THE AES CORPORATION

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

02/25/2021 | 06:12am


Executive Summary
In 2020, AES delivered on or exceeded all strategic and financial objectives. We
completed construction of 2.3 GW of new projects and signed long-term PPAs for 3
GW of renewable capacity. Fluence, our joint venture with Siemens, maintained
its leading global market share with 1 GW of projects delivered or awarded in
2020. Finally, following our efforts to reduce recourse debt, our Parent
Company's credit rating was upgraded to investment grade by S&P. See Overview of
our Strategy included in Item 1.- Business of this Form 10-K for further
information.
Compared with last year, diluted earnings per share from continuing operations
decreased $0.39, from $0.45 to $0.06. This decrease reflects higher impairments
and losses on sales in the current period, lower contributions from DP&L
primarily driven by lower regulated rates as a result of the changes in the ESP,
lower demand at IPL and DP&L due to milder weather, lower contributions from
Colombia due to drier hydrology and lower generation due to a life extension
project at Chivor, and prior year net insurance recoveries; partially offset by
lower income tax expense, and higher contributions from Chile due to net gains
from early contract terminations at Angamos and a positive impact due to
incremental capitalized interest, from Brazil due to a favorable revision to the
GSF liability, from Panama due to higher availability and improved hydrology,
and in the U.S. due to commencement of operations of the Southland Energy CCGTs
and a gain on sale of land.
Adjusted EPS, a non-GAAP measure, increased $0.08, from $1.36 to $1.44, mainly
due to higher availability and improved hydrology in Panama, commencement of
operations of the Southland Energy CCGTs and a gain on sale of land in the U.S.,
a favorable revision to the GSF liability in Brazil, a lower adjusted tax rate,
and a positive impact in Chile due to incremental capitalized interest;
partially offset by lower contributions from our utilities in the U.S. primarily
driven by lower regulated rates as a result of the changes in DP&L's ESP and
lower demand due to milder weather, lower contributions from Colombia due to
drier hydrology and lower generation due to a life extension project at Chivor,
and prior year net insurance recoveries.


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79 | 2020 Annual Report



Review of Consolidated Results of Operations



% Change 2020 % Change 2019
Years Ended December 31, 2020 2019 2018 vs. 2019 vs. 2018
(in millions, except per share amounts)
Revenue:
US and Utilities SBU $ 3,918 $ 4,058 $ 4,230 -3 % -4 %
South America SBU 3,159 3,208 3,533 -2 % -9 %
MCAC SBU 1,766 1,882 1,728 -6 % 9 %
Eurasia SBU 828 1,047 1,255 -21 % -17 %
Corporate and Other 231 46 41 NM 12 %
Eliminations (242) (52) (51) NM 2 %
Total Revenue 9,660 10,189 10,736 -5 % -5 %
Operating Margin:
US and Utilities SBU 638 754 733 -15 % 3 %
South America SBU 1,243 873 1,017 42 % -14 %
MCAC SBU 559 487 534 15 % -9 %
Eurasia SBU 186 188 227 -1 % -17 %
Corporate and Other 120 39 58 NM -33 %
Eliminations (53) 8 4 NM 100 %
Total Operating Margin 2,693 2,349 2,573 15 % -9 %
General and administrative expenses (165) (196) (192) -16 % 2 %
Interest expense (1,038) (1,050) (1,056) -1 % -1 %
Interest income 268 318 310 -16 % 3 %
Loss on extinguishment of debt (186) (169) (188) 10 % -10 %
Other expense (53) (80) (58) -34 % 38 %
Other income 75 145 72 -48 % NM
Gain (loss) on disposal and sale of business
interests (95) 28 984 NM -97 %

Asset impairment expense (864) (185) (208) NM -11 %
Foreign currency transaction gains (losses) 55 (67) (72) NM -7 %
Other non-operating expense (202) (92) (147) NM -37 %
Income tax expense (216) (352) (708) -39 % -50 %
Net equity in earnings (losses) of affiliates (123) (172) 39 -28 % NM
INCOME FROM CONTINUING OPERATIONS 149 477 1,349 -69 % -65 %
Loss from operations of discontinued businesses,
net of income tax expense of $0, $0, and $2,
respectively - - (9) - % -100 %
Gain from disposal of discontinued businesses, net
of income tax expense of $0, $0, and $44,
respectively 3 1 225 NM -100 %
NET INCOME 152 478 1,565 -68 % -69 %

Less: Income from continuing operations
attributable to noncontrolling interests and
redeemable stock of subsidiaries (106) (175) (364) -39 % -52 %
Less: Loss from discontinued operations
attributable to noncontrolling interests - - 2 - % -100 %


NET INCOME ATTRIBUTABLE TO THE AES CORPORATION $ 46 $ 303


$ 1,203 -85 % -75 %


AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON
STOCKHOLDERS:
Income from continuing operations, net of tax $ 43 $ 302


$ 985 -86 % -69 %
Income from discontinued operations, net of tax 3 1 218 NM -100 %


NET INCOME ATTRIBUTABLE TO THE AES CORPORATION $ 46 $ 303


$ 1,203 -85 % -75 %


Net cash provided by operating activities $ 2,755 $ 2,466


$ 2,343 12 % 5 %


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 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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80 | 2020 Annual Report






Consolidated Revenue and Operating Margin
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Revenue
(in millions)

[[Image Removed: aes-20201231_g16.jpg]]
Consolidated Revenue - Revenue decreased $529 million, or 5%, in 2020 compared
to 2019. Excluding the unfavorable FX impact of $182 million, primarily in South
America
, this decrease was driven by:
•$229 million in Eurasia driven by the sale of the Northern Ireland businesses
in June 2019 and lower generation in Vietnam;
•$140 million in US and Utilities mainly driven by a decrease in energy
pass-through rates and lower demand due to the COVID-19 pandemic in El Salvador,
lower regulated rates as a result of the changes in DP&L's ESP, lower retail
sales demand at IPL and DPL primarily due to milder weather and COVID-19
pandemic impacts, and decreased capacity sales, at Southland due to unit
retirements, and at DPL due to the sale and closure of generation facilities.
These decreases were partially offset by increased capacity sales at Southland
Energy due to the commencement of the PPAs; and
•$88 million in MCAC mainly driven by lower generation and volume pass-through
fuel revenue in Mexico, the disconnection of the Estrella del Mar I power barge
from the grid in Panama, and lower market prices, spot sales and demand in both
the Dominican Republic and at the Colon combined cycle facility in Panama. These
decreases were partially offset by higher LNG sales in the Dominican Republic,
driven by the Eastern Pipeline COD in 2020.
These unfavorable impacts were partially offset by an increase of $115 million
in South America driven by revenue recognized at Angamos for the early
termination of contracts with Minera Escondida and Minera Spence and recovery of
previously expensed payments from customers in Chile, partially offset by drier
hydrology and lower generation in Colombia due to a life extension project being
performed at the Chivor hydro plant, lower pass-through coal prices, spot
prices, and lower generation in Chile, and lower energy and capacity prices
(Resolution 31/2020) in Argentina.


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81 | 2020 Annual Report



Operating Margin
(in millions)
[[Image Removed: aes-20201231_g17.jpg]]
Consolidated Operating Margin - Operating margin increased $344 million, or 15%,
in 2020 compared to 2019. Excluding the unfavorable impact of FX of $50 million,
primarily in South America, this increase was driven by:
•$423 million in South America primarily due to the drivers discussed above, as
well as a $184 million favorable revision to the GSF liability at Tietê related
to the passage of a regulation providing concession extensions to hydro plants
as compensation for prior period non-hydrological risk charges incorrectly
assessed by the regulator; and
•$72 million in MCAC mostly due to higher availability at Changuinola due to the
tunnel lining upgrade in 2019, improved hydrology in Panama, and higher LNG
sales in the Dominican Republic, partially offset by prior year insurance
recoveries associated with the lightning incident at the Andres facility in
2018, current year outage due to Andres steam turbine failure, and the
disconnection of the Estrella del Mar I power barge from the grid in Panama.
These favorable impacts were partially offset by a decrease of $116 million in
US and Utilities mostly due to lower regulated rates as a result of the changes
in DP&L's ESP, lower retail sales demand at DPL and IPL primarily due to milder
weather and COVID-19 pandemic impacts, lower capacity sales due to the
retirement of units at Southland, a favorable revision to the ARO at DPL, and
cost recoveries from DPL's joint owners of Stuart and Killen in 2019, partially
offset by increased capacity sales at Southland Energy due to the commencement
of the PPAs, and lower depreciation expense at Southland due to the extension of
the water board permits.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Revenue
(in millions)

[[Image Removed: aes-20201231_g18.jpg]]
Consolidated Revenue - Revenue decreased $547 million, or 5%, in 2019 compared
to 2018. Excluding the unfavorable FX impact of $133 million, primarily in South
America
, this decrease was driven by:
•$229 million in South America primarily driven by lower generation and prices
in Argentina and lower contract sales and generation in Chile;


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82 | 2020 Annual Report






•$173 million in Eurasia primarily due to the sales of the Masinloc power plant
in March 2018 and the Northern Ireland businesses in June 2019; and
•$172 million in US and Utilities primarily driven by the closure of generation
facilities at DPL in the first half of 2018 and Shady Point in May 2019, and
lower energy prices and sales due to higher temperatures and other favorable
market conditions present in 2018 as compared to 2019 at Southland, partially
offset by price increases due to the 2018 rate orders at IPL and DPL and an
increase in energy pass-through costs in El Salvador.
These unfavorable impacts were partially offset by an increase of $156 million
in MCAC driven by the commencement of operations at the Colon combined cycle
facility in Panama in September 2018.
Operating Margin
(in millions)
[[Image Removed: aes-20201231_g19.jpg]]
Consolidated Operating Margin - Operating margin decreased $224 million, or 9%,
in 2019 compared to 2018. Excluding the unfavorable impact of FX of $46 million,
primarily in South America, this decrease was driven by:
•$107 million in South America primarily due to the drivers discussed above;
•$46 million in MCAC due to the outage at Changuinola as a result of upgrading
the tunnel lining and lower hydrology in Panama as compared to the prior year,
partially offset by the business interruption insurance recoveries at the Andres
facility in Dominican Republic, higher contract sales at Panama, and the
commencement of operations at the Colon combined cycle facility in Panama; and
•$31 million in Eurasia primarily due to the drivers discussed above, partially
offset by lower depreciation at the Jordan plants due to their classification as
held-for-sale.
These unfavorable impacts were partially offset by a $21 million increase in US
and Utilities mostly driven by the 2018 rate orders at IPL and DPL, partially
offset by the lost margin from the sale and closure of generation facilities at
Shady Point and DPL, and increased rock ash disposal at Puerto Rico.
See Item 7.- Management's Discussion and Analysis of Financial Condition and
Results of Operations-SBU Performance Analysis of this Form 10-K for
additional discussion and analysis of operating results for each SBU.
Consolidated Results of Operations - Other
General and administrative expenses
General and administrative expenses include expenses related to corporate staff
functions and initiatives, executive management, finance, legal, human
resources, and information systems, as well as global development costs.
General and administrative expenses decreased $31 million, or 16%, to $165
million
for 2020 compared to $196 million for 2019, primarily due to a higher
reallocation of information technology costs to the SBUs and lower professional
fees, partially offset by higher development costs.
General and administrative expenses increased $4 million, or 2%, to $196 million
for 2019 compared to $192 million for 2018, with no material drivers.


