)
Disposition/acquisition losses 2 2
Net gains from early contract terminations at Angamos (110) -

Total Adjusted Operating Margin


$ 391 $ 328



_______________________



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




[[Image Removed: aes-20210331_g5.jpg]]
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; and (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.
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, strategic decisions to dispose of or acquire business
interests or retire debt, 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


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35 | The AES Corporation | March 31, 2021 Form 10-Q
The AES Corporation, which is determined in accordance with GAAP.



Three Months Ended



March 31,
Reconciliation of Adjusted PTC (in millions) 2021 2020


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


(36) 55
Pre-tax contribution (184) 199
Unrealized derivative and equity securities losses (gains) 69 (16)
Unrealized foreign currency losses (gains) 6 9
Disposition/acquisition losses (gains) (15) 1
Impairment losses 475 53
Loss on extinguishment of debt 6 4
Net gains from early contract terminations at Angamos (110) -

Total Adjusted PTC $ 247 $ 250


[[Image Removed: aes-20210331_g6.jpg]]
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) 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 (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, strategic decisions
to dispose of or acquire business interests or retire debt, 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.


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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)Amount primarily relates to unrealized derivative losses in Argentina mainly
associated with foreign currency derivatives on government receivables of $38
million
, or $0.06 per share, and net unrealized derivative losses on power and
commodities swaps at Southland of $33 million, or $0.05 per share.
(2)Amount primarily relates to gain on remeasurement of our equity interest in
sPower to acquisition-date fair value of $36 million, or $0.05 per share,
partially offset by day-one loss recognized at commencement of a sales-type
lease at AES Distributed Energy of $13 million, or $0.02 per share.
(3)Amount primarily relates to asset impairment at Puerto Rico of $475 million,
or $0.71 per share.
(4)Amount primarily relates to other-than-temporary impairment of OPGC of $43
million
, or $0.06 per share.
(5)Amount relates to net gains at Angamos associated with the early contract
terminations with Minera Escondida and Minera Spence of $110 million, or $0.16
per share.
(6)Amount primarily relates to income tax benefits associated with the
impairment at Puerto Rico of $119 million, or $0.18 per share, partially offset
by income tax expense related to net gains at Angamos associated with the early
contract terminations with Minera Escondida and Minera Spence of $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 March
31,
2021 2020 $ Change % Change
Operating Margin $ 107 $ 120 $ (13) -11 %
Adjusted Operating Margin (1) 126 84 42 50 %
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 2020 Form 10-K for the respective ownership interest for key
businesses.
Operating Margin for the three months ended March 31, 2021 decreased $13
million
, or 11%, which was driven primarily by the following (in millions):
Decrease at Southland mainly due to higher unrealized losses from open positions
of commodity derivatives $ (44)
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 higher regulated retail margin primarily due to higher
volumes from favorable weather and higher transmission rates


7
Other


(5)



Total US and Utilities SBU Operating Margin Decrease


$ (13)





Adjusted Operating Margin increased $42 million primarily due to the drivers
above, adjusted for NCI and excluding unrealized gains and losses on
derivatives.
Adjusted PTC decreased $27 million, primarily driven by the gain in 2020 on sale
of land held by AES Redondo Beach at Southland and a decrease 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.
South America SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and
Adjusted PTC (in millions) for the periods indicated:
Three Months Ended March
31,
2021 2020 $ Change % Change
Operating Margin $ 352 $ 177 $ 175 99 %
Adjusted Operating Margin (1) 112 95 17 18 %
Adjusted PTC (1) 88 119 (31) -26 %



_____________________________



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



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37 | The AES Corporation | March 31, 2021 Form 10-Q
Operating Margin for the three months ended March 31, 2021 increased $175
million
, or 99%, which was driven primarily by the following (in millions):
Increase in Chile primarily related to early contract terminations at Angamos in
Q3 2020


$ 154
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 margin from wind facilities.



