AES CORP

Components of Revenue, Cost of Sales and Operating Margin —Revenue includes revenue earned from the sale of energy from our utilities and the production and sale of energy from our generation plants, which are classified as regulated and non-regulated, respectively, on the Consolidated Statements of Operations. Revenue also includes the gains or losses on derivatives associated with the sale of electricity.

Cost of sales includes costs incurred directly by the businesses in the ordinary course of business. Examples include electricity and fuel purchases, operations and maintenance costs, depreciation and amortization expenses, bad debt expense and recoveries, and general administrative and support costs (including employee-related costs directly associated with the operations of the business). Cost of sales also includes the gains or losses on derivatives (including embedded derivatives other than foreign currency embedded derivatives) associated with the purchase of electricity or fuel.

Operating margin is defined as revenue less cost of sales.

Consolidated Revenue and Operating Margin

Year Ended December 31, 2023

Revenue

Consolidated Revenue —Revenue increased $51 million in 2023 compared to 2022, driven by:

•$446 million at Renewables driven by higher spot sales at higher prices, and new projects placed in service; partially offset by unrealized derivative losses; and

•$73 million at New Energy Technologies mainly driven by the sale of the Fallbrook project in March 2023.

These favorable impacts were partially offset by decreases of:

•$368 million at Energy Infrastructure driven by prior year favorable LNG transactions, lower contract energy sales due to lower prices, lower CO 2 purchases passed through due to lower production, lower generation, and the impact of the devaluation of the Argentine peso; partially offset by unrealized gains resulting mainly from derivatives as part of our commercial hedging strategy, and higher revenues due to a PPA termination agreement; and

•$122 million at Utilities mainly driven by lower demand due to milder weather in Indiana and Ohio; partially offset by higher TDSIC rider and transmission revenues, and higher demand due to extreme heat in El Salvador.

Operating Margin

Consolidated Operating Margin —Operating margin decreased $44 million, or 2%, in 2023 compared to 2022, driven by:

•$117 million at Energy Infrastructure primarily driven by prior year favorable LNG transactions, lower contract energy sales due to lower prices, lower dispatch driven by lower demand, higher fixed costs, and a prior year one-time revenue recognition driven by a reduction in a project's expected completion costs; partially offset by unrealized gains resulting mainly from derivatives as part of our commercial hedging strategy, and higher revenues due to a PPA termination agreement; and

•$36 million at Renewables mainly driven by higher fixed costs due to an accelerated growth plan and unrealized derivative losses; partially offset by new projects placed in service, better hydrology, and higher wind availability, resulting in higher renewable energy generation.

These unfavorable impacts were partially offset by increases of:

•$57 million at Corporate and Other primarily driven by a decrease in reserve for losses and higher premiums earned by the AES self-insurance company; and

•$54 million at Utilities primarily driven by the deferral of purchased power costs in the current year, which were recognized in the prior year, associated with the ESP 4 approval, an increase in transmission and TDSIC rider revenues, higher demand due to extreme heat in El Salvador, and a regulatory settlement in the prior year; partially offset by the impact of milder weather in Indiana and Ohio, and higher fixed costs.

See Item 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations—SBU Performance Analysis of this Form 10-K for additional discussion and analysis of operating results for each SBU.

Consolidated Results of Operations — Other

General and administrative expenses

General and administrative expenses include expenses related to corporate staff functions and initiatives, executive management, finance, legal, human resources, and information systems, as well as global development costs.

General and administrative expenses increased $48 million, or 23%, to $255 million in 2023 compared to $207 million in 2022, primarily due to increased business development activity.

Interest expense

Interest expense increased $202 million, or 18%, to $1.3 billion in 2023, compared to $1.1 billion in 2022, primarily due to new debt issued at the Renewables, Energy Infrastructure, and Utilities SBUs, and a higher weighted average interest rate and debt balance at the Parent Company; partially offset by higher capitalized interest at the Renewables SBU.

Interest income

Interest income increased $162 million, or 42%, to $551 million in 2023, compared to $389 million in 2022 primarily due to higher average interest rates and short-term investments at the Energy Infrastructure and Renewables SBUs and the Parent Company; partially offset by the prior year sales-type lease receivable adjustment at the Alamitos Energy Center.

Loss on extinguishment of debt

Loss on extinguishment of debt increased $48 million to $63 million in 2023, compared to $15 million in 2022. This increase was primarily due to losses of $47 million and $10 million due to prepayments at AES Andes and AES Hispanola Holdings BV, respectively, partially offset by a prior year refinancing at AES Renewable Holdings, resulting in a loss of $12 million.