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83 | 2020 Annual Report



Interest expense
Interest expense decreased $12 million, or 1%, to $1,038 million for 2020,
compared to $1,050 million for 2019 primarily due to incremental capitalized
interest in Chile and lower interest rates due to refinancing at the Parent
Company, partially offset by lower capitalized interest due to the commencement
of operations at the Alamitos and Huntington Beach facilities in February 2020.
Interest expense decreased $6 million, or 1%, to $1,050 million for 2019,
compared to $1,056 million for 2018 primarily due to the debt refinancing at the
Parent Company and DPL, and favorable foreign currency translation at AES
Brasil, partially offset by lower capitalized interest due to the commencement
of operations at Colon in September 2018, a decrease in AFUDC for the Eagle
Valley CCGT project at IPL, and the loss of hedge accounting at Alto Maipo in
2018, which resulted in favorable unrealized mark-to-market adjustments
recognized within interest expense.
Interest income
Interest income decreased $50 million, or 16%, to $268 million for 2020,
compared to $318 million for 2019 primarily to the decrease of the LIBOR rate on
receivables in Argentina, a lower loan receivable balance at Mong Duong, and a
lower average interest rate at AES Brasil.
Interest income increased $8 million, or 3%, to $318 million for 2019, compared
to $310 million for 2018 primarily in South America driven by a higher average
interest rate on CAMMESA receivables.
Loss on extinguishment of debt
Loss on extinguishment of debt increased $17 million, or 10%, to $186 million
for 2020, compared to $169 million for 2019. This increase was primarily due to
losses of $145 million and $34 million at the Parent Company and DPL,
respectively, resulting from the redemption of senior notes and a $16 million
loss resulting from the Panama refinancing in 2020. These increases were
partially offset by losses of $45 million at DPL, $31 million at Mong Duong, $29
million
at Gener, $28 million at Colon, and $24 million at Cochrane in 2019
resulting from the redemption or refinancing of senior notes.
Loss on extinguishment of debt decreased $19 million, or 10% to $169 million for
2019, compared to $188 million for 2018. This decrease was primarily due to
losses of $171 million at the Parent Company resulting from the redemption of
senior notes in 2018 compared to the 2019 losses discussed above.
See Note 11- Debt included in Item 8.- Financial Statements and
Supplementary Data of this Form 10-K for further information.
Other income
Other income decreased $70 million, or 48%, to $75 million for 2020, compared to
$145 million for 2019 primarily due to the prior year gains on insurance
recoveries associated with property damage at the Andres facility and upgrading
the tunnel lining at Changuinola, partially offset by the current year gain on
sale of Redondo Beach land at Southland.
Other income increased $73 million to $145 million for 2019, compared to $72
million
for 2018 primarily due to gains on insurance recoveries associated with
property damage at the Andres facility and upgrading the tunnel lining at
Changuinola. These increases were partially offset by a gain on remeasurement of
contingent liabilities for projects in Hawaii in 2018.
Other expense
Other expense decreased $27 million, or 34%, to $53 million for 2020, compared
to $80 million for 2019 primarily due to prior year losses recognized at
commencement of sales-type leases at Distributed Energy, the prior year loss on
disposal of assets at Changuinola associated with upgrading the tunnel lining,
and lower defined benefit plan costs at IPL in 2020, partially offset by a loss
on sale of Stabilization Fund receivables in Chile and compliance with an
arbitration decision in 2020.
Other expense increased $22 million, or 38% to $80 million for 2019, compared to
$58 million for 2018 primarily due to losses recognized at commencement of
sales-type leases at Distributed Energy and the loss on disposal of assets at
Changuinola associated with upgrading the tunnel lining in 2019. This was
partially offset by


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84 | 2020 Annual Report






the loss on disposal of assets resulting from damage associated with a lightning
incident at the Andres facility in the Dominican Republic in 2018.
See Note 21- Other Income and Expense included in Item 8.- Financial
Statements and Supplementary Data of this Form 10-K for further information.
Gain (loss) on disposal and sale of business interests
Loss on disposal and sale of business interests was $95 million for 2020,
primarily due to the loss on sale of Uruguaiana and the loss on the settlement
of the arbitration related to the sale of Kazakhstan HPPs, partially offset by
the gain on sale of OPGC; as compared to a gain of $28 million for 2019
primarily due to the gain on sale of a portion of our interest in sPower's
operating assets, the gain on the merger of Simple Energy to form Uplight, and
the gain on transfer of Stuart and Killen, partially offset by the loss on sale
of Kilroot and Ballylumford.
Gain on disposal and sale of business interests decreased to $28 million for
2019 as compared to $984 million for 2018, primarily due to the 2018 gains on
sale of Masinloc of $772 million, CTNG of $126 million, and Electrica Santiago
of $70 million.
See Note 25- Held-For-Sale and Dispositions and Note 8 - Investments in
and Advances to Affiliates included in Item 8.- Financial Statements and
Supplementary Data of this Form 10-K for further information.
Asset impairment expense
Asset impairment expense increased $679 million to $864 million for 2020,
compared to $185 million for 2019. This increase was primarily driven by a $781
million
impairment related to certain coal-fired plants at AES Gener and a $30
million
impairment of the Estrella del Mar I power barge in Panama, compared to
a $115 million prior year impairment at Kilroot and Ballylumford upon meeting
the held-for-sale criteria in 2019.
Asset impairment expense decreased $23 million, or 11%, to $185 million for
2019, compared to $208 million for 2018. This decrease was primarily driven by
$115 million as a result of an impairment analysis performed at Kilroot and
Ballylumford upon meeting the held-for-sale criteria in 2019 and $60 million at
Hawaii due to a decrease in the economic useful life of the coal-fired asset,
compared to 2018 impairments of $157 million at Shady Point due to an
unfavorable economic outlook creating uncertainty around future cash flows and
$37 million at Nejapa due to the landfill owner's failure to perform
improvements necessary to continue extracting gas.
See Note 22- Asset Impairment Expense included in Item 8.- Financial
Statements and Supplementary Data of this Form 10-K for further information.
Foreign currency transaction gains (losses)
Foreign currency transaction gains (losses) in millions were as follows:
Years Ended December 31, 2020 2019 2018
Argentina (1) $ 29 $ (73) $ (71)

Corporate 21 (1) 11

Other 5 7 (12)
Total (2) $ 55 $ (67) $ (72)



_____________________________



(1) Primarily associated with the peso-denominated energy receivable indexed to
the USD through the FONINVEMEM agreement which is considered a foreign currency
derivative. See Note 7- Financing Receivables included in Item 8.- Financial
Statements and Supplementary Data of this Form 10-K for further information.
(2) Includes gains of $57 million, losses of $31 million, and gains of $23
million
on foreign currency derivative contracts for the years ended December
31, 2020
, 2019 and 2018, respectively.
The Company recognized net foreign currency transaction gains of $55 million for
the year ended December 31, 2020, primarily driven by realized and unrealized
gains on foreign currency derivatives related to government receivables in
Argentina and unrealized gains at the Parent Company resulting from the
appreciation of intercompany receivables denominated in Euro.
The Company recognized net foreign currency transaction losses of $67 million
for the year ended December 31, 2019, primarily driven by unrealized losses on
foreign currency derivatives related to government receivables in Argentina and
unrealized losses associated with the devaluation of long-term receivables
denominated in the Argentine peso.


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85 | 2020 Annual Report






The Company recognized net foreign currency transaction losses of $72 million
for the year ended December 31, 2018, primarily due to the devaluation of
long-term receivables denominated in Argentine pesos, partially offset by gains
at the Parent Company related to foreign currency derivatives.
Other non-operating expense
Other non-operating expense was $202 million and $92 million in 2020 and 2019,
respectively, due to the other-than-temporary impairment of the OPGC equity
method investment. In December 2019, an other-than-temporary impairment of
$92 million was identified at OPGC primarily due to the estimated market value
of the Company's investment and other negative developments impacting future
expected cash flows at the investee. In March 2020, the Company recognized an
additional $43 million other-than-temporary impairment due to the economic
slowdown. In June 2020, the Company agreed to sell its entire stake in the OPGC
investment, resulting in an other-than-temporary impairment of $158 million.
Other non-operating expense was $147 million in 2018 primarily due to the $144
million
other-than-temporary impairment of the Guacolda equity method investment
as a result of increased renewable generation in Chile lowering energy prices
and impacting the ability of Guacolda to re-contract its existing PPAs after
they expire.
See Note 8- Investments in and Advances to Affiliates included in
Item 8.- Financial Statements and Supplementary Data of this Form 10-K for
further information.
Income tax expense
Income tax expense decreased $136 million to $216 million in 2020 as compared to
$352 million for 2019. The Company's effective tax rates were 44% and 35% for
the years ended December 31, 2020 and 2019.
The net increase in the 2020 effective tax rate was primarily due to the 2020
impacts of the other-than-temporary impairment of the OPGC equity method
investment and the loss on sale of the Company's entire interest in AES
Uruguaiana, partially offset by the recognition of a federal ITC for the Na Pua
Makani wind facility in Hawaii. Further, the 2019 rate was impacted by the items
described below. See Note 25- Held-for-Sale and Dispositions included in
Item 8.- Financial Statements and Supplementary Data of this Form 10-K for
details of the sales.
Income tax expense decreased $356 million to $352 million in 2019 as compared to
$708 million for 2018. The Company's effective tax rate was 35% for both years
ended December 31, 2019 and 2018.
The 2019 effective tax rate was impacted by the nondeductible losses on the sale
of the Company's entire 100% interest in the Kilroot coal and oil-fired plant
and energy storage facility and the Ballylumford gas-fired plant in the United
Kingdom
and associated asset impairments. Further impacting the 2019 effective
tax rate were the effects of the Argentine peso devaluation to tax expense, as
well as to pretax income for nondeductible unrealized losses on foreign currency
derivatives related to government receivables in Argentina. The 2018 effective
tax rate was impacted by the increase in the Staff Accounting Bulletin No.118
("SAB 118") adjustment with respect to the estimate of the one-time transition
tax and deferred tax remeasurement under the TCJA. This impact was partially
offset by the impact of the sale of the Company's entire 51% equity interest in
Masinloc. See Note 25- Held-for-Sale and Dispositions included in
Item 8.- Financial Statements and Supplementary Data of this Form 10-K for
details of the sales.
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. Foreign earnings may be taxed at rates higher than the U.S. corporate rate
of 21% and are also subject to current U.S. taxation under the GILTI rules
introduced by the TCJA. 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. The Company also benefits from reduced
tax rates in certain countries as a result of satisfying specific commitments
regarding employment and capital investment. See Note 23- Income Taxes
included in Item 8.- Financial Statements and Supplementary Data of this Form
10-K for addition information regarding these reduced rates.
Net equity in earnings (losses) of affiliates
Net equity in losses of affiliates decreased $49 million, or 28%, to $123
million
in 2020, compared to $172 million in 2019. This was primarily driven by
a $31 million increase in earnings due to lower long-lived asset impairments at
Guacolda, Gener's 50%-owned equity affiliate, during 2020 as compared to 2019.
Net equity in earnings of affiliates decreased $211 million to losses of $172
million
in 2019, compared to earnings of $39 million in 2018. This was primarily
driven by a $158 million decrease in earnings due to a long-lived


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86 | 2020 Annual Report






asset impairment at Guacolda, a $19 million decrease in earnings at OPGC due to
a contract termination charge, and a $20 million decrease in earnings at sPower
due to the impairment of certain development projects.
See Note 8- Investments In and Advances to Affiliates included in
Item 8.- Financial Statements and Supplementary Data of this Form 10-K for
further information.
Net income from discontinued operations
Net income from discontinued operations was $3 million and $1 million for the
years ended December 31, 2020 and 2019, respectively, with no material drivers.
Net income from discontinued operations was $216 million for the year ended
December 31, 2018 primarily due to the after-tax gain on sale of Eletropaulo of
$199 million recognized in the second quarter of 2018 and the recognition of a
$26 million deferred gain upon liquidation of Borsod in October 2018.
See Note 24- Discontinued Operations included in Item 8.- Financial
Statements and Supplementary Data of this Form 10-K 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 decreased $69 million, or 39%, to $106 million in 2020, compared to
$175 million in 2019. This decrease was primarily due to:
•Lower earnings in Chile due to long-lived asset impairments at Gener, partially
offset by net gains from early contract terminations at Angamos and lower
interest expense due to incremental capitalized interest;
•Lower earnings in Colombia due to drier hydrology and a life extension project
at the Chivor hydroelectric plant;
•Prior year insurance recoveries net of outages at Andres; and
•HLBV allocation of losses to noncontrolling interests at Distributed Energy.
These increases were partially offset by:
•Higher earnings in Brazil due to the favorable revision of the GSF liability;
and
•Prior year losses on extinguishment of debt at Mong Duong and Colon.
Net income attributable to noncontrolling interests and redeemable stock of
subsidiaries decreased $187 million, or 52%, to $175 million in 2019, compared
to $362 million in 2018. This decrease was primarily due to:
•Gains on sales of Electrica Santiago and CTNG in Chile in 2018;
•Lower earnings in Chile in 2019 primarily due to long-lived asset impairment at
Guacolda, losses on extinguishment of debt, and lower contracted energy sales
and prices;
•HLBV allocation of losses to noncontrolling interests at Distributed Energy as
a result of renewable projects reaching COD in 2019; and
•Lower earnings in Panama in 2019 primarily due to lower hydrology and the
outage at Changuinola as a result of upgrading the tunnel lining.
These decreases were partially offset by:
•Other-than-temporary impairment of Guacolda in 2018.
Net income attributable to The AES Corporation
Net income attributable to The AES Corporation decreased $257 million, or 85%,
to $46 million in 2020, compared to $303 million in 2019. This decrease was
primarily due to:
•Long-lived asset impairments at Gener and Panama;
•Net impact of current and prior year other-than-temporary impairments of OPGC;
•Higher losses on extinguishment of debt in the current year, primarily due to
major refinancings at the Parent Company;
•Lower margins at our US and Utilities SBU;


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87 | 2020 Annual Report






•Losses on sale of Uruguaiana and the Kazakhstan HPPs as a result of the final
arbitration decision; and
•Prior year net insurance recoveries at Andres.
These decreases were partially offset by:
•Prior year long-lived asset impairments at Kilroot and Ballylumford;
•Net impact of current and prior year long-lived asset impairments at Guacolda;
•Prior year unrealized losses on foreign currency derivatives related to
government receivables in Argentina;
•Higher margins at our South America and MCAC SBUs;
•Lower income tax expense;
•Lower interest expense due to incremental capitalized interest in Chile; and
•Gain on sale of land held by AES Redondo Beach at Southland.
Net income attributable to The AES Corporation decreased $900 million, or 75% to
$303 million in 2019, compared to $1,203 million in 2018. This decrease was
primarily due to:
•Gains on the sales of Masinloc, Eletropaulo (reflected within discontinued
operations), CTNG and Electrica Santiago in 2018, net of tax;
•Long-lived asset impairments at Guacolda, Hawaii, Kilroot and Ballylumford, and
other-than-temporary impairment at OPGC in 2019;
•Loss on sale at Kilroot and Ballylumford in 2019;
•Losses on extinguishment of debt at DPL, AES Gener, Mong Duong, and Colon in
2019;
•Losses recognized at commencement of sales-type leases at Distributed Energy in
2019;
•The impact of sold businesses in our Eurasia SBU;
•Lower margins at Argentina and Chile in 2019, primarily due to lower
generation; and
•Lower margins at Changuinola in 2019, driven by the outage as a result of
upgrading the tunnel lining and lower hydrology in Panama.
These decreases were partially offset by:
•Income tax expense in 2018 to finalize the initial impact of U.S. tax reform
enacted in December 2017;
•Loss on extinguishment of debt at the Parent Company in 2018;
•Long-lived asset impairments at Shady Point and Nejapa, and
other-than-temporary impairment at Guacolda in 2018;
•Gains on insurance proceeds in 2019, associated with the lightning incident at
the Andres facility in 2018 and the Changuinola tunnel leak;
•Gain on sale of a portion of our interest in sPower's operating assets and gain
on disposal of Stuart and Killen at DPL in 2019; and
•Higher earnings at our US and Utilities SBU in 2019, primarily as a result of
renewable projects that came online.
SBU Performance Analysis
Segments
We are organized into 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).
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
Consolidated Financial Statements such as investors, industry analysts and
lenders.


