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Fair Value | 12 Months Ended
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Dec. 31, 2011
FAIR VALUE | 4. FAIR VALUE The fair value of current financial assets and liabilities, debt service reserves and other depos its approximate their reported carrying amounts. The fair value of non-recourse debt is estimated differently based upon the type of loan. In general, the carrying amount of variable rate debt is a close approximation of its fair value. For fixed rate loans, the fair value is estimated using quoted market prices or discounted cash flow analyses. See Note 11—Debt for additional information on the fair value and carrying value of debt. The fair value of interest rate swap, cap and floor agreements, foreign currency forwards, swaps and options, and energy derivatives is the estimated net amount that the Company would receive or pay to sell or transfer the agreements as of the balance sheet date. The estimated fair value s of the Company's assets and liabilities ha ve been determined using available market information. By virtue of these amounts being estimates and based on hypothetical transactions to sell assets or transfer liabilities, t he use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following table summarizes the carrying amount and fair value of certain of the Company's financial assets and liabilities as of December 31, 2011 and 2010:
|  |  |  | December 31,
|  |  |  | 2011 |  | 2010
|  |  |  | Carrying |  | Fair |  | Carrying |  | Fair
|  |  |  | Amount |  | Value |  | Amount |  | Value
|  |  |  | (in millions)
Assets |  |  |  |  |  |  |  |  |  |  |  |
| Marketable securities |  | $ | 1,356 |  | $ | 1,356 |  | $ | 1,760 |  | $ | 1,760
| Derivatives |  |  | 120 |  |  | 120 |  |  | 119 |  |  | 119
|  | Total assets |  | $ | 1,476 |  | $ | 1,476 |  | $ | 1,879 |  | $ | 1,879
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
| Debt |  | $ | 22,573 |  | $ | - |  | $ | 18,788 |  | $ | 20,137
| Derivatives |  |  | 690 |  |  | 690 |  |  | 358 |  |  | 358
|  | Total liabilities |  | $ | 23,263 |  | $ | 690 |  | $ | 19,146 |  | $ | 20,495
Valuation Techniques: The fair value measurement accounting guidance describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on current market expectations of the return on those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. The Company measures its investments and derivatives at fair value on a recurring basis. Additionally, in connection with annual or event-driven impairment evaluations, certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis. These include long-lived tangible assets (i.e., property, plant and equipment), goodwill and intangible assets (e.g., sales concessions, land use rights and emissions allowances, etc.). In general, the Company determines the fair value of investments and derivatives using the market approach and the income approach, respectively. In the nonrecurring measurements of nonfinancial assets and liabilities, all three approaches are considered; however, fair value estimated under the income approach is often selected. Investments The Company's investments measured at fair value generally consist of marketable debt and equity securities. Equity securities are measured at fair value using quoted market prices. Debt securities primarily consist of unsecured debentures, certificates of deposit and government debt securities held by our Brazilian subsidiaries. Returns and pricing on these instruments are generally indexed to the CDI (Brazilian equivalent to London Inter-Bank Offered Rate, or LIBOR, a benchmark interest rate widely used by banks in the interbank lending market) or Selic (overnight borrowing rate) rates in Brazil. Fair value is determined from comparisons to market data obtained for similar assets and are considered Level 2 in the fair value hierarchy. For more detail regarding the fair value of investments see Note 5—Investments in Marketable Securities. Derivatives When deemed appropriate, the Company manages its risk from interest and foreign currency exchange rate and commodity price fluctuations through the use of over-the-counter financial and physical derivative instruments. The derivatives are primarily interest rate swaps to hedge non-recourse debt to establish a fixed rate on variable rate debt, foreign exchange instruments to hedge against currency fluctuations, commodity derivatives to hedge against commodity price fluctuations and embedded derivatives associated with commodity contracts. The Company's subsidiaries are counterparties to various over-the-counter derivatives, which include interest rate swaps and options, foreign currency options and forwards and commodity swaps. In addition, the Company's subsidiaries are counterparties to cert ain PPAs and fuel supply agreements that are derivatives or include embedded derivatives. For the derivatives where there is a standard industry valuation model, the Company uses that model to estimate the fair value. For the derivatives (such PPAs and fuel supply agreements that are derivatives or include embedded derivatives) where there is not a standard industry valuation model, the Company has created internal valuation models to estimate the fair value, using observable data to the extent available. For all derivatives, with the exception of those classified as Level 1, the income approach is used, which consists of forecasting future cash flows based on contractual notional amounts and applicable and available market data as of the valuation date. The following are among the most common market data inputs used in the income approach: volatilities, spot and forward benchmark interest rates (such as LIBOR and Euro Inter Bank Offered Rate (“EURIBOR”)), foreign exchange rates and commodity prices. Forward rates with the same tenor as the derivative instrument being valued are genera lly obtained from published sources, with these forward rates being assessed quarterly at a portfolio-level for reasonableness versus comparable, published information provided from another source. In situations where significant inputs are not observable, the Company uses relevant techniques to best estimate the inputs, such as regression analysis, Monte Carlo simulation or prices for similarly traded instruments available in the market. For each derivative, with the exception of those classified as Level 1, the income approach is used to estimate the cash flows over the remaining term of the contract. Those cash flows are then discounted using the relevant spot benchmark interest rate (such as LIBOR or EURIBOR) plus a spread that reflects the credit or nonperformance risk. This risk is estimated by the Company using credit spreads and risk premiums that are observable in the market, whenever possible, or estimated borrowing costs based on bank quotes, industry publications and/or information on financing closed on similar projects. To the extent that management can estimate the fair value of these assets or liabilities without the use of significant unobservable inputs, these derivatives are classified as Level 2. The Company's methodology to fair value its derivatives is to start with any observable inputs, however, in certain instances the published forward rates or prices may not extend through the remaining term of the contract and management must make assumptions to extrapolate the curve, which necessitates the use of unobservable inputs, such as proxy commodity prices or historical settlements to forecast forward prices. In addition, in certain instances, there may not be third party data readily available, which requires the use of unobservable inputs. Similarly, in certain instances, the spread that reflects the credit or nonperformance risk is unobservable. The fair value hierarchy of an asset or a liability is based on the level of significance of the input assumptions. An input assumption is considered significant if it affects the fair value by at least 10%. Assets and liabilities are transferred to Level 3 when the use of unobservable inputs becomes significant. Similarly, when the use of unobservable input becomes insignificant for Level 3 assets and liabilities, th ey are transferred to Level 2. Transfers in and out of Level 3 are from and to Level 2 and are determined as of the end of the reporting period. The only Level 1 derivative instruments a s of December 31, 2011 are exchange-traded commodity futures for which the pricing is observable in active markets, and as such these are not expected to transfer to other levels. Nonfinancial Assets and Liabilities For nonrecurring measurements derived using the income approach, fair value is determined using valuation models based on the principles of discounted cash flows (“DCF”). The income approach is most often used in the impairment evaluation of long-lived tangible assets, goodwill and intangible assets. The Company has developed internal valuation models for such valuations; however, an independent valuation firm may be engaged in certain situations. In such situations, the independent valuation firm largely uses DCF valuation models as the primary measure of fair value though other valuation approaches are also considered. A few examples of input assumptions to such valuations include macroeconomic factors such as growth rates, industry demand, inflation, exchange rates and power and commodity prices. Whenever possible, the Company attempts to obtain market observable data to develop input assumptions. Where the use of market observable data is limited or not possible for certain input assumptions, the Company develops its own estimates using a variety of techniques such as regression analysis and extrapolations. For nonrecurring measurements derived using the market approach, recent market transactions involving the sale of identical or similar assets are considered. The use of this approach is limited because it is often difficult to find sale transactions of identical or similar assets. This approach is used in the impairment evaluations of certain intangible assets. Otherwise, it is used to corroborate the fair value determined under the income approach. For nonrecurring measurements derived using the cost approach, fair value is typically determined using the replacement cost approach. Under this approach, the depreciated replacement cost of assets is determined by first determining the current replacement cost of assets and then applying the remaining useful life percentages to such cost. Further adjustments for economic and functional obsolescence are made to the depreciated replacement cost. This approach involves a considerable amount of judgment, which is why its use is limited to the measurement of a few long-lived tangible assets. Like the market approach, this approach is also used to corroborate the fair value deter mined under the income approach. Fair Value Considerations: In determining fair value, the Company considers the source of observable market data inputs, liquidity of the instrument, the credit risk of the counterparty and the risk of the Company's or its counterparty's nonperformance. The conditions and criteria used to assess these factors are: Sources of market assumptions The Company derives most of its market assumptions from market efficient data sources (e.g., Bloomberg, Reuters, and Platt's). To determine fair value, where market data is not readily available, management uses comparable market sources and empirical evidence to develop its