See Note 11—Debt included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Other income

Other income decreased $13 million, or 13%, to $89 million in 2023, compared to $102 million in 2022 primarily due to the prior year gain on remeasurement of our existing investment in 5B, which is accounted for using the measurement alternative, and the prior year insurance proceeds primarily associated with property damage at TermoAndes; partially offset by the current year gain on remeasurement of contingent consideration at AES Clean Energy.

Other expense

Other expense increased $31 million, or 46%, to $99 million in 2023, compared to $68 million in 2022 primarily driven by impairments of inventory due to planned early plant closures at Ventanas 2, Norgener, and Warrior Run, as well as higher losses on commencement of sales-type leases at AES Renewable Holdings; partially offset by the prior year costs related to the disposition of AES Gilbert, including the recognition of an allowance on the sales-type lease receivable.

See Note 21—Other Income and Expense included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Gain (loss) on disposal and sale of business interests

Gain on disposal and sale of business interests was $134 million in 2023, primarily due to the gain on sale of shares of Fluence, our equity method investment, compared to a loss of $9 million in 2022.

See Note 8—Investments in and Advances to Affiliates included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Goodwill impairment expense

Goodwill impairment expense was $12 million in 2023 due to a $12 million impairment at the TEG TEP reporting unit primarily driven by an increase in the discount rate due to increasing risk of non-renewal of operating permits required after March 31, 2024.

Goodwill impairment expense was $777 million in 2022 due to a $644 million impairment at AES Andes and a $133 million impairment at AES El Salvador. This was due to the Company seeing increases in inputs utilized to derive the discount rate applied in our goodwill impairment analysis, such as higher interest rates and country risk premiums in certain markets. These changes to the inputs of our discount rate negatively impacted our annual goodwill impairment test as of October 1, 2022.

See Note 9—Goodwill and Other Intangible Assets included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Asset impairment expense

Asset impairment expense increased $304 million, or 40%, to $1.1 billion in 2023, compared to $763 million in 2022. This increase was primarily due to a $198 million impairment associated with PJM's approval to retire the Warrior Run coal-fired facility, a $186 million impairment at New York Wind related to a repowering project that will result in decommissioning the existing turbines and reducing their depreciable lives, a $167 million impairment at Mong Duong upon meeting the held-for-sale criteria, $151 million of impairments at AES Clean Energy Development primarily related to the write-off of project development intangibles for projects that were determined to be no longer viable, and a $137 million impairment associated with the commitment to accelerate the retirement of the Norgener coal-fired plant in Chile. This increase was partially offset by the $468 million impairment of Maritza's coal-fired plant in 2022 due to Bulgaria's commitment to cease electricity generation using coal as a fuel-source beyond 2038 and lower impairments at TEG and TEP in Mexico.

See Note 22—Asset Impairment Expense included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Foreign currency transaction losses

Foreign currency transaction gains (losses) in millions were as follows:

(1) Includes peso-denominated energy receivable indexed to the USD through the FONINVEMEM agreement which is considered a foreign currency derivative. See Note 7—Financing Receivables included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

(2) Includes losses of $28 million and $20 million on foreign currency derivative contracts for the years ended December 31, 2023 and 2022, respectively.

The Company recognized net foreign currency transaction losses of $359 million in 2023, primarily driven by the depreciation of the Argentine peso, unrealized losses related to an intercompany loan denominated in the Colombian peso, and realized and unrealized foreign currency derivative losses in South America due to the depreciating Colombian peso.

The Company recognized net foreign currency transaction losses of $77 million in 2022, primarily driven by the depreciation of the Argentine peso, partially offset by realized foreign currency derivative gains in South America due to the depreciating Colombian peso.

Other non-operating expense

There was no other non-operating expense in 2023. Other non-operating expense was $175 million in 2022 due to the other-than-temporary impairment of the sPower equity method investment. The impairment analysis was triggered by the signing of a purchase and sale agreement which, at the time, implied an expected loss upon sale of the Company's indirect interest in a portfolio of sPower's operating assets ("OpCo B"). The transaction closed on February 28, 2023. sPower primarily holds operating assets where the tax credits associated with underlying projects have already been allocated to tax equity investors. The application of HLBV accounting increases the carrying value of these investments, as earnings are initially disproportionately allocated to the sponsor entity. Since sPower does not have any ongoing development or other value creation activities following the transfer of these activities to AES Clean Energy Development, the impairment adjusts the carrying value to the fair market value of the operating assets. See Note 25—Acquisitions included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information regarding the formation of AES Clean Energy Development.

