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 June 30, 2017
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12291
AESLOGOMINIA02A01A01A02A03.JPG
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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  ¨
 
(Do not check if a smaller reporting company)
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 July 31, 2017 was 660,256,748 .
 




THE AES CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017
TABLE OF CONTENTS
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
 
 
 
 
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.
 
 




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
AOCL
Accumulated Other Comprehensive Loss
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BNDES
Brazilian Development Bank
CAA
United States Clean Air Act
CAMMESA
Wholesale Electric Market Administrator in Argentina
CCGT
Combined Cycle Gas Turbine
CCR
Coal Combustion Residuals
CDPQ
La Caisse de depot et placement du Quebec
CHP
Combined Heat and Power
COFINS
Contribuição para o Financiamento da Seguridade Social
DP&L
The Dayton Power & Light Company
DPL
DPL Inc.
DPLER
DPL Energy Resources, Inc.
DPP
Dominican Power Partners, LDC
EPA
United States Environmental Protection Agency
EPC
Engineering, Procurement and Construction
EURIBOR
Euro Interbank Offered Rate
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FX
Foreign Exchange
GAAP
Generally Accepted Accounting Principles in the United States
GHG
Greenhouse Gas
IPALCO
IPALCO Enterprises, Inc.
IPL
Indianapolis Power & Light Company
kWh
Kilowatt Hours
LIBOR
London Interbank Offered Rate
LNG
Liquid Natural Gas
MATS
Mercury and Air Toxics Standards
MMI
Mini Maritsa Iztok (state-owned electricity public supplier in Bulgaria)
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
NPDES
National Pollutant Discharge Elimination System
PIS
Partially Integrated System
PJM
PJM Interconnection, LLC
PPA
Power Purchase Agreement
PREPA
Puerto Rico Electric Power Authority
RSU
Restricted Stock Unit
SBU
Strategic Business Unit
SEC
United States Securities and Exchange Commission
SO 2
Sulfur Dioxide
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)
 
June 30, 2017
 
December 31, 2016
 
(in millions, except share and per share data)
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
1,213

 
$
1,305

Restricted cash
313

 
278

Short-term investments
740

 
798

Accounts receivable, net of allowance for doubtful accounts of $112 and $111, respectively
2,173

 
2,166

Inventory
633

 
630

Prepaid expenses
83

 
83

Other current assets
1,061

 
1,151

Current assets of held-for-sale businesses
102

 
—

Total current assets
6,318

 
6,411

NONCURRENT ASSETS
 
 
 
Property, Plant and Equipment:
 
 
 
Land
776

 
779

Electric generation, distribution assets and other
28,697

 
28,539

Accumulated depreciation
(9,841
)
 
(9,528
)
Construction in progress
3,560

 
3,057

Property, plant and equipment, net
23,192

 
22,847

Other Assets:
 
 
 
Investments in and advances to affiliates
683

 
621

Debt service reserves and other deposits
578

 
593

Goodwill
1,157

 
1,157

Other intangible assets, net of accumulated amortization of $543 and $519, respectively
397

 
359

Deferred income taxes
757

 
781

Service concession assets, net of accumulated amortization of $159 and $114, respectivel y
1,404

 
1,445

Other noncurrent assets
1,983

 
1,905

Total other assets
6,959

 
6,861

TOTAL ASSETS
$
36,469

 
$
36,119

LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
1,684

 
$
1,656

Accrued interest
225

 
247

Accrued and other liabilities
1,893

 
2,066

Non-recourse debt, includes $454 and $273, respectively, related to variable interest entities
2,572

 
1,303

Current liabilities of held-for-sale businesses
37

 
—

Total current liabilities
6,411

 
5,272

NONCURRENT LIABILITIES
 
 
 
Recourse debt
4,380

 
4,671

Non-recourse debt, includes $1,292 and $1,502, respectively, related to variable interest entities
13,815

 
14,489

Deferred income taxes
746

 
804

Pension and other postretirement liabilities
1,347

 
1,396

Other noncurrent liabilities
2,905

 
3,005

Total noncurrent liabilities
23,193

 
24,365

Commitments and Contingencies (see Note 8)

 

Redeemable stock of subsidiaries
791

 
782

EQUITY
 
 
 
THE AES CORPORATION STOCKHOLDERS’ EQUITY
 
 
 
Common stock ($0.01 par value, 1,200,000,000 shares authorized; 816,126,361 issued and 660,191,726 outstanding at June 30, 2017 and 816,061,123 issued and 659,182,232 outstanding at December 31, 2016)
8

 
8

Additional paid-in capital
8,732

 
8,592

Accumulated deficit
(1,086
)
 
(1,146
)
Accumulated other comprehensive loss
(2,741
)
 
(2,756
)
Treasury stock, at cost (155,934,635 and 156,878,891 shares at June 30, 2017 and December 31, 2016, respectively)
(1,892
)
 
(1,904
)
Total AES Corporation stockholders’ equity
3,021

 
2,794

NONCONTROLLING INTERESTS
3,053

 
2,906

Total equity
6,074

 
5,700

TOTAL LIABILITIES AND EQUITY
$
36,469

 
$
36,119

See Notes to Condensed Consolidated Financial Statements.

2



THE AES CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions, except per share data)
Revenue:
 
 
 
 
 
 
 
Regulated
$
1,637

 
$
1,565

 
$
3,364

 
$
3,141

Non-Regulated
1,833

 
1,664

 
3,598

 
3,359

Total revenue
3,470

 
3,229

 
6,962

 
6,500

Cost of Sales:
 
 
 
 
 
 
 
Regulated
(1,488
)
 
(1,431
)
 
(3,066
)
 
(2,898
)
Non-Regulated
(1,312
)
 
(1,224
)
 
(2,633
)
 
(2,519
)
Total cost of sales
(2,800
)
 
(2,655
)
 
(5,699
)
 
(5,417
)
Operating margin
670

 
574

 
1,263

 
1,083

General and administrative expenses
(49
)
 
(47
)
 
(103
)
 
(95
)
Interest expense
(333
)
 
(390
)
 
(681
)
 
(732
)
Interest income
93

 
138

 
190

 
255

Gain (loss) on extinguishment of debt
(12
)
 
—

 
5

 
4

Other expense
(18
)
 
(21
)
 
(48
)
 
(29
)
Other income
15

 
12

 
87

 
25

Gain (loss) on disposal and sale of businesses
(48
)
 
(17
)
 
(48
)
 
30

Asset impairment expense
(90
)
 
(235
)
 
(258
)
 
(394
)
Foreign currency transaction gains (losses)
12

 
(36
)
 
(8
)
 
4

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND EQUITY IN EARNINGS OF AFFILIATES
240

 
(22
)
 
399

 
151

Income tax benefit (expense)
(92
)
 
7

 
(160
)
 
(90
)
Net equity in earnings of affiliates
2

 
7

 
9

 
14

INCOME (LOSS) FROM CONTINUING OPERATIONS
150

 
(8
)
 
248

 
75

Income (loss) from operations of discontinued businesses, net of income tax (expense) benefit of $0, $(1), $0 and $3, respectively
—

 
3

 
—

 
(6
)
Net loss from disposal and impairments of discontinued businesses, net of income tax benefit of $0, $401, $0 and $401, respectively
—

 
(382
)
 
—

 
(382
)
NET INCOME (LOSS)
150

 
(387
)
 
248

 
(313
)
Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries
(97
)
 
(95
)
 
(219
)
 
(43
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
53

 
$
(482
)
 
$
29

 
$
(356
)
AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
53

 
$
(103
)
 
$
29

 
$
32

Loss from discontinued operations, net of tax
—

 
(379
)
 
—

 
(388
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
53

 
$
(482
)
 
$
29

 
$
(356
)
BASIC EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.08

 
$
(0.16
)
 
$
0.04

 
$
0.05

Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax
—

 
(0.57
)
 
—

 
(0.59
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.08

 
$
(0.73
)
 
$
0.04

 
$
(0.54
)
DILUTED EARNINGS PER SHARE:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to The AES Corporation common stockholders, net of tax
$
0.08

 
$
(0.16
)
 
$
0.04

 
$
0.05

Loss from discontinued operations attributable to The AES Corporation common stockholders, net of tax
—

 
(0.57
)
 
—

 
(0.59
)
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS
$
0.08

 
$
(0.73
)
 
$
0.04

 
$
(0.54
)
DILUTED SHARES OUTSTANDING
662

 
659

 
662

 
662

DIVIDENDS DECLARED PER COMMON SHARE
$
—

 
$
—

 
$
0.12

 
$
0.11

See Notes to Condensed Consolidated Financial Statements.

3



THE AES CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(in millions)
NET INCOME (LOSS)
$
150

 
$
(387
)
 
$
248

 
$
(313
)
Foreign currency translation activity:
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of income tax benefit (expense) of $0, $1, $(1) and $1, respectively
(119
)
 
120

 
(51
)
 
248

Reclassification to earnings, net of $0 income tax for all the periods
95

 
—

 
98

 
—

Total foreign currency translation adjustments
(24
)
 
120

 
47

 
248

Derivative activity:
 
 
 
 
 
 
 
Change in derivative fair value, net of income tax benefit of $13, $25, $21 and $46, respectively
(42
)
 
(93
)
 
(47
)
 
(157
)
Reclassification to earnings, net of income tax expense of $10, $4, $11 and $1, respectively
29

 
3

 
49

 
2

Total change in fair value of derivatives
(13
)
 
(90
)
 
2

 
(155
)
Pension activity:
 
 
 
 
 
 
 
Reclassification to earnings due to amortization of net actuarial loss, net of income tax expense of $3, $1, $6 and $2, respectively
7

 
4

 
13

 
7

Total pension adjustments
7

 
4

 
13

 
7

OTHER COMPREHENSIVE INCOME (LOSS)
(30
)
 
34

 
62

 
100

COMPREHENSIVE INCOME (LOSS)
120

 
(353
)
 
310

 
(213
)
Less: Comprehensive loss attributable to noncontrolling interests
(91
)
 
(90
)
 
(233
)
 
(28
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
29

 
$
(443
)
 
$
77

 
$
(241
)
See Notes to Condensed Consolidated Financial Statements.

4



THE AES CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended June 30,
 
2017
 
2016
 
 
 
 
 
(in millions)
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
248

 
$
(313
)
Adjustments to net income:
 
 
 
Depreciation and amortization
581

 
586

Loss (gain) on sales and disposals of businesses
48

 
(30
)
Impairment expenses
258

 
396

Deferred income taxes
(18
)
 
(443
)
Provisions for contingencies
23

 
21

Gain on extinguishment of debt
(5
)
 
(4
)
Loss on sales of assets
19

 
14

Impairments of discontinued operations
—

 
783

Other
94

 
79

Changes in operating assets and liabilities
 
 
 
(Increase) decrease in accounts receivable
(120
)
 
366

(Increase) decrease in inventory
(43
)
 
12

(Increase) decrease in prepaid expenses and other current assets
156

 
473

(Increase) decrease in other assets
(155
)
 
(172
)
Increase (decrease) in accounts payable and other current liabilities
(134
)
 
(557
)
Increase (decrease) in income tax payables, net and other tax payables
(61
)
 
(255
)
Increase (decrease) in other liabilities
63

 
407

Net cash provided by operating activities
954

 
1,363

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(1,123
)
 
(1,255
)
Acquisitions, net of cash acquired
(2
)
 
(11
)
Proceeds from the sale of businesses, net of cash sold, and equity method investments
33

 
156

Sale of short-term investments
1,930

 
2,762

Purchase of short-term investments
(1,876
)
 
(2,806
)
Increase in restricted cash, debt service reserves and other assets
(12
)
 
(142
)
Other investing
(58
)
 
(30
)
Net cash used in investing activities
(1,108
)
 
(1,326
)
FINANCING ACTIVITIES:
 
 
 
Borrowings under the revolving credit facilities
538

 
664

Repayments under the revolving credit facilities
(524
)
 
(681
)
Issuance of recourse debt
525

 
500

Repayments of recourse debt
(860
)
 
(611
)
Issuance of non-recourse debt
1,832

 
1,534

Repayments of non-recourse debt
(982
)
 
(1,054
)
Payments for financing fees
(80
)
 
(55
)
Distributions to noncontrolling interests
(184
)
 
(236
)
Contributions from noncontrolling interests and redeemable security holders
44

 
94

Proceeds from the sale of redeemable stock of subsidiaries
—

 
134

Dividends paid on AES common stock
(158
)
 
(145
)
Payments for financed capital expenditures
(61
)
 
(87
)
Purchase of treasury stock
—

 
(79
)
Other financing
(26
)
 
(21
)
Net cash provided by (used in) financing activities
64

 
(43
)
Effect of exchange rate changes on cash
6

 
8

(Increase) decrease in cash of discontinued operations and held-for-sale businesses
(8
)
 
6

Total increase (decrease) in cash and cash equivalents
(92
)
 
8

Cash and cash equivalents, beginning
1,305

 
1,257

Cash and cash equivalents, ending
$
1,213

 
$
1,265

SUPPLEMENTAL DISCLOSURES:
 
 
 
Cash payments for interest, net of amounts capitalized
$
612

 
$
615

Cash payments for income taxes, net of refunds
$
218

 
$
347

SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Assets acquired through capital lease and other liabilities
$
—

 
$
5

Reclassification of Alto Maipo loans and accounts payable into equity (see Note 11— Equity )
$
279

 
$
—


See Notes to Condensed Consolidated Financial Statements.

5



THE AES CORPORATION
Notes to Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2017 and 2016
1 . FINANCIAL STATEMENT PRESENTATION
Consolidation — In this Quarterly Report the terms “AES,” “the Company,” “us” or “we” refer to the consolidated entity, including its subsidiaries and affiliates. The terms “The AES Corporation” or “the Parent Company” refer only to the publicly held holding company, The AES Corporation, excluding its subsidiaries and affiliates. Furthermore, VIEs in which the Company has a variable interest have been consolidated where the Company is the primary beneficiary. Investments in which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.
Interim Financial Presentation — The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income and cash flows. The results of operations for the three and six months ended June 30, 2017 , are not necessarily indicative of results that may be expected for the year ending December 31, 2017 . The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2016 audited consolidated financial statements and notes thereto, which are included in the 2016 Form 10-K filed with the SEC on February 27, 2017 (the “ 2016 Form 10-K”).
New Accounting Pronouncements — The following table provides a brief description of recent accounting pronouncements that had and/or could have a material impact on the Company’s consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on the Company’s consolidated financial statements.
New Accounting Standards Adopted
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
The standard simplifies the following aspects of accounting for share-based payments awards: accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes.
Transition method: The recognition of excess tax benefits and tax deficiencies arising from vesting or settlement were applied retrospectively. The elimination of the requirement that excess tax benefits be realized before they are recognized was adopted on a modified retrospective basis.
January 1, 2017
The recognition of excess tax benefits in the provision for income taxes in the period when the awards vest or are settled, rather than in paid-in-capital in the period when the excess tax benefits are realized, resulted in a decrease of $31 million to deferred tax liabilities, offset by an increase to retained earnings. 

6



New Accounting Standards Issued But Not Yet Effective
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
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 analysis 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 of 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.
2017-07, 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 cost expense 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 expense. Prospective for the change in capitalization.
January 1, 2018. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements and does not plan to early adopt.
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 as of January 1, 2017.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business
This standard provides guidance to assist entities with evaluating when a set of transferred assets and activities is a business.
Transition method: prospective.
January 1, 2018. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
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. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory
This standard requires that an entity recognizes the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.
Transition method: modified retrospective.
January 1, 2018. 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 to an expected loss model rather than an incurred loss model. It also allows for the presentation of credit losses on available-for-sale debt securities as an allowance rather than a write down.
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, Leases (Topic 842)
The standard creates Topic 842, Leases, which supersedes Topic 840, Leases. It introduces a lessee model that brings substantially all leases onto the balance sheet while retaining most of the principles of the existing lessor model in U.S. GAAP and aligning many of those principles with ASC 606, Revenue from Contracts with Customers.
Transition method: modified retrospective approach with certain practical expedients.
January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements. The Company intends to adopt the standard as of January 1, 2019.
2014-09, 2015-14, 2016-08, 2016-10, 2016-12, 2016-20, 2017-05, Revenue from Contracts with Customers (Topic 606)
See discussion of the ASU below.
January 1, 2018. Earlier application is permitted only as of January 1, 2017.
The Company will adopt the standard on January 1, 2018; see below for the evaluation of the impact of its adoption on the consolidated financial statements.
ASU 2014-09 and its subsequent corresponding updates provide the principles an entity must apply to measure and recognize revenue. The core principle is that 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. Amendments to the standard were issued that provide further

7



clarification of the principle and to provide certain transition expedients. The standard will replace most existing revenue recognition guidance in GAAP, including the guidance on recognizing other income upon the sale or transfer of non-financial assets (including in-substance real estate).
The standard requires retrospective application and allows either a full retrospective adoption in which all of the periods are presented under the new standard or a modified retrospective approach in which the cumulative effect of initially applying the guidance is recognized at the date of initial application. We are currently working toward adopting the standard using the full retrospective method. However, the Company will continue to assess this conclusion which is dependent on the final impact to the financial statements.
In 2016, the Company established a cross-functional implementation team and is in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard. At this time, we do not expect any significant impact on our financial systems or a material change to controls as a result of the implementation of the new revenue recognition standard.
Given the complexity and diversity of our non-regulated arrangements, the Company is assessing the standard on a contract-by-contract basis and is in the process of completing the contract assessments by applying interpretations reached during 2017 on key issues. These issues include the application of the practical expedient for measuring progress towards satisfaction of a performance obligation, when variable quantities would be considered variable consideration versus an option to acquire additional goods and services and how to allocate variable consideration to one or more, but not all, distinct goods or services promised in a series of distinct goods or services that forms part of a single performance obligation. Additionally, the Company is working on the application of the standard to contracts that are under the scope of Service Concession Arrangements (Topic 853) and assessing the gross versus net presentation for spot energy sale and purchases. Through this assessment, the Company to date has identified limited situations where revenue recognized under ASC 606 could differ from that recognized under ASC 605. The Company will continue its work to complete the assessment of the full population of contracts and determine the overall impact to the consolidated financial statements. We are continuing to work with various non-authoritative industry groups, and monitoring the FASB and Transition Resource Group activity, as we finalize our accounting policy on these and other industry specific interpretative issues which is expected in 2017.
2 . INVENTORY
The following table summarizes the Company’s inventory balances as of the periods indicated (in millions):
 
June 30, 2017
 
December 31, 2016
Fuel and other raw materials
$
330

 
$
302

Spare parts and supplies
303

 
328

Total
$
633

 
$
630

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. The Company made no changes during the period to the fair valuation techniques described in Note 4— Fair Value in Item 8.— Financial Statements and Supplementary Data of its 2016 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 and equity 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:

8



 
June 30, 2017
 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVAILABLE FOR SALE:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured debentures
$
—

 
$
271

 
$
—

 
$
271

 
$
—

 
$
360

 
$
—

 
$
360

Certificates of deposit
—

 
407

 
—

 
407

 
—

 
372

 
—

 
372

Government debt securities
—

 
—

 
—

 
—

 
—

 
9

 
—

 
9

Subtotal
—

 
678

 
—

 
678

 
—

 
741

 
—

 
741

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
—

 
51

 
—

 
51

 
—

 
49

 
—

 
49

Subtotal
—

 
51

 
—

 
51

 
—

 
49

 
—

 
49

Total available for sale
—

 
729

 
—

 
729

 
—

 
790

 
—

 
790

TRADING:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
19

 
—

 
—

 
19

 
16

 
—

 
—

 
16

Total trading
19

 
—

 
—

 
19

 
16

 
—

 
—

 
16

DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
—

 
13

 
—

 
13

 
—

 
18

 
—

 
18

Cross-currency derivatives
—

 
5

 
—

 
5

 
—

 
4

 
—

 
4

Foreign currency derivatives
—

 
31

 
239

 
270

 
—

 
54

 
255

 
309

Commodity derivatives
—

 
42

 
11

 
53

 
—

 
38

 
7

 
45

Total derivatives — assets
—

 
91

 
250

 
341

 
—

 
114

 
262

 
376

TOTAL ASSETS
$
19

 
$
820

 
$
250

 
$
1,089

 
$
16

 
$
904

 
$
262

 
$
1,182

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DERIVATIVES:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
—

 
$
106

 
$
195

 
$
301

 
$
—

 
$
121

 
$
179

 
$
300

Cross-currency derivatives
—

 
14

 
—

 
14

 
—

 
18

 
—

 
18

Foreign currency derivatives
—

 
29

 
—

 
29

 
—

 
64

 
—

 
64

Commodity derivatives
—

 
17

 
2

 
19

 
—

 
40

 
2

 
42

Total derivatives — liabilities
—

 
166

 
197

 
363

 
—

 
243

 
181

 
424

TOTAL LIABILITIES
$
—

 
$
166

 
$
197

 
$
363

 
$
—

 
$
243

 
$
181

 
$
424

As of June 30, 2017 , all AFS debt securities had stated maturities within one year. For the three and six months ended June 30, 2017 and 2016 , no other-than-temporary impairments of marketable securities were recognized in earnings or Other Comprehensive Income (Loss) . 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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Gross proceeds from sale of AFS securities
$
1,041

 
$
1,044

 
$
1,962

 
$
2,404

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 six months ended June 30, 2017 and 2016 (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 June 30, 2017
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at April 1
$
(183
)
 
$
231

 
$
2

 
$
50

Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings
—

 
16

 
(1
)
 
15

Included in other comprehensive income — derivative activity
(17
)
 
—

 
—

 
(17
)
Included in regulatory (assets) liabilities
—

 
—

 
10

 
10

Settlements
9

 
(8
)
 
(2
)
 
(1
)
Transfers of liabilities into Level 3
(4
)
 
—

 
—

 
(4
)
Balance at June 30
$
(195
)
 
$
239

 
$
9

 
$
53

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
$
—

 
$
8

 
$
—

 
$
8


9



Three Months Ended June 30, 2016
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at April 1
$
(416
)
 
$
290

 
$
—

 
$
(126
)
Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings
—

 
(31
)
 
2

 
(29
)
Included in other comprehensive income — derivative activity
(80
)
 
—

 
—

 
(80
)
Included in other comprehensive income — foreign currency translation activity
1

 
(4
)
 
—

 
(3
)
Included in regulatory (assets) liabilities
—

 
—

 
11

 
11

Settlements
21

 
(3
)
 
(2
)
 
16

Transfers of liabilities into Level 3
(17
)
 
—

 
—

 
(17
)
Transfers of liabilities out of Level 3
70

 
19

 
—

 
89

Balance at June 30
$
(421
)
 
$
271

 
$
11

 
$
(139
)
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

 
$
(28
)
 
$
2

 
$
(25
)
Six Months Ended June 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
—

 
—

 
(1
)
 
(1
)
Included in other comprehensive income — derivative activity
(28
)
 
—

 
—

 
(28
)
Included in regulatory (assets) liabilities
—

 
—

 
10

 
10

Settlements
19

 
(16
)
 
(5
)
 
(2
)
Transfers of liabilities into Level 3
(7
)
 
—

 
—

 
(7
)
Balance at June 30
$
(195
)
 
$
239

 
$
9

 
$
53

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
$
2

 
$
(16
)
 
$
—

 
$
(14
)
Six Months Ended June 30, 2016
Interest Rate
 
Foreign Currency
 
Commodity
 
Total
Balance at January 1
$
(304
)
 
$
277

 
$
3

 
$
(24
)
Total realized and unrealized gains (losses):
 
 
 
 
 
 
 
Included in earnings
2

 
16

 
2

 
20

Included in other comprehensive income — derivative activity
(174
)
 
5

 
—

 
(169
)
Included in other comprehensive income — foreign currency translation activity
(1
)
 
(38
)
 
—

 
(39
)
Included in regulatory (assets) liabilities
—

 
—

 
11

 
11

Settlements
37

 
(5
)
 
(5
)
 
27

Transfers of liabilities into Level 3
(51
)
 
—

 
—

 
(51
)
Transfers of assets out of Level 3
70

 
16

 
—

 
86

Balance at June 30
$
(421
)
 
$
271

 
$
11

 
$
(139
)
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
$
5

 
$
17

 
$
2

 
$
24

The following table summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of June 30, 2017 (in millions, except range amounts):
Type of Derivative
 
Fair Value
 
Unobservable Input
 
Amount or Range (Weighted Average)
Interest rate
 
$
(195
)
 
Subsidiaries’ credit spreads
 
2.4% to 5.1% (4.8%)
Foreign currency:
 
 
 
 
 
 
Argentine Peso
 
239

 
Argentine Peso to USD currency exchange rate after one year (1)
 
19.7 to 43.1 (30.9)
Commodity:
 
 
 
 
 
 
Other
 
9

 
 