(5)




Total South America SBU Operating Margin Increase


$ 175





Adjusted Operating Margin increased $17 million due to the drivers above,
adjusted for NCI and the net gains on early contract terminations at Angamos.
Adjusted PTC decreased $31 million, mainly driven by 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 primarily associated with incremental capitalized interest at Alto Maipo
in the prior period, and lower equity earnings at Guacolda due to the suspension
of equity method accounting in September 2020. See Note 6-Investments in and
Advances to 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.
MCAC SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and
Adjusted PTC (in millions) for the periods indicated:
Three Months Ended March
31,
2021 2020 $ Change % Change
Operating Margin $ 122 $ 140 $ (18) -13 %
Adjusted Operating Margin (1) 84 93 (9) -10 %
Adjusted PTC (1) 61 78 (17) -22 %



_____________________________



(1) A non-GAAP financial measure, adjusted for the impact of NCI. See SBU
Performance Analysis-Non-GAAP Measures for definition and Item 1.-Business
included in our 2020 Form 10-K for the respective ownership interest for key
businesses.
Operating Margin for the three months ended March 31, 2021 decreased $18
million
, or 13%, which was driven primarily by the following (in millions):
Decrease in Panama mainly driven by Estrella del Mar I power barge disconnection in July
2020
, partially offset by wind project acquired in Q2 2020 $ (10)


Decrease in Dominican Republic at Itabo driven by lower availability due to extended
planned outage in 2021, offset by lower depreciation


(7)


Decrease in Mexico driven by lower availability and higher fixed costs


(6)
Increase in Dominican Republic driven by higher availability due to the outage of Andres
in 2020 and higher LNG sales driven by Eastern Pipeline COD in 2020, partially offset by
lower contract and spot margin in Andres and DPP 6
Other (1)
Total MCAC SBU Operating Margin Decrease $ (18)


Adjusted Operating Margin decreased $9 million due to the drivers above,
adjusted for NCI.
Adjusted PTC decreased $17 million, mainly driven by the decrease in Adjusted
Operating Margin described above and lower equity earnings in Mexico mainly due
to higher income tax as a result of the fluctuation of the Mexican peso in the
prior period.

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38 | The AES Corporation | 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 March 31,
2021 2020 $ Change % Change
Operating Margin $ 59 $ 51 $ 8 16 %
Adjusted Operating Margin (1) 44 38 6 16 %
Adjusted PTC (1) 51 44 7 16 %


_____________________________
(1) A non-GAAP financial measure, adjusted for the impact of NCI. See SBU
Performance Analysis-Non-GAAP Measures for definition and Item 1.-Business
included in our 2020 Form 10-K for the respective ownership interest for key
businesses.
Operating Margin for the three months ended March 31, 2021 increased $8 million,
or 16%, which was driven primarily by the following (in millions):
Improved operational performance and Euro appreciation in Maritza $ 6
Other 2
Total Eurasia SBU Operating Margin Increase $ 8


Adjusted Operating Margin increased $6 million due to the drivers above,
adjusted for NCI.
Adjusted PTC increased $7 million, mainly driven by the increase in Adjusted
Operating Margin described above.
Key Trends and Uncertainties
During the remainder of 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 2020 Form 10-K.
COVID-19 Pandemic
The COVID-19 pandemic has impacted global economic activity, including
electricity and energy consumption, and caused significant volatility in
financial markets. 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 Item 1A.-Risk Factors of our 2020 Form 10-K.
Throughout the COVID-19 pandemic we have conducted our essential operations
without significant disruption. 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. In 2020, the impact of the
COVID-19 pandemic on the energy market materialized in our operational locations
in the second quarter and was generally better than our revised expectations for
the second of half of the year. Across our global portfolio, our utilities
businesses have generally performed in line with our expectations consistent
with a recovery from the COVID-19 pandemic in the first quarter of 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 2021.
Our credit exposures have continued in-line with historical levels and within
the customary 45-60 day grace period. We have not experienced any material
credit-related impacts from our PPA offtakers due to the COVID-19 pandemic.
Our supply chain management has remained robust during this challenging time and
we continue to closely manage and monitor developments. 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.

