UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________________________________________________________
FORM 10-Q
(Mark One)

		
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the Quarterly Period Ended September 30, 2018
or

		
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
Commission file number 1-12291

THE AES CORPORATION
(Exact name of registrant as specified in its charter)

			
Delaware	 	54 1163725	
(State or other jurisdiction of incorporation or organization)	 	(I.R.S. Employer Identification No.)	
4300 Wilson Boulevard Arlington, Virginia	 	22203	
(Address of principal executive offices)	 	(Zip Code)	
(703) 522-1315
Registrant’s telephone number, including area code:
______________________________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  x No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

									
Large accelerated filer  x	 	Accelerated filer  ¨	 	Smaller reporting company  ¨	 	Emerging growth company ¨	 	Non-accelerated filer  ¨	
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  x
______________________________________________________________________________________________
The number of shares outstanding of Registrant’s Common Stock, par value $0.01 per share, on October 30, 2018 was 662,297,479 .

	

THE AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018
TABLE OF CONTENTS

			
Glossary of Terms	1	
 	 	 	
PART I: FINANCIAL INFORMATION	2	
 	 	 	
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	2	
 	Condensed Consolidated Balance Sheets	2	
 	Condensed Consolidated Statements of Operations	3	
 	Condensed Consolidated Statements of Comprehensive Income	4	
 	Condensed Consolidated Statements of Cash Flows	5	
 	Notes to Condensed Consolidated Financial Statements	6	
 	Note 1 - Financial Statement Presentation	6	
 	Note 2 - Inventory	10	
 	Note 3 - Fair Value	10	
 	Note 4 - Derivative Instruments and Hedging Activities	13	
 	Note 5 - Financing Receivables	14	
 	Note 6 - Investments in and Advances to Affiliates	15	
 	Note 7 - Debt	15	
 	Note 8 - Commitments and Contingencies	16	
 	Note 9 - Redeemable Stock of Subsidiaries	18	
 	Note 10 - Equity	18	
 	Note 11 - Segments	19	
 	Note 12 - Revenue	21	
 	Note 13 - Other Income and Expense	23	
 	Note 14 - Asset Impairment Expense	24	
 	Note 15 - Income Taxes	24	
 	Note 16 - Discontinued Operations	25	
 	Note 17 - Held-for-Sale and Dispositions	26	
 	Note 18 - Acquisitions	27	
 	Note 19 - Earnings Per Share	28	
 	 	 	
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28	
 	Executive Summary	30	
 	Review of Consolidated Results of Operations	32	
 	SBU Performance Analysis	39	
 	Key Trends and Uncertainties	45	
 	Capital Resources and Liquidity	48	
 	Critical Accounting Policies and Estimates	54	
 	 	 	
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54	
 	 	 	
ITEM 4.	CONTROLS AND PROCEDURES	57	
 	 	
PART II: OTHER INFORMATION	58	
 	 	 	
ITEM 1.	LEGAL PROCEEDINGS	58	
 	 	 	
ITEM 1A.	RISK FACTORS	60	
 	 	 	
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	60	
 	 	 	
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	60	
 	 	 	
ITEM 4.	MINE SAFETY DISCLOSURES	60	
 	 	 	
ITEM 5.	OTHER INFORMATION	60	
 	 	 	
ITEM 6.	EXHIBITS	60	
 	 	
SIGNATURES	61	

GLOSSARY OF TERMS
The following terms and acronyms appear in the text of this report and have the definitions indicated below:

		
Adjusted EPS	Adjusted Earnings Per Share, a non-GAAP measure	
Adjusted PTC	Adjusted Pretax Contribution, a non-GAAP measure of operating performance	
AFS	Available For Sale	
AOCI	Accumulated Other Comprehensive Income	
AOCL	Accumulated Other Comprehensive Loss	
ASC	Accounting Standards Codification	
ASU	Accounting Standards Update	
CAA	United States Clean Air Act	
CAMMESA	Wholesale Electric Market Administrator in Argentina	
CHP	Combined Heat and Power	
COFINS	Contribution for the Financing of Social Security	
DG Comp	Directorate-General for Competition	
DP&L	The Dayton Power & Light Company	
DPL	DPL Inc.	
EPA	United States Environmental Protection Agency	
EPC	Engineering, Procurement and Construction	
EURIBOR	Euro Interbank Offered Rate	
FASB	Financial Accounting Standards Board	
FX	Foreign Exchange	
GAAP	Generally Accepted Accounting Principles in the United States	
GHG	Greenhouse Gas	
GILTI	Global Intangible Low Taxed Income
	
GW	Gigawatts	
HLBV	Hypothetical Liquidation Book Value	
HPP	Hydropower Plant	
IPALCO	IPALCO Enterprises, Inc.	
IPL	Indianapolis Power & Light Company	
ISO	Independent System Operator	
LIBOR	London Interbank Offered Rate	
MW	Megawatts	
MWh	Megawatt Hours	
NCI	Noncontrolling Interest	
NEK	Natsionalna Elektricheska Kompania (state-owned electricity public supplier in Bulgaria)	
NM	Not Meaningful	
NOV	Notice of Violation	
NO X	Nitrogen Oxides	
OPGC	Odisha Power Generation Corporation	
PIS	Program of Social Integration	
PPA	Power Purchase Agreement	
PREPA	Puerto Rico Electric Power Authority	
RSU	Restricted Stock Unit	
RTO	Regional Transmission Organization	
SBU	Strategic Business Unit	
SEC	United States Securities and Exchange Commission	
SO 2	Sulfur Dioxide	
TCJA	Tax Cuts and Jobs Act 
	
U.S.	United States	
USD	United States Dollar	
VAT	Value-Added Tax	
VIE	Variable Interest Entity	

1

PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

THE AES CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)

								
 	September 30,
2018	 	December 31,
2017	
 	(in millions, except share and per share data)	
ASSETS	 	 	 	
CURRENT ASSETS	 	 	 	
Cash and cash equivalents	$	1,187		 	$	949		
Restricted cash	441		 	274		
Short-term investments	401		 	424		
Accounts receivable, net of allowance for doubtful accounts of $16 and $10, respectively	1,510		 	1,463		
Inventory	562		 	562		
Prepaid expenses	97		 	62		
Other current assets	706		 	630		
Current held-for-sale assets	111		 	2,034		
Total current assets	5,015		 	6,398		
NONCURRENT ASSETS	 	 	 	
Property, Plant and Equipment:	 	 	 	
Land	470		 	502		
Electric generation, distribution assets and other	25,055		 	24,119		
Accumulated depreciation	(8,033	)	 	(7,942	)	
Construction in progress	3,616		 	3,617		
Property, plant and equipment, net	21,108		 	20,296		
Other Assets:	 	 	 	
Investments in and advances to affiliates	1,277		 	1,197		
Debt service reserves and other deposits	494		 	565		
Goodwill	1,059		 	1,059		
Other intangible assets, net of accumulated amortization of $472 and $441, respectively	400		 	366		
Deferred income taxes	88		 	130		
Service concession assets, net of accumulated amortization of $0 and $206, respectively	—		 	1,360		
Loan receivable	1,441		 	—		
Other noncurrent assets	1,607		 	1,741		
Total other assets	6,366		 	6,418		
TOTAL ASSETS	$	32,489		 	$	33,112		
LIABILITIES AND EQUITY	 	 	 	
CURRENT LIABILITIES	 	 	 	
Accounts payable	$	1,299		 	$	1,371		
Accrued interest	272		 	228		
Accrued and other liabilities	1,151		 	1,232		
Non-recourse debt, includes $368 and $1,012, respectively, related to variable interest entities	1,308		 	2,164		
Current held-for-sale liabilities	17		 	1,033		
Total current liabilities	4,047		 	6,028		
NONCURRENT LIABILITIES	 	 	 	
Recourse debt	3,815		 	4,625		
Non-recourse debt, includes $2,832 and $1,358, respectively, related to variable interest entities	14,273		 	13,176		
Deferred income taxes	1,214		 	1,006		
Other noncurrent liabilities	2,552		 	2,595		
Total noncurrent liabilities	21,854		 	21,402		
Commitments and Contingencies (see Note 8)	 	 	 	
Redeemable stock of subsidiaries	879		 	837		
EQUITY	 	 	 	
THE AES CORPORATION STOCKHOLDERS’ EQUITY	 	 	 	
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 817,203,691 issued and 662,297,479 outstanding at September 30, 2018 and 816,312,913 issued and 660,388,128 outstanding at December 31, 2017)	8		 	8		
Additional paid-in capital	8,328		 	8,501		
Accumulated deficit	(1,133	)	 	(2,276	)	
Accumulated other comprehensive loss	(2,020	)	 	(1,876	)	
Treasury stock, at cost (154,906,212 and 155,924,785 shares at September 30, 2018 and December 31, 2017, respectively)	(1,878	)	 	(1,892	)	
Total AES Corporation stockholders’ equity	3,305		 	2,465		
NONCONTROLLING INTERESTS	2,404		 	2,380		
Total equity	5,709		 	4,845		
TOTAL LIABILITIES AND EQUITY	$	32,489		 	$	33,112		
See Notes to Condensed Consolidated Financial Statements.

2

THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
 	 	 	 	 	 	 	 	
 	(in millions, except per share amounts)	
Revenue:	 	 	 	 	 	 	 	
Regulated	$	777		 	$	853		 	$	2,215		 	$	2,449		
Non-Regulated	2,060		 	1,840		 	5,899		 	5,438		
Total revenue	2,837		 	2,693		 	8,114		 	7,887		
Cost of Sales:	 	 	 	 	 	 	 	
Regulated	(638	)	 	(704	)	 	(1,856	)	 	(2,088	)	
Non-Regulated	(1,528	)	 	(1,349	)	 	(4,331	)	 	(3,979	)	
Total cost of sales	(2,166	)	 	(2,053	)	 	(6,187	)	 	(6,067	)	
Operating margin	671		 	640		 	1,927		 	1,820		
General and administrative expenses	(43	)	 	(52	)	 	(134	)	 	(155	)	
Interest expense	(255	)	 	(297	)	 	(799	)	 	(860	)	
Interest income	79		 	63		 	231		 	185		
Loss on extinguishment of debt	(11	)	 	(49	)	 	(187	)	 	(44	)	
Other expense	(29	)	 	(36	)	 	(42	)	 	(67	)	
Other income	10		 	16		 	30		 	103		
Gain (loss) on disposal and sale of businesses	(21	)	 	(1	)	 	856		 	(49	)	
Asset impairment expense	(74	)	 	(2	)	 	(166	)	 	(260	)	
Foreign currency transaction gains (losses)	5		 	22		 	(44	)	 	14		
INCOME FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES	332		 	304		 	1,672		 	687		
Income tax expense	(146	)	 	(93	)	 	(509	)	 	(246	)	
Net equity in earnings of affiliates	6		 	24		 	31		 	33		
INCOME FROM CONTINUING OPERATIONS	192		 	235		 	1,194		 	474		
Income (loss) from operations of discontinued businesses, net of income tax expense of $0, $17, $2 and $24, respectively	(4	)	 	26		 	(9	)	 	35		
Gain from disposal of discontinued businesses, net of income tax expense of $2, $0, $44 and $0, respectively	3		 	—		 	199		 	—		
NET INCOME	191		 	261		 	1,384		 	509		
Noncontrolling interests:	 	 	 	 	 	 	 	
Less: Income from continuing operations attributable to noncontrolling interests and redeemable stocks of subsidiaries	(90	)	 	(88	)	 	(311	)	 	(298	)	
Less: Loss (income) from discontinued operations attributable to noncontrolling interests	—		 	(21	)	 	2		 	(30	)	
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	101		 	$	152		 	$	1,075		 	$	181		
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:	 	 	 	 	 	 	 	
Income from continuing operations, net of tax	$	102		 	$	147		 	$	883		 	$	176		
Income (loss) from discontinued operations, net of tax	(1	)	 	5		 	192		 	5		
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	101		 	$	152		 	$	1,075		 	$	181		
BASIC EARNINGS PER SHARE:	 	 	 	 	 	 	 	
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.15		 	$	0.22		 	$	1.33		 	$	0.27		
Income from discontinued operations attributable to The AES Corporation common stockholders, net of tax	—		 	0.01		 	0.29		 	0.01		
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	0.15		 	$	0.23		 	$	1.62		 	$	0.28		
DILUTED EARNINGS PER SHARE:	 	 	 	 	 	 	 	
Income from continuing operations attributable to The AES Corporation common stockholders, net of tax	$	0.15		 	$	0.22		 	$	1.33		 	$	0.27		
Income from discontinued operations attributable to The AES Corporation common stockholders, net of tax	—		 	0.01		 	0.29		 	0.01		
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS	$	0.15		 	$	0.23		 	$	1.62		 	$	0.28		
DILUTED SHARES OUTSTANDING	665		 	663		 	664		 	662		
DIVIDENDS DECLARED PER COMMON SHARE	$	0.13		 	$	0.12		 	$	0.26		 	$	0.24		
See Notes to Condensed Consolidated Financial Statements.

3

THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
 	 	 	 	 	 	 	 	
 	(in millions)	
NET INCOME	$	191		 	$	261		 	$	1,384		 	$	509		
Foreign currency translation activity:	 	 	 	 	 	 	 	
Foreign currency translation adjustments, net of income tax benefit of $2, $1, $3 and $0, respectively	(42	)	 	80		 	(159	)	 	29		
Reclassification to earnings, net of $0 income tax	(3	)	 	—		 	(1	)	 	98		
Total foreign currency translation adjustments	(45	)	 	80		 	(160	)	 	127		
Derivative activity:	 	 	 	 	 	 	 	
Change in derivative fair value, net of income tax benefit (expense) of $(3), $(6), $(3) and $15, respectively	15		 	5		 	32		 	(42	)	
Reclassification to earnings, net of income tax benefit (expense) of $(7), $5, $(15) and $(6), respectively	21		 	1		 	67		 	50		
Total change in fair value of derivatives	36		 	6		 	99		 	8		
Pension activity:	 	 	 	 	 	 	 	
Reclassification to earnings, net of income tax expense of $0, $4, $2 and $10, respectively	1		 	7		 	5		 	20		
Total pension adjustments	1		 	7		 	5		 	20		
OTHER COMPREHENSIVE INCOME (LOSS)	(8	)	 	93		 	(56	)	 	155		
COMPREHENSIVE INCOME	183		 	354		 	1,328		 	664		
Less: Comprehensive income attributable to noncontrolling interests	(114	)	 	(127	)	 	(416	)	 	(360	)	
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	69		 	$	227		 	$	912		 	$	304		
See Notes to Condensed Consolidated Financial Statements.

4

THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)

								
 	Nine Months Ended September 30,	
 	2018	 	2017	
 	 	 	 	
 	(in millions)	
OPERATING ACTIVITIES:	 	 	 	
Net income	$	1,384		 	$	509		
Adjustments to net income:	 	 	 	
Depreciation and amortization	770		 	884		
Loss (gain) on disposal and sale of businesses	(856	)	 	49		
Impairment expenses	172		 	260		
Deferred income taxes	221		 	(3	)	
Provisions for contingencies	1		 	30		
Loss on extinguishment of debt	187		 	44		
Net loss on sales of assets	23		 	34		
Gain on sale of discontinued operations	(243	)	 	—		
Other	206		 	73		
Changes in operating assets and liabilities	 	 	 	
(Increase) decrease in accounts receivable	(125	)	 	(279	)	
(Increase) decrease in inventory	(13	)	 	(66	)	
(Increase) decrease in prepaid expenses and other current assets	15		 	140		
(Increase) decrease in other assets	(22	)	 	(266	)	
Increase (decrease) in accounts payable and other current liabilities	(29	)	 	162		
Increase (decrease) in income taxes payable, net and other taxes payable	(61	)	 	(4	)	
Increase (decrease) in other liabilities	51		 	134		
Net cash provided by operating activities	1,681		 	1,701		
INVESTING ACTIVITIES:	 	 	 	
Capital expenditures	(1,592	)	 	(1,587	)	
Acquisitions of businesses, net of cash and restricted cash acquired, and equity method investments	(66	)	 	(590	)	
Proceeds from the sale of businesses, net of cash and restricted cash sold, and equity method investments	1,796		 	39		
Proceeds from the sale of assets	15		 	—		
Sale of short-term investments	1,010		 	2,942		
Purchase of short-term investments	(1,215	)	 	(2,673	)	
Contributions to equity affiliates	(101	)	 	(49	)	
Other investing	(37	)	 	(37	)	
Net cash used in investing activities	(190	)	 	(1,955	)	
FINANCING ACTIVITIES:	 	 	 	
Borrowings under the revolving credit facilities	1,434		 	1,489		
Repayments under the revolving credit facilities	(1,595	)	 	(851	)	
Issuance of recourse debt	1,000		 	1,025		
Repayments of recourse debt	(1,781	)	 	(1,353	)	
Issuance of non-recourse debt	1,509		 	2,703		
Repayments of non-recourse debt	(1,139	)	 	(1,731	)	
Payments for financing fees	(32	)	 	(96	)	
Distributions to noncontrolling interests	(199	)	 	(263	)	
Contributions from noncontrolling interests and redeemable security holders	40		 	59		
Dividends paid on AES common stock	(258	)	 	(238	)	
Payments for financed capital expenditures	(186	)	 	(100	)	
Proceeds from sales to noncontrolling interests	—		 	60		
Other financing	44		 	(26	)	
Net cash provided by (used in) financing activities	(1,163	)	 	678		
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(50	)	 	21		
(Increase) decrease in cash, cash equivalents and restricted cash of discontinued operations and held-for-sale businesses	56		 	(107	)	
Total increase in cash, cash equivalents and restricted cash	334		 	338		
Cash, cash equivalents and restricted cash, beginning	1,788		 	1,960		
Cash, cash equivalents and restricted cash, ending	$	2,122		 	$	2,298		
SUPPLEMENTAL DISCLOSURES:	 	 	 	
Cash payments for interest, net of amounts capitalized	$	683		 	$	797		
Cash payments for income taxes, net of refunds	313		 	291		
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:	 	 	 	
Non-cash acquisition of intangible assets	$	14		 	$	—		
Non-cash contributions of assets and liabilities for Fluence acquisition	20		 	—		
Non-cash exchange of debentures for the acquisition of the Guaimbê Solar Complex (see Note 18—Acquisitions)	119		 	—		
Conversion of Alto Maipo loans and accounts payable into equity (see Note 10—Equity)	—		 	279		

See Notes to Condensed Consolidated Financial Statements.

5

THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2018 and 2017
(Unaudited)
1 . FINANCIAL STATEMENT PRESENTATION
The prior period condensed consolidated financial statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) have been reclassified to reflect the businesses classified as discontinued operations as discussed in Note 16 —Discontinued Operations . Certain prior period amounts have been reclassified to comply with newly adopted accounting standards. See further detail in the new accounting pronouncements discussion.
Consolidation — In this Quarterly Report the terms “AES,” “the Company,” “us” or “we” refer to the consolidated entity, including its subsidiaries and affiliates. The terms “The AES Corporation” or “the Parent Company” refer only to the publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. Furthermore, VIEs in which the Company has a variable interest have been consolidated where the Company is the primary beneficiary. Investments in which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.
Interim Financial Presentation — The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income, and cash flows. The results of operations for the three and nine months ended September 30, 2018 , are not necessarily indicative of expected results for the year ending December 31, 2018 . The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2017 audited consolidated financial statements and notes thereto, which are included in the 2017 Form 10-K filed with the SEC on February 26, 2018 (the “ 2017 Form 10-K”).
Cash, Cash Equivalents, and Restricted Cash — The following table provides a summary of cash, cash equivalents, and restricted cash amounts reported on the Condensed Consolidated Balance Sheet that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows (in millions):

								
 	September 30, 2018	 	December 31, 2017	
Cash and cash equivalents	$	1,187		 	$	949		
Restricted cash	441		 	274		
Debt service reserves and other deposits	494		 	565		
Cash, Cash Equivalents, and Restricted Cash	$	2,122		 	$	1,788		

New Accounting Pronouncements Adopted in 2018 — The following table provides a brief description of recent accounting pronouncements that had an impact on the Company’s consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on the Company’s consolidated financial statements.

6

	
				
New Accounting Standards Adopted	
ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption	
2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost	This standard changes the presentation of non-service costs associated with defined benefit plans and updates the guidance so that only the service cost component will be eligible for capitalization.
Transition method: retrospective for presentation of non-service cost and prospective for the change in capitalization.	January 1, 2018	For the three and nine months ended September 30, 2017, $2 million and $1 million of gains primarily related to the expected return on plan assets were reclassified from Costs of Sales to Other Expense, respectively.	
2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Topic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets	This standard clarifies the scope and application of ASC 610-20 on the sale, transfer, and derecognition of nonfinancial assets and in substance nonfinancial assets to non-customers, including partial sales. It also provides guidance on how gains and losses on transfers of nonfinancial assets and in substance nonfinancial assets to non-customers are recognized. The standard also clarifies that the derecognition of businesses is under the scope of ASC 810. The standard must be adopted concurrently with ASC 606, however an entity will not have to apply the same transition method as ASC 606.
Transition method: modified retrospective.	January 1, 2018	As more transactions will not meet the definition of a business due to the adoption of ASU 2017-01, more dispositions or partial sales will be out of the scope of ASC 810 and will be under this standard.

	
				
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business	The standard requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and if that threshold is met, the set is not a business. As a second step, at least one substantive process should exist to be considered a business.
Transition method: prospective.	January 1, 2018	Some acquisitions and dispositions will now fall under a different accounting model. This will reduce the number of transactions that are accounted for as business combinations and therefore future acquired goodwill.	
2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)	This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
Transition method: retrospective.	January 1, 2018	For the nine months ended September 30, 2017, cash provided by operating activities increased by $12 million, cash used in investing activities decreased by $327 million, and cash provided by financing activities was unchanged.	
2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	The standard significantly revises an entity’s accounting related to (1) classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosures of financial instruments.
Transition method: modified retrospective. Prospective for equity investments without readily determinable fair value.	January 1, 2018	No material impact upon adoption of the standard.	
2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-10, 2017-13, Revenue from Contracts with Customers (Topic 606)
	See discussion of the ASU below.	January 1, 2018	See impact upon adoption of the standard below.	

On January 1, 2018, the Company adopted ASU 2014-09, "Revenue from Contracts with Customers," and its subsequent corresponding updates ("ASC 606"). Under this standard, an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applied the modified retrospective method of adoption to the contracts that were not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with the previous revenue recognition standard. For contracts that were modified before January 1, 2018, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.
The cumulative effect to our January 1, 2018 Condensed Consolidated Balance Sheet resulting from the adoption of ASC 606 was as follows (in millions):

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

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

7

under the effective interest rate method. The other performance obligation to operate and maintain the facility is measured based on the capacity made available.
The impact to our Condensed Consolidated Balance Sheet as of September 30, 2018 resulting from the adoption of ASC 606 as compared to the previous revenue recognition standard was as follows (in millions):

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

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

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

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

New Accounting Pronouncements Issued But Not Yet Effective — The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s consolidated financial statements once adopted. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on the Company’s consolidated financial statements.

8

	
				
New Accounting Standards Issued But Not Yet Effective	
ASU Number and Name	Description	Date of Adoption	Effect on the financial statements upon adoption	
2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract	This standard aligns the accounting for implementation costs incurred for a cloud computing arrangement that is a service with the requirement for capitalizing implementation costs associated with developing or obtaining internal-use software.
Transition method: retrospective or prospective.	January 1, 2020. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.	
2018-02, Income Statement — Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from AOCI	This amendment allows a reclassification of the stranded tax effects resulting from the implementation of the Tax Cuts and Jobs Act from AOCI to retained earnings. Because this amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.	
2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities	The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item.
Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures.	January 1, 2019. Early adoption is permitted.
	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.	
2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Accounting for Certain Financial Instruments and Certain Mandatorily Redeemable Noncontrolling Interests	Part 1 of this standard changes the classification of certain equity-linked financial instruments when assessing whether the instrument is indexed to an entity’s own stock.
Transition method: retrospective.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.	
2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities	This standard shortens the period of amortization for the premium on certain callable debt securities to the earliest call date.
Transition method: modified retrospective.	January 1, 2019. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.	
2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment	This standard simplifies the accounting for goodwill impairment by removing the requirement to calculate the implied fair value. Instead, it requires that an entity records an impairment charge based on the excess of a reporting unit's carrying amount over its fair value.
Transition method: prospective.	January 1, 2020. Early adoption is permitted.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.	
2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The standard updates the impairment model for financial assets measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities.
Transition method: various.	January 1, 2020. Early adoption is permitted only as of January 1, 2019.	The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.	
2016-02, 2018-01, 2018-10, 2018-11, Leases (Topic 842)	See discussion of the ASU below.	January 1, 2019. Early adoption is permitted.	The Company will adopt the standard on January 1, 2019; see below for the evaluation of the impact of its adoption on the consolidated financial statements.	
ASU 2016-02 and its subsequent corresponding updates will require lessees to recognize assets and liabilities for most leases, and recognize expenses in a manner similar to the current accounting method. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance also eliminates the current real estate-specific provisions.

9

The standard must be adopted using a modified retrospective approach at the beginning of the earliest comparative period presented in the financial statements (January 1, 2017). The FASB amended the standard to add an optional transition method that allows entities to continue to apply the guidance in ASC 840 Leases in the comparative periods presented in the year they adopt the new lease standard. Under this transition method, the Company will apply the transition provisions on January 1, 2019. At transition, lessees and lessors are permitted to make an election to apply a package of practical expedients that allow them not to reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3) whether initial direct costs for any expired or existing leases qualify for capitalization under ASC 842. These three practical expedients must be elected as a package and must be consistently applied to all leases. Furthermore, entities are also permitted to make an election to use hindsight when determining lease term and lessees can elect to use hindsight when assessing the impairment of right-of-use assets.
The Company has established a task force focused on the identification of contracts that would be under the scope of the new standard and on the assessment and measurement of the right-of-use asset and related liability. Additionally, the implementation team has been working on the configuration of a lease accounting tool that will support the implementation and the subsequent accounting. The implementation of this tool is in the latest phase and it is expected to be completed by the effective date. The implementation team is also in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard.
The Company has preliminarily concluded that it will use the package of practical expedients at transition. The main impact expected as of the effective date is the recognition of right-of-use assets and related liabilities for all contracts that contain a lease and for which the Company is the lessee. However, the income statement presentation and the expense recognition pattern are not expected to change.
Under ASC 842, it is expected that fewer contracts will contain a lease. However, due to the elimination of today's real estate-specific guidance and changes to certain lessor classification criteria, more leases will qualify as sales-type leases and direct financing leases. Under these two models, a lessor will derecognize the asset and will recognize a lease receivable. According to ASC 842, the lease receivable does not include variable payments that depend on the use of the asset (e.g. Mwh produced by a facility). Therefore, the lease receivable could be lower than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized lease receivable and the carrying amount of the underlying asset is recognized as a loss at lease commencement. The Company is assessing how this guidance will apply to new renewable contracts executed or modified after the effective date where all the payments are contingent on the level of production and is also evaluating the related impact to the allocation of earnings under HLBV accounting.
2 . INVENTORY
The following table summarizes the Company’s inventory balances as of the periods indicated (in millions):

								
 	September 30, 2018	 	December 31, 2017	
Fuel and other raw materials	$	278		 	$	284		
Spare parts and supplies	284		 	278		
Total	$	562		 	$	562		

3 . FAIR VALUE
The fair value of current financial assets and liabilities, debt service reserves and other deposits approximate their reported carrying amounts. The estimated fair values of the Company’s assets and liabilities have been determined using available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For further information on our valuation techniques and policies, see Note 4— Fair Value in Item 8.— Financial Statements and Supplementary Data of our 2017 Form 10-K.
Recurring Measurements — The following table presents, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of the dates indicated (in millions). For the Company’s investments in marketable debt securities, the security classes presented are determined based on the nature and risk of the security and are consistent with how the Company manages, monitors and measures its marketable securities:

10

	
																																
 	September 30, 2018	 	December 31, 2017	
 	Level 1	 	Level 2	 	Level 3	 	Total	 	Level 1	 	Level 2	 	Level 3	 	Total	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DEBT SECURITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Available-for-sale:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unsecured debentures	$	—		 	$	60		 	$	—		 	$	60		 	$	—		 	$	207		 	$	—		 	$	207		
Certificates of deposit	—		 	270		 	—		 	270		 	—		 	153		 	—		 	153		
Total debt securities	—		 	330		 	—		 	330		 	—		 	360		 	—		 	360		
EQUITY SECURITIES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mutual funds	21		 	45		 	—		 	66		 	20		 	52		 	—		 	72		
Other equity securities	—		 	3		 	—		 	3		 	—		 	—		 	—		 	—		
Total equity securities	21		 	48		 	—		 	69		 	20		 	52		 	—		 	72		
DERIVATIVES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate derivatives	—		 	65		 	5		 	70		 	—		 	15		 	—		 	15		
Cross-currency derivatives	—		 	26		 	—		 	26		 	—		 	29		 	—		 	29		
Foreign currency derivatives	—		 	22		 	221		 	243		 	—		 	29		 	240		 	269		
Commodity derivatives	—		 	9		 	8		 	17		 	—		 	30		 	5		 	35		
Total derivatives — assets	—		 	122		 	234		 	356		 	—		 	103		 	245		 	348		
TOTAL ASSETS	$	21		 	$	500		 	$	234		 	$	755		 	$	20		 	$	515		 	$	245		 	$	780		
Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
DERIVATIVES:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate derivatives	$	—		 	$	60		 	$	101		 	$	161		 	$	—		 	$	111		 	$	151		 	$	262		
Cross-currency derivatives	—		 	2		 	—		 	2		 	—		 	3		 	—		 	3		
Foreign currency derivatives	—		 	54		 	—		 	54		 	—		 	30		 	—		 	30		
Commodity derivatives	—		 	4		 	—		 	4		 	—		 	19		 	1		 	20		
Total derivatives — liabilities	—		 	120		 	101		 	221		 	—		 	163		 	152		 	315		
TOTAL LIABILITIES	$	—		 	$	120		 	$	101		 	$	221		 	$	—		 	$	163		 	$	152		 	$	315		

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

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Gross proceeds from sale of AFS securities (1)	$	713		 	$	365		 	$	1,127		 	$	1,158		
_____________________________
		
(1)  	Three and nine months ended September 30, 2018 include $119 million non-cash proceeds from non-convertible debentures at Guaimbê Solar Complex. See Note 18 —Acquisitions for further information.	
The following tables present a reconciliation of net derivative assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2018 and 2017 (presented net by type of derivative in millions). Transfers between Level 3 and Level 2 are determined as of the end of the reporting period and principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.