 
 
Total
 
$
53

 
 
 
 
 _____________________________
(1)  
During the three months ended June 30, 2017, the Company began utilizing the interest rate differential approach to construct the remaining portion of the forward curve after one year (beyond the traded points). In previous periods, the Company used the purchasing price parity approach to construct the forward curve.
Changes in the above significant unobservable inputs that lead to a significant and unusual impact to current period earnings are disclosed to the Financial Audit Committee. 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
When evaluating impairment of long-lived assets and equity method investments, 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 and liabilities measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):

10



Six Months Ended June 30, 2017
Measurement Date
 
Carrying Amount (1)
 
Fair Value
 
Pretax Loss
Assets
 
Level 1
 
Level 2
 
Level 3
 
Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
 
 
DPL
02/28/2017
 
$
77

 
$
—

 
$
—

 
$
11

 
$
66

Tait Energy Storage
02/28/2017
 
15

 
—

 
—

 
7

 
8

Dispositions and held-for-sale businesses: (3)
 
 
 
 
 
 
 
 
 
 
 
Kazakhstan Hydroelectric
06/30/2017
 
190

 
—

 
92

 
—

 
90

Kazakhstan CHPs
03/31/2017
 
171

 
—

 
29

 
—

 
94

Six Months Ended June 30, 2016
Measurement Date
 
Carrying Amount   (1)
 
Fair Value
 
Pretax Loss
Assets
 
Level 1
 
Level 2
 
Level 3
 
Long-lived assets held and used: (2)
 
 
 
 
 
 
 
 
 
 
 
DPL
06/30/2016
 
$
324

 
$
—

 
$
—

 
$
89

 
$
235

Buffalo Gap II
03/31/2016
 
251

 
—

 
—

 
92

 
159

Discontinued operations and held-for-sale businesses: (3)
 
 
 
 
 
 
 
 
 
 
 
Sul
06/30/2016
 
1,581

 
—

 
470

 
—

 
783

_____________________________
(1)  
Represents the carrying values at the dates of 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 16 —Held-for-Sale Businesses and Dispositions for further information.
The following table summarizes the significant unobservable inputs used in the Level 3 measurement on a nonrecurring basis during the six months ended June 30, 2017 (in millions, except range amounts):
 
Fair Value
 
Valuation Technique
 
Unobservable Input
 
Range (Weighted Average)
Long-lived assets held and used:
 
 
 
 
 
 
 
DPL
$
11

 
Discounted cash flow
 
Pretax operating margin (through remaining life)
 
10% to 22% (15%)
 
 
 
 
 
Weighted average cost of capital
 
7%
Tait Energy Storage
7

 
Discounted cash flow
 
Annual pretax operating margin
 
46% to 85% (80%)
 
 
 
 
 
Weighted average cost of capital
 
9%
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 June 30, 2017 and December 31, 2016 , but for which fair value is disclosed:
 
 
June 30, 2017
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
244

 
$
312

 
$
—

 
$
19

 
$
293

Liabilities:
Non-recourse debt
16,387

 
16,905

 
—

 
14,942

 
1,963

 
Recourse debt
4,384

 
4,687

 
—

 
4,687

 
—

 
 
December 31, 2016
 
 
Carrying
Amount
 
Fair Value
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
Accounts receivable — noncurrent (1)
$
264

 
$
350

 
$
—

 
$
20

 
$
330

Liabilities:
Non-recourse debt
15,792

 
16,188

 
—

 
15,120

 
1,068

 
Recourse debt
4,671

 
4,899

 
—

 
4,899

 
—

_____________________________
(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 $35 million and $24 million as of June 30, 2017 and December 31, 2016 , respectively.
4 . DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
There are no changes to the information disclosed in Note 1— General and Summary of Significant Accounting Policies — Derivatives and Hedging Activities of Item 8.— Financial Statements and Supplementary Data in the 2016 Form 10-K.

11



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 June 30, 2017 , 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)
 
$
4,168

 
2035
Cross-Currency Swaps (Chilean Unidad de Fomento and Chilean Peso)
 
379

 
2029
Foreign Currency:
 
 
 
 
Argentine Peso
 
155

 
2026
Colombian Peso
 
239

 
2019
Euro
 
192

 
2019
Others, primarily with weighted average remaining maturities of a year or less
 
290

 
2019
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 June 30, 2017 and December 31, 2016 (in millions):
Fair Value
June 30, 2017
 
December 31, 2016
Assets
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
Interest rate derivatives
$
13

 
$
—

 
$
13

 
$
18

 
$
—

 
$
18

Cross-currency derivatives
5

 
—

 
5

 
4

 
—

 
4

Foreign currency derivatives
—

 
270

 
270

 
9

 
300

 
309

Commodity derivatives
10

 
43

 
53

 
20

 
25

 
45

Total assets
$
28

 
$
313

 
$
341

 
$
51

 
$
325

 
$
376

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
157

 
$
144

 
$
301

 
$
295

 
$
5

 
$
300

Cross-currency derivatives
14

 
—

 
14

 
18

 
—

 
18

Foreign currency derivatives
—

 
29

 
29

 
19

 
45

 
64

Commodity derivatives
5

 
14

 
19

 
26

 
16

 
42

Total liabilities
$
176

 
$
187

 
$
363

 
$
358

 
$
66

 
$
424

 
June 30, 2017
 
December 31, 2016
Fair Value
Assets
 
Liabilities
 
Assets
 
Liabilities
Current
$
94

 
$
223

 
$
99

 
$
155

Noncurrent
247

 
140

 
277

 
269

Total
$
341

 
$
363

 
$
376

 
$
424

 
 
 
 
 
 
 
 
Credit Risk-Related Contingent Features (1)
 
 
 
 
June 30, 2017
 
December 31, 2016
Present value of liabilities subject to collateralization
 
$
20

 
$
41

Cash collateral held by third parties or in escrow
 
10

 
18

 _____________________________
(1)  
Based on the credit rating of certain subsidiaries
Earnings and Other Comprehensive Income (Loss) — The next table presents (in millions) the pretax gains (losses) recognized in AOCL and earnings related to all derivative instruments for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2017
 
2016
 
2017
 
2016
Effective portion of cash flow hedges
 
 
 
 
 
 
 
Gains (losses) recognized in AOCL
 
 
 
 
 
 
 
Interest rate derivatives
$
(51
)
 
$
(90
)
 
$
(73
)
 
$
(220
)
Cross-currency derivatives
(10
)
 
(11
)
 
2

 
(3
)
Foreign currency derivatives
4

 
(5
)
 
(11
)
 
(5
)
Commodity derivatives
2

 
(12
)
 
14

 
25

Total
$
(55
)
 
$
(118
)
 
$
(68
)
 
$
(203
)
Gains (losses) reclassified from AOCL into earnings
 
 
 
 
 
 
 
Interest rate derivatives
$
(20
)
 
$
(26
)
 
$
(44
)
 
$
(55
)
Cross-currency derivatives
—

 
1

 
4

 
10

Foreign currency derivatives
(21
)
 
2

 
(23
)
 
4

Commodity derivatives
2

 
16

 
3

 
38

Total
$
(39
)
 
$
(7
)
 
$
(60
)

$
(3
)
Gains (losses) recognized in earnings related to
 
 
 
 
 
 
 
Ineffective portion of cash flow hedges
$
—

 
$
—

 
$
—

 
$
2

Not designated as hedging instruments:
 
 
 
 
 
 
 
Foreign currency derivatives
$
14

 
$
(24
)
 
$
(18
)
 
$
15

Commodity derivatives and other
8

 
(9
)
 
6

 
(17
)
Total
$
22

 
$
(33
)
 
$
(12
)
 
$
(2
)
Pretax gains (losses) reclassified to earnings as a result of discontinuance of cash flow hedge because it was probable that the forecasted transaction would not occur
$
(19
)
 
$
—

 
$
(16
)
 
$
—


12



The AOCL expected to decrease pretax income from continuing operations, primarily due to interest rate derivatives, for the twelve months ended June 30, 2018 , is $63 million .
5 . FINANCING RECEIVABLES
Financing receivables are defined as receivables with contractual maturities of greater than one year. The Company’s financing receivables are primarily related to amended agreements or government resolutions that are 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):
 
June 30, 2017
 
December 31, 2016
Argentina
$
241

 
$
236

United States
19

 
20

Brazil
8

 
8

Other
11

 
—

Total
$
279

 
$
264

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. The increase in Argentina financing receivables was primarily due to increased VAT invoiced by CAMMESA as well as foreign currency movements.
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):
 
Six Months Ended June 30,
50%-or-less-Owned Affiliates
2017
 
2016
Revenue
$
341

 
$
286

Operating margin
65

 
69

Net income
23

 
30

7 . DEBT
Recourse Debt
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 June 30, 2017 , that is included in the Condensed Consolidated Statement of Operations.
In March 2017, the Company redeemed 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 six months ended June 30, 2017 , that is included in the Condensed Consolidated Statement of Operations.
In May 2016, the Company issued $500 million aggregate principal amount of 6.00% senior notes due in 2026 . The Company used these proceeds to redeem at par $495 million aggregate principal of its existing LIBOR + 3.00% senior unsecured notes due 2019 . As a result of the latter transaction, the Company recognized a net loss on extinguishment of debt of $4 million for the three and six months ended June 30, 2016 , that is included in the Condensed Consolidated Statement of Operations.
In January 2016, the Company redeemed $125 million of its senior unsecured notes outstanding. The repayment included a portion of the 7.375% senior notes due in 2021 , the 4.875% senior notes due in 2023 , the 5.5% senior notes due in 2024 , the 5.5% senior notes due in 2025 and the floating rate senior notes due in 2019 . As a result of these transactions, the Company recognized a net gain on extinguishment of debt of $7 million for the six months ended June 30, 2016 , that is included in the Condensed Consolidated Statement of Operations.

13



Non-Recourse Debt
During the six months ended June 30, 2017 , the Company’s subsidiaries had the following significant debt transactions:
Subsidiary
 
Issuances
 
Repayments
 
Gain (Loss) on Extinguishment of Debt
Tietê
 
$
585

 
$
(293
)
 
$
(5
)
Alicura
 
307

 
(181
)
 
65

Gener
 
243

   
(79
)
 
—

Los Mina
 
193

 
(175
)
 
(2
)
Southland
 
188

 
—

 
—

Colon
 
150

 
—

 
—

Eletropaulo
 
103

   
(86
)
 
—

Other
 
194

 
(343
)
 
—

Total
 
$
1,963

 
$
(1,157
)
 
$
58

Southland — In June 2017, AES Southland Energy LLC closed on $2 billion of aggregate principal long-term non-recourse debt financing to fund the Southland re-powering construction projects (“the Southland financing”). The Southland financing consists of $1.5 billion senior secured notes, amortizing through 2040 , and $492 million senior secured term loan, amortizing through 2027 . The long term debt financing has a combined weighted average cost of approximately 4.5% . During the three and six months ended June 30, 2017, $188 million of the senior secured notes were drawn under the Southland financing.
Alicura — In February 2017, Alicura 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 following table summarizes the Company’s subsidiary non-recourse debt in default as of June 30, 2017 (in millions). Due to the defaults, these amounts are included in the current portion of non-recourse debt:
Subsidiary
 
Primary Nature of Default
 
Debt in Default
 
Net Assets
Alto Maipo (Chile)
 
Covenant
 
$
613

 
$
341

Puerto Rico
 
Covenant
 
381

 
631

 
 
 
 
$
994

 
 
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.
In the event that there is a default, bankruptcy or maturity acceleration at a subsidiary or group of subsidiaries that meets the applicable definition of materiality under the corporate debt agreements of The AES Corporation, there could be a cross-default to the Company’s recourse debt. Materiality is defined in the Parent Company’s senior secured credit facility as a business that has provided 20% or more of the Parent Company’s total cash distributions from businesses for the four most recently completed fiscal quarters. As of June 30, 2017 , the Company has no defaults which result in or are 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 sufficient credit to accomplish their intended business purposes. Most of the contingent obligations relate to future

14



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 17 years .
The following table summarizes the Parent Company’s contingent contractual obligations as of June 30, 2017 . 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 Each Agreement (in millions)
Guarantees and commitments
 
$
799

 
19

 
$8 — 272
Letters of credit under the unsecured credit facility
 
245

 
8

 
$2 — 73
Asset sale related indemnities (1)
 
27

 
1

 
$27
Letters of credit under the senior secured credit facility
 
7

 
16

 
<$1 — 1
Cash collateralized letters of credit
 
3

 
1

 
$3
Total
 
$
1,081

 
45

 
 
_____________________________
(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 six months ended June 30, 2017 , the Company paid letter of credit fees ranging from 0.25% to 2.25%  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. As of June 30, 2017 and December 31, 2016 , the Company had recognized liabilities of $9 million and $12 million , respectively, 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 June 30, 2017 . In aggregate, the Company estimates the range of potential losses related to environmental matters, where estimable, to be up to $22 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 evaluated claims in accordance with the accounting guidance for contingencies that it deems both probable and reasonably estimable and, accordingly, has recognized aggregate liabilities for all claims of approximately $173 million and $179 million as of June 30, 2017 and December 31, 2016 , 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 labor and employment, non-income tax and customer disputes in international jurisdictions. Certain of the Company’s subsidiaries, principally in Brazil, are defendants in a number of labor and employment lawsuits. The complaints generally seek unspecified monetary damages, injunctive relief, or other relief. The subsidiaries have denied any liability and intend to vigorously defend themselves in all of these proceedings. 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 June 30, 2017 . The material contingencies where a loss is reasonably possible primarily include claims under financing agreements, including the Eletrobrás case; disputes with offtakers, suppliers and EPC contractors; alleged violation of monopoly laws and regulations; income tax and non-income tax matters with tax authorities; and regulatory matters. In aggregate, the Company estimates that the range of potential losses, where estimable, related to these reasonably possible material contingencies to be between $1.5 billion and $1.8 billion . 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.

15



9 . PENSION PLANS
Total pension cost and employer contributions were as follows for the periods indicated (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
U.S.
 
Foreign
 
U.S.
 
Foreign
 
U.S.
 
Foreign
 
U.S.
 
Foreign
Service cost
$
3

 
$
4

 
$
3

 
$
3

 
$
7

 
$
8

 
$
6

 
$
6

Interest cost
10

 
97

 
10

 
86

 
20

 
196

 
20

 
163

Expected return on plan assets
(17
)
 
(72
)
 
(16
)
 
(55
)
 
(35
)
 
(145
)
 
(33
)
 
(105
)
Amortization of prior service cost
1

 
—

 
2

 
—

 
3

 
—

 
4

 
—

Amortization of net loss
5

 
10

 
4

 
4

 
9

 
21

 
9

 
9

Curtailment loss recognized
—

 
—

 
—

 
—

 
4

 
—

 
—

 
—

Total pension cost
$
2

 
$
39

 
$
3

 
$
38

 
$
8

 
$
80

 
$
6

 
$
73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended 
 June 30, 2017
 
Remainder of 2017 (Expected)
 
 
 
 
 
 
 
 
 
U.S.
 
Foreign
 
U.S.
 
Foreign
Total employer contributions
 
 
 
 
 
 
 
 
$
13

 
$
79

 
$
1

 
$
76

10 . REDEEMABLE STOCK OF SUBSIDIARIES
The following table summarizes the Company’s redeemable stock of subsidiaries balances as of the periods indicated (in millions):
 
June 30, 2017
 
December 31, 2016
IPALCO common stock
$
618

 
$
618

Colon quotas (1)
113

 
100

IPL preferred stock
60

 
60

Other common stock
—

 
4

Redeemable stock of subsidiaries
$
791

 
$
782

 _____________________________
(1)  
Characteristics of quotas are similar to common stock.
Colon — Our partner in Colon made capital contributions of $16 million and $63 million during the six months ended June 30, 2017 and 2016, 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.
IPALCO — In March 2016, CDPQ exercised its final purchase option by investing $134 million in IPALCO. The company also recognized an increase to additional paid-in capital and a reduction to retained earnings of $84 million for the excess of the fair value of the shares over their book value. In June 2016, CDPQ contributed an additional $24 million to IPALCO. Any subsequent adjustments to allocate earnings and dividends to CDPQ will be classified as NCI within permanent equity as it is not probable that the shares will become redeemable.

16



11 . 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):
 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
 
The Parent Company Stockholders’ Equity
 
NCI
 
Total Equity
 
The Parent Company Stockholders’ Equity
 
NCI
 
Total Equity
Balance at the beginning of the period
$
2,794

 
$
2,906

 
$
5,700

 
$
3,149

 
$
3,022

 
$
6,171

Net income (loss) (1)
29

 
219

 
248

 
(356
)
 
43

 
(313
)
Total foreign currency translation adjustment, net of income tax
48

 
(1
)
 
47

 
193

 
55

 
248

Total change in derivative fair value, net of income tax
—

 
2

 
2

 
(80
)
 
(75
)
 
(155
)
Total pension adjustments, net of income tax
—

 
13

 
13

 
2

 
5

 
7

Cumulative effect of a change in accounting principle (2)
31

 
—

 
31

 
—

 
—

 
—

Fair value adjustment (3)
(7
)
 
—

 
(7
)
 
—

 
—

 
—

Disposition of businesses
—

 
—

 
—

 
—

 
18

 
18

Distributions to noncontrolling interests
—

 
(198
)
 
(198
)
 
(2
)
 
(187
)
 
(189
)
Contributions from noncontrolling interests
—

 
17

 
17

 
—

 
7

 
7

Dividends declared on common stock
(79
)
 
—

 
(79
)
 
(71
)
 
—

 
(71
)
Purchase of treasury stock
—

 
—

 
—

 
(79
)
 
—

 
(79
)
Issuance and exercise of stock-based compensation benefit plans
9

 
—

 
9

 
12

 
—

 
12

Sale of subsidiary shares to noncontrolling interests
(4
)
 
22

 
18

 
—

 
17

 
17

Acquisition of subsidiary shares from noncontrolling interests
200

 
67

 
267

 
(2
)
 
(3
)
 
(5
)
Less: Net loss attributable to redeemable stock of subsidiaries
—

 
6

 
6

 
—

 
5

 
5

Balance at the end of the period
$
3,021

 
$
3,053

 
$
6,074

 
$
2,766

 
$
2,907

 
$
5,673

_____________________________
(1)  
Net income attributable to noncontrolling interest of $225 million and net loss attributable to redeemable stocks of subsidiaries of $6 million for the six months ended June 30, 2017. Net income attributable to noncontrolling interest of $48 million and net loss attributable to redeemable stock of subsidiaries of $5 million for the six months ended June 30, 2016.
(2)  
See Note 1 —Financial Statement Presentation, New Accounting Standards Adopted for further information.
(3)  
Adjustment to record the of redeemable stock of Colon at fair value.
Equity Transactions with Noncontrolling Interests
Alto Maipo — On March 17, 2017, the Company 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 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 Andes SBU reportable segment.
Jordan — On February 18, 2016, the Company completed the sale of 40% of its interest in a wholly owned subsidiary in Jordan which owns a controlling interest in the Jordan IPP4 gas-fired plant, for $21 million . The transaction was accounted for as a sale of in-substance real estate and a pretax gain of $4 million , net of transaction costs, was recognized in net income. The cash proceeds from the sale are reflected in Proceeds from the sale of businesses, net of cash sold, and equity investments on the Consolidated Statement of Cash Flows for the period ended June 30, 2016 . After completion of the sale, the Company has a 36% economic interest in Jordan IPP4 and will continue to manage and operate the plant, with 40% owned by Mitsui Ltd. and 24% owned by Nebras Power Q.S.C. As the Company maintained control after the sale, Jordan IPP4 continues to be consolidated by the Company within the Europe SBU reportable segment.
Deconsolidations
UK Wind — During the second quarter of 2016, the Company determined it no longer had control of its wind development projects in the United Kingdom (“UK Wind”) as the Company no longer held seats on the board of directors. In accordance with the accounting guidance, UK Wind was deconsolidated and a loss on deconsolidation of $20 million was recorded to Gain (loss) on disposal and sale of businesses in the Condensed Consolidated Statement of Operations to write off the Company’s noncontrolling interest in the project. The UK Wind projects were reported in the Europe SBU reportable segment.

17



Accumulated Other Comprehensive Loss — The following table summarizes the changes in AOCL by component, net of tax and NCI, for the six months ended June 30, 2017 (in millions):
 
Foreign currency translation adjustment, net
 
Unrealized derivative gains (losses), net
 
Unfunded pension obligations, net
 
Total
Balance at the beginning of the period
$
(2,147
)
 
$
(323
)
 
$
(286
)
 
$
(2,756
)
Other comprehensive income (loss) before reclassifications
(50
)
 
(40
)
 
(3
)
 
(93
)
Amount reclassified to earnings
98

 
40

 
3

 
141

Other comprehensive income
48

 
—

 
—

 
48

Reclassification from NCI due to Alto Maipo Restructuring
—

 
(33
)
 
—

 
(33
)
Balance at the end of the period
$
(2,099
)
 
$
(356
)
 
$
(286
)
 
$
(2,741
)
Reclassifications out of AOCL are presented in the following table. Amounts for the periods indicated are in millions and those in parenthesis indicate debits to the Condensed Consolidated Statements of Operations:
Details About AOCL Components
 
Affected Line Item in the Condensed Consolidated Statements of Operations
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Foreign currency translation adjustment, net
 
 
 
 
Gain (loss) on disposal and sale of businesses
 
$
(95
)
 
$
—

 
$
(98
)
 
$
—

 
 
Net income (loss) attributable to The AES Corporation
 
$
(95
)
 
$
—

 
$
(98
)
 
$
—

Unrealized derivative gains (losses), net
 
 
 
 
Non-regulated revenue
 
$
—

 
$
32

 
$
10

 
$
74

 
 
Non-regulated cost of sales
 
1

 
(16
)
 
(9
)
 
(37
)
 
 
Interest expense
 
(20
)
 
(32
)
 
(43
)
 
(61
)
 
 
Foreign currency transaction gains (losses)
 
(20
)
 
9

 
(18
)
 
21

 
 
Income (loss) from continuing operations before taxes and equity in earnings of affiliates
 
(39
)
 
(7
)
 
(60
)
 
(3
)
 
 
Income tax benefit (expense)
 
10

 
4

 
11

 
1

 
 
Income (loss) from continuing operations
 
(29
)
 
(3
)
 
(49
)
 
(2
)
 
 
Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries
 
9

 
—

 
9

 
(1
)
 
 
Net income (loss) attributable to The AES Corporation
 
$
(20
)
 
$
(3
)
 
$
(40
)
 
$
(3
)
Amortization of defined benefit pension actuarial loss, net
 
 
 
 
Regulated cost of sales
 
$
(10
)
 
$
(5
)
 
$
(20
)
 
$
(9
)
 
 
General and administrative expenses
 
—

 
—

 
1

 
—

 
 
Income (loss) from continuing operations before taxes and equity in earnings of affiliates
 
(10
)
 
(5
)
 
(19
)
 
(9
)
 
 
Income tax benefit (expense)
 
3

 
1

 
6

 
2

 
 
Income (loss) from continuing operations
 
(7
)
 
(4
)
 
(13
)
 
(7
)
 
 
Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries
 
5

 
3

 
10

 
5

 
 
Net income (loss) attributable to The AES Corporation
 
$
(2
)
 
$
(1
)
 
$
(3
)
 
$
(2
)
Total reclassifications for the period, net of income tax and noncontrolling interests
 
$
(117
)
 
$
(4
)
 
$
(141
)
 
$
(5
)
Common Stock Dividends — The Company paid dividends of $0.12 per outstanding share to its common stockholders during the first and second quarter of 2017 for dividends declared in December 2016 and February 2017.
On July 14, 2017, the Board of Directors declared a quarterly common stock dividend of $0.12 per share payable on August 17, 2017, to shareholders of record at the close of business on August 3, 2017.
12 . SEGMENTS
The segment reporting structure uses the Company’s management reporting structure as its foundation to reflect how the Company manages the businesses internally and is organized by geographic regions which provides a socio-political-economic understanding of our business. The management reporting structure is organized by six SBUs led by our President and Chief Executive Officer: US, Andes, Brazil, MCAC, Europe, and Asia SBUs. Using the accounting guidance on segment reporting, the Company determined that it has six operating and six reportable segments corresponding to its SBUs.
Corporate and Other — Corporate overhead costs which are not directly associated with the operations of our six reportable segments are included in “Corporate and Other.” Also included are 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 pretax 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

18



derivative transactions; (b) unrealized foreign currency gains or losses; (c) gains or losses and associated benefits and costs due to 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; and (e) gains, losses and costs due to the early retirement of debt. 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 has 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 June 30,
 