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39 | The AES Corporation | March 31, 2021 Form 10-Q
The Company continues to monitor the potential impact of the COVID-19 pandemic
on our financial results and operations.
Additionally, governments continue to look for ways to increase revenues,which
could result in tax law changes in the 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.
Chile - In recent years, Chile has experienced significant 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 social
unrest are under consideration and could result in regulatory or policy changes
that may affect our results of operations in Chile.
In November 2019, the Chilean government enacted Law 21,185 that establishes a
Stabilization Fund for regulated energy prices. As discussed in Item
7-Management's Discussion and Analysis of Financial Condition and Results of
Operations-Key Trends and Uncertainties of the 2020 Form 10-K, AES Gener
executed an agreement in December 2020 for the sale of the receivables generated
pursuant the Tariff Stabilization Law, of which $55 million was collected in
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 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 $238 million and $31
million
, respectively, continue to be in technical default and are classified as
current as of 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 March
31, 2021
.
The Company's receivable balances in Puerto Rico as of March 31,
2021
totaled $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.
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 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 its coal-fired long-lived assets was not
recoverable. As a result, the Company recognized asset impairment expense of
$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 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.
Global Tax Legislation - The macroeconomic and political environments in the
U.S. and 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

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40 | The AES Corporation | March 31, 2021 Form 10-Q
bill: the elimination of a beneficial foreign tax credit rule, set to take
effect in 2021, and the expansion of executive compensation deduction limits
effective in 2027.
Further, in the 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
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 expected to be made available in
the 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. On December 26, 2020, the Chilean government issued Supreme Decree Number
42, which allows coal plants to remain connected to the grid in "strategic
reserve status" for five years after ceasing operations, receive a reduced
capacity payment, and 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 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. PREPA and AES Puerto Rico have discussed various
strategic alternatives, but have not reached any agreement. As described under
Macroeconomic and Political above, additional factors arose in the first quarter
of 2021 with respect to 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
filing date, management believes the carrying amount of 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 2020 Form
10-K.

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41 | The AES Corporation | March 31, 2021 Form 10-Q
Regulatory
AES Maritza PPA Review - 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 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 introduce a market-wide capacity remuneration
mechanism, which would require approval by DG Comp. The Market Reform Plan
proposes a deadline of June 30, 2021 for the 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 prompt termination of the PPA.
We do not believe termination of the PPA is justified. Nevertheless, the PPA
Discussions will involve a range of potential outcomes, including but not
limited to the termination of the PPA and payment of some level of compensation
to AES Maritza. Any negotiated resolution would be subject to mutually
acceptable terms, lender consent, and DG Comp approval. At this time, we cannot
predict the outcome of the 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 result in an agreement concerning the agency's review. AES
Maritza believes that its PPA is legal and in compliance with all applicable
laws, and it will take all actions necessary to protect its interests, whether
through negotiated agreement or otherwise. However, there can be no assurance
that this matter will be resolved favorably; if it is not, there could be a
material adverse effect on the Company's financial condition, results of
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 EDG rate will replace the current net metering program and
will be offered beginning July 2022, when net metering is no longer available to
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 and made
effective May 3, 2020, subject to further proceeding and potential refunds. In
December 2020, a unanimous settlement was reached regarding these rates and
filed with the FERC, which was approved on April 15, 2021.
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 - During the three months ended March 31, 2021, the Company
recognized asset impairment expense of $473 million. See Note 15-Asset
Impairment Expense included in Item 1.-Financial Statements of this Form 10-Q
for further information. After recognizing this impairment expense, the carrying
value of long-lived assets that were assessed for impairment totaled $260
million
at 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

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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 2020 Form 10-K.
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 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.
In October 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
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 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 March 15, 2021, the EPA released a pre-publication
version of a final rule 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 Pennsylvania, with 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
final rule. AES Indiana facilities and AES Warrior Run in Maryland will receive
fewer ozone season NOx allowances for future NOx Ozone Seasons likely beginning
in 2021 and later, possibly resulting in the 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.
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 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.
AES Indiana Petersburg and AES Warrior Run have coal-fired electric generating
units that may be impacted by this regulation. On February 19,