																
Three Months Ended September 30, 2018	Interest Rate	 	Foreign Currency	 	Commodity	 	Total	
Balance at July 1	$	(111	)	 	$	219		 	$	10		 	$	118		
Total realized and unrealized gains (losses):	 	 	 	 	 	 	 	
Included in other comprehensive income — derivative activity	12		 	—		 	—		 	12		
Included in regulatory liabilities	—		 	—		 	(2	)	 	(2	)	
Settlements	3		 	2		 	—		 	5		
Balance at September 30	$	(96	)	 	$	221		 	$	8		 	$	133		
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	1		 	$	2		 	$	—		 	$	3		

	
																
Three Months Ended September 30, 2017	Interest Rate	 	Foreign Currency	 	Commodity	 	Total	
Balance at July 1	$	(195	)	 	$	239		 	$	9		 	$	53		
Total realized and unrealized gains (losses):	 	 	 	 	 	 	 	
Included in earnings	(5	)	 	12		 	—		 	7		
Included in other comprehensive income — derivative activity	(2	)	 	—		 	—		 	(2	)	
Settlements	10		 	(9	)	 	(3	)	 	(2	)	
Balance at September 30	$	(192	)	 	$	242		 	$	6		 	$	56		
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	(1	)	 	$	3		 	$	—		 	$	2		

11

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

	
																
Nine Months Ended September 30, 2017	Interest Rate	 	Foreign Currency	 	Commodity	 	Total	
Balance at January 1	$	(179	)	 	$	255		 	$	5		 	$	81		
Total realized and unrealized gains (losses):	 	 	 	 	 	 	 	
Included in earnings	(5	)	 	12		 	(1	)	 	6		
Included in other comprehensive income — derivative activity	(29	)	 	—		 	—		 	(29	)	
Included in regulatory liabilities	—		 	—		 	10		 	10		
Settlements	28		 	(25	)	 	(8	)	 	(5	)	
Transfers of assets/(liabilities), net into Level 3	(7	)	 	—		 	—		 	(7	)	
Balance at September 30	$	(192	)	 	$	242		 	$	6		 	$	56		
Total losses for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	—		 	$	(12	)	 	$	—		 	$	(12	)	

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

									
Type of Derivative	 	Fair Value	 	Unobservable Input	 	Amount or Range (Weighted Average)	
Interest rate	 	$	(96	)	 	Subsidiaries’ credit spreads	 	1.78% to 4.38% (3.63%)	
Foreign currency:	 	 	 	 	 	 	
Argentine Peso	 	221		 	Argentine peso to USD currency exchange rate after one year	 	42.08 to 166.5 (99.21)	
Commodity:	 	 	 	 	 	 	
Other	 	8		 	 	 	 	
Total	 	$	133		 	 	 	 	
For interest rate derivatives and foreign currency derivatives, increases (decreases) in the estimates of the Company’s own credit spreads would decrease (increase) the value of the derivatives in a liability position. For foreign currency derivatives, increases (decreases) in the estimate of the above exchange rate would increase (decrease) the value of the derivative.
Nonrecurring Measurements
The Company measures fair value using the applicable fair value measurement guidance. Impairment expense is measured by comparing the fair value at the evaluation date to the then-latest available carrying amount. The following table summarizes our major categories of assets measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):

																						
 	Measurement Date	 	Carrying Amount   (1)	 	Fair Value	 	Pretax Loss	
Nine months ended September 30, 2018		 			Level 1	 	Level 2	 	Level 3	 		
Equity Method Investments	 	 	 	 	 	 	 	 	 	 	 	
Elsta	09/30/2018	 	$	21		 	$	—		 	$	16		 	$	—		 	$	5		
Long-lived assets held and used: (2)	 	 	 	 	 	 	 	 	 	 	 	
U.S. generation facility	09/30/2018	 	185		 	—		 	—		 	33		 	156		

																						
 	Measurement Date	 	Carrying Amount   (1)	 	Fair Value	 	Pretax Loss	
Nine Months Ended September 30, 2017		 			Level 1	 	Level 2	 	Level 3	 		
Long-lived assets held and used: (2)	 	 	 	 	 	 	 	 	 	 	 	
DPL	02/28/2017	 	$	77		 	$	—		 	$	—		 	$	11		 	$	66		
Other	02/28/2017	 	15		 	—		 	—		 	7		 	8		
Held-for-sale businesses: (3)	 	 	 	 	 	 	 	 	 	 	 	
Kazakhstan Hydroelectric	06/30/2017	 	190		 	—		 	92		 	—		 	92		
Kazakhstan	03/31/2017	 	171		 	—		 	29		 	—		 	94		
_____________________________
		
(1)  	Represents the carrying values at the dates of initial measurement, before fair value adjustment.	
		
(2)  	See Note 14 —Asset Impairment Expense for further information.	
		
(3)  	Per the Company’s policy, pretax loss is limited to the impairment of long-lived assets. Any additional loss will be recognized on completion of the sale. See Note 17 —Held-for-Sale and Dispositions for further information.	

12

When determining the fair value of the U.S. generation facility’s long-lived assets, the Company used the market approach based on prices and unobservable inputs from transactions involving comparable assets as the inputs for the Level 3 nonrecurring measurement.  
Asset Retirement Obligation — During the nine months ended September 30, 2018 , the Company increased the asset retirement obligation at IPL by $53 million . This increase was due to ash pond closure costs and revised closure dates associated with an EPA rule regulating CCR and additional coal pile remediation costs. The Company uses the cost approach to determine the fair value of ARO liabilities, which is estimated by discounting expected cash outflows to their present value using market based rates at the initial recording of the liabilities. Cash outflows are based on the approximate future disposal costs as determined by market information, historical information or other management estimates. These inputs to the fair value of the ARO liabilities would be considered Level 3 inputs under the fair value hierarchy.
Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets
The following table presents (in millions) the carrying amount, fair value and fair value hierarchy of the Company’s financial assets and liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017 , but for which fair value is disclosed:

																					
 	 	September 30, 2018	
 	 	Carrying
Amount	 	Fair Value	
 	 			Total	 	Level 1	 	Level 2	 	Level 3	
Assets:	Accounts receivable — noncurrent (1)	$	105		 	$	224		 	$	—		 	$	—		 	$	224		
Liabilities:	Non-recourse debt	15,581		 	15,429		 	—		 	12,699		 	2,730		
 	Recourse debt	3,820		 	3,901		 	—		 	3,901		 	—		

																					
 	 	December 31, 2017	
 	 	Carrying
Amount	 	Fair Value	
 	 			Total	 	Level 1	 	Level 2	 	Level 3	
Assets:	Accounts receivable — noncurrent (1)	$	163		 	$	217		 	$	—		 	$	6		 	$	211		
Liabilities:	Non-recourse debt	15,340		 	15,890		 	—		 	13,350		 	2,540		
 	Recourse debt	4,630		 	4,920		 	—		 	4,920		 	—		
_____________________________
		
(1)  	These amounts primarily relate to amounts due from CAMMESA, the administrator of the wholesale electricity market in Argentina, and are included in Other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of $14 million and $31 million as of September 30, 2018 and December 31, 2017 , respectively.	
4 . DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
For further information on the derivative and hedging accounting policies see Note 1— General and Summary of Significant Accounting Policies — Derivatives and Hedging Activities of Item 8.— Financial Statements and Supplementary Data in the 2017 Form 10-K.
Volume of Activity — The following table presents the Company’s maximum notional (in millions) over the remaining contractual period by type of derivative as of September 30, 2018 , regardless of whether they are in qualifying cash flow hedging relationships, and the dates through which the maturities for each type of derivative range:

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

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Accounting and Reporting — Assets and Liabilities — The following tables present the fair value of assets and liabilities related to the Company’s derivative instruments as of September 30, 2018 and December 31, 2017 (in millions):

																								
Fair Value	September 30, 2018	 	December 31, 2017	
Assets	Designated	 	Not Designated	 	Total	 	Designated	 	Not Designated	 	Total	
Interest rate derivatives	$	68		 	$	2		 	$	70		 	$	15		 	$	—		 	$	15		
Cross-currency derivatives	26		 	—		 	26		 	29		 	—		 	29		
Foreign currency derivatives	—		 	243		 	243		 	8		 	261		 	269		
Commodity derivatives	—		 	17		 	17		 	5		 	30		 	35		
Total assets	$	94		 	$	262		 	$	356		 	$	57		 	$	291		 	$	348		
Liabilities	 	 	 	 	 	 	 	 	 	 	 	
Interest rate derivatives	$	159		 	$	2		 	$	161		 	$	125		 	$	137		 	$	262		
Cross-currency derivatives	2		 	—		 	2		 	3		 	—		 	3		
Foreign currency derivatives	29		 	25		 	54		 	1		 	29		 	30		
Commodity derivatives	—		 	4		 	4		 	9		 	11		 	20		
Total liabilities	$	190		 	$	31		 	$	221		 	$	138		 	$	177		 	$	315		

																
 	September 30, 2018	 	December 31, 2017	
Fair Value	Assets	 	Liabilities	 	Assets	 	Liabilities	
Current	$	74		 	$	69		 	$	84		 	$	211		
Noncurrent	282		 	152		 	264		 	104		
Total	$	356		 	$	221		 	$	348		 	$	315		

As of September 30, 2018 , all derivative instruments subject to credit risk-related contingent features were in an asset position. 

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

(1)  	Based on the credit rating of certain subsidiaries	
Earnings and Other Comprehensive Income (Loss) — The next table presents (in millions) the pre-tax gains (losses) recognized in AOCL and earnings related to all derivative instruments for the periods indicated:

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

_____________________________
		
(1)	Cash flow hedge was discontinued because it was probable the forecasted transaction will not occur.	
AOCL is expected to decrease pre-tax income from continuing operations for the twelve months ended September 30, 2019 by $66 million , primarily due to interest rate derivatives.
5 . FINANCING RECEIVABLES
Receivables with contractual maturities of greater than one year are considered financing receivables. The Company’s financing receivables are primarily related to amended agreements or government resolutions that are

14

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

								
 	September 30, 2018	 	December 31, 2017	
Argentina	$	83		 	$	177		
Panama	27		 	—		
Other	9		 	17		
Total	$	119		 	$	194		

Argentina — Collection of the principal and interest on these receivables is subject to various business risks and uncertainties, including, but not limited to, the operation of power plants which generate cash for payments of these receivables, regulatory changes that could impact the timing and amount of collections, and economic conditions in Argentina. The Company monitors these risks, including the credit ratings of the Argentine government, on a quarterly basis to assess the collectability of these receivables. The Company accrues interest on these receivables once the recognition criteria have been met. The Company’s collection estimates are based on assumptions that it believes to be reasonable, but are inherently uncertain. Actual future cash flows could differ from these estimates.
6 . INVESTMENTS IN AND ADVANCES TO AFFILIATES
Summarized Financial Information — The following table summarizes financial information of the Company’s 50%-or-less-owned affiliates that are accounted for using the equity method (in millions):

								
 	Nine Months Ended September 30,	
50%-or-less-Owned Affiliates	2018	 	2017	
Revenue	$	734		 	$	532		
Operating margin	119		 	91		
Net income	36		 	44		

Simple Energy — In April 2018, the Company invested $35 million in Simple Energy, a provider of utility-branded marketplaces and omni-channel instant rebates. As the Company does not control Simple Energy, the investment is accounted for as an equity method investment and is reported as part of Corporate and Other.
Fluence — On January 1, 2018, Siemens and AES closed on the creation of the Fluence joint venture with each party holding a 50% ownership interest. The Company contributed $7 million in cash and $20 million in non-cash assets from the AES Advancion energy storage development business as consideration for the transaction, and received an equity interest in Fluence with a fair value of $50 million . See Note 17 —Held-for-Sale and Dispositions for further discussion. Fluence is a global energy storage technology and services company. As the Company does not control Fluence, the investment is accounted for as an equity method investment. The Fluence equity method investment is reported as part of Corporate and Other.
sPower — In February 2017, the Company and Alberta Investment Management Corporation (“AIMCo”) entered into an agreement to acquire FTP Power LLC (“sPower”). In July 2017, AES closed on the acquisition of its 48% ownership interest in sPower for $461 million . In November 2017, AES acquired an additional 2% ownership interest in sPower for $19 million . As the Company does not control sPower, the investment is accounted for as an equity method investment. The sPower portfolio includes solar and wind projects in operation, under construction, and in development located in the United States. The sPower equity method investment is reported in the US and Utilities SBU reportable segment.
7 . DEBT
Recourse Debt
In March 2018, the Company repurchased via tender offers $671 million aggregate principal of its existing 5.50% senior unsecured notes due in 2024 and $29 million of its existing 5.50% senior unsecured notes due in 2025 . As a result of these transactions, the Company recognized a loss on extinguishment of debt of $44 million for the nine months ended September 30, 2018 .
In March 2018, the Company issued $500 million aggregate principal of 4.00% senior notes due in 2021 and $500 million of 4.50% senior notes due in 2023 . The Company used the proceeds from these issuances to repurchase via tender offer in full the $228 million balance of its 8.00% senior notes due in 2020 and the $690 million million balance of its 7.375% senior notes due in 2021 . As a result of these transactions, the Company recognized a loss on extinguishment of debt of $125 million for the nine months ended September 30, 2018 .
In August 2017, the Company issued $500 million aggregate principal amount of 5.125% senior notes due in

15

2027 . The Company used these proceeds to redeem at par $240 million aggregate principal of its existing LIBOR + 3.00% senior unsecured notes due in 2019 and repurchased $217 million of its existing 8.00% senior unsecured notes due in 2020 . As a result of the latter transactions, the Company recognized a loss on extinguishment of debt of $36 million for the nine months ended September 30, 2017 .
In May 2017, the Company closed on $525 million aggregate principal LIBOR + 2.00% secured term loan due in 2022 . In June 2017, the Company used these proceeds to redeem at par all $517 million aggregate principal of its existing Term Convertible Securities. As a result of the latter transaction, the Company recognized a net loss on extinguishment of debt of $6 million for the three and six months ended September 30, 2017 .
In March 2017, the Company repurchased via tender offers $276 million aggregate principal of its existing 7.375% senior unsecured notes due in 2021 and $24 million of its existing 8.00% senior unsecured notes due in 2020 . As a result of these transactions, the Company recognized a loss on extinguishment of debt of $47 million for the nine months ended September 30, 2017 .
Non-Recourse Debt
During the nine months ended September 30, 2018 , the Company’s subsidiaries had the following significant debt transactions: 

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

AES Argentina — In February 2017, AES Argentina issued $300 million aggregate principal of unsecured and unsubordinated notes due in 2024 . The net proceeds from this issuance were used for the prepayment of $75 million of non-recourse debt related to the construction of the San Nicolas Plant resulting in a gain on extinguishment of debt of approximately $65 million .
Non-Recourse Debt in Default — The current portion of non-recourse debt includes the following subsidiary debt in default as of September 30, 2018 (in millions). 

											
Subsidiary	 	Primary Nature of Default	 	Debt in Default	 	Net Assets	
AES Puerto Rico	 	Covenant	 	$	322		 	$	135		
AES Ilumina (Puerto Rico)	 	Covenant	 	35		 	17		
 	 	 	 	$	357		 	 	

The above defaults are not payment defaults. All of the subsidiary non-recourse debt defaults were triggered by failure to comply with covenants and/or other conditions such as (but not limited to) failure to meet information covenants, complete construction or other milestones in an allocated time, meet certain minimum or maximum financial ratios, or other requirements contained in the non-recourse debt documents of the applicable subsidiary.
The AES Corporation’s recourse debt agreements include cross-default clauses that will trigger if a subsidiary or group of subsidiaries for which the non-recourse debt is in default provides more than 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently completed fiscal quarters. As of September 30, 2018 , the Company had no defaults which resulted in or were at risk of triggering a cross-default under the recourse debt of the Parent Company. In the event the Parent Company is not in compliance with the financial covenants of its senior secured revolving credit facility, restricted payments will be limited to regular quarterly shareholder dividends at the then-prevailing rate. Payment defaults and bankruptcy defaults would preclude the making of any restricted payments.
8 . COMMITMENTS AND CONTINGENCIES
Guarantees, Letters of Credit and Commitments — In connection with certain project financings, acquisitions and dispositions, power purchases and other agreements, the Parent Company has expressly undertaken limited obligations and commitments, most of which will only be effective or will be terminated upon the occurrence of future events. In the normal course of business, the Parent Company has entered into various agreements, mainly guarantees and letters of credit, to provide financial or performance assurance to third parties on behalf of AES businesses. These agreements are entered into primarily to support or enhance the creditworthiness otherwise achieved by a business on a stand-alone basis, thereby facilitating the availability of

16

sufficient credit to accomplish their intended business purposes. Most of the contingent obligations relate to future performance commitments which the Company or its businesses expect to fulfill within the normal course of business. The expiration dates of these guarantees vary from less than one year to more than 18 years .
The following table summarizes the Parent Company’s contingent contractual obligations as of September 30, 2018 . Amounts presented in the following table represent the Parent Company’s current undiscounted exposure to guarantees and the range of maximum undiscounted potential exposure. The maximum exposure is not reduced by the amounts, if any, that could be recovered under the recourse or collateralization provisions in the guarantees.

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

_____________________________
		
(1)  	Excludes normal and customary representations and warranties in agreements for the sale of assets (including ownership in associated legal entities) where the associated risk is considered to be nominal.	
During the nine months ended September 30, 2018 , the Company paid letter of credit fees ranging from 1% to 3%  per annum on the outstanding amounts of letters of credit.
Contingencies
Environmental — The Company periodically reviews its obligations as they relate to compliance with environmental laws, including site restoration and remediation. For each period ended September 30, 2018 and December 31, 2017 , the Company had recognized liabilities of $5 million for projected environmental remediation costs. Due to the uncertainties associated with environmental assessment and remediation activities, future costs of compliance or remediation could be higher or lower than the amount currently accrued. Moreover, where no liability has been recognized, it is reasonably possible that the Company may be required to incur remediation costs or make expenditures in amounts that could be material but could not be estimated as of September 30, 2018 . In aggregate, the Company estimates the range of potential losses, where estimable, related to environmental matters to be up to $16 million . The amounts considered reasonably possible do not include amounts accrued as discussed above.
Litigation — The Company is involved in certain claims, suits and legal proceedings in the normal course of business. The Company accrues for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company has recognized aggregate liabilities for all claims of approximately $48 million and $50 million as of September 30, 2018 and December 31, 2017 , respectively. These amounts are reported on the Condensed Consolidated Balance Sheets within Accrued and other liabilities and Other noncurrent liabilities . A significant portion of these accrued liabilities relate to regulatory matters and commercial disputes in international jurisdictions. There can be no assurance that these accrued liabilities will be adequate to cover all existing and future claims or that we will have the liquidity to pay such claims as they arise.
Where no accrued liability has been recognized, it is reasonably possible that some matters could be decided unfavorably to the Company and could require the Company to pay damages or make expenditures in amounts that could be material but could not be estimated as of September 30, 2018 . The material contingencies where a loss is reasonably possible primarily include disputes with offtakers, suppliers and EPC contractors; alleged violation of laws and regulations; income tax and non-income tax matters with tax authorities; and regulatory matters. In aggregate, the Company estimates the range of potential losses, where estimable, related to these reasonably possible material contingencies to be between $99 million and $127 million . The amounts considered reasonably possible do not include the amounts accrued, as discussed above. These material contingencies do not include income tax-related contingencies which are considered part of our uncertain tax positions.

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9 . REDEEMABLE STOCK OF SUBSIDIARIES
The following table summarizes the Company’s redeemable stock of subsidiaries balances as of the periods indicated (in millions): 

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

 _____________________________

(1)  	Characteristics of quotas are similar to common stock.	
Colon — Our partner in Colon made capital contributions of $34 million and $30 million during the nine months ended September 30, 2018 and 2017, respectively. Any subsequent adjustments to allocate earnings and dividends to our partner, or measure the investment at fair value, will be classified as temporary equity each reporting period as it is probable that the shares will become redeemable.
10 . EQUITY
Changes in Equity — The following table is a reconciliation of the beginning and ending equity attributable to stockholders of The AES Corporation, NCI and total equity as of the periods indicated (in millions):

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

_____________________________

(1)  	See Note 1 —Financial Statement Presentation, New Accounting Standards Adopted for further information.	
		
(2)  	Adjustment to record the redeemable stock of Colon at fair value.	
		
(3)  	See Note 17 —Held-for-Sale and Dispositions for further information.	
Equity Transactions with Noncontrolling Interests
Dominican Republic — On September 28, 2017, Linda Group, an investor-based group in the Dominican Republic acquired an additional 5% of our Dominican Republic business for $60 million , pre-tax. This transaction resulted in a net increase of $25 million to the Company’s additional paid-in capital and noncontrolling interest, respectively. No gain or loss was recognized in net income as the sale was not considered a sale of in-substance real estate. As the Company maintained control after the sale, our businesses in the Dominican Republic continue to be consolidated by the Company within the MCAC SBU reportable segment.
Alto Maipo — On March 17, 2017, AES Gener completed the legal and financial restructuring of Alto Maipo. As part of this restructuring, AES indirectly acquired the 40% ownership interest of the noncontrolling shareholder, for a de minimis payment, and sold a 6.7% interest in the project to the construction contractor. This transaction resulted in a $196 million increase to the Parent Company’s Stockholders’ Equity due to an increase in additional-paid-in capital of $229 million , offset by the reclassification of accumulated other comprehensive losses from NCI to the Parent Company Stockholders’ Equity of $33 million . No gain or loss was recognized in net income as the sale was not considered to be a sale of in-substance real estate. After completion of the sale, the Company has an effective 62% economic interest in Alto Maipo. As the Company maintained control of the partnership after the sale, Alto Maipo continues to be consolidated by the Company within the South America SBU reportable segment.

18

Accumulated Other Comprehensive Loss — The following table summarizes the changes in AOCL by component, net of tax and NCI, for the nine months ended September 30, 2018 (in millions):

																
 	Foreign currency translation adjustment, net	 	Unrealized derivative gains (losses), net	 	Unfunded pension obligations, net	 	Total	
Balance at the beginning of the period	$	(1,486	)	 	$	(333	)	 	$	(57	)	 	$	(1,876	)	
Other comprehensive income (loss) before reclassifications	(231	)	 	9		 	—		 	(222	)	
Amount reclassified to earnings	(1	)	 	55		 	5		 	59		
Other comprehensive income (loss)	(232	)	 	64		 	5		 	(163	)	
Cumulative effect of a change in accounting principle	—		 	19		 	—		 	19		
Balance at the end of the period	$	(1,718	)	 	$	(250	)	 	$	(52	)	 	$	(2,020	)	

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

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

Common Stock Dividends — The Parent Company paid dividends of $0.13 per outstanding share to its common stockholders during the first , second and third quarters of 2018 for dividends declared in December 2017 , February and July 2018, respectively.
On October 5, 2018, the Board of Directors declared a quarterly common stock dividend of $0.13 per share payable on November 15, 2018, to shareholders of record at the close of business on November 1, 2018.
11 . SEGMENTS
The segment reporting structure uses the Company’s management reporting structure as its foundation to reflect how the Company manages the businesses internally and is mainly organized by geographic regions, which provides a socio-political-economic understanding of our business. During the first quarter of 2018, the Andes and Brazil SBUs were merged in order to leverage scale and are now reported together as part of the South America SBU. Further, Puerto Rico and El Salvador businesses, formerly part of the MCAC SBU, were combined with the US SBU, which is now reported as the US and Utilities SBU. The management reporting structure is organized by four SBUs led by our President and Chief Executive Officer: US and Utilities, South America, MCAC, and Eurasia SBUs. Using the accounting guidance on segment reporting, the Company determined that its four operating segments are aligned with its four reportable segments corresponding to its SBUs. All prior period results have been retrospectively revised to reflect the new segment reporting structure.

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Corporate and Other — The results of the Fluence and Simple Energy equity affiliates are included in “Corporate and Other.” Also included are the results of the AES self-insurance company and corporate overhead costs which are not directly associated with the operations of our four reportable segments, and certain intercompany charges such as self-insurance premiums which are fully eliminated in consolidation.
The Company uses Adjusted PTC as its primary segment performance measure. Adjusted PTC, a non-GAAP measure, is defined by the Company as pre-tax income from continuing operations attributable to The AES Corporation excluding gains or losses of the consolidated entity due to (a) unrealized gains or losses related to derivative transactions and equity securities; (b) unrealized foreign currency gains or losses; (c) gains, losses, benefits and costs associated with dispositions and acquisitions of business interests, including early plant closures; (d) losses due to impairments; (e) gains, losses and costs due to the early retirement of debt; and (f) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation. Adjusted PTC also includes net equity in earnings of affiliates on an after-tax basis adjusted for the same gains or losses excluded from consolidated entities. The Company has concluded that Adjusted PTC better reflects the underlying business performance of the Company and is the most relevant measure considered in the Company’s internal evaluation of the financial performance of its segments. Additionally, given its large number of businesses and complexity, the Company concluded that Adjusted PTC is a more transparent measure that better assists investors in determining which businesses have the greatest impact on the Company’s results.
Revenue and Adjusted PTC are presented before inter-segment eliminations, which includes the effect of intercompany transactions with other segments except for interest, charges for certain management fees, and the write-off of intercompany balances, as applicable. All intra-segment activity has been eliminated within the segment. Inter-segment activity has been eliminated within the total consolidated results.
The following tables present financial information by segment for the periods indicated (in millions):

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
Total Revenue	2018	 	2017	 	2018	 	2017	
US and Utilities SBU	$	1,230		 	$	1,086		 	$	3,252		 	$	3,179		
South America SBU	923		 	834		 	2,664		 	2,377		
MCAC SBU	462		 	397		 	1,276		 	1,120		
Eurasia SBU	224		 	380		 	935		 	1,204		
Corporate and Other	7		 	9		 	21		 	29		
Eliminations	(9	)	 	(13	)	 	(34	)	 	(22	)	
Total Revenue	$	2,837		 	$	2,693		 	$	8,114		 	$	7,887		

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

	
																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
Total Adjusted PTC	2018	 	2017	 	2018	 	2017	
US and Utilities SBU	$	167		 	$	138		 	$	363		 	$	288		
South America SBU	128		 	67		 	381		 	289		
MCAC SBU	81		 	91		 	215		 	209		
Eurasia SBU	37		 	61		 	175		 	218		
Corporate, Other and Eliminations	(86	)	 	(119	)	 	(264	)	 	(334	)	
Total Adjusted PTC	$	327		 	$	238		 	$	870		 	$	670		

20

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

12 . REVENUE
Revenue is earned from the sale of electricity from our utilities and the production and sale of electricity and capacity from our generation facilities. Revenue is recognized upon the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities.
Utilities — Our utilities sell electricity directly to end-users, such as homes and businesses, and bill customers directly. The majority of our utility contracts have a single performance obligation, as the promises to transfer energy, capacity, and other distribution and/or transmission services are not distinct. Additionally, as the performance obligation is satisfied over time as energy is delivered, and the same method is used to measure progress, the performance obligation meets the criteria to be considered a series. Utility revenue is classified as regulated on the Condensed Consolidated Statements of Operations.
In exchange for the right to sell or distribute electricity in a service territory, our utility businesses are subject to government regulation. This regulation sets the framework for the prices (“tariffs”) that our utilities are allowed to charge customers for electricity. Since tariffs are determined by the regulator, the price that our utilities have the right to bill corresponds directly with the value to the customer of the utility's performance completed in each period. The Company also has some month-to-month contracts. Revenue under these contracts is recognized using an output method measured by the MWh delivered each month, which best depicts the transfer of goods or services to the customer, at the approved tariff.
The Company has businesses where it sells and purchases power to and from ISOs and RTOs. Our utility businesses generally purchase power to satisfy the demand of customers that is not contracted through separate PPAs. In these instances, the Company accounts for these transactions on a net hourly basis because the transactions are settled on a net hourly basis. In limited situations, a utility customer may choose to receive generation services from a third-party provider, in which case the Company may serve as a billing agent for the provider and recognize revenue on a net basis.
Generation — Most of our generation fleet sells electricity under contracts to customers such as utilities, industrial users, and other intermediaries. Our generation contracts, based on specific facts and circumstances, can have one or more performance obligations as the promise to transfer energy, capacity, and other services may or may not be distinct depending on the nature of the market and terms of the contract. Similar to our utilities businesses, as the performance obligations are generally satisfied over time and use the same method to measure progress, the performance obligations meet the criteria to be considered a series. In measuring progress toward satisfaction of a performance obligation, the Company applies the "right to invoice" practical expedient when available, and recognizes revenue in the amount to which the Company has a right to consideration from a customer that corresponds directly with the value of the performance completed to date. Revenue from generation businesses is classified as non-regulated on the Condensed Consolidated Statements of Operations.
For contracts determined to have multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price using a market or expected cost plus margin approach. Additionally, the Company allocates variable consideration to one or more, but not all, distinct goods or services that form part of a single performance obligation when (1) the variable consideration relates specifically to the efforts to transfer the distinct good or service and (2) the variable consideration depicts the amount to which the Company expects to be entitled in exchange for transferring the promised good or service to the customer.
Revenue from generation contracts is recognized using an output method, as energy and capacity delivered best depicts the transfer of goods or services to the customer. Performance obligations including energy or ancillary services (such as operations and maintenance and dispatch services) are generally measured by the MWh delivered. Capacity, which is a stand-ready obligation to deliver energy when required by the customer, is measured using MWs. In certain contracts, if plant availability exceeds a contractual target, the Company may receive a performance bonus payment, or if the plant availability falls below a guaranteed minimum target, we may incur a

21

non-availability penalty. Such bonuses or penalties represent a form of variable consideration and are estimated and recognized when it is probable that there will not be a significant reversal.
In assessing whether variable quantities are considered variable consideration or an option to acquire additional goods and services, the Company evaluates the nature of the promise and the legally enforceable rights in the contract. In some contracts, such as requirement contracts, the legally enforceable rights merely give the customer a right to purchase additional goods and services which are distinct. In these contracts, the customer's action results in a new obligation, and the variable quantities are considered an option.
When energy or capacity is sold or purchased in the spot market or to ISOs, the Company assesses the facts and circumstances to determine gross versus net presentation of spot revenues and purchases. Generally, the nature of the performance obligation is to sell surplus energy or capacity above contractual commitments, or to purchase energy or capacity to satisfy deficits. Generally, on an hourly basis, a generator is either a net seller or a net buyer in terms of the amount of energy or capacity transacted with the ISO. In these situations, the Company recognizes revenue for the hours where the generator is a net seller and cost of sales for the hours where the generator is a net buyer.
Certain generation contracts contain operating leases where capacity payments are generally considered the lease elements. In such cases, the allocation between the lease and non-lease elements is made at the inception of the lease following the guidance in ASC 840. Minimum lease payments from such contracts are recognized as revenue on a straight-line basis over the lease term whereas contingent rentals are recognized when earned. Lease revenue is presented separately from revenue from contracts with customers below.
The following table presents our revenue from contracts with customers and other revenue for the periods indicated (in millions):

																								
 	Three Months Ended September 30, 2018	
 	US and Utilities SBU	 	South America SBU	 	MCAC SBU	 	Eurasia SBU	 	Corporate and Other/ Eliminations	 	Total	
Regulated Revenue	 	 	 	 	 	 	 	 	 	 	 	
Revenue from contracts with customers	$	759		 	$	—		 	$	—		 	$	—		 	$	—		 	$	759		
Other regulated revenue	18		 	—		 	—		 	—		 	—		 	18		
Total regulated revenue	$	777		 	$	—		 	$	—		 	$	—		 	$	—		 	$	777		
Non-Regulated Revenue	 	 	 	 	 	 	 	 	 	 	 	
Revenue from contracts with customers	$	386		 	$	922		 	$	440		 	$	152		 	$	(2	)	 	$	1,898		
Other non-regulated revenue (1)	67		 	1		 	22		 	72		 	—		 	162		
Total non-regulated revenue	$	453		 	$	923		 	$	462		 	$	224		 	$	(2	)	 	$	2,060		
Total revenue	$	1,230		 	$	923		 	$	462		 	$	224		 	$	(2	)	 	$	2,837		

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

_____________________________

(1)  	Other non-regulated revenue primarily includes lease and derivative revenue not accounted for under ASC 606.	
Contract Balances — The timing of revenue recognition, billings, and cash collections results in accounts receivable and contract liabilities. Accounts receivable represent unconditional rights to consideration and consist of both billed amounts and unbilled amounts typically resulting from sales under long-term contracts when revenue recognized exceeds the amount billed to the customer. We bill both generation and utilities customers on a contractually agreed-upon schedule, typically at periodic intervals (e.g., monthly). The calculation of revenue earned but not yet billed is based on the number of days not billed in the month, the estimated amount of energy delivered during those days and the estimated average price per customer class for that month.