Six Months Ended June 30,
Total Revenue
2017
 
2016
 
2017
 
2016
US SBU
$
785

 
$
811

 
$
1,593

 
$
1,666

Andes SBU
672

 
575

 
1,290

 
1,197

Brazil SBU
982

 
895

 
2,021

 
1,734

MCAC SBU
635

 
530

 
1,221

 
1,049

Europe SBU
209

 
222

 
446

 
468

Asia SBU
186

 
201

 
378

 
395

Corporate and Other
6

 
1

 
20

 
2

Eliminations
(5
)
 
(6
)
 
(7
)
 
(11
)
Total Revenue
$
3,470

 
$
3,229

 
$
6,962

 
$
6,500


Three Months Ended June 30,
 
Six Months Ended June 30,
Total Adjusted PTC
2017
 
2016
 
2017
 
2016
Reconciliation from Income from Continuing Operations before Taxes and Equity In Earnings of Affiliates:
 
 
 
 
 
 
 
Income (loss) from continuing operations before taxes and equity in earnings of affiliates
$
240

 
$
(22
)
 
$
399

 
$
151

Add: Net equity in earnings of affiliates
2

 
7

 
9

 
14

Less: Income from continuing operations before taxes, attributable to noncontrolling interests
136

 
130

 
306

 
114

Pretax contribution
106

 
(145
)
 
102

 
51

Unrealized derivative losses (gains)
2

 
30

 
1

 
(4
)
Unrealized foreign currency transaction losses (gains)
(24
)
 
17

 
(33
)
 
9

Disposition/acquisition losses (gains)
54

 
17

 
106

 
(2
)
Impairment expense
94

 
235

 
262

 
285

Losses (gains) on extinguishment of debt
11

 
6

 
(5
)
 
6

Total Adjusted PTC
$
243

 
$
160

 
$
433

 
$
345

 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Total Adjusted PTC
2017
 
2016
 
2017
 
2016
US SBU
$
63

 
$
58

 
$
111

 
$
143

Andes SBU
82

 
84

 
170

 
145

Brazil SBU
13

 
7

 
52

 
12

MCAC SBU
99

 
75

 
158

 
123

Europe SBU
54

 
34

 
109

 
103

Asia SBU
26

 
26

 
48

 
48

Corporate and Other
(94
)
 
(124
)
 
(215
)
 
(229
)
Total Adjusted PTC
$
243

 
$
160

 
$
433

 
$
345

Total Assets
June 30, 2017
 
December 31, 2016
US SBU
$
9,283

 
$
9,333

Andes SBU
9,171

 
8,971

Brazil SBU
6,347

 
6,448

MCAC SBU
5,435

 
5,162

Europe SBU
2,575

 
2,664

Asia SBU
3,203

 
3,113

Assets of held-for-sale businesses
102

 
—

Corporate and Other
353

 
428

Total Assets
$
36,469

 
$
36,119


19



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, and losses from other miscellaneous transactions. The components are summarized as follows (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Other Income
Legal settlements (1)
$
—

 
$
—

 
$
60

 
$
—

 
Allowance for funds used during construction (US Utilities)
6

 
7

 
13

 
14

 
Gain on sale of assets
—

 
1

 
1

 
3

 
Other
9

 
4

 
13

 
8

 
Total other income
$
15

 
$
12

 
$
87

 
$
25

 
 
 
 
 
 
 
 
 
Other Expense
Loss on sale and disposal of assets
$
9

 
$
9

 
$
38

 
$
14

 
Water rights write-off
3

 
6

 
3

 
7

 
Legal contingencies and settlements
1

 
4

 
1

 
4

 
Other
5

 
2

 
6

 
4

 
Total other expense
$
18

 
$
21

 
$
48

 
$
29

_____________________________
(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.
14 . ASSET IMPAIRMENT EXPENSE
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2017
 
2016
 
2017
 
2016
Kazakhstan Hydroelectric
$
90

 
$
—

 
$
90

 
$
—

Kazakhstan CHPs
—

 
—

 
94

 
—

DPL
—

 
235

 
66

 
235

Tait Energy Storage
—

 
—

 
8

 
—

Buffalo Gap II
—

 
—

 
—

 
159

Total
$
90

 
$
235

 
$
258

 
$
394

Kazakhstan Hydroelectric — In April 2017, the Government of Kazakhstan stated that the concession 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 fair value of the asset group was determined to be below carrying value. As a result, the Company recognized asset impairment expense of $90 million during the three and six months ended June 30, 2017. The Kazakhstan hydroelectric plants are reported in the Europe SBU reportable segment. See Note 16 — Held-for-Sale Businesses and Dispositions of this Form 10-Q for further information.
DPL — During the second quarter of 2016, the Company tested the recoverability of its long-lived generation assets at DPL. Uncertainty created by the Supreme Court of Ohio’s June 20, 2016 opinion, lower expectations of future revenue resulting from the most recent PJM capacity auction, and higher anticipated environmental compliance costs resulting from third party studies were collectively determined to be an impairment indicator for these assets. The Company performed a long-lived asset impairment analysis and determined that the carrying amount of Killen, a coal-fired generation facility, and certain DPL peaking generation facilities were not recoverable. The Killen and DPL peaking generation asset groups were determined to have a fair value of $84 million and $5 million , respectively, using the income approach. As a result, the Company recognized a total asset impairment expense of $235 million . DPL is reported in the US SBU reportable segment.
On March 17, 2017, the board of directors of DPL approved the retirement of the DPL operated and co-owned Stuart Station coal-fired and diesel-fired generating units, and the Killen Station coal-fired generating unit and combustion turbine on or before June 1, 2018. The Company performed a long-lived asset impairment analysis and determined that the carrying amounts of the facilities were not recoverable. The Stuart Station and Killen Station were determined to have fair values of $3 million and $8 million , respectively, using the income approach. As a result, the Company recognized a total asset impairment expense of $66 million . DPL is reported in the US 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. The fair value of the Kazakhstan asset group was determined to be below carrying value. As a result, the Company recognized asset

20



impairment expense of $94 million during the three months ended March 31, 2017. The Company completed the sale of its interest in the Kazakhstan CHP plants on April 7, 2017. Prior to their sale, the plants were reported in the Europe SBU reportable segment. See Note 16 — Held-for-Sale Businesses and Dispositions of this Form 10-Q for further information.
Buffalo Gap II — During the first quarter of 2016, the Company tested the recoverability of its long-lived assets at Buffalo Gap II. Impairment indicators were identified based on a decline in forward power curves. The Company determined that the carrying amount was not recoverable. The Buffalo Gap II asset group was determined to have a fair value of $92 million using the income approach. As a result, the Company recognized asset impairment expense of $159 million ( $49 million attributable to AES). Buffalo Gap II is reported in the US SBU reportable segment.
15 . DISCONTINUED OPERATIONS
Brazil Distribution — 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. In June 2016, the Company executed an agreement for the sale of Sul and reported its results of operations and financial position as discontinued operations. The disposal of Sul was completed in October 2016. Prior to its classification as discontinued operations, Sul was reported in the Brazil SBU reportable segment. In December 2016, Eletropaulo underwent a corporate restructuring which is expected to, among other things, provide more liquidity of its shares. AES is continuing to pursue strategic options for Eletropaulo in order to complete its strategic shift to reduce AES’ exposure to the Brazilian distribution businesses, including preparation for listing its shares into the Novo Mercado, which is a listing segment of the Brazilian stock exchange with the highest standards of corporate governance.
As the sale of Sul was completed during 2016, there were no assets or liabilities of discontinued operations at June 30, 2017 or December 31, 2016 . There were no significant losses from discontinued operations or cash flows used in operating or investing activities of discontinued operations for the three and six months ended June 30, 2017 .
The following table summarizes the major line items constituting the loss from discontinued operations for the three and six months ended June 30, 2016 (in millions):
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
Loss from discontinued operations, net of tax:
 
 
 
Revenue —  regulated
$
219

 
$
419

Cost of sales
(204
)
 
(408
)
Asset impairment expense
(783
)
 
(783
)
Other income and expense items that are not major, net
(11
)
 
(20
)
Pretax loss from discontinued operations
$
(779
)
 
$
(792
)
Income tax benefit
400

 
404

Loss from discontinued operations, net of tax
$
(379
)
 
$
(388
)
The following table summarizes the operating and investing cash flows from discontinued operations for the three and six months ended June 30, 2016 (in millions):
 
Six Months Ended June 30, 2016
Cash flows provided by operating activities of discontinued operations
$
57

Cash flows used in investing activities of discontinued operations
(84
)
16 . HELD-FOR-SALE BUSINESSES AND DISPOSITIONS
Held-for-Sale Businesses
Kazakhstan Hydroelectric — Affiliates of the Company operate Shulbinsk HPP and Ust-Kamenogorsk HPP, two hydroelectric plants in Kazakhstan, under a concession agreement expiring in October 2017, unless extended by agreement. In April 2017, the Government of Kazakhstan (“GoK”) stated that the concession would not be extended and initiated the process to transfer these plants back to the GoK. In return for the transfer, the GoK is required to pay an amount computed in accordance with the concession agreement on or before the transfer.

21



As of June 30, 2017, management considers it probable the transfer will occur and meets the held-for-sale criteria. The carrying value of the asset group of $190 million , which includes cumulative translation losses of $100 million , was greater than its approximate fair value less costs to sell of $92 million . However, the impairment charge was limited to the $90 million carrying value of the long lived assets as of June 30, 2017. The transfer does not meet the criteria to be reported as a discontinued operation. The Kazakhstan hydroelectric plants are reported in the Europe SBU reportable segment. Excluding the impairment charge, pretax income attributable to AES was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2017
 
2016
 
2017
 
2016
Kazakhstan Hydroelectric
$
15

 
$
13

 
$
20

 
$
18

Zimmer and Miami Fort — In April 2017, DP&L and AES Ohio Generation entered into an agreement for the sale of DP&L’s undivided interest in Zimmer and Miami Fort for $50 million in cash and the assumption of certain liabilities, including environmental, subject to predefined closing adjustments. The sale is subject to approval by the Federal Energy Regulatory Commission and is expected to close in the third quarter of 2017. Accordingly, Zimmer and Miami Fort were classified as held-for-sale as of June 30, 2017, but did not meet the criteria to be reported as discontinued operations. Zimmer and Miami Fort are reported in the US SBU reportable segment. Their combined pretax income (loss) attributable to AES was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2017
 
2016
 
2017
 
2016
Zimmer and Miami Fort
$
3

 
$
(10
)
 
$
2

 
$
(16
)
Dispositions
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 carrying value of the asset group of $171 million was greater than its fair value less costs to sell of $29 million . The Company recognized an impairment charge of $94 million , which was limited to the carrying value of the long lived assets, and recognized a pretax loss on sale of $48 million , primarily related to cumulative translation losses. The sale did not meet the criteria to be reported as a discontinued operations. Prior to their sale, the Kazakhstan CHP plants were reported in the Europe SBU reportable segment. Excluding the impairment charge and loss on sale, pretax income attributable to AES was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions)
2017
 
2016
 
2017
 
2016
Kazakhstan CHPs
$
—

 
$
—

 
$
13

 
$
7

DPLER — On January 1, 2016, the Company completed the sale of its interest in DPLER, a competitive retail marketer selling electricity to customers in Ohio. Upon completion, proceeds of $76 million were received and a gain on sale of $49 million was recognized. The sale of DPLER did not meet the criteria to be reported as a discontinued operation. Prior to its sale, DPLER was reported in the US SBU reportable segment.
Kelanitissa — On January 27, 2016, the Company completed the sale of its interest in Kelanitissa, a diesel-fired generation station in Sri Lanka. Upon completion, proceeds of $18 million were received and a loss on sale of $5 million was recognized. The sale of Kelanitissa did not meet the criteria to be reported as a discontinued operation. Prior to its sale, Kelanitissa was reported in the Asia SBU reportable segment.
UK Wind — During the second quarter of 2016, the Company deconsolidated UK Wind and recorded a loss on deconsolidation of $20 million to Gain (loss) on disposal and sale of businesses in the Condensed Consolidated Statement of Operations. Prior to deconsolidation, UK Wind was reported in the Europe SBU reportable segment.
17 . ACQUISITIONS
sPower — In February 2017, the Company and Alberta Investment Management Corporation (“AIMCo”) entered into an agreement to acquire FTP Power LLC (“sPower”) for $853 million in cash, subject to customary purchase price adjustments, plus the assumption of sPower’s non-recourse debt. Upon completion of the transaction on July 25, 2017, AES and AIMCo each own slightly below 50% of sPower. The sPower portfolio includes solar and wind projects in operation, under construction, and in development located in the United States.
Alto Sertao II — In April 2017, the Company entered into an agreement to purchase from Renova Energia S.A. the Alto Sertao II Wind Complex (“Alto Sertao II”) for approximately $180 million , subject to customary purchase price adjustments, plus the assumption of approximately $350 million Alto Sertao II’s non-recourse debt and

22



approximately $30 million of contingent consideration. Alto Sertao II is a wind farm located in Brazil. The transaction closed on August 3, 2017.
18 . 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 (loss) from continuing operations for the three and six months ended June 30, 2017 and 2016 , where income or loss represents the numerator and weighted average shares represent the denominator.
Three Months Ended June 30,
2017
 
2016
(in millions, except per share data)
Income
 
Shares
 
$ per Share
 
Loss
 
Shares
 
$ per Share
 
 
 
 
 
 
 
 
 
 
 
 
BASIC EARNINGS PER SHARE
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to The AES Corporation common stockholders
$
53

 
660

 
$
0.08

 
$
(103
)
 
659

 
$
(0.16
)
EFFECT OF DILUTIVE SECURITIES
 
 
 
 

 
 
 
 
 
 
Restricted stock units
—

 
2

 
—

 
—

 
—

 
—

DILUTED EARNINGS PER SHARE
$
53

 
662

 
$
0.08

 
$
(103
)
 
659

 
$
(0.16
)
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
2017
 
2016
(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, net of tax
$
29

 
660

 
$
0.04

 
$
32

 
660

 
$
0.05

EFFECT OF DILUTIVE SECURITIES
 
 
 
 
 
 
 
 
 
 
 
Restricted stock units
—

 
2

 
—

 
—

 
2

 
—

DILUTED EARNINGS PER SHARE
$
29

 
662

 
$
0.04

 
$
32

 
662

 
$
0.05

For the three and six months ended June 30, 2017 and 2016 , respectively, the calculation of diluted earnings per share excluded 7 million and 8 million outstanding stock awards that could potentially dilute basic earnings per share in the future. All 15 million shares of potential common stock associated with convertible debentures (“TECONs”) were omitted from the earnings per share calculation for the three and six months ended June 30, 2016 , as the impact would have been anti-dilutive. The company redeemed all of its existing TECONs in June 2017.
For the three months ended June 30, 2016 , the calculation of diluted earnings per share also excluded 5 million outstanding restricted stock units, that could potentially dilute earnings per share in the future. These restricted units were not included in the computation of diluted earnings per share for the three months ended June 30, 2016 , because their impact would be anti-dilutive given the loss from continuing operations. Had the Company generated income from continuing operations in the three months ended June 30, 2016 , 3 million potential shares of common stock related to the restricted stock units would have been included in diluted average shares outstanding.
19 . RISKS AND UNCERTAINTIES
As disclosed in Note 26— Risks and Uncertainties in Item 8.— Financial Statements and Supplementary Data of the 2016 Form 10-K, as of December 31, 2016, the Company has 531 MW under construction at Alto Maipo. Increased project costs, or delays in construction, could have an adverse impact on the Company. As disclosed in the Company’s Form 10-Q for the period ended March 31, 2017, Alto Maipo has experienced construction difficulties, which have resulted in an increase in projected cost for the project of up to 22% of the original $2 billion budget. These overages led to a series of negotiations with the intention of restructuring the project’s existing financial structure and obtaining additional funding. On March 17, 2017, the Company completed the legal and financial restructuring of Alto Maipo, and through its 67% ownership interest in AES Gener, the Company now has an effective  62% indirect economic interest in Alto Maipo. See Note 11— Equity for additional information regarding the restructuring.
Following the restructuring described above, the project continued to face construction difficulties including greater than expected costs and slower than anticipated productivity by construction contractors towards agreed-upon milestones. Furthermore, during the second quarter of 2017, as a result of the failure to perform by one of its

23



construction contractors, Constructora Nuevo Maipo S.A. (“CNM”), Alto Maipo terminated CNM’s contract and is seeking a replacement contractor to complete CNM’s work. As a result of the termination of CNM, Alto Maipo’s construction debt of $613 million and derivative liabilities of $139 million are in technical default and presented as current in the balance sheet as of June 30, 2017.
Alto Maipo is working to resolve the challenges described above. Alto Maipo is seeking a replacement contractor to complete CNM’s work, and continues to maintain a dialogue with lenders and other parties. However, there can be no assurance that Alto Maipo will succeed in these efforts and if there are further delays or cost overruns, or if Alto Maipo is unable to reach an agreement with the non-recourse lenders, there is a risk that these lenders would seek to exercise remedies available as a result of the default noted above, or that Alto Maipo would not be able to meet its contractual or other obligations and would be unable to continue with the project. If any of the above occur, there could be a material impairment for the Company.
The carrying value of the long-lived assets and deferred tax assets of Alto Maipo as of June 30, 2017 was approximately $1.3 billion and $60 million , respectively. The Parent Company has invested approximately $360 million in Alto Maipo and has an additional equity commitment of $55 million to be funded as part of the March restructuring described above. As a result of the construction difficulties, management assessed the recoverability of the carrying value of the long-lived asset group, noting they were not impaired as of June 30, 2017.
20 . SUBSEQUENT EVENTS
Fluence — In July 2017, the Company entered into a joint venture with Siemens AG to form a global energy storage technology and services company under the name Fluence. Siemens and AES will have joint control of the Company with each holding a 50% stake. The transaction is expected to close in the fourth quarter of 2017, subject to regulatory approval.
sPower — On July 25, 2017, the Company and AIMCo completed the acquisition of sPower. See Note 17 — Acquisitions for further discussion.
Alto Sertao II — On August 3, 2017, the Company completed the acquisition of Alto Sertao II. See Note 17 — Acquisitions for further discussion.

24



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 2016 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 2016 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 six market-oriented SBUs: US (United States); Andes (Chile, Colombia and Argentina); Brazil ; MCAC (Mexico, Central America and the Caribbean); Europe ; and Asia . For additional information regarding our business, see Item 1.— Business of our 2016 Form 10-K.
Within our six SBUs, 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.

25

Executive Summary
Compared with last year, the results for the three and six months ended June 30, 2017 , reflect higher margins resulting from increased availability in certain markets, including MCAC and Argentina.
Net cash provided by operating activities decreased for the three and six months ended June 30, 2017 compared to the prior year. These decreases were primarily driven by the receipt of overdue receivables at Maritza in Bulgaria in 2016, and the impact from the recovery of high purchased power costs at Eletropaulo in Brazil in 2016.
AESGRAPHIC80317.JPG

26

Overview of Q2 2017 Results and Strategic Performance
Strategic Priorities — We continue to make progress towards meeting our strategic goals to maximize value for our shareholders.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leveraging Our Platforms
 
 
 
 
Focusing our growth in markets where we already operate and have a competitive advantage to realize attractive risk-adjusted returns
 
 
 
 
 
 
 
 
●
4,759 MW currently under construction
 
 
 
 
 
○
Represents $9.0 billion in total capital expenditures
 
 
 
 
 
○
Majority of AES’ $1.6 billion in equity already funded
 
 
 
 
 
○
Expected to come online through 2021
 
 
 
 
●
Completed 122 MW conversion at DPP in the Dominican Republic
 
 
 
 
●
Completed $2.0 billion non-recourse financing for 1,384 MW Southland re-powering project in California
 
 
 
 
●
Will continue to advance select projects from our development pipeline
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reducing Complexity
 
 
 
 
Exiting businesses and markets where we do not have a competitive advantage, simplifying our portfolio and reducing risk
 
 
 
 
 
 
 
 
●
In 2017, announced the sale or shutdown of 3,737 MW of merchant coal-fired generation in Ohio and Kazakhstan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Performance Excellence
 
 
 
 
Striving to be the low-cost manager of a portfolio of assets and deriving synergies and scale from our businesses
 
 
 
 
●
Expect to achieve a total of $400 million in savings through 2020
 
 
 
 
 
○
Includes overhead reductions, procurement efficiencies and operational improvements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expanding Access to Capital
 
 
 
 
Optimizing risk-adjusted returns in existing businesses and growth projects
 
 
 
 
●
Building strategic partnerships at the project and business level with an aim to optimize our risk-adjusted returns in our business and growth projects
 
 
 
 
●
Adjust our global exposure to commodity, fuel, country and other macroeconomic risks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allocating Capital in a Disciplined Manner
 
 
 
 
Maximizing risk-adjusted returns to our shareholders by investing our free cash flow to strengthen our credit and deliver attractive growth in cash flow and earnings
 
 
 
 
●
In 2017, prepaid $300 million of Parent Company debt
 
 
 
 
●
In July, closed the acquisition of sPower, the largest independent solar developer in the United States
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q2 2017 Strategic Performance
Earnings Per Share and Free Cash Flow Results in Q2 2017 (in millions, except per share amounts):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Diluted earnings per share from continuing operations
$
0.08

 
$
(0.16
)
 
$
0.24

 
NM

 
$
0.04

 
$
0.05

 
$
(0.01
)
 
-20
 %
Adjusted EPS (a non-GAAP measure) (1)
0.25

 
0.17

 
0.08

 
47
 %
 
0.42

 
0.32

 
0.10

 
31
 %
Net cash provided by operating activities
251

 
723

 
(472
)
 
-65
 %
 
954

 
1,363

 
(409
)
 
-30
 %
Free Cash Flow (a non-GAAP measure) (1)
106

 
554

 
(448
)
 
-81
 %
 
652

 
1,044

 
(392
)
 
-38
 %
_____________________________
(1)
See Item 2.— SBU Performance Analysis — Non-GAAP Measures for reconciliation and definition.     
Three Months Ended June 30, 2017
Diluted earnings per share from continuing operations increased $0.24 to income of $0.08 . This was primarily driven by prior year impairments at DPL, and higher margins at our MCAC, Europe and Andes SBUs in the current year. These increases were partially offset by current year impairments at our Kazakhstan hydroelectric plants and DPL, the loss on sale of Kazakhstan CHPs and a higher effective tax rate in the current year.
Adjusted EPS, a non-GAAP measure, increased $0.08 , or 47% , to $0.25 , primarily driven by higher margins at our MCAC, Europe and Andes SBUs, partially offset by a higher effective tax rate in the current year.

27

Net cash provided by operating activities decrease d by $472 million , or 65% , to $251 million , primarily driven by the 2016 collection of overdue receivables at Maritza, lower collections of net regulatory assets and current year sales at Eletropaulo, and the absence of Sul’s operating cash flow in 2017. These decreases were partially offset by the timing of payments for energy purchases at Eletropaulo.
Free cash flow, a non-GAAP measure, decrease d by $448 million , or 81% , to $106 million , primarily driven by the $472 million decrease in net cash provided by operating activities, which was partially offset by a decrease of $25 million in maintenance and non-recoverable environmental expenditures.
Six Months Ended June 30, 2017
Diluted earnings per share from continuing operations decreased $0.01 , or 20% , to $0.04 . This was primarily driven by losses incurred for the disposition of the Kazakhstan CHPs and impairments at DPL and Kazakhstan hydroelectric plant. These decreases were partially offset by prior year impairments at DPL and Buffalo Gap II, higher margins at our MCAC, Andes and Brazil SBUs in the current year, the favorable impact of the YPF legal settlement at AES Uruguaiana, and lower effective tax rate in the current year.
Adjusted EPS, a non-GAAP measure, increased $0.10 , or 31% , to $0.42 , primarily driven by higher margins at our MCAC, Andes and Brazil SBUs in the current year, the favorable impact of the YPF legal settlement at AES Uruguaiana, and lower effective tax rate in the current year.
Net cash provided by operating activities decrease d by $409 million , or 30% , to $954 million , primarily driven by the 2016 collection of overdue receivables at Maritza, lower collections of net regulatory assets and current year sales at Eletropaulo, and the absence of Sul’s operating cash flow in 2017. These decreases were partially offset by the timing of payments for energy purchases at Eletropaulo, an increase in net income, adjusted for non-cash items, and lower tax payments primarily at Chivor and Tietê.
Free cash flow, a non-GAAP measure, decrease d by $392 million , or 38% , to $652 million , primarily driven by a $433 million decrease in net cash provided by operating activities (exclusive of lower service concession asset expenditures of $24 million), which was partially offset by a decrease of $41 million in maintenance and non-recoverable environmental expenditures.

