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, 2024

Revenue

Consolidated Revenue —Revenue decreased $390 million, or 3%, in 2024 compared to 2023, driven by:

•$598 million at Energy Infrastructure primarily driven by a $398 million decrease in regulated contract sales and prices, $319 million due to higher revenues from our hedged merchant Southland facilities in the prior year that are contracted primarily for capacity in the current year, $73 million due to lower generation driven by lower dispatch in Argentina, and $69 million impact from the selldown of Amman East and IPP4 in Jordan; partially offset by $195 million higher realized gains on power swaps; and

•$75 million at New Energy Technologies mainly driven by the sale of the Fallbrook project in March 2023.

These unfavorable impacts were partially offset by increases of:

•$171 million at Renewables mainly driven by $205 million due to new projects in service, $61 million of unrealized derivative gains, $58 million of higher contracted energy sales, and $35 million due to the appreciation of the Colombian peso; partially offset by $125 million impact from the sale of our controlling interest in AES Brasil, and $69 million due to higher outages and record-breaking drought conditions in Colombia; and

•$113 million at Utilities mainly driven by a $252 million increase in transmission, distribution, and rider revenues mainly due to higher rates, and $57 million due to higher net retail demand mainly driven by favorable weather; partially offset by $181 million of lower Fuel Adjustment Charge rider revenue.

Operating Margin

Consolidated Operating Margin —Operating margin decreased $190 million, or 8%, in 2024 compared to 2023, driven by:

•$145 million at Energy Infrastructure mainly driven by $110 million due to higher energy margin from our hedged merchant Southland facilities in the prior year that are contracted primarily for capacity in the current year, $54 million impact from the selldown of Amman East and IPP4 in Jordan, $51 million due to higher outages, $39 million due to end of commercial operations at Warrior Run in May 2024, and $31 million due to lower LNG transactions; partially offset by $82 million from a PPA termination loss recognized in the prior year and $45 million of unrealized derivative gains;

•$133 million at Renewables driven by $148 million impact primarily from record-breaking drought conditions in Colombia, alongside drier hydrological conditions in Brazil, $45 million impact of outages at Colombia due to a flooding incident at the Chivor plant which occurred in June 2024, $44 million impact from the sale of our controlling interest in AES Brasil, and $29 million higher fixed costs primarily due to an accelerated growth plan; partially offset by unrealized derivative gains of $61 million and higher contracted energy sales of $58 million; and

•$24 million at Corporate and Other primarily driven by higher eliminations of insurance recoveries booked at the businesses related to AES' self-insurance company.

These unfavorable impacts were partially offset by an increase of $110 million at Utilities primarily driven by $83 million due to higher transmission and rider revenues, $76 million due to higher retail rates as a result of the 2024 Base Rate Order, and $72 million due to higher demand primarily from the impact of weather; partially offset by $57 million higher depreciation from additional assets placed in service, the prior year $29 million deferral of power purchase costs associated with the approval of ESP 4, and $25 million higher expected credit losses due to the one-time implementation of customer billing system upgrades.

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 $33 million, or 13%, to $288 million in 2024 compared to $255 million in 2023, primarily due to increased business development costs, higher people costs, higher professional fees, and higher IT costs.

Interest expense

Interest expense increased $166 million, or 13%, to $1,485 million in 2024, compared to $1,319 million in 2023. This increase was driven by higher interest expense of $67 million and $52 million at the Renewables and Utilities SBUs, respectively, primarily due to new debt issued, net of increased capitalized interest, and higher interest at Corporate of $63 million primarily due to a higher weighted average interest rate and debt balance at the Parent Company; partially offset by a $16 million decrease at the Energy Infrastructure SBU primarily due to lower debt balances.

Interest income

Interest income decreased $170 million, or 31%, to $381 million in 2024, compared to $551 million in 2023 primarily due to a decrease in Argentina of $138 million primarily due to lower short-term investments at lower rates and a decrease in Brazil of $51 million due to lower short-term investments and the sale of AES Brasil in October 2024; partially offset by an increase in Chile of $30 million mainly driven by interest recognized on the Stabilization Fund receivables.

Loss on extinguishment of debt

Loss on extinguishment of debt decreased $46 million to $17 million in 2024, compared to $63 million in 2023. This decrease was primarily due to prior year losses of $47 million and $10 million due to prepayments at AES Andes and AES Hispanola Holdings BV, respectively, partially offset by a current year loss of $10 million due to a prepayment at AES Andes.

See Note 12—Obligations included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Other income

Other income increased $67 million, or 75%, to $156 million in 2024, compared to $89 million in 2023 primarily due to the bargain purchase gain recognized on the Madison and Birdseye acquisition for $20 million, a $17 million increase in gains on remeasurement of contingent consideration primarily on projects acquired at AES Clean Energy, a $14 million gain corresponding to the step acquisition of Felix, and an indexation adjustment of Stabilization Fund receivables at AES Andes of $12 million.

Other expense

Other expense increased $76 million, or 77%, to $175 million in 2024, compared to $99 million in 2023 primarily driven by $52 million higher losses on commencement of sales-type leases at AES Renewable Holdings, a $43 million increase in losses on remeasurement of contingent consideration primarily on projects acquired at AES Clean Energy, and a $20 million loss related to legal expenses and other direct costs associated with the troubled debt restructuring at Puerto Rico. This was partially offset by a $36 million decrease in loss on sale and disposal of assets, mainly driven by prior year impairments of inventory due to the planned early plant closures at Ventanas 2, Norgener, and Warrior Run.

