THE AES CORPORATION

AES
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AES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/06/2020 | 09:23am


The condensed consolidated financial statements included in Item 1.-Financial
Statements of this Form 10-Q and the discussions contained herein should be read
in conjunction with our 2019 Form 10-K.
Forward-Looking Information
The following discussion may contain forward-looking statements regarding us,
our business, prospects and our results of operations, including our
expectations regarding the impact of the COVID-19 pandemic on our business, that
are subject to certain risks and uncertainties posed by many factors and events
that could cause our actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. These statements include, but are not limited to, statements
regarding management's intents, beliefs, and current expectations and typically
contain, but are not limited to, the terms "anticipate," "potential," "expect,"
"forecast," "target," "will," "would," "intend," "believe," "project,"
"estimate," "plan," and similar words. Forward-looking statements are not
intended to be a guarantee of future results, but instead constitute current
expectations based on reasonable assumptions. Factors that could cause or
contribute to such differences include, but are not limited to, those described
in Item 1A.-Risk Factors of this Form 10-Q, Item 1A.-Risk Factors and Item
7.-Management's Discussion and Analysis of Financial Condition and Results of
Operations of our 2019 Form 10-K and subsequent filings with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date of this report. We undertake no
obligation to revise any forward-looking statements in order to reflect events
or circumstances that may subsequently arise. If we do update one or more
forward-looking statements, no inference should be drawn that we will make
additional updates with respect to those or other forward-looking statements.
Readers are urged to carefully review and consider the various disclosures made
by us in this report and in our other reports filed with the SEC that advise of
the risks and factors that may affect our business.
Overview of Our Business
We are a diversified power generation and utility company organized into the
following four market-oriented SBUs: US and Utilities (United States, Puerto
Rico
and El Salvador); South America (Chile, Colombia, Argentina and Brazil);
MCAC (Mexico, Central America and the Caribbean); and Eurasia (Europe and Asia).
For additional information regarding our business, see Item 1.-Business of our
2019 Form 10-K.
We have two lines of business: generation and utilities. Each of our SBUs
participates in our first business line, generation, in which we own and/or
operate power plants to generate and sell power to customers, such as utilities,
industrial users, and other intermediaries. Our US and Utilities SBU
participates in our second business line, utilities, in which we own and/or
operate utilities to generate or purchase, distribute, transmit and sell
electricity to end-user customers in the residential, commercial, industrial,
and governmental sectors within a defined service area. In certain
circumstances, our utilities also generate and sell electricity on the wholesale
market.
Executive Summary
Compared with last year, third quarter diluted earnings per share from
continuing operations decreased $0.82 to a loss of $0.50. This decrease reflects
higher impairments and losses on sales in the current period, and lower
contributions from our MCAC SBU largely due to prior year net insurance
recoveries; partially offset by lower income tax expense and higher margins at
our South America SBU largely due to net gains from early contract terminations
at Angamos.
Adjusted EPS, a non-GAAP measure, decreased $0.06 to $0.42, mainly due to lower
contributions from our MCAC SBU largely due to prior year net insurance
recoveries, partially offset by a lower adjusted tax rate.
Compared with last year, diluted earnings per share from continuing operations
for the nine months ended September 30, 2020 decreased $0.98 to a loss of $0.41.
This decrease reflects higher impairments and losses on sales in the current
period, lower contributions from our US and Utilities SBU primarily driven by
the realization of the anticipated impact of COVID-19 on demand and lower
regulated rates as a result of the changes in DP&L's ESP, and prior year net
insurance recoveries; partially offset by lower income tax expense, higher
margins at our South America and MCAC SBUs largely due to net gains from early
contract terminations at Angamos and higher availability and improved hydrology
in Panama, respectively, a gain on sale of land in the U.S., and a positive
impact in Chile due to incremental capitalized interest.
Adjusted EPS, a non-GAAP measure, decreased $0.06 to $0.96, mainly due to lower
contributions from our


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31 | The AES Corporation | September 30, 2020 Form 10-Q
US and Utilities SBU primarily driven by the realization of the anticipated
impact of COVID-19 on demand and lower regulated rates as a result of the
changes in DP&L's ESP, and prior year net insurance recoveries; partially offset
by a lower adjusted tax rate, higher margins at our MCAC SBU largely due to
higher availability and improved hydrology in Panama, a gain on sale of land in
the U.S., and a positive impact in Chile due to incremental capitalized
interest.



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



[[Image Removed: aes-20200930_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 2019.



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33 | The AES Corporation | September 30, 2020 Form 10-Q
Overview of Strategic Performance
AES is leading the industry's transition to clean energy by investing in
sustainable growth and innovative solutions. The Company is taking advantage of
favorable trends in clean power generation, transmission and distribution, and
LNG infrastructure to deliver superior results.
Sustainable Growth: Through its presence in key growth markets, AES is
well-positioned to benefit from the global transition toward a more sustainable
power generation mix.
•In year-to-date 2020, the Company completed construction of 1,754 MW of new
projects, including:
•1,299 MW Southland repowering project in Southern California;
•100 MW Vientos Bonaerenses wind facility in Argentina;
•100 MW Vientos Neuquinos wind facility in Argentina;
•80 MW Andes 2a solar facility in Chile;
•75 MW Pleinmont 1 solar facility in Virginia;
•57 MW of solar and solar plus storage in the U.S. at AES Distributed Energy;
•28 MW Na Pua Makani wind facility in Hawaii;
•10 MW Alfalfal Virtual Reservoir energy storage facility in Chile; and
•5 MW Opico solar facility in El Salvador.
•In year-to-date 2020, the Company was awarded or signed 2,093 MW of renewables
and energy storage under long-term PPAs:
•1,173 MW of wind and solar at AES Gener in Chile and Colombia;
•542 MW of energy storage, solar and solar plus storage in the U.S.;
•187 MW of wind at AES Tietê in Brazil;
•109 MW of wind in Mexico; and
•82 MW of wind and solar in Panama and the Dominican Republic.
•The Company's backlog of 6,806 MW of renewables now includes:
•2,168 MW under construction and expected on-line through 2021; and
•4,638 MW of renewables signed under long-term PPAs or awarded.
•The Company has reduced its coal-fired generation to 29% of total generation
volume (proforma for asset sales and retirements announced in 2020) and is on
track to further reduce its coal-fired generation to less than 10% by year-end
2030.
•In November 2020, the Company announced the retirement of 1,158 MW of
coal-fired generation, which will decrease the Company's generation from coal by
5 percentage points, to approximately 29% of its total generation.
?630 MW Petersburg Units 1 and 2 in Indiana;
?322 MW Ventanas Units 1 and 2 in Chile; and
?206 MW AES Hawaii.
Innovative Solutions: The Company is developing and deploying innovative
solutions such as battery-based energy storage, digital customer interfaces and
energy management.
•Fluence, the Company's joint venture with Siemens, is the global leader in the
fast-growing energy storage market, which is expected to increase by 15 to 20 GW
annually.
•In year-to-date 2020, Fluence signed 690 MW of new contracts, bringing its
total delivered or awarded to 2.4 GW.
Superior Results: By investing in sustainable growth and offering innovative
solutions to customers, the Company is transforming its business mix to deliver
superior results.
•The Company has a resilient and diversified portfolio of electric generation
and utilities with credit-worthy offtakers and an average contract life of 14
years.


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34 | The AES Corporation | September 30, 2020 Form 10-Q
Review of Consolidated Results of Operations (unaudited)

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