28



Review of Consolidated Results of Operations
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in millions, except per share amounts)
2017
 
2016
 
$ change
 
% change
 
2017
 
2016
 
$ change
 
% change
Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
US SBU
$
785

 
$
811

 
$
(26
)
 
-3
 %
 
$
1,593

 
$
1,666

 
$
(73
)
 
-4
 %
Andes SBU
672

 
575

 
97

 
17
 %
 
1,290

 
1,197

 
93

 
8
 %
Brazil SBU
982

 
895

 
87

 
10
 %
 
2,021

 
1,734

 
287

 
17
 %
MCAC SBU
635

 
530

 
105

 
20
 %
 
1,221

 
1,049

 
172

 
16
 %
Europe SBU
209

 
222

 
(13
)
 
-6
 %
 
446

 
468

 
(22
)
 
-5
 %
Asia SBU
186

 
201

 
(15
)
 
-7
 %
 
378

 
395

 
(17
)
 
-4
 %
Corporate and Other
6

 
1

 
5

 
NM

 
20

 
2

 
18

 
NM

Intersegment eliminations
(5
)
 
(6
)
 
1

 
17
 %
 
(7
)
 
(11
)
 
4

 
36
 %
Total Revenue
3,470

 
3,229

 
241

 
7
 %
 
6,962

 
6,500

 
462

 
7
 %
Operating Margin:
 
 
 
 
 
 


 
 
 
 
 
 
 
 
US SBU
124

 
133

 
(9
)
 
-7
 %
 
237

 
247

 
(10
)
 
-4
 %
Andes SBU
155

 
140

 
15

 
11
 %
 
301

 
263

 
38

 
14
 %
Brazil SBU
97

 
78

 
19

 
24
 %
 
204

 
121

 
83

 
69
 %
MCAC SBU
157

 
134

 
23

 
17
 %
 
265

 
230

 
35

 
15
 %
Europe SBU
76

 
47

 
29

 
62
 %
 
156

 
130

 
26

 
20
 %
Asia SBU
45

 
46

 
(1
)
 
-2
 %
 
85

 
83

 
2

 
2
 %
Corporate and Other
14

 
(4
)
 
18

 
NM

 
15

 
4

 
11

 
NM

Intersegment eliminations
2

 
—

 
2

 
NM

 
—

 
5

 
(5
)
 
100
 %
Total Operating Margin
670

 
574

 
96

 
17
 %
 
1,263

 
1,083

 
180

 
17
 %
General and administrative expenses
(49
)
 
(47
)
 
(2
)
 
4
 %
 
(103
)
 
(95
)
 
(8
)
 
8
 %
Interest expense
(333
)
 
(390
)
 
57

 
-15
 %
 
(681
)
 
(732
)
 
51

 
-7
 %
Interest income
93

 
138

 
(45
)
 
-33
 %
 
190

 
255

 
(65
)
 
-25
 %
Gain (loss) on extinguishment of debt
(12
)
 
—

 
(12
)
 
NM

 
5

 
4

 
1

 
25
 %
Other expense
(18
)
 
(21
)
 
3

 
-14
 %
 
(48
)
 
(29
)
 
(19
)
 
66
 %
Other income
15

 
12

 
3

 
25
 %
 
87

 
25

 
62

 
NM

Gain (loss) on disposal and sale of businesses
(48
)
 
(17
)
 
(31
)
 
NM

 
(48
)
 
30

 
(78
)
 
NM

Asset impairment expense
(90
)
 
(235
)
 
145

 
-62
 %
 
(258
)
 
(394
)
 
136

 
-35
 %
Foreign currency transaction gains (losses)
12

 
(36
)
 
48

 
NM

 
(8
)
 
4

 
(12
)
 
NM

Income tax benefit (expense)
(92
)
 
7

 
(99
)
 
NM

 
(160
)
 
(90
)
 
(70
)
 
78
 %
Net equity in earnings of affiliates
2

 
7

 
(5
)
 
-71
 %
 
9

 
14

 
(5
)
 
-36
 %
INCOME (LOSS) FROM CONTINUING OPERATIONS
150

 
(8
)
 
158

 
NM

 
248

 
75

 
173

 
NM

Income (loss) from operations of discontinued businesses, net of income tax (expense) benefit of $0, $(1), $0 and $3, respectively
—

 
3

 
(3
)
 
-100
 %
 
—

 
(6
)
 
6

 
-100
 %
Net loss from disposal and impairments of discontinued businesses, net of income tax benefit of $0, $401, $0 and $401, respectively
—

 
(382
)
 
382

 
-100
 %
 
—

 
(382
)
 
382

 
-100
 %
NET INCOME (LOSS)
150

 
(387
)
 
537

 
NM

 
248

 
(313
)
 
561

 
NM

Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries
(97
)
 
(95
)
 
(2
)
 
2
 %
 
(219
)
 
(43
)
 
(176
)
 
NM

NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
53

 
$
(482
)
 
$
535

 
NM

 
$
29

 
$
(356
)
 
$
385

 
NM

AMOUNTS ATTRIBUTABLE TO THE AES CORPORATION COMMON STOCKHOLDERS:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
53

 
$
(103
)
 
$
156

 
NM

 
$
29

 
$
32

 
$
(3
)
 
-9
 %
Loss from discontinued operations, net of tax
—

 
(379
)
 
379

 
-100
 %
 
—

 
(388
)
 
388

 
-100
 %
NET INCOME (LOSS) ATTRIBUTABLE TO THE AES CORPORATION
$
53

 
$
(482
)
 
$
535

 
NM

 
$
29

 
$
(356
)
 
$
385

 
NM

Net cash provided by operating activities
$
251

 
$
723

 
$
(472
)
 
-65
 %
 
$
954

 
$
1,363

 
$
(409
)
 
-30
 %
DIVIDENDS DECLARED PER COMMON SHARE
$
—

 
$
—

 
$
—

 
NM

 
$
0.12

 
$
0.11

 
$
0.01

 
9
 %
Components of Revenue, Cost of Sales, Operating Margin, and Operating Cash Flow — 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 expense, 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.

29



Consolidated Revenue and Operating Margin
Q22017FORM_CHART-42546.JPG
Three months ended June 30, 2017
Consolidated Revenue — Revenue increase d $241 million , or 7% , for the three months ended June 30, 2017 , as compared to the three months ended June 30, 2016 . This increase was driven by:
•
The favorable FX impact of $69 million , primarily in Brazil of $80 million , partially offset by the unfavorable impact FX in Europe of $10 million .
Excluding the FX impact mentioned above:
•
$107 million in MCAC primarily due to higher LNG sales and higher contracted rates at the Dominican Republic as well as higher pass through rates in El Salvador; and
•
$96 million in Andes primarily due to the start of commercial operation at Cochrane and higher availability in Argentina.
•
Partially offset by a decrease of $26 million in the U.S. mainly due to lower tariffs, lower wholesale volume and price, and unfavorable weather at DPL.
Consolidated Operating Margin — Operating margin increase d $96 million , or 17% , for the three months ended June 30, 2017 , as compared to the three months ended June 30, 2016 . This increase was driven by:
•
The favorable FX impact of $8 million , primarily in Brazil;
Excluding the FX impact mentioned above:
•
$32 million in Europe primarily due to higher derivative valuation adjustments and higher capacity income in the Northern Ireland;
•
$24 million in MCAC primarily due to higher availability in the Dominican Republic and better hydrology in Panama;
•
$12 million in Brazil primarily due to lower fixed costs at Eletropaulo; and
•
$10 million in Andes primarily due to higher sales due in 2017 to higher plant availability in Argentina.
(in millions)
Q22017FORM_CHART-43897.JPG

30



Six months ended June 30, 2017
Consolidated Revenue — Revenue increase d $462 million , or 7% , for the six months ended June 30, 2017 , as compared to the six months ended June 30, 2016 . This increase was driven by:
•
The favorable FX impact of $253 million , primarily in Brazil of $279 million , partially offset by the unfavorable FX impact in Europe of $24 million ;
Excluding the FX impact mentioned above:
•
$181 million in MCAC primarily due to higher LNG sales and higher contracted rates at the Dominican Republic as well as higher pass through rates in El Salvador; and
•
$86 million in Andes primarily due to the start of commercial operation at Cochrane as well as higher availability in Argentina.
•
Partially offset by a decrease of $73 million in the U.S. mainly due to lower tariffs, lower wholesale volume and price, and unfavorable weather at DPL.
Consolidated Operating Margin — Operating margin increase d $180 million , or 17% , for the six months ended June 30, 2017 , as compared to the six months ended June 30, 2016 . This increase was driven by:
•
The favorable impact of FX of $32 million , primarily in Brazil of $27 million ;
Excluding the FX impact mentioned above:
•
$56 million in Brazil primarily due to higher tariff and lower fixed costs at Eletropaulo as well as favorable timing of higher spot volume and prices at Tietê;
•
$36 million in MCAC due to lower maintenance and higher availability in Mexico as well as higher contracted and spot energy sales at the Dominican Republic;
•
$32 million in Europe primarily due to higher derivative valuation adjustments and higher capacity income in the Northern Ireland; and
•
$28 million in Andes primarily due to higher sales in 2017 due to higher plant availability in Argentina.
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 increase d $2 million , or 4% , to $49 million for the three months ended June 30, 2017 , as compared to $47 million for the three months ended June 30, 2016 , with no material drivers.
General and administrative expenses increase d $8 million , or 8% , to $103 million for the six months ended June 30, 2017 , as compared to $95 million for the six months ended June 30, 2016 , primarily due to increased professional fees.
Interest expense
Interest expense decrease d $57 million , or 15% , to $333 million for the three months ended June 30, 2017 , as compared to $390 million for the three months ended June 30, 2016 , primarily due to a $44 million decrease at Eletropaulo attributable to lower debt balances, interest rates and regulatory liabilities, an $11 million decrease at Tietê primarily due to lower debt principal balances and lower interest rates, and a $10 million decrease at the Parent Company attributable to lower debt balances in 2017. These decreases were partially offset by an $11 million increase at Cochrane primarily due to higher capitalized interest in 2016 as a result of the commencement of operations of two units in the second half of 2016.
Interest expense decrease d $51 million , or 7% , to $681 million for the six months ended June 30, 2017 , as compared to $732 million for the six months ended June 30, 2016 , primarily due to a $49 million decrease at Eletropaulo attributable to lower debt balances, interest rates and regulatory liabilities, and a $16 million decrease at the Parent Company attributable to lower debt balances in 2017. These decreases were partially offset by a $22 million increase at Cochrane primarily due to higher capitalized interest in 2016 as a result of the commencement of operations of two units in the second half of 2016.

31



Interest income
Interest income decrease d $45 million , or 33% , to $93 million for the three months ended June 30, 2017 , as compared to $138 million for the three months ended June 30, 2016 , and $65 million , or 25% , to $190 million for the six months ended June 30, 2017 , as compared to $255 million for the six months ended June 30, 2016 . These decreases were primarily due to lower interest on regulatory assets at Eletropaulo attributable to lower regulatory asset balances as a result of cost recoveries, and lower interest rates.
Gain (loss) on extinguishment of debt
Loss on extinguishment of debt was $12 million for the three months ended June 30, 2017 , as compared to no gain or loss for the three months ended June 30, 2016 . This was primarily due to a $6 million loss at the Parent Company in 2017.
Gain on extinguishment of debt increase d $1 million , or 25% , to $5 million for the six months ended June 30, 2017 , as compared to $4 million for the six months ended June 30, 2016 . This was primarily due to a $65 million gain at Alicura as a result of the prepayment of non-recourse debt related to the construction of the San Nicolas Plant in the current period, partially offset by a $47 million loss at the Parent Company due to the redemption of two of its existing senior unsecured notes in the current period.
See Note 7 — Debt included in Item 1.— Financial Statements of this Form 10-Q for further information.
Other income and expense
Other income increase d $3 million , or 25% , to $15 million for the three months ended June 30, 2017 , as compared to $12 million for the three months ended June 30, 2016 with no material drivers.
Other income increase d $62 million to $87 million for the six months ended June 30, 2017 , as compared to $25 million for the six months ended June 30, 2016 . This was primarily due to the favorable settlement of legal proceeding at Uruguaiana related to YPF's breach of the parties’ gas supply agreement.
Other expense decrease d $3 million , or 14% to $18 million for the three months ended June 30, 2017 , as compared to $21 million for the three months ended June 30, 2016 , with no material drivers.
Other expense increase d $19 million , or 66% to $48 million for the six months ended June 30, 2017 , as compared to $29 million for the six months ended June 30, 2016 , primarily due to the 2017 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.
See Note 13 — Other Income and Expense included in Item 1.— Financial Statements of this Form 10-Q for further information.
Loss on disposal and sale of businesses
Loss on disposal and sale of businesses increased $31 million to $48 million for the three months ended June 30, 2017 , as compared to $17 million for the three months ended June 30, 2016 . This was primarily due to the $48 million loss on sale of Kazakhstan CHPs in 2017, partially offset by the $20 million loss on deconsolidation of UK Wind in 2016.
Loss on disposal and sale of businesses increased $78 million to a $48 million loss for the six months ended June 30, 2017 , as compared to a $30 million gain for the six months ended June 30, 2016 . This was primarily due to the $48 million loss on sale of Kazakhstan CHPs in 2017 and the $49 million gain on sale of DPLER in 2016, partially offset by the $20 million loss on deconsolidation of UK Wind in 2016.
See Note 16 — Held-for-Sale Businesses and Dispositions included in Item 1.— Financial Statements of this Form 10-Q for further information.
Asset impairment expense
Asset impairment expense decreased $145 million , or 62% , to $90 million for the three months ended June 30, 2017 , as compared to $235 million for the three months ended June 30, 2016 . This was due to the prior year impairment at DPL resulting from lower expected future revenues from the PJM capacity auction and higher anticipated environmental compliance costs. This was partially offset by the current year impairment at the Kazakhstan hydroelectric plants due to the probable expiration of the concession agreement and their classification as held-for-sale.
Asset impairment expense decreased $136 million , or 35% , to $258 million for the six months ended June 30, 2017 , as compared to $394 million for the six months ended June 30, 2016 . This was primarily due to the prior year

32



impairments at DPL, resulting from lower expected future revenues from the PJM capacity auction and higher anticipated environmental compliance costs, and at Buffalo Gap II, due to a decline in forward power curves. This was partially offset by impairments in the current year at the Kazakhstan CHPs resulting from their sale, the Kazakhstan hydroelectric plants due to the probable expiration of the concession agreement and their classification 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 on or before June 1, 2018.
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 June 30,
 
Six Months Ended June 30,
(in millions)
2017
 
2016
 
2017
 
2016
Corporate
$
10

 
$
(13
)
 
$
(4
)
 
$
(5
)
Argentina
3

 
(29
)
 
(5
)
 
1

Colombia
(12
)
 
4

 
(11
)
 
(1
)
Other
11

 
2

 
12

 
9

Total (1)
$
12

 
$
(36
)
 
$
(8
)
 
$
4

___________________________________________
(1)  
Includes $5 million and $22 million of losses on foreign currency derivative contracts for the three months ended June 30, 2017 and 2016 , respectively, and $38 million of losses and $23 million of gains on foreign currency derivative contracts for the six months ended June 30, 2017 and 2016 , respectively.
The Company recognized net foreign currency transaction gains of $12 million for the three months ended June 30, 2017 , primarily due to gains from intercompany notes at Corporate, partially offset by the foreign currency derivative losses at Colombia due to the change in functional currency and at Corporate due to losses on foreign currency forwards and options related to the Brazilian Real.
The Company recognized net foreign currency transaction losses of $36 million for the three months ended June 30, 2016 , primarily due to the unfavorable impact of foreign currency derivatives associated with government receivables at AES Argentina and losses from remeasurement of intercompany notes at the Parent company.
The Company recognized net foreign currency transaction losses of $8 million for the six months ended June 30, 2017 , primarily in Colombia due to foreign currency embedded derivative losses arising from the devaluation of Colombian Peso.
There were no significant foreign currency transaction gains or losses for the six months ended June 30, 2016 .
Income tax expense
Income tax expense increase d $ 99 million , to $92 million for the three months ended June 30, 2017 compared to income tax benefit of $ 7 million for the three months ended June 30, 2016 . The Company’s effective tax rates were 38% and 32% for the three months ended June 30, 2017 and 2016 , respectively. This net increase was principally due to the unfavorable appreciation of the Peso in certain of our Mexican subsidiaries during the second quarter of 2017 as compared to the favorable devaluation during the second quarter of 2016 .
Income tax expense increase d $ 70 million , or 78% , to $160 million for the six months ended June 30, 2017 , compared to $ 90 million for the six months ended June 30, 2016 . The Company’s effective tax rates were 40% and 60% for the six months ended June 30, 2017 and 2016 , respectively. This net decrease was principally due to the unfavorable impact of Chilean income tax law reform enacted during the first quarter of 2016, the 2016 asset impairments recorded at Buffalo Gap II and DPL, partially offset by the loss on sale of the Kazakhstan CHP plants in the second quarter of 2017. See Note 16 — Held-for-Sale Businesses and Dispositions included in Item 1.— Financial Statements of this Form 10-Q for further information regarding the sale of the Kazakhstan CHP plants.
Our effective tax rate reflects the tax effect of significant operations outside the U.S. which are generally taxed at lower rates than the U.S. statutory rate of 35%. 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. In certain periods, however, our effective tax rate may be higher than 35% due to various discrete tax expense impacts.
Net equity in earnings of affiliates
Net equity in earnings of affiliates decrease d $5 million , or 71% , to $2 million for the three months ended June 30, 2017 , compared to $7 million for the three months ended June 30, 2016 . This decrease was primarily due to impairment of fixed assets held by Distributed Energy in 2017.

33



Net equity in earnings of affiliates decrease d $5 million , or 36% , to $9 million for the six months ended June 30, 2017 , compared to $14 million for the six months ended June 30, 2016 . This decrease was primarily due to impairment of fixed assets held by Distributed Energy in 2017.
Net income attributable to noncontrolling interests and redeemable stock of subsidiaries
Net income attributable to NCI increase d $2 million to $97 million for the three months ended June 30, 2017 , as compared to $95 million for the three months ended June 30, 2016 .
Net income attributable to NCI increase d $176 million to $219 million for the six months ended June 30, 2017 , as compared to $43 million for the six months ended June 30, 2016 . This increase was primarily due to asset impairment at Buffalo Gap II in 2016, along with the favorable YPF legal settlement at AES Uruguaiana and higher operating margin at Eletropaulo and Tietê in 2017.
Discontinued operations
Net loss from discontinued operations was $379 million and $388 million for the three and six months ended June 30, 2016 , respectively, due to the operations from Sul being classified as discontinued operations starting in the second quarter of 2016. The sale of Sul closed in the fourth quarter of 2016. See Note 15 — Discontinued Operations included in Item 1.— Financial Statements of this Form 10-Q for further information regarding the Sul discontinued operations.
Net income (loss) attributable to The AES Corporation
Net income (loss) attributable to The AES Corporation increase d $535 million to income of $53 million in the three months ended June 30, 2017 , compared to a loss of $482 million in the three months ended June 30, 2016 . Key drivers of the increase were:
•
prior year impairments at discontinued business and DPL; and
•
higher margins at our MCAC, Europe and Andes SBUs in the current year.
These increase s were partially offset by:
•
current year impairments at Kazakhstan hydroelectric plants;
•
current year loss on sale of Kazakhstan CHPs; and
•
higher effective tax rate in the current year.
Net income (loss) attributable to The AES Corporation increase d $385 million to income of $29 million in the six months ended June 30, 2017 , compared to a loss of $356 million in the six months ended June 30, 2016 . Key drivers of the increase were:
•
prior year impairments at discontinued business, DPL and Buffalo Gap II;
•
higher margins at our MCAC, Andes and Brazil SBUs in the current year;
•
the favorable impact of the YPF legal settlement at AES Uruguaiana; and
•
lower effective tax rate in the current year.
These increase s were partially offset by:
•
current year impairments at Kazakhstan CHPs and hydroelectric plants, and DPL; and
•
current year loss on sale of Kazakhstan CHPs.
SBU Performance Analysis
Non-GAAP Measures
Adjusted Operating Margin, Adjusted PTC, Adjusted EPS, and Consolidated Free Cash Flow (“Free Cash Flow”) are non-GAAP supplemental measures that are used by management and external users of our consolidated financial statements such as investors, industry analysts and lenders. The Adjusted Operating Margin, Adjusted PTC, and Consolidated Free Cash Flow by SBU for the three and six months ended June 30, 2017 and June 30, 2016 , are shown below. The percentages represent the contribution by each SBU to the gross metric, excluding Corporate.
For the year beginning January 1, 2017, the Company changed the definition of Adjusted PTC and Adjusted EPS to exclude associated benefits and costs due to acquisitions, dispositions, and early plant closures; including the tax impact of decisions made at the time of sale to repatriate sales proceeds. We believe excluding these

34



benefits and costs better reflect the business performance by removing the variability caused by strategic decisions to dispose of or acquire business interests or close plants early. The Company has also reflected these changes in the comparative periods ending June 30, 2016 .

Adjusted Operating Margin
Operating Margin is defined as revenue less cost of sales. We define Adjusted Operating Margin as Operating Margin, adjusted for the impact of NCI, excluding unrealized gains or losses related to derivative transactions.
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 derivatives gains or losses. 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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Operating Margin
$
670

 
$
574

 
$
1,263

 
$
1,083

Noncontrolling interests adjustment
(207
)
 
(184
)
 
(408
)
 
(315
)
Derivatives adjustment
(8
)
 
8

 
(10
)
 
14

Total Adjusted Operating Margin
$
455

 
$
398

 
$
845

 
$
782

Q22017FORM_CHART-44734.JPG
Q22017FORM_CHART-45851.JPG

35



Q22017FORM_CHART-46949.JPG
Q22017FORM_CHART-48024.JPG
Adjusted PTC
We define Adjusted PTC as pretax 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; (b) unrealized foreign currency gains or losses; (c) gains or losses and associated benefits and costs due to 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; and (e) gains, losses and costs due to the early retirement of debt. 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, unrealized foreign currency gains or losses, losses due to impairments and strategic decisions to dispose of or acquire business interests or retire debt, 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. 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.

36



Reconciliation of Adjusted PTC (in millions)
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Income (loss) from continuing operations, net of tax, attributable to The AES Corporation
$
53

 
$
(103
)
 
$
29

 
$
32

Income tax expense (benefit) attributable to The AES Corporation
53

 
(42
)
 
73

 
19

Pretax contribution
106

 
(145
)
 
102

 
51

Unrealized derivative losses (gains)
2

 
30

 
1

 
(4
)
Unrealized foreign currency transaction losses (gains)
(24
)
 
17

 
(33
)
 
9

Disposition/acquisition losses (gains)
54

 
17

 
106

 
(2
)
Impairment expense
94

 
235

 
262

 
285

Losses (gains) on extinguishment of debt
11

 
6

 
(5
)
 
6

Total Adjusted PTC
$
243

 
$
160

 
$
433

 
$
345

Q22017FORM_CHART-49293.JPG
Q22017FORM_CHART-50463.JPG
Q22017FORM_CHART-51567.JPG

37



Q22017FORM_CHART-52704.JPG
Adjusted EPS
We define Adjusted EPS as diluted earnings per share from continuing operations excluding gains or losses of both consolidated entities and entities accounted for under the equity method due to (a) unrealized gains or losses related to derivative transactions; (b) unrealized foreign currency gains or losses; (c) gains or losses and associated benefits and costs due to 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; and (e) gains, losses and costs due to the early retirement of debt.
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, unrealized foreign currency gains or losses, losses due to impairments and strategic decisions to dispose of or acquire business interests or retire debt, 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. 
The Company reported a loss from continuing operations of $0.16 per share for the three months ended June 30, 2016 . For purposes of measuring diluted loss per share under GAAP, common stock equivalents were excluded from weighted average shares as their inclusion would be anti-dilutive. However, for purposes of computing Adjusted EPS, the Company has included the impact of dilutive common stock equivalents. The table below reconciles the weighted average shares used in GAAP diluted earnings per share to the weighted average shares used in calculating the non-GAAP measure of Adjusted EPS.
Reconciliation of Denominator Used For Adjusted Earnings Per Share
 
Three Months Ended June 30, 2016
(in millions, except per share data)
 
Loss
 
Shares
 
$ per share
GAAP DILUTED (LOSS) PER SHARE
 
 
 
 
 
 
Loss from continuing operations attributable to The AES Corporation common stockholders
 
$
(103
)
 
659

 
$
(0.16
)
EFFECT OF DILUTIVE SECURITIES
 
 
 
 
 
 
Restricted stock units
 
—

 
3

 
—

NON-GAAP DILUTED (LOSS) PER SHARE
 
$
(103
)
 
662

 
$
(0.16
)
Reconciliation of Adjusted EPS
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
Diluted earnings (loss) per share from continuing operations
$
0.08

 
$
(0.16
)
 
$
0.04

 
$
0.05

 
Unrealized derivative losses (gains)
—

 
0.04

 
—

 
—

 
Unrealized foreign currency transaction losses (gains)
(0.03
)
 
0.02

 
(0.04
)
 
—

 
Disposition/acquisition losses (gains)
0.08

(1)  
0.03

(2)  
0.16

(3)  
—


Impairment expense
0.14

(4)  
0.36

(5)  
0.40

(6)  
0.43

(7)  
Losses (gains) on extinguishment of debt
0.02

(8)  
0.01

 
(0.01
)
(9)  
0.01

 
Less: Net income tax benefit
(0.04
)
(10)  
(0.13
)
(10)  
(0.13
)
(11)  
(0.17
)
(11)  
Adjusted EPS
$
0.25

 
$
0.17

 
$
0.42

 
$
0.32

 
_____________________________

(1)  
Amount primarily relates to loss on sale of Kazakhstan CHPs of $48 million, or $0.07 per share.
(2)
Amount primarily relates to the loss from the deconsolidation of UK Wind of $20 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; costs associated with early plant closure of DPL of $20 million, or $0.03 per share.
(4)  
Amount primarily relates to asset impairments at Kazakhstan hydroelectric plants of $90 million, or $0.14 per share.
(5)  
Amount primarily relates to the asset impairment at DPL of $235 million, or $0.36 per share.

