Fair Value

9 Months Ended

Sep. 30, 2023

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. Because these amounts are estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For further information on our valuation techniques and policies, see Note 5—Fair Value in Item 8.—Financial Statements and Supplementary Data of our 2022 Form 10-K.

Recurring Measurements

The following table presents, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of the dates indicated (in millions). For the Company’s investments in marketable debt securities, the security classes presented were determined based on the nature and risk of the security and are consistent with how the Company manages, monitors, and measures its marketable securities:


	September 30, 2023								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
DEBT SECURITIES:
Available-for-sale:

Certificates of deposit	$	—	$	493	$	—	$	493	$	—	$	698	$	—	$	698
Government debt securities	—		—		—		—		—		3		—		3
Total debt securities	—		493		—		493		—		701		—		701
EQUITY SECURITIES:
Mutual funds	43		—		—		43		38		—		—		38

Total equity securities	43		7		—		50		38		—		—		38
DERIVATIVES:
Interest rate derivatives	—		478		—		478		—		314		—		314

Foreign currency derivatives	—		22		46		68		—		22		64		86
Commodity derivatives	—		137		4		141		—		232		13		245
Total derivatives — assets	—		637		50		687		—		568		77		645
TOTAL ASSETS	$	43	$	1,137	$	50	$	1,230	$	38	$	1,269	$	77	$	1,384
Liabilities
Contingent consideration	$	—	$	—	$	267	$	267	$	—	$	—	$	48	$	48
DERIVATIVES:
Interest rate derivatives	—		—		—		—		—		6		—		6
Cross-currency derivatives	—		54		—		54		—		42		—		42
Foreign currency derivatives	—		26		—		26		—		20		—		20
Commodity derivatives	—		127		80		207		—		346		60		406
Total derivatives — liabilities	—		207		80		287		—		414		60		474
TOTAL LIABILITIES	$	—	$	207	$	347	$	554	$	—	$	414	$	108	$	522

As of September 30, 2023, all available-for-sale debt securities had stated maturities within one year. There were no other-than-temporary impairments of marketable securities during the three and nine months ended September 30, 2023. The level 3 contingent consideration relates mainly to the acquisition of Bellefield on June 5, 2023. For further information on the acquisition, see Note 18—Acquisitions. Credit-related impairments are recognized in earnings under ASC 326. 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 available-for-sale securities during the periods indicated (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Gross proceeds from sale of available-for-sale securities	$	308	$	318	$	1,047	$	665

The following tables present a reconciliation of 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, 2023 and 2022 (presented net by type of derivative in millions). Transfers between Level 3 and Level 2 principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.


	Derivative Assets and Liabilities
Three Months Ended September 30, 2023	Interest Rate		Foreign Currency		Commodity		Contingent Consideration		Total
Balance at July 1, 2023	$	(1)	$	63	$	(78)	$	(274)	$	(290)
Total realized and unrealized gains (losses):
Included in earnings	—		(6)		(3)		(1)		(10)
Included in other comprehensive income (loss) — derivative activity	5		(2)		7		—		10


Acquisitions	—		—		—		3		3
Settlements	—		(9)		(2)		5		(6)

Transfers of assets, net out of Level 3	(4)		—		—		—		(4)
Balance at September 30, 2023	$	—	$	46	$	(76)	$	(267)	$	(297)
Total (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	—	$	(13)	$	(3)	$	(1)	$	(17)

	Derivative Assets and Liabilities
Three Months Ended September 30, 2022	Interest Rate		Foreign Currency		Commodity		Contingent Consideration		Total
Balance at July 1, 2022	$	1	$	50	$	37	$	(80)	$	8
Total realized and unrealized gains (losses):
Included in earnings	1		22		(1)		4		26
Included in other comprehensive income (loss) — derivative activity	(1)		7		(14)		—		(8)
Included in other comprehensive income (loss) — foreign currency translation activity	—		—		—		1		1
Included in regulatory (assets) liabilities	—		—		(3)		—		(3)

Settlements	—		(9)		—		16		7
Transfers of liabilities, net into Level 3	—		—		(2)		—		(2)
Transfers of assets, net out of Level 3	(2)		—		(15)		—		(17)
Balance at September 30, 2022	$	(1)	$	70	$	2	$	(59)	$	12
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	$	—	$	14	$	(1)	$	4	$	17


	Derivative Assets and Liabilities
Nine Months Ended September 30, 2023	Interest Rate		Foreign Currency		Commodity		Contingent Consideration		Total
Balance at January 1, 2023	$	—	$	64	$	(47)	$	(48)	$	(31)
Total realized and unrealized gains (losses):
Included in earnings	—		—		(3)		(9)		(12)
Included in other comprehensive income (loss) — derivative activity	2		—		(20)		—		(18)
Included in other comprehensive income (loss) — foreign currency translation activity	—		—		—				—
Included in regulatory (assets) liabilities	—		—		(2)		—		(2)
Acquisitions	—		—		—		(215)		(215)
Settlements	—		(18)		(5)		5		(18)

Transfers of (assets) liabilities, net out of Level 3	(2)		—		1		—		(1)
Balance at September 30, 2023	$	—	$	46	$	(76)	$	(267)	$	(297)
Total (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	—	$	(14)	$	(4)	$	(9)	$	(27)

	Derivative Assets and Liabilities
Nine Months Ended September 30, 2022	Interest Rate		Foreign Currency		Commodity		Contingent Consideration		Total
Balance at January 1, 2022	$	(6)	$	108	$	(1)	$	(67)	$	34
Total realized and unrealized gains (losses):
Included in earnings	4		(22)		(4)		4		(18)
Included in other comprehensive income (loss) — derivative activity	13		(7)		(7)		—		(1)
Included in other comprehensive income (loss) — foreign currency translation activity	—		—		—		(1)		(1)
Included in regulatory (assets) liabilities	—		—		13		—		13
Acquisitions	—		—		—		(15)		(15)
Settlements	(1)		(9)		1		20		11

