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 value 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. There were no changes in fair valuation techniques during the period and the Company continues to follow the valuation techniques described in Note 4. — Fair Value in Item 8. — Financial Statements and Supplementary Data of its 2013 Form 10-K.

Recurring Measurements

The following table sets forth, 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 periods indicated:



	September 30, 2014								December 31, 2013
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Assets
AVAILABLE-FOR-SALE:⁽¹⁾
Debt securities:
Unsecured debentures	$	—	$	484	$	—	$	484	$	—	$	435	$	—	$	435
Certificates of deposit	—		119		—		119		—		151		—		151
Government debt securities	—		56		—		56		—		25		—		25
Subtotal	—		659		—		659		—		611		—		611
Equity securities:
Mutual funds	—		38		—		38		—		44		—		44
Subtotal	—		38		—		38		—		44		—		44
Total available-for-sale	—		697		—		697		—		655		—		655
TRADING:
Equity securities:
Mutual funds	15		—		—		15		13		—		—		13
Total trading	15		—		—		15		13		—		—		13
DERIVATIVES:
Interest rate derivatives	—		20		—		20		—		98		—		98
Cross-currency derivatives	—		—		—		—		—		5		—		5
Foreign currency derivatives	—		29		102		131		—		15		98		113
Commodity derivatives	—		28		13		41		—		18		6		24
Total derivatives	—		77		115		192		—		136		104		240
TOTAL ASSETS	$	15	$	774	$	115	$	904	$	13	$	791	$	104	$	908
Liabilities
DERIVATIVES:
Interest rate derivatives	$	—	$	199	$	180	$	379	$	—	$	221	$	101	$	322
Cross-currency derivatives	—		25		—		25		—		11		—		11
Foreign currency derivatives	—		46		7		53		—		16		5		21
Commodity derivatives	—		33		1		34		—		15		2		17
Total derivatives	—		303		188		491		—		263		108		371
TOTAL LIABILITIES	$	—	$	303	$	188	$	491	$	—	$	263	$	108	$	371

_____________________________


⁽¹⁾	Amortized cost approximated fair value at September 30, 2014 and December 31, 2013.

The following tables present a reconciliation of net derivative assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2014 and 2013 (presented net by type of derivative). Transfers between Level 3 and Level 2 are determined as of the end of the reporting period and principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.



	Three Months Ended September 30, 2014
	Interest Rate			Foreign Currency			Commodity			Total
	(in millions)
Balance at the beginning of the period	$	(183	)	$	107		$	16		$	(60	)
Total gains (losses) (realized and unrealized):
Included in earnings	—			(7		)	—			(7		)
Included in other comprehensive income - derivative activity	(13		)	—			—			(13		)
Included in other comprehensive income - foreign currency translation activity	9			(4		)	—			5
Included in regulatory (assets) liabilities	—			—			(4		)	(4		)
Settlements	7			(1		)	—			6
Balance at the end of the period	$	(180	)	$	95		$	12		$	(73	)
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	$	—		$	(8	)	$	—		$	(8	)



	Three Months Ended September 30, 2013
	Interest Rate			Foreign Currency			Commodity			Total
	(in millions)
Balance at the beginning of the period	$	(63	)	$	70		$	9		$	16
Total gains (losses) (realized and unrealized):
Included in earnings	(1		)	28			(1		)	26
Included in other comprehensive income - derivative activity	7			—			—			7
Included in other comprehensive income - foreign currency translation activity	(1		)	(6		)	—			(7		)
Included in regulatory (assets) liabilities	—			—			(4		)	(4		)
Settlements	9			(1		)	—			8
Transfers of assets (liabilities) into Level 3	(84		)	—			—			(84		)
Transfers of (assets) liabilities out of Level 3	30			—			—			30
Balance at the end of the period	$	(103	)	$	91		$	4		$	(8	)
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	$	—		$	27		$	(1	)	$	26



	Nine Months Ended September 30, 2014
	Interest Rate			Foreign Currency			Commodity			Total
	(in millions)
Balance at the beginning of the period	$	(101	)	$	93		$	4		$	(4	)
Total gains (losses) (realized and unrealized):
Included in earnings	1			29			2			32
Included in other comprehensive income - derivative activity	(112		)	(2		)	—			(114		)
Included in other comprehensive income - foreign currency translation activity	9			(24		)	—			(15		)
Included in regulatory (assets) liabilities	—			—			7			7
Settlements	23			(4		)	(1		)	18
Transfers of (assets) liabilities out of Level 3	—			3			—			3
Balance at the end of the period	$	(180	)	$	95		12			$	(73	)
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		$	26		$	1		$	28



	Nine Months Ended September 30, 2013
	Interest Rate			Foreign Currency			Commodity			Total
	(in millions)
Balance at the beginning of the period	$	(412	)	$	72		$	(1	)	$	(341	)
Total gains (losses) (realized and unrealized):
Included in earnings	(2		)	40			—			38
Included in other comprehensive income - derivative activity	84			—			—			84
Included in other comprehensive income - foreign currency translation activity	(3		)	(12		)	—			(15		)
Included in regulatory (assets) liabilities	—			—			5			5
Settlements	73			(3		)	—			70
Transfers of (assets) liabilities out of Level 3	157			(6		)	—			151
Balance at the end of the period	$	(103	)	$	91		$	4		$	(8	)
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	$	—		$	40		$	—		$	40

The following table summarizes the significant unobservable inputs used for the Level 3 derivative assets (liabilities) as of September 30, 2014:



Type of Derivative	Fair Value			Unobservable Input	Amount or Range (Weighted Average)
	(in millions)
Interest rate	$	(180	)	Subsidiaries’ credit spreads	3.75% - 6.98% (5.51%)
Foreign currency:
Embedded derivative — Argentine Peso	102			Argentine Peso to USD currency exchange rate after 1 year	8.84 - 36.40 (22.12)
Embedded derivative — Euro	(7		)	Subsidiaries’ credit spreads	6.98	%
Commodity:
Other	12
Total	$	(73	)

Nonrecurring Measurements

When evaluating impairment of goodwill, long-lived assets, discontinued operations and held-for-sale businesses, 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 their then-latest available carrying amount. The following table summarizes major categories of assets and liabilities measured at fair value on a nonrecurring basis during the period and their level within the fair value hierarchy:



	Nine Months Ended September 30, 2014
	Carrying Amount ⁽¹⁾		Fair Value						Pretax Loss
			Level 1		Level 2		Level 3
	(in millions)
Assets
Long-lived assets held and used:⁽²⁾
DPL (East Bend)	$	14	$	—	$	2	$	—	$	12
Ebute (measured at June 30, 2014)	99		—		—		47		52
Ebute (measured at September 30, 2014)	51		—		—		36		15
UK Wind (Newfield)	11		—		—		—		11
Discontinued operations and held-for-sale businesses:⁽³⁾
Cameroon	378		—		340		—		38
Equity method investments ⁽⁵⁾
Silver Ridge Power	315		—		—		273		42
Entek	143		—		125		—		18
Goodwill:⁽⁴⁾
DPLER	136		—		—		—		136
Buffalo Gap	28		—		—		10		18



	Nine Months Ended September 30, 2013
	Carrying Amount ⁽¹⁾		Fair Value						Pretax Loss
			Level 1		Level 2		Level 3
	(in millions)
Assets
Long-lived assets held and used:⁽²⁾
Poland Wind projects	$	79	$	—	$	—	$	14	$	65
Itabo (San Lorenzo)	22		—		—		7		15
Beaver Valley	61		—		—		15		46
Long-lived assets held for sale:⁽²⁾
Wind turbines	25		—		25		—		—
Discontinued operations and held-for-sale businesses:⁽³⁾
Cameroon	264		—		199		—		65
Saurashtra	19		—		7		—		12
Ukraine	147		—		113		—		34
Equity method investments:⁽⁵⁾
Elsta	240		—		—		118		122
Goodwill ⁽⁴⁾
Ebute	58		—		—		—		58

_____________________________


⁽¹⁾	Represents the carrying value (including costs to sell) at the date of measurement, before fair value adjustment.


⁽²⁾	See Note 15 — Asset Impairment Expense for further information.


⁽³⁾	See Note 18 — Discontinued Operations and Held-For-Sale Businesses for further information.


⁽⁴⁾	See Note 14 — Goodwill Impairment for further information.


⁽⁵⁾	See Note 16 — Other Non-Operating Expense and Note 7 — Investments in and Advances to Affiliates for further information.

The following table summarizes the significant unobservable inputs used in the Level 3 measurement of long-lived assets during the nine months ended September 30, 2014:



	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in millions)				($ in millions)
Long-lived assets held and used:
Ebute (June 30, 2014)	$	47	Discounted cash flow	Annual revenue growth	0% to 1% (1%)
				Annual pretax operating margin	0% to 47% (24%)
				Weighted-average cost of capital	10.3	%

Ebute (September 30, 2014)	$	36	Discounted cash flow	Annual revenue growth	0% to 1% (1%)
				Annual pretax operating margin	0% to 56% (25%)
Equity Method Investment:
Silver Ridge Power ⁽¹⁾	$	273	Discounted cash flow	Annual revenue growth	-57% to 1% (-4%)
				Annual pretax operating margin	-115% to 50% (6%)
				Cost of equity	13% to 16% (14%)

_____________________________

⁽¹⁾ The fair value for Silver Ridge Power was determined using a combination of the bid price (a level 2 input) obtained for the sale of AES’ interest in solar photovoltaic projects in operation and under development in Bulgaria, France, Greece, India and the United States, and a discounted cash flow model for the solar photovoltaic projects that were retained in Italy, Puerto Rico and Spain.

Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets

The following table sets forth the carrying amount, fair value and fair value hierarchy of the Company’s financial assets and liabilities that are not measured at fair value in the condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013, but for which fair value is disclosed.



	Carrying Amount		Fair Value
	Carrying Amount		Total		Level 1		Level 2		Level 3
	(in millions)
September 30, 2014
Assets
Accounts receivable — noncurrent⁽¹⁾	$	210	$	170	$	—	$	—	$	170
Liabilities
Non-recourse debt	15,719		16,117		—		13,818		2,299
Recourse debt	5,347		5,598		—		5,598		—
December 31, 2013
Assets
Accounts receivable — noncurrent⁽¹⁾	$	260	$	194	$	—	$	—	$	194
Liabilities
Non-recourse debt	15,380		15,620		—		13,397		2,223
Recourse debt	5,669		6,164		—		6,164		—

_____________________________

⁽¹⁾

These accounts receivable principally relate to amounts due from CAMMESA, the administrator of the wholesale electricity market in Argentina, and are included in “Noncurrent assets — Other” in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these accounts receivable exclude value-added tax of $36 million and $46 million at September 30, 2014 and December 31, 2013, respectively.