38



(6)  
Amount primarily relates to asset impairment at Kazakhstan hydroelectric plants of $90 million, or $0.14 per share, at 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 asset impairment at DPL of $235 million, or $0.36 per share; and Buffalo Gap II of $159 million ($49 million, or $0.07 per share, net of NCI).
(8)  
Amount primarily relates to the loss on early retirement of debt at the Parent Company of $6 million, or $0.01 per share.
(9)  
Amount primarily relates to the gain on early retirement of debt at Alicura of $65 million, or $0.10 per share, partially offset by the loss on early retirement of debt at the Parent Company of $53 million, or $0.08 per share.
(10)  
Amount primarily relates to the income tax benefit associated with asset impairment losses of $30 million, or $0.05 per share and $70 million, or $0.11 per share in the three months ended June 30, 2017 and 2016, respectively.
(11)  
Amount primarily relates to the income tax benefit associated with asset impairment losses of $81 million, or $0.12 per share and $122 million, or $0.18 per share in the six months ended June 30, 2017 and 2016, respectively.


Free Cash Flow
We define Free Cash Flow as net cash from operating activities (adjusted for service concession asset capital expenditures) less maintenance capital expenditures (including non-recoverable environmental capital expenditures), net of reinsurance proceeds from third parties. 
We also exclude environmental capital expenditures that are expected to be recovered through regulatory, contractual or other mechanisms. An example of recoverable environmental capital expenditures is IPL's investment in MATS-related environmental upgrades that are recovered through a tracker. See Item 1. —US SBU—IPL—Environmental Matters included in our 2016 Form 10-K for details of these investments.
The GAAP measure most comparable to Free Cash Flow is net cash provided by operating activities. We believe that Free Cash Flow is a useful measure for evaluating our financial condition because it represents the amount of cash generated by the business after the funding of maintenance capital expenditures that may be available for investing in growth opportunities or for repaying debt.
The presentation of Free Cash Flow has material limitations. Free Cash Flow should not be construed as an alternative to net cash from operating activities, which is determined in accordance with GAAP. Free Cash Flow does not represent our cash flow available for discretionary payments because it excludes certain payments that are required or to which we have committed, such as debt service requirements and dividend payments. Our definition of Free Cash Flow may not be comparable to similarly titled measures presented by other companies.
Calculation of Free Cash Flow (in millions)
 
Three Months Ended June 30,
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net Cash provided by operating activities
 
$
251

 
$
723

 
$
954

 
$
1,363

Add: capital expenditures related to service concession assets   (1)
 
1

 
2

 
2

 
26

Less: maintenance capital expenditures, net of reinsurance proceeds
 
(142
)
 
(158
)
 
(294
)
 
(320
)
Less: non-recoverable environmental capital expenditures   (2)
 
(4
)
 
(13
)
 
(10
)
 
(25
)
Free Cash Flow
 
$
106

 
$
554

 
$
652

 
$
1,044

_____________________________
(1)  
Service concession asset expenditures are included in net cash provided by operating activities, but are excluded from the free cash flow non-GAAP metric.
(2)  
Excludes IPL's recoverable environmental capital expenditures of $11 million and $55 million for the three months ended June 30, 2017 and 2016 , as well as, $29 million and $130 million for the six months ended June 30, 2017 and 2016 , respectively.

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39



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US SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Free Cash Flow (in millions) for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Operating Margin
$
124

 
$
133

 
$
(9
)
 
-7
 %
 
$
237

 
$
247

 
$
(10
)
 
-4
 %
Noncontrolling Interests Adjustment (1)
(16
)
 
(19
)
 
 
 
 
 
(33
)
 
(33
)
 
 
 
 
Derivatives Adjustment
—

 
—

 
 
 
 
 
3

 
4

 
 
 
 
Adjusted Operating Margin
$
108

 
$
114

 
$
(6
)
 
-5
 %
 
$
207

 
$
218

 
$
(11
)
 
-5
 %
Adjusted PTC
$
63

 
$
58

 
$
5

 
9
 %
 
$
111

 
$
143

 
$
(32
)
 
-22
 %
Free Cash Flow
$
104

 
$
123

 
$
(19
)
 
-15
 %
 
$
196

 
$
266

 
$
(70
)
 
-26
 %
Free Cash Flow Attributable to NCI
$
(2
)
 
$
6

 
$
(8
)
 
NM

 
$
14

 
$
16

 
$
(2
)
 
-13
 %
_____________________________
(1)  
See Item 1. —Business included in our 2016 Form 10-K for the respective ownership interest for key businesses. In addition, AES directly and indirectly owned approximately 70% of IPL as of June 2016 compared to approximately 75% beginning April 2015.

40



Operating Margin for the three months ended June 30, 2017 , decrease d by $9 million , or 7% , which was driven primarily by the following (in millions):
IPL
 
Decrease due to implementation of new base rates in Q2 2016 which resulted in a favorable change in accrual

$
(18
)
Increased performance incentives earned on Demand Side Management programs
5

Other
2

Total IPL Decrease
(11
)
DPL
 
Lower retail margin due to lower regulated rates
(9
)
Increase in generating facility maintenance expenses

(4
)
Lower depreciation expense due to fixed asset impairments in 2016 and 2017

10

Total DPL Decrease
(3
)
US Generation
 
No individually significant drivers
5

Total US Generation Increase
5

Total US SBU Operating Margin Decrease
$
(9
)
Adjusted Operating Margin decrease d by $6 million for the US SBU due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives.
Adjusted PTC increase d by $5 million , driven by the $6 million decrease in Adjusted Operating Margin described above, offset by the Company's share of earnings under the HLBV allocation of noncontrolling interest at Distributed Energy due to new project growth, an increase in accrued insurance recoveries at DPL and a contingency accrual recorded in the prior year at Shady Point.
Free Cash Flow decrease d by $19 million , of which $8 million was attributable to NCI. The decrease in Free Cash Flow was primarily driven by:
•
$22 million decrease in Operating Margin (net of lower depreciation of $13 million);
•
$14 million payment to return competitive bid auction deposits at DPL;
•
$11 million due to the timing of interest payments at DPL; and
•
The timing of $8 million of collections related to the energy efficiency rider at DPL.
These negative impacts were partially offset by:
•
$20 million in lower maintenance capital expenditures; and
•
$16 million in higher collections at IPL, primarily due to the timing of the 2016 rate order.
Operating Margin for the six months ended June 30, 2017 , decrease d by $10 million , or 4% , which was driven primarily by the following (in millions):
IPL
 
Decrease due to implementation of new base rates in Q2 2016 which resulted in a favorable change in accrual
$
(18
)
Increased performance incentives earned on Demand Side Management programs
5

Other
7

Total IPL Decrease
(6
)
DPL
 
Lower retail margin due to lower regulated rates
(19
)
Lower depreciation expense due to fixed asset impairments in 2016 and 2017
17

Other
(3
)
Total DPL Decrease
(5
)
US Generation
 
Hawaii due to outages in 2017
(7
)
Lower depreciation at Buffalo Gap due to fixed asset impairments in 2016 as well as better winds and pricing in 2017
6

Other
2

Total US Generation Increase
1

Total US SBU Operating Margin Decrease
$
(10
)
Adjusted Operating Margin decrease d by $11 million for the US SBU due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives.
Adjusted PTC decrease d by $32 million , driven by the $11 million decrease in Adjusted Operating Margin described above as well as a 2016 gain on contract termination at DP&L, partially offset by the Company's share of earnings under the HLBV allocation of noncontrolling interest at Distributed Energy due to new project growth.
Free Cash Flow decrease d by $70 million , of which $2 million was attributable to NCI. The decrease in Free Cash Flow was primarily driven by

41



•
Higher payments of $34 million for inventory purchases at DPL and IPL due to inventory optimization efforts that occurred in 2016;
•
$32 million decrease in Operating Margin (net of lower depreciation of $22 million);
•
The timing of $29 million in payments for purchased power and other payables at DPL;
•
$21 million in lower collections at DPL primarily due to the settlement of DPLER’s receivable balances resulting from its sale in 2016; and
•
$14 million of higher vendor payments at IPL due to the timing of purchases.
These negative impacts were partially offset by:
•
$34 million in higher collections at IPL due to higher receivable balances in December 2016 resulting from favorable weather and the impacts from the 2016 rate order; and
•
Decrease of $25 million in maintenance capital expenditures.
ANDES SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Free Cash Flow (in millions) for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Operating Margin
$
155

 
$
140

 
$
15

 
11
 %
 
$
301

 
$
263

 
$
38

 
14
%
Noncontrolling Interests Adjustment (1)
(49
)
 
(46
)
 
 
 
 
 
(98
)
 
(81
)
 
 
 
 
Derivatives Adjustment
(1
)
 
—

 
 
 
 
 
(1
)
 
—

 
 
 
 
Adjusted Operating Margin
$
105

 
$
94

 
$
11

 
12
 %
 
$
202

 
$
182

 
$
20

 
11
%
Adjusted PTC
$
82

 
$
84

 
$
(2
)
 
-2
 %
 
$
170

 
$
145

 
$
25

 
17
%
Free Cash Flow
$
79

 
$
77

 
$
2

 
3
 %
 
$
186

 
$
97

 
$
89

 
92
%
Free Cash Flow Attributable to NCI
$
21

 
$
21

 
$
—

 
—
 %
 
$
65

 
$
37

 
$
28

 
76
%
_____________________________
(1)  
See Item 1. —Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.
Including favorable FX and remeasurement impacts of $5 million , Operating Margin for the three months ended June 30, 2017 , increase d by $15 million , or 11% , which was driven primarily by the following (in millions):
Gener
 
Start of operations at Cochrane
$
21

Negative impact of new regulation on emissions (green taxes)
(15
)
Lower margin on Nueva Renca Tolling Agreement
(7
)
Higher fixed costs mainly associated with maintenance activities as well as higher people costs

(6
)
Other
(3
)
Total Gener Decrease
(10
)
Argentina
 
Higher availability mainly associated with major maintenance activities performed in 2016
23

Favorable FX impact
3

Higher fixed costs mainly associated with maintenance activities as well as higher people costs
(7
)
Other
4

Total Argentina Increase
23

Chivor
 
No individually significant drivers
2

Total Chivor Increase
2

Total Andes SBU Operating Margin Increase
$
15

Adjusted Operating Margin increase d by $11 million due to the drivers above, adjusted for the impact of NCI.
Adjusted PTC decrease d by $2 million , mainly driven by higher interest expenses primarily associated to lower interest capitalization on construction projects, lower interest income at Argentina and higher foreign currency Losses at Chivor. These negative impacts were partially offset by the increase of $11 million in Adjusted Operating Margin described above.
Free Cash Flow increase d by $2 million , none of which was attributable to NCI. The increase in Free Cash Flow was primarily driven by:
•
$50 million in lower tax payments at Chivor due to lower taxable income in 2016;
•
$28 million increase in Operating Margin (net of higher depreciation of $13 million);
•
Higher collections of $17 million from financing receivables in Argentina due to the commencement of operations of the Guillermo Brown Plant in October 2016;
•
$13 million of environmental tax accruals in Chile impacting margin but not free cash flow; and
•
$12 million of lower maintenance capital expenditures.

42



These positive impacts were offset by:
•
Higher working capital requirements of $45 million in Argentina primarily due to lower collections resulting from the timing of maintenance activities;
•
$39 million in higher tax payments in Chile due to timing and higher taxable income in 2016;
•
Lower VAT refunds of $26 million at Cochrane and Alto Maipo due to the timing of construction activities; and
•
Higher interest payments of $7 million at Cochrane, which are no longer capitalized.
Including favorable FX and remeasurement impacts of $10 million , Operating Margin for the six months ended June 30, 2017 , increase d by $38 million , or 14% , which was driven primarily by the following (in millions):
Gener
 
Start of operations at Cochrane
$
48

Negative impact of new regulation on Emissions (Green Taxes)
(28
)
Higher fixed costs mainly associated with maintenance activities as well as higher people costs
(16
)
Lower margin at the SING market primarily associated with lower contract sales at Norgener partially offset by higher spot sales
(12
)
Lower Margin on Nueva Renca Tolling Agreements
(7
)
Other
(2
)
Total Gener Decrease
(17
)
Argentina
 
Higher availability mainly associated with major maintenance activities performed in 2016
27

Higher fixed costs mainly associated with higher people costs
(1
)
Total Argentina Increase
26

Chivor
 
Higher spot and contract sales primarily associated with higher dam levels at the beginning of 2017
24

Favorable FX impact
7

Other
(2
)
Total Chivor Increase
29

Total Andes SBU Operating Margin Increase
$
38

Adjusted Operating Margin increase d by $20 million due to the drivers above, adjusted for the impact of NCI.
Adjusted PTC increase d by $25 million , driven by the increase of $20 million in Adjusted Operating Margin and the positive impact of foreign currency gains in Argentina associated with collections of financing receivables and lower foreign currency losses associated with the sale of Argentina’s sovereign bonds at Termoandes and prepayment of Sojitz Debt in 2017.
Free Cash Flow increase d by $89 million , of which $28 million was attributable to NCI. The increase in Free Cash Flow was primarily driven by:
•
$63 million increase in Operating Margin (net of higher depreciation of $25 million);
•
$50 million in lower tax payments at Chivor due to lower taxable income in 2016;
•
Higher collections of $33 million from financing receivables in Argentina due to the commencement of operations of the Guillermo Brown Plant in October 2016;
•
$25 million of environmental tax accruals in Chile impacting margin but not free cash flow; and
•
$4 million of lower maintenance capital expenditures.
These positive impacts were partially offset by:
•
Lower collections of prior period sales of $35 million at Chivor;
•
Higher working capital requirements of $40 million in Argentina primarily due to lower collections resulting from the timing of maintenance activities;
•
Lower net VAT refunds of $21 million at Cochrane and Alto Maipo due to the timing of construction activities; and
•
Higher interest payments of $15 million at Cochrane, which are no longer capitalized.

43



BRAZIL SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Free Cash Flow (in millions) for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Operating Margin
$
97

 
$
78

 
$
19

 
24
%
 
$
204

 
$
121

 
$
83

 
69
 %
Noncontrolling Interests Adjustment   (1)
(81
)
 
(62
)
 
 
 
 
 
(167
)
 
(96
)
 
 
 
 
Adjusted Operating Margin
$
16

 
$
16

 
$
—

 
—
%
 
$
37

 
$
25

 
$
12

 
48
 %
Adjusted PTC
$
13

 
$
7

 
$
6

 
86
%
 
$
52

 
$
12

 
$
40

 
NM

Free Cash Flow
$
(53
)
 
$
125

 
$
(178
)
 
NM

 
$
165

 
$
321

 
$
(156
)
 
-49
 %
Free Cash Flow Attributable to NCI
$
(45
)
 
$
77

 
$
(122
)
 
NM

 
$
117

 
$
239

 
$
(122
)
 
-51
 %
_____________________________
(1)  
See Item 1. —Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.
Including favorable FX impacts of $7 million , Operating Margin for the three months ended June 30, 2017 , increase d by $19 million , which was driven primarily by the following (in millions):
Eletropaulo
 
Higher tariffs due to annual tariff reset
$
23

Lower fixed costs mainly due to lower bad debt and labor contingencies
22

Lower volume mainly due to lower demand resulting from economic decline and migration to free market
(21
)
Total Eletropaulo Increase
24

Tietê
 
Net impact of volume and prices of bilateral contracts due to higher energy purchased
(20
)
Favorable timing of higher spot prices
19

Other
(1
)
Total Tietê Decrease
(2
)
Other Business Drivers
(3
)
Total Brazil SBU Operating Margin Increase
$
19

Adjusted Operating Margin remained neutral primarily due to the drivers discussed above, adjusted for the impact of noncontrolling interests.
Adjusted PTC increase d by $6 million , mainly driven by the decrease in interest expense at Tietê.
Free Cash Flow decrease d by $178 million , of which $122 million was attributable to NCI. The decrease in Free Cash Flow was primarily driven by:
•
Unfavorable timing of $198 million in higher collections in the prior year of costs deferred in net regulatory assets at Eletropaulo, as a result of unfavorable hydrology in prior periods;
•
Unfavorable timing of $55 million in collections on energy sales at Eletropaulo;
•
Unfavorable timing of $42 million in non-income tax payments at Eletropaulo;
•
The absence of Sul’s $31 million in free cash flow generated in 2016, which was sold in October 2016;
•
$25 million higher maintenance capital expenditures, primarily at Eletropaulo;
•
Unfavorable timing of $17 million in collections on energy sales at Tietê due primarily to higher energy sales in the spot market; and
•
Non-cash impacts of $10 million related to contingency items at Eletropaulo in 2016.
These negative impacts were partially offset by a $27 million increase in Operating Margin (net of increased depreciation of $8 million) and favorable timing of $184 million in payments for energy purchases at Eletropaulo due to lower energy costs and lower regulatory charges.
Including favorable FX impacts of $27 million , Operating Margin for the six months ended June 30, 2017 , increase d by $83 million , which was driven primarily by the following (in millions):

44



Eletropaulo
 
Higher tariffs due to annual tariff reset
$
64

Lower fixed costs mainly due to lower bad debt and lower regulatory penalties
20

Lower volume mainly due to lower demand resulting from economic decline and migration to free market
(31
)
Other
3

Total Eletropaulo Increase
56

Tietê
 
Favorable timing of higher spot volume and prices
39

Favorable FX impacts
19

Net impact of volume and prices of bilateral contracts due to higher energy purchased
(25
)
Other
1

Total Tietê Increase
34

Other Business Drivers
(7
)
Total Brazil SBU Operating Margin Increase
$
83

Adjusted Operating Margin increase d by $12 million , primarily due to the drivers discussed above, adjusted for the impact of noncontrolling interests.
Adjusted PTC increase d by $40 million , driven by the increase of $12 million in Adjusted Operating Margin as described above, as well as a $28 million increase from the settlement of a legal dispute with YPF at Uruguaiana.
Free Cash Flow decrease d by $156 million , of which $122 million was attributable to NCI. The decrease in Free Cash Flow was primarily driven by:
•
Unfavorable timing of $342 million in higher collections in the prior year of costs deferred in net regulatory assets at Eletropaulo, as a result of unfavorable hydrology in prior periods;
•
Unfavorable timing of $134 million in collections on energy sales at Eletropaulo;
•
$40 million higher maintenance capital expenditures at Eletropaulo;
•
Unfavorable timing of $35 million in non income tax payable at Eletropaulo;
•
The absence of Sul’s $31 million in free cash flow generated in 2016, which was sold in October 2016; and
•
$18 million of higher pension payments in 2017 driven by the debt renegotiation in prior year at Eletropaulo .
These negative impacts were partially offset by:
•
Favorable timing of $235 million in payments for energy purchases at Eletropaulo due to lower energy costs and lower regulatory charges;
•
$102 million of increased Operating Margin (net of increased depreciation of $19 million);
•
$60 million collected from a legal dispute settlement with YPF at Uruguaiana; and
•
$60 million of lower tax payments at Tietê due to lower taxable income in 2016.
MCAC SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Free Cash Flow (in millions) for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Operating Margin
$
157

 
$
134

 
$
23

 
17
%
 
$
265

 
$
230

 
$
35

 
15
%
Noncontrolling Interests Adjustment (1)
(28
)
 
(24
)
 
 
 
 
 
(47
)
 
(46
)
 
 
 
 
Derivatives Adjustment
—

 
(2
)
 
 
 
 
 
—

 
(1
)
 
 
 
 
Adjusted Operating Margin
$
129

 
$
108

 
$
21

 
19
%
 
$
218

 
$
183

 
$
35

 
19
%
Adjusted PTC
$
99

 
$
75

 
$
24

 
32
%
 
$
158

 
$
123

 
$
35

 
28
%
Free Cash Flow
$
28

 
$
—

 
$
28

 
NM

 
$
93

 
$
13

 
$
80

 
NM

Free Cash Flow Attributable to NCI
$
(2
)
 
$
6

 
$
(8
)
 
NM

 
$
6

 
$
6

 
$
—

 
—
%
_____________________________
(1)  
See Item 1. —Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.

45



Operating Margin for the three months ended June 30, 2017 , increase d by $23 million , or 17% , which was driven primarily by the following (in millions):
Dominican Republic

 
Higher availability

$
9

Other
1

Total Dominican Republic Increase
10

Panama


 
Higher generation and lower energy purchases, driven by improved hydrological conditions

9

Other
(2
)
Total Panama Increase
7

Other Business Drivers
6

Total MCAC SBU Operating Margin Increase
$
23

Adjusted Operating Margin increase d by $21 million due to the drivers above, adjusted for the impact of NCI and excluding unrealized gains and losses on derivatives.
Adjusted PTC increase d by $24 million , driven by the increase of $21 million in Adjusted Operating Margin as described above.
Free Cash Flow increase d by $28 million , of which an $8 million decrease was attributable to NCI. The increase in Free Cash Flow was driven by:
•
$26 million increase in Operating Margin (net of increased depreciation of $3 million);
•
Lower tax payments of $15 million in El Salvador due to lower taxable income in 2016;
•
Lower working capital requirements of $15 million in Mexico primarily due to the timing of payments for fuel purchases; and
•
Lower working capital requirements of $11 million in Puerto Rico primarily due to the timing of payments for coal purchases.
These positive impacts were partially offset by:
•
$16 million of higher tax payments and $13 million of higher interest payments in the Dominican Republic due to higher taxable income in 2016 and an increase in net debt and average interest rates; and
•
The timing of $10 million in payments for energy purchases in Panama.
Operating Margin for the six months ended June 30, 2017 , increase d by $35 million , or 15% , which was driven primarily by the following (in millions):
Mexico
 
Lower maintenance and higher availability
$
13

     Higher energy prices
3

Other
5

Total Mexico Increase
21

Dominican Republic
 
Higher contracted and spot energy sales mainly driven by higher prices

10

Other
3

Total Dominican Republic Increase
13

Other Business Drivers
1

Total MCAC SBU Operating Margin Increase
$
35

Adjusted Operating Margin increase d by $35 million due to the drivers above, adjusted for the impact of NCI and excluding unrealized gains and losses on derivatives.
Adjusted PTC increase d by $35 million , driven by the increase of $35 million in Adjusted Operating Margin as described above.
Free Cash Flow increase d by $80 million , none of which was attributable to NCI. The increase in Free Cash Flow was driven by:
•
$38 million increase in Operating Margin (net of increased depreciation of $3 million);
•
Lower working capital requirements of $26 million in the Dominican Republic primarily due to higher collections of energy sales at Los Mina and the timing of payments for LNG shipments at Andres;
•
Lower working capital requirements of $24 million in Puerto Rico primarily due to the timing of payments for coal purchases and higher collections;
•
Lower tax payments of $15 million in the Dominican Republic primarily due to lower withholding taxes on dividends paid in 2016 to AES Affiliates;
•
Lower tax payments of $15 million in El Salvador primarily due to lower taxable income in 2016; and

46



•
$5 million of lower maintenance and non-recoverable environmental capital expenditures.
These positive impacts were partially offset by:
•
Higher working capital requirements of $35 million in El Salvador primarily due to higher energy purchases deferred into regulatory assets; and
•
$11 million of higher interest payments in the Dominican Republic primarily due to an increase in net debt and average interest rates.
EUROPE SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Free Cash Flow (in millions) for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Operating Margin
$
76

 
$
47

 
$
29

 
62
 %
 
$
156

 
$
130

 
$
26

 
20
 %
Noncontrolling Interests Adjustment (1)
(8
)
 
(8
)
 
 
 
 
 
(18
)
 
(15
)
 
 
 
 
Derivatives Adjustment
(7
)
 
5

 
 
 
 
 
(10
)
 
5

 
 
 
 
Adjusted Operating Margin
$
61

 
$
44

 
$
17

 
39
 %
 
$
128

 
$
120

 
$
8

 
7
 %
Adjusted PTC
$
54

 
$
34

 
$
20

 
59
 %
 
$
109

 
$
103

 
$
6

 
6
 %
Free Cash Flow
$
59

 
$
352

 
$
(293
)
 
-83
 %
 
$
145

 
$
433

 
$
(288
)
 
-67
 %
Free Cash Flow Attributable to NCI
$
13

 
$
9

 
$
4

 
44
 %
 
$
20

 
$
14

 
$
6

 
43
 %
_____________________________
(1)  
See Item 1. —Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.
Operating Margin for the three months ended June 30, 2017 , increase d by $29 million , or 62% , which was driven primarily by the following (in millions):
Kilroot
 
Higher fair value adjustments of commodity swaps
$
12

Favorable capacity prices due to fixed EUR/GBP rate set by the Regulator
6

Unfavorable clean-dark spread leading to lower dispatch
(4
)
Other
1

Total Kilroot Increase
15

Ballylumford
 
Settlement with offtaker on previous gas transportation charges billed in April 2017
4

Higher energy and capacity prices
3

Lower maintenance costs due to outages in 2016
3

Other
4

Total Ballylumford Increase
14

Total Europe SBU Operating Margin Increase
$
29

Adjusted Operating Margin increase d by $17 million due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives.
Adjusted PTC increase d by $20 million , mainly driven by the increase of $17 million in Adjusted Operating Margin described above.
Free Cash Flow decrease d by $293 million , of which a $4 million increase was attributable to NCI. The decrease in Free Cash Flow was primarily driven by:
•
$368 million in lower collections at Maritza primarily due to the collection of overdue receivables from NEK in April 2016; and
•
Increased working capital requirements of $11 million at Ballylumford primarily due to the timing of outages.
These negative impacts were partially offset by:
•
The settlement of $67 million in payables to Maritza’s fuel supplier;
•
$22 million increase in operating margin (net of $7 million of lower depreciation); and
•
$7 million of lower maintenance and non-recoverable environmental capital expenditures.