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Our contract liabilities consist of deferred revenue which is classified as current or noncurrent based on the timing of when we expect to recognize revenue. The current portion of our contract liabilities is reported in Accrued and other liabilities and the noncurrent portion is reported in Other noncurrent liabilities on the Condensed Consolidated Balance Sheets. The contract liabilities from contracts with customers were $116 million and $131 million as of September 30, 2018 and January 1, 2018, respectively.
Of the $131 million of contract liabilities reported at January 1, 2018, $33 million was recognized as revenue during the nine months ended September 30, 2018 .
A significant financing arrangement exists for our Mong Duong plant in Vietnam. The plant was constructed under a build, operate, and transfer contract and will be transferred to the Vietnamese government after the completion of a 25 year PPA. The performance obligation to construct the facility was substantially completed in 2015. Approximately $1.4 billion of contract consideration related to the construction, but not yet collected through the 25 year PPA, was reflected as a loan receivable as of September 30, 2018 .
Remaining Performance Obligations — The transaction price allocated to remaining performance obligations represents future consideration for unsatisfied (or partially unsatisfied) performance obligations at the end of the reporting period. As of September 30, 2018 , the aggregate amount of transaction price allocated to remaining performance obligations was $16 million , primarily consisting of fixed consideration for the sale of renewable energy credits (RECs) in long-term contracts in the U.S. We expect to recognize revenue on approximately one-quarter of the remaining performance obligations in 2018 and 2019, with the remainder recognized thereafter. The Company has elected to apply the optional disclosure exemptions under ASC 606. Therefore, the amount above excludes contracts with an original length of one year or less, contracts for which we recognize revenue based on the amount we have the right to invoice for services performed, and variable consideration allocated entirely to a wholly unsatisfied performance obligation when the consideration relates specifically to our efforts to satisfy the performance obligation and depicts the amount to which we expect to be entitled. As such, consideration for energy is excluded from the amounts above as the variable consideration relates to the amount of energy delivered and reflects the value the Company expects to receive for the energy transferred. Estimates of revenue expected to be recognized in future periods also exclude unexercised customer options to purchase additional goods or services that do not represent material rights to the customer.
13 . OTHER INCOME AND EXPENSE
Other income generally includes gains on asset sales and liability extinguishments, favorable judgments on contingencies, gains on contract terminations, allowance for funds used during construction and other income from miscellaneous transactions. Other expense generally includes losses on asset sales and dispositions, losses on legal contingencies, defined benefit plan non-service costs, and losses from other miscellaneous transactions. The components are summarized as follows (in millions):

																	
 	 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	 	2018	 	2017	 	2018	 	2017	
Other Income	Legal settlements (1)	$	—		 	$	—		 	$	—		 	$	60		
 	Allowance for funds used during construction (US Utilities)	1		 	7		 	8		 	20		
 	Other	9		 	9		 	22		 	23		
 	Total other income	$	10		 	$	16		 	$	30		 	$	103		
 	 	 	 	 	 	 	 	 	
Other Expense	Loss on sale and disposal of assets (2)	$	20		 	$	5		 	$	25		 	$	26		
 	Water rights write-off	—		 	15		 	—		 	18		
 	Allowance for other receivables	—		 	15		 	—		 	15		
 	Other  	9		 	1		 	17		 	8		
 	Total other expense	$	29		 	$	36		 	$	42		 	$	67		

_____________________________
		
(1)  	In December 2016, the Company and YPF entered into a settlement agreement in which all parties agreed to give up any and all legal action related to gas supply contracts that were terminated in 2008 and have been in dispute since 2009. In January 2017, the YPF board approved the agreement and paid the Company $60 million , thereby resolving all uncertainties around the dispute.	
		
(2)  	In September 2018, the Company recorded a $20 million loss due to damage associated with a lightning incident at the Andres facility in the Dominican Republic.	

23

14 . ASSET IMPAIRMENT EXPENSE
The following table presents our asset impairment expense by asset group for the periods indicated (in millions): 

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

U.S. generation facility — In June 2018, the Company tested the recoverability of its long-lived assets at a generation facility in the U.S. due to an unfavorable economic outlook resulting in uncertainty around future cash flows. The Company determined that the carrying amount of the asset group, including long-lived assets, was not recoverable. The asset group was determined to have a fair value of $127 million as of June 30, 2018 using a combination of the income and market approaches. As a result, the Company recognized an asset impairment expense of $83 million . The generation facility is reported in the US and Utilities SBU reportable segment.
In the third quarter of 2018, as a result of updated assumptions regarding the future use of the assets, management’s expectations of future cash flows for the facility decreased. Given updated inputs, the asset group was determined to have a fair value of $55 million as of September 30, 2018 and additional impairment expense of $73 million was recognized. Given the uncertainty regarding the future use of the asset group, the Company will continue to monitor the economic outlook for the facility on an ongoing basis.
DPL — In March 2017, the Board of Directors of DPL approved the retirement of the DPL operated and co-owned Stuart coal-fired and diesel-fired generating units, and the Killen coal-fired generating unit and combustion turbine on or before June 1, 2018. The Company performed an impairment analysis and determined that the carrying amounts of the facilities were not recoverable. The Stuart and Killen asset groups were determined to have fair values of $3 million and $8 million , respectively, using the income approach. As a result, the Company recognized total asset impairment expense of $66 million . The Stuart and Killen units were retired in May 2018. Prior to their retirement, Stuart and Killen were reported in the US and Utilities SBU reportable segment. See Note 17 —Held-for-Sale and Dispositions for further information.
Kazakhstan hydroelectric — In April 2017, the Government of Kazakhstan stated the concession agreements would not be extended for Shulbinsk HPP and Ust-Kamenogorsk HPP, two hydroelectric plants in Kazakhstan, and initiated the process to transfer these plants back to the government. The Company performed an impairment analysis and determined that the carrying value of the asset group of $190 million , which included cumulative translation losses of $100 million , was greater than its fair value less costs to sell of $92 million . As a result, the Company recognized asset impairment expense of $92 million limited to the carrying value of the long-lived assets. The Company completed the transfer of the plants in October 2017. Prior to their transfer, the Kazakhstan hydroelectric plants were reported in the Eurasia SBU reportable segment.
Kazakhstan CHPs — In January 2017, the Company entered into an agreement for the sale of Ust-Kamenogorsk CHP and Sogrinsk CHP, its combined heating and power coal plants in Kazakhstan. Upon meeting the held-for-sale criteria in the first quarter of 2017, the Company performed an impairment analysis and determined that the carrying value of the asset group of $171 million , which included cumulative translation losses of $92 million , was greater than its fair value less costs to sell of $29 million . As a result, the Company recognized asset impairment expense of $94 million limited to the carrying value of the long-lived assets. The Company completed the sale of its interest in the Kazakhstan CHP plants in April 2017. Prior to their sale, the plants were reported in the Eurasia SBU reportable segment. See Note 17 —Held-for-Sale and Dispositions for further information.
15 . INCOME TAXES
The Company’s provision for income taxes is based on the estimated annual effective tax rate, plus discrete items. The effective tax rates for the three and nine month periods ended September 30, 2018 were 44% and 30% , respectively. The effective tax rates for the three and nine month periods ended September 30, 2017 were 31% and 36% , respectively. The difference between the Company’s effective tax rates for the 2018 and 2017 periods and the U.S. statutory tax rates of 21% and 35% , respectively, related primarily to U.S. taxes on foreign earnings, foreign tax

24

rate differentials, the impacts of foreign currency fluctuations at certain foreign subsidiaries, and nondeductible expenses.
The Tax Cuts and Jobs Act (“The TCJA”) was enacted on December 22, 2017. The TCJA reduced the U.S. federal corporate income tax rate from 35% to 21% , required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and created new taxes on certain foreign sourced earnings. We are applying the guidance in Staff Accounting Bulletin No. 118 (“SAB 118”) when accounting for the enactment date effect of the TCJA. We recognized a reasonable estimate of the tax effects of the TCJA as of December 31, 2017. In the third quarter of 2018, the Company recorded $33 million of discrete tax expense, increasing the provisional adjustment to the U.S. one-time transition tax to $708 million . However, as of September 30, 2018 , our accounting is not complete. Our estimates may also be affected as we gain a more thorough understanding of the TCJA, including proposed regulations released by the U.S. Treasury Department on August 1 related to the one-time transition tax. We expect to complete our analysis of the final impacts of the TCJA in the fourth quarter. For further discussion on the TCJA, see Note 20— Income Taxes in Item 8.— Financial Statements and Supplementary Data of our 2017 Form 10-K.
In the first quarter of 2018, the Company completed the sale of its entire 51% equity interest in Masinloc, resulting in pre-tax gain of approximately $773 million . The sale resulted in approximately $155 million of discrete tax expense in the U.S. under the new GILTI provision, which subjects the earnings of foreign subsidiaries to current U.S. taxation to the extent those earnings exceed an allowable return. See Note 17 —Held-for-Sale and Dispositions for details of the sale.
In the second quarter of 2018, the Company completed the sale of Electrica Santiago for total proceeds of $287 million , resulting in a pre-tax gain on sale of $69 million after post-closing adjustments. The sale resulted in approximately $25 million of discrete tax expense. See Note 17 —Held-for-Sale and Dispositions for details of the sale.
The impact of foreign currency devaluation in Argentina was approximately $16 million and $38 million of discrete tax expense for the three and nine month periods ended September 30, 2018 , respectively. The same amounts for the three and nine month periods ended September 30, 2017 are $4 million and $8 million , respectively.
16 . DISCONTINUED OPERATIONS
Due to a portfolio evaluation in the first half of 2016, management decided to pursue a strategic shift of its distribution companies in Brazil, Sul and Eletropaulo, to reduce the Company's exposure to the Brazilian distribution market. The disposals of Sul and Eletropaulo were completed in October 2016 and June 2018, respectively.
In November 2017, Eletropaulo converted its preferred shares into ordinary shares and transitioned the listing of those shares to the Novo Mercado, which is a listing segment of the Brazilian stock exchange with the highest standards of corporate governance. Upon conversion of the preferred shares into ordinary shares, AES no longer controlled Eletropaulo, but maintained significant influence over the business. As a result, the Company deconsolidated Eletropaulo. After deconsolidation, the Company's 17% ownership interest was reflected as an equity method investment. The Company recorded an after-tax loss on deconsolidation of $611 million , which primarily consisted of $455 million related to cumulative translation losses and $243 million related to pension losses reclassified from AOCL.
In December 2017, all the remaining criteria were met for Eletropaulo to qualify as a discontinued operation. Therefore, its results of operations and financial position were reported as such in the consolidated financial statements for all periods presented.
In June 2018, the Company completed the sale of its entire 17% ownership interest in Eletropaulo through a bidding process hosted by the Brazilian securities regulator, CVM. Gross proceeds of $340 million were received at our subsidiary in Brazil, subject to the payment of taxes. Upon disposal of Eletropaulo, the Company recorded a pre-tax gain on sale of $243 million (after-tax $199 million ). Prior to its classification as discontinued operations, Eletropaulo was reported in the South America SBU reportable segment.

25

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

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

(1)  	Represents the Company's 17% ownership interest in Eletropaulo.	
		
(2)  	Electrica Santiago, the DPL Peaker Assets and Masinloc were classified as held-for-sale as of December 31, 2017 . See Note 17 — Held-for-Sale and Dispositions for further information.	
Excluding the gain on sale, income from discontinued operations and cash flows from operating and investing activities of discontinued operations were immaterial for the three and nine months ended September 30, 2018 .
The following table summarizes the major line items constituting income from discontinued operations for the three and nine months ended September 30, 2017 (in millions):

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

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

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

17 . HELD-FOR-SALE AND DISPOSITIONS
Held-for-Sale
Compañia Transmisora del Norte Grande — In June 2018, AES Gener entered into an agreement to sell the transmission lines held by Compañia Transmisora del Norte Grande (“CTNG”) for $220 million , subject to customary purchase price adjustments. The sale is subject to regulatory approval and is expected to close during the fourth quarter of 2018. As of September 30, 2018 , CTNG was classified as held-for-sale, but did not meet the criteria to be reported as discontinued operations. CTNG’s carrying value at September 30, 2018 was $99 million . CTNG is reported in the South America SBU reportable segment. Pre-tax income attributable to AES was immaterial for the three and nine months ended September 30, 2018 and September 30, 2017 , respectively.
Dispositions
Electrica Santiago — In May 2018, AES Gener completed the sale of Electrica Santiago for total consideration of $287 million , including a contingent liability of $9 million , resulting in a pre-tax gain on sale of $69 million after post-closing adjustments. Electrica Santiago consisted of four gas and diesel-fired generation plants in Chile. The sale did not meet the criteria to be reported as discontinued operations. Prior to its sale, Electrica Santiago was reported in the South America SBU reportable segment.
Stuart and Killen — In May 2018, DPL retired the co-owned Stuart coal-fired and diesel-fired generating units, and the Killen coal-fired generating unit and combustion turbine. Prior to their retirement, Stuart and Killen were reported in the US and Utilities SBU reportable segment. See Note 14 —Asset Impairment Expense for further information.

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Masinloc — In March 2018, the Company completed the sale of its entire 51% equity interest in Masinloc for cash proceeds of $1.05 billion , resulting in a pre-tax gain on sale of $773 million after post-closing adjustments and U.S. tax expense of $155 million . Masinloc consisted of a coal-fired generation plant in operation, a coal-fired generation plant under construction, and an energy storage facility all located in the Philippines. The sale did not meet the criteria to be reported as discontinued operations. Prior to its sale, Masinloc was reported in the Eurasia SBU reportable segment.
DPL peaker assets — In March 2018, DPL completed the sale of six of its combustion turbine and diesel-fired generation facilities and related assets ("DPL peaker assets") for total proceeds of $239 million , inclusive of estimated working capital and subject to customary post-closing adjustments, resulting in a loss on sale of $2 million . The sale did not meet the criteria to be reported as discontinued operations. Prior to their sale, the DPL peaker assets were reported in the US and Utilities SBU reportable segment.
Beckjord facility — In February 2018, DPL transferred its interest in Beckjord, a coal-fired generation facility retired in 2014, including its obligations to remediate the facility and its site. The transfer resulted in cash expenditures of $15 million , inclusive of disposal charges, and a loss on disposal of $12 million . Prior to the transfer, Beckjord was reported in the US and Utilities SBU reportable segment.
Advancion Energy Storage — In January 2018, the Company deconsolidated the AES Advancion energy storage development business and contributed it to the Fluence joint venture, resulting in a gain on sale of $23 million . See Note 6 —Investments in and Advances to Affiliates for further discussion. Prior to the transfer, the AES Advancion energy storage development business was reported as part of Corporate and Other.
Kazakhstan CHPs — In April 2017, the Company completed the sale of Ust-Kamenogorsk CHP and Sogrinsk CHP, its combined heating and power coal plants in Kazakhstan, for net proceeds of $24 million . The Company recognized a pre-tax loss on sale of $48 million , primarily related to cumulative translation losses. The sale did not meet the criteria to be reported as discontinued operations. Prior to their sale, the Kazakhstan CHP plants were reported in the Eurasia SBU reportable segment. See Note 14 —Asset Impairment Expense for further information.
Excluding any impairment charges or gain/loss on sale, pre-tax income attributable to AES of disposed businesses was as follows: 

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
(in millions)	2018	 	2017	 	2018	 	2017	
Masinloc	$	—		 	$	26		 	$	9		 	$	78		
Stuart and Killen (1)	8		 	9		 	38		 	1		
DPL peaker assets	—		 	11		 	7		 	12		
Other	—		 	2		 	5		 	23		
Total	$	8		 	$	48		 	$	59		 	$	114		

_____________________________
		
(1)  	The Company entered into contracts to buy back all open capacity years for Stuart and Killen at prices lower than the PJM capacity revenue prices. As such, the Company continues to earn capacity margin.	
18 . ACQUISITIONS
Guaimbê Solar Complex — In September 2018, AES Tietê completed the acquisition of the Guaimbê Solar Complex (“Guaimbê”) from Cobra do Brasil for $152 million , subject to post-closing adjustments, comprised of the exchange of $119 million of non-convertible debentures in project financing and additional cash consideration of $33 million . The transaction was accounted for as an asset acquisition, therefore the consideration transferred, plus transaction costs, were allocated to the individual assets acquired and liabilities assumed based on their relative fair values. Any differences arising from post-closing adjustments will be allocated accordingly. Guaimbê is reported in the South America SBU reportable segment.
Alto Sertão II — In August 2017, the Company completed the acquisition of the Alto Sertão II Wind Complex (“Alto Sertão II”) from Renova Energia S.A for $179 million , plus the assumption of $346 million of non-recourse debt. At closing, the Company made a cash payment of $143 million , which excluded holdbacks related to indemnifications. In September 2018, an additional $12 million was paid to settle a portion of the remaining indemnification liability. In the first quarter of 2018, the Company finalized the purchase price allocation related to the acquisition of Alto Sertão II. There were no significant adjustments made to the preliminary purchase price allocation recorded in the third quarter of 2017 when the acquisition was completed. The assets acquired and liabilities assumed at the acquisition date were recorded at fair value, including a contingent liability for earn-out payments of $18 million , based on the final purchase price allocation at March 31, 2018. Subsequent changes to the fair value of the earn-out payments will be reflected in earnings. Alto Sertão II is reported in the South America

27

SBU reportable segment.
19 . EARNINGS PER SHARE
Basic and diluted earnings per share are based on the weighted average number of shares of common stock and potential common stock outstanding during the period. Potential common stock, for purposes of determining diluted earnings per share, includes the effects of dilutive RSUs, stock options and convertible securities. The effect of such potential common stock is computed using the treasury stock method or the if-converted method, as applicable.
The following table is a reconciliation of the numerator and denominator of the basic and diluted earnings per share computation for income from continuing operations for the three and nine months ended September 30, 2018 and 2017 , where income represents the numerator and weighted average shares represent the denominator.

																						
Three Months Ended September 30,	2018	 	2017	
(in millions, except per share data)	Income	 	Shares	 	$ per Share	 	Income	 	Shares	 	$ per Share	
 	 	 	 	 	 	 	 	 	 	 	 	
BASIC EARNINGS PER SHARE	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations attributable to The AES Corporation common stockholders	$	102		 	662		 	$	0.15		 	$	147		 	660		 	$	0.22		
EFFECT OF DILUTIVE SECURITIES	 	 	 	 		 	 	 	 	 	 	
Restricted stock units	—		 	3		 	—		 	—		 	3		 	—		
DILUTED EARNINGS PER SHARE	$	102		 	665		 	$	0.15		 	$	147		 	663		 	$	0.22		

Nine Months Ended September 30,	2018	 	2017	
(in millions, except per share data)	Income	 	Shares	 	$ per Share	 	Income	 	Shares	 	$ per Share	
 	 	 	 	 	 	 	 	 	 	 	 	
BASIC EARNINGS PER SHARE	 	 	 	 	 	 	 	 	 	 	 	
Income from continuing operations attributable to The AES Corporation common stockholders	$	883		 	661		 	$	1.33		 	$	176		 	660		 	$	0.27		
EFFECT OF DILUTIVE SECURITIES	 	 	 	 	 	 	 	 	 	 	 	
Restricted stock units	—		 	3		 	—		 	—		 	2		 	—		
DILUTED EARNINGS PER SHARE	$	883		 	664		 	$	1.33		 	$	176		 	662		 	$	0.27		

The calculation of diluted earnings per share excluded stock awards and convertible debentures which would be anti-dilutive. The calculation of diluted earnings per share excluded 2 million and 6 million stock awards outstanding for the three and nine months ended September 30, 2018 and 2017 , respectively, that could potentially dilute basic earnings per share in the future.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condensed consolidated financial statements included in Item 1.— Financial Statements of this Form 10-Q and the discussions contained herein should be read in conjunction with our 2017 Form 10-K.
FORWARD-LOOKING INFORMATION
The following discussion may contain forward-looking statements regarding us, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described in Item 1A.— Risk Factors and Item 7.— Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2017 Form 10-K and subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and factors that may affect our business.
Overview of Our Business — We are a diversified power generation and utility company organized into the following four market-oriented SBUs: US and Utilities (United States, Puerto Rico and El Salvador); South America (Chile, Colombia, Argentina and Brazil); MCAC (Mexico, Central America and the Caribbean); and Eurasia (Europe and Asia). During the first quarter of 2018, the Andes and Brazil SBUs were merged in order to leverage scale and are now reported together as part of the South America SBU. Further, Puerto Rico and El Salvador businesses, formerly part of the MCAC SBU, were combined with the US SBU, which is now reported as

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the US and Utilities SBU. For additional information regarding our business, see Item 1.— Business of our 2017 Form 10-K.
We have two lines of business. The first business line is generation, where we own and/or operate power plants to generate and sell power to customers such as utilities, industrial users and other intermediaries. The second business line is utilities, where we own and/or operate utilities to generate or purchase, distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors within a defined service area. In certain circumstances, our utilities also generate and sell electricity on the wholesale market. The generation lines of business are reported within all four of our SBUs and the utilities lines of business are reported within our US and Utilities SBU.

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Executive Summary
Compared with last year, the results for the three months ended September 30, 2018 reflect increased margins primarily due to higher tariffs in Argentina, new contracts and lower fixed costs in Chile, higher contract sales and prices in Colombia, and higher regulated rates and higher dispatch at the US and Utilities SBU partially offset by the sale of the Masinloc power plant in March of 2018.
Margins increased for the nine months ended September 30, 2018 compared to the prior year primarily due to higher tariffs in Argentina, new contracts in Chile, higher contracted energy sales in the Dominican Republic, higher contract sales and prices in Colombia, and higher regulated rates and energy sales at the US and Utilities SBU partially offset by the sale of the Masinloc power plant in March of 2018.

_____________________________
		
(1)  	See Item 2.— SBU Performance Analysis — Non-GAAP Measures for reconciliation and definition.     	

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Three Months Ended September 30, 2018
Compared with the third quarter of the prior year, diluted earnings per share decreased $0.07 to $0.15 , primarily due to a current year impairment in the U.S. and a charge to true-up the provisional estimate of U.S. tax reform. These decreases were partially offset by a prior year loss on extinguishment of debt, lower interest on Parent Company debt, and higher margins discussed above.
Adjusted EPS, a non-GAAP measure, increased $0.12 , or 52% , to $0.35 , primarily driven by higher margins discussed above, lower interest on Parent Company debt, and a lower effective tax rate.
Nine Months Ended September 30, 2018
Compared with the first nine months of the prior year, diluted earnings per share increased $1.06 to $1.33 primarily due to the current year gains on sales of Masinloc and Electrica Santiago, prior year loss on sale of the Kazakhstan CHPs, impairments at DP&L and in Kazakhstan, lower interest on Parent Company debt, and higher margins discussed above. These increases were partially offset by a current year impairment in the U.S., unrealized FX losses, a charge to true-up the provisional estimate of U.S. tax reform, current year losses on extinguishment of debt, and a favorable legal settlement at Uruguaiana in the prior year.
Adjusted EPS, a non-GAAP measure, increased $0.23 , or 35% , to $0.88 , primarily driven by higher margins discussed above, lower interest on Parent Company debt, and a lower effective tax rate, which was partially offset by the prior year favorable impact of a legal settlement at Uruguaiana.
Overview of Q3 2018 Results and Strategic Performance
Strategic Priorities — We continue to improve the returns from our existing portfolio and position AES for long-term, sustainable growth. Our growth pipeline continues to increase, driven by our focus on select markets and taking advantage of our cost competitiveness, scale, existing businesses and relationships.

								

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

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

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

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Review of Consolidated Results of Operations (unaudited)

																														
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
(in millions, except per share amounts)	2018	 	2017	 	$ change	 	% change	 	2018	 	2017	 	$ change	 	% change	
Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
US and Utilities SBU	$	1,230		 	$	1,086		 	$	144		 	13	 %	 	$	3,252		 	$	3,179		 	$	73		 	2	 %	
South America SBU	923		 	834		 	89		 	11	 %	 	2,664		 	2,377		 	287		 	12	 %	
MCAC SBU	462		 	397		 	65		 	16	 %	 	1,276		 	1,120		 	156		 	14	 %	
Eurasia SBU	224		 	380		 	(156	)	 	-41	 %	 	935		 	1,204		 	(269	)	 	-22	 %	
Corporate and Other	7		 	9		 	(2	)	 	-22	 %	 	21		 	29		 	(8	)	 	-28	 %	
Eliminations	(9	)	 	(13	)	 	4		 	31	 %	 	(34	)	 	(22	)	 	(12	)	 	-55	 %	
Total Revenue	2,837		 	2,693		 	144		 	5	 %	 	8,114		 	7,887		 	227		 	3	 %	
Operating Margin:	 	 	 	 	 	 			 	 	 	 	 	 	 			
US and Utilities SBU	225		 	205		 	20		 	10	 %	 	570		 	514		 	56		 	11	 %	
South America SBU	250		 	190		 	60		 	32	 %	 	754		 	612		 	142		 	23	 %	
MCAC SBU	144		 	142		 	2		 	1	 %	 	379		 	336		 	43		 	13	 %	
Eurasia SBU	34		 	101		 	(67	)	 	-66	 %	 	175		 	342		 	(167	)	 	-49	 %	
Corporate and Other	(4	)	 	1		 	(5	)	 	NM		 	32		 	16		 	16		 	100	 %	
Eliminations	22		 	1		 	21		 	NM		 	17		 	—		 	17		 	NM		
Total Operating Margin	671		 	640		 	31		 	5	 %	 	1,927		 	1,820		 	107		 	6	 %	
General and administrative expenses	(43	)	 	(52	)	 	9		 	-17	 %	 	(134	)	 	(155	)	 	21		 	-14	 %	
Interest expense	(255	)	 	(297	)	 	42		 	-14	 %	 	(799	)	 	(860	)	 	61		 	-7	 %	
Interest income	79		 	63		 	16		 	25	 %	 	231		 	185		 	46		 	25	 %	
Loss on extinguishment of debt	(11	)	 	(49	)	 	38		 	-78	 %	 	(187	)	 	(44	)	 	(143	)	 	NM		
Other expense	(29	)	 	(36	)	 	7		 	-19	 %	 	(42	)	 	(67	)	 	25		 	-37	 %	
Other income	10		 	16		 	(6	)	 	-38	 %	 	30		 	103		 	(73	)	 	-71	 %	
Gain (loss) on disposal and sale of businesses	(21	)	 	(1	)	 	(20	)	 	NM		 	856		 	(49	)	 	905		 	NM		
Asset impairment expense	(74	)	 	(2	)	 	(72	)	 	NM		 	(166	)	 	(260	)	 	94		 	-36	 %	
Foreign currency transaction gains (losses)	5		 	22		 	(17	)	 	-77	 %	 	(44	)	 	14		 	(58	)	 	NM		
Income tax expense	(146	)	 	(93	)	 	(53	)	 	57	 %	 	(509	)	 	(246	)	 	(263	)	 	NM		
Net equity in earnings of affiliates	6		 	24		 	(18	)	 	-75	 %	 	31		 	33		 	(2	)	 	-6	 %	
INCOME FROM CONTINUING OPERATIONS	192		 	235		 	(43	)	 	-18	 %	 	1,194		 	474		 	720		 	NM		
Income (loss) from operations of discontinued businesses, net of income tax expense of $0, $17, $2 and $24, respectively	(4	)	 	26		 	(30	)	 	NM		 	(9	)	 	35		 	(44	)	 	NM		
Gain from disposal of discontinued businesses, net of income tax expense of $2, $0, $44 and $0, respectively	3		 	—		 	3		 	NM		 	199		 	—		 	199		 	NM		
NET INCOME	191		 	261		 	(70	)	 	-27	 %	 	1,384		 	509		 	875		 	NM		
Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries	(90	)	 	(109	)	 	19		 	-17	 %	 	(309	)	 	(328	)	 	19		 	-6	 %	
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	101		 	$	152		 	$	(51	)	 	-34	 %	 	$	1,075		 	$	181		 	$	894		 	NM		
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:	 	 	 	 		 			 	 	 	 	 	 	 		
Income from continuing operations, net of tax	$	102		 	$	147		 	$	(45	)	 	-31	 %	 	$	883		 	$	176		 	$	707		 	NM		
Income (loss) from discontinued operations, net of tax	(1	)	 	5		 	(6	)	 	NM		 	192		 	5		 	187		 	NM		
NET INCOME ATTRIBUTABLE TO THE AES CORPORATION	$	101		 	$	152		 	$	(51	)	 	-34	 %	 	$	1,075		 	$	181		 	$	894		 	NM		
Net cash provided by operating activities	$	767		 	$	739		 	$	28		 	4	 %	 	$	1,681		 	$	1,701		 	$	(20	)	 	-1	 %	
DIVIDENDS DECLARED PER COMMON SHARE	$	0.13		 	$	0.12		 	$	0.01		 	8	 %	 	$	0.26		 	$	0.24		 	$	0.02		 	8	 %	
Components of Revenue, Cost of Sales, and Operating Margin — Revenue includes revenue earned from the sale of energy from our utilities and the production and sale of energy from our generation plants, which are classified as regulated and non-regulated , respectively, on the Condensed Consolidated Statements of Operations. Revenue also includes the gains or losses on derivatives associated with the sale of electricity.
Cost of sales includes costs incurred directly by the businesses in the ordinary course of business. Examples include electricity and fuel purchases, operations and maintenance costs, depreciation and amortization expenses, bad debt expense and recoveries, and general administrative and support costs (including employee-related costs directly associated with the operations of the business). Cost of sales also includes the gains or losses on derivatives (including embedded derivatives other than foreign currency embedded derivatives) associated with the purchase of electricity or fuel.
Operating margin is defined as revenue less cost of sales.

32

Consolidated Revenue and Operating Margin
Three months ended September 30, 2018
Revenue
(in millions)

Consolidated Revenue — Revenue increased $144 million , or 5% , for the three months ended September 30, 2018 , compared to the three months ended September 30, 2017 . Excluding the unfavorable FX impact of $41 million , primarily in South America, this increase was driven by:
		
•	$144 million in US and Utilities driven primarily by higher market energy sales at Southland as well as higher wholesale and retail volumes at IPL, partially offset by the sale and closure of several generation facilities at DPL; and	
		
•	$125 million in South America mainly due to higher contract and spot sales in Colombia and Chile, higher generation at Gener due to planned maintenance in 2017 and higher capacity prices in Argentina resulting from the 2017 market reforms; and	
		
•	$69 million in MCAC driven primarily by higher availability due to improved hydrology in Panama and the commencement of operations of the Colon combined cycle facility in September 2018.	
These favorable impacts were partially offset by $155 million decrease in Eurasia primarily due to the sale of the Masinloc power plant in March 2018, as well as the sale of the Kazakhstan CHPs and expiration of the Kazakhstan HPP concession agreement in 2017.