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88 | 2020 Annual Report






For 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.
For the year ended December 31, 2019, the Company changed the definitions of
Adjusted PTC and Adjusted EPS to exclude gains and losses recognized at
commencement of sales-type leases. We believe these transactions are
economically similar to sales of business interests and excluding these gains or
losses better reflects the underlying business performance of the Company.
Adjusted Operating Margin
We define Adjusted Operating Margin as Operating Margin, adjusted for the impact
of NCI, excluding (a) unrealized gains or losses related to derivative
transactions; (b) benefits and costs associated with dispositions and
acquisitions of business interests, including early plant closures; (c) costs
directly associated with a major restructuring program, including, but not
limited to, workforce reduction efforts, relocations, and office consolidation;
and (d) 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 definitions of Operating Margin and cost of sales.
The GAAP measure most comparable to Adjusted Operating Margin is Operating
Margin. We believe that Adjusted Operating Margin better reflects the underlying
business performance of the Company. Factors in this determination include the
impact of NCI, where AES consolidates the results of a subsidiary that is not
wholly owned by the Company, as well as the variability due to unrealized gains
or losses related to derivative transactions and strategic decisions to dispose
of or acquire business interests. Adjusted Operating Margin should not be
construed as an alternative to Operating Margin, which is determined in
accordance with GAAP.
Reconciliation of Adjusted Operating Margin (in millions) Years Ended December 31,
2020 2019 2018
Operating Margin $ 2,693 $ 2,349 $ 2,573
Noncontrolling interests adjustment (1) (831) (670) (686)
Unrealized derivative losses 24 11 19
Disposition/acquisition losses 24 15 21
Net gains from early contract terminations at Angamos (182) - -
Restructuring costs (2) - - 1
Total Adjusted Operating Margin $ 1,728 $ 1,705 $ 1,928



_____________________________



(1)The allocation of HLBV earnings to noncontrolling interests is not adjusted
out of Adjusted Operating Margin.
(2)In February 2018, the Company announced a reorganization as a part of its
ongoing strategy to simplify its portfolio, optimize its cost structure and
reduce its carbon intensity.
[[Image Removed: aes-20201231_g20.jpg]]



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89 | 2020 Annual Report



Adjusted PTC
We define Adjusted PTC as pre-tax income from continuing operations attributable
to The AES Corporation excluding gains or losses of the consolidated entity due
to (a) unrealized gains or losses related to derivative transactions and equity
securities; (b) unrealized foreign currency gains or losses; (c) gains, losses,
benefits and costs associated with dispositions and acquisitions of business
interests, including early plant closures, and gains and losses recognized at
commencement of sales-type leases; (d) losses due to impairments; (e) gains,
losses and costs due to the early retirement of debt; (f) costs directly
associated with a major restructuring program, including, but not limited to,
workforce reduction efforts, relocations, and office consolidation; and (g) 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 Consolidated
Statement of Operations, 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, retire debt or implement restructuring initiatives, and the
non-recurring nature of the impact of the early contract terminations at
Angamos, which affect results in a given period or periods. In addition,
Adjusted PTC 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 The AES Corporation, which is determined in
accordance with GAAP.
Reconciliation of Adjusted PTC (in millions)


Years Ended December 31,



2020 2019 2018


Income (loss) from continuing operations, net of tax, attributable $ 43


$ 302 $ 985
to The AES Corporation
Income tax expense attributable to The AES Corporation 130 250 563
Pre-tax contribution 173 552 1,548
Unrealized derivative and equity securities losses 3 113 33
Unrealized foreign currency losses (gains) (10) 36 51
Disposition/acquisition losses (gains) 112 12 (934)
Impairment losses 928 406 307
Loss on extinguishment of debt 223 121 180
Net gains from early contract terminations at Angamos (182) - -

Total Adjusted PTC $ 1,247 $ 1,240 $ 1,185




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90 | 2020 Annual Report



[[Image Removed: aes-20201231_g21.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, the tax impact from the repatriation of sales proceeds, and gains and
losses recognized at commencement of sales-type leases; (d) losses due to
impairments; (e) gains, losses and costs due to the early retirement of debt;
(f) costs directly associated with a major restructuring program, including, but
not limited to, workforce reduction efforts, relocations and office
consolidation; (g) net gains at Angamos, one of our businesses in the South
America SBU, associated with the early contract terminations with Minera
Escondida and Minera Spence; and (h) 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, retire debt or implement
restructuring initiatives, 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.


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



91 | 2020 Annual Report






Reconciliation of Adjusted EPS


Years Ended December 31,



2020 2019 2018


Diluted earnings (loss) per share from continuing operations $ 0.06


$ 0.45 $ 1.48
Unrealized derivative and equity securities losses 0.01 0.17 (1) 0.05
Unrealized foreign currency losses (gains) (0.01) 0.05 (2) 0.09 (3)
Disposition/acquisition losses (gains) 0.17 (4) 0.02 (5) (1.41) (6)
Impairment losses 1.39 (7) 0.61 (8) 0.46 (9)
Loss on extinguishment of debt


0.33 (10) 0.18 (11) 0.27 (12)
Net gains from early contract terminations at Angamos


(0.27) (13) - -

U.S. Tax Law Reform Impact 0.02 (14) (0.01) 0.18 (15)
Less: Net income tax expense (benefit) (0.26) (16) (0.11) (17) 0.12 (18)
Adjusted EPS $ 1.44 $ 1.36 $ 1.24



_____________________________



(1)Amount primarily relates to unrealized derivative losses in Argentina of $89
million
, or $0.13 per share, mainly associated with foreign currency derivatives
on government receivables.
(2)Amount primarily relates to unrealized FX losses in Argentina of $25 million,
or $0.04 per share, mainly associated with the devaluation of long-term
receivables denominated in Argentine pesos, and unrealized FX losses at the
Parent Company of $12 million, or $0.02 per share, mainly associated with
intercompany receivables denominated in Euro.
(3)Amount primarily relates to unrealized FX losses of $22 million, or $0.03 per
share, associated with the devaluation of long-term receivables denominated in
Argentine pesos, and unrealized FX losses of $14 million, or $0.02 per share, on
intercompany receivables denominated in Euro and British pounds at the Parent
Company.
(4)Amount primarily relates to loss on sale of Uruguaiana of $85 million, or
$0.13 per share, loss on sale of the Kazakhstan HPPs of $30 million, or $0.05
per share, as a result of the final arbitration decision, and advisor fees
associated with the successful acquisition of additional ownership interest in
AES Brasil of $9 million, or $0.01 per share; partially offset by gain on sale
of OPGC of $23 million, or $0.03 per share.
(5)Amount primarily relates to losses recognized at commencement of sales-type
leases at Distributed Energy of $36 million, or $0.05 per share, and loss on
sale of Kilroot and Ballylumford of $31 million, or $0.05 per share; partially
offset by gain on sale of a portion of our interest in sPower's operating assets
of $28 million, or $0.04 per share, gain on disposal of Stuart and Killen at DPL
of $20 million, or $0.03 per share, and gain on sale of ownership interest in
Simple Energy as part of the Uplight merger of $12 million, or $0.02 per share.
(6)Amount primarily relates to gain on sale of Masinloc of $772 million, or
$1.16 per share, gain on sale of CTNG of $86 million, or $0.13 per share, gain
on sale of Electrica Santiago of $36 million, or $0.05 per share, gain on
remeasurement of contingent consideration at AES Oahu of $32 million, or $0.05
per share, gain on sale related to the Company's contribution of AES Advancion
energy storage to the Fluence joint venture of $23 million, or $0.03 per share,
and realized derivative gains associated with the sale of Eletropaulo of $21
million
, or $0.03 per share; partially offset by loss on disposal of the
Beckjord facility and additional shutdown costs related to Stuart and Killen at
DPL of $21 million, or $0.03 per share.
(7)Amount primarily relates to asset impairments at Gener of $527 million, or
$0.79 per share, other-than-temporary impairment of OPGC of $201 million, or
$0.30 per share, impairments at our Guacolda and sPower equity affiliates,
impacting equity earnings by $85 million, or $0.13 per share, and $57 million,
or $0.09 per share, respectively; impairment at Hawaii of $38 million, or $0.06
per share, and impairment at Panama of $15 million, or $0.02 per share.
(8)Amount primarily relates to asset impairments at Kilroot and Ballylumford of
$115 million, or $0.17 per share, and Hawaii of $60 million, or $0.09 per share;
impairments at our Guacolda and sPower equity affiliates, impacting equity
earnings by $105 million, or $0.16 per share, and $21 million, or $0.03 per
share, respectively; and other-than-temporary impairment of OPGC of $92 million,
or $0.14 per share.
(9)Amount primarily relates to asset impairments at Shady Point of $157 million,
or $0.24 per share, and Nejapa of $37 million, or $0.06 per share, and
other-than-temporary impairment of Guacolda of $96 million, or $0.14 per share.
(10)Amount primarily relates to losses on early retirement of debt at the Parent
Company of $146 million, or $0.22 per share, DPL of $32 million, or $0.05 per
share, Angamos of $17 million, or $0.02 per share, and Panama of $11 million, or
$0.02 per share.
(11)Amount primarily relates to losses on early retirement of debt at DPL of $45
million
, or $0.07 per share, AES Gener of $35 million, or $0.05 per share, Mong
Duong
of $17 million, or $0.03 per share, and Colon of $14 million, or $0.02 per
share.
(12)Amount primarily relates to loss on early retirement of debt at the Parent
Company of $171 million, or $0.26 per share.
(13)Amount relates to net gains at Angamos associated with the early contract
terminations with Minera Escondida and Minera Spence of $182 million, or $0.27
per share.
(14)Amount represents adjustment to tax law reform remeasurement due to
incremental deferred taxes related to DPL of $16 million, or $0.02 per share.
(15)Amount relates to a SAB 118 charge to finalize the provisional estimate of
one-time transition tax on foreign earnings of $194 million, or $0.29 per share,
partially offset by a SAB 118 income tax benefit to finalize the provisional
estimate of remeasurement of deferred tax assets and liabilities to the lower
corporate tax rate of $77 million, or $0.11 per share.
(16)Amount primarily relates to income tax benefits associated with the
impairments at Gener and Guacolda of $164 million, or $0.25 per share, and
income tax benefits associated with losses on early retirement of debt at the
Parent Company of $31 million, or $0.05 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 $49 million, or $0.07
per share.
(17)Amount primarily relates to the income tax benefits associated with the
impairments at OPGC of $23 million, or $0.03 per share, Guacolda of $13 million,
or $0.02 per share, Hawaii of $13 million, or $0.02 per share, and Kilroot and
Ballylumford of $11 million, or $0.02 per share, and income tax benefits
associated with losses on early retirement of debt of $24 million, or $0.04 per
share; partially offset by an adjustment to income tax expense related to 2018
gains on sales of business interests, primarily Masinloc, of $25 million, or
$0.04 per share.
(18)Amount primarily relates to the income tax expense under the GILTI provision
associated with the gains on sales of business interests, primarily Masinloc, of
$97 million, or $0.15 per share, and income tax expense associated with gains on
sale of CTNG of $36 million, or $0.05 per share, and Electrica Santiago of $13
million
, or $0.02 per share; partially offset by income tax benefits associated
with the loss on early retirement of debt at the Parent Company of $36 million,
or $0.05 per share, and income tax benefits associated with the impairment at
Shady Point of $33 million, or $0.05 per share.