Transfers of assets, net out of Level 3	(11)		—		—		—		(11)
Balance at September 30, 2022	$	(1)	$	70	$	2	$	(59)	$	12
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	$	3	$	(44)	$	1	$	4	$	(36)

The following table summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of September 30, 2023 (in millions, except range amounts):

Type of Derivative

Fair Value

Unobservable Input

Amount or Range (Weighted Average)

Foreign currency:

Argentine peso

Argentine peso to U.S. dollar currency exchange rate after one year

860 to 1,500 (1,222)

Commodity:

CAISO Energy Swap

(79)

Forward energy prices per MWh after 2030

$12 to $96 ($52)

Other

Total

(30)

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.

Contingent consideration is primarily related to future milestone payments associated with acquisitions of renewable development projects. The estimated fair value of contingent consideration is determined using probability-weighted discounted cash flows based on internal forecasts, which are considered Level 3 inputs. Changes in Level 3 inputs, particularly changes in the probability of achieving development milestones, could result in material changes to the fair value of the contingent consideration and could materially impact the amount of expense or income recorded each reporting period. Contingent consideration is updated quarterly with any prospective changes in fair value recorded through earnings.

Nonrecurring Measurements

The Company measures fair value using the applicable fair value measurement guidance. Impairment expense, shown as pre-tax loss below, is measured by comparing the fair value at the evaluation date to the then-latest available carrying amount and is included in Asset impairment expense on the Condensed Consolidated Statements of Operations. The following table summarizes our major categories of asset groups measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions).


	Measurement Date	Carrying Amount (1)		Fair Value						Pre-tax Loss
Nine Months Ended September 30, 2023				Level 1		Level 2		Level 3
Long-lived asset groups held and used:
Norgener (2)	5/1/2023	$	196	$	—	$	—	$	24	$	137
GAF Projects (AES Renewable Holdings)	5/31/2023	29		—		—		11		18
TEP	7/31/2023	153		—		—		94		59
TEG	7/31/2023	170		—		—		93		77
Held-for-sale businesses: (3)
Jordan (4)	3/31/2023	$	179	$	—	$	170	$	—	$	14
Jordan (4)	6/30/2023	179		—		170		—		15
Jordan (4)	9/30/2023	178		—		170		—		14

	Measurement Date	Carrying Amount (1)		Fair Value
Nine Months Ended September 30, 2022				Level 1		Level 2		Level 3		Pre-tax Loss
Long-lived asset groups held and used:
Maritza	4/30/2022	$	920	$	—	$	—	$	452	$	468
Held-for-sale businesses: (3)
Jordan (4)	9/30/2022	216		—		170		—		51

_____________________________

(1)Represents the carrying values of the asset groups at the dates of measurement, before fair value adjustment.

(2)The Norgener asset group includes long-lived assets, inventory, land, and other working capital, however per ASC 360-10, the pre-tax impairment expense is limited to the carrying amount of the long-lived assets. See Note 15—Asset Impairment Expense for further information. The Company evaluated the carrying amount of the assets outside the scope of ASC 360-10 and determined that the carrying value of the other assets should not be reduced.

(3)See Note 17—Held-for-Sale for further information.

(4)The pre-tax loss recognized was calculated using the $170 million fair value of the Jordan disposal group less costs to sell of $5 million for the September 30, 2022 and March 31, 2023 measurement dates and $6 million for the June 30, 2023 and September 30, 2023 measurement dates.

The following table summarizes the significant unobservable inputs used in the Level 3 measurement of long-lived assets held and used measured on a nonrecurring basis during the nine months ended September 30, 2023 (in millions, except range amounts):

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

Long-lived asset groups held and used:

TEP

Discounted cash flow

Annual revenue growth

(31)% to 6% (-2%)

Annual variable margin

22% to 37% (26%)

Discount rate

14% to 25% (14%)

TEG

Discounted cash flow

Annual revenue growth

(7)% to 9% (—%)

Annual variable margin

14% to 33% (20%)

Discount rate

14% to 25% (14%)

Norgener (1)

Discounted cash flow

Annual revenue growth

(90)% to 994% (85%)

Annual variable margin

(75)% to 276% (16%)

GAF Projects (AES Renewable Holdings)

Discounted cash flow

Annual revenue growth

(42)% to 44% (1%)

Annual variable margin

(194)% to 77% (66%)

Discount rate

Total

222

_____________________________

(1)The fair value of the Norgener asset group is mainly related to existing coal inventory not subject to impairment under ASC 360-10.

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 the periods indicated, but for which fair value is disclosed:


		September 30, 2023
		Carrying Amount		Fair Value
				Total		Level 1		Level 2		Level 3
Assets:	Accounts receivable — noncurrent (1)	$	117	$	153	$	—	$	—	$	153
Liabilities:	Non-recourse debt	21,618		21,108		—		19,646		1,462
	Recourse debt	5,564		5,106		—		5,106		—


		December 31, 2022
		Carrying Amount		Fair Value
				Total		Level 1		Level 2		Level 3
Assets:	Accounts receivable — noncurrent (1)	$	301	$	340	$	—	$	—	$	340
Liabilities:	Non-recourse debt	19,429		18,527		—		17,089		1,438
	Recourse debt	3,894		3,505		—		3,505		—

_____________________________

(1)These amounts primarily relate to amounts impacted by the Stabilization Funds enacted by the Chilean government, and are included in Other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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