Operating Margin
(in millions)

Consolidated Operating Margin — Operating margin increased $31 million , or 5% , for the three months ended September 30, 2018 , compared to the three months ended September 30, 2017 . Excluding the unfavorable impact of FX of $1 million , this increase was driven by:
• $60 million in South America mostly due to the drivers discussed above; and
		
•	$20 million in US & Utilities due to the drivers discussed above, partially offset by higher costs related to early plant closures at DPL.	
These favorable impacts were partially offset by a decrease of $67 million in Eurasia mostly due to the sale of businesses discussed above.

33

Nine months ended September 30, 2018
Revenue
(in millions)

Consolidated Revenue — Revenue increased $227 million , or 3% , for the nine months ended September 30, 2018 , compared to the nine months ended September 30, 2017 . Excluding the unfavorable FX impact of $14 million , primarily in South America partially offset by Eurasia, this increase was driven by:
		
•	$336 million in South America primarily due to higher capacity prices in Argentina resulting from market reforms enacted in 2017 as well as higher contract sales and prices in Colombia and Chile;	
		
•	$159 million in MCAC primarily due to higher pass-through fuel prices in Mexico, increased availability driven by improved hydrology in Panama, and higher contracted energy sales in Dominican Republic due to commencement of the combined cycle operations at Los Mina in June 2017; and	
		
•	$73 million in US and Utilities driven primarily by higher regulated rates approved in November 2017 and favorable weather at DPL and higher market energy sales at Southland, partially offset at DPL due to the sale and closure of several generation facilities.	
These favorable impacts were partially offset by decreases of $308 million in Eurasia due to the sale of the Masinloc power plant in March 2018, as well as the sale of the Kazakhstan CHPs and expiration of the Kazakhstan HPP concession agreement in 2017.

Operating Margin
(in millions)

Consolidated Operating Margin — Operating margin increased $107 million , or 6% , for the nine months ended September 30, 2018 , compared to the nine months ended September 30, 2017 . Excluding the favorable impact of FX of $12 million , primarily driven by Eurasia, this increase was driven by increases of:
		
•	$139 million in South America due to the drivers discussed above;	
		
•	$56 million in US and Utilities mostly due to the drivers discussed above; and	
		
•	$43 million in MCAC mostly due to the drivers discussed above.	
These favorable impacts were partially offset by a decrease of $178 million in Eurasia due to the drivers discussed above, and the unfavorable impact of MTM derivative adjustments at Kilroot.

34

See Item 2.— SBU Performance Analysis of this Form 10-Q for additional discussion and analysis of operating results for each SBU.
Consolidated Results of Operations — Other
General and administrative expenses
General and administrative expenses decreased $9 million , or 17% , to $43 million for the three months ended September 30, 2018 , compared to $52 million for the three months ended September 30, 2017 , primarily due to reduced people costs, professional fees and business development.
General and administrative expenses decreased $21 million , or 14% , to $134 million for the nine months ended September 30, 2018 , compared to $155 million for the nine months ended September 30, 2017 , primarily due to reduced people costs and professional fees.
Interest expense
Interest expense decreased $42 million , or 14% , to $255 million for the three months ended September 30, 2018 , compared to $297 million for the three months ended September 30, 2017 , and decreased $61 million , or 7% , to $799 million for the nine months ended September 30, 2018 , compared to $860 million for the nine months ended September 30, 2017 . These decreases were primarily due to the reduction of debt at the Parent Company, IPL, and DPL, favorable impacts from interest rate swaps and increased capitalized interest at Alto Maipo, and the sale of Masinloc in March 2018, partially offset by an increase in debt at Tietê related to the construction of solar plants and the acquisition of Alto Sertão in August 2017.
Interest income
Interest income increased $16 million , or 25% , to $79 million for the three months ended September 30, 2018 , compared to $63 million for the three months ended September 30, 2017 , and increased $46 million , or 25% , to $231 million for the nine months ended September 30, 2018 , compared to $185 million for the nine months ended September 30, 2017 . These increases were primarily due to the higher financing component of contract consideration as a result of the adoption of the new revenue recognition standard.
Loss on extinguishment of debt
Loss on extinguishment of debt decreased $38 million , or 78% , to $11 million for the three months ended September 30, 2018 , compared to $49 million for the three months ended September 30, 2017 . This decrease was primarily due to losses of $38 million and $9 million at the Parent Company and IPALCO, respectively, in 2017 compared to a $7 million loss at Gener in 2018.
Loss on extinguishment of debt increased $143 million to $187 million for the nine months ended September 30, 2018 , compared to $44 million for the nine months ended September 30, 2017 . This increase was primarily due to an increase in losses at the Parent Company of $77 million from the redemption of senior notes in 2018 compared to a gain on early retirement of debt at AES Argentina of $65 million in 2017.
See Note 7 — Debt included in Item 1.— Financial Statements of this Form 10-Q for further information.
Other income and expense
Other income decreased $6 million , or 38% , to $10 million for the three months ended September 30, 2018 , compared to $16 million for the three months ended September 30, 2017 . This decrease was primarily due to a decrease in the allowance for equity funds used during construction at IPALCO as a result of decreased construction activity.
Other income decreased $73 million , or 71% , to $30 million for the nine months ended September 30, 2018 , compared to $103 million for the nine months ended September 30, 2017 . This decrease was primarily due to the 2017 favorable settlement of legal proceedings at Uruguaiana related to YPF's breach of the parties’ gas supply agreement.
Other expense decreased $7 million , or 19% , to $29 million for the three months ended September 30, 2018 , compared to $36 million for the three months ended September 30, 2017 . This decrease was primarily due to the write-off of water rights for projects that were no longer being pursued and the recognition of a full allowance on a non-trade receivable in the South America SBU in 2017, partially offset by a loss resulting from damage associated with a lightning incident at the Andres facility in the Dominican Republic in 2018.
Other expense decreased $25 million , or 37% , to $42 million for the nine months ended September 30, 2018 , compared to $67 million for the nine months ended September 30, 2017 . This decrease was primarily due to the

35

loss on disposal of assets at DPL as a result of the decision made in 2017 to close the coal-fired and diesel-fired generating units at Stuart and Killen on or before June 1, 2018, the write-off of water rights for projects that were no longer being pursued, and the recognition of a full allowance on a non-trade receivable in the South America SBU in 2017, partially offset by a loss resulting from damage associated with a lightning incident at the Andres facility in the Dominican Republic in 2018.
See Note 13 — Other Income and Expense included in Item 1.— Financial Statements of this Form 10-Q for further information.
Gain (loss) on disposal and sale of businesses
Loss on disposal and sale of businesses increased $20 million to $21 million for the three months ended September 30, 2018 as compared to $1 million for the three months ended September 30, 2017 primarily due to post-closing adjustments to the gain on sale of Electrica Santiago in 2018.
Gain (loss) on disposal and sale of businesses increased $905 million to a gain of $856 million for the nine months ended September 30, 2018 , as compared to a loss of $49 million for the nine months ended September 30, 2017 . This increase was primarily due to the gain on sale of $773 million for the sale of Masinloc and $69 million for the sale of Electrica Santiago in 2018 compared to a loss on sale of $48 million for the sale of the Kazakhstan CHPs in 2017.
See Note 17 — Held-for-Sale and Dispositions included in Item 1.— Financial Statements of this Form 10-Q for further information.
Asset impairment expense
Asset impairment expense increased $72 million to $74 million for the three months ended September 30, 2018 , compared to $2 million for the three months ended September 30, 2017 , due to a current period impairment in the U.S. due to an updated unfavorable economic outlook resulting in additional decreased future cash flows at a generation facility.
Asset impairment expense decreased $94 million , or 36% , to $166 million for the nine months ended September 30, 2018 , compared to $260 million for the nine months ended September 30, 2017 , primarily due to prior year impairment of $186 million recognized in Kazakhstan due to the classification of the CHPs and HPPs as held-for-sale and at DPL as a result of the decision to close the coal-fired and diesel-fired generating units at Stuart and Killen, partially offset by impairments in the current year in the U.S. due to an unfavorable economic outlook resulting in decreased future cash flows at a generation facility.
See Note 14 — Asset Impairment Expense included in Item 1.— Financial Statements of this Form 10-Q for further information.
Foreign currency transaction gains (losses)

																	
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
(in millions)	2018	 	2017	 	2018	 	2017	
Corporate	$	(2	)	 	$	4		 	$	17		 	$	(1	)	
Argentina	(2	)	 	9		 	(47	)	 	4		
Colombia	—		 	(15	)	 	(1	)	 	(26	)	
Chile	4		 	9		 	(11	)	 	4		
Bulgaria	(1	)	—		5		 	(4	)	 	12		
Philippines	—		 	4		 	(1	)	 	10		
Other	6		 	6		 	3		 	11		
Total (1)	$	5		 	$	22		 	$	(44	)	 	$	14		
___________________________________________
		
(1)  	Includes $6 million of gains on foreign currency derivative contracts for the three months ended September 30, 2018 , and $37 million of gains and $37 million of losses for the nine months ended September 30, 2018 and 2017 , respectively.	
The Company recognized net foreign currency transaction gains of $5 million for the three months ended September 30, 2018 , primarily due to unrealized gains associated with the devaluation of payables denominated in Chilean pesos at Angamos and Cochrane, partially offset by the devaluation of long-term receivables denominated in Argentine pesos.
The Company recognized net foreign currency transaction losses of $44 million for the nine months ended September 30, 2018 , primarily due to the devaluation of long-term receivables denominated in Argentine pesos, partially offset by gains at the Parent Company related to foreign currency derivatives.

36

The Company recognized net foreign currency transaction gains of $22 million for the three months ended September 30, 2017 , primarily due to the appreciation of the Chilean peso, and foreign currency derivatives related to government receivables at Argentina, partially offset by losses on foreign currency derivatives at Colombia due to a change in functional currency.
The Company recognized net foreign currency transaction gains of $14 million for the nine months ended September 30, 2017 , primarily due to the amortization of frozen embedded derivatives at the Philippines, and appreciation of the euro at Bulgaria, partially offset by losses on foreign currency derivatives at Colombia due to a change in functional currency.
Income tax expense
Income tax expense increased $ 53 million , or 57% , to $146 million for the three months ended September 30, 2018 , compared to $93 million for the three months ended September 30, 2017 . The Company’s effective tax rates were 44% and 31% for the three months ended September 30, 2018 and 2017 , respectively. This net increase was primarily due to a 2018 adjustment to the provisional U.S. one-time transition tax recorded in the fourth quarter of 2017, as well as unfavorable foreign currency effects at certain of our Argentine subsidiaries during the third quarter of 2018. See Note 15 —Inc ome Taxes included in Item 1.— Financial Statements of this Form 10-Q for details on the adjustment to the one-time transition tax.
Income tax expense increased $ 263 million to $509 million for the nine months ended September 30, 2018 , compared to $ 246 million for the nine months ended September 30, 2017 . The Company’s effective tax rates were 30% and 36% for the nine months ended September 30, 2018 and 2017 , respectively. This net decrease in the effective tax rate was primarily due to the impact of the sale of the Company’s entire 51% equity interest in Masinloc. See Note 17 — Held-for-Sale and Dispositions included in Item 1.— Financial Statements of this Form 10-Q for further information. This impact was partially offset by the aforementioned 2018 adjustment to the provisional U.S. one-time transition tax and unfavorable foreign currency effects at certain of our Argentine subsidiaries.
Our effective tax rate reflects the tax effect of significant operations outside the U.S. which are generally taxed at rates different than the U.S. statutory rate of 21%. Furthermore, a greater proportion of our foreign earnings may be subject to current U.S. taxation under the new tax rules enacted in the fourth quarter of 2017. The regulations governing those rules have not yet been finalized. A future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate.
Net equity in earnings of affiliates
Net equity in earnings of affiliates decreased $18 million to $6 million for the three months ended September 30, 2018 , compared to $24 million for the three months ended September 30, 2017 . This decrease was primarily due to more projects achieving commercial operations in 2017 compared to 2018 at sPower, which was purchased in the third quarter of 2017; losses at Fluence, which was formed in the first quarter of 2018; and decreased income at Guacolda.
Net equity in earnings of affiliates decreased $2 million to $31 million for the nine months ended September 30, 2018 , compared to $33 million for the nine months ended September 30, 2017 . This decrease was primarily due to losses at Fluence and decreased income at Guacolda, partially offset by increased income at OPGC and earnings at sPower.
Net income from discontinued operations
Net income from discontinued operations decreased $27 million to a net loss of $1 million for the three months ended September 30, 2018 , compared to net income from discontinued operations of $26 million for the three months ended September 30, 2017 , due to the sale of Eletropaulo in the second quarter of 2018.
Net income from discontinued operations increased $155 million to $190 million for the nine months ended September 30, 2018 , compared to $35 million for the nine months ended September 30, 2017 , primarily due to the after-tax gain on sale of Eletropaulo of $199 million , partially offset by the income from operations of Eletropaulo prior to its deconsolidation in November 2017.
See Note 16 — Discontinued Operations included in Item 1.— Financial Statements of this Form 10-Q for further information regarding the Eletropaulo discontinued operations.
Net income attributable to noncontrolling interests and redeemable stock of subsidiaries
Net income attributable to noncontrolling interests and redeemable stock of subsidiaries decreased $19 million , or 17% , to $90 million for the three months ended September 30, 2018 , compared to $109 million for the three months ended September 30, 2017 . This decrease was primarily due to:

37

		
•	Lower earnings due to the deconsolidation of Eletropaulo in November 2017 and the sale of Masinloc in March 2018.	
These decreases were partially offset by:

•	Higher earnings due to project completions in Panama; and	
		
•	Higher earnings in Colombia primarily due to higher contract sales and prices.	
Net income attributable to noncontrolling interests and redeemable stock of subsidiaries decreased $19 million , or 6% , to $309 million for the nine months ended September 30, 2018 , compared to $328 million for the nine months ended September 30, 2017 . This decrease was primarily due to:

•	Lower earnings at Tietê primarily due to higher interest expense due to non-recourse debt issued in 2018 and the assumption of debt for the acquisition of Alto Sertão in August 2017;	
		
•	Prior year favorable impact of a legal settlement at Uruguaiana; and	
		
•	Lower earnings due to the deconsolidation of Eletropaulo in November 2017 and the sale of Masinloc in March 2018.	
These decreases were partially offset by:

•	Current year gain on sale of Electrica Santiago;	
		
•	Higher earnings in Colombia primarily due to higher contract sales and prices; and	
		
•	Higher earnings in Vietnam due to the adoption of the new revenue recognition standard (See Note 1 — Financial Statement Presentation included in Item 1.— Financial Statements of this Form 10-Q for further information).	
Net income attributable to The AES Corporation
Net income attributable to The AES Corporation decreased $51 million , or 34% , to $101 million for the three months ended September 30, 2018 , compared to $152 million for the three months ended September 30, 2017 . This decrease was primarily due to:

•	Current year impairment in the U.S.;	
		
•	Charge to true-up the provisional estimate of U.S. tax reform;	
		
•	Post-closing adjustments to the gain on sale of Electrica Santiago; and	
		
•	Lower margins in the current year at our Eurasia SBU as a result of the sales of Masinloc and Kazakhstan.	
These decreases were partially offset by:

•	Prior year loss on extinguishment of debt;	
		
•	Lower interest on Parent Company debt; and	
		
•	Higher margins at our South America and US and Utilities SBUs in the current year.	
Net income attributable to The AES Corporation increased $894 million to $1,075 million for the nine months ended September 30, 2018 , compared to $181 million for the nine months ended September 30, 2017 . This increase was primarily due to:

•	Current year gains on the sales of Masinloc, Eletropaulo (reflected within discontinued operations), and Electrica Santiago, net of tax;	
		
•	Prior year loss on sale of Kazakhstan CHPs;	
		
•	Prior year asset impairments in Kazakhstan and DP&L;	
		
•	Lower interest on Parent Company debt; and	
		
•	Higher margins at our US and Utilities, South America and MCAC SBUs in the current year.	
These increases were partially offset by:

•	Current year impairment in the U.S.;	
		
•	Current year loss and prior year gain on extinguishment of debt;	
		
•	Current year unrealized foreign exchange losses primarily due to the devaluation of the Argentine peso;	
		
•	Prior year favorable impact of a legal settlement at Uruguaiana; and	
		
•	Lower margins in the current year at our Eurasia SBU as a result of the sales of Masinloc and Kazakhstan.	

38

SBU Performance Analysis
Non-GAAP Measures
Adjusted Operating Margin, Adjusted PTC, and Adjusted EPS are non-GAAP supplemental measures that are used by management and external users of our condensed consolidated financial statements such as investors, industry analysts and lenders. The Adjusted Operating Margin and Adjusted PTC by SBU for the three and nine months ended September 30, 2018 and September 30, 2017 are shown below.
Effective January 1, 2018, the Company changed the definition of Adjusted PTC and Adjusted EPS to exclude unrealized gains or losses from equity securities resulting from a newly effective accounting standard. We believe excluding these gains or losses provides a more accurate picture of continuing operations. Factors in this determination include the variability due to unrealized gains or losses related to equity securities remeasurement.
In addition, effective for the year beginning January 1, 2018, the Company no longer discloses Consolidated Free Cash Flow, as the Company believes this metric does not accurately reflect the Company's ownership interests in the underlying businesses given the high level of cash flow attributable to noncontrolling interests.
Adjusted Operating Margin
We define Adjusted Operating Margin as Operating Margin, adjusted for the impact of NCI, excluding (a) unrealized gains or losses related to derivative transactions; (b) benefits and costs associated with dispositions and acquisitions of business interests, including early plant closures; and (c) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation.
The GAAP measure most comparable to Adjusted Operating Margin is Operating Margin. We believe that Adjusted Operating Margin better reflects the underlying business performance of the Company. Factors in this determination include the impact of NCI, where AES consolidates the results of a subsidiary that is not wholly owned by the Company, as well as the variability due to unrealized gains or losses related to derivative transactions and strategic decisions to dispose of or acquire business interests. Adjusted Operating Margin should not be construed as an alternative to Operating Margin, which is determined in accordance with GAAP.

																
Reconciliation of Adjusted Operating Margin (in millions)	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Operating Margin	$	671		 	$	640		 	$	1,927		 	$	1,820		
Noncontrolling interests adjustment	(160	)	 	(165	)	 	(502	)	 	(503	)	
Unrealized derivative losses (gains)	4		 	(6	)	 	11		 	(16	)	
Disposition/acquisition losses	7		 	3		 	20		 	12		
Restructuring costs	—		 	—		 	3		 	—		
Total Adjusted Operating Margin	$	522		 	$	472		 	$	1,459		 	$	1,313		

39

Adjusted PTC
We define Adjusted PTC as pre-tax income from continuing operations attributable to The AES Corporation excluding gains or losses of the consolidated entity due to (a) unrealized gains or losses related to derivative transactions and equity securities; (b) unrealized foreign currency gains or losses; (c) gains, losses, benefits and costs associated with dispositions and acquisitions of business interests, including early plant closures; (d) losses due to impairments; (e) gains, losses and costs due to the early retirement of debt; and (f) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation. Adjusted PTC also includes net equity in earnings of affiliates on an after-tax basis adjusted for the same gains or losses excluded from consolidated entities.
Adjusted PTC reflects the impact of NCI and excludes the items specified in the definition above. In addition to the revenue and cost of sales reflected in Operating Margin, Adjusted PTC includes the other components of our income statement, such as general and administrative expenses in the corporate 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, unrealized foreign currency gains or losses, losses due to impairments and strategic decisions to dispose of or acquire business interests, retire debt or implement restructuring initiatives, which affect results in a given period or periods. In addition, earnings before tax represents the business performance of the Company before the application of statutory income tax rates and tax adjustments, including the effects of tax planning, corresponding to the various jurisdictions in which the Company operates. Additionally, given 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)	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	2018	 	2017	
Income from continuing operations, net of tax, attributable to The AES Corporation	$	102		 	$	147		 	$	883		 	$	176		
Income tax expense attributable to The AES Corporation	120		 	69		 	411		 	139		
Pretax contribution	222		 	216		 	1,294		 	315		
Unrealized derivative and equity securities losses (gains)	16		 	(8	)	 	4		 	(7	)	
Unrealized foreign currency losses (gains)	(7	)	 	(21	)	 	42		 	(54	)	
Disposition/acquisition losses (gains)	17		 	1		 	(822	)	 	109		
Impairment expense	80		 	2		 	172		 	264		
Losses (gains) on extinguishment of debt	(1	)	 	48		 	177		 	43		
Restructuring costs  (1)	—		 	—		 	3		 	—		
Total Adjusted PTC	$	327		 	$	238		 	$	870		 	$	670		
_____________________________

40

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

Adjusted EPS
We define Adjusted EPS as diluted earnings per share from continuing operations excluding gains or losses of both consolidated entities and entities accounted for under the equity method due to (a) unrealized gains or losses related to derivative transactions and equity securities; (b) unrealized foreign currency gains or losses; (c) gains, losses, benefits and costs associated with dispositions and acquisitions of business interests, including early plant closures, and the tax impact from the repatriation of sales proceeds; (d) losses due to impairments; (e) gains, losses and costs due to the early retirement of debt; (f) costs directly associated with a major restructuring program, including, but not limited to, workforce reduction efforts, relocations, and office consolidation; and (g) tax benefit or expense related to the enactment effects of 2017 U.S. tax law reform.
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, unrealized foreign currency gains or losses, losses due to impairments and strategic decisions to dispose of or acquire business interests, retire debt or implement restructuring activities, which affect results in a given period or periods. Adjusted EPS should not be construed as an alternative to diluted earnings per share from continuing operations, which is determined in accordance with GAAP.

41

	
																	
Reconciliation of Adjusted EPS	Three Months Ended September 30,	 	Nine Months Ended September 30,	 	
 	2018	 	2017	 	2018	 	2017	 	
Diluted earnings per share from continuing operations	$	0.15		 	$	0.22		 	$	1.33		 	$	0.27		 	
Unrealized derivative and equity securities losses (gains)	0.02		 	(0.01	)	 	0.01		 	(0.01	)	 	
Unrealized foreign currency losses (gains)	—		 	(0.03	)	 	0.06		(1)  	(0.08	)	 	
Disposition/acquisition losses (gains)	0.02		 	—		 	(1.24	)	(2)  	0.16		(3)  	
Impairment expense	0.12		(4)  	—		 	0.26		(5)  	0.40		(6)  	
Losses (gains) on extinguishment of debt	—		 	0.07		(7)  	0.27		(8)  	0.06		(9)  	
U.S. Tax Law Reform Impact	0.05		(10)  	—		 	0.05		(10)  	—		 	
Less: Net income tax expense (benefit)	(0.01	)	 	(0.02	)	 	0.14		(11)  	(0.15	)	(12)  	
Adjusted EPS	$	0.35		 	$	0.23		 	$	0.88		 	$	0.65		 	
_____________________________
		
(1)  	Amount primarily relates to unrealized FX losses of $20 million, or $0.03 per share, associated with the devaluation of long-term receivables denominated in Argentine pesos, and unrealized FX losses of $9 million, or $0.01 per share, on intercompany receivables denominated in Euros at the Parent Company.   	
		
(2)  	Amount primarily relates to gain on sale of Masinloc of $773 million, or $1.16 per share, gain on sale of Electrica Santiago of $36 million, or $0.05 per share, and realized derivative gains associated with the sale of Eletropaulo of $21 million, or $0.03 per share.   	
		
(3)  	Amount primarily relates to loss on sale of Kazakhstan CHPs of $48 million, or $0.07 per share, realized derivative losses associated with the sale of Sul of $38 million, or $0.06 per share, and costs associated with early plant closures at DPL of $20 million, or $0.03 per share.	
		
(4)  	Amount primarily relates to the asset impairment at a U.S. generation facility of $73 million, or $0.11 per share.	
		
(5)  	Amount primarily relates to the asset impairment at a U.S. generation facility of $156 million, or $0.23 per share.	
		
(6)  	Amount primarily relates to asset impairments at Kazakhstan HPPs of $92 million, or $0.14 per share, Kazakhstan CHPs of $94 million, or $0.14 per share, and DPL of $66 million, or $0.10 per share.   	
		
(7)  	Amount primarily relates to loss on early retirement of debt at the Parent Company of $38 million, or $0.06 per share.   	
		
(8)  	Amount primarily relates to loss on early retirement of debt at the Parent Company of $169 million, or $0.25 per share.   	
		
(9)  	Amount primarily relates to losses on early retirement of debt at the Parent Company of $92 million, or $0.14 per share, partially offset by the gain on early retirement of debt at AES Argentina of $65 million, or $0.10 per share.   	
		
(10)  	Amount relates to a charge to true-up the provisional estimate of U.S. tax reform of $33 million, or $0.05 per share.   	
		
(11)  	Amount primarily relates to the income tax expense under the GILTI provision associated with gain on sale of Masinloc of $155 million, or $0.23 per share, and income tax expense associated with the gain on sale of Electrica Santiago of $19 million, or $0.03 per share; partially offset by income tax benefits associated with the loss on early retirement of debt at the Parent Company of $52 million, or $0.08 per share, and income tax benefits associated with the impairment at a U.S. generation facility of $35 million, or $0.05 per share.	
		
(12)  	Amount primarily relates to the income tax benefit associated with asset impairments of $82 million, or $0.12 per share.   	
US AND UTILITIES SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC (in millions) for the periods indicated:

																														
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	$ Change	 	% Change	 	2018	 	2017	 	$ Change	 	% Change	
Operating Margin	$	225		 	$	205		 	$	20		 	10	%	 	$	570		 	$	514		 	$	56		 	11	%	
Adjusted Operating Margin  (1)	209		 	177		 	32		 	18	%	 	523		 	454		 	69		 	15	%	
Adjusted PTC  (1)	167		 	138		 	29		 	21	%	 	363		 	288		 	75		 	26	%	
_____________________________

(1)  	A non-GAAP financial measure, adjusted for the impact of NCI. See SBU Performance Analysis—Non-GAAP Measures for definition and Item 1. —Business included in our 2017 Form 10-K for the respective ownership interest for key businesses.	
Operating Margin for the three months ended September 30, 2018 increased $20 million , or 10% , which was driven primarily by the following (in millions): 

				
Increase at Southland driven by higher market energy sales, partially offset by a decrease in capacity sales and lower ancillary services due to the expiration of long-term agreements	$	22		
Increase at DPL primarily due to higher regulated rates following the approval of the 2017 ESP and favorable weather	15		
Impact of the sale and closure of generation plants at DPL	(18	)	
Other	1		
Total US and Utilities SBU Operating Margin Increase	$	20		
Adjusted Operating Margin increased $32 million primarily due to the drivers above, adjusted for a $10 million unrealized loss on coal derivatives in Hawaii.
Adjusted PTC increased $29 million , primarily driven by the increase in Adjusted Operating Margin described above.

42

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

				
Increase at DPL primarily due to higher regulated rates following the approval of the 2017 ESP and favorable weather	$	37		
Increase at Southland driven by higher market energy sales, partially offset by a decrease in capacity sales and lower ancillary services due to the expiration of long-term agreements	20		
Increase at El Salvador primarily due to a new tariff regime effective in 2018	10		
Impact of the sale and closure of generation plants at DPL	(5	)	
Other	(6	)	
Total US and Utilities SBU Operating Margin Increase	$	56		
Adjusted Operating Margin increased $69 million primarily due to the drivers above, adjusted for a $10 million unrealized loss on coal derivatives in Hawaii.
Adjusted PTC increased $75 million , primarily driven by the increase in Adjusted Operating Margin described above.
SOUTH AMERICA SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC (in millions) for the periods indicated:

																														
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	$ Change	 	% Change	 	2018	 	2017	 	$ Change	 	% Change	
Operating Margin	$	250		 	$	190		 	$	60		 	32	%	 	$	754		 	$	612		 	$	142		 	23	%	
Adjusted Operating Margin  (1)	156		 	116		 	40		 	34	%	 	455		 	347		 	108		 	31	%	
Adjusted PTC  (1)	128		 	67		 	61		 	91	%	 	381		 	289		 	92		 	32	%	
_____________________________

(1)  	A non-GAAP financial measure, adjusted for the impact of NCI. See SBU Performance Analysis—Non-GAAP Measures for definition and Item 1. —Business included in our 2017 Form 10-K for the respective ownership interest for key businesses.	
Operating Margin for the three months ended September 30, 2018 increased $60 million , or 32% , which was driven primarily by the following (in millions):

				
Increase in Colombia mainly related to higher contract prices and higher contract and spot sales	$	21		
Lower fixed costs at Gener primarily associated with planned maintenance performed in Q3 2017	21		
Increase in Argentina primarily due to higher regulated tariffs resulting from market reforms enacted in 2017 and lower fixed costs primarily due to the devaluation of the Argentine peso	18		
Increase mainly associated with the commencement of new PPAs in Chile	18		
Impact of the sale of Electrica Santiago	(15	)	
Other	(3	)	
Total South America SBU Operating Margin Increase	$	60		
Adjusted Operating Margin increased $40 million due to the drivers above, adjusted for NCI.
Adjusted PTC increased $61 million , mainly driven by the increase in Adjusted Operating Margin described above and lower interest and other expenses in Chile driven by the full allowance of a non-trade receivable in Argentina due to collection uncertainties recognized in the prior year and the write-off of water rights at Gener resulting from a business development project no longer pursued in the prior year, partially offset by higher foreign currency losses in Argentina.
Operating Margin for the nine months ended September 30, 2018 increased $142 million , or 23% , which was driven primarily by the following (in millions):

				
Increase in Argentina primarily due to higher regulated tariffs resulting from market reforms enacted in 2017 and lower fixed costs primarily due to the devaluation of the Argentine peso	$	62		
Increase in Colombia mainly related to higher contract prices	48		
Increase in Chile due to the commencement of new PPAs	40		
Lower fixed costs at Gener primarily associated with planned maintenance performed in 2017	16		
Impact of the sale of Electrica Santiago	(28	)	
Other	4		
Total South America SBU Operating Margin Increase	$	142		
Adjusted Operating Margin increased $108 million due to the drivers above, adjusted for NCI and excluding restructuring charges.
Adjusted PTC increased $92 million , mainly due to the increase in Adjusted Operating Margin described above and lower interest and other expenses in Chile, partially offset by a $28 million decrease associated with a gain recognized in the prior year from the settlement of a legal dispute with YPF at Uruguaiana, higher interest expense

43

in Brazil, and higher realized foreign currency losses in Argentina.
MCAC SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC (in millions) for the periods indicated:

																														
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	$ Change	 	% Change	 	2018	 	2017	 	$ Change	 	% Change	
Operating Margin	$	144		 	$	142		 	$	2		 	1	 %	 	$	379		 	$	336		 	$	43		 	13	%	
Adjusted Operating Margin  (1)	106		 	109		 	(3	)	 	-3	 %	 	282		 	263		 	19		 	7	%	
Adjusted PTC  (1)	81		 	91		 	(10	)	 	-11	 %	 	215		 	209		 	6		 	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 included in our 2017 Form 10-K for the respective ownership interest for key businesses.	
Operating Margin for the three months ended September 30, 2018 increased $2 million , or 1% , which was driven primarily by the following (in millions):

				
Higher availability driven by improved hydrology in Panama	$	6		
Higher energy costs in Dominican Republic due to the lightning incident at the Andres facility	(6	)	
Other	2		
Total MCAC SBU Operating Margin Increase	$	2		
Adjusted Operating Margin decreased $3 million due to the drivers above, adjusted for NCI.
Adjusted PTC decreased $10 million , mainly driven by the decrease in Adjusted Operating Margin as described above, and by lower capitalized interest due to project completions in Panama.
Operating Margin for the nine months ended September 30, 2018 increased by $43 million , or 13% , which was driven primarily by the following (in millions):

				
Higher contracted energy sales in Dominican Republic mainly driven by the commencement of operations at the Los Mina combined cycle facility in June 2017 and lower forced maintenance outages	$	30		
Higher availability driven by improved hydrology in Panama	23		
Higher energy costs in Dominican Republic due to the lightning incident at the Andres facility	(6	)	
Other	(4	)	
Total MCAC SBU Operating Margin Increase	$	43		
Adjusted Operating Margin increased $19 million due to the drivers above, adjusted for NCI.
Adjusted PTC increased $6 million , mainly driven by the increase in Adjusted Operating Margin as described above, partially offset by lower capitalized interest due to project completions in Panama and Dominican Republic, and lower foreign currency gains in Mexico.
EURASIA SBU
The following table summarizes Operating Margin, Adjusted Operating Margin and Adjusted PTC (in millions) for the periods indicated:

																														
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2018	 	2017	 	$ Change	 	% Change	 	2018	 	2017	 	$ Change	 	% Change	
Operating Margin	$	34		 	$	101		 	$	(67	)	 	-66	 %	 	$	175		 	$	342		 	$	(167	)	 	-49	 %	
Adjusted Operating Margin  (1)	31		 	67		 	(36	)	 	-54	 %	 	152		 	235		 	(83	)	 	-35	 %	
Adjusted PTC  (1)	37		 	61		 	(24	)	 	-39	 %	 	175		 	218		 	(43	)	 	-20	 %	
_____________________________

(1)  	A non-GAAP financial measure, adjusted for the impact of NCI. See SBU Performance Analysis—Non-GAAP Measures for definition and Item 1. —Business included in our 2017 Form 10-K for the respective ownership interest for key businesses.	
Including neutral FX impact, Operating Margin for the three months ended September 30, 2018 decreased $67 million , or 66% , which was driven primarily by the following (in millions):

				
Impact of the sale of Masinloc power plant in March 2018	$	(39	)	
Decrease in Vietnam due to adoption of the new revenue recognition standard in 2018 and higher maintenance expense
	(12	)	
Impact of the sale of the Kazakhstan CHPs and the expiration of HPP concession in 2017
	(8	)	
Other	(8	)	
Total Eurasia SBU Operating Margin Decrease	$	(67	)	
Adjusted Operating Margin decreased $36 million due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives.