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92 | 2020 Annual Report



US and Utilities SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and
Adjusted PTC (in millions) for the periods indicated:
$ Change
For the Years Ended 2020 vs. % Change 2020 $ Change 2019 % Change 2019
December 31, 2020 2019 2018 2019 vs. 2019 vs. 2018 vs. 2018
Operating Margin $ 638 $ 754 $ 733 $ (116) -15 % $ 21 3 %
Adjusted Operating Margin
(1) 577 659 678 (82) -12 % (19) -3 %
Adjusted PTC (1) 505 569 511 (64) -11 % 58 11 %



_____________________________



(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
for the respective ownership interest for key businesses.
Fiscal year 2020 versus 2019
Operating Margin decreased $116 million, or 15%, which was driven primarily by
the following (in millions):
Decrease at DPL due to lower regulated retail margin primarily due to changes to $ (63)
DP&L's ESP and lower volumes mainly from milder weather
Decrease due to the sale and closure of generation facilities at DPL, including a
credit to depreciation expense in 2019 as a result of a reduction to an ARO


(50)



liability and cost recoveries from DPL's joint owners of Stuart and Killen in the
prior year
Decrease at Southland driven by higher losses from commodity derivatives and
lower capacity sales due to unit retirements, partially offset by lower


(47)



depreciation expense
Decrease at IPL primarily due to lower retail margin driven by lower volumes from
milder weather and lower demand from the impact of COVID-19, partially offset by (36)
lower maintenance expense from scheduled plant outages
Decrease at Hawaii primarily driven by lower availability due to increasing
forced outages and higher expenses related to the shortened useful life of the (20)
coal plant


Increase at Southland Energy due to the CCGT units beginning commercial



113



operations during Q1 2020
Other


(13)



Total US and Utilities SBU Operating Margin Decrease


$ (116)





Adjusted Operating Margin decreased $82 million primarily due to the drivers
above, adjusted for NCI and excluding unrealized gains and losses on derivatives
and costs associated with dispositions of business interests.
Adjusted PTC decreased $64 million, primarily driven by the decrease in Adjusted
Operating Margin described above and increased interest expense primarily at
Southland Energy due to lower capitalized interest following completion of the
CCGT units and new debt issuances, partially offset by a gain on sale of land
held by AES Redondo Beach at Southland, lower pension expense at IPL, and an
increase in allocation of earnings from equity affiliates driven by renewable
projects that came online in 2020 at sPower.
Fiscal year 2019 versus 2018
Operating Margin increased $21 million, or 3%, which was driven primarily by the
following (in millions):
Increase at IPL primarily driven by higher retail rates following the 2018 rate
order, partially offset by lower volumes due to unfavorable weather and higher $ 59
maintenance expense related to distribution line clearance
Increase at DPL due to the 2018 distribution rate order, including the decoupling
rider which is designed to eliminate the impacts of weather and demand, partially 22
offset by changes to DPL's ESP
Decrease due to the sale and closure of generation facilities at Shady Point and (47)
DPL, including cost recoveries from DPL's joint owners of Stuart and Killen
Decrease in Puerto Rico mainly driven by an increase of rock ash disposal (23)
Other 10
Total US and Utilities SBU Operating Margin Increase


$ 21





Adjusted Operating Margin decreased $19 million primarily due to the drivers
above, adjusted for NCI and excluding unrealized gains and losses on derivatives
and costs and benefits associated with early plant closures.
Adjusted PTC increased $58 million, primarily driven by an increase in earnings
attributable to AES as a result of contributions from new renewable projects and
lower interest expense at DPL, partially offset by the decrease in Adjusted
Operating Margin described above and a decrease in AFUDC for the Eagle Valley
CCGT project at IPL.


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93 | 2020 Annual Report



South America SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and
Adjusted PTC (in millions) for the periods indicated:
$ Change
For the Years Ended $ Change 2020 % Change 2020 2019 vs. % Change 2019
December 31, 2020 2019 2018 vs. 2019 vs. 2019 2018 vs. 2018
Operating Margin $ 1,243 $ 873 $ 1,017 $ 370 42 % $ (144) -14 %
Adjusted Operating Margin
(1) 550 499 612 51 10 % (113) -18 %
Adjusted PTC (1) 534 504 519 30 6 % (15) -3 %



_____________________________



(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
for the respective ownership interest for key businesses. In addition, AES owned
24.35% of AES Brasil until August 2020 when ownership increased to 42.85%, and
increased again to 44.13% in December 2020 due to acquisition of additional
shares in the company.
Fiscal year 2020 versus 2019
Operating Margin increased $370 million, or 42%, which was driven primarily by
the following (in millions):
Increase in Chile primarily related to early contract terminations at Angamos $ 302
Increase in Brazil mainly due to a reduction in cost of sales as a result of a
revision to the GSF liability, partially offset by depreciation of the Brazilian 140
real against the USD
Recovery of previously expensed payments from customers in Chile


57



Lower reservoir levels as a result of the life extension project at Chivor during (108)
Q1 2020 and drier hydrology in Colombia
Lower
capacity prices (Resolution 31/2020) in Argentina partially offset by the (21)
impact of new wind projects beginning commercial operations in 2020

Total South America SBU Operating Margin Increase


$ 370





Adjusted Operating Margin increased $51 million primarily due to the drivers
above, adjusted for NCI and the net gains on early contract terminations at
Angamos.
Adjusted PTC increased $30 million, mainly driven by the increase in Adjusted
Operating Margin described above, as well as lower interest expense due to
incremental capitalized interest at Alto Maipo. These positive impacts were
partially offset by realized FX losses and lower interest income primarily
driven by lower interest rates on CAMMESA receivables in Argentina, and higher
interest expense in Brazil due to higher inflation rates.
Fiscal year 2019 versus 2018
Operating Margin decreased $144 million, or 14%, which was driven primarily by
the following (in millions):
Decrease in Argentina primarily driven by lower generation and lower energy and
capacity prices as defined by resolution 1/2019, which modified generators' $ (59)
remuneration schemes
Decrease due to the depreciation of the Colombian peso and Brazilian real against
the USD, offset by savings in fixed costs as a result of the depreciation of the (38)
Argentine peso
Decrease in Chile primarily due to lower contracted energy sales and lower
efficient plant availability, partially offset by lower spot prices on energy (30)
purchases
Decrease due to the sale of Electrica Santiago and the transmission lines in 2018 (21)
Decrease in Chile primarily due to higher fixed costs associated with IT
initiatives and realized FX losses related to forward instruments, partially (11)
offset by savings on employee expenses
Decrease in Brazil primarily driven by lower spot sales and prices, partially (10)
offset by higher contracted energy sales
Increase in Colombia due to higher spot prices primarily driven by drier system 30
hydrology
Increase in Brazil due to new solar plants in operation 10
Other


(15)



Total South America SBU Operating Margin Decrease


$ (144)





Adjusted Operating Margin decreased $113 million primarily due to the drivers
above, adjusted for NCI.
Adjusted PTC decreased $15 million, mainly driven by the decrease in Adjusted
Operating Margin described above, partially offset by realized FX gains in
Argentina and Chile in 2019 as compared to losses in 2018, and higher equity
earnings in 2019 related to better operating results at Guacolda.


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94 | 2020 Annual Report



MCAC SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and
Adjusted PTC (in millions) for the periods indicated:
For the Years Ended $ Change 2020 % Change 2020 $ Change 2019 % Change 2019
December 31, 2020 2019 2018 vs. 2019 vs. 2019 vs. 2018 vs. 2018
Operating Margin $ 559 $ 487 $ 534 $ 72 15 % $ (47) -9 %
Adjusted Operating Margin
(1) 394 352 391 42 12 % (39) -10 %
Adjusted PTC (1) 287 367 300 (80) -22 % 67 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
for the respective ownership interest for key businesses.
Fiscal year 2020 versus 2019
Operating Margin increased $72 million, or 15%, which was driven primarily by
the following (in millions):
Higher availability in Panama mainly due to the outage of Changuinola in 2019 for $ 63
the tunnel lining upgrade
Increase in Panama driven by improved hydrology resulting in higher net spot 43
market sales
Increase in Dominican Republic due to higher LNG sales margin driven by the 27
Eastern Pipeline COD in 2020
Increase in Panama mainly driven by higher availability and capacity tank revenue
and lower fixed costs, partially offset by lower energy sales margin at the Colon 9
combined cycle plant
Decrease in Dominican Republic related to Andres facility due to steam turbine (49)
failure in 2020 and business interruption insurance recovered in 2019
Decrease in Panama driven by lower margin at the Estrella de Mar I power barge (26)
mainly due to disconnection from the grid in August 2020
Other 5
Total MCAC SBU Operating Margin Increase


$ 72





Adjusted Operating Margin increased $42 million primarily due to the drivers
above, adjusted for NCI.
Adjusted PTC decreased $80 million, mainly driven by insurance recoveries
associated with property damage at Andres and Changuinola in 2019, partially
offset by the increase in Adjusted Operating Margin described above.
Fiscal year 2019 versus 2018
Operating Margin decreased $47 million, or 9%, which was driven primarily by the
following (in millions):
Lower availability due to the outage of Changuinola for the tunnel lining upgrade $ (123)
Lower availability driven by lower hydrology in Panama


(40)



Decrease in Dominican Republic due to lower energy prices


(18)



Lower energy costs and business interruption insurance recovered due to the



45



lightning incident at the Andres facility in 2018
Higher contract sales at Panama mainly driven by contract renewals at higher 41
prices
Higher sales at Panama driven by the commencement of operations at the Colon 40
combined cycle facility in September 2018
Increase in Mexico due to pension plan pass-through adjustment


12



Other


(4)



Total MCAC SBU Operating Margin Decrease


$ (47)





Adjusted Operating Margin decreased $39 million primarily due to the drivers
above, adjusted for NCI.
Adjusted PTC increased $67 million, mainly driven by the insurance recoveries
associated with property damage at Andres and Changuinola, partially offset by a
decrease in Adjusted Operating Margin described above.


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95 | 2020 Annual Report



Eurasia SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and
Adjusted PTC (in millions) for the periods indicated:
For the Years Ended $ Change 2020 % Change 2020 $ Change 2019 % Change 2019
December 31, 2020 2019 2018 vs. 2019 vs. 2019 vs. 2018 vs. 2018
Operating Margin $ 186 $ 188 $ 227 $ (2) -1 % $ (39) -17 %
Adjusted Operating Margin
(1) 142 148 194 (6) -4 % (46) -24 %
Adjusted PTC (1) 177 159 222 18 11 % (63) -28 %



_____________________________



(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
for the respective ownership interest for key businesses.
Fiscal year 2020 versus 2019
Operating Margin decreased $2 million, or 1%, which was driven primarily by the
following (in millions):


Impact of the sale of Kilroot and Ballylumford businesses in June 2019



(6)



Other


4



Total Eurasia SBU Operating Margin Decrease


$ (2)





Adjusted Operating Margin decreased $6 million due to the drivers above,
adjusted for NCI.
Adjusted PTC increased $18 million, mainly driven by lower interest expense due
to regular debt repayments in Bulgaria and a positive variance in OPGC equity
earnings, partially offset by the decrease in Adjusted Operating Margin
described above.
Fiscal year 2019 versus 2018
Operating Margin decreased $39 million, or 17%, which was driven primarily by
the following (in millions):
Impact of the sale of Kilroot and Ballylumford businesses in June 2019 $ (46)
Impact of the sale of the Masinloc power plant in March 2018


(24)



Lower depreciation at the Jordan plants due to their classification as
held-for-sale 20

Other 11
Total Eurasia SBU Operating Margin Decrease


$ (39)





Adjusted Operating Margin decreased $46 million, primarily due to the drivers
above, adjusted for NCI.
Adjusted PTC decreased $63 million, primarily driven by the decrease in Adjusted
Operating Margin discussed above, as well as a decrease in earnings at OPGC and
the sale of Elsta, our equity affiliate in the Netherlands.
Key Trends and Uncertainties
During 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 this 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 this 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