47



Operating Margin for the six months ended June 30, 2017 increase d by $26 million , or 20% , which was driven primarily by the following (in millions):
Kilroot
 
Higher fair value adjustments of commodity swaps
$
16

Favorable capacity prices due to fixed EUR/GBP rate set by the Regulator

5

Unfavorable clean-dark spread leading to lower dispatch
(4
)
Other
(2
)
Total Kilroot Increase
15

Ballylumford
 
Settlement with offtaker on previous gas transportation charges billed in April 2017
4

Higher energy and capacity prices
3

Lower maintenance costs due to outages in 2016

2

Other
3

Total Ballylumford Increase
12

Maritza

Lower contracted capacity prices due to PPA amendment
(5
)
Other
(2
)
Total Maritza Decrease
(7
)
Other Business Drivers
6

Total Europe SBU Operating Margin Increase
$
26

Adjusted Operating Margin increase d by $8 million due to the drivers above, adjusted for NCI and excluding unrealized gains and losses on derivatives.
Adjusted PTC increase d by $6 million , mainly driven by the increase of $8 million in Adjusted Operating Margin described above.
Free Cash Flow decrease d by $288 million , of which a $6 million increase was attributable to NCI. The decrease in Free Cash Flow was primarily driven by:
•
$382 million in lower collections at Maritza primarily due to the collection of overdue receivables from NEK in April 2016; and
•
$16 million of higher non-cash mark-to-market valuation adjustments to commodity swaps that impacted operating margin at Kilroot.
These negative impacts were partially offset by:
•
The settlement of $74 million in payables to Maritza’s fuel supplier;
•
$18 million increase in operating margin (net of $8 million of lower depreciation); and
•
$14 million of lower maintenance and non-recoverable environmental capital expenditures.
ASIA SBU
The following table summarizes Operating Margin, Adjusted Operating Margin, Adjusted PTC, and Free Cash Flow (in millions) for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
$ Change
 
% Change
 
2017
 
2016
 
$ Change
 
% Change
Operating Margin
$
45

 
$
46

 
$
(1
)
 
-2
 %
 
$
85

 
$
83

 
$
2

 
2
%
Noncontrolling Interests Adjustment (1)
(25
)
 
(25
)
 
 
 
 
 
(46
)
 
(44
)
 
 
 
 
Derivatives Adjustment
1

 
—

 
 
 
 
 
1

 
—

 
 
 
 
Adjusted Operating Margin
$
21

 
$
21

 
$
—

 
—
 %
 
$
40

 
$
39

 
$
1

 
3
%
Adjusted PTC
$
26

 
$
26

 
$
—

 
—
 %
 
$
48

 
$
48

 
$
—

 
—
%
Free Cash Flow
$
53

 
$
38

 
$
15

 
39
 %
 
$
134

 
$
125

 
$
9

 
7
%
Free Cash Flow Attributable to NCI
$
28

 
$
19

 
$
9

 
47
 %
 
$
69

 
$
63

 
$
6

 
10
%
_____________________________
(1)  
See Item 1. —Business included in our 2016 Form 10-K for the respective ownership interest for key businesses.
There were no significant drivers for the change in Operating Margin, Adjusted Operating Margin, and Adjusted PTC for the three months ended June 30, 2017 , as compared to the three months ended June 30, 2016 .
Free Cash Flow increase d by $15 million , of which $9 million was attributable to NCI. The increase in Free Cash Flow was primarily driven by $26 million in lower working capital requirements at Masinloc due to the timing of payments for coal purchases. This positive impact was partially offset by $6 million in higher maintenance capital expenditures at Masinloc.
There were no significant drivers for the change in Operating Margin, Adjusted Operating Margin, and Adjusted PTC for the six months ended June 30, 2017 , as compared to the six months ended June 30, 2016 .

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Free Cash Flow increase d by $9 million , of which $6 million was attributable to NCI. The increase in Free Cash Flow was primarily driven by $21 million in lower working capital requirements at Masinloc due to the timing of payments for coal purchases. This positive impact was partially offset by $9 million in higher working capital requirements at Mong Duong due to the timing of payments related to the reserve shutdown in the second quarter of 2017.
Key Trends and Uncertainties
During the remainder of 2017 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.
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.
Brazil — The political landscape in Brazil remains uncertain.  As disclosed in the Company’s Form 10-K for the year ended December 31, 2016, Brazilian President Michael Temer was seeking to implement economic reforms in Brazil that would improve the economic outlook in Brazil, which may benefit our businesses in the country. During the second quarter 2017, corruption investigations were formally started against President Temer. These investigations could delay the reform plans which may have benefited our businesses in Brazil.
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 2016 Form 10-K our subsidiaries in Puerto Rico have long- term PPAs with state-owned PREPA, which has been facing economic challenges that could impact the Company.
In order to address these challenges, on June 30, 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) was signed into law. PROMESA creates a structure for exercising federal oversight over the fiscal affairs of U.S. territories and allows for the establishment an Oversight Board with broad powers of budgetary and financial control over Puerto Rico. PROMESA also creates procedures for adjusting debts accumulated by the Puerto Rico government and, potentially, other territories (Title III). Finally, PROMESA expedites the approval of key energy projects and other critical projects in Puerto Rico.
PREPA entered into preliminary Restructuring Support Agreements (“RSA’s”) with their lenders. Under PROMESEA, PREPA submitted the RSA to the Oversight Board for approval on April 28, 2017, which the board denied on June 28, 2017. As a consequence, on July 2, 2017, the Oversight Board filed for bankruptcy on behalf of PREPA under Title III.
As a result of the bankruptcy filing, AES Puerto Rico’s non-recourse debt of $381 million is in default, and has been classified as current as of June 30, 2017. In addition, AES in Puerto Rico's receivables balance as of June 30, 2017, was $103 million, of which $46 million was overdue. After the filing of Title III protection, AES in Puerto Rico has collected the full overdue amount from PREPA in line with historic payment patterns. Additionally, on July 18, 2017, Moody's downgraded AES Puerto Rico to Caa1 from B3 due to the heightened default risk for AES Puerto Rico as a result of PREPA's bankruptcy protection. This protection gives PREPA the ability to reject contracts, including the PPA between PREPA and AES Puerto Rico. While AES Puerto Rico is a low cost energy producer as compared to other plants in the market, there is still a risk that PREPA could terminate the agreement, which could impact the value of AES Puerto Rico or otherwise have a material impact on the Company. Considering the information available as of the filing date, Management believes the carrying amounts of our assets in Puerto Rico of $637 million is recoverable as of June 30, 2017.
Regulatory
DPL ESP Rate Case — In March 2017, DPL, in conjunction with various intervening parties, filed an amendment to its January 2017 settlement in its ESP rate case (the “Amended Settlement”). The Amended

49

Settlement, subject to approval by the PUCO, would provide for a six-year electric security plan, and includes, but is not limited to, the following:
•
Bypassable standard offer energy rates for DP&L’s customers based on competitive bid auctions;
•
A three-year non-bypassable Distribution Modernization Rider designed to collect $105 million in revenue per year which could be extended by the PUCO for an additional two years. The Distribution Modernization Rider will be used for the continuing debt repayment plan as well as the modernization and maintenance of the transmission and distribution infrastructure;
•
A non-bypassable Distribution Investment Rider to recover incremental distribution capital investments;
•
A commitment by the Company to separate DP&L’s generation assets from its transmission and distribution assets (if approved by FERC) within 180 days of the PUCO’s approval of the Amended Settlement;
•
A commitment to commence the sale process of the Company’s ownership interests in the Zimmer, Miami Fort and Conesville coal-fired generation plants; and
•
Restrictions on DPL making dividend or tax sharing payments, various other riders, and competitive retail market enhancements.
A hearing on the Amended Settlement was held in April 2017. A final decision by the PUCO is expected in the second half of 2017. There can be no assurance that the Amended Settlement will be approved as filed, or on a timely basis, and if the final ESP provides for terms that are more adverse than those submitted in DP&L's settlement, our results of operations, financial condition and cash flows could be materially impacted.
International Trade Commission — In April 2017, Suniva, a bankrupt solar photovoltaic panel manufacturer filed a petition with the U.S. International Trade Commission (“ITC”) asserting that solar panels imported into the U.S. were substantially harming domestic manufacturers. Subsequent to filing, SolarWorld Americas, a large U.S. manufacturer of solar panels, joined as a co-petitioner. The ITC accepted the petition and is expected to complete its review by September 2017 and provide recommendations on potential remedies to the U.S. President shortly thereafter. The ITC could recommend, among other measures, the imposition of substantial tariffs on imported panels, which would increase panel costs significantly and impact the value of future solar development projects in the U.S., including those of our solar businesses. A final decision by the President would be made in late 2017 or early 2018. In the absence of an actual outcome, it is difficult to predict the outcome on our solar businesses, but the impact could be material to those businesses and to AES.
Alto Maipo
As disclosed in the Company’s Form 10-Q for the period ended March 31, 2017, Alto Maipo has experienced construction difficulties, which have resulted in an increase in projected cost for the project of up to 22% of the original $2 billion budget. These overages led to a series of negotiations with the intention of restructuring the project’s existing financial structure and obtaining additional funding. On March 17, 2017, the Company completed the legal and financial restructuring of Alto Maipo. As a part of this restructuring, AES Gener simultaneously acquired a 40% ownership interest from Minera Los Pelambres (“MLP”), a noncontrolling shareholder, for a nominal consideration, and sold a 6.7% interest to one of the construction contractors. Through its 67% ownership interest in AES Gener, the Company now has an effective 62% indirect economic interest in Alto Maipo. Additionally, certain construction milestones were amended and if Alto Maipo is unable to meet these milestones, there could be a material impact to the financing and value of the project. For additional information on risks regarding construction and development, refer to Item 1A.— Risk Factors — Our Business is Subject to Substantial Development Uncertainties of the 2016 Form 10-K.
Following the restructuring described above, the project continued to face construction difficulties including greater than expected costs and slower than anticipated productivity by construction contractors towards agreed-upon milestones. Furthermore, during the second quarter of 2017, as a result of the failure to perform by one of its construction contractors, Constructora Nuevo Maipo S.A. (“CNM”), Alto Maipo terminated CNM’s contract. Alto Maipo has hired a temporary replacement contractor to complete a portion of CNM’s work while the search for a permanent replacement contractor continues.  Alto Maipo is currently a party to legal proceedings concerning the termination of CNM and related matters, including but not limited to Alto Maipo’s draws on letters of credit securing CNM’s performance under the parties’ construction contract, totaling $73 million (the “LC Funds”). The LC Funds were recently collected by Alto Maipo and are available to be utilized for on-going construction costs, but CNM may attempt to require Alto Maipo to escrow the LC Funds. The Company cannot anticipate the outcome of the legal proceedings. As a result of the termination of CNM, Alto Maipo’s construction debt of $613 million and derivative liabilities of $139 million are in technical default and presented as current in the balance sheet as of June 30, 2017.

50

Construction at the project is continuing and Alto Maipo is working to resolve the challenges described above. Alto Maipo is seeking a replacement contractor to complete CNM’s work, and continues to maintain a dialogue with lenders and other parties. However, there can be no assurance that Alto Maipo will succeed in these efforts and if there are further delays or cost overruns, or if Alto Maipo is unable to reach an agreement with the non-recourse lenders or other parties, there is a risk that these lenders would seek to exercise remedies available as a result of the default noted above, or that Alto Maipo would not be able to meet its contractual or other obligations and would be unable to continue with the project. If any of the above occur, there could be a material impairment for the Company.
The carrying value of the long-lived assets and deferred tax assets of Alto Maipo as of June 30, 2017 was approximately $1.3 billion and $60 million , respectively. The Parent Company has invested approximately $360 million in Alto Maipo and has an additional equity commitment of $55 million to be funded as part of the March restructuring described above. As a result of the construction difficulties, management assessed the recoverability of the carrying value of the long-lived asset group, noting they were not impaired as of June 30, 2017. In addition, management believes it is more likely than not that the deferred tax assets will be realized, however, they could be reduced if estimates of future taxable income are decreased.
Impairments
Long-lived Assets — During the six months ended June 30, 2017 , the Company recognized asset impairment expense of $184 million at the Kazakhstan CHP and Hydroelectric plants, $66 million at the Stuart and Killen Stations at DPL, and $8 million at Tait Energy Storage in the PJM market. See Note 14 — Asset Impairment Expense included in Item 1.— Financial Statements of this Form 10-Q for further information. After recognizing these asset impairment expenses, the carrying value of the long-lived asset groups, including those that were assessed and not impaired, excluding Alto Maipo, totaled $802 million at June 30, 2017 .
Events or changes in circumstances that may necessitate further 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 that it is more likely than not that the asset will be disposed of before the end of its previously estimated useful life.
Functional Currency
Argentina — In February 2017, the Argentina Ministry of Energy issued Resolution 19/2017 which established changes to the energy price framework. As a result of this resolution, the tariff structure now has prices set in USD, rather than Argentine Pesos, and eliminates the retention of unpaid amounts and the accumulation of receivables with CAMMESA. Concurrent with the establishment of the new price framework, AES Argentina issued $300 million of bonds denominated in USD. Given these significant changes in economic facts and circumstances, the Company changed the functional currency of the Argentina businesses from the Argentine Peso to the USD effective February 2017. Changes to the energy framework could have a material impact on the Company.
Chivor — In May 2017, the Company repaid its outstanding USD denominated debt held at Chivor. In addition, the Company updated Chivor’s future financing strategy to align with the Colombian Peso denominated operational cash flows of the business. Given these changes, the Colombian Peso is now regarded as the currency of the economic environment in which Chivor primarily operates. Therefore, the Company changed the functional currency of the Chivor business from USD to the Columbian Peso effective May 2017.
Foreign Exchange and Commodities
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, as well as FX rates. Volatility in these prices and FX rates could have a material impact on our results. For additional information, refer to Item 3.— Quantitative and Qualitative Disclosures About Market Risk .
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

51

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 2016 Form 10-K. The following discussion of the impact of environmental laws and regulations on the Company updates the discussion provided in Item 1.— Business—Environmental and Land Use Regulations of the 2016 Form 10-K.
Update to Greenhouse Gas Emissions Discussion — We refer to the discussion in Item 1.— Business — United States Environmental and Land - Use Regulations-Greenhouse Gas Emissions in the Company’s 2016 Form 10-K for a discussion of certain recent developments, including the EPA’s CO 2 emissions rules for new electric generating units, or GHG NSPS, as well as the CO 2 emissions rules for existing power plants, called the CPP. Both the GHG NSPS and the CPP are being challenged by several states and industry groups in the D.C. Circuit. The challenges to the CPP have been fully briefed and argued but oral arguments have not yet taken place on the GHG NSPS. On March 28, 2017, the EPA filed a motion in the D.C. Circuit to hold the challenges to both the CPP and the GHG NSPS in abeyance in light of an Executive Order signed the same day. On April 28, 2017, the D.C. Circuit issued orders holding the challenges to both rules in abeyance for 60 days. The Executive Order instructs the EPA Administrator to review the GHG NSPS and CPP and “if appropriate...as soon as practicable...publish for notice and comment proposed rules suspending, revising, or rescinding those rules.” On April 4, 2017, the EPA published a notice in the Federal Register to announce that it is initiating administrative reviews of both the CPP and the GHG NSPS as a result of the Executive Order.
We cannot predict at this time the likely outcome of the EPA’s review of either the CPP or the GHG NSPS. By order of the U.S. Supreme Court, the CPP has been stayed pending resolution of the challenges to the rule. Due to the future uncertainty of the CPP, we cannot at this time determine the impact on our operations or consolidated financial results, but we believe the cost to comply with the CPP, should it be upheld and implemented in its current or a substantially similar form, could be material. The GHG NSPS remains in effect at this time, and, absent further action from the EPA that rescinds or substantively revises the NSPS, it could impact any Company plans to construct and/or modify or reconstruct electric generating units in some locations, which may have a material impact on our business, financial condition or results of operations.
Updates to Water Discharges Regulations Discussion — As further discussed in Item 1.— Business — United States Environmental and Land - Use Regulations - Water Discharges in the Company’s 2016 Form 10-K, the EPA published its final effluent limitations guideline (“ELG”) rule in November 2015 to reduce toxic pollutants discharged into waters of the United States by power plants. These effluent limitations for existing and new sources include dry handling of fly ash, closed-loop or dry handling of bottom ash and more stringent effluent limitations for flue gas desulfurization wastewater. The required compliance time lines for existing sources was to be established between November 1, 2018 and December 31, 2023. On June 6, 2017, the EPA published a proposed rule that would postpone compliance with the ELG rule while it reconsidered the rule. While we are still evaluating the effects of the rule, we anticipate that the implementation of its current requirements could have a material adverse effect on our results of operations, financial condition and cash flows, and a postponement or reconsideration of the rule that leads to less stringent requirements would likely offset some or all of the adverse effects of the rule.
As further discussed in Item 1.— Business — United States Environmental and Land - Use Regulations — Water Discharges in the Company’s 2016 Form 10-K and in Item 1.— Management’s Discussion and Analysis — Key Trends and Uncertainties — Updates to Water Discharge s Discussion in the Company’s Form 10-Q for the fiscal quarter ended March 31, 2017, the EPA published a final rule in June 2015 defining federal jurisdiction over waters of the U.S. This rule, which became effective on August 28, 2015, may expand or otherwise change the number and types of waters or features subject to federal permitting. On October 9, 2015, the U.S. Court of Appeals for the Sixth Circuit (the “Sixth Circuit”) issued an order to temporarily stay the “Waters of the U.S.” rule nationwide. As of June 30, 2017, the Sixth Circuit’s stay remains in place, while its decision is being appealed to the U.S. Supreme Court. On June 27, 2017, the EPA proposed a rule that would rescind the “Waters of the U.S.” rule and re-codify the definition of “Waters of the United States” that existed prior to the 2015 rule. We cannot predict the outcome of this judicial or regulatory process, but if the “Waters of the United States” rule is ultimately implemented in its current or substantially similar form and survives the legal challenges, it could have a material impact on our business, financial condition or results of operations.
Other — On April 13, 2017, as directed by President Trump’s Executive Order 13777, the EPA published a proposed rule called “Evaluation of Existing Regulations,” announcing the formation of a task force to evaluate regulatory burdens and soliciting comments on any federal regulations that should be considered for repeal,

52

replacement, or modification. The task force will attempt to identify regulations that (a) eliminate jobs or inhibit job creation; (b) are outdated, unnecessary, or ineffective; (c) impose costs that exceed benefits; (d) create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies; (e) are based on data or methods that are not transparent or publicly available; and (f) are derived from or implement executive orders that have been rescinded or modified. It is unclear what impact this regulatory evaluation will have on our U.S. businesses.
Capital Resources and Liquidity
Overview — As of June 30, 2017 , the Company had unrestricted cash and cash equivalents of $1.2 billion , of which $127 million was held at the Parent Company and qualified holding companies. The Company also had $740 million in short-term investments, held primarily at subsidiaries. In addition, we had restricted cash and debt service reserves of $891 million . The Company also had non-recourse and recourse aggregate principal amounts of debt outstanding of $16.4 billion and $4.4 billion , respectively.
We expect current maturities of non-recourse debt will 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 $4 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. Generally, a portion or all of the variable rate debt is fixed through the use of interest rate swaps. In addition, the debt is typically denominated in the currency that matches the currency of the revenue expected to be generated from the benefiting project, thereby reducing currency risk. In certain cases, the currency is matched through the use of derivative instruments. The majority of our non-recourse debt is funded by international commercial banks, with debt capacity supplemented by multilaterals and local regional banks.
Given our long-term debt obligations, the Company is subject to interest rate risk on debt balances that accrue interest at variable rates. When possible, the Company will borrow funds at fixed interest rates or hedge its variable rate debt to fix its interest costs on such obligations. In addition, the Company has historically tried to maintain at least 70% of its consolidated long-term obligations at fixed interest rates, including fixing the interest rate through the use of interest rate swaps. These efforts apply to the notional amount of the swaps compared to the amount of related underlying debt. Presently, the Parent Company’s only material unhedged exposure to variable interest rate debt relates to indebtedness under its floating rate $240 million outstanding senior unsecured notes due 2019, its $524 million outstanding secured term loan due 2022 and drawings, if any, under its senior secured credit facility. On a consolidated basis, of the Company’s $20.8 billion of total debt outstanding as of June 30, 2017 , approximately $3.5 billion bore interest at variable rates that were not subject to a derivative instrument which fixed the interest rate. Brazil holds $1.6 billion of our floating rate non-recourse exposure as we have no ability to fix local debt interest rates efficiently.
In addition to utilizing non-recourse debt at a subsidiary level when available, the Parent Company provides a portion, or in certain instances all, of the remaining long-term financing or credit required to fund development, construction or acquisition of a particular project. These investments have generally taken the form of equity investments or intercompany loans, which are subordinated to the project’s non-recourse loans. We generally obtain the funds for these investments from our cash flows from operations, proceeds from the sales of assets and/or the proceeds from our issuances of debt, common stock and other securities. Similarly, in certain of our businesses, the Parent Company may provide financial guarantees or other credit support for the benefit of counterparties who have entered into contracts for the purchase or sale of electricity, equipment or other services with our subsidiaries or lenders. In such circumstances, if a business defaults on its payment or supply obligation, the Parent Company will be responsible for the business’ obligations up to the amount provided for in the relevant guarantee or other credit support. At June 30, 2017 , 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 $826 million in aggregate (excluding those collateralized by letters of credit and other obligations discussed below).