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Adjusted PTC decreased $24 million , driven by the decrease in the Adjusted Operating Margin discussed above, partially offset by positive impact in Vietnam due to increased interest income from the higher financing component of contract consideration as a result of adoption of the new revenue recognition standard in 2018.
Including favorable FX impacts of $10 million , Operating Margin for the nine months ended September 30, 2018 decreased $167 million , or 49% , which was driven primarily by the following (in millions):

				
Impact of the sale of Masinloc power plant in March 2018
	$	(87	)	
Impact of the sale of the Kazakhstan CHPs and the expiration of HPP concession in 2017
	(36	)	
Decrease in Vietnam due to adoption of the new revenue recognition standard in 2018 and higher maintenance costs
	(26	)	
Unfavorable MTM valuation of commodity swaps in Kilroot	(18	)	
Total Eurasia SBU Operating Margin Decrease	$	(167	)	
Adjusted Operating Margin decreased $83 million due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives and costs due to early plant closures.
Adjusted PTC decreased $43 million , driven by the decrease in Adjusted Operating Margin discussed above, partially offset by the positive impact in Vietnam due to increased interest income from the higher financing component of contract consideration as a result of adoption of the new revenue recognition standard in 2018.
Key Trends and Uncertainties
During the remainder of 2018 and beyond, we expect to face the following challenges at certain of our businesses. Management expects that improved operating performance at certain businesses, growth from new businesses and global cost reduction initiatives may lessen or offset their impact. If these favorable effects do not occur, or if the challenges described below and elsewhere in this section impact us more significantly than we currently anticipate, or if volatile foreign currencies and commodities move more unfavorably, then these adverse factors (or other adverse factors unknown to us) may have a material impact on our operating margin, net income attributable to The AES Corporation, and cash flows. We continue to monitor our operations and address challenges as they arise.
Alto Maipo
As discussed in Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Trends and Uncertainties of the 2017 Form 10-K, Alto Maipo has experienced construction difficulties which have resulted in increased projected costs over the original $2 billion budget. Construction at the project is continuing, and the project is 70% complete.
In February 2018, Alto Maipo entered into a new construction contract with Strabag. The new contract is fixed-price and lump sum, transfers geological and construction risk to Strabag and provides a date certain for completion with strong performance and completion guarantees.
In May 2018, Alto Maipo and the project’s senior lenders executed the financial restructuring of the project. The restructuring, among other things, includes additional funding commitments of up to $400 million by AES Gener, of which $200 million will be contributed and matched by an equal contribution of debt by the project lenders and another $200 million will be contributed by AES Gener towards the completion of the project, once the lenders have disbursed $688 million of their commitments and only to the extent needed to fund project costs. Any unused portion of AES Gener’s commitment will be used to prepay project debt. 
If Alto Maipo is unable to meet certain construction milestones, there could be a material impact to the financing and value of the project which could have a material impact on the Company. The carrying value of long-lived assets and deferred tax assets of Alto Maipo as of September 30, 2018 was approximately $1.9 billion and $50 million, respectively. Management believes the carrying value of the long-lived asset group is recoverable as of September 30, 2018. In addition, management believes it is more likely than not the deferred tax assets will be realized; however, they could be reduced if estimates of future taxable income are decreased.
Andres
On September 3, 2018, lightning affected the Andres 319 MW combined cycle natural gas facility in the Dominican Republic (“the Plant”) resulting in significant damage to its steam turbine and generator. As a result of this event, a loss of $20 million was recorded during the third quarter 2018. The Company has business interruption and property damage insurance coverage, subject to pre-defined deductibles, under its existing programs.
On September 25, 2018, the Plant restarted operations running the gas turbine in simple cycle at partial load of approximately 120 MW. Management estimates that the Plant will operate the gas turbine in simple cycle at full

45

load of approximately 185 MW starting in the first quarter of 2019, and in combined cycle at full capacity by the fourth quarter of 2019.
To mitigate the impact of the reduced capacity in the local energy market, the Company is installing 120 MW of rental power (gas turbines) until the combined cycle facility is at full load. The rental units will be in operation in November of 2018.
Considering the information available as of the filing date, Management believes the carrying amount of our assets in Andres of $526 million is recoverable as of September 30, 2018.
Macroeconomic and Political
During the past few years, economic conditions in some countries where our subsidiaries conduct business have destabilized. Changes in global economic conditions could have an adverse impact on our businesses in the event these recent trends continue.
Puerto Rico — As discussed in Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Trends and Uncertainties of the 2017 Form 10-K, 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.
AES Puerto Rico and AES Ilumina’s non-recourse debt of  $322 million  and  $35 million , respectively, continue to be in default and are classified as current as of September 30, 2018 as a result of PREPA´s bankruptcy filing in July 2017. The Company is in compliance with its debt payment obligations as of September 30, 2018.
Regarding the impacts of Hurricanes Irma and Maria in September 2017, as discussed in Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Trends and Uncertainties of the 2017 Form 10-K, AES Puerto Rico has resumed generation during the first quarter of 2018 and continues to be the lowest cost and EPA compliant energy provider in Puerto Rico and a critical supplier to PREPA.
The Company's receivable balances in Puerto Rico as of September 30, 2018 totaled $66 million, of which $17 million was overdue. Despite the disruption caused by the hurricanes and the Title III protection, PREPA has been making payments to the generators in line with historical payment patterns.
Considering the information available as of the filing date, Management believes the carrying amount of our assets in Puerto Rico of $605 million is recoverable as of September 30, 2018.
Argentina — During the second quarter of 2018, all of the three-year cumulative inflation rates commonly used to evaluate Argentina’s inflation exceeded 100%. Therefore, Argentina’s economy was determined to be highly inflationary. Since the tariffs and debt at our primary businesses in Argentina are denominated in USD, the functional currency of those businesses is USD. As such, the determination that the Argentina economy is highly inflationary is not expected to have a material impact on the Company’s financial statements.
Chilean Energy Market — The Company is in the preliminary stages of performing its annual goodwill impairment test, and has no reporting units considered to be "at risk" as of September 30, 2018. A reporting unit is considered "at risk" for the coming year when its fair value at the October 1 st measurement date is not higher than its carrying amount by 10%. Sustained downward pressure on long-term power prices in Chile could potentially put Gener’s goodwill balance at risk or could potentially be an indicator of other than temporary impairment of certain equity-method investments in future periods. The Gener goodwill balance was $868 million as of September 30, 2018. Impairments would negatively impact our consolidated results of operations and net worth. See Item 1A.— Risk Factors  of the 2017 Form 10-K for further information.
Regulatory
IPL Rate Case  — On October 31, 2018, IPL received an order from the IURC approving an uncontested settlement agreement to increase annual revenues by $44 million, or 3%, primarily to recover costs associated with the CCGT at Eagle Valley, completed in the first half of 2018, and other construction projects. New base rates and charges are expected to be effective on December 5, 2018. The order also provides customers with approximately $50 million in benefits, including tax reform benefits associated with the TCJA, over a two-year period via a rate adjustment mechanism beginning in March 2019. The benefits accrued to date are recorded in long-term regulatory liabilities as of September 30, 2018.
DP&L Rate Case — In September 2018, DP&L received an order from the PUCO establishing new base distribution rates for DP&L (“the order”), which became effective October 1, 2018. The order approved, without modification, a stipulation and recommendation previously filed by DP&L, along with various intervening parties,

46

and the PUCO staff. The order established a revenue requirement of $248 million for DP&L's electric service base distribution rates, which reflects an increase to distribution revenues of $30 million per year. In addition, the order authorizes DP&L to collect from customers costs related to qualified investments through a Distribution Investment Rider, changes the Decoupling Rider to reduce variability from the impact of weather and demand, partially resolves regulatory issues related to the TCJA, and authorizes DP&L to defer certain vegetation management costs for future collection.
Maritza PPA Review  — The DG Comp continues to review whether Maritza’s PPA with NEK is compliant with the European Commission’s state aid rules. Although no formal investigation has been launched by DG Comp to date, Maritza has engaged in discussions with the DG Comp case team and representatives of Bulgaria to discuss the agency’s review. In the near term, Maritza expects that it will engage in discussions with Bulgaria to attempt to reach a negotiated resolution concerning DG Comp’s review. The anticipated discussions could involve a range of potential outcomes, including but not limited to termination of the PPA and payment of some level of compensation to Maritza. Any negotiated resolution would be subject to mutually acceptable terms, lender consent, and DG Comp approval. At this time, we cannot predict the outcome of the anticipated discussions between Maritza and Bulgaria, nor can we predict how DG Comp might resolve its review if the discussions fail to result in an agreement concerning the review. Maritza believes that its PPA is legal and in compliance with all applicable laws, and it will take all actions necessary to protect its interests, whether through negotiated agreement or otherwise. However, there can be no assurances that this matter will be resolved favorably; if it is not, there could be a material adverse impact on Maritza’s and the Company’s respective financial statements.
Considering the information available as of the filing date, Management believes the carrying value of our long-lived assets at Maritza of approximately $1.2 billion is recoverable as of September 30, 2018.
Foreign Exchange Rates
We operate in multiple countries and as such, are subject to volatility in exchange rates at the subsidiary level between our functional currency, USD, and currencies of the countries in which we operate. In 2018, the Argentine peso devalued significantly against the USD. Continued material devaluation of the Argentine peso against the USD could have an impact on our full year 2018 results. For additional information, refer to Item 3.— Quantitative and Qualitative Disclosures About Market Risk .
Impairments
Long-lived Assets — During the  nine months ended September 30, 2018 , the Company recognized asset impairment expense of  $166 million . See Note  14 —Asset Impairment Expense included in Item 1.— Financial Statements  of this Form 10-Q for further information. After recognizing this asset impairment expense, the carrying value of the asset groups, including long-lived assets, and those asset groups that were assessed and not impaired, totaled $55 million at September 30, 2018.
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, or an expectation it is more likely than not the asset will be disposed of before the end of its estimated useful life.
Environmental
The Company is subject to numerous environmental laws and regulations in the jurisdictions in which it operates. The Company faces certain risks and uncertainties related to these environmental laws and regulations, including existing and potential GHG legislation or regulations and actual or potential laws and regulations pertaining to water discharges, waste management (including disposal of coal combustion byproducts) and certain air emissions, such as SO 2 , NO x , particulate matter and mercury. Such risks and uncertainties could result in increased capital expenditures or other compliance costs which could have a material adverse effect on certain of our U.S. or international subsidiaries and our consolidated results of operations. For further information about these risks, see Item 1A.— Risk Factors—Our businesses are subject to stringent environmental laws and regulations; Our businesses are subject to enforcement initiatives from environmental regulatory agencies; and Regulators, politicians, non-governmental organizations and other private parties have expressed concern about greenhouse gas, or GHG, emissions and the potential risks associated with climate change and are taking actions which could have a material adverse impact on our consolidated results of operations, financial condition and cash flows included in the 2017 Form 10-K.
Waste Management — In the course of operations, the Company's facilities generate solid and liquid waste materials requiring eventual disposal or processing. The Company endeavors to ensure that all of its solid and

47

liquid wastes are managed in accordance with applicable national, regional, state and local regulations. In October 2015, an EPA rule became effective that regulates coal combustion residuals (“CCR”), which are produced by our coal-fired facilities. Some of those facilities dispose CCR on site in engineered, permitted landfills. The EPA rule established criteria for the beneficial use of CCR within the US, as well as nationally applicable minimum criteria for the disposal of CCR as nonhazardous solid waste in new and currently operating landfills and surface impoundments, and may impose closure and/or corrective action requirements for existing CCR landfills and impoundments under certain specified conditions. The EPA has indicated that they will implement a phased approach to amending the CCR rule with Phase One being finalized no later than June 2019, and Phase Two no later than December 2019. While the EPA published final CCR Rule Amendments (Phase One, Part One) in the Federal Register on July 30, 2018, the U.S. Court of Appeals for the District of Columbia issued a decision on August 21, 2018 on certain CCR related matters that may result in revisions to the current and proposed CCR amendments. The CCR rule, current or proposed amendments to the CCR rule, and the results of groundwater monitoring data could have a material impact on our business, financial condition or results of operations.
Climate Change Regulation — On August 31, 2018, EPA issued proposed emission guidelines for greenhouse gas emissions from existing electric utility generating units, known as the Affordable Clean Energy (ACE) Rule. In addition, the EPA proposed associated revisions to implementing regulations and the New Source Review program. The proposed ACE Rule would replace the EPA’s 2015 Clean Power Plan and proposes, in addition to other matters, to determine that heat rate improvement measures are the best system of emission reduction for existing coal-fired electric generating units. We are still reviewing the proposed ACE Rule and the proposed revisions and it is too early to determine the potential impact, but any impact could be material.
Capital Resources and Liquidity
Overview — As of September 30, 2018 , the Company had unrestricted cash and cash equivalents of $1.2 billion , of which $43 million was held at the Parent Company and qualified holding companies. The Company also had $401 million in short-term investments, held primarily at subsidiaries. In addition, we had restricted cash and debt service reserves of $935 million . The Company also had non-recourse and recourse aggregate principal amounts of debt outstanding of $15.6 billion and $3.8 billion , respectively.
We expect current maturities of non-recourse debt to be repaid from net cash provided by operating activities of the subsidiary to which the debt relates, through opportunistic refinancing activity, or some combination thereof. We have $5 million of recourse debt which matures within the next twelve months. From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management believes that such securities are attractively priced. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors. The amounts involved in any such repurchases may be material.
We rely mainly on long-term debt obligations to fund our construction activities. We have, to the extent available at acceptable terms, utilized non-recourse debt to fund a significant portion of the capital expenditures and investments required to construct and acquire our electric power plants, distribution companies and related assets. Our non-recourse financing is designed to limit cross-default risk to the Parent Company or other subsidiaries and affiliates. Our non-recourse long-term debt is a combination of fixed and variable interest rate instruments. Debt is typically denominated in the currency that matches the currency of the revenue expected to be generated from the benefiting project, thereby reducing currency risk. In certain cases, the currency is matched through the use of derivative instruments. The majority of our non-recourse debt is funded by international commercial banks, with debt capacity supplemented by multilaterals and local regional banks.
Given our long-term debt obligations, the Company is subject to interest rate risk on debt balances that accrue interest at variable rates. When possible, the Company will borrow funds at fixed interest rates or hedge its variable rate debt to fix its interest costs on such obligations. In addition, the Company has historically tried to maintain at least 70% of its consolidated long-term obligations at fixed interest rates, including fixing the interest rate through the use of interest rate swaps. These efforts apply to the notional amount of the swaps compared to the amount of related underlying debt. On a consolidated basis, of the Company’s $19.8 billion of total gross debt outstanding as of September 30, 2018 , approximately $3.1 billion bore interest at variable rates that were not subject to a derivative instrument which fixed the interest rate. Brazil holds $660 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

48

obtain the funds for these investments from our cash flows from operations, proceeds from the sales of assets and/or the proceeds from our issuances of debt, common stock and other securities. Similarly, in certain of our businesses, the Parent Company may provide financial guarantees or other credit support for the benefit of counterparties who have entered into contracts for the purchase or sale of electricity, equipment, or other services with our subsidiaries or lenders. In such circumstances, if a business defaults on its payment or supply obligation, the Parent Company will be responsible for the business’ obligations up to the amount provided for in the relevant guarantee or other credit support. At September 30, 2018 , the Parent Company had provided outstanding financial and performance-related guarantees or other credit support commitments to or for the benefit of our businesses, which were limited by the terms of the agreements, of approximately $462 million in aggregate (excluding those collateralized by letters of credit and other obligations discussed below).
As a result of the Parent Company’s below investment grade rating, counterparties may be unwilling to accept our general unsecured commitments to provide credit support. Accordingly, with respect to both new and existing commitments, the Parent Company may be required to provide some other form of assurance, such as a letter of credit, to backstop or replace our credit support. The Parent Company may not be able to provide adequate assurances to such counterparties. To the extent we are required and able to provide letters of credit or other collateral to such counterparties, this will reduce the amount of credit available to us to meet our other liquidity needs. At September 30, 2018 , we had $348 million in letters of credit outstanding provided under our unsecured credit facility and $43 million in letters of credit outstanding provided under our senior secured credit facility. These letters of credit operate to guarantee performance relating to certain project development and construction activities and business operations. During the quarter ended September 30, 2018 , the Company paid letter of credit fees ranging from 1% to 3%  per annum on the outstanding amounts.
We expect to continue to seek, where possible, non-recourse debt financing in connection with the assets or businesses that we or our affiliates may develop, construct or acquire. However, depending on local and global market conditions and the unique characteristics of individual businesses, non-recourse debt may not be available on economically attractive terms or at all. If we decide not to provide any additional funding or credit support to a subsidiary project that is under construction or has near-term debt payment obligations and that subsidiary is unable to obtain additional non-recourse debt, such subsidiary may become insolvent, and we may lose our investment in that subsidiary. Additionally, if any of our subsidiaries lose a significant customer, the subsidiary may need to withdraw from a project or restructure the non-recourse debt financing. If we or the subsidiary choose not to proceed with a project or are unable to successfully complete a restructuring of the non-recourse debt, we may lose our investment in that subsidiary.
Many of our subsidiaries depend on timely and continued access to capital markets to manage their liquidity needs. The inability to raise capital on favorable terms, to refinance existing indebtedness or to fund operations and other commitments during times of political or economic uncertainty may have material adverse effects on the financial condition and results of operations of those subsidiaries. In addition, changes in the timing of tariff increases or delays in the regulatory determinations under the relevant concessions could affect the cash flows and results of operations of our businesses.
Long-Term Receivables — As of September 30, 2018 , the Company had approximately $119 million of accounts receivable classified as Noncurrent assets—other , primarily related to certain of its generation businesses in Argentina and Panama. These noncurrent receivables mostly consist of accounts receivable in Argentina that, pursuant to amended agreements or government resolutions, have collection periods that extend beyond September 30, 2019 , or one year from the latest balance sheet date. The majority of Argentinian receivables have been converted into long-term financing for the construction of power plants. See Note 5 —Financing Receivables in Item 1.— Financial Statements of this Form 10-Q and Item 1.— Business—Argentina—Regulatory Framework included in our 2017 Form 10-K for further information.
As of September 30, 2018 , the Company had approximately $1.4 billion of loans receivable primarily related to a facility constructed under a build, operate, and transfer contract in Vietnam. This loan receivable represents contract consideration related to the construction of the facility, which was substantially completed in 2015, and will be collected over the 25 year term of the plant’s PPA. See Note 12 —Revenue in Item 1.— Financial Statements of this Form 10-Q for further information.
Cash Sources and Uses

The primary sources of cash for the Company in the nine months ended September 30, 2018 were proceeds from the sales of businesses, debt financings, and net income, adjusted for non-cash items. The primary uses of

49

cash in the nine months ended September 30, 2018 were repayments of debt, capital expenditures, and purchases of short-term investments.
The primary sources of cash for the Company in the nine months ended September 30, 2017 were debt financings, sales of short-term investments, and net income, adjusted for non-cash items. The primary uses of cash in the nine months ended September 30, 2017 were repayments of debt, purchases of short-term investments, and capital expenditures.
A summary of cash-based activities are as follows (in millions):

									
 	 	Nine Months Ended September 30,	
Cash Sources:	 	2018	 	2017	
Net income, adjusted for non-cash items (1)	 	$	1,865		 	$	1,880		
Proceeds from the sales of businesses, net of cash & restricted cash sold	 	1,796		 	39		
Issuance of non-recourse debt	 	1,509		 	2,703		
Borrowings under revolving credit facilities	 	1,434		 	1,489		
Sale of short-term investments	 	1,010		 	2,942		
Issuance of recourse debt	 	1,000		 	1,025		
Other	 	155		 	140		
Total Cash Sources	 	$	8,769		 	$	10,218		
 	 	 	 	 	
Cash Uses:	 	 	 	 	
Repayments of recourse debt	 	$	(1,781	)	 	$	(1,353	)	
Capital expenditures	 	(1,592	)	 	(1,587	)	
Repayments under revolving credit facilities	 	(1,595	)	 	(851	)	
Purchase of short-term investments	 	(1,215	)	 	(2,673	)	
Repayments of non-recourse debt	 	(1,139	)	 	(1,731	)	
Dividends paid on AES common stock	 	(258	)	 	(238	)	
Distributions to noncontrolling interests	 	(199	)	 	(263	)	
Increase in working capital (2)	 	(184	)	 	(179	)	
Payments for financed capital expenditures	 	(186	)	 	(100	)	
Contributions to equity affiliates	 	(101	)	 	(49	)	
Acquisitions of businesses, net of cash acquired, and equity method investments	 	(66	)	 	(590	)	
Payments for financing fees	 	(32	)	 	(96	)	
Other	 	(87	)	 	(170	)	
Total Cash Uses	 	$	(8,435	)	 	$	(9,880	)	
Net Increase in Cash, Cash Equivalents, and Restricted Cash	 	$	334		 	$	338		
_____________________________

(1)  	Refer to the table within the Operating Activities section below for a reconciliation of non-cash items affecting net income during the applicable period.	
		
(2)  	Refer to the table within the Operating Activities section below for explanations of the variance in working capital requirements.	
Consolidated Cash Flows
The following table reflects the changes in operating, investing, and financing cash flows for the comparative nine month period (in millions):

													
 	 	Nine Months Ended September 30,	
Cash flows provided by (used in):	 	2018	 	2017	 	$ Change	
Operating activities	 	$	1,681		 	$	1,701		 	$	(20	)	
Investing activities	 	(190	)	 	(1,955	)	 	1,765		
Financing activities	 	(1,163	)	 	678		 	(1,841	)	

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

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

(1)  	Refer to the table below for explanations of the variance in working capital requirements, which are defined as c hanges in operating assets and liabilities on the Condensed Consolidated Statements of Cash Flows.	

(2)  	Amounts included in the table above include the results of discontinued operations, where applicable.	
Cash provided by operating activities decreased by $20 million for the nine months ended September 30, 2018 , compared to the nine months ended September 30, 2017 , primarily driven by a $15 million decrease in Net income , adjusted for non-cash items, and a $5 million increase in working capital requirements.
The increase in working capital requirements of $5 million for the nine months ended September 30, 2018 , compared to the nine months ended September 30, 2017 , was primarily driven by:

				
Increases in cash resulting from changes in:	 	
Other assets, primarily related to the deconsolidation of Eletropaulo in Q4 2017 and collections from the offtaker at Vietnam related to the loan receivable recorded upon adoption of ASC 606	$	244		
Accounts receivable, primarily due to the deconsolidation of Eletropaulo in Q4 2017 and higher collections at Gener, Argentina, and Maritza	154		
Decreases in cash resulting from changes in:	 	
Accounts payable and other current liabilities, primarily due to the deconsolidation of Eletropaulo in Q4 2017 and the timing of payments on coal purchases at Gener, partially offset by the timing of payments on coal purchases at Puerto Rico	(191	)	
Prepaid expenses and other current assets, primarily due to prior year collections of net regulatory assets at Eletropaulo, which was deconsolidated in Q4 2017, and advance payments to gas suppliers at Colon	(125	)	
Other liabilities, primarily due to the deconsolidation of Eletropaulo in Q4 2017	(83	)	
Other	(4	)	
Total decrease in operating cash flow from higher working capital requirements	$	(5	)	
Investing Activities
Net cash provided by investing activities increased by $1.8 billion for the nine months ended September 30, 2018 , compared to the nine months ended September 30, 2017 , which was primarily driven by (in millions):

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

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

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Capital Expenditures
The following table summarizes the Company's capital expenditures for growth investments, maintenance, and environmental reported in investing cash activities (in millions):

													
 	 	Nine Months Ended September 30,	
 	 	2018	 	2017	 	$ Change	
Growth Investments	 	$	1,266		 	$	1,109		 	$	157		
Maintenance	 	296		 	423		 	(127	)	
Environmental	 	30		 	55		 	(25	)	
Total capital expenditures	 	$	1,592		 	$	1,587		 	$	5		
Cash used for capital expenditures increased by $5 million for the nine months ended September 30, 2018 , compared to the nine months ended September 30, 2017 , which was primarily driven by (in millions):

				
Increases in:	 	
Growth expenditures at the US and Utilities SBU, primarily due to increased spending for the Southland re-powering project	$	408		
Decreases in:	 	
Growth expenditures at the MCAC SBU, primarily related to the Colon project, and lower spending at Los Mina due to the completion of the Combined Cycle project	(191	)	
Maintenance and environmental expenditures at the South America SBU, primarily due to the deconsolidation of Eletropaulo in Q4 2017	(138	)	
Growth expenditures at the South America SBU, primarily due to the deconsolidation of Eletropaulo in Q4 2017, partially offset by increased spending at Alto Maipo resulting from the Strabag agreement, and increased spending for the construction of the Boa Hora solar plant in Brazil	(31	)	
Other capital expenditures	(43	)	
Total increase in capital expenditures	$	5		
Financing Activities
Net cash used in financing activities increased $1.8 billion for the nine months ended September 30, 2018 , compared to the nine months ended September 30, 2017 , which was primarily driven by (in millions):

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

(1)  	See Note 7 — Debt in Item 1— Financial Statements of this Form 10-Q for more information regarding significant non-recourse debt transactions.	
Parent Company Liquidity
The following discussion is included as a useful measure of the liquidity available to The AES Corporation, or the Parent Company, given the non-recourse nature of most of our indebtedness. Parent Company Liquidity as outlined below is a non-GAAP measure and should not be construed as an alternative to cash and cash equivalents, which is determined in accordance with GAAP as a measure of liquidity. Cash and cash equivalents is disclosed in the Condensed Consolidated Statements of Cash Flows. Parent Company Liquidity may differ from similarly titled measures used by other companies. The principal sources of liquidity at the Parent Company level are dividends and other distributions from our subsidiaries, including refinancing proceeds, proceeds from debt and equity financings at the Parent Company level, including availability under our credit facility, and proceeds from asset sales. Cash requirements at the Parent Company level are primarily to fund interest, principal repayments of debt, construction commitments, other equity commitments, common stock repurchases, acquisitions, taxes, Parent Company overhead and development costs, and dividends on common stock.
The Company defines Parent Company Liquidity as cash available to the Parent Company plus available borrowings under existing credit facility plus cash at qualified holding companies. The cash held at qualified holding companies represents cash sent to subsidiaries of the Company domiciled outside of the U.S. Such subsidiaries have no contractual restrictions on their ability to send cash to the Parent Company. Parent Company Liquidity is reconciled to its most directly comparable GAAP financial measure, cash and cash equivalents , at the periods indicated as follows (in millions):

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 	September 30, 2018	 	December 31, 2017	
Consolidated cash and cash equivalents	$	1,187		 	$	949		
Less: Cash and cash equivalents at subsidiaries	(1,144	)	 	(938	)	
Parent Company and qualified holding companies’ cash and cash equivalents	43		 	11		
Commitments under Parent Company credit facility	1,100		 	1,100		
Less: Letters of credit under the credit facility	(43	)	 	(35	)	
Less: Borrowings under the credit facility	(15	)	 	(207	)	
Borrowings available under Parent Company credit facility	1,042		 	858		
Total Parent Company Liquidity	$	1,085		 	$	869		
The Company utilizes its Parent Company credit facility for short term cash needs to bridge timing of distributions from its subsidiaries throughout the year. The Company is expecting that the Parent Company credit facilities’ borrowings will be repaid by the end of year, but can make no assurances this will occur as currently forecasted.
The Company paid dividends of $0.13 per share to its common stockholders during each of the first , second, and third quarters of 2018 for dividends declared in December 2017 , February 2018, and July 2018, respectively. While we intend to continue payment of dividends, and believe we will have sufficient liquidity to do so, we can provide no assurance that we will continue to pay dividends, or if continued, the amount of such dividends.
Recourse Debt
Our total recourse debt was $3.8 billion and $4.6 billion as of September 30, 2018 and December 31, 2017 , respectively. See Note 7 — Debt in Item 1.— Financial Statements of this Form 10-Q and Note 11— Debt in Item 8.— Financial Statements and Supplementary Data of our 2017 Form 10-K for additional detail.
While we believe that our sources of liquidity will be adequate to meet our needs for the foreseeable future, this belief is based on a number of material assumptions, including, without limitation, assumptions about our ability to access the capital markets, the operating and financial performance of our subsidiaries, currency exchange rates, power market pool prices, and the ability of our subsidiaries to pay dividends. In addition, our subsidiaries’ ability to declare and pay cash dividends to us (at the Parent Company level) is subject to certain limitations contained in loans, governmental provisions and other agreements. We can provide no assurance that these sources will be available when needed or that the actual cash requirements will not be greater than anticipated. We have met our interim needs for shorter-term and working capital financing at the Parent Company level with our senior secured credit facility. See Item 1A.— Risk Factors — The AES Corporation is a holding company and its ability to make payments on its outstanding indebtedness, including its public debt securities, is dependent upon the receipt of funds from its subsidiaries by way of dividends, fees, interest, loans or otherwise of the Company’s 2017 Form 10-K for additional information.
Various debt instruments at the Parent Company level, including our senior secured credit facility, contain certain restrictive covenants. The covenants provide for — among other items — limitations on other indebtedness; liens, investments and guarantees; limitations on dividends, stock repurchases and other equity transactions; restrictions and limitations on mergers and acquisitions, sales of assets, leases, transactions with affiliates and off-balance sheet and derivative arrangements; maintenance of certain financial ratios; and financial and other reporting requirements. As of September 30, 2018 , we were in compliance with these covenants at the Parent Company level.
Non-Recourse Debt
While the lenders under our non-recourse debt financings generally do not have direct recourse to the Parent Company, defaults thereunder can still have important consequences for our results of operations and liquidity, including, without limitation:
		
•	reducing our cash flows as the subsidiary will typically be prohibited from distributing cash to the Parent Company during the time period of any default;	

•	triggering our obligation to make payments under any financial guarantee, letter of credit or other credit support we have provided to or on behalf of such subsidiary;	

•	causing us to record a loss in the event the lender forecloses on the assets; and	

•	triggering defaults in our outstanding debt at the Parent Company.	
For example, our senior secured credit facility and outstanding debt securities at the Parent Company include events of default for certain bankruptcy-related events involving material subsidiaries. In addition, our revolving credit agreement at the Parent Company includes events of default related to payment defaults and accelerations of outstanding debt of material subsidiaries.