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supply contracts or PPAs at our generation businesses, which contributes to a
relatively stable revenue and cost structure at most of our businesses. 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 half of 2020. Across our global portfolio,
our utilities businesses experienced a low single digit percentage decline in
the fourth quarter. Our business model outside of utilities is primarily based
on take-or-pay contracts or tolling agreements, with limited exposure to demand.
Any uncontracted portion of our generation business is exposed to increased
price risk resulting from lower demand associated with the pandemic. We are also
experiencing a decline in electricity spot prices in some of our markets due to
lower system demand. While we cannot predict the length and magnitude of the
pandemic or how it could impact global economic conditions, a delayed recovery
with respect to demand may adversely impact our financial results for 2021.
We continue to monitor and manage our credit exposures in a prudent manner. Our
credit exposures have continued in-line with historical levels and within the
customary 45-60 day grace period. These impacts are expected to be partially
offset by recoveries through U.S. regulatory rate-making mechanisms and a
combination of the securitization of customer payment moratorium receivables and
agreements with the generating companies in El Salvador. We have not experienced
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.
The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was passed by
the U.S. Congress and signed into law on March 27, 2020. While we currently
expect a limited impact from this legislation on our business, certain elements
such as changes in the deductibility of interest may provide some cash benefits
in the near term.
Additionally, the Company continues to monitor the potential impact of the
COVID-19 pandemic on our financial results and operations, which may result in
the need to record a valuation allowance against deferred tax assets in the
jurisdictions where we operate.
Macroeconomic and Political
The macroeconomic and political environments in some countries where our
subsidiaries conduct business have changed during 2020. This could result in
significant impacts to tax laws and environmental and energy policies.
Additionally, we operate in multiple countries and as such are subject to
volatility in exchange rates at the subsidiary level. See Item
7A.- Quantitative and Qualitative Disclosures About Market Risk for further
information.
Argentina - In the run up to the 2019 Presidential elections, the Argentine peso
devalued significantly and the government of Argentina imposed capital controls
and announced a restructuring of Argentina's debt payments. Restrictions on the
flow of capital have limited the availability of international credit, and
economic conditions in Argentina have further deteriorated, triggering
additional devaluation of the Argentine peso and a deterioration of the
country's risk profile. Following the election of Alberto Fernández in October
2019
, the administration has been evaluating solutions to the Argentine economic
crisis. On February 27, 2020, the Secretariat of Energy passed Resolution No.
31/2020 that includes the denomination of tariffs in local currency indexed by
local inflation (currently delayed due to the COVID-19 pandemic), and reductions
in capacity payments received by generators. These regulatory changes have
negatively impacted our financial results. In addition, Argentina restructured
its public debt in 2020 through an agreement with its international creditors.
Although the situation in Argentina remains challenging, it has not had a
material impact on our current exposures to date, and payments on the long-term
receivables for the FONINVEMEM Agreements are current. For further information,
see Note 7- Financing Receivables in Item 8.- Financial Statements and
Supplementary Data of this Form 10-K.
Chile - In October 2019, Chile saw significant protests associated with economic
conditions resulting in the declaration of a state of emergency in several major
cities. In response to the social unrest, the Chilean government held a
referendum in October 2020, which determined that a new constitution will be
drafted by a constitutional convention. A second vote will be held alongside
municipal and gubernatorial elections in April 2021 to elect the members of the
constitutional convention. A third vote, which is expected to occur in 2022,
would accept or reject the new constitution after it is drafted. Other
initiatives to address the concerns of the protesters are under consideration by
Congress and could result in regulatory or policy changes that may affect our
results of operations in Chile.


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In November 2019, the Chilean government enacted Law 21,185 that establishes a
Stabilization Fund for regulated energy prices. Historically, the government
updated the prices for regulated energy contracts every six months to reflect
the indexation the contracts have to exchange rates and commodities prices. The
new law freezes regulated prices and does not allow the pass-through of these
contractual indexation updates to customers beyond the pricing in effect at July
1, 2019
, until new lower-cost renewable contracts are incorporated into pricing
in 2023. Consequently, costs incurred in excess of the July 1, 2019 price will
be accumulated and borne by generators. The receivables will be paid by
distribution companies and the face value will be recognized by a Tariff Decree
issued by the regulator every six months. On December 31, 2020, AES Gener
executed an agreement for the sale of $105 million of receivables generated
pursuant the Tariff Stabilization Law at a discount of $20 million. Of the $85
million
of net receivables outstanding pursuant the Tariff Stabilization Law,
$23 million were collected by AES Gener in February 2021.
Puerto Rico - Our subsidiaries in Puerto Rico have long-term PPAs with
state-owned PREPA, which has been facing economic challenges that could result
in a material adverse effect on our business in Puerto Rico.
The Puerto Rico Oversight, Management, and Economic Stability Act ("PROMESA")
was enacted to create a structure for exercising federal oversight over the
fiscal affairs of U.S. territories and created procedures for adjusting debt
accumulated by the Puerto Rico government and, potentially, other territories
("Title III"). PROMESA also expedites the approval of key energy projects and
other critical projects in Puerto Rico.
PROMESA allowed for the establishment of an Oversight Board with broad powers of
budgetary and financial control over Puerto Rico. The Oversight Board filed for
bankruptcy on behalf of PREPA under Title III in July 2017. As a result of the
bankruptcy filing, 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 December 31, 2020. The Company is in compliance
with its debt payment obligations as of December 31, 2020.
The Company's receivable balances in Puerto Rico as of December 31, 2020 totaled
$55 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.
On January 2, 2020, the Governor of Puerto Rico signed a bill that prohibits the
disposal and unencapsulated beneficial use of coal combustion residuals in
Puerto Rico. Prior to this bill's approval, the Company had put in place
arrangements to dispose or beneficially use its coal ash and combustion residual
outside of Puerto Rico.
Considering the information available as of the filing date, management believes
the carrying amount of our long-lived assets in Puerto Rico of $534 million is
recoverable as of December 31, 2020.
Reference Rate Reform - 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
. The IBA expects to make separate announcements in this regard following
the outcome of the consultation. AES holds a substantial amount of debt and
derivative contracts referencing LIBOR as an interest rate benchmark. Although
the full impact of the reform remains unknown, we have begun to engage with AES
counterparties to discuss specific action items to be undertaken in order to
prepare for amendments when they become due.
United States Tax Law Reform
Federal Taxes - In December 2017, the United States enacted the TCJA. The
legislation significantly revised the U.S. corporate income tax system by, among
other things, lowering the corporate income tax rate, introducing new
limitations on interest expense deductions, subjecting foreign earnings in
excess of an allowable return to current U.S. taxation, and adopting a
semi-territorial corporate tax system. These changes impacted our 2018 and 2019
effective tax rates and may materially impact our effective tax rate in future
periods. Furthermore, we anticipate that growth in our U.S. businesses and
higher U.S. tax expense may fully utilize our remaining net operating loss
carryforwards in the near term, which could lead to material cash tax payments
in the United States. Our interpretation of the TCJA may change in the event the
U.S. Treasury and the Internal Revenue Service issue additional guidance. The
Company's effective tax rate in 2020 reflects the application of the GILTI
high-tax exclusion under the final regulations published on July 23, 2020. This
election reduced our provision for GILTI income from,


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among others, certain subsidiaries in Chile and the Dominican Republic. Should
these subsidiaries fail to qualify for the exclusion under the regulations, the
Company's U.S. taxable income and consolidated income tax expense for 2020 may
be materially impacted. These regulations may materially impact our future year
effective tax rates and future cash tax obligations.
State Taxes - The reactions of the individual states to federal tax reform are
still evolving. Most states will assess whether and how the federal changes will
be incorporated into their state tax legislation. As we expect higher taxable
income in the future at the federal level, this may also lead to higher state
taxable income. Our current state tax provisions predominantly have full
valuation allowances against state net operating losses. These positions will be
re-assessed in the future as state tax law evolves and may result in material
changes in position.
U.S. Renewable Tax Credits - The Consolidated Appropriations Act, 2021 ("CAA,
2021") became law on December 27, 2020. Included in the CAA, 2021 is the
Taxpayer Certainty and Disaster Tax Relief Act of 2020 ("TCDTRA"), which extends
the sunset or phase-down periods of federal tax credits related to the
development and operation of certain renewable energy electric generating
facilities, and provides new tax credit extension rules specifically applying to
offshore wind power electric generating facilities. Specifically, the TCDTRA
extends the 26% Investment Tax Credit for qualified solar projects beginning
construction in 2021 and 2022 that are placed in service before January 1, 2026
and permits a 22% Investment Tax Credit for qualified projects beginning
construction in 2023 that are placed in service before January 1, 2026. It also
extends the 60% Production Tax Credit for onshore wind by one year, allowing
qualified wind projects beginning construction in 2021 to be eligible.
In addition to the tax credit extenders, the TCDTRA provides for a five-year
extension of the controlled foreign corporation look-through rule through 2025.
Under this rule, dividends and interest paid by one controlled foreign
subsidiary to another are exempt from U.S. tax. AES currently relies on the
controlled foreign corporation look-through rule to exempt dividends and
interest paid between foreign subsidiaries from current U.S. tax.
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 Item 1- Executive Summary .
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. See Item 1- Business - South America
SBU - Chile for further discussion. 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
December 31, 2020.
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 different
strategic alternatives, but have yet to reach any agreement. Any agreement that
may be reached would be subject to lender and


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regulatory approval, including that of the Oversight Board that filed for
bankruptcy on behalf of PREPA. The Company is evaluating certain developments
occurring during the first quarter of 2021 to determine if a reassessment of the
recoverability and useful life of the plant is necessary. Considering the
information available as of the filing date, management believes the carrying
amount of our long-lived assets in Puerto Rico of $534 million is recoverable as
of December 31, 2020.
Hawaii - In July 2020, the Hawaii State Legislature passed a bill that will
prohibit AES Hawaii from generating electricity from coal after December 31,
2022
. As this will restrict the Company from contracting the asset beyond the
expiration of its existing PPA, management reassessed the economic useful life
of the generation facility. A decrease in the useful life was identified as an
impairment indicator. The Company performed an impairment analysis and
determined that the carrying amount of the asset group was not recoverable. As a
result, the Company recognized asset impairment expense of $38 million. AES
Hawaii is reported in the US and Utilities SBU reportable segment.
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 this Form 10-K.
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. Although no formal investigation has been launched by DG Comp to date,
AES Maritza has engaged in discussions with the DG Comp case team to discuss the
agency's review. In the near term, Maritza expects to engage in discussions with
Bulgaria (with the involvement of DG Comp) to attempt to reach a negotiated
resolution concerning DG Comp's review. Separately, Bulgaria recently submitted
its proposed plan for the reform of its electricity market to the European
Commission
(the "Market Reform Plan"). The proposed Market Reform Plan is part
of Bulgaria'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. We do not believe
termination of the PPA is justified, nor do we believe that the unilaterally
proposed deadline for the termination of the PPA is realistic, given that the
discussions with Bulgaria have not yet begun. We expect that the anticipated
discussions with Bulgaria could 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 anticipated discussions between AES Maritza
and Bulgaria, nor can we predict how DG Comp might resolve its review if the
discussions fail to result in an agreement concerning the 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 assurances 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 $1.1
billion
is recoverable as of December 31, 2020.
Tietê GSF Settlement - In September 2020, Law 14.052/2020 published by ANEEL was
approved by the President of Brazil, establishing terms for compensation to MRE
hydro generators for the incorrect application of the GSF mechanism from 2013 to
2018, which resulted in higher charges assessed to MRE hydro generators by the
regulator. Under this law, compensation will be in the form of an offer for a
concession extension for each hydro generator, in exchange for full payment of
billed GSF trade payables. In December 2020, ANEEL published a regulation
establishing the terms and conditions for potential compensation to Tietê in the
form of a concession extension period of approximately 2.6 years. As a result,
the previously recognized contingent liabilities related to GSF payments were
updated to reflect the Company's best estimate for the fair value of
compensation to be received from the concession extension offered in conjunction
with the regulation. This compensation was estimated to have a fair value of
$184 million, and was recorded as a reversal of Non-Regulated Cost of Sales on
the Consolidated Statements of Operations. The concession extension also met the
criteria for recognition as a definite-lived intangible asset that will be
amortized from the date of the agreement, which is expected in the first quarter
of 2021, until the end of the new concession period. The value of the concession
extension is based on a preliminary time-value equivalent calculation made by
the CCEE and subsequent adjustments requested by Tietê. Both the concession
extension period and its equivalent asset value are subject to agreement between
ANEEL and AES.