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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. On January 19, 2021, the D.C.
Circuit vacated and remanded to the EPA the ACE Rule, although the parties have
an opportunity to request a rehearing at the D.C. Circuit or seek a review of
the decision by the U.S. Supreme Court. On March 5, 2021, the D.C. Circuit
issued the partial mandate effectuating the vacatur of the ACE Rule. In effect,
the CPP will not take effect while the EPA is addressing the remand of the ACE
rule by promulgating a new Section 111(d) rule to regulate greenhouse gases from
existing electric generating units. The impact of future greenhouse gas
emissions regulations remains uncertain.
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.
Capital Resources and Liquidity
Overview
As of March 31, 2021, the Company had unrestricted cash and cash equivalents of
$1.9 billion, of which $565 million was held at the Parent Company and qualified
holding companies. The Company had $187 million in short-term investments, held
primarily at subsidiaries, and restricted cash and debt service reserves of $720
million
. The Company also had non-recourse and recourse aggregate principal
amounts of debt outstanding of $16.4 billion and $3.4 billion, respectively. Of
the $1.5 billion of our current non-recourse debt, $1.2 billion was presented as
such because it is due in the next twelve months and $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 $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

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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 under its 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 $20.1
billion
of total gross debt outstanding as of March 31, 2021, approximately $2.5
billion
bore interest at variable rates that were not subject to a derivative
instrument which fixed the interest rate. Brazil holds $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 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 $1.8 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. As of March 31, 2021, we had $114 million in
letters of credit outstanding provided under our unsecured credit facility and
$84 million in letters of credit outstanding provided under our 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 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

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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 March 31, 2021, the Company had approximately $111 million of gross
accounts receivable classified as Other noncurrent assets. These noncurrent
receivables mostly consist of accounts receivable in Argentina and Chile that,
pursuant to amended agreements or government resolutions, have collection
periods that extend beyond 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. See Note 5-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 2020
Form 10-K for further information.
As of March 31, 2021, the Company had approximately $1.3 billion of loans
receivable primarily related to a facility constructed under a build, operate,
and transfer contract in Vietnam. This loan receivable represents contract
consideration related to the construction of the facility, which was
substantially completed in 2015, and will be collected over the 25-year term of
the plant's PPA. 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 13-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 three months ended 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 three months ended 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 flows from operating activities, and sales of
short-term investments. The primary uses of cash in the three months ended March
31, 2020
were capital expenditures, repayments of debt, and purchases of
short-term investments.


--------------------------------------------------------------------------------



46 | The AES Corporation | March 31, 2021 Form 10-Q
A summary of cash-based activities are as follows (in millions):



Three Months Ended March 31,
Cash Sources: 2021 2020
Issuance of preferred stock $ 1,017 $ -
Borrowings under the revolving credit facilities 792 1,194
Issuance of non-recourse debt 307 406
Sale of short-term investments 257 254
Net cash provided by operating activities 253 373

Contributions from noncontrolling interests 94 -
Issuance of recourse debt 7 -
Proceeds from the sale of assets - 15
Other 32 2
Total Cash Sources $ 2,759 $ 2,244

Cash Uses:
Repayments under the revolving credit facilities $ (793) $ (315)
Capital expenditures (432) (576)
Repayments of non-recourse debt (320) (92)
Purchase of short-term investments (130) (277)
Dividends paid on AES common stock (100) (95)
Contributions and loans to equity affiliates (64) (115)
Distributions to noncontrolling interests (17) (22)
Acquisitions of noncontrolling interests (13) -
Repayments of recourse debt (7) (18)

Other (104) (96)
Total Cash Uses $ (1,980) $ (1,606)
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 three month period (in millions):
Three Months Ended


March 31,



Cash flows provided by (used in): 2021 2020 $ Change
Operating activities $ 253 $ 373 $ (120)
Investing activities (387) (735) 348
Financing activities 993 1,030 (37)


Operating Activities
Net cash provided by operating activities decreased $120 million for the three
months ended March 31, 2021, compared to the three months ended March 31, 2020.
Operating Cash Flows (1)
(in millions)
[[Image Removed: aes-20210331_g7.jpg]]
(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.