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Some of our subsidiaries are currently in default with respect to all or a portion of their outstanding indebtedness. The total non-recourse debt classified as current in the accompanying Condensed Consolidated Balance Sheets amounts to $1.3 billion . The portion of current debt related to such defaults was $357 million  at September 30, 2018 , all of which was non-recourse debt related to two subsidiaries — AES Puerto Rico and AES Ilumina. See Note 7 — Debt in Item 1.— Financial Statements of this Form 10-Q for additional detail.
None of the subsidiaries that are currently in default are subsidiaries that met the applicable definition of materiality under AES’ corporate debt agreements as of September 30, 2018 , in order for such defaults to trigger an event of default or permit acceleration under AES’ indebtedness. However, as a result of additional dispositions of assets, other significant reductions in asset carrying values or other matters in the future that may impact our financial position and results of operations or the financial position of the individual subsidiary, it is possible that one or more of these subsidiaries could fall within the definition of a “material subsidiary” and thereby upon an acceleration trigger an event of default and possible acceleration of the indebtedness under the Parent Company’s outstanding debt securities. A material subsidiary is defined in the Company’s senior secured credit facility as any business that contributed 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently ended fiscal quarters. As of September 30, 2018 , 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 Company.
Critical Accounting Policies and Estimates
The condensed consolidated financial statements of AES are prepared in conformity with U.S. GAAP, which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented.
Revenue Recognition — We recognize 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 12 — Revenue included in Item 1.— Financial Statements of this Form 10-Q.
The Company’s other significant accounting policies are described in Note 1— General and Summary of Significant Accounting Policies of our 2017 Form 10-K. The Company’s critical accounting estimates are described in Item 7.— Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2017 Form 10-K. An accounting estimate is considered critical if the estimate requires management to make an assumption about matters that were highly uncertain at the time the estimate was made, different estimates reasonably could have been used, or if changes in the estimate that would have a material impact on the Company’s financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Company has reviewed and determined that these remain as critical accounting policies as of and for the nine months ended September 30, 2018 .
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Overview Regarding Market Risks — Our businesses are exposed to and proactively manage market risk. Our primary market risk exposure is to the price of commodities, particularly electricity, oil, natural gas, coal and environmental credits. In addition, our businesses are exposed to lower electricity prices due to increased competition, including from renewable sources such as wind and solar, as a result of lower costs of entry and lower variable costs. We operate in multiple countries and as such, are subject to volatility in exchange rates at varying degrees at the subsidiary level and between our functional currency, USD, and currencies of the countries in which we operate. We are also exposed to interest rate fluctuations due to our issuance of debt and related financial instruments.
The disclosures presented in this Item 3 are based upon a number of assumptions; actual effects may differ. The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 shall apply to the disclosures contained in this Item 3. For further information regarding market risk, see

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Item 1A.— Risk Factors , Our financial position and results of operations may fluctuate significantly due to fluctuations in currency exchange rates experienced at our foreign operations; Our businesses may incur substantial costs and liabilities and be exposed to price volatility as a result of risks associated with the electricity markets, which could have a material adverse effect on our financial performance ; and We may not be adequately hedged against our exposure to changes in commodity prices or interest rates of the 2017 Form 10-K.
Commodity Price Risk — Although we prefer to hedge our exposure to the impact of market fluctuations in the price of electricity, fuels and environmental credits, some of our generation businesses operate under short-term sales or under contract sales that leave an unhedged exposure on some of our capacity or through imperfect fuel pass-throughs. In our utility businesses, we may be exposed to commodity price movements depending on our excess or shortfall of generation relative to load obligations and sharing or pass-through mechanisms. These businesses subject our operational results to the volatility of prices for electricity, fuels and environmental credits in competitive markets. We employ risk management strategies to hedge our financial performance against the effects of fluctuations in energy commodity prices. The implementation of these strategies can involve the use of physical and financial commodity contracts, futures, swaps and options.
The portion of our sales and purchases that are not subject to such agreements or contracted businesses where indexation is not perfectly matched to business drivers will be exposed to commodity price risk. When hedging the output of our generation assets, we utilize contract sales that lock in the spread per MWh between variable costs and the price at which the electricity can be sold.
AES businesses will see changes in variable margin performance as global commodity prices shift. For 2018 , we project pre-tax earnings exposure on a 10% move in commodity prices would be less than $5 million for natural gas, oil, and coal. Our estimates exclude correlation of oil with coal or natural gas. For example, a decline in oil or natural gas prices can be accompanied by a decline in coal price if commodity prices are correlated. In aggregate, the Company’s downside exposure occurs with lower oil, lower natural gas, and higher coal prices. Exposures at individual businesses will change as new contracts or financial hedges are executed, and our sensitivity to changes in commodity prices generally increases in later years with reduced hedge levels at some of our businesses.
Commodity prices affect our businesses differently depending on the local market characteristics and risk management strategies. Spot power prices, contract indexation provisions and generation costs can be directly or indirectly affected by movements in the price of natural gas, oil and coal. We have some natural offsets across our businesses such that low commodity prices may benefit certain businesses and be a cost to others. Exposures are not perfectly linear or symmetric. The sensitivities are affected by a number of local or indirect market factors. Examples of these factors include hydrology, local energy market supply/demand balances, regional fuel supply issues, regional competition, bidding strategies and regulatory interventions such as price caps. Operational flexibility changes the shape of our sensitivities. For instance, certain power plants may limit downside exposure by reducing dispatch in low market environments. Volume variation also affects our commodity exposure. The volume sold under contracts or retail concessions can vary based on weather and economic conditions resulting in a higher or lower volume of sales in spot markets. Thermal unit availability and hydrology can affect the generation output available for sale and can affect the marginal unit setting power prices.
In the US and Utilities SBU, the generation businesses are largely contracted, but may have residual risk to the extent contracts are not perfectly indexed to the business drivers. IPL primarily generates energy to meet its retail customer demand however it opportunistically sells surplus economic energy into wholesale markets at market prices. Our non-contracted generation margins are impacted by many factors, including the growth in natural gas-fired generation plants, new energy supply from renewable sources, and increasing energy efficiency .
In the South America SBU, our business in Chile owns assets in the central and northern regions of the country and has a portfolio of contract sales in both. In the central region, the contract sales generally cover the efficient generation from our coal-fired and hydroelectric assets. Any residual spot price risk will primarily be driven by the amount of hydrological inflows. In the case of low hydroelectric generation, spot price exposure is capped by the ability of the system to dispatch natural gas/diesel assets the price of which depends on fuel pricing at the time required. There is a small amount of coal generation in the northern region that is not covered by the portfolio of contract sales and therefore subject to spot price risk. In both regions, under normal hydrology conditions, coal-firing generation sets the price. However, when there are spikes in price due to lower hydrology and higher demand, gas or oil-linked fuels generally set power prices. In Colombia, we operate under a short-term sales strategy and have commodity exposure to unhedged volumes. Because we own hydroelectric assets there, contracts are not indexed to fuel.
In Brazil, the hydroelectric generating facility is covered by contract sales. Under normal hydrological volatility, spot price risk is mitigated through a regulated sharing mechanism across all hydroelectric generators in the

55

country. Under drier conditions, the sharing mechanism may not be sufficient to cover the business' contract position, and therefore it may have to purchase power at spot prices driven by the cost of thermal generation.
In the MCAC SBU, our businesses have commodity exposure on unhedged volumes. Panama is highly contracted under financial PPAs, exposing the Company to hydrology variance. To the extent hydrological inflows are greater than or less than the contract committed volume, the business will be sensitive to changes in spot power prices which may be driven by oil or natural gas prices in some time periods. In the Dominican Republic, we own natural gas-fired assets contracted under a portfolio of contract sales and a coal-fired asset contracted with a single contract, and both contract and spot prices may move with commodity prices. Additionally, the contract levels do not always match our generation availability and our assets may be sellers of spot prices in excess of contract levels or a net buyer in the spot market to satisfy contract obligations.
In the Eurasia SBU, our Kilroot facility operates on a short-term sales strategy . To the extent that sales are unhedged, the commodity risk at our Kilroot business is to the clean dark spread, which is the difference between electricity price and our coal-based variable dispatch cost, including emissions. Natural gas-fired generators set power prices for many periods, so higher natural gas prices generally expand margins and higher coal or emissions prices reduce them. Similarly, increased wind generation displaces higher cost generation, reducing Kilroot's margins, and vice versa. One coal-fired generating unit in Northern Ireland is expected to close in the fourth quarter of 2018 as a result of unfavorable capacity market conditions. Our Mong Duong business has minimal exposure to commodity price risk as it has no merchant exposure and fuel is subject to a pass-through mechanism.
Foreign Exchange Rate Risk — In the normal course of business, we are exposed to foreign currency risk and other foreign operations risks that arise from investments in foreign subsidiaries and affiliates. A key component of these risks stems from the fact that some of our foreign subsidiaries and affiliates utilize currencies other than our consolidated reporting currency, the USD. Additionally, certain of our foreign subsidiaries and affiliates have entered into monetary obligations in the USD or currencies other than their own functional currencies. Certain of our foreign subsidiaries calculate and pay taxes in currencies other than their own functional currency. We have varying degrees of exposure to changes in the exchange rate between the USD and the following currencies: Argentine peso, British pound, Brazilian real, Chilean peso, Colombian peso, Dominican peso, Euro, Indian rupee, and Mexican peso. These subsidiaries and affiliates have attempted to limit potential foreign exchange exposure by entering into revenue contracts that adjust to changes in foreign exchange rates. We also use foreign currency forwards, swaps and options, where possible, to manage our risk related to certain foreign currency fluctuations.
AES enters into cash flow hedges to protect the economic value of the business and minimize the impact of foreign exchange rate fluctuations to AES’ portfolio. While protecting cash flows, the hedging strategy is also designed to reduce forward looking earnings foreign exchange volatility. Due to variation of timing and amount between cash distribution and earnings exposure, the hedge impact may not fully cover the earnings exposure on a realized basis which could result in greater volatility in earnings. The largest foreign exchange risks over the remaining period of 2018 stem from the following currencies: Argentine peso, Brazilian real, Colombian peso, and Euro. As of September 30, 2018 , assuming a 10% USD appreciation, cash distributions attributable to foreign subsidiaries exposed to movement in the exchange rate of the Argentine peso and Euro each are projected to be reduced by $5 million, and the Colombian peso and Brazilian real each are projected to be reduced by less than $5 million for the remainder of 2018 . These numbers have been produced by applying a one-time 10% USD appreciation to forecasted exposed cash distributions for 2018 coming from the respective subsidiaries exposed to the currencies listed above, net of the impact of outstanding hedges and holding all other variables constant. The numbers presented above are net of any transactional gains/losses. These sensitivities may change in the future as new hedges are executed or existing hedges are unwound. Additionally, updates to the forecasted cash distributions exposed to foreign exchange risk may result in further modification. The sensitivities presented do not capture the impacts of any administrative market restrictions or currency inconvertibility.
Interest Rate Risk — We are exposed to risk resulting from changes in interest rates as a result of our issuance of variable and fixed-rate debt, as well as interest rate swap, cap, floor and option agreements.
Decisions on the fixed-floating debt mix are made to be consistent with the risk factors faced by individual businesses or plants. Depending on whether a plant’s capacity payments or revenue stream is fixed or varies with inflation, we partially hedge against interest rate fluctuations by arranging fixed-rate or variable-rate financing. In certain cases, particularly for non-recourse financing, we execute interest rate swap, cap and floor agreements to effectively fix or limit the interest rate exposure on the underlying financing. Most of our interest rate risk is related to non-recourse financings at our businesses.
As of September 30, 2018 , the portfolio’s pre-tax earnings exposure for 2018 to a one-time 100-basis-point increase in interest rates for our Argentine peso, Brazilian real, Chilean peso, Colombian peso, Euro, and USD

56

denominated debt would be approximately $5 million on interest expense for the debt denominated in these currencies. These amounts do not take into account the historical correlation between these interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures — The Company, under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of its “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of September 30, 2018 , to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting — There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain claims, suits and legal proceedings in the normal course of business. The Company has accrued for litigation and claims where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company believes, based upon information it currently possesses and taking into account established reserves for estimated liabilities and its insurance coverage, that the ultimate outcome of these proceedings and actions is unlikely to have a material adverse effect on the Company's condensed consolidated financial statements. It is reasonably possible, however, that some matters could be decided unfavorably to the Company and could require the Company to pay damages or make expenditures in amounts that could be material but cannot be estimated as of September 30, 2018.
In December 2001, Grid Corporation of Odisha (“GRIDCO”) served a notice to arbitrate pursuant to the Indian Arbitration and Conciliation Act of 1996 on the Company, AES Orissa Distribution Private Limited (“AES ODPL”), and Jyoti Structures (“Jyoti”) pursuant to the terms of the shareholders agreement between GRIDCO, the Company, AES ODPL, Jyoti and the Central Electricity Supply Company of Orissa Ltd. (“CESCO”), an affiliate of the Company. In the arbitration, GRIDCO asserted that a comfort letter issued by the Company in connection with the Company's indirect investment in CESCO obligates the Company to provide additional financial support to cover all of CESCO's financial obligations to GRIDCO. GRIDCO appeared to be seeking approximately $189 million in damages, plus undisclosed penalties and interest, but a detailed alleged damage analysis was not filed by GRIDCO. The Company counterclaimed against GRIDCO for damages. In June 2007, a 2-to-1 majority of the arbitral tribunal rendered its award rejecting GRIDCO's claims and holding that none of the respondents, the Company, AES ODPL, or Jyoti, had any liability to GRIDCO. The respondents' counterclaims were also rejected. A majority of the tribunal later awarded the respondents, including the Company, some of their costs relating to the arbitration. GRIDCO filed challenges of the tribunal's awards with the local Indian court. GRIDCO's challenge of the costs award has been dismissed by the court, but its challenge of the liability award remains pending. A hearing on the liability award has not taken place to date. The Company believes that it has meritorious defenses to the claims asserted against it and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
Pursuant to their environmental audit, AES Sul and AES Florestal discovered 200 barrels of solid creosote waste and other contaminants at a pole factory that AES Florestal had been operating. The conclusion of the audit was that a prior operator of the pole factory, Companhia Estadual de Energia (“CEEE”), had been using those contaminants to treat the poles that were manufactured at the factory. On their initiative, AES Sul and AES Florestal communicated with Brazilian authorities and CEEE about the adoption of containment and remediation measures. In March 2008, the State Attorney of the state of Rio Grande do Sul, Brazil filed a public civil action against AES Sul, AES Florestal and CEEE seeking an order requiring the companies to recover the contaminated area located on the grounds of the pole factory and an indemnity payment of approximately R $6 million ( $2 million ) to the state's Environmental Fund. In October 2011, the State Attorney Office filed a request for an injunction ordering the defendant companies to contain and remove the contamination immediately. The court granted injunctive relief on October 18, 2011, but determined only that defendant CEEE was required to proceed with the removal work. In May 2012, CEEE began the removal work in compliance with the injunction. The removal costs are estimated to be approximately R $60 million ( $15 million ) and the work was completed in February 2014. In parallel with the removal activities, a court-appointed expert investigation took place, which was concluded in May 2014. The court-appointed expert final report was presented to the State Attorneys in October 2014, and in January 2015 to the defendant companies. In March 2015, AES Sul and AES Florestal submitted comments and supplementary questions regarding the expert report. In June 2016 the Company sold AES Sul to CPFL Energia S.A. and as part of the sale AES Guaiba, a holding Company of AES Sul, retained the liability. The Company believes that it has meritorious defenses to the claims asserted against it and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
In January 2012, the Brazil Federal Tax Authority issued an assessment alleging that AES Tietê had paid PIS and COFINS taxes from 2007 to 2010 at a lower rate than the tax authority believed was applicable. AES Tietê challenged the assessment on the grounds that the tax rate was set in the applicable legislation. In April 2013, the FIAC determined that AES Tietê should have calculated the taxes at the higher rate and that AES Tietê was liable for unpaid taxes, interest, and penalties totaling approximately R $1.19 billion ( $298 million ) as estimated by AES Tietê. AES Tietê appealed to the SIAC. In January 2015, the SIAC issued a decision in AES Tietê's favor, finding that AES Tietê was not liable for unpaid taxes. The public prosecutor subsequently filed an appeal, which was denied as untimely. The Tax Authority thereafter filed a motion for clarification of the SIAC's decision, which was denied in September 2016. The Tax Authority later filed a special appeal (“Special Appeal”), which was rejected as untimely in October 2016. The Tax Authority thereafter filed an interlocutory appeal with the Superior Administrative

58

Court (“SAC”). In March 2017, the President of the SAC determined that the SAC would analyze the Special Appeal. AES Tietê challenged the Special Appeal. In May 2018, the SAC rejected the Special Appeal on the merits. In August 2018, the Tax Authority filed a motion for clarification . AES Tietê believes it has meritorious defenses to the claim and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
In January 2015, DPL received NOVs from the EPA alleging violations of opacity at Stuart and Killen Stations, and in October 2015, IPL received a similar NOV alleging violations at Petersburg Station. In February 2017, the EPA issued a second NOV for DPL Stuart Station, alleging violations of opacity in 2016. Moreover, in February 2016, IPL received an NOV from the EPA alleging violations of NSR and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Station. It is too early to determine whether the NOVs could have a material impact on our business, financial condition or results of our operations. IPL would seek recovery of any operating or capital expenditures, but not fines or penalties, related to air pollution control technology to reduce regulated air emissions; however, there can be no assurances that we would be successful in this regard.
In September 2015, AES Southland Development, LLC and AES Redondo Beach, LLC filed a lawsuit against the California Coastal Commission (the “CCC”) over the CCC's determination that the site of AES Redondo Beach included approximately 5.93 acres of CCC-jurisdictional wetlands. The CCC has asserted that AES Redondo Beach has improperly installed and operated water pumps affecting the alleged wetlands in violation of the California Coastal Act and Redondo Beach Local Coastal Program and has ordered AES Redondo Beach to restore the site. Additional potential outcomes of the CCC determination could include an order requiring AES Redondo Beach to fund a wetland mitigation project and/or pay fines or penalties. AES Redondo Beach believes that it has meritorious arguments and intends to vigorously prosecute such lawsuit, but there can be no assurances that it will be successful.
In October 2015, Ganadera Guerra, S.A. (“GG”) and Constructora Tymsa, S.A. (“CT”) filed separate lawsuits against AES Panama in the local courts of Panama. The claimants allege that AES Panama profited from a hydropower facility (La Estrella) being partially located on land owned initially by GG and currently by CT, and that AES Panama must pay compensation for its use of the land. The damages sought from AES Panama are approximately $685 million (GG) and $100 million (CT). In October 2016, the court dismissed GG's claim because of GG's failure to comply with a court order requiring GG to disclose certain information. GG has refiled its lawsuit. Also, there are ongoing administrative proceedings concerning whether AES Panama is entitled to acquire an easement over the land and whether AES Panama can continue to occupy the land. AES Panama believes it has meritorious defenses and claims and will assert them vigorously; however, there can be no assurances that it will be successful in its efforts.
In January 2017, the Superintendencia del Medio Ambiente (“SMA”) issued a Formulation of Charges asserting that Alto Maipo is in violation of certain conditions of the Environmental Approval Resolution (“RCA”) governing the construction of Alto Maipo’s hydropower project, for, among other things, operating vehicles at unauthorized times and failing to mitigate the impact of water infiltration during tunnel construction (“Infiltration Water”). In February 2017, Alto Maipo submitted a compliance plan (“Compliance Plan”) to the SMA which, if approved by the agency, would resolve the matter without materially impacting construction of the project. Thereafter, the SMA made three separate requests for information about the Compliance Plan, to which Alto Maipo duly responded. In April 2018, the SMA approved the Compliance Plan (“April 2018 Approval”). Pursuant to the Compliance Plan as approved by the SMA, Alto Maipo must obtain from the Environmental Evaluation Service (“SEA”) an acceptable interpretation of the RCA’s provisions concerning the authorized times to operate certain vehicles. In addition, Alto Maipo must obtain the SEA’s approval concerning the control, discharge, and treatment of Infiltration Water. Furthermore, in May 2018, three lawsuits were filed with the Environmental Court of Santiago (“ECS”) challenging the April 2018 Approval. Alto Maipo does not believe that there are grounds to challenge the April 2018 Approval. The ECS has not decided the lawsuits to date. If Alto Maipo complies with the requirements of the Compliance Plan, and if the above-referenced lawsuits are dismissed, the Formulation of Charges will be discharged without penalty. Otherwise, Alto Maipo could be subject to penalties, and the construction of the project could be negatively impacted. Alto Maipo will pursue its interests vigorously in these matters; however, there can be no assurances that it will be successful in its efforts.
In June 2017, Alto Maipo terminated one of its contractors, Constructora Nuevo Maipo S.A. (“CNM”), given CNM’s stoppage of tunneling works, its failure to produce a completion plan, and its other breaches of contract. Also, Alto Maipo drew $73 million under letters of credit (“LC Funds”) in connection with its termination of CNM. Alto Maipo is pursuing arbitration against CNM to recover excess completion costs and other damages totaling approximately $220 million (net of the LC Funds) relating to CNM’s breaches (“First Arbitration”). CNM denies liability and seeks a declaration that its termination was wrongful, damages, and other relief. Recently, CNM made

59

submissions alleging that it is entitled to damages ranging from $90 million to $150 million (which include the LC Funds) plus interest and costs. Alto Maipo will contest these submissions. The evidentiary hearing is scheduled for May 20-31, 2019. Also, in August 2018, CNM purported to initiate a separate arbitration against AES Gener and the Company (“Second Arbitration”). In the Second Arbitration, CNM seeks to pierce Alto Maipo’s corporate veil and appears to seek an award requiring AES Gener and the Company to pay any amounts that are found to be due to CNM in the First Arbitration or otherwise. Alto Maipo has requested in the First Arbitration an interim order restraining CNM from proceeding with the Second Arbitration until the conclusion of the First Arbitration. That request is pending. Separately, AES Gener and the Company requested that the relevant arbitral institution decide that the Second Arbitration shall not proceed, given that (among other reasons) there is no arbitration agreement between AES Gener and the Company and CNM. That request was not granted. Each of the above-referenced AES companies believes it has meritorious claims and/or defenses and will pursue its interests vigorously; however, there can be no assurances that each of the AES companies will be successful in its efforts.
In February 2018, Tau Power B.V. and Altai Power LLP (collectively, “AES Claimants”) initiated arbitration against the Republic of Kazakhstan (“ROK”) for the ROK’s failure to pay approximately $75 million for the return of two hydropower plants (“HPPs”) pursuant to a concession agreement. In April 2018, the ROK responded by denying liability and asserting purported counterclaims concerning the annual payment provisions in the concession agreement, a bonus allegedly due for the 1997 takeover of the HPPs, and dividends paid by the HPPs . The ROK has not fully quantified its counterclaims to date. The AES Claimants believe that the counterclaims are without merit. An arbitrator has been appointed to decide the case. The final evidentiary hearing is scheduled for July 22-26, 2019. The AES Claimants will pursue their case and assert their defenses vigorously; however, there can be no assurances that they will be successful in their efforts.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Part I — Item 1A. —Risk Factors of our 2017 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Board has authorized the Company to repurchase stock through a variety of methods, including open market repurchases, purchases by contract (including, without limitation, accelerated stock repurchase programs or 10b5-1 plans) and/or privately negotiated transactions. There can be no assurances as to the amount, timing or prices of repurchases, which may vary based on market conditions and other factors. The Program does not have an expiration date and can be modified or terminated by the Board of Directors at any time. As of September 30, 2018 , $264 million remained available for repurchase under the Program. No repurchases were made by the AES Corporation of its common stock during the third quarter of 2018.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS

			
10.1	 	The AES Corporation Amended and Restated Executive Severance Plan dated October 5, 2018 (filed herewith)	
31.1	 	Rule13a-14(a)/15d-14(a) Certification of Andrés Gluski (filed herewith).	
31.2	 	Rule 13a-14(a)/15d-14(a) Certification of Thomas M. O’Flynn (filed herewith).	
32.1	 	Section 1350 Certification of Andrés Gluski (filed herewith).	
32.2	 	Section 1350 Certification of Thomas M. O’Flynn (filed herewith).	
101.INS	 	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.	
101.SCH	 	XBRL Taxonomy Extension Schema Document (filed herewith).	
101.CAL	 	XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).	
101.DEF	 	XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).	
101.LAB	 	XBRL Taxonomy Extension Label Linkbase Document (filed herewith).	
101.PRE	 	XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).	