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Management does not expect the agreement to result in a materially different
concession extension period or equivalent asset value, however the final
compensation value and extension period could differ from the original estimates
as of December 31, 2020, which could require adjustments.
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. In 2018 and 2019 there was a significant devaluation in the Argentine
peso against the USD, which had an impact on our 2018 and 2019 results.
Continued material devaluation of the Argentine peso against the USD could have
an impact on our future results. The Argentine economy continues to be
considered highly inflationary under U.S. GAAP; as such, all of our Argentine
businesses are reported using the USD as the functional currency. For additional
information, refer to Item 7A.- Quantitative and Qualitative Disclosures About
Market Risk .
Impairments
Long-lived Assets and Equity Affiliates - In August 2020, AES Gener reached an
agreement with Minera Escondida and Minera Spence to early terminate two PPAs of
the Angamos coal-fired plant in Chile. AES Gener also announced its intention to
accelerate the retirement of the Ventanas 1 and Ventanas 2 coal-fired plants.
Management will no longer be pursuing a contracting strategy for these assets
and the plants will primarily be utilized as peaker plants and for grid
stability. Due to these developments, the Company performed an impairment
analysis and determined that the carrying amounts of these asset groups were not
recoverable. As a result, the Company recognized asset impairment expense of
$781 million.
During the year ended December 31, 2020, the Company recognized asset and
other-than-temporary impairment expenses of $1.1 billion, inclusive of the asset
impairment noted above. See Note 8- Investments In and Advances To Affiliates
and Note 22- Asset Impairment Expense included in Item 8.- Financial
Statements and Supplementary Data of this Form 10-K for further information.
After recognizing these impairment expenses, the carrying value of our
investments in equity affiliates and long-lived assets that were assessed for
impairment in 2020 totaled $2.1 billion at December 31, 2020.
Events or changes in circumstances that may necessitate recoverability tests and
potential impairments of long-lived assets may include, but are not limited to,
adverse changes in the regulatory environment, unfavorable changes in power
prices or fuel costs, increased competition due to additional capacity in the
grid, technological advancements, declining trends in demand, 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
end of its estimated useful life.
Goodwill - The Company considers a reporting unit at risk of impairment when its
fair value does not exceed its carrying amount by 10%. In 2019, during the
annual goodwill impairment test performed as of October 1, the Company
determined that the fair value of its Gener reporting unit exceeded its carrying
value by 3%. Therefore, Gener's $868 million goodwill balance was considered to
be "at risk" largely due to the Chilean government's announcement to phase out
coal generation by 2040, and a decline in long-term energy prices.
As a result of the long-lived asset impairments at Gener during the third
quarter of 2020, the Company determined there was a triggering event requiring a
reassessment of goodwill impairment at September 1, 2020. The Company determined
the fair value of its Gener reporting unit exceeded its carrying value by 13%.
Although the fair value exceeds its carrying value by more than 10%, the Company
continues to monitor the Gener reporting unit for potential interim goodwill
impairment triggering events.
Through 2028, Gener's plants remain largely contracted, with PPAs expiring
between 2029 and 2042. The Company utilized the income approach in deriving the
fair value of the Gener reporting unit, which included estimated cash flows
based on the estimated useful lives of the underlying generating asset class.
These cash flows were discounted using a weighted average cost of capital of 7%,
which was determined based on the Capital Asset Pricing Model. See Item
7.- Critical Accounting Policies and Estimates - Fair Value of
Nonfinancial Assets and Liabilities and Note 9- Goodwill and Other Intangible
Assets included in Item 8.- Financial Statements and Supplementary Data


of



this Form 10-K for further information.
While the duration and severity of the impacts of the COVID-19 pandemic remain
unknown, further disruptions in the global market could result in changes to
assumptions utilized in the goodwill assessment. Impairments would


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negatively impact our consolidated results of operations and net worth. See Item
1A.- Risk Factors of this Form 10-K for further information.
The Company monitors its reporting units at risk of impairment for interim
impairment indicators, and believes that the estimates and assumptions used in
the calculations are reasonable as of December 31, 2020. Should the fair value
of any of the Company's reporting units fall below its carrying amount because
of reduced operating performance, market declines, changes in the discount rate,
regulatory changes, or other adverse conditions, goodwill impairment charges may
be necessary in future periods.
Capital Resources and Liquidity
Overview
As of December 31, 2020, the Company had unrestricted cash and cash equivalents
of $1.1 billion, of which $71 million was held at the Parent Company and
qualified holding companies. The Company had $335 million in short-term
investments, held primarily at subsidiaries, and restricted cash and debt
service reserves of $738 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 $1.4 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 of the subsidiary to which the debt relates,
through opportunistic refinancing activity, or some combination thereof. We have
$1 million of recourse debt which matures within the next twelve months. From
time to time, we may elect to repurchase our outstanding debt through cash
purchases, privately negotiated transactions or otherwise when management
believes that such securities are attractively priced. Such repurchases, if any,
will depend on prevailing market conditions, our liquidity requirements, and
other factors. The amounts involved in any such repurchases may be material.
We rely mainly on long-term debt obligations to fund our construction
activities. We have, to the extent available at acceptable terms, utilized
non-recourse debt to fund a significant portion of the capital expenditures and
investments required to construct and acquire our electric power plants,
distribution companies, and related assets. Our non-recourse financing is
designed to limit cross-default risk to the Parent Company or other subsidiaries
and affiliates. Our non-recourse long-term debt is a combination of fixed and
variable interest rate instruments. Debt is typically denominated in the
currency that matches the currency of the revenue expected to be generated from
the benefiting project, thereby reducing currency risk. In certain cases, the
currency is matched through the use of derivative instruments. The majority of
our non-recourse debt is funded by international commercial banks, with debt
capacity supplemented by multilaterals and local regional banks.
Given our long-term debt obligations, the Company is subject to interest rate
risk on debt balances that accrue interest at variable rates. When possible, the
Company will borrow funds at fixed interest rates or hedge its variable rate
debt to fix its interest costs on such obligations. In addition, the Company has
historically tried to maintain at least 70% of its consolidated long-term
obligations at fixed interest rates, including fixing the interest rate through
the use of interest rate swaps. These efforts apply to the notional amount of
the swaps compared to the amount of related underlying debt. Presently, the
Parent Company's only material unhedged exposure to variable interest rate debt
relates to drawings of $70 million under its revolving credit facility. On a
consolidated basis, of the Company's $20.2 billion of total gross debt
outstanding as of December 31, 2020, approximately $2.7 billion bore interest at
variable rates that were not subject to a derivative instrument which fixed the
interest rate. Brazil holds $800 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


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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.
As of December 31, 2020, 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 $1.4 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 December 31, 2020, we had $110 million in
letters of credit outstanding provided under our unsecured credit facilities,
and $77 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 year ended December 31, 2020, the Company paid letter of
credit fees ranging from 1% to 3% per annum on the outstanding amounts.
We expect to continue to seek, where possible, non-recourse debt financing in
connection with the assets or businesses that we or our affiliates may develop,
construct or acquire. However, depending on local and global market conditions
and the unique characteristics of individual businesses, non-recourse debt may
not be available on economically attractive terms or at all. If we decide not to
provide any additional funding or credit support to a subsidiary project that is
under construction or has near-term debt payment obligations and that subsidiary
is unable to obtain additional non-recourse debt, such subsidiary may become
insolvent, and we may lose our investment in that subsidiary. Additionally, if
any of our subsidiaries lose a significant customer, the subsidiary may need to
withdraw from a project or restructure the non-recourse debt financing. If we or
the subsidiary choose not to proceed with a project or are unable to
successfully complete a restructuring of the non-recourse debt, we may lose our
investment in that subsidiary.
Many of our subsidiaries depend on timely and continued access to capital
markets to manage their liquidity needs. The inability to raise capital on
favorable terms, to refinance existing indebtedness or to fund operations and
other commitments during times of political or economic uncertainty may have
material adverse effects on the financial condition and results of operations of
those subsidiaries. In addition, changes in the timing of tariff increases or
delays in the regulatory determinations under the relevant concessions could
affect the cash flows and results of operations of our businesses.
Long-Term Receivables
As of December 31, 2020, the Company had approximately $110 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 December 31, 2021, 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 7- Financing Receivables included in
Item 8.- Financial Statements and Supplementary Data ,
Item 1.- Business-South America SBU-Argentina-Regulatory Framework and Market
Structure , and Item 7.- Management's Discussion and Analysis of Financial
Condition and Results of Operation-Key Trends and Uncertainties-Macroeconomic
and Political-Chile of this Form 10-K for further information.
As of December 31, 2020, the Company had approximately $1.3 billion of loans
receivable primarily related to a facility constructed under a BOT 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. As of December 31,
2020
, Mong Duong met the held-for-sale criteria and the loan receivable balance
of $1.3 billion, net of CECL reserve of $32 million, was reclassified to
held-for-sale assets. Of the loan receivable balance, $80 million was classified
as Current held-for-sale assets and $1.2 billion was classified as Noncurrent
held-for-sale assets on the Consolidated Balance Sheet. See Note 20- Revenue
included in Item 8.- Financial Statements and Supplementary Data of this Form
10-K for further information.


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103 | 2020 Annual Report



Cash Sources and Uses
The primary sources of cash for the Company in the year ended December 31, 2020
were debt financings, cash flows from operating activities, sales of short-term
investments, and sales to noncontrolling interests. The primary uses of cash in
the year ended December 31, 2020 were repayments of debt, capital expenditures,
and purchases of short-term investments.
The primary sources of cash for the Company in the year ended December 31, 2019
were debt financings, cash flows from operating activities, and sales of
short-term investments. The primary uses of cash in the year ended December 31,
2019
were repayments of debt, capital expenditures, and purchases of short-term
investments.
The primary sources of cash for the Company in the year ended December 31, 2018
were debt financings, cash flows from operating activities, proceeds from the
sales of business interests, and sales of short-term investments. The primary
uses of cash in the year ended December 31, 2018 were repayments of debt,
capital expenditures, and purchases of short-term investments.
A summary of cash-based activities are as follows (in millions):
Year Ended December 31,
Cash Sources: 2020 2019 2018
Issuance of non-recourse debt $ 4,680 $ 5,828 $ 1,928
Issuance of recourse debt 3,419 - 1,000
Net cash provided by operating activities 2,755 2,466 2,343
Borrowings under the revolving credit facilities 2,420 2,026 1,865
Sale of short-term investments 627 666 1,302
Sales to noncontrolling interests 553 128 95


Proceeds from the sale of business interests, net of
cash and restricted cash sold


169 178 2,020
Issuance of preferred shares in subsidiaries 112 - -
Insurance proceeds 9 150 17

Other - 9 123
Total Cash Sources $ 14,744 $ 11,451 $ 10,693

Cash Uses:
Repayments of non-recourse debt $ (4,136) $ (4,831) $ (1,411)
Repayments of recourse debt (3,366) (450) (1,933)
Repayments under the revolving credit facilities (2,479) (1,735) (2,238)
Capital expenditures (1,900) (2,405) (2,121)
Purchase of short-term investments (653) (770) (1,411)
Distributions to noncontrolling interests (422) (427) (340)
Dividends paid on AES common stock (381) (362) (344)
Contributions and loans to equity affiliates (332) (324) (145)
Acquisitions of noncontrolling interests (259) - -
Acquisitions of business interests, net of cash and (136) (192) (66)
restricted cash acquired
Payments for financing fees (107) (126) (39)
Payments for financed capital expenditures (60) (146) (275)
Other (258) (114) (155)
Total Cash Uses $ (14,489) $ (11,882) $ (10,478)
Net increase (decrease) in Cash, Cash Equivalents, and $ 255 $ (431) $ 215
Restricted Cash


Consolidated Cash Flows
The following table reflects the changes in operating, investing, and financing
cash flows for the comparative twelve month periods (in millions):
December 31, $ Change
Cash flows provided by (used in): 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Operating activities $ 2,755 $ 2,466 $ 2,343 $ 289 $ 123
Investing activities (2,295) (2,721) (505) 426 (2,216)
Financing activities (78) (86) (1,643) 8 1,557




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104 | 2020 Annual Report



Operating Activities
Fiscal Year 2020 versus 2019
Net cash provided by operating activities increased $289 million for the year
ended December 31, 2020, compared to December 31, 2019.
Operating Cash Flows (1)
(in millions)
[[Image Removed: aes-20201231_g22.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 Consolidated
Statements of Cash Flows in Item 8.- Financial Statements and Supplementary
Data of this Form 10-K.
(3)The change in working capital is defined as the variance in total changes in
operating assets and liabilities as shown on the Consolidated Statements of Cash
Flows in Item 8.- Financial Statements and Supplementary Data of this Form
10-K.
•Adjusted net income decreased $40 million, primarily due to lower margins at
our US and Utilities SBU and prior year gains on insurance proceeds associated
with the lightning incident at the Andres facility in 2018 and the Changuinola
tunnel leak, partially offset by higher margins at our South America and MCAC
SBUs.
•Working capital requirements decreased $329 million, primarily due to an
increase in deferred income at Angamos as a result of the early contract
terminations with Minera Escondida and Minera Spence.
Fiscal Year 2019 versus 2018
Net cash provided by operating activities increased $123 million for the year
ended December 31, 2019, compared to December 31, 2018.
Operating Cash Flows (1)
(in millions)
[[Image Removed: aes-20201231_g23.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 Consolidated
Statements of Cash Flows in Item 8.- Financial Statements and Supplementary
Data of this Form 10-K.
(3)The change in working capital is defined as the variance in total changes in
operating assets and liabilities as shown on the Consolidated Statements of Cash
Flows in Item 8.- Financial Statements and Supplementary Data of this Form
10-K.