See Note 8—Investments In and Advances to Affiliates included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Income tax benefit (expense)

Income tax expense was $261 million in 2023 compared to $265 million in 2022. The Company's effective tax rates were 251% and (157)% for the years ended December 31, 2023 and 2022, respectively.

The 2023 effective tax rate was impacted by noncontrolling interest in U.S. tax-equity partnerships and pretax impairments at certain Mexican subsidiaries and at the Mong Duong coal-fired plant in Vietnam. These impacts were partially offset by inflationary and foreign currency impacts at certain Argentine businesses, net of valuation allowances, as well as the recognition of U.S. investment tax credits for renewables projects placed in service this year. See Note 22—Asset Impairment Expense included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for details of the asset impairments.

The 2022 effective tax rate was impacted by the nondeductible goodwill impairments at AES Andes and AES El Salvador, as well as the asset impairment of the Maritza coal-fired plant. These impacts were partially offset by favorable LNG transactions at the Energy Infrastructure SBU and inflationary and foreign currency impacts at certain Argentine businesses recognized in 2022. See Note 9—Goodwill and Other Intangible Assets included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for details of the goodwill impairments. See Note 22—Asset Impairment Expense included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for details of the asset impairments.

Our effective tax rate reflects the tax effect of significant operations outside the U.S., which are generally taxed at rates different than the U.S. statutory rate. Foreign earnings may be taxed at rates higher than the U.S. corporate rate of 21% and are also subject to current U.S. taxation under the GILTI rule. A future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate. The Company also benefits from reduced tax rates in certain countries as a result of satisfying specific commitments regarding employment and capital investment. See Note 23—Income Taxes included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for additional information regarding these reduced rates.

Net equity in losses of affiliates

Net equity in losses of affiliates decreased $39 million, or 55%, to $32 million in 2023, compared to $71 million in 2022. This decrease was primarily driven by an increase in earnings from Mesa La Paz, primarily due the termination of unrealized derivatives due to a contract amendment, and by a decrease in losses from Fluence, mainly attributable to improved margins on a new product line and reduced shipping constraints and transportation costs. This decrease in losses was partially offset by lower earnings from sPower, mainly due to lower earnings from renewables projects that came online.

See Note 8—Investments In and Advances to Affiliates included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Net income (loss) attributable to noncontrolling interests and redeemable stock of subsidiaries

Net income attributable to noncontrolling interests and redeemable stock of subsidiaries decreased $472 million to a $431 million loss in 2023, compared to income of $41 million in 2022. This decrease was primarily due to:

•Increased costs associated with the growth of our business and higher allocation of losses to tax equity investors on projects placed in service at the Renewables SBU;

•Impairment at Mong Duong upon meeting the held-for-sale criteria in the current year;

•Prior year one-time revenue recognition driven by a reduction in a project's expected completion costs at the Energy Infrastructure SBU; and

•Lower earnings from the Utilities SBU due to unfavorable weather conditions.

These drivers were partially offset by:

•Higher earnings from the Renewables SBU due to favorable weather conditions; and

•Higher allocation of earnings at Southland Energy to noncontrolling interests.

Net income (loss) attributable to The AES Corporation

Net income attributable to The AES Corporation increased $795 million to $249 million in 2023, compared to a loss of $546 million in 2022. This increase was primarily due to:

•Lower goodwill impairments in the current year;

•Higher contributions from renewables projects placed in service in the current year;

•Prior year other-than-temporary impairment of our investment in sPower;

•Gain on sale of shares in Fluence in the current year;

•Increase in interest income due to higher average interest rates and short term investments at the Energy Infrastructure and Renewables SBUs;

•Higher earnings from the Utilities SBU due to the deferral of previously recognized purchased power costs and a prior year charge resulting from a regulatory settlement; and

•Lower losses from affiliates at the New Energy Technologies SBU.

These increases were partially offset by:

•Higher unrealized foreign currency losses at the Energy Infrastructure SBU;

•Higher long-lived asset impairments in the current year;

•Lower earnings from the Energy Infrastructure SBU due to prior year favorable LNG transactions, lower contract energy sales due to lower prices, lower thermal dispatch, and higher fixed costs; and

•Increase in interest expense due to higher interest rates and new debt issued at the Renewables and Energy Infrastructure SBUs, and a higher Parent Company weighted average interest rate.