60

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

						
 	 	THE AES CORPORATION
(Registrant)	
 	 	 	 	 	 	
Date:	November 5, 2018	By:	 	/s/ T HOMAS  M. O’F LYNN	
 	 	 	 	Name:	Thomas M. O’Flynn	
 	 	 	 	Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	
 	 	 	 	 	 	
 	 	By:	 	 /s/ SARAH R. BLAKE	
 	 	 	 	Name:	Sarah R. Blake	
 	 	 	 	Title:	Vice President and Controller (Principal Accounting Officer)	

61

THE AES CORPORATION

AMENDED AND RESTATED OCTOBER 5, 2018

EXECUTIVE SEVERANCE PLAN AND
SUMMARY PLAN DESCRIPTION

ARTICLE I 
 GENERAL PROVISIONS
1.1      Establishment and Purpose .
The purpose of The AES Corporation Amended and Restated Executive Severance Plan (as may be further amended from time to time, the “ Plan ”) is to provide certain severance and welfare benefits, as set forth herein, to the Chief Executive Officer and other Eligible Executives of The AES Corporation (the “ Company ”) who (i) are designated from time to time to participate in the Plan by the Board of Directors of the Company (the “ Board ”) and/or Administrator, (ii) agree to the terms and conditions of the Plan as set forth herein, and (iii) are involuntarily terminated from employment in certain limited circumstances as provided herein. Please review Article 8 entitled “Plan Amendments” regarding the Company’s reservation of rights to amend and terminate the Plan.
This document is designed to serve as both the Plan document and the summary plan description for the Plan. The legal rights and obligations of any person having an interest in the Plan are determined solely by the provisions of the Plan, as interpreted by the Administrator.
The Plan is not intended to be an “employee pension benefit plan” or “pension plan” within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”). Rather, this Plan is intended to be a “welfare benefit plan” within the meaning of Section 3(1) of ERISA and to meet the descriptive requirements of a plan constituting a “severance pay plan” within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, Section 2510.3-2(b). Accordingly, the benefits paid by the Plan are not deferred compensation, and no employee shall have a vested right to such benefits.
1.2      Term .
The Plan shall generally be effective on the Effective Date. This Plan supersedes any prior severance plans, policies, guidelines, arrangements, agreements, letters and/or other communication, whether formal or informal, written or oral sponsored by the Employer and/or entered into by any representative of the Employer. This Plan represents exclusive severance benefits provided to certain Eligible Executives, which individuals shall not be eligible for other benefits provided in other severance plans, policies, programs, guidelines, arrangements, letters, etc. of the Company.
1.3      Definitions .
Except as may otherwise be specified or as the context may otherwise require, for purposes of the Plan, the following terms shall have the respective meanings ascribed thereto, or as set forth on a Benefit Schedule to the Plan.
“ Administrator ” means the Compensation Committee of the Board or such other committee or persons designated by the Board and/or Compensation Committee to assume duties of the Administrator.
“ Affiliated Employer ” means any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company; any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Company; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company; and any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code.
“ Annual Compensation ” means a Participant’s annualized base salary as in effect as of the Participant’s Termination Date. Unless otherwise provided on a Benefit Schedule, Annual Compensation shall: (i) include: pre-tax employee contributions under any qualified defined contribution retirement plan, salary deferrals under any unfunded nonqualified deferred compensation plan, amounts deferred under a flexible spending account established pursuant to Section 125 of the Code, and deductions from base salary to pay premiums for any health, welfare, or insurance plans; and (ii) exclude: any amounts contributed by the Employer to any plan established pursuant to Section 125 of the Code, bonuses, annual incentive payments, long-term incentive awards (including, but not limited to, stock options, restricted stock and performance unit awards), and any other form of supplemental compensation.
“ Benefit Schedule ” means any schedule attached to the Plan which sets forth the benefits of specified Participants, as approved by the Board and updated by the Administrator from time to time.
“ Bonus ” means a Participant’s annual target bonus compensation as established by the Employer and in effect on the Participant’s Termination Date.
“ Cause ” means, except as otherwise provided in a Benefit Schedule, Separation From Service by action of the Employer, or resignation in lieu of such Separation From Service, on account of the Participant’s dishonesty; insubordination; continued and repeated failure to perform the Participant’s assigned duties or willful misconduct in the performance of such duties; intentionally engaging in unsatisfactory job performance; failing to make a good faith effort to bring unsatisfactory job performance to an acceptable level; violation of the Employer’s policies, procedures, work rules or recognized standards of behavior; misconduct related to the Participant’s employment; or a charge, indictment or conviction of, or a plea of guilty or nolo contendere to, a felony, whether or not in connection with the performance by the Participant of his or her duties or obligations to the Employer.
“ Change in Control ” means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company to any Person or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) of Persons, (ii) a Person or group (as so defined) of Persons (other than Management of the Company on the date of the most recent adoption of the 2003 Long Term Compensation Plan (or successor plan) by the Company's stockholders or their “affiliates” (as defined below)) shall have become the “beneficial owner” of more than 35% of the outstanding voting stock of the Company, (iii) during any one-year period, individuals who at the beginning of such period constitute the Board (together with any new Director whose election or nomination was approved by a majority of the Directors then in office who were either Directors at the beginning of such period or who were previously so approved, but excluding under all circumstances any such new Director whose initial assumption of office occurs as a result of an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of any individual, corporation, partnership or other entity or group, including through the use of proxy access procedures as may be provided in the Company’s bylaws) cease to constitute a majority of the Board, or (iv) the consummation of a merger, consolidation, business combination or similar transaction involving the Company unless securities representing 65% or more of the then outstanding voting stock of the corporation resulting from such transaction are held subsequent to such transaction by the Person or Persons who were the “beneficial owners” (as defined below) of the outstanding voting stock of the Company immediately prior to such transaction in substantially the same proportions as their ownership immediately prior to such transaction. Notwithstanding the foregoing or any provision to the contrary, if a payment under this Plan is subject to Section 409A (and not excepted therefrom) and a Change in Control affects the time or schedule for such payment, the foregoing definition of Change in Control shall be interpreted, administered and construed in a manner necessary to ensure that the occurrence of any such event shall result in a Change in Control only if such event qualifies as a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation, as applicable, within the meaning of Treas. Reg. § 1.409A-3(i)(5). For purposes of this definition, (i) “beneficial owner(s)” shall have the meaning set forth in Rule 13d-3 of the Exchange Act and (ii) "affiliate" means: (A) any Subsidiary of the Company; (B) any entity or Person or group of Persons that, directly or through one or more intermediaries, is controlled by the Company; and (C) any entity or Person or group of Persons in which the Company has a significant equity interest, as determined by the Compensation Committee, including any “affiliates” which become such after the adoption of this Plan.
“ Chief Executive Officer ” means the Chief Executive Officer of the Company who also is an Eligible Executive.
“ COBRA Coverage ” means medical, dental and vision coverage which is required to be offered to terminated employees under Section 4980B of the Code and Section 606 of ERISA; provided, however, that no provision of this Plan shall be construed to require the Employer to contribute on behalf of a Participant towards continuation coverage for a health spending account.
“ Code ” means the Internal Revenue Code of 1986, as amended.
“ Company” or “AES ” means The AES Corporation, a Delaware corporation, or any successor thereto.
“ Compensation Committee ” means the Compensation Committee of the Board.
“ Director ” means a member of the Board.
“ Disability ” or “ Disability Termination ” means, except as otherwise provided in a Benefit Schedule, a Separation From Service: (a) on account of the Participant’s failure to return to full-time employment following exhaustion of short-term disability benefits provided by the Employer; (b) following the date the Participant is determined to be eligible for: (i) long-term disability benefits under any long-term disability insurance policy or plan maintained by the Employer; or (ii) disability pension or retirement benefits under any qualified retirement plan maintained by the Employer; or (c) due to a physical or mental condition that substantially restricts the Participant’s ability to perform his or her usual duties, as determined by the Employer.
“ Effective Date ” means as originally effective on October 6, 2011, and as last amended on October 4, 2018.
“ Eligible Executive ” means any Employee of the Employer who: (i) is not an Ineligible Executive (within the meaning of Section 2.2); (ii) has completed one Year-of-Service as a full-time Employee (except as otherwise approved by the Administrator or the Board); (iii) has been designated by the Administrator or the Board as a Participant in the Plan; and (iv) has executed the document set forth on Exhibit A, thereby understanding and agreeing to be bound by all of the terms and conditions set forth in the Plan and Benefit Schedule. An “Eligible Executive” may include Executive Officers and the Chief Executive Officer.
“ Employee ” means any person who is employed by the Company or a Subsidiary as a common law employee and is listed as an employee on the U.S. payroll records of the Employer as a full-time employee. Any person hired by the Employer as a consultant or independent contractor and any other individual whom the Employer does not treat as its employee for federal income tax purposes shall not be an Employee for purposes of this Plan, even if it is subsequently determined by a court or administrative agency that such individual should be, or should have been, properly classified as a common law employee of the Employer.
“ Employer ” means the Company and any Affiliated Employer that participates in the Plan with the consent of the Company. The Administrator shall maintain a list of participating Employers.
“ Executive ” or “ Executive Officer ” means an executive officer of the Company, as defined under Rule 3b-7 of the Exchange Act, or was otherwise approved as an officer by the Board and/or Compensation Committee.
“ Good Reason ” or “ Good Reason Termination ” has the meaning set forth in the applicable Benefit Schedule.
“ Ineligible Termination ” means, except as otherwise provided in a Benefit Schedule, a Participant’s Separation From Service on account of:

•	The Participant’s voluntary resignation, including, but not limited to, the Participant’s unilateral Separation From Service at any time prior to the Termination Date established by the Employer, other than for Good Reason;	

•	Any Separation From Service that the Employer determines (either before or after the Separation From Service and whether or not any notice is given to the Participant) the payment of benefits under the Plan in connection with such Separation From Service would be inconsistent with the intent and purposes of the Plan;	

•	A Separation From Service in connection with a Participant’s failure to return to work immediately following the conclusion of an approved leave-of-absence;	

•	A Separation From Service for, or on account of, Cause;	

•	A Disability Termination;	

•	The Participant’s death;	

•	The Participant declines to accept a New Job Position offered by the Employer that is located equal to or less than 50 miles of the Participant’s then-assigned work site of the Employer;	

•	The Sale of Business Rule set forth in Section 2.3 herein; or	

•	The voluntary transfer of employment from the Participant’s Employer to another AES related entity, irrespective of whether the Participant is required to relocate or whether the AES related entity qualifies as an Affiliated Employer.	
“ Involuntary Termination ” means a Participant’s involuntary Separation From Service that is (i) not an Ineligible Termination and (ii) by action of the Employer on account of:

•	Reduction-in-force that eliminates the Participant’s existing job position;	

•	Permanent job elimination of the Participant;	

•	The restructuring or reorganization of a business unit, division, department or other segment, which directly affects the Participant;	

•	Termination by Mutual Consent; or	

•	The Participant declines to accept a New Job Position offered by the Employer that requires the Participant to relocate to a work site location that is located greater than 50 miles from the Participant’s then-assigned work site of the Employer; provided, however, that except as provided in Section 2.3 or in connection with a Separation From Service following a Change in Control, a Participant who is an Executive shall not incur an Involuntary Termination if such Participant declines a New Job Position (regardless of its location) at a time when the Participant’s existing job position is being eliminated.	
“ New Job Position ” means: (i) with respect to a Participant who has demonstrated inadequate or unsatisfactory performance, as determined by the Employer, any job position offered by the Employer; or (ii) with respect to all other Participants, a full-time job position offered by the Employer that does not result in a reduction of the Participant’s Annual Compensation.
“ Participant ” means an Eligible Executive who: (i) is designated to participate in the Plan by the Administrator and/or the Board and (ii) satisfies all of the terms and conditions specified in this Plan.
“ Person ” means any individual, corporation, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
“ Plan ” means The AES Corporation Amended and Restated Executive Severance Plan as set forth herein, and as the same may from time to time be amended.
“ Section 409A ” shall mean Section 409A of the Code, the regulations and other binding guidance promulgated thereunder.
“ Separation From Service ” shall mean a Participant’s termination of employment with the Company and all of its controlled group members within the meaning of Section 409A of the Code. For purposes hereof, the determination of controlled group members shall be made pursuant to the provisions of Section 414(b) and 414(c) of the Code; provided that the language “at least 50 percent” shall be used instead of “at least 80 percent” in each place it appears in Section 1563(a)(1), (2) and (3) of the Code and Treas. Reg. § 1.414(c)-2; provided, further, where legitimate business reasons exist (within the meaning of Treas. Reg. § 1.409A-1(h)(3)), the language “at least 20 percent” shall be used instead of “at least 80 percent” in each place it appears. Whether a Participant has a Separation From Service will be determined based on all of the facts and circumstances and in accordance with the guidance issued under Section 409A.
“ Specified Employee ” means a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Company as determined in accordance with the regulations issued under Code Section 409A and the procedures established by the Company.
“ Subsidiary ” means any entity in which the Company owns or otherwise controls, directly or indirectly, stock or other ownership interests having the voting power to elect a majority of the board of directors, or other governing group having functions similar to a board of directors, as determined by the Company.
“ Termination by Mutual Consent ” means an involuntary Separation From Service pursuant to which the Company agrees, in its sole discretion, that benefits are payable under this Plan.
“ Termination Date ” means the date of the Eligible Executive’s Separation From Service (or scheduled date of Separation From Service, as applicable).
“ Year-of-Service ” means each twelve-month period measured from the Participant’s first day of employment with an Employer, as reduced to reflect breaks in service and/or services performed during such period the Participant was otherwise ineligible to participate in the Plan, as determined under the rules promulgated by the Administrator. Service with a predecessor employer (that was not an Affiliated Employer) shall be recognized to the extent such service is recognized under The AES Corporation Retirement Savings Plan. Service shall also include services performed prior to the effective date of the Plan. In the event a Participant’s Separation From Service and the Participant is subsequently reemployed by the Employer, the Participant’s service for calculation of any severance benefits under Article IV of the Plan shall be based only upon the Participant’s service credited since the most recent starting date of employment with the Employer.
ARTICLE II     
 PARTICIPATION AND ELIGIBILITY
2.1      Eligibility .
A Participant shall, upon execution of the release in the form specified in Article III of this Plan in the time and manner set forth in Section 3.1 of the Plan, be eligible for the severance benefits provided under Article IV of this Plan if such Participant’s Separation From Service is by reason of an Involuntary Termination or Good Reason Termination, as applicable. A Participant who fails to execute the release in the time and manner set forth in Section 3.1 or who subsequently revokes execution of the release in accordance with its terms shall not be entitled to receive benefits under this Plan.
2.2      Ineligible Executives . Notwithstanding any provision of this Plan to the contrary, no individual shall be eligible or have any legally binding right to participate in the Plan unless designated as a Participant by the Board and/or the Administrator as of the date of his or her termination.
2.3      Sale of Business Rule .
A Participant shall not be eligible for benefits under the Plan if the Participant’s Separation From Service is in connection with the sale of the stock or other ownership interests of the Employer or other related entity, or the sale, lease, or other transfer of the assets, products, services or operations of the Employer or other related entity to another organization if either of the following occurs:

•	The Participant is employed by the new organization immediately following the sale, transfer or lease or is so employed within a time period specified in an agreement between the Employer and the new organizations; or	

•	The Employer terminates the employment of a Participant who did not accept an offer of employment from the new organization when the new organization offered a compensation and benefits package that was, in the aggregate, generally comparable to the compensation and benefits provided by the Employer; provided that such Participant was not required to relocate to a work site location that is located greater than 50 miles from the Participant’s then-assigned work site of the Employer.	
Notwithstanding the foregoing, this Section 2.3 shall not apply if a Participant’s Separation From Service occurs in connection with a Change of Control and, as such, any such Separation From Service will not be an Ineligible Termination solely on the basis of the Sale of Business Rule.
ARTICLE III     
 RELEASES
3.1      Release .
Notwithstanding anything in this Plan to the contrary, no benefits of any sort or nature (other than as provided in Section 3.3) shall be due or paid under this Plan to any Participant unless the Participant executes a written release and covenant not to sue, in form and substance satisfactory to the Employer, in its sole discretion, within the time stated in the release; provided, however, that in all cases such release must become final, binding and irrevocable within sixty (60) days following the Participant’s Termination Date. The written release shall waive any and all claims against the Employer and all related parties including, but not limited to, claims arising out of the Participant’s employment by the Employer, the Participant’s Separation From Service and claims relating to the benefits paid under this Plan. At the sole discretion of the Employer, the release also may include such noncompetition, nonsolicitation and nondisclosure provisions as the Employer considers necessary or appropriate, in addition to the provisions set forth in Article V of this Plan.
3.2      Revocation .
The release described in Section 3.1 must be executed and binding on the Participant within the timeframe specified by the Company before benefits are due or paid. A Participant who revokes execution of the release in accordance with the terms of the release shall not be entitled to receive benefits under the Plan.
3.3      Outplacement Services .
Notwithstanding the foregoing provisions of this Article III, the Outplacement Services set forth under Section 4.3 herein may or may not be provided, at the discretion of the Employer, to a Participant prior to the execution of a release under this Plan.
ARTICLE IV     
 SEVERANCE BENEFITS
4.1      Separation Payment .
4.1.1      A Participant shall be entitled to receive a separation payment as set forth on the applicable Benefit Schedule. Except as otherwise provided in a Benefit Schedule, the separation payment shall be paid at least monthly in substantially equal installments as salary continuation in accordance with the Employer’s established payroll policies and practices over the same time period upon which the separation payment is based, which shall be set forth in the Benefit Schedule. The separation payments will commence on the Employer’s next normal pay date occurring after the date the Participant’s release becomes final, binding and irrevocable.
4.1.2      For purposes of Section 409A: (i) the right to salary continuation installment payments under Section 4.1.1 shall be treated as the right to a series of separate payments; and (ii) a payment shall be treated as made on the scheduled payment date if such payment is made at such date or a later date in the same calendar year or, if later, by the 15th day of the third calendar month following the scheduled payment date. A Participant shall have no right to designate the date of any payment under the Plan. For purposes of the Plan, each salary continuation installment payment in Section 4.1.1 is intended to be excepted from Section 409A to the maximum extent provided under Section 409A as follows: (i) each salary continuation installment payment that is scheduled to be made on or before March 15th of the calendar year following the calendar year containing the Termination Date is intended to be excepted under the short-term deferral exception as specified in Treas. Reg. § 1.409A-1(b)(4); and (ii) each salary continuation installment payment that is not otherwise excepted under the short-term deferral exception is intended to be excepted under the involuntary pay exception as specified in Treas. Reg. § 1.409A-1(b)(9)(iii).
4.2      Continuation of Certain Welfare Benefits .
4.2.1      Medical/Dental/Vision . For the period set forth below in Section 4.2.3 and beginning in the calendar month following the calendar month in which the Termination Date occurs, the Participant shall be eligible to participate in the Employer’s medical, dental and vision employee welfare benefit plans applicable to the Participant on his or her Termination Date. To receive such benefits, the Participant must properly enroll in COBRA coverage, and must also pay such premiums and other costs for such coverage as generally applicable to the Employer’s active employees. The Employer will continue to pay its share of the applicable premiums under the medical, dental and vision plans for the same level and type of coverage in which the Participant is enrolled as of the Termination Date.
Except as provided in a Benefit Schedule to the Plan, if a Participant has elected the “no benefit coverage” option under the medical, dental or vision plans as of his or her actual Termination Date, the Participant shall not be entitled to continuation coverage or cash in lieu thereof. Following expiration of coverage under this Section 4.2.1, a Participant may, to the extent eligible, continue to participate in such plans for the remainder of the COBRA continuation period, if any.
4.2.2      Concurrent COBRA Period . The continuation period for medical, dental and vision coverage under this Plan shall be deemed to run concurrent with the continuation period federally mandated by COBRA (generally 18 months), or any other legally mandated and applicable federal, state, or local coverage period for benefits provided to terminated employees under the health care plan. The continuation period will be deemed to commence on the first day of the calendar month following the month in which the Termination Date falls. Notwithstanding the foregoing, COBRA Coverage will only be available if the Participant is eligible for and timely elects COBRA Coverage, and timely remits payment of the premiums for COBRA Coverage.
4.2.3      Length of Benefits . Except as provided in a Benefit Schedule, benefits under this Section 4.2 shall be for the same time period upon which the separation payment was based; provided, however that in no event will the time period exceed 18 months.
4.2.4      Implications of Section 409A . Post-termination medical benefits are intended to be excepted from Section 409A under the medical benefits exceptions as specified in Treas. Reg. § 1.409A-1(b)(9)(v)(B).
4.3      Outplacement Services .
As set forth on the applicable Benefit Schedule, a Participant shall be eligible for such outplacement services typically provided to employees of the same job classification or level. Outplacement services may be provided by an independent agency or by the Employer. Notwithstanding the foregoing, the availability, duration, and appropriateness of outplacement services shall be determined by the Administrator in its sole discretion; provided, however, that outplacement expenses must be reasonable, must be actually incurred by the Participant and may not extend beyond the December 31 of the second calendar year following the calendar year in which the Termination Date occurred (or such shorter period as specified by the Employer). Any such reimbursement shall be as soon as administratively feasible, but in no event later than December 31st of the third calendar year following the calendar year in which the Termination Date occurred. Post-termination outplacement benefits are intended to be excepted from Section 409A under the separation payment benefits exceptions as specified in Treas. Reg. § 1.409A-1(b)(9)(v)(A).
4.4      Bonus Compensation .
As set forth on the applicable Benefit Schedule and subject to any deferral election that the Participant has made with respect to such amounts, a Participant will be eligible for (i) a prorated Bonus; and (ii) any accrued but unpaid bonus compensation for completed performance periods. The prorated Bonus specified in Section 4.4(i) will be prorated based on the amount of time the Participant was actively at work on a full-time basis in the calendar year in which the Participant’s Termination Date falls, and will be paid within the applicable 2½ month period specified in Treas. Reg. § 1.409A-1(b)(4). The bonus compensation specified in Section 4.4(ii) shall be paid no later than the time that such amounts are paid to similarly situated employees in accordance with the applicable plan terms. Notwithstanding the foregoing, with respect to bonuses paid in accordance with the terms of The AES Corporation Performance Incentive Plan (or any successor plan, the “ Performance Incentive Plan ”), any such bonus compensation shall be paid only to the extent earned in accordance with the terms of the Performance Incentive Plan and on the payment date specified therein.
4.5      Enhanced Benefits .
In the event a Participant is Involuntarily Terminated or terminates for Good Reason within two years following a Change in Control, a Participant shall receive a separation payment under Section 4.1 and medical/dental/vision benefits under Section 4.2 as set forth in a Benefit Schedule. Notwithstanding the foregoing, unless otherwise specifically provided in the Benefit Schedule, the time period for medical/dental/vision benefits set forth in Section 4.2 will never exceed eighteen (18) months, as described in Section 4.2.3.
4.6      Delay in Payment .
Notwithstanding any provision of this Plan to the contrary, to the extent that a payment hereunder is subject to Section 409A (and not excepted therefrom), such payment shall be delayed for a period of six (6) months after the Termination Date (or, if earlier, the death of the Participant) for any Participant that is a Specified Employee. Any payment that would otherwise have been due or owing during such six (6)-month period will be paid on the first business day of the seventh month following the Separation From Service.
ARTICLE V     
 CONFIDENTIALITY, COVENANT NOT TO COMPETE, NON-SOLICITATION AND NON-DISPARAGEMENT PROVISIONS
5.1      General Provisions .
As a condition of participation in the Plan, the Participant agrees that restrictions on his or her activities during and after employment are necessary to protect the goodwill, Confidential Information (as defined below) and other legitimate interests of the Company and its Subsidiaries, and that the agreed restrictions set forth below will not deprive the Participant of the ability to earn a livelihood.
5.2      Confidential Information .
(a) The Participant acknowledges that the Company and its Subsidiaries continually develop Confidential Information (as defined in Section 5.5(d), below), that Participant may develop Confidential Information for the Company or its Subsidiaries, and that the Participant may learn of Confidential Information during the course of his or her employment. Subject to Section 5.2(b) hereof, the Participant will comply with the policies and procedures of the Company and its Subsidiaries for protecting Confidential Information and shall not disclose to any person (except as required by applicable law or legal process or for the proper performance of his or her duties and responsibilities to the Company and its Subsidiaries, or in connection with any litigation between the Company and the Participant (provided that the Company shall be afforded a reasonable opportunity in each case to obtain a protective order)), or use for his or her own benefit or gain, any Confidential Information obtained by the Participant incident to his or her employment or other association with the Company or any of its Subsidiaries. The Participant understands that this restriction shall continue to apply after his or her employment terminates, regardless of the reason for such termination. All documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its Subsidiaries and any copies, in whole or in part, thereof (the “ Documents ”), whether or not prepared by the Participant, shall be the sole and exclusive property of the Company and its Subsidiaries. The Participant shall safeguard all Documents and shall surrender to the Company at the time employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in Participant’s possession or control.
(b) Nothing in the Plan, including this Article V, is intended to preclude or limit a Participant from communicating with, responding to inquiries from, volunteering information to, or providing testimony before any federal, state or local government legislature, agency, or commission, or any self-regulatory organization, with respect to suspected violations of law, including the Securities and Exchange Commission, Financial Industry Regulatory Authority or New York Stock Exchange (or any other national exchange on which the shares of the Company’s common stock are listed). Participant understands and agrees that he or she is not required to contact or receive consent from the Company and/or its Subsidiaries before engaging in such communications with any such authorities; provided, however, that Participant (x) must inform such authority that the information provided is confidential and (y) may not provide Confidential Information that is protected from disclosure by the attorney-client privilege or attorney work-product doctrine, except as is expressly permitted by law.
5.3      Noncompete/Nonsolicit Provisions .
Except in the event of a Change in Control, while Participant is in the employment of the Company and for a period of twelve months thereafter, or during such other period specified in the Benefit Schedule for the Participant, after a termination of Participant's employment with the Company (the “ Non-Competition Period ”), Participant shall not, directly or indirectly, whether as owner, partner, investor, consultant, agent, employee, co-venturer or otherwise, engage in Competitive Activity (as defined below). For purposes of this Plan, “ Competitive Activity ” means any activity that is (i) directly or indirectly competitive with the business of the Company or any of its Subsidiaries, as conducted or which has been proposed by management to be conducted within six (6) months prior to termination of Participant’s employment and (ii) conducted in the geographic areas in which the Company or any of its Subsidiaries operate upon Participant’s Separation From Service date. Competitive Activity also includes, without limitation, accepting employment or a consulting position with any person who is, or at any time within twelve (12) months prior to termination of Participant’s employment has been, a licensee of the Company or any of its Subsidiaries. For the purposes of this Article V, the business of the Company and its Subsidiaries, as currently conducted, consists of the generation, sale, supply, storage or distribution of electricity.
Participant agrees that during the Non-Competition Period, Participant will not, either directly or through any agent or employee, Solicit (as defined in Section 5.5(d), below) any employee of the Company or any of its Subsidiaries to terminate his or her relationship with the Company or any of its Subsidiaries or to apply for or accept employment with any enterprise engaged in Competitive Activity with the Company, or Solicit any customer, supplier, licensee or vendor of the Company or any of its Subsidiaries to terminate or materially modify its relationship with them, or, in the case of a customer, to conduct with any Person any business or activity which such customer conducts or could conduct with the Company or any of its Subsidiaries.
5.4      Nondisparagement .
Following any termination of the Participant's employment, (i) the Participant shall not make statements or representations, otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Company or any if its Subsidiaries or affiliates or their respective former or current officers, directors, employees, advisors, businesses or reputations, (ii) the Company shall instruct its Board members and senior management to not make statements or representations, otherwise communicate, directly or indirectly, in writing, orally or otherwise, or take any action which may, directly or indirectly, disparage or be damaging to the Participant or his or her reputation. Nothing in this paragraph is intended to undermine any obligations the Participant or the Company may have to comply with applicable law, or prohibit the Participant or the Company from providing truthful testimony or information pursuant to subpoena, court order, discovery demand or similar legal process, or truthfully responding to lawful inquiries by any governmental or regulatory entity.
5.5      Miscellaneous .
(a) Nothing in this Article V shall prevent Participant, during the Non-Competition Period and following Separation From Service, from acquiring or holding, solely as an investment, publicly traded securities of any competitor corporation so long as such securities do not, in the aggregate, constitute more than 3% of the outstanding voting securities of such corporation.
(b) The Participant agrees that all inventions, improvements, discoveries, patents, trade concepts and copyrightable materials made, conceived or developed by the Participant, in respect of the business of the Company and/or its Subsidiaries, either singly or in collaboration with others, shall be the sole and exclusive property of the Company and/or its Subsidiaries.
(c) Without limiting the foregoing, it is understood that the Company shall not be obligated to make any of the payments or to provide for any of the benefits specified in Article IV or on a Benefit Schedule hereof in connection with the termination of a Participant’s employment, and shall be entitled to recoup the pro rata portion of any such payments and of the value of any such benefits previously provided to Participant in the event of a material breach by the Participant of the provisions of this Article V (such pro ration to be determined as a fraction, the numerator of which is the number of days from such breach to the first anniversary of the date on which the Participant terminates employment and the denominator of which is 365), which breach continues without having been cured within fifteen (15) days after written notice to the Participant specifying the breach in reasonable detail.
(d) Definitions. For purposes of this Article V, the following definitions shall apply:
(i)      “ Confidential Information ” means any and all information of the Company and its Subsidiaries that is not generally known by others with whom they compete or do business, or with whom they plan to compete or do business and any and all information not readily available to the public, which, if disclosed by the Company or its Subsidiaries could reasonably be of benefit to such person or business in competing with or doing business with the Company. Confidential Information includes, without limitation, such information relating to (A) the development, research, testing, manufacturing, operational processes, marketing and financial activities, including costs, profits and sales, of the Company and its Subsidiaries, (B) the costs, sources of supply, financial performance and strategic plans of the Company and its Subsidiaries, (C) the identity and special needs of the customers and suppliers of the Company and its Subsidiaries and (D) the people and organizations with whom the Company and its Subsidiaries have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its Subsidiaries have received belonging to others or which was received by the Company or any of its Subsidiaries with an agreement by the Company that it would not be disclosed. Confidential Information does not include information which (1) is or becomes available to the public generally (other than as a result of a disclosure by the Participant), (2) was within the Participant's possession prior to it being furnished to the Participant by or on behalf of the Company, provided that the source of such information was not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, (3) becomes available to the Participant on a nonconfidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, or (4) was independently developed the Participant without reference to the Confidential Information.
(ii)      “ Solicit ” means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, with respect to any action.