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105 | 2020 Annual Report






•Adjusted net income decreased $24 million, primarily due to lower margins at
our South America and MCAC SBUs. These impacts were partially offset by the
gains on insurance recoveries in 2019 associated with the lightning incident at
the Andres facility in 2018 and the Changuinola tunnel leak, and higher margins
at our US and Utilities SBU.
•Working capital requirements decreased $147 million, primarily due to higher
collections of overdue receivables from distribution companies in the Dominican
Republic
, higher collections of insurance receivables at Andres, and lower
supplier payments and VAT recoveries at Gener. These impacts were partially
offset by a decrease in income tax liabilities at Argentina as a result of lower
operating margin and income tax rates, and higher supplier payments and
collections at Puerto Rico in 2018.
Investing Activities
Fiscal Year 2020 versus 2019
Net cash used in investing activities decreased $426 million for the year ended
December 31, 2020 compared to December 31, 2019.
Investing Cash Flows
(in millions)
[[Image Removed: aes-20201231_g24.jpg]]
•Cash from short-term investing activities increased $78 million, primarily at
Tietê as a result of lower net short-term investment purchases in 2020.
•Insurance proceeds decreased $141 million, largely due to prior year insurance
proceeds associated with the lightning incident at the Andres facility in 2018
and the Changuinola tunnel leak.
•Capital expenditures decreased $505 million, discussed further below.


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106 | 2020 Annual Report



Capital Expenditures
(in millions)
[[Image Removed: aes-20201231_g25.jpg]]
•Growth expenditures decreased $356 million, primarily driven by the timing of
payments for the Southland repowering project, renewable energy projects in
Argentina, and a pipeline project at Andres, as well as the completion of solar
projects at AES Brasil, a wind project in Hawaii, and the Colon LNG facility in
Panama. This impact was partially offset by higher investments at IPALCO and in
renewable projects at Gener.
•Maintenance expenditures decreased $143 million, primarily due to prior year
expenditures at Andres as a result of the steam turbine lightning damage and in
Panama as a result of the Changuinola tunnel lining upgrade, as well as due to
the timing of payments in the prior year at IPALCO.
•Environmental expenditures decreased $6 million, primarily due to the timing of
payments in the prior year related to projects at Gener.
Fiscal Year 2019 versus 2018
Net cash used in investing activities increased $2.2 billion for the year ended
December 31, 2019 compared to December 31, 2018.
Investing Cash Flows
(in millions)
[[Image Removed: aes-20201231_g26.jpg]]
•Proceeds from dispositions decreased $1.8 billion, primarily due to sales of
Masinloc, Electrica Santiago, CTNG, Eletropaulo, and the DPL peaker assets in
2018; partially offset by the sale of a portion of our interest in a portfolio
of sPower's operating assets and the sale of the Kilroot and Ballylumford plants
in the United Kingdom in 2019.
•Contributions and loans to equity affiliates increased by $179 million,
primarily due to project funding requirements at sPower.
•Capital expenditures increased $284 million, discussed further below.


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107 | 2020 Annual Report



Capital Expenditures
(in millions)
[[Image Removed: aes-20201231_g27.jpg]]
•Growth expenditures increased $130 million, primarily due to higher investments
in solar projects at Distributed Energy and renewable energy projects in
Argentina, partially offset by a decrease in payments for the Southland
repowering projects.
•Maintenance expenditures increased $173 million, primarily at Andres as a
result of the steam turbine lightning damage, at DPL from storm damages, and at
Changuinola due to the upgrade of the tunnel lining.
•Environmental expenditures decreased $19 million, primarily at IPALCO due to
lower spending for NAAQS, NPDES, and CCR rule compliance.
Financing Activities
Fiscal Year 2020 versus 2019
Net cash used in financing activities decreased $8 million for the year ended
December 31, 2020 compared to December 31, 2019.
Financing Cash Flows
(in millions)
[[Image Removed: aes-20201231_g28.jpg]]
See Notes 11- Debt and 17- Equity in Item 8.- Financial Statements and
Supplementary Data of this Form 10-K for more information regarding
significant debt and equity transactions, respectively.
•The $503 million impact from recourse debt transactions is primarily due to
higher net borrowings at the Parent Company.
•The $425 million impact from sales to noncontrolling interests is primarily due
to the proceeds received from the sale of a 35% ownership interest in Southland
Energy.
•The $112 million impact from issuance of preferred shares in subsidiaries is
due to proceeds from the issuance of preferred shares to minority interests of
Cochrane.


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108 | 2020 Annual Report






•The $453 million impact from non-recourse debt transactions is primarily due to
lower net borrowings at Southland and Gener, partially offset by a decrease in
net repayments at AES Brasil and DPL and higher net borrowings at Distributed
Energy, Panama, and Vietnam.
•The $290 million impact from Parent Company revolver transactions is primarily
due to higher net repayments in the current year.
•The $259 million impact from acquisitions of noncontrolling interests is
primarily due to the acquisition of an additional 19.8% ownership interest in
AES Brasil.
Fiscal Year 2019 versus 2018
Net cash used in financing activities decreased $1.6 billion for the year ended
December 31, 2019 compared to December 31, 2018.
Financing Cash Flows
(in millions)
[[Image Removed: aes-20201231_g29.jpg]]
See Note 11- Debt in Item 8.- Financial Statements and Supplementary Data
of this Form 10-K for more information regarding significant debt transactions.
•The $483 million impact from recourse debt activity is primarily due to higher
net repayments of Parent Company debt in 2018.
•The $480 million impact from non-recourse debt transactions is primarily due to
net issuances at Gener, Alto Maipo and DPL, which were partially offset by net
repayments at AES Brasil, and lower net issuances in 2018 at IPALCO.
•The $387 million impact from Parent Company revolver transactions is primarily
from higher repayments in 2018, and higher borrowings in 2019 for general
corporate cash management activities.
•The $278 million impact from non-recourse revolver transactions is primarily
due to higher net borrowings at DPL and net repayments at IPALCO in 2018.
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.


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109 | 2020 Annual Report






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):
December


31, December 31,



2020 2019
Consolidated cash and cash equivalents $ 1,089 $ 1,029
Less: Cash and cash equivalents at subsidiaries (1,018) (1,016)
Parent Company and qualified holding companies' cash and cash 71 13


equivalents



Commitments under the Parent Company credit facility 1,000 1,000
Less: Letters of credit under the credit facility (77) (19)
Less: Borrowings under the credit facility (70) (180)
Borrowings available under the Parent Company credit facility 853 801
Total Parent Company Liquidity $


924 $ 814





The Parent Company paid dividends of $0.57 per outstanding share to its common
stockholders during the year ended December 31, 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 at December 31, 2020 and 2019. See Note
11- Debt in Item 8.- F inancial Statements and Supplementary Data of
this 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 this Form 10-K.
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 December 31, 2020, 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.


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110 | 2020 Annual Report






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 Consolidated Balance Sheets amounts to
$1.4 billion. The portion of current debt related to such defaults was $276
million
at December 31, 2020, 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 11- Debt in Item 8.- Financial Statements and
Supplementary Data of this Form 10-K 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 December 31, 2020, 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 completed fiscal
quarters. As of December 31, 2020, 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.
Contractual Obligations and Parent Company Contingent Contractual Obligations
A summary of our contractual obligations, commitments and other liabilities as
of December 31, 2020 is presented below (in millions):
Less than 1 More than 5
Contractual Obligations Total year 1-3 years 3-5 years years Other Footnote Reference(5)
Debt obligations (1) (2) $ 20,163 $


1,440 $ 1,539 $ 3,280 $ 13,904 $ -


11
Interest payments on long-term debt (3) 6,422 721 1,340 1,065 3,296 - n/a
Finance lease obligations (2) 157 5 10 8 134 - 14
Operating lease obligations (2) 645 29 57 52 507 - 14
Electricity obligations 7,552 700 947 868 5,037 - 12
Fuel obligations 5,191 1,370 1,424 952 1,445 - 12
Other purchase obligations 6,057 1,904 1,241 1,096 1,816 - 12
Other long-term liabilities reflected on AES'
consolidated balance sheet under GAAP (2) (4) 595 - 332 11 243 9 n/a
Total $ 46,782 $ 6,169 $ 6,890 $ 7,332 $ 26,382 $ 9


_____________________________
(1)Includes recourse and non-recourse debt presented on the Consolidated Balance
Sheet. These amounts exclude finance lease liabilities which are included in the
finance lease category.
(2)Excludes any businesses classified as held-for-sale. See Note
25- Held-for- Sale and Dispositions in Item 8.- Financial Statements and
Supplementary Data of this Form 10-K for additional information related to
held-for-sale businesses.
(3)Interest payments are estimated based on final maturity dates of debt
securities outstanding at December 31, 2020 and do not reflect anticipated
future refinancing, early redemptions or new debt issuances. Variable rate
interest obligations are estimated based on rates as of December 31, 2020.
(4)These amounts do not include current liabilities on the Consolidated Balance
Sheet except for the current portion of uncertain tax obligations. Noncurrent
uncertain tax obligations are reflected in the "Other" column of the table above
as the Company is not able to reasonably estimate the timing of the future
payments. In addition, these amounts do not include: (1) regulatory liabilities
(See Note 10- Regulatory Assets and Liabilities ), (2) contingencies (See
Note 13- Contingencies ), (3) pension and other postretirement employee
benefit liabilities (see Note 15- Benefit Plans ), (4) derivatives and
incentive compensation (See Note 6- Derivative Instruments and Hedging
Activities ) or (5) any taxes (See Note 23- Income Taxes ) except for
uncertain tax obligations, as the Company is not able to reasonably estimate the
timing of future payments. See the indicated notes to the Consolidated Financial
Statements included in Item 8 of this Form 10-K for additional information on
the items excluded.
(5)For further information see the note referenced below in Item 8.- Financial
Statements and Supplementary Data of this Form 10-K.


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111 | 2020 Annual Report



The following table presents our Parent Company's contingent contractual
obligations as of December 31, 2020:



Amount (in Maximum Exposure Range for Each
Contingent contractual obligations millions) Number of Agreements Agreement (in millions)
Guarantees and commitments $ 1,358 69 $0 - 157
Letters of credit under the unsecured
credit facilities 110 25 $0 - 56
Letters of credit under the revolving
credit facility 77 17 $0 - 62
Surety bond 1 1 $1

Total $ 1,546 112


_____________________________
(1) Excludes normal and customary representations and warranties in agreements
for the sale of assets (including ownership in associated legal entities) where
the associated risk is considered to be nominal.
We have a diverse portfolio of performance-related contingent contractual
obligations. These obligations are designed to cover potential risks and only
require payment if certain targets are not met or certain contingencies occur.
The risks associated with these obligations include change of control,
construction cost overruns, subsidiary default, political risk, tax indemnities,
spot market power prices, sponsor support and liquidated damages under power
sales agreements for projects in development, in operation and under
construction. While we do not expect that we will be required to fund any
material amounts under these contingent contractual obligations beyond 2020,
many of the events which would give rise to such obligations are beyond our
control. We can provide no assurance that we will be able to fund our
obligations under these contingent contractual obligations if we are required to
make substantial payments thereunder.
Critical Accounting Policies and Estimates
The 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. AES' significant accounting policies are described in
Note 1- General and Summary of Significant Accounting Policies to the
Consolidated Financial Statements included in Item 8 of this Form 10-K.
An accounting estimate is considered critical if the estimate requires
management to make assumptions about matters that were highly uncertain at the
time the estimate was made, different estimates reasonably could have been used,
or the impact of the estimates and assumptions on financial condition or
operating performance is material.
Management believes that the accounting estimates employed are appropriate and
the resulting balances are reasonable; however, actual results could materially
differ from the original estimates, requiring adjustments to these balances in
future periods. Management has discussed these critical accounting policies with
the Audit Committee, as appropriate. Listed below are the Company's most
significant critical accounting estimates and assumptions used in the
preparation of the Consolidated Financial Statements.
Income Taxes - We are subject to income taxes in both the U.S. and numerous
foreign jurisdictions. Our worldwide income tax provision requires significant
judgment and is based on calculations and assumptions that are subject to
examination by the Internal Revenue Service and other taxing authorities.
Certain of the Company's subsidiaries are under examination by relevant taxing
authorities for various tax years. The Company regularly assesses the potential
outcome of these examinations in each tax jurisdiction when determining the
adequacy of the provision for income taxes. Accounting guidance for uncertainty
in income taxes prescribes a more likely than not recognition threshold. Tax
reserves have been established, which the Company believes to be adequate in
relation to the potential for additional assessments. Once established, reserves
are adjusted only when there is more information available or when an event
occurs necessitating a change to the reserves. While the Company believes that
the amounts of the tax estimates are reasonable, it is possible that the
ultimate outcome of current or future examinations may be materially different
than the reserve amounts.
Because we have a wide range of statutory tax rates in the multiple
jurisdictions in which we operate, any changes in our geographical earnings mix
could materially impact our effective tax rate. Furthermore, our tax position
could be adversely impacted by changes in tax laws, tax treaties or tax
regulations, or the interpretation or enforcement thereof and such changes may
be more likely or become more likely in view of recent economic trends in
certain of the jurisdictions in which we operate.