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47 | The AES Corporation | March 31, 2021 Form 10-Q
•Adjusted net income increased $323 million primarily due to 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 increased $443 million, primarily due to the
timing of the GSF liability payment at Tietê and a decrease in deferred income
at Angamos due to revenue recognized from early contract terminations with
Minera Escondida and Minera Spence in the prior year.
Investing Activities
Net cash used in investing activities decreased $348 million for the three
months ended March 31, 2021, compared to the three months ended March 31, 2020.
Investing Cash Flows
(in millions)
[[Image Removed: aes-20210331_g8.jpg]]
•Proceeds from short-term investing activities increased $150 million, primarily
at Tietê as a result of lower net short-term investment purchases in 2021.
•Contributions and loans to equity affiliates decreased $51 million, primarily
due to project funding requirements at sPower in the prior year.
•Capital expenditures decreased $144 million, discussed further below.
Capital Expenditures
(in millions)
[[Image Removed: aes-20210331_g9.jpg]]
•Growth expenditures decreased $115 million, primarily driven by the completion
of renewable energy projects in Argentina, Alto Maipo, and Distributed Energy,
as well as the completion of the Southland repowering project. This impact was
partially offset by higher investments at IPALCO and DPL and in renewable
projects at AES Gener and Clean Energy.
•Maintenance expenditures decreased $25 million, primarily due to prior year
expenditures at Andres as a result of the steam turbine lightning damage, and
due to the timing of payments in the prior year related to projects at IPALCO.
•Environmental expenditures decreased $4 million, primarily due to the timing of
payments in the prior year related to projects at IPALCO.

--------------------------------------------------------------------------------
48 | The AES Corporation | March 31, 2021 Form 10-Q
Financing Activities
Net cash provided by financing activities decreased $37 million for the three
months ended March 31, 2021, compared to the three months ended March 31, 2020.
Financing Cash Flows
(in millions)
[[Image Removed: aes-20210331_g10.jpg]]



See Notes 7-Debt and 11-Equity in Item 1-Financial Statements of this Form 10-Q



for more information regarding significant debt and equity transactions.
•The $1 billion impact from issuance of preferred stock is due to the issuance
of Equity Units at the Parent Company.
•The $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 repayments in the current year.
•The $328 million impact from non-recourse debt transactions is primarily due to
lower net borrowings at Southland Energy, Panama, Argentina, and AES Gener,
partially offset by an increase in net borrowings at AES Brasil.
•The $185 million impact from non-recourse revolver transactions is primarily
due to lower net borrowings at AES Gener and in the 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 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.
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 and cash
equivalents, at the periods indicated as follows (in millions):


--------------------------------------------------------------------------------



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



December 31,
March 31, 2021 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 565 71


equivalents



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.
The Parent Company paid dividends of $0.1505 per outstanding share to its common
stockholders during the first quarter of 2021 for dividends declared in December
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 $3.4 billion as of March 31, 2021 and December 31,
2020
. See Note 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 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 revolving credit facility. See
Item 1A.-Risk Factors-The AES Corporation's ability to make payments on its
outstanding indebtedness is dependent upon the receipt of funds from our
subsidiaries of the Company's 2020 Form 10-K for additional information.
Various debt instruments at the Parent Company level, including our 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 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
•triggering defaults in our outstanding debt at the Parent Company.
For example, our 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


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50 | The AES Corporation | March 31, 2021 Form 10-Q
Balance Sheets amounts to $1.5 billion. The portion of current debt related to
such defaults was $276 million at 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 $269 million
is due to the bankruptcy of the offtaker. See Note 7-Debt in Item 1.-Financial
Statements of this Form 10-Q for additional detail.
None of the subsidiaries that are currently in default are subsidiaries that met
the applicable definition of materiality under the Parent Company's debt
agreements as of 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 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 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 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
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 three months ended March 31, 2021.

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