See Note 22—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 increased $217 million to $351 million in 2024, compared to $134 million in 2023. This increase was driven by the gain on sale of AES Brasil of $312 million and a $52 million gain corresponding to the dilution of AES' ownership in Uplight as a result of the AutoGrid acquisition; partially offset by a $136 million gain on sale of shares of Fluence, our equity method investment, in 2023, and the $10 million loss on the selldown of Amman East and IPP4 in Jordan, which is now accounted for as an equity method investment.

See Note 9—Investments in and Advances to Affiliates and Note 25—Held-for-Sale and Dispositions 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 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.

See Note 10—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 decreased $693 million, or 65%, to $374 million in 2024, compared to $1.1 billion in 2023. This decrease was primarily due to higher prior year impairments, including 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 $137 million impairment associated with the commitment to accelerate the retirement of the Norgener coal-fired facility in Chile; a $77 million and $59 million impairment at TEG and TEP, respectively, due to a reduction in expected capacity cash flows after expiration of the current PPA; and a $59 million impairment at Amman East and IPP4 in Jordan due to the delay in closing the sale transaction. In addition, the decrease was driven by lower impairment expense of $105 million associated with the held-for-sale classification of Mong Duong and lower impairment expense of $56 million at AES Clean Energy Development related to the write-off of project development intangibles for projects that were determined to be no longer viable. This was partially offset by current year impairments of $125 million and $80 million at Ventanas and AES Brasil, respectively, after meeting held-for-sale criteria.

See Note 23—Asset Impairment Expense included in Item 8.—Financial Statements and Supplementary Data of this Form 10-K for further information.

Foreign currency transaction gains (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 gains of $137 million and losses of $28 million on foreign currency derivative contracts for the years ended December 31, 2024 and 2023, respectively.

The Company recognized net foreign currency transaction gains of $31 million in 2024, primarily driven by realized gains on swaps and options denominated in the Brazilian real.

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.

Income tax expense

Income tax expense was $59 million in 2024 compared to $261 million in 2023. The Company's effective tax rates were 7% and 251% for the years ended December 31, 2024 and 2023, respectively.

The 2024 effective tax rate was impacted by the current year benefits associated with ITCs and the restructuring of a foreign holding company. These drivers were partially offset by the impacts of allocations of losses to tax equity investors on renewables projects.

The 2023 effective tax rate was impacted by the allocation of losses to 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 in 2023. See Note 23—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 24—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 $6 million, or 19%, to $26 million in 2024, compared to $32 million in 2023. This decrease was primarily driven by a $30 million decrease in losses from Fluence, mainly attributable to improved margins on a new product line. This was partially offset by a $13 million decrease in earnings from Mesa La Paz, primarily due to the prior year termination of derivative positions due to a contract amendment; lower earnings from sPower of $7 million, mainly due to lower earnings from renewables projects that came online; and lower earnings from Energía Natural Dominicana Enadom of $7 million due to lower capitalized interest and higher depreciation.

See Note 9—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 loss attributable to noncontrolling interests and redeemable stock of subsidiaries increased $446 million to $877 million in 2024, compared to $431 million in 2023. This increase was primarily due to:

•Higher allocation of losses to tax equity investors on renewables projects placed in service of $496 million; and

•Higher losses at Brazil of $60 million, primarily due to held-for-sale impairment.

These drivers were partially offset by:

•Higher held-for-sale impairment at Mong Duong in the prior year than the current year of $48 million; and

•Selldowns of business interests resulting in larger shares of income attributable to minority shareholders at the Energy Infrastructure SBU of $46 million.

Net income (loss) attributable to The AES Corporation

Net income attributable to The AES Corporation increased $1,430 million to $1,679 million in 2024, compared to $249 million in 2023. This increase was primarily due to:

•Lower long-lived asset impairments in the current year of $589 million;

•Higher contributions from renewables projects placed in service in the current year of $496 million;

•Unrealized foreign currency losses in the prior year exceeding current year gains by $345 million, primarily driven by higher losses in the prior year at the Energy Infrastructure SBU;

•Gain on sale of AES Brasil in the current year of $312 million;

•Lower income tax expense attributable to AES, primarily driven by $273 million of tax benefit resulting from the transfer of ITCs directly to third parties; and

•Higher margin from the Utilities SBU impacting net income attributable to AES by $77 million, mainly driven by higher transmission and rider revenues and higher retail rates.

These drivers were partially offset by:

•Higher interest expense and lower interest income in the current year of $245 million;

•Lower margin from the Energy Infrastructure SBU impacting net income attributable to AES by $147 million, mainly driven by selldowns, higher energy margin from our hedged merchant Southland facilities in the prior year that are contracted primarily for capacity in the current year, and higher outages;

•Lower margin at the Renewables SBU impacting net income attributable to AES by $145 million, mainly driven by record-breaking drought conditions and partial outage due to a flooding incident in Colombia; and

•Gain on sale of shares in Fluence in the prior year of $136 million.