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112 | 2020 Annual Report






In accordance with SAB 118, the Company made reasonable estimates of the impacts
of U.S. tax reform on its 2017 financial results, and recorded adjustments to
those estimates in 2018 as analysis was completed. As of December 31, 2018, our
analysis of the one-time impacts of the TCJA was complete under SAB 118.
However, in the first quarter of 2019, the U.S. Treasury Department issued final
regulations on the one-time transition tax which included changes from the
proposed regulations issued in 2018.
In addition, no taxes have been recorded on undistributed earnings for certain
of our non-U.S. subsidiaries to the extent such earnings are considered to be
indefinitely reinvested in the operations of those subsidiaries. Should the
earnings be remitted as dividends, the Company may be subject to additional
foreign withholding and state income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of the existing assets and liabilities, and their respective
income tax bases. The Company establishes a valuation allowance when it is more
likely than not that all or a portion of a deferred tax asset will not be
realized. The Company has elected to treat GILTI as an expense in the period in
which the tax is accrued. Accordingly, no deferred tax assets or liabilities are
recorded related to GILTI.
Impairments - Our accounting policies on goodwill and long-lived assets are
described in detail in Note 1- General and Summary of Significant Accounting
Policies , included in Item 8 of this Form 10-K. The Company makes considerable
judgments in its impairment evaluations of goodwill and long-lived assets,
starting with determining if an impairment indicator exists. Events that may
result in an impairment analysis being performed 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 that the asset will be disposed of before
the end of its previously estimated useful life. The Company exercises judgment
in determining if these events represent an impairment indicator requiring the
computation of the fair value of goodwill and/or the recoverability of
long-lived assets. The fair value determination is typically the most judgmental
part in an impairment evaluation. Please see Fair Value below for further
detail.
As part of the impairment evaluation process, management analyzes the
sensitivity of fair value to various underlying assumptions. The level of
scrutiny increases as the gap between fair value and carrying amount decreases.
Changes in any of these assumptions could result in management reaching a
different conclusion regarding the potential impairment, which could be
material. Our impairment evaluations inherently involve uncertainties from
uncontrollable events that could positively or negatively impact the anticipated
future economic and operating conditions.
Further discussion of the impairment charges recognized by the Company can be
found within Note 9- Goodwill and Other Intangible Assets and Note 22- Asset
Impairment Expense to the Consolidated Financial Statements included in Item 8
of this Form 10-K.
Depreciation - Depreciation, after consideration of salvage value and asset
retirement obligations, is computed using the straight-line method over the
estimated useful lives of the assets, which are determined on a composite or
component basis. The Company considers many factors in its estimate of useful
lives, including expected usage, physical deterioration, technological changes,
existence and length of off-taker agreements, and laws and regulations, among
others. In certain circumstances, these estimates involve significant judgment
and require management to forecast the impact of relevant factors over an
extended time horizon.
Useful life estimates are continually evaluated for appropriateness as changes
in the relevant factors arise, including when a long-lived asset group is tested
for recoverability. Depreciation studies are performed periodically for assets
subject to composite depreciation. Any change to useful lives is considered a
change in accounting estimate and is made on a prospective basis.
Fair Value - For information regarding the fair value hierarchy, see
Note 1- General and Summary of Significant Accounting Policies included in
Item 8 of this Form 10-K.
Fair Value of Financial Instruments - A significant number of the Company's
financial instruments are carried at fair value with changes in fair value
recognized in earnings or other comprehensive income each period. Investments
are generally fair valued based on quoted market prices or other observable
market data such as interest rate indices. The Company's investments are
primarily certificates of deposit and mutual funds. Derivatives


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are valued using observable data as inputs into internal valuation models. The
Company's derivatives primarily consist of interest rate swaps, foreign currency
instruments, and commodity and embedded derivatives. Additional discussion
regarding the nature of these financial instruments and valuation techniques can
be found in Note 5- Fair Value included in Item 8 of this Form 10-K.
Fair Value of Nonfinancial Assets and Liabilities - Significant estimates are
made in determining the fair value of long-lived tangible and intangible assets
(i.e., property, plant and equipment, intangible assets and goodwill) during the
impairment evaluation process. In addition, the majority of assets acquired and
liabilities assumed in a business combination and asset acquisitions by VIEs are
required to be recognized at fair value under the relevant accounting guidance.
The Company may engage an independent valuation firm to assist management with
the valuation. The Company generally utilizes the income approach to value
nonfinancial assets and liabilities, specifically a Discounted Cash Flow ("DCF")
model to estimate fair value by discounting cash flow forecasts, adjusted to
reflect market participant assumptions, to the extent necessary, at an
appropriate discount rate.
Management applies considerable judgment in selecting several input assumptions
during the development of our cash flow forecasts. Examples of the input
assumptions that our forecasts are sensitive to include macroeconomic factors
such as growth rates, industry demand, inflation, exchange rates, power prices,
and commodity prices. Whenever appropriate, management obtains these input
assumptions from observable market data sources (e.g., Economic Intelligence
Unit) and extrapolates the market information if an input assumption is not
observable for the entire forecast period. Many of these input assumptions are
dependent on other economic assumptions, which are often derived from
statistical economic models with inherent limitations such as estimation
differences. Further, several input assumptions are based on historical trends
which often do not recur. It is not uncommon that different market data sources
have different views of the macroeconomic factor expectations and related
assumptions. As a result, macroeconomic factors and related assumptions are
often available in a narrow range; however, in some situations these ranges
become wide and the use of a different set of input assumptions could produce
significantly different budgets and cash flow forecasts.
A considerable amount of judgment is also applied in the estimation of the
discount rate used in the DCF model. To the extent practical, inputs to the
discount rate are obtained from market data sources (e.g., Bloomberg). The
Company selects and uses a set of publicly traded companies from the relevant
industry to estimate the discount rate inputs. Management applies judgment in
the selection of such companies based on its view of the most likely market
participants. It is reasonably possible that the selection of a different set of
likely market participants could produce different input assumptions and result
in the use of a different discount rate.
Accounting for Derivative Instruments and Hedging Activities - We enter into
various derivative transactions in order to hedge our exposure to certain market
risks. We primarily use derivative instruments to manage our interest rate,
commodity, and foreign currency exposures. We do not enter into derivative
transactions for trading purposes. See Note 6- Derivative Instruments and
Hedging Activities included in Item 8 of this Form 10-K for further
information on the classification.
The fair value measurement standard requires the Company to consider and reflect
the assumptions of market participants in the fair value calculation. These
factors include nonperformance risk (the risk that the obligation will not be
fulfilled) and credit risk, both of the reporting entity (for liabilities) and
of the counterparty (for assets). Credit risk for AES is evaluated at the level
of the entity that is party to the contract. Nonperformance risk on the
Company's derivative instruments is an adjustment to the fair value position
that is derived from internally developed valuation models that utilize market
inputs that may or may not be observable.
As a result of uncertainty, complexity, and judgment, accounting estimates
related to derivative accounting could result in material changes to our
financial statements under different conditions or utilizing different
assumptions. As a part of accounting for these derivatives, we make estimates
concerning nonperformance, volatilities, market liquidity, future commodity
prices, interest rates, credit ratings, and future foreign exchange rates. Refer
to Note 5- Fair Value included in Item 8 of this Form 10-K for additional
details.
The fair value of our derivative portfolio is generally determined using
internal and third party valuation models, most of which are based on observable
market inputs, including interest rate curves and forward and spot prices for
currencies and commodities. The Company derives most of its financial instrument
market assumptions from market efficient data sources (e.g., Bloomberg, Reuters
and Platt's). In some cases, where market data is not readily available,
management uses comparable market sources and empirical evidence to derive
market


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assumptions to determine a financial instrument's fair value. In certain
instances, published pricing may not extend through the remaining term of the
contract and management must make assumptions to extrapolate the curve.
Specifically, where there is limited forward curve data with respect to foreign
exchange contracts beyond the traded points, the Company utilizes the interest
rate differential approach to construct the remaining portion of the forward
curve. For individual contracts, the use of different valuation models or
assumptions could have a material effect on the calculated fair value.
Regulatory Assets - Management continually assesses whether regulatory assets
are probable of future recovery by considering factors such as applicable
regulatory changes, recent rate orders applicable to other regulated entities,
and the status of any pending or potential deregulation legislation. If future
recovery of costs ceases to be probable, any asset write-offs would be required
to be recognized in operating income.
Consolidation - The Company enters into transactions impacting the Company's
equity interests in its affiliates. In connection with each transaction, the
Company must determine whether the transaction impacts the Company's
consolidation conclusion by first determining whether the transaction should be
evaluated under the variable interest model or the voting model. In determining
which consolidation model applies to the transaction, the Company is required to
make judgments about how the entity operates, the most significant of which are
whether (i) the entity has sufficient equity to finance its activities, (ii) the
equity holders, as a group, have the characteristics of a controlling financial
interest, and (iii) whether the entity has non-substantive voting rights.
If the entity is determined to be a variable interest entity, the most
significant judgment in determining whether the Company must consolidate the
entity is whether the Company, including its related parties and de facto
agents, collectively have power and benefits. If AES is determined to have power
and benefits, the entity will be consolidated by AES.
Alternatively, if the entity is determined to be a voting model entity, the most
significant judgments involve determining whether the non-AES shareholders have
substantive participating rights. The assessment of shareholder rights and
whether they are substantive participating rights requires significant judgment
since the rights provided under shareholders' agreements may include selecting,
terminating, and setting the compensation of management responsible for
implementing the subsidiary's policies and procedures, and establishing
operating and capital decisions of the entity, including budgets, in the
ordinary course of business. On the other hand, if shareholder rights are only
protective in nature (referred to as protective rights), then such rights would
not overcome the presumption that the owner of a majority voting interest shall
consolidate its investee. Significant judgment is required to determine whether
minority rights represent substantive participating rights or protective rights
that do not affect the evaluation of control. While both represent an approval
or veto right, a distinguishing factor is the underlying activity or action to
which the right relates.
Pension and Other Postretirement Plans - The Company recognizes a net asset or
liability reflecting the funded status of pension and other postretirement plans
with current-year changes in actuarial gains or losses recognized in AOCL,
except for those plans at certain of the Company's regulated utilities that can
recover portions of their pension and postretirement obligations through future
rates. The valuation of the Company's benefit obligation, fair value of plan
assets, and net periodic benefit costs requires various estimates and
assumptions, the most significant of which include the discount rate and
expected return on plan assets. These assumptions are reviewed by the Company on
an annual basis. Refer to Note 1- General and Summary of Significant Accounting
Policies included in Item 8 of this Form 10-K for further information.
Revenue Recognition - The Company recognizes revenue to depict the transfer of
energy, capacity, and other services to customers in an amount that reflects the
consideration to which we expect to be entitled. In applying the revenue model,
we determine whether the sale of energy, capacity, and other services represent
a single performance obligation based on the individual market and terms of the
contract. Generally, the promise to transfer energy and capacity represent a
performance obligation that is satisfied over time and meets the criteria to be
accounted for as a series of distinct goods or services. Progress toward
satisfaction of a performance obligation is measured using output methods, such
as MWhs delivered or MWs made available, and when we are entitled to
consideration in an amount that corresponds directly to the value of our
performance completed to date, we recognize revenue in the amount to which we
have the right to invoice. For further information regarding the nature of our
revenue streams and our critical accounting policies affecting revenue
recognition, see Note 1- General and Summary of Significant Accounting
Policies included in Item 8 of this Form 10-K.
Leases - The Company recognizes operating and finance right-of-use assets and
lease liabilities on the


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115 | 2020 Annual Report






Consolidated Balance Sheets for most leases with an initial term of greater than
12 months. Lease liabilities and their corresponding right-of-use assets are
recorded based on the present value of lease payments over the expected lease
term. Our subsidiaries' incremental borrowing rates are used in determining the
present value of lease payments when the implicit rate is not readily
determinable. Certain adjustments to the right-of-use asset may be required for
items such as prepayments, lease incentives, or initial direct costs. For
further information regarding the nature of our leases and our critical
accounting policies affecting leases, see Note 1- General and Summary of
Significant Accounting Policies included in Item 8 of this Form 10-K.
Credit Losses - The Company uses a forward-looking "expected loss" model to
recognize allowances for credit losses on trade and other receivables,
held-to-maturity debt securities, loans, and other instruments. For
available-for-sale debt securities with unrealized losses, the Company continues
to measure credit losses as it was done under previous GAAP, except that
unrealized losses due to credit-related factors are now recognized as an
allowance on the Consolidated Balance Sheet with a corresponding adjustment to
earnings in the Consolidated Statements of Operations. For further information
regarding credit losses, see Note 1- General and Summary of Significant
Accounting Policies included in Item 8 of this Form 10-K.
New Accounting Pronouncements
See Note 1- General a nd Summary of Significant Accounting Policies
included in Item 8.- Financial Statements and Supplementary Data of this Form
10-K for further information about new accounting pronouncements adopted during
2020 and accounting pronouncements issued, but not yet effective.

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