53



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 June 30, 2017 , we had $245 million in letters of credit outstanding provided under our unsecured credit facility, $7 million in letters of credit outstanding provided under our senior secured credit facility, and $3 million in cash collateralized letters of credit outstanding outside of 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 June 30, 2017 , the Company paid letter of credit fees ranging from 0.25% to 2.25%  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 June 30, 2017 , the Company had approximately $279 million of accounts receivable classified as Noncurrent assets—other , primarily related to certain of its generation businesses in Argentina and the United States, and its utility business in Brazil. These noncurrent receivables mostly consist of accounts receivable in Argentina that, pursuant to amended agreements or government resolutions, have collection periods that extend beyond June 30, 2018 , 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 included in Part I—Item 1.— Financial Statements of this Form 10-Q and Item 1.— Business—Argentina—Regulatory Framework included in our 2016 Form 10-K for further information.
Consolidated Cash Flows
The following table reflects the changes in operating, investing, and financing cash flows for the comparative three and six month periods (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Cash flows provided by (used in):
 
2017
 
2016
 
$ Change
 
2017
 
2016
 
$ Change
Operating activities
 
$
251

 
$
723

 
$
(472
)
 
$
954

 
$
1,363

 
$
(409
)
Investing activities
 
(768
)
 
(778
)
 
10

 
(1,108
)
 
(1,326
)
 
218

Financing activities
 
143

 
137

 
6

 
64

 
(43
)
 
107


54



Operating Activities
The following table summarizes the key components of our consolidated operating cash flows (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
$ Change
 
2017
 
2016
 
$ Change
Net Income (loss)
 
$
150

 
$
(387
)
 
$
537

 
$
248

 
$
(313
)
 
$
561

Depreciation and amortization
 
290

 
296

 
(6
)
 
581

 
586

 
(5
)
Impairment expenses
 
90

 
235

 
(145
)
 
258

 
396

 
(138
)
(Gain) loss on extinguishment of debt
 
12

 
—

 
12

 
(5
)
 
(4
)
 
(1
)
Other adjustments to net income
 
105

 
444

 
(339
)
 
166

 
424

 
(258
)
Non-cash adjustments to net income (loss)
 
497

 
975

 
(478
)
 
1,000

 
1,402

 
(402
)
Net income, adjusted for non-cash items
 
$
647

 
$
588

 
$
59

 
$
1,248

 
$
1,089

 
$
159

Net change in operating assets and liabilities (1)
 
$
(396
)
 
$
135

 
$
(531
)
 
$
(294
)
 
$
274

 
$
(568
)
Net cash provided by operating activities   (2)
 
$
251

 
$
723

 
$
(472
)
 
$
954

 
$
1,363

 
$
(409
)
_____________________________
(1)  
Refer to the table below for explanations of the variance in operating assets and liabilities (also generally referred to as “working capital” in the Segment Operating Cash Flow Analysis ).
(2)  
Amounts included in the table above include the results of discontinued operations, where applicable.
Net change in operating assets and liabilities decreased by $531 million for the three months ended June 30, 2017 , compared to the three months ended June 30, 2016 , which was primarily driven by (in millions):
Increases in:
 
Accounts receivable, primarily at Maritza, Alicura and Eletropaulo
$
(499
)
Prepaid expenses and other current assets, primarily at Eletropaulo and Sul as a result of amortization of short-term regulatory assets and energy and regulatory charges in 2016 that did not recur in 2017
(163
)
Accounts payable and other current liabilities, primarily at Maritza, Eletropaulo and Gener
425

Decreases in:
 
Other liabilities, primarily due to higher deferrals into regulatory liabilities related to energy costs in 2016 compared to 2017 at Eletropaulo
(278
)
Other
(16
)
Total decrease in cash from changes in operating assets and liabilities
$
(531
)
Net change in operating assets and liabilities decreased by $568 million for the six months ended June 30, 2017 , compared to the six months ended June 30, 2016 , which was primarily driven by (in millions):
Increases in:
 
Accounts receivable, primarily at Maritza and Eletropaulo
$
(486
)
Prepaid expenses and other current assets, primarily at Eletropaulo and Sul as a result of amortization of short-term regulatory assets and energy and regulatory charges in 2016 that did not recur in 2017. Increase is also attributable to short term regulatory assets primarily at El Salvador and DPL
(317
)
Accounts payable and other current liabilities, primarily at Eletropaulo, Sul and Maritza
423

Income taxes payable, net, and other taxes payable, primarily at Tietê, Chivor, Gener and IPL
194

Decreases in:
 
Other liabilities, primarily due to higher deferrals into regulatory liabilities related to energy costs in 2016 compared to 2017 at Eletropaulo
(344
)
Other
(38
)
Total decrease in cash from changes in operating assets and liabilities
$
(568
)
Investing Activities
Net cash used in investing activities decreased by $10 million for the three months ended June 30, 2017 , compared to the three months ended June 30, 2016 , which was primarily driven by (in millions):
Increases in:
 
Capital expenditures (1)
$
(34
)
Decreases In:
 
Net sales of short-term investments
(198
)
Proceeds from the sales of businesses, net of cash sold (primarily related to the receipt of contingent sales proceeds in 2016 from the sale of Cameroon, partially offset by the sale of Kazakhstan CHPs in 2017)
(12
)
Restricted cash, debt service and other assets
248

Other investing activities
6

Total decrease in net cash used in investing activities
$
10

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

55



Net cash used in investing activities decreased by $218 million for the six months ended June 30, 2017 , compared to the six months ended June 30, 2016 , which was primarily driven by (in millions):
Decreases in:
 
Capital expenditures (1)
$
132

Proceeds from the sales of businesses, net of cash sold (primarily related to the sales of DPLER, Kelanitissa and Jordan in 2016 and the receipt of contingent sales proceeds in 2016 from the sale of Cameroon, partially offset by the sale of Kazakhstan CHPs in 2017)
(123
)
Net purchases of short-term investments
98

Restricted cash, debt service and other assets
130

Other investing activities
(19
)
Total decrease in net cash used in investing activities
$
218

_____________________________
(1)  
Refer to the tables below for a breakout of capital expenditures by type and primary business driver.
Capital Expenditures
The following table summarizes the Company's capital expenditures for growth investments, maintenance, and environmental reported in investing cash activities for the periods indicated (in millions):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
$ Change
 
2017
 
2016
 
$ Change
Growth Investments
 
$
(495
)
 
$
(395
)
 
$
(100
)
 
$
(799
)
 
$
(787
)
 
$
(12
)
Maintenance
 
(140
)
 
(156
)
 
16

 
(286
)
 
(317
)
 
31

Environmental (1)
 
(14
)
 
(64
)
 
50

 
(38
)
 
(151
)
 
113

Total capital expenditures
 
$
(649
)
 
$
(615
)
 
$
(34
)
 
$
(1,123
)
 
$
(1,255
)
 
$
132

_____________________________
(1)  
Includes both recoverable and non-recoverable environmental capital expenditures. See Non-GAAP Measures — Free Cash Flow for more information.
Cash used for capital expenditures increased by $34 million for the three months ended June 30, 2017 , compared to the three months ended June 30, 2016 , which was primarily driven by (in millions):
Decreases in:
 
Growth expenditures at the US SBU, primarily due to lower spending related to the CCGT at IPL, partially offset by increased spending at Southland repowering and various Distributed Energy projects
$
32

Maintenance and environmental expenditures at the US SBU, primarily due to lower spending at IPL on the NPDES and Harding Street refueling projects, decreased spending on MATS and CCR compliance due to project completion and decreased spending at DPL on the Stuart and Killen facilities due to planned plant closures
66

Increases in:
 
Growth expenditures at the Andes SBU, primarily due to increased spending and payments related to the contract restructuring at Alto Maipo, partially offset by lower spending related to Cochrane due to project completion
(82
)
Growth, maintenance and environmental expenditures at the Brazil SBU, primarily due to the quality indicators recovery plan at Eletropaulo, partially offset by the absence of spending at Sul due to its sale in 2016
(24
)
Growth expenditures at the MCAC SBU, primarily due to the timing of construction activities related to the Colon project, partially offset by lower spending on the Combined Cycle project at DPP in Los Mina
(37
)
Other capital expenditures
11

Total increase in net cash used for capital expenditures
$
(34
)
Cash used for capital expenditures decreased by $132 million for the six months ended June 30, 2017 , compared to the six months ended June 30, 2016 , which was primarily driven by (in millions):
Decreases in:
 
Growth expenditures at the US SBU, primarily due to lower spending related to the CCGT at IPL, partially offset by increased spending at Southland repowering and various Distributed Energy projects
$
112

Maintenance and environmental expenditures at the US SBU, primarily due to lower spending at IPL on the NPDES and Harding Street refueling projects, decreased spending on MATS and CCR compliance due to project completion and decreased spending at DPL on the Stuart and Killen facilities due to planned plant closures
133

Increases in:
 
Growth expenditures at the Andes SBU, primarily due to increased spending and payments related to the contract restructuring at Alto Maipo, partially offset by lower spending related to Cochrane due to project completion
(52
)
Growth, maintenance and environmental expenditures at the Brazil SBU, primarily due to the quality indicators recovery plan at Eletropaulo, partially offset by the absence of spending at Sul due to its sale in 2016
(39
)
Growth expenditures at the MCAC SBU, primarily due to the timing of construction activities related to the Colon project, partially offset by lower spending on the Combined Cycle project at DPP in Los Mina
(48
)
Other capital expenditures
26

Total decrease in net cash used for capital expenditures
$
132


56



Financing Activities
Net cash provided by financing activities increased $6 million for the three months ended June 30, 2017 , compared to the three months ended June 30, 2016 , which was primarily driven by (in millions):
Decreases in:
 
Net repayments under the revolving credit facilities, primarily at the US SBU, partially offset by a decrease in net borrowings at the Parent Company and an increase in net repayments at the MCAC SBU
$
22

Contributions from noncontrolling interests, primarily at the MCAC and US SBUs
(51
)
Payments for financed capital expenditures, primarily at the Europe SBU, partially offset by an increase in payments at the Asia SBU
42

Increases in:
 
Payments for financing fees, primarily at the US SBU, partially offset by a decrease in payments at the MCAC SBU
(18
)
Other financing activities
11

Total increase in net cash provided by financing activities
$
6

Net cash provided by financing activities increased $107 million for the six months ended June 30, 2017 , compared to the six months ended June 30, 2016 , which was primarily driven by (in millions):
Decreases in:
 
Purchases of treasury stock by the Parent Company
$
79

Proceeds from the sale of redeemable stock of subsidiaries at IPALCO
(134
)
Increases in:
 
Net issuance of non-recourse debt, primarily at the Brazil SBU
370

Net repayments of recourse debt at the Parent Company (1)
(224
)
Other financing activities
16

Total increase in net cash provided by financing activities
$
107

_____________________________
(1)  
See Note 7 — Debt in Item 1— Financial Statements of this Form 10-Q for more information regarding significant recourse debt transactions.
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment Operating Cash Flow Analysis
Operating Cash Flow by SBU (1)  
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
$ Change
 
2017
 
2016
 
$ Change
US SBU
 
$
152

 
$
193

 
$
(41
)
 
$
303

 
$
400

 
$
(97
)
Andes SBU
 
96

 
105

 
(9
)
 
228

 
143

 
85

Brazil SBU
 
2

 
168

 
(166
)
 
269

 
409

 
(140
)
MCAC SBU
 
49

 
21

 
28

 
134

 
60

 
74

Europe SBU
 
63

 
363

 
(300
)
 
153

 
455

 
(302
)
Asia SBU
 
53

 
31

 
22

 
134

 
103

 
31

Corporate and Other
 
(164
)
 
(158
)
 
(6
)
 
(267
)
 
(207
)
 
(60
)
Total SBUs
 
$
251

 
$
723

 
$
(472
)
 
$
954

 
$
1,363

 
$
(409
)
_____________________________
(1)  
Operating cash flow as presented above include the effects of intercompany transactions with other segments except for interest, tax sharing, charges for management fees and transfer pricing.


57



US SBU
Q22017FORM_CHART-42549.JPG
The decrease in Operating Cash Flow of $41 million was driven primarily by the following (in millions):
US SBU Q2 2017 vs. Q2 2016 (QTD)
 
 
Lower operating margin, net of a decrease in depreciation of $13
 
$
(22
)
Payment to return competitive bid auction deposits at DPL
 
(14
)
Timing of interest payments at DPL
 
(11
)
Timing of collections related to prior year regulatory liabilities at DPL arising from excess collections of the energy efficiency rider in 2016
 
(8
)
Higher collections at IPL, due primarily to the timing of the 2016 rate order
 
16

Other
 
(2
)
Total US SBU Operating Cash Decrease
 
$
(41
)

Q22017FORM_CHART-43441.JPG
The decrease in Operating Cash Flow of $97 million was driven primarily by the following (in millions):
US SBU Q2 2017 vs. Q2 2016 (YTD)
 
 
Lower operating margin, net of a decrease in depreciation of $22
 
$
(32
)
Timing of payments for purchased power and other general accounts payable at DPL
 
(29
)
Lower collections at DPL, primarily due to the settlement of receivable balances at DPLER upon its sale in Q1 2016
 
(21
)
Higher payments for inventory purchases at IPL, due primarily to inventory optimization efforts that occurred in 2016
 
(20
)
Higher payments for general accounts payable at IPL, due to the timing of purchases
 
(14
)
Higher inventory purchases at DPL, due primarily to efforts to reduce coal inventories at the Stuart and Killen plants in 2016
 
(14
)
Higher collections at IPL, primarily due to higher A/R balances in December 2016 resulting from favorable weather and the 2016 rate order
 
34

Other
 
(1
)
Total US SBU Operating Cash Decrease
 
$
(97
)

58



ANDES SBU
Q22017FORM_CHART-42695.JPG
The decrease in Operating Cash Flow of $9 million was driven primarily by the following (in millions):
Andes SBU Q2 2017 vs. Q2 2016 (QTD)
 
 
Higher operating margin, net of increased depreciation of $13
 
$
28

Increase in other working capital requirements in Argentina due primarily to lower collections resulting form the timing of maintenance activities
 
(45
)
Higher tax payments in Chile, due primarily to the timing of the annual tax payment and higher taxable income in 2016
 
(39
)
Lower VAT refunds, primarily at Alto Maipo and Cochrane
 
(26
)
Increase in interest payments at Cochrane, which are no longer capitalized
 
(7
)
Lower tax payments at Chivor, primarily due to lower taxable income in 2016
 
50

Increase in collections of financing receivables in Argentina, resulting primarily from the commencement of commercial operations at the Guillermo Brown plant
 
17

Environmental tax accruals in Chile impacting margin but not operating cash flow
 
13

Total Andes SBU Operating Cash Decrease
 
$
(9
)
Q22017FORM_CHART-43715.JPG
The increase in Operating Cash Flow of $85 million was driven primarily by the following (in millions):
Andes SBU Q2 2017 vs. Q2 2016 (YTD)
 
 
Higher operating margin, net of increased depreciation of $25
 
$
63

Lower tax payments, primarily due to lower taxable income at Chivor in 2016
 
50

Increase in collections of financing receivables in Argentina, resulting primarily from the commencement of commercial operations at the Guillermo Brown plant
 
33

Environmental tax accruals in Chile impacting margin but not operating cash flow
 
25

Lower VAT payments due to timing of construction activities
 
10

Lower collections at Chivor, primarily due to increased sales from Q4 2015 (collected in Q1 2016)
 
(35
)
Increase in other working capital requirements in Argentina due primarily to lower collections resulting form the timing of maintenance activities
 
(40
)
Lower VAT refunds, primarily at Alto Maipo and Cochrane
 
(21
)
Increase in interest payments at Cochrane, which are no longer capitalized
 
(15
)
Other
 
15

Total Andes SBU Operating Cash Increase
 
$
85


59



BRAZIL SBU
Q22017FORM_CHART-42690.JPG
The decrease in Operating Cash Flow of $166 million was driven primarily by the following (in millions):
Brazil SBU Q2 2017 vs. Q2 2016 (QTD)
 
 
Higher operating margin, net of increased depreciation of $8
 
$
27

Higher collections in the prior year of costs deferred in net regulatory assets at Eletropaulo as a result of unfavorable hydrology in prior periods
 
(198
)
Lower collections of accounts receivable at Eletropaulo due primarily to higher tariff flags in 2016
 
(55
)
Lack of AES Sul’s operating cash flow, which was sold in 2016
 
(43
)
Timing of non-income tax payments at Eletropaulo
 
(42
)
Timing of collections at Tietê, due to higher energy sales under bilateral contracts
 
(17
)
Non-cash contingency items at Eletropaulo in 2016
 
(10
)
Timing of payments for energy purchases at Eletropaulo due to lower energy costs and lower regulatory charges
 
184

Other
 
(12
)
Total Brazil SBU Operating Cash Decrease
 
$
(166
)

Q22017FORM_CHART-43687.JPG
The decrease in Operating Cash Flow of $140 million was driven primarily by the following (in millions):
Brazil SBU Q2 2017 vs. Q2 2016 (YTD)
 
 
Higher operating margin, net of increased depreciation of $19
 
$
102

Higher collections in the prior year of costs deferred in net regulatory assets at Eletropaulo as a result of unfavorable hydrology in prior periods
 
(342
)
Lower collections of accounts receivable at Eletropaulo due primarily to higher tariff flags in 2016
 
(134
)
Lack of AES Sul’s operating cash flow, which was sold in 2016
 
(55
)
Timing of non-income tax payments at Eletropaulo
 
(35
)
Increase in pension contributions at Eletropaulo
 
(18
)
Timing of payments for energy purchases at Eletropaulo due to lower energy costs and lower regulatory charges
 
235

Receipt of YPF legal settlement at Uruguaiana
 
60

Lower tax payments at Tietê resulting from lower taxable income in 2016
 
60

Other
 
(13
)
Total Brazil SBU Operating Cash Decrease
 
$
(140
)

60



MCAC SBU
Q22017FORM_CHART-42520.JPG
The increase in Operating Cash Flow of $28 million was driven primarily by the following (in millions):
MCAC SBU Q2 2017 vs. Q2 2016 (QTD)
 
 
Higher operating margin, net of increased depreciation of $3
 
$
26

Lower tax payments in El Salvador, due primarily to lower taxable income in 2016
 
15

Lower working capital requirements in Mexico, primarily due to the timing of payments for fuel purchases at TEG/TEP
 
15

Lower working capital requirements in Puerto Rico, primarily due to the timing of payments for coal purchases
 
11

Higher tax payments in the Dominican Republic, primarily due to higher taxable income in 2016
 
(16
)
Higher interest payments in the Dominican Republic, primarily due to an increase in net debt and higher average interest rates
 
(13
)
Timing of payments for energy purchases in Panama
 
(10
)
Total MCAC SBU Operating Cash Increase
 
$
28


Q22017FORM_CHART-43434.JPG
The increase in Operating Cash Flow of $74 million was driven primarily by the following (in millions):
MCAC SBU Q2 2017 vs. Q2 2016 (YTD)
 
 
Higher operating margin, net of increased depreciation of $3
 
$
38

Lower working capital requirements in the Dominican Republic, primarily due to higher collections of energy sales at Los Mina and the timing of payments for LNG shipments at Andres
 
26

Lower working capital requirements in Puerto Rico, primarily due to the timing of payments for coal purchases and higher collections
 
24

Lower tax payments in the Dominican Republic, primarily due to lower withholding taxes on dividends paid in 2016 to AES Affiliates
 
15

Lower tax payments in El Salvador, due primarily to lower taxable income in 2016
 
15

Higher working capital requirements in El Salvador, primarily due to higher energy purchases deferred into regulatory assets and the timing of collections
 
(35
)
Higher interest payments in the Dominican Republic, primarily due to an increase in net debt and higher average interest rates
 
(11
)
Other
 
2

Total MCAC SBU Operating Cash Increase
 
$
74


61



EUROPE SBU
Q22017FORM_CHART-42471.JPG
The decrease in Operating Cash Flow of $300 million was driven primarily by the following (in millions):
Europe SBU Q2 2017 vs. Q2 2016 (QTD)
 
 
Higher operating margin, net of lower depreciation of $7
 
$
22

Lower collections at Maritza, primarily due to the collection of overdue receivables from NEK in 2016
 
(368
)
Increase in working capital requirements at Ballylumford, primarily due to the timing of outages
 
(11
)
Lower payments to fuel suppliers at Maritza, primarily due to the settlement of overdue invoices in 2016 pursuant to the tripartite agreement with NEK and MMI
 
67

Other
 
(10
)
Total Europe SBU Operating Cash Decrease
 
$
(300
)

Q22017FORM_CHART-43718.JPG
The decrease in Operating Cash Flow of $302 million was driven primarily by the following (in millions):
Europe SBU Q2 2017 vs. Q2 2016 (YTD)
 
 
Higher operating margin, net of lower depreciation of $8
 
$
18

Lower collections at Maritza, primarily due to the collection of overdue receivables from NEK in 2016
 
(382
)
Higher mark-to-market valuation of commodity swaps at Kilroot impacting margin but not operating cash flow
 
(16
)
Lower payments to fuel suppliers at Maritza, due primarily to the settlement of overdue invoices in 2016 pursuant to the tripartite agreement with NEK and MMI
 
74

Other
 
4

Total Europe SBU Operating Cash Decrease
 
$
(302
)


62



ASIA SBU

Q22017FORM_CHART-42485.JPG
The increase in Operating Cash Flow of $22 million was driven primarily by the following (in millions):
Asia SBU Q2 2017 vs. Q2 2016 (QTD)
 
 
Lower working capital requirements at Masinloc due to the timing of payments for coal purchases
 
$
26

Other
 
(4
)
Total Asia SBU Operating Cash Increase
 
$
22



Q22017FORM_CHART-43442.JPG
The increase in Operating Cash Flow of $31 million was driven primarily by the following (in millions):
Asia SBU Q2 2017 vs. Q2 2016 (YTD)
 
 
Decrease in service concession asset expenditures
 
$
24

Lower working capital requirements at Masinloc, primarily due to the timing of payments for coal purchases
 
21

Higher working capital requirements at Mong Duong due to the timing of payments for coal purchases
 
(9
)
Other
 
(5
)
Total Asia SBU Operating Cash Increase
 
$
31



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CORPORATE AND OTHER

Q22017FORM_CHART-42440.JPG
The decrease in Operating Cash Flow of $6 million was driven primarily by the following (in millions):
Corporate and Other Q2 2017 vs. Q2 2016 (QTD)
 
 
Timing of annual property insurance premiums received from SBUs
 
$
(20
)
Higher payments for interest expense, primarily due to timing
 
(8
)
Timing of intercompany settlements with SBUs
 
(4
)
Lower realized losses on oil derivatives
 
5

Other
 
21

Total Corporate and Other Operating Cash Decrease
 
$
(6
)

Q22017FORM_CHART-43370.JPG
The decrease in Operating Cash Flow of $60 million was driven primarily by the following (in millions):
Corporate and Other Q2 2017 vs. Q2 2016 (YTD)
 
 
Timing of intercompany settlements with SBUs
 
$
(38
)
Higher realized losses on oil derivatives
 
(22
)
Higher payments for people-related costs and associated payroll taxes
 
(18
)
Other
 
18

Total Corporate and Other Operating Cash Decrease
 
$
(60
)


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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. 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):
 
June 30, 2017
 
December 31, 2016
Consolidated cash and cash equivalents
$
1,213

 
$
1,305

Less: Cash and cash equivalents at subsidiaries
(1,086
)
 
(1,205
)
Parent Company and qualified holding companies’ cash and cash equivalents
127

 
100

Commitments under Parent Company credit facilities
1,100

 
800

Less: Letters of credit under the credit facilities
(7
)
 
(6
)
Borrowings available under Parent Company credit facilities
1,093

 
794

Total Parent Company Liquidity
$
1,220

 
$
894

The Company paid dividends of $0.12 per share to its common stockholders during both the first and second quarter of 2017 for dividends declared in December 2016 and February 2017. While we intend to continue payment of dividends, and believe we will have sufficient liquidity to do so, we can provide no assurance that we will continue to pay dividends, or if continued, the amount of such dividends.
Recourse Debt
Our total recourse debt was $4.4 billion and $4.7 billion as of June 30, 2017 and December 31, 2016 , 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 2016 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 2016 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 June 30, 2017 , 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

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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.
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 $2.6 billion . The portion of current debt related to such defaults was $994 million  at June 30, 2017 , all of which was non-recourse debt related to two subsidiaries — Puerto Rico and Alto Maipo. 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 June 30, 2017 , 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 June 30, 2017 , 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. The Company’s significant accounting policies are described in Note 1— General and Summary of Significant Accounting Policies of our 2016 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 2016 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 six months ended June 30, 2017 .
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Overview Regarding Market Risks — Our businesses are exposed to and proactively manage market risk. Our primary market risk exposure is to the price of commodities, particularly electricity, oil, natural gas, coal and environmental credits. In addition, our businesses are exposed to lower electricity prices due to increased competition, including from renewable sources such as wind and solar, as a result of lower costs of entry and lower variable costs. We operate in multiple countries and as such, are subject to volatility in exchange rates at varying degrees at the subsidiary level and between our functional currency, the U.S. Dollar, 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.