ARTICLE VI     
 PLAN ADMINISTRATION
6.1      Operation of the Plan .
The Administrator shall be the named fiduciary responsible for carrying out the provisions of the Plan and for purposes of ERISA. The Administrator may delegate any and all of its powers and responsibilities hereunder or appoint agents to carry out such responsibilities, and any such delegation or appointment may be rescinded at any time. The Administrator shall establish the terms and conditions under which any such agents serve. The Administrator shall have the full and absolute authority to employ and rely on such legal counsel, actuaries and accountants (which may also be those of the Employer) as it may deem advisable to assist in the administration of the Plan.
6.2      Administration of the Plan .
To the extent that the Administrator, in its sole discretion, deems necessary or desirable, the Administrator may establish rules for the administration of the Plan, prescribe appropriate forms, and adopt procedures for handling claims and the denial of claims. The Administrator shall have the exclusive authority and discretion to interpret, construe, and administer the provisions of the Plan and to decide all questions concerning the Plan and its administration. Without limiting the foregoing, the Administrator shall have the authority to determine eligibility for, and the amount of any benefits due to, a Participant in accordance with this Plan and the applicable Benefit Schedule, and, in connection with the foregoing, to make factual determinations, correct deficiencies, and supply omissions, including resolving any ambiguity or uncertainty arising under or existing in the terms and provisions of the Plan or any Benefit Schedule. Any and all such determinations of the Administrator shall be final, conclusive, and binding on the Employer, the Participant, and any and all interested parties.
A termination of a Participant’s employment with the Company and any Affiliated Employer, except as expressly provided herein, shall automatically, with no further act of the Company or any Affiliated Employer, terminate any right of such Participant to participate in, or receive any benefits under, the Plan.
6.3      Funding .
The Plan shall be unfunded and all payments hereunder and expenses incurred in connection with this Plan shall be paid from the general assets of the Employer. Benefits will be paid directly by the Employer employing the Participant, and no other Employer or Affiliated Employer will be responsible for any benefits hereunder.
6.4      Code Section 409A .
Notwithstanding any provision of the Plan to the contrary, if any benefit provided under this Plan is subject to the provisions of Section 409A of the Code and the regulations issued thereunder, the provisions of the Plan will be administered, interpreted and construed in a manner necessary to comply with Section 409A or an exception thereto (or disregarded to the extent such provision cannot be so administered, interpreted, or construed). With respect to payments subject to Section 409A of the Code: (i) it is intended that distribution events authorized under the Plan qualify as permissible distribution events for purposes of Section 409A of the Code; and (ii) the Company and each Employer reserve the right to accelerate and/or defer any payment to the extent permitted and consistent with Section 409A. Notwithstanding any provision of the Plan to the contrary, in no event shall the Administrator, the Company, an Affiliated Employer or Subsidiary (or their employees, officers, directors or affiliates) have any liability to any Participant (or any other person) due to the failure of the Plan to satisfy the requirements of Section 409A or any other applicable law. For purposes of Code Section 409A, a Participant’s right to receive any installment payments shall be treated as a right to receive a series of separate and distinct payments.  In no event may a Participant, directly or indirectly, designate the calendar year of any payment to be made under this Plan, to the extent such payment is subject to Section 409A of the Code.
ARTICLE VII     
 CLAIMS
7.1      General .
Except as otherwise provided in a Benefit Schedule relating to notice periods, if a Participant believes that he or she is eligible for benefits under the Plan and has not been so notified, a Participant should submit a written request for benefits to the Administrator. Any claim for benefits must be made within six months of the Participant’s Termination Date, or the Participant will be forever barred from pursuing a claim. For purposes of this Article VI, a Participant making a claim for benefits under the Plan shall be referred to as a “claimant.” The claimant shall file the claim with and in the manner prescribed by the Administrator. The Administrator shall make the initial determination concerning rights to and amount of benefits payable under this Plan.
7.2      Claim Evaluation .
A properly filed claim will be evaluated and the claimant will be notified of the approval or the denial of the claim within ninety (90) days after the receipt of the claim, unless special circumstances require an extension of time for processing. Written notice of the extension will be furnished to the claimant prior to the expiration of the initial ninety-day (90-day) period, and will specify the special circumstances requiring an extension and the date by which a decision will be reached (provided the claim evaluation will be completed within one hundred and twenty (120) days after the date the claim was filed).
7.3      Notice of Disposition .
A claimant will be given a written notice in which the claimant will be advised as to whether the claim is granted or denied, in whole or in part. If a claim is denied, in whole or in part the notice will contain: (i) the specific reasons for the denial; (ii) references to pertinent Plan provisions upon which the denial is based; (iii) a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary; and (iv) the claimant’s rights to seek review of the denial.
7.4      Appeals .
If a claim is denied, in whole or in part, the claimant, or his duly authorized representative, has the right to (i) request that the Administrator review the denial, (ii) review pertinent documents, and (iii) submit issues and comments in writing, provided that the claimant files a written appeal with the Administrator within sixty (60) days after the date the claimant received written notice of the denial. Within sixty (60) days after an appeal is received, the review will be made and the claimant will be advised in writing of the decision, unless special circumstances require an extension of time for reviewing the appeal, in which case the claimant will be given written notice within the initial sixty-day (60-day) period specifying the reasons for the extension and when the review will be completed (provided the review will be completed within one hundred and twenty (120) days after the date the appeal was filed). The decision on appeal will be forwarded to the claimant in writing and will include specific reasons for the decision and references to the Plan provisions upon which the decision is based. A decision on appeal will be final and binding on all persons for all purposes. If a claimant’s claim for benefits is denied in whole or in part, the claimant may file suit in a state or federal court.
Notwithstanding the aforementioned, before the claimant may file suit in a state or federal court, the claimant must exhaust the Plan’s administrative claims procedure set forth in this Article VI. If any such state or federal judicial or administrative proceeding is undertaken, the evidence presented will be strictly limited to the evidence timely presented to the Administrator. In addition, any such state or federal judicial or administrative proceeding must be filed within six (6) months after the Administrator’s final decision. Any such state or federal judicial or administrative proceeding relating to this Plan shall only be brought in the Circuit Court for Arlington County, Virginia or in the United States District Court for the Eastern District of Virginia, Alexandria Division. If any such action or proceeding is brought in any other location, then the filing party expressly consents to the transfer of such action to the Circuit Court for Arlington County, Virginia or the United States District Court for the Eastern District of Virginia, Alexandria Division. Nothing in this clause shall be deemed to prevent any party from removing an action or proceeding to enforce or interpret this Plan from the Circuit Court for Arlington County, Virginia to the United States District Court for the Eastern District of Virginia, Alexandria Division.
ARTICLE VIII     
 PLAN AMENDMENTS
8.1      Amendment Authority .
The Board may, at any time and in its sole discretion, amend, modify or terminate the Plan, including any Benefit Schedule, as the Board, in its judgment shall deem necessary or advisable; provided, however, that except as provided in Section 8.2, no such amendment, modification or termination shall be effective until twelve (12) months (the “ 12-Month Period ”) following the adoption of such amendment, modification or termination of the Plan, without the express written consent of the affected Participant(s).
The Board may delegate its amendment authority to the Administrator or such other persons as the Board considers appropriate. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Board (or its designee) may at any time (in its sole discretion and without the consent of any Participant) modify, amend or terminate any or all of the provisions of this Plan or take any other action, to the extent necessary or advisable, to conform the provisions of the Plan with Section 409A of the Code, the regulations issued thereunder or an exception thereto, regardless of whether such modification, amendment or termination of this Plan or other action shall adversely affect the rights of a Participant under the Plan. Termination of this Plan shall not be a distribution event under the Plan unless otherwise permitted under Section 409A.
8.2      Change in Control .
Notwithstanding any other provision of the Plan to the contrary, any amendment, modification or termination of the Plan (including, without limitation, this Section 8.2) as applied to any particular Participant, following a Change in Control, shall not be effective for twenty-four (24) months after the adoption of such amendment, modification or termination of the Plan; provided, further that, if a Change in Control occurs within the 12-Month Period, such amendment, modification or termination of the Plan shall not be effective for twenty-four (24) months after the Change in Control without the express written consent of such affected Participant(s), except in the event the Board or its designee determines to amend the Plan in order to conform the provisions of the Plan with Section 409A, the regulations issued thereunder or an exception thereto, regardless of whether such modification, amendment, or termination of the Plan shall adversely affect the rights of a Participant under the Plan.
ARTICLE IX     
 MISCELLANEOUS
9.1      Plan Document .
To the extent any other written communication to a Participant conflicts with this Plan, the Plan document shall control.
9.2      Impact on Other Benefits .
Except as otherwise provided herein, any amounts paid to a Participant under this Plan shall have no effect on the Participant’s rights or benefits under any other employee benefit plan sponsored by the Employer; provided, however, that in no event shall any Participant be entitled to any payment or benefit under the Plan which duplicates a payment or benefit received or receivable by the Participant under any severance plan, policy, guideline, arrangement, agreement, letter and/or other communication, whether formal or informal, written or oral sponsored by the Employer or an affiliate thereof and/or entered into by any representative of the Employer and/or any affiliate thereof. Further, any such amounts shall not be used to determine eligibility for or the amount of any benefit under any employee benefit plan, policy, or arrangement sponsored by the Employer or any affiliate thereof.
9.3      Tax Withholding .
The Employer shall have the right to withhold from any benefits payable under the Plan or any other wages payable to a Participant an amount sufficient to satisfy federal, state and local tax withholding requirements, if any, arising from or in connection with the Participant’s receipt of benefits under the Plan.
9.4      No Employment or Service Rights .
Nothing contained in the Plan shall confer upon any Employee any right with respect to continued employment with the Employer, nor shall the Plan interfere in any way with the right of the Employer to at any time reassign an Employee to a different job, change the compensation of the Employee or terminate the Employee’s employment for any reason.
9.5      Nontransferability .
Notwithstanding any other provision of this Plan to the contrary, the benefits payable under the Plan may not be subject to voluntary or involuntary anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors of the Participant or such other person, other than pursuant to the laws of descent and distribution, without the consent of the Company.
9.6      Successors .
The Company and its affiliates shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company and its affiliates (taken as a whole) expressly to assume and agree to perform under the terms of the Plan in the same manner and to the same extent that the Company and its affiliates would be required to perform if no such succession had taken place (provided that such a requirement to perform which arises by operation of law shall be deemed to satisfy the requirements for such an express assumption and agreement), and in such event the Company and its affiliates (as constituted prior to such succession) shall have no further obligation under or with respect to the Plan.
9.7      Headings and Captions .
The headings and captions herein are provided for reference and convenience only. They shall not be considered as part of the Plan and shall not be employed in the construction of the Plan.
9.8      Gender and Number .
Where the context admits, words in any gender shall include any other gender, and, except where clearly indicated by the context, the singular shall include the plural and vice-versa.
9.9      Nonalienation of Benefits .
None of the payments, benefits or rights of any Participant shall be subject to any claim of any creditor of any Participant and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment (if permitted under applicable law), trustee’s process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, plead, encumber or assign any of the benefits or payments that he or she may expect to receive under this Plan.
9.10      Governing Law .
Except as otherwise preempted by the laws of the United States, this Plan shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to its conflict of law provisions. If any provision of this Plan shall be held illegal or invalid for any reason, such determination shall not affect the remaining provisions of this Plan.
ARTICLE X     
 STATEMENT OF ERISA RIGHTS
As a Participant in the Plan, each Participant is entitled to certain rights and protections under ERISA. ERISA provides that all Participants shall be entitled to:
10.1      Receive Information About the Plan and Benefits .
Examine, without charge, at the Administrator’s office, all documents governing the Plan.
Obtain, upon written request to the Administrator, copies of documents governing the operation of the Plan and an updated summary plan description. The Administrator may make a reasonable charge for the copies.
10.2      Prudent Actions by Plan Fiduciaries .
In addition to creating rights for Participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of Participants and beneficiaries. No one, including a Participant’s Employer or any other person, may fire such Participant or otherwise discriminate against a Participant in any way to prevent such Participant from obtaining a welfare benefit or exercising such Participant’s rights under ERISA. However, this rule neither guarantees continued employment, nor affects the Company’s right to terminate a Participant’s employment for other reasons.
10.3      Enforce Participant Rights .
If a Participant’s claim for a benefit is denied or ignored, in whole or in part, a Participant has a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.
Under ERISA, there are steps a Participant can take to enforce the above rights. For instance, if a Participant requests a copy of Plan documents and does not receive them within 30 days, such Participant may file suit in a Federal court. In such a case, the court may require the Administrator to provide the materials and pay such Participant up to $110 a day until Participant receives the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. If a Participant has a claim for benefits which is denied or ignored, in whole or in part, such Participant may file suit in a state or Federal court. If a Participant is discriminated against for asserting such Participant’s rights, such Participant may seek assistance from the U.S. Department of Labor, or may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If a Participant is successful the court may order the person such Participant has sued to pay these costs and fees. If a Participant loses, the court may order such Participant to pay these costs and fees, for example, if it finds such Participant’s claim is frivolous.
10.4      Assistance with Participant Question .
If a Participant has any questions about the Plan, such Participant should contact the Administrator. If a Participant has any questions about this statement or about such Participant’s rights under ERISA, or if a Participant needs assistance in obtaining documents from the Administrator, such Participant should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in such Participant’s telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. A Participant may also obtain certain publications about such Participant’s rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.
ARTICLE XI     
 SUMMARY INFORMATION
Name of Plan :  The name of the plan under which benefits are provided is The AES Corporation Amended and Restated Executive Severance Plan.
Plan Number :  503
Plan Sponsor :  The Sponsor of the Plan is:
The AES Corporation 
 4300 Wilson Boulevard, Suite 1100 
 Arlington, Virginia 22203
Plan Administrator :  The Administrator of the Plan is:
The Compensation Committee of the Board of Directors of The AES Corporation 
 4300 Wilson Boulevard, Suite 1100 
 Arlington, Virginia 22203
Employer Identification Number :  The Employer Identification Number (EIN) assigned to the Plan Sponsor by the Internal Revenue Service is 54-1163725.
Type of Plan :  Severance Pay Employee Welfare Benefit Plan.
Type of Administration :  The Plan is self-administered.
Funding :  Benefits payable under the Plan are provided from the general assets of the Company.
Agent for Service of Legal Process :  For disputes arising under the Plan, service of legal process may be made upon the Executive Vice President, General Counsel and Corporate Secretary of the Company.
Plan Year :  The Plan’s fiscal records are kept on a calendar year basis (January 1 to December 31).

The AES Corporation Amended and Restated Executive Severance Plan has been duly executed by the undersigned on this 5 th day of October 2018.
The AES Corporation

By:         
Letitia Mendoza
Senior Vice President Human Resources, Business Services & Chief Human Resources Officer

APPENDIX A
CHIEF EXECUTIVE OFFICER
BENEFIT SCHEDULE

The Chief Executive Officer shall receive the severance benefits outlined in the Plan document, except as otherwise modified or provided in this Benefit Schedule.

A. Definitions . The following definitions apply to this Benefit Schedule and shall override any contrary (or duplicative) terms of the Plan as they relate solely to the Chief Executive Officer.

“ Cause ” means:

(a) the willful and continued failure by the Chief Executive Officer to substantially perform his duties with the Company (other than any such failure resulting from the Chief Executive Officer's incapability due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination by the Chief Executive Officer for Good Reason), after demand for substantial performance is delivered by the Company that specifically identifies the manner in which the Company believes that the Chief Executive Officer has not substantially performed his duties; or
(b) the willful engaging by the Chief Executive Officer in misconduct which is demonstrably and materially injurious to the Company, monetarily or otherwise (including, but not limited to, conduct that constitutes a violation of Article V of the Plan). No act, or failure to act, on the Chief Executive Officer's part shall be considered “willful” unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Chief Executive Officer shall not be deemed to have been terminated for Cause without:
1. reasonable notice from the Board to the Chief Executive Officer setting forth the reasons for the Company's intention to terminate for Cause; and
2. delivery to the Chief Executive Officer of a Notice of Termination, which shall include a resolution duly adopted by the affirmative vote of two-thirds or more of the Board then in office (excluding the Chief Executive Officer) at a meeting of the Board called and held for such purpose, and at which the Chief Executive Officer, together with his counsel, is given an opportunity to be heard, finding that in the good faith opinion of the Board, the Chief Executive Officer was guilty of the conduct and specifying the particulars thereof in detail. “ Notice of Termination ” shall mean a notice which shall indicate the specific termination provision relied upon in the Plan and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Chief Executive Officer’s employment.
“ Disability ” means that the Chief Executive Officer is unable, due to physical or mental incapacity, to substantially perform his full time duties and responsibilities for a period of six (6) consecutive months (as determined by a medical doctor selected by the Company and the Chief Executive Officer). If the parties cannot agree on a medical doctor for purposes of such determination, each party shall select a medical doctor and the two doctors shall select a third who shall be the approved doctor for this purpose.
“ Good Reason ” or “ Good Reason Termination ” means, without the Chief Executive Officer's written consent, the voluntary Separation From Service of the Chief Executive Officer due to any of the following events: (a) the failure of the Company to have any successor to all or substantially all of the business and/or assets of the Company expressly assume and agree to perform the Plan in accordance with Section 9.6 of the Plan; (b) following a Change in Control, the relocation of the Chief Executive Officer's principal place of employment to a site outside of the metropolitan area of the Chief Executive Officer's principal place of employment; (c) following a Change in Control, any material adverse change in the Chief Executive Officer's overall responsibilities, duties and authorities from those then in place immediately prior to such Change in Control; and (d) following a Change in Control, the failure by the Company to continue the Chief Executive Officer's participation in a long-term cash or equity award or equity-based grant program (or in a comparable substitute program) on a basis not materially less favorable than that provided to the Chief Executive Officer immediately prior to such Change in Control.
For purposes of any determination regarding the existence of Good Reason following a Change in Control, any good faith claim by the Chief Executive Officer that Good Reason exists shall be presumed to be correct unless the Company establishes by clear and convincing evidence that Good Reason does not exist. In order for the Chief Executive Officer to terminate for Good Reason, (i) the Chief Executive Officer must notify the Board, in writing, within ninety (90) days of the event constituting Good Reason of the Chief Executive Officer's intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that the Chief Executive Officer notifies the Board in writing of the Chief Executive Officer’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.

B.	Separation Payments .	

(1) Termination by Chief Executive Officer for Good Reason or by the Company (Other than due to Death or Disability, or for Cause) . If the Chief Executive Officer Separates From Service on account of an involuntary termination by the Company (other than due to death or Disability or for Cause), or the Chief Executive Officer Separates From Service for Good Reason, the Chief Executive Officer shall be entitled to (a) Annual Compensation through the Termination Date, (b) a Pro Rata Bonus (as defined below), and (c) a severance payment (subject to the Chief Executive Officer having executed (and not revoked) a release in accordance with Section 3.1 of the Plan), consisting of a cash lump sum payment equal to the product of (i) two (2) and (ii) the sum of (A) the Chief Executive Officer’s Annual Compensation, and (B) the Chief Executive Officer's Bonus, payable in equal installments over the Non-Competition Period in accordance with the Company’s payroll practices during such period, with the first payment commencing on the first payroll date next following the sixty-fifth (65th) day following the date of the Termination Date (but with the first payment being a lump sum payment covering all payment periods from the date of termination through the date of such first payment).

(2) Upon Termination due to Disability . If the Chief Executive Officer Separates From Service on account of Disability, and subject to the execution of a release in accordance with Section 3.1 of the Plan, the Chief Executive Officer shall receive the following: (a) disability benefits in accordance with the terms of the long-term disability program then in effect for senior Executive Officers of the Company, (b) Annual Compensation through the Termination Date or, if earlier, the end of the month immediately preceding the month in which such disability benefits commence, and (c) to the extent earned and at the time bonuses are customarily paid to senior Executive Officers in accordance with the terms of the Performance Incentive Plan (or any successor plan), a bonus for the year in which the Separation From Service occurs in an amount equal to the Chief Executive Officer’s annual bonus for such year, multiplied by a fraction, the numerator of which is the number of days during such year that the Chief Executive Officer was employed by the Company and the denominator which is 365 (the “ Pro Rata Bonus ”).

(3) Upon Termination due to Death . If the Chief Executive Officer Separates From Service on account of death, the Chief Executive Officer’s designated beneficiary shall receive (a) Annual Compensation through the Termination Date and (b) the Pro Rata Bonus. If the Chief Executive Officer has not made a valid beneficiary designation at the time of his or her death, such payments will be paid to the Chief Executive Officer’s surviving spouse, or if none, to the Chief Executive Officer’s estate.

C. Continuation of Certain Welfare Benefits.

(1) If the Chief Executive Officer Separates From Service on account of an involuntary termination by the Company (other than due to death or Disability or for Cause), or the Chief Executive Officer Separates From Service for Good Reason, the Chief Executive Officer shall be entitled to participate in the following welfare and other benefits for the twenty-four (24) month period immediately following the Chief Executive Officer’s Termination Date as follows:

(a) Medical/Dental/Vision Benefits . If the Chief Executive Officer elects COBRA Continuation Coverage, he shall continue to participate in all medical, dental and vision insurance plans he was participating in on his Termination Date. If, however, any such plan does not permit his continued participation following the end of the COBRA Continuation Period (as defined below), then the Company will reimburse the Chief Executive Officer for the actual cost to the Chief Executive Officer of any individual health insurance policy obtained by the Chief Executive Officer. To the extent such benefits are available under the above-referenced plans and the Chief Executive Officer had coverage immediately prior to the Separation From Service, such continuation of benefits for the Chief Executive Officer shall also cover the Executive’s dependents for so long as the Chief Executive Officer is receiving benefits under this subsection (a). The provisions of Section 4.2.2 and 4.2.4 of the Plan shall also apply. “COBRA Continuation Period” means the continuation period for medical, dental and vision insurance to be provided under the terms of the Plan and herein which shall commence on the first day of the calendar month following the month in which the Termination Date falls and generally shall continue for an 18-month period.

(b) Outplacement Services . The Chief Executive Officer shall be eligible to receive outplacement services, as set forth in Section 4.3 of the Plan.

(c) Reimbursement Limitations . Reimbursement under subsections (a) and (b) above will be available only to the extent that (i) such expense is actually incurred for any particular calendar year and is reasonably substantiated; (ii) reimbursement shall be made no later than the end of the calendar year following the year in which such expense is incurred by the Chief Executive Officer; and (iii) no reimbursement will be provided for any expense incurred following the twenty-four (24) month anniversary of the Separation From Service or for any expense which relates to insurance coverage after such date.

(d) Offset . Benefits or payments otherwise received under Sections B or C hereof shall be reduced to the extent benefits of the same type are received or made available to the Chief Executive Officer by a subsequent employer during the twenty-four (24) month period following the Termination Date (and any such benefits received or made available to the Chief Executive Officer shall be reported to the Company by the Chief Executive Officer).

D. Change in Control Payments .

If the Chief Executive Officer has a Separation From Service on account of an involuntary termination by the Company (other than for Cause or Disability or due to death), or if the Chief Executive Officer has a Separation From Service for Good Reason, in either case within two (2) years following a Change in Control, then (ii) the severance payments set forth in Section B(1)(c) above shall be paid in a lump sum as soon as practicable following the sixty-fifth (65th) day following the Chief Executive Officer’s Termination Date, provided the Chief Executive Officer has executed (and not revoked) a release in accordance with Section 3.1 of the Plan, (ii) the Chief Executive Officer shall receive the payments set forth in Section B(1) above, except that the two (2) times multiplier shall be increased to three (3) and (iii) the Chief Executive Officer shall receive the benefits set forth in Section C above except the twenty-four (24) month benefit continuation period set forth in Section C(1)(a) and C(1)(c) above shall be increased to thirty-six (36) months.

E. Tax Provision .

(1) Notwithstanding anything in the Plan to the contrary, in the event that it shall be determined that any compensation, payment or benefit (including any accelerated vesting of options or other equity awards) made or provided, or to be made or provided, by the Company (or any successor thereto or affiliate thereof) to or for the benefit of the Chief Executive Officer, whether pursuant to the terms of this Plan, any other agreement, plan, program or arrangement of or with the Company (or any successor thereto or affiliate thereof) or otherwise (a “ Payment ”), will be subject to the excise tax imposed by Section 4999 of the Code or any comparable tax imposed by any replacement or successor provision of United States tax law, then the Company will apply a limitation on the Payment amount as set forth in clause (a) below (a “ Parachute Cap ”), unless the provisions of clause (b) below apply.

(a) If clause (b) does not apply, the aggregate present value of the Payments under this Plan (“ Plan Payments ”) shall be reduced (but not below zero) to the Reduced Amount. The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of Plan Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code or the imposition of any excise tax under Section 4999 of the Code. For purposes of this clause (a), “present value” shall be determined in accordance with Section 280G(d)(4) of the Code. In the event that it is determined that the amount of the Plan Payments will be reduced in accordance with this clause (a), the Plan Payments shall be reduced on a nondiscretionary basis in such a way as to minimize the reduction in the economic value deliverable to the Chief Executive Officer. In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code, and where more than one payment has the same value for this purpose and they are payable at different times, they will be reduced on a pro-rata basis.

(b) It is the intention of the parties that the Parachute Cap apply only if application of the Parachute Cap is beneficial to the Chief Executive Officer. Therefore, if the net amount that would be retained by the Chief Executive Officer under this Agreement without the Parachute Cap, after payment of any excise tax under Section 4999 of the Code or any other applicable taxes by the Chief Executive Officer, exceeds the net amount that would be retained by the Chief Executive Officer with the Parachute Cap, then the Company shall not apply the Parachute Cap to the Chief Executive Officer’s payments.

(2) All determinations to be made under this Section E shall be made by a nationally recognized independent public accounting firm selected by the Company (“ Accounting Firm ”), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Chief Executive Officer within ten days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Chief Executive Officer.

(3) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section E shall be borne solely by the Company.

F.	Miscellaneous .	

(1) The Chief Executive Officer shall not be entitled to any benefits and payments associated with an Involuntary Termination (as defined and provided for in the Plan) and the definition of Ineligible Termination shall not apply.

(2) Section 2.3 of the Plan shall not apply to the Chief Executive Officer.

(3) Section 4.2.1 and Section 4.2.3 of the Plan shall not apply to the Chief Executive Officer.

(4) For the Chief Executive Officer, the Non-Competition Period under Article V of the Plan applies while the Chief Executive Officer is employed with the Company and for a period of twenty-four months after the Termination Date.

(5) The number “365” in Section 5.5(c) of the Plan, in the case of the Chief Executive Officer, shall be replaced with “730” and the reference to “first anniversary” shall be replaced with “second anniversary.”

APPENDIX B
EXECUTIVE BENEFIT SCHEDULE

The Board and/or Administer shall designate and approve from time to time those Eligible Executives, other than the Chief Executive Officer, who shall receive the severance benefits outlined in this Plan and under this Benefit Schedule (collectively, the “Appendix B Executives” and individually, an “Appendix B Executive”).

A. Definitions . The following definitions apply to this Benefit Schedule and override any contrary (or duplicative) terms of the Plan as they relate to the Appendix B Executives. If not otherwise stated in this Benefit Schedule, the terms of the Plan apply.

“ Good Reason ” or “ Good Reason Termination ” means, without an Appendix B Executive’s written consent, the voluntary Separation From Service (other than due to death or Disability, or for Cause) of an Appendix B Executive due to any of the following events following a Change in Control: (a) the relocation of an Appendix B Executive’s principal place of employment to a location that is more than 50 miles from the principal place of employment in effect immediately prior to such Change in Control; (b) a material diminution in the duties or responsibilities of an Appendix B Executive from those in place immediately prior to such Change in Control; (c) a material reduction in the base salary or annual incentive opportunity of an Appendix B Executive from what was in place immediately prior to such Change in Control; and (d) the failure of any successor entity to the Company following a Change in Control to assume the Plan, as in effect immediately prior to such Change in Control.
In order for an Appendix B Executive to terminate for Good Reason, (i) an Appendix B Executive must notify the Board, in writing, within ninety (90) days of the event constituting Good Reason of the Appendix B Executive’s intent to terminate employment for Good Reason, that specifically identifies in reasonable detail the manner of the Good Reason event, (ii) the event must remain uncorrected for thirty (30) days following the date that an Appendix B Executive notifies the Board in writing of the Appendix B Executive’s intent to terminate employment for Good Reason (the “Notice Period”), and (iii) the termination date must occur within sixty (60) days after expiration of the Notice Period.
B. Separation Payments .

If an Appendix B Executive Separates From Service on account of an Involuntary Termination, an Appendix B Executive shall be entitled to (i) Annual Compensation through the Termination Date, (ii) Pro Rata Bonus (as defined below), and (iii) a severance payment (subject to the Appendix B Executive having executed (and not revoked) a release in accordance with Section 3.1 of the Plan), consisting of a cash lump sum payment equal to the product of (A) one (1) and (B) the sum of (1) the Appendix B Executive’s Annual Compensation, and (2) the Appendix B Executive’s Bonus, payable in equal installments over the Non-Competition Period in accordance with the Company’s payroll practices during the such period, with the first payment commencing on the first payroll date next following the sixty-fifth (65th) day following the Termination Date (but with the first payment being a lump sum payment covering all payment periods from the date of termination through the date of such first payment).

The term “Pro Rata Bonus” means, to the extent earned and at the time bonuses are customarily paid to senior executive officers in accordance with the terms of the Performance Incentive Plan (or any successor plan), a bonus for the year in which the Separation From Service occurs equal to the respective Appendix B Executive's annual bonus for such year, multiplied by a fraction, the numerator of which is the number of days during such year that the Appendix B Executive was employed by the Company and the denominator which is 365.
C. Continuation of Certain Welfare Benefits .

(a) If an Appendix B Executive Separates From Service on account of an Involuntary Termination, the Appendix B Executive shall be entitled to participate in the health and welfare benefits described in Section 4.2.1 of the Plan for the twelve (12) month period immediately following an Appendix B Executive’s Termination Date.

(b) An Appendix B Executive shall be eligible to receive outplacement services, as set forth in Section 4.3 of the Plan.

(c) Reimbursement under subsections (a) and (b) above, if applicable, will be available only to the extent that (1) such expense is actually incurred for any particular calendar year and is reasonably substantiated; (2) reimbursement, if applicable, shall be made no later than the end of the calendar year following the year in which such expense is incurred by an Appendix B Executive; and (3) no reimbursement, if applicable, will be provided for any expense incurred following the twelve (12) month anniversary of the Separation From Service or for any expense which relates to insurance coverage after such date.

D. Change in Control Payments .

If an Appendix B Executive has a Separation From Service (i) on account of an Involuntary Termination or (ii) for Good Reason, in either case within two (2) years following a Change in Control, then (a) the severance payments set forth in Section B(iii) above shall be paid in a lump sum as soon as practicable following the sixty-fifth (65th) day following the Appendix B Executive’s Termination Date provided the Appendix B Executive has executed (and not revoked) a release in accordance with Section 3.1 of the Plan), (b) such Appendix B Executive shall receive the payments set forth in Section B above, except that the one (1) times multiplier shall be increased to two (2) and (c) such Appendix B Executive shall receive the benefits set forth in Section C above, except the twelve (12) month benefit continuation period set forth in Section C(a) and C(c) above shall be increased to eighteen (18) months.
E. Tax Provisions .

(a) Notwithstanding anything in the Plan to the contrary, in the event that it shall be determined that any compensation, payment or benefit (including any accelerated vesting of options or other equity awards) made or provided, or to be made or provided, by the Company (or any successor thereto or affiliate thereof) to or for the benefit of an Appendix B Executive, whether pursuant to the terms of this Plan, any other agreement, plan, program or arrangement of or with the Company (or any successor thereto or affiliate thereof) or otherwise (a “ Payment ”), will be subject to the excise tax imposed by Section 4999 of the Code or any comparable tax imposed by any replacement or successor provision of United States tax law, then the Company will apply a limitation on the Payment amount as set forth in clause (i) below (a “ Parachute Cap ”), unless the provisions of clause (ii) below apply.

1. If clause (ii) does not apply, the aggregate present value of the Payments under this Plan (“ Plan Payments ”) shall be reduced (but not below zero) to the Reduced Amount. The “ Reduced Amount ” shall be an amount expressed in present value which maximizes the aggregate present value of Plan Payments without causing any Payment to be subject to the limitation of deduction under Section 280G of the Code or the imposition of any excise tax under Section 4999 of the Code. For purposes of this clause (i), “ present value ” shall be determined in accordance with Section 280G(d)(4) of the Code. In the event that it is determined that the amount of the Plan Payments will be reduced in accordance with this clause (i), the Plan Payments shall be reduced on a nondiscretionary basis in such a way as to minimize the reduction in the economic value deliverable to the Appendix B Executive. In applying this principle, the reduction shall be made in a manner consistent with the requirements of Section 409A of the Code, and where more than one payment has the same value for this purpose and they are payable at different times, they will be reduced on a pro-rata basis.

2. It is the intention of the parties that the Parachute Cap apply only if application of the Parachute Cap is beneficial to an Appendix B Executive. Therefore, if the net amount that would be retained by an Appendix B Executive under this Agreement without the Parachute Cap, after payment of any excise tax under Section 4999 of the Code or any other applicable taxes by an Appendix B Executive, exceeds the net amount that would be retained by an Appendix B Executive with the Parachute Cap, then the Company shall not apply the Parachute Cap to the Appendix B Executive’s payments.

(b) All determinations to be made under this Section E shall be made by a nationally recognized independent public accounting firm selected by the Company (“ Accounting Firm ”), which Accounting Firm shall provide its determinations and any supporting calculations to the Company and the Appendix B Executive within ten days of the Termination Date. Any such determination by the Accounting Firm shall be binding upon the Company and the Appendix B Executive.

(c) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section E shall be borne solely by the Company.

Exhibit A

THE AES CORPORATION
AMENDED AND RESTATED EXECUTIVE SEVERANCE PLAN

Executive Acknowledgment and Agreement

I hereby agree to the terms and conditions of The AES Corporation Amended and Restated Executive Severance Plan, as in effect on the date set forth below and as may be further amended from time to time ("Plan"), including but not limited to the post-termination restrictive covenants described in Article V of the Plan. I understand that pursuant to my agreement to be covered under the Plan, as indicated by my signature below, the terms of the Plan will exclusively govern all subject matter addressed by the Plan and I understand that the Plan supersedes and replaces, as applicable, any and all agreements, plans, policies, guidelines or other arrangements with respect to the subject matter covered under the Plan.

Dated:        ____________________

EXECUTIVE

_____________________________
Name:

THE AES CORPORATION
AMENDED AND RESTATED EXECUTIVE SEVERANCE PLAN
List of Participating Employers

[The Administrator maintains a list of Participating Employers]

1

Exhibit 31.1
CERTIFICATIONS
I, Andrés Gluski, certify that:
		
1.	I have reviewed this Quarterly Report on Form 10-Q of The AES Corporation;	
		
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
		
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
		
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
		
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
		
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
		
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
		
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.	
		
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
		
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
		
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Date: November 5, 2018

	
	
/ s / A NDRÉS  G LUSKI	
Name: Andrés Gluski	
President and Chief Executive Officer	

Exhibit 31.2
CERTIFICATIONS
I, Thomas M. O’Flynn, certify that:
		
1.	I have reviewed this Quarterly Report on Form 10-Q of The AES Corporation;	
		
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
		
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
		
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
		
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
		
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
		
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
		
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.	
		
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
		
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
		
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Date: November 5, 2018

	
	
/s/ T HOMAS  M. O’F LYNN	
Name: Thomas M. O’Flynn	
Executive Vice President and Chief Financial Officer	

Exhibit 32.1
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
I, Andrés Gluski, President and Chief Executive Officer of The AES Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 , (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and	

(2)	information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of The AES Corporation.	
Date: November 5, 2018

	
	
/ S / A NDRÉS  G LUSKI	
Name: Andrés Gluski	
President and Chief Executive Officer	

Exhibit 32.2
CERTIFICATION OF PERIODIC FINANCIAL REPORTS
I, Thomas M. O’Flynn, Executive Vice President and Chief Financial Officer of The AES Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
		
(1)	the Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 , (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and	
		
(2)	information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of The AES Corporation.	
Date: November 5, 2018

	
	
/s/ T HOMAS  M. O’F LYNN	
Name: Thomas M. O’Flynn	
Executive Vice President and Chief Financial Officer