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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 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 2016 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. At our generation businesses for 2017-2019, 75% to 80% of our variable margin is hedged against changes in commodity prices. At our utility businesses for 2017-2019, 85% to 90% of our variable margin is insulated from changes in commodity prices.
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 2017 , we project pretax earnings exposure on a 10% move in commodity prices would be approximately $5 million for U.S. power (DPL), less than $5 million for natural gas, less than $5 million for oil and less than $5 million for 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 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. Additionally, at DPL, competitive retail markets permit our customers to select alternative energy suppliers or elect to remain in aggregated customer pools for which energy is supplied by third party suppliers through a competitive auction process. DPL participates in these auctions held by other utilities and sells the remainder of its economic energy into the wholesale market. Given that natural gas-fired generators generally get energy prices for many markets, higher natural gas prices tend to expand our coal fixed margins. 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 Andes 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

67



amount of hydrological inflows. In the case of low hydroelectric generation, spot price exposure is capped by the ability to dispatch our 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, generators with oil or oil-linked fuel 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 the Brazil SBU, the hydroelectric generating facility is covered by contract sales. Under normal hydrological volatility, spot price risk is mitigated through a regulated sharing mechanism across all hydroelectric generators in the country. Under drier conditions, the sharing mechanism may not be sufficient to cover the business' contract position, and therefore it may have to purchase power at spot prices driven by the cost of thermal generation.
In the MCAC SBU, our businesses have commodity exposure on unhedged volumes. Panama is highly contracted under a portfolio of fixed volume contract sales. To the extent hydrological inflows are greater than or less than the contract sales volume, the business will be sensitive to changes in spot power prices which may be driven by oil 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 Europe 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 generators displaces higher cost generation, reducing Kilroot's margins, and vice versa.
In the Asia SBU, our Masinloc business is a coal-fired generation facility which hedges its output under a portfolio of contract sales that are indexed to fuel prices, with generation in excess of contract volume or shortfalls of generation relative to contract volumes settled in the spot market. Low oil prices may be a driver of margin compression since oil affects spot power sale prices sold in the spot market. 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 U.S. Dollar ("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, Kazakhstan Tenge, Mexican Peso and Philippine 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 economic value of the business and minimize 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 a 12-month forward- looking period stem from the following currencies: Brazilian Real, Euro, Colombian Peso, British Pound, and Kazakhstani Tenge. As of June 30, 2017 , assuming a 10% USD appreciation, cash distributions attributable to foreign subsidiaries exposed to movement in the exchange rate of the Brazilian Real, British Pound, Colombian Peso, Euro and Kazakhstani Tenge each are projected to be reduced by less than $5 million for 2017 . These numbers have been produced by applying a one-time 10% USD appreciation to forecasted exposed cash distributions for 2017 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

68



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 June 30, 2017 , the portfolio’s pretax earnings exposure for 2017 to a one-time 100-basis-point increase in interest rates for our Argentine Peso, Brazilian Real, Colombian Peso, Euro, Kazakhstani Tenge and USD denominated debt would be approximately $15 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 June 30, 2017 , 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 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 June 30, 2017.
In 1989, Centrais Elétricas Brasileiras S.A. (“Eletrobrás”) filed suit in the Fifth District Court in the state of Rio de Janeiro (“FDC”) against Eletropaulo Eletricidade de São Paulo S.A. (“EEDSP”) relating to the methodology for calculating monetary adjustments under the parties' financing agreement. In April 1999, the FDC found in favor of Eletrobrás and in September 2001, Eletrobrás initiated an execution suit in the FDC to collect approximately R$2 billion ( $611 million ) from Eletropaulo as estimated by Eletropaulo (or approximately R$2.71 billion ( $819 million ) as of March 2017, as estimated by Eletrobrás, and possibly legal costs) and a lesser amount from an unrelated company, Companhia de Transmissão de Energia Elétrica Paulista (“CTEEP”) (Eletropaulo and CTEEP were spun off of EEDSP pursuant to its privatization in 1998). In November 2002, the FDC rejected Eletropaulo's defenses in the execution suit. On appeal, the case was remanded to the FDC for further proceedings to determine whether Eletropaulo is liable for the debt. In December 2012, the FDC issued a decision that Eletropaulo is liable for the debt. However, that decision was annulled on appeal and the case was remanded to the FDC for further proceedings. On remand at the FDC, the FDC appointed an accounting expert to analyze the issues in the case. In September 2015, the expert issued a preliminary report concluding that Eletropaulo is liable for the debt, without quantifying the debt. Eletropaulo thereafter submitted questions to the expert and reports rebutting the expert's preliminary report (“Rebuttal Reports”). In April 2016, Eletrobrás requested that the expert determine both the criteria to calculate the debt and the amount of the debt. In April 2017, the FDC ordered the expert to comment on Eletropaulo’s Rebuttal Reports and to analyze the questions presented by the parties. It is unclear when the expert will respond. Ultimately, a decision will be issued by the FDC, which will be free to reject or adopt in whole or in part the expert's report. If the FDC again determines that Eletropaulo is liable for the debt, Eletrobrás will be entitled to resume the execution suit in the FDC. If Eletrobrás does so, Eletropaulo will be required to provide security for its alleged liability. In addition, in February 2008, CTEEP filed a lawsuit in the FDC against Eletrobrás and Eletropaulo seeking a declaration that CTEEP is not liable for any debt under the financing agreement. In June 2016, the FDC dismissed CTEEP’s lawsuit, on the ground that CTEEP’s claim would be decided in the FDC lawsuit initiated by Eletrobrás. Eletropaulo believes 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. If Eletrobrás requests the seizure of the security noted above and the FDC grants such request (or if a court determines that Eletropaulo is liable for the debt), Eletropaulo's results of operations may be materially adversely affected and, in turn, the Company's results of operations may also be materially adversely affected. Eletropaulo and the Company could face a loss of earnings and/or cash flows and may have to provide loans or equity to support affected businesses or projects, restructure them, write down their value, and/or face the possibility that Eletropaulo cannot continue operations or provide returns consistent with our expectations, any of which could have a material impact on the Company.
In September 1996, a public civil action was asserted against Eletropaulo and Associação Desportiva Cultural Eletropaulo (the “Associação”) relating to alleged environmental damage caused by construction of the Associação near Guarapiranga Reservoir. The initial decision that was upheld by the Appellate Court of the state of São Paulo in 2006 found that Eletropaulo should repair the alleged environmental damage by demolishing certain construction and reforesting the area, and either sponsor an environmental project which would cost approximately R$2 million ( $605 thousand ) as of December 31, 2015, or pay an indemnification amount of approximately R$15 million ( $5 million ). Eletropaulo has appealed this decision to the Supreme Court and the Supreme Court affirmed the decision of the Appellate Court. Following the Supreme Court's decision, the case has been remanded to the court of first instance for further proceedings and to monitor compliance by the defendants with the terms of the decision. In January 2014, Eletropaulo informed the court that it intended to comply with the court's decision by donating a green area inside a protection zone and restore watersheds, the aggregate cost of which is expected to be approximately R$2 million ( $605 thousand ). Eletropaulo also requested that the court add the current owner of the land where the Associação facilities are located, Empresa Metropolitana de Águas e Energia S.A. (“EMAE”), as a party to the lawsuit and order EMAE to perform the demolition and reforestation aspects of the court's decision. In July 2014, the court requested the Secretary of the Environment for the State of São Paulo to notify the court of its

70



opinion regarding the acceptability of the green areas to be donated by Eletropaulo to the State of São Paulo. In January 2015, the Secretary of the Environment for the State of São Paulo notified Eletropaulo and the court that it would not accept Eletropaulo's proposed green areas donation. Instead of such green areas donation, the Secretary of the Environment proposed in March 2015 that Eletropaulo undertake an environmental project to offset the alleged environmental damage. Since March 2015, Eletropaulo and the Secretary of Environment have been working together to define an environmental project, which will be submitted for approval by the Public Prosecutor. The cost of such project is currently estimated to be R$3 million ( $1 million ).
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 is scheduled for August 24, 2017. 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 March 2003, the office of the Federal Public Prosecutor for the State of São Paulo, Brazil (“MPF”) notified Eletropaulo that it had commenced an inquiry into the BNDES financings provided to AES Elpa and AES Transgás, the rationing loan provided to Eletropaulo, changes in the control of Eletropaulo, sales of assets by Eletropaulo, and the quality of service provided by Eletropaulo to its customers. The MPF requested various documents from Eletropaulo relating to these matters. In July 2004, the MPF filed a public civil lawsuit in the Federal Court of São Paulo (“FCSP”) alleging that BNDES violated Law 8429/92 (“the Administrative Misconduct Act”) and BNDES's internal rules by (1) approving the AES Elpa and AES Transgás loans; (2) extending the payment terms on the AES Elpa and AES Transgás loans; (3) authorizing the sale of Eletropaulo's preferred shares at a stock-market auction; (4) accepting Eletropaulo's preferred shares to secure the loan provided to Eletropaulo; and (5) allowing the restructurings of Light Serviços de Eletricidade S.A. and Eletropaulo. The MPF also named AES Elpa and AES Transgás as defendants in the lawsuit because they allegedly benefited from BNDES's alleged violations. In May 2006, the FCSP ruled that the MPF could pursue its claims based on the first, second, and fourth alleged violations noted above. The MPF subsequently filed an interlocutory appeal with the Federal Court of Appeals (“FCA”) seeking to require the FCSP to consider all five alleged violations. In April 2015, the FCA issued a decision holding that the FCSP should consider all five alleged violations. AES Elpa and AES Brasiliana (the successor of AES Transgás) have appealed the April 2015 decision to the Superior Court of Justice. The lawsuit remains pending before the FCSP. AES Elpa and AES Brasiliana believe they have meritorious defenses to the allegations asserted against them and will defend themselves vigorously in these proceedings; however, there can be no assurances that they will be successful in their 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 ( $18 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

71



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. 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 May 2008, the Tax Authority initiated a collection suit against Eletropaulo, seeking to collect approximately R$230 million ( $70 million ) in PIS taxes (as estimated by Eletropaulo) for the period of March 1996 to December 1998. Unfavorable decisions on the merits were issued by the First Instance Court (“FIC”) and the Second Instance Court (“SIC”) in January 2011 and April 2015, respectively. Subsequently, Eletropaulo requested that the SIC remit the case to the Superior Court of Justice (“STJ”) and the Supreme Federal Court (“STF”). In March 2017, the SIC rejected Eletropaulo’s request. Eletropaulo has requested that an SIC panel review the March 2017 decision. In addition, Eletropaulo has appealed that decision to the STJ and STF. Also, in April 2017, in a related execution proceeding, the FIC asked the Tax Authority to advise on whether it intends to pursue collection. After it is officially notified, the Tax Authority may request that Eletropaulo replace its bank guarantee with a cash deposit of the amount in dispute into a judicial account (currently, the bank guarantee is in place as security for Eletropualo’s alleged obligation). If necessary, Eletropaulo will contest any request that it must make a cash deposit. Eletropaulo believes it has meritorious defenses and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.
In October 2009, IPL received an NOV and Finding of Violation from the EPA pursuant to the CAA Section 113(a). The NOV alleges violations of the CAA at IPL's three primarily coal-fired electric generating facilities dating back to 1986. The alleged violations primarily pertain to the Prevention of Significant Deterioration and nonattainment New Source Review requirements under the CAA. IPL management previously met with EPA staff regarding possible resolutions of the NOV. At this time, we cannot predict the ultimate resolution of this matter. However, settlements and litigated outcomes of similar cases have required companies to pay civil penalties, install additional pollution control technology on coal-fired electric generating units, retire existing generating units, and invest in additional environmental projects. A similar outcome in this case could have a material impact to IPL and could, in turn, have a material impact on the Company. IPL would seek recovery of any operating or capital expenditures related to air pollution control technology to reduce regulated air emissions; however, there can be no assurances that it would be successful in that regard.
In June 2011, the São Paulo Municipal Tax Authority (the “Tax Authority”) filed 60 tax assessments in São Paulo administrative court against Eletropaulo, seeking to collect services tax (“ISS”) that allegedly had not been paid on revenues for services rendered by Eletropaulo. Eletropaulo challenged the assessments on the grounds that the revenues at issue were not subject to ISS. In October 2013, the First Instance Administrative Court (“FIAC”) determined that Eletropaulo was liable for ISS, interest, and related penalties totaling approximately R$3.3 billion ( $1 billion ) as estimated by Eletropaulo. Eletropaulo thereafter appealed to the Second Instance Administrative Court (“SIAC”). In January 2016, the Tax Authority nullified most of the ISS sought from Eletropaulo. In January 2017, the SIAC issued a decision confirming the reduction and rejecting certain other amounts of ISS as time-barred, but finding that Eletropaulo was liable for the remainder of ISS totaling approximately R$200 million ( $60 million ). The Tax Authority appealed the SIAC’s decision on the time-barred amounts, totaling approximately R$16 million ( $5 million ) (“Time-Barred Amounts”), to the Municipal Council of Taxes (“MCT Proceeding”). With respect to the R$200 million , in March 2017, the Tax Authority canceled most of that amount (“March 2017 Cancelation”), and initiated an execution lawsuit to collect the remainder of approximately R$70 million ( $21 million ) (“Execution Lawsuit”). The Time-Barred Amounts and the March 2017 Cancelation will be reviewed in the ongoing MCT Proceeding. The Execution Lawsuit is also ongoing. Eletropaulo believes it has meritorious defenses 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$980 million ( $296 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 Court (“SAC”). In March 2017, the President of the SAC determined that the SAC would analyze the Special Appeal

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on timeliness and, if required, the merits. AES Tietê has challenged the Special Appeal. 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, 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 New Source Review (“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 Alto Maipo’s hydropower project, for, among other things, operating vehicles at unauthorized times and failing to mitigate the impact of water intrusion during tunnel construction. In February 2017, Alto Maipo submitted a compliance plan to the SMA which, if approved by the agency, would resolve the matter without materially impacting construction of the project. In June 2017, the SMA issued a resolution detailing its comments on the compliance plan. Alto Maipo responded to the SMA’s comments in July 2017. The SMA is expected to issue its decision on Alto Maipo’s compliance plan in the near future. The outcome of this matter is uncertain, but an adverse decision by the SMA could have a negative impact on the construction of the project. Alto Maipo will pursue its interests vigorously in this matter; however, there can be no assurance 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. Alto Maipo also initiated arbitration against CNM to recover completion costs and other damages relating to these matters. CNM subsequently initiated a separate arbitration, seeking a declaration that its termination was wrongful, damages, and other relief. CNM has not quantified its alleged damages. The arbitrations have been consolidated into a single action. Furthermore, Alto Maipo drew on letters of credit securing CNM’s performance, totaling approximately $73 million. Initially, the issuing bank did not pay Alto Maipo because CNM obtained an ex parte injunction from a Chilean court prohibiting the bank from honoring the draws. However, at Alto Maipo’s request, the Chilean court later removed the injunction. The bank thereafter paid Alto Maipo in full. CNM is seeking relief in the Chilean court of appeals and the arbitration in relation to the draws on the letters of credit. Alto Maipo believes it has meritorious claims and defenses and will assert them vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.

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ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Part I — Item 1A. —Risk Factors of our 2016 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
No repurchases were made by the AES Corporation of its common stock during the second quarter of 2017.
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 June 30, 2017 , $246 million remained available for repurchase under the Program.
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 Severance Plan, as amended and restated on August 4, 2017 (filed herewith).
10.2
 
The AES Corporation Amended and Restated Executive Severance Plan dated August 4, 2017 (filed herewith).
10.3
 
Credit Agreement dated as of May 24, 2017 among The AES Corporation, as borrower, the banks listed therein and Bank of America, N.A., as administrative agent is incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed on May 24, 2017.
10.4
 
Amendment No. 2, dated as of June 28, 2017, to the Sixth Amended and Restated Credit Reimbursement Agreement, dated as of July 26, 2013 among The AES Corporation, a Delaware corporation, the Banks listed on the signature pages thereof and Citibank N.A., as Administrative Agent and Collateral Agent is incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K filed on June 29, 2017.
10.4.A
 
Annex A to the Amendment No. 2, date as of June 28, 2017, to the Sixth Amended and Restated Credit and Reimbursement Agreement, dated as of July 26, 2013 is incorporated herein by reference to Exhibit 10.1.A of the Company’s Form 8-K filed on June 29, 2017.
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 (filed herewith).
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).

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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:
August 7, 2017
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/ F ABIAN  E. S OUZA
 
 
 
 
Name:
Fabian E. Souza
 
 
 
 
Title:
Vice President and Controller (Principal Accounting Officer)

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THE AES CORPORATION
AMENDED AND RESTATED
SEVERANCE PLAN AND
SUMMARY PLAN DESCRIPTION



1



ARTICLE I
GENERAL PROVISIONS
1.1     Establishment and Purpose .
The purpose of the AES Corporation Amended and Restated Severance Plan (as may be further amended and restated from time to time, the “Plan”), is to provide certain severance and welfare benefits, as set forth herein, to certain Eligible Employees who are involuntarily terminated from employment as provided herein. Benefits payable under this Plan are generally intended for Participants who are involuntarily terminated without Cause. Please review Article 7 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 Participants and such 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

1


other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code.
“ Annual Compensation ” means (i) a Participant’s annualized base salary as in effect as of the Participant’s Termination Date or (ii) in the event that a Participant is an hourly employee, the person’s cumulative base earnings (excluding bonuses for the previous completed calendar year prior to 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, overtime pay, bonuses, shift differential, 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 groups of one or more Participants, as approved by the Company and updated by the Administrator from time to time.
“ Board ” means the Board of Directors of the Company.
“ 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” (as defined below) 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

2


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 adoption of this Plan.
“ 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.
“ 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 28, 2011, and as last amended on July 14, 2017.
“ Eligible Employee ” means any Employee of the Employer who: (i) is not an Ineligible Employee (within the meaning of Section 2.2) and (ii) has completed one Year-of-Service as a full-time Employee.

3


“ 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 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.
“ Good Reason ” or “ Good Reason Termination ” means, without a Participant’s written consent, the Separation From Service (for reasons other than death, Disability or Cause) by a Participant due to any of the following events occurring within two years of the consummation of a Change in Control: (i) the relocation of a Participant’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; (ii) a material diminution in the duties or responsibilities of a Participant from those in place immediately prior to such Change in Control; and (iii) a material reduction in the base salary or annual incentive opportunity of a Participant from what was in place immediately prior to such Change in Control.
In order for a Participant to terminate for Good Reason, (i) a Participant must notify the successor entity in writing, within ninety (90) days of the event constituting Good Reason of the Participant’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 a Participant notifies the successor entity in writing of the Participant’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.
“ 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 employee) 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;

4


•
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 2.4 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;
•
Permanent job elimination;
•
The restructuring or reorganization of a business unit, division, department or other segment;
•
Termination by Mutual Consent; or
•
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 2.4 or in connection with a Separation From Service following a Change in Control, a Participant who is an officer of the Company as appointed by the Board 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 Employee who satisfies 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 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.

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“ 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 Participant’s Separation From Service (or scheduled date of Separation From Service, as applicable).
“ Weeks Compensation ” means one fifty second (1/52) of a Participant’s Annual Compensation.
“ 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 the Participant’s Separation From Service is by reason of an Involuntary Termination or for Good Reason. A Participant who fails to execute the release in the time and manner

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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. A Participant who satisfies all of the terms and conditions specified in this Plan and who becomes entitled to receive benefits hereunder shall be referred to herein as a “Participant.”
2.2     Ineligible Employees . Notwithstanding any provision of this Plan to the contrary, the following Employees (“Ineligible Employees”) are not eligible to participate in the Plan:
•
Any Employee who has been hired to work on a part-time, seasonal or temporary basis or who is classified as a part-time, seasonal or temporary Employee, or a student intern on the Employer’s records;
•
Any Employee who has been hired by the Employer to work in a job share position (provided that such Employee is not otherwise employed on a full-time basis);
•
An Employee who is member of a collective bargaining unit to which this Plan has not been specifically extended by a collective bargaining agreement;
•
An Employee entitled to a severance type payment pursuant to any other plan, policy, arrangement, agreement, letter or other communication sponsored by, or entered into with, or maintained by the Employer, including but not limited to an employment agreement;
•
Leased employees, including those within the meaning of section 414(n) of the Code;
•
Nonresident aliens (other than those nonresident aliens to whom the Employer has extended participation in the Plan with the written consent of the Company);
•
Any individual who has agreed in writing that he or she waives his or her eligibility to receive benefits under the Plan; and
•
Any Employee who has an enforceable right to resume employment or to be recalled to employment with the Employer.
2.3     Transfer of Employment .
If a Participant transfers to a location of AES to which this Plan has not been extended, such Participant shall cease to be eligible to participate in this Plan unless the Participant’s prior Employer has agreed in writing to continue to extend participation in the Plan to the Employee with the consent of the Company.
2.4     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:

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•
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 2.4 shall not apply if a Participant’s Separation From Service occurs in connection with a Change of Control.
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. Notwithstanding the foregoing, nothing in the Plan 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).
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 .

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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 and herein. 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.

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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.


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4.5     Enhanced Benefits .
In the event a Participant has a Separation From Service due to an Involuntary Termination by the Company (other than for Cause or Disability or due to death), or the Participant has a Separation From Service for Good Reason, in either case within two (2) years following a Change in Control, then the Participant shall receive a separation payment under Section 4.1 multiplied by 2.0 and medical/dental/vision benefits under Section 4.2 multiplied by 2.0; provided, however, that 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 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-month period will be paid on the first business day of the seventh month following the Separation From Service.
                     ARTICLE V     
PLAN ADMINISTRATION
5.1     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.
5.2     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, to correct deficiencies, and to 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

11


any Affiliated Employer, terminate any right of such Participant to participate in, or receive any benefits under, the Plan.
5.3     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.
5.4     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.
ARTICLE VI     
CLAIMS
6.1     General .
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 a 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.
6.2     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).


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6.3     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.
6.4     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 VII     
PLAN AMENDMENTS
7.1     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 7.2, no such amendment, modification or

13


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.
7.2     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 7.2) 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 VIII     
MISCELLANEOUS
8.1     Plan Document .
To the extent any other written communication to a Participant conflicts with this Plan, the Plan document shall control.
8.2     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.


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8.3     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.
8.4     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.
8.5     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.
8.6     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.
8.7     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.
8.8     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.
8.9     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

15


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.
8.10     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 IX     
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:
9.1     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.
9.2     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.
9.3     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

16


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.
9.4     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 X     
SUMMARY INFORMATION
Name of Plan: The name of the plan under which benefits are provided is The AES Corporation Amended and Restated Severance Plan.
Plan Number : 502
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.

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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).


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The AES Corporation Amended and Restated Severance Plan has been duly executed by the undersigned on this 4th day of August, 2017.
The AES Corporation


By:     /s/ Brian A. Miller    
Brian A. Miller, Executive Vice President
General Counsel and Corporate Secretary



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BENEFITS SCHEDULE
Title/Grade Classification
Severance Benefits
(Min. 1 Year-of-Service for Eligibility)
Grades 24 -27
One (1) times (Annual Compensation) (Section 4.1)
Health Benefits (Section 4.2)
Outplacement Benefits (Section 4.3)
Prorated Bonus (Section 4.4)
Special Enhanced Benefits (Section 4.5)
Grades 19 -23
Three (3) months prorated Annual Compensation plus two (2) Weeks’ Compensation for each Year-of-Service up to a maximum of thirty-nine (39) Week’s Compensation (Section 4.1)
Health Benefits (Section 4.2)
Grades 18 and below
Two (2) months prorated Annual Compensation plus two (2) Weeks’ Compensation for each Year-of-Service up to a maximum of twenty-six (26) Week’s Compensation (Section 4.1)
Health Benefits (Section 4.2)



20



THE AES CORPORATION SEVERANCE PLAN
List of Participating Employers
The Administrator maintains a list of Participating Employers

21



THE AES CORPORATION

AMENDED AND RESTATED

EXECUTIVE SEVERANCE PLAN AND
SUMMARY PLAN DESCRIPTION



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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 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

1


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

2


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 July 14, 2017.
“ 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

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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;

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•
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.

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“ 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.

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2.2     Ineligible Executives . Notwithstanding any provision of this Plan to the contrary, no individual shall be eligible to participate in the Plan unless so designated by the Board and/or the Administrator.
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

7


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

8


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

9


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

10


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

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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

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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.

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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.
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).



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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

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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.


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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

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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

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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).

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The AES Corporation Amended and Restated Executive Severance Plan has been duly executed by the undersigned on this 4th day of August, 2017.
The AES Corporation


By:     /s/ Brian A. Miller    
Brian A. Miller
Executive Vice President, General Counsel and     Corporate Secretary



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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,

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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.

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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 within ten (10) days following the Chief Executive Officer’s Termination Date (or, if later, the date the Chief Executive Officer has provided 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.

(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:


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(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 (i) 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 (ii) 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.






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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.

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(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.”

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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 within ten (10) days following the Appendix B Executive’s Termination Date (or, if later, the date the Appendix B Executive has provided 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.


27


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) 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 (b) 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.


28


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.


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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:


30



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

The Administrator maintains a list of Participating Employers



31



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: August 7, 2017
 
/ 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: August 7, 2017
 
/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 June 30, 2017 , (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: August 7, 2017
 
/ 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 June 30, 2017 , (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: August 7, 2017
 
/s/ T HOMAS  M. O’F LYNN
Name: Thomas M. O’Flynn
Executive Vice President and Chief Financial Officer