own estimates of market assumptions. Market liquidity The Company evaluates market liquidity based on whether the financial or physical instrument, or the underlying asset, is traded in an active or inactive market. An active market exists if the prices are fully transparent to market participants, can be measured by market bid and ask quotes, the market has a relatively large proportion of trading volume as compared to the Company's current trading volume and the market has a significant number of market participants that will allow the market to rapidly absorb the quantity of the assets traded without significantly affecting the market price. Another factor the Company considers when determining whether a market is active or inactive is the presence of government or regulatory controls over pricing that could make it difficult to establish a market based price when entering into a transaction. Nonperformance risk Nonperformance risk refers to the risk that the obligation will not be fulfilled and affects the value at which a liability is transferred or an asset is sold. Nonperformance risk includes, but may not be limited to, the Company or counterparty's credit and settlement risk. Nonperformance risk adjustments are dependent on credit spreads, letters of credit, collateral, other arrangements available and the nature of master netting arrangements. The Company and its subsidiaries are parties to various interest rate swaps and options; foreign currency options and forwards; and derivatives and embedded derivatives which subject the Company to nonperformance risk. The financial and physical instruments held at the subsidiary level are generally non-recourse to the Parent Company. Nonperformance risk on the investments held by the Company is incorporated in the fair value derived from quoted market data to mark the investments to fair value. The Company adjusts for nonperformance or credit risk on its derivative instruments by deducting a credit valuation adjustment (“CVA”). The CVA is based on the margin or debt spread of the Company's subsidiary or counterparty and the tenor of the respective derivative instrument. The counterparty for a derivative asset position is considered to be the bank or government sponsored banking entity or counterparty to the PPA or commodity contract. The CVA for asset positions is based on the counterparty's credit ratings and debt spreads or, in the absence of readily obtainable credit information, the respective country debt spreads are used as a proxy. The CVA for liability positions is based on the Parent Company's or the subsidiary's current debt spread, the margin on indicative financing arrangements, or in the absence of readily obtainable credit information, the respective country debt spreads are used as a proxy. All derivative instruments are analyzed individually and are subject to unique risk exposures. 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 December 31, 2011 and 2010. Financial assets and liabilities have been classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the determination of the fair value of the assets and liabilities and their placement within the fair value hierarchy levels.
|  |  |  | Quoted Market |  | Significant |  |  |  |  |  |
|  |  |  | Prices in Active |  | Other |  | Significant |  |  |
|  |  |  | Market for |  | Observable |  | Unobservable |  | Total
|  |  |  | Identical Assets |  | Inputs |  | Inputs |  | December 31,
|  |  |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | 2011
|  |  |  | (in millions)
Assets |  |  |  |  |  |  |  |  |  |  |  |
| Available-for-sale securities |  | $ | 1 |  | $ | 1,339 |  | $ | - |  | $ | 1,340
| Trading securities |  |  | 12 |  |  | - |  |  | - |  |  | 12
| Derivatives |  |  | 2 |  |  | 52 |  |  | 66 |  |  | 120
|  | Total assets |  | $ | 15 |  | $ | 1,391 |  | $ | 66 |  | $ | 1,472
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
| Derivatives |  | $ | - |  | $ | 476 |  | $ | 214 |  | $ | 690
|  | Total liabilities |  | $ | - |  | $ | 476 |  | $ | 214 |  | $ | 690
|  |  |  | Quoted Market |  | Significant |  |  |  |  |  |
|  |  |  | Prices in Active |  | Other |  | Significant |  |  |
|  |  |  | Market for |  | Observable |  | Unobservable |  | Total
|  |  |  | Identical Assets |  | Inputs |  | Inputs |  | December 31,
|  |  |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | 2010
|  |  |  | (in millions)
Assets |  |  |  |  |  |  |  |  |  |  |  |
| Available-for-sale securities |  | $ | 8 |  | $ | 1,700 |  | $ | 42 |  | $ | 1,750
| Trading securities |  |  | 10 |  |  | - |  |  | - |  |  | 10
| Derivatives |  |  | - |  |  | 58 |  |  | 61 |  |  | 119
|  | Total assets |  | $ | 18 |  | $ | 1,758 |  | $ | 103 |  | $ | 1,879
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
| Derivatives |  | $ | - |  | $ | 346 |  | $ | 12 |  | $ | 358
|  | Total liabilities |  | $ | - |  | $ | 346 |  | $ | 12 |  | $ | 358
The following table presents a reconciliation of derivative assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year s ended December 31, 2011 and 2010 (presented net by type of derivative):
|  |  |  | Year Ended December 31, 2011
|  |  |  | Interest |  | Cross |  | Foreign |  | Commodity |  |
|  |  |  | Rate |  | Currency |  | Currency |  | & Other |  | Total
|  |  | (in millions)
Balance at beginning of period |  | $ | (1) |  | $ | 10 |  | $ | 22 |  | $ | 18 |  | $ | 49
| Total gains (losses) (realized and unrealized): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Included in earnings(1) |  |  | - |  |  | (4) |  |  | 32 |  |  | (71) |  |  | (43)
|  | Included in other comprehensive income |  |  | (13) |  |  | (37) |  |  | - |  |  | - |  |  | (50)
|  | Included in regulatory assets |  |  | - |  |  | - |  |  | - |  |  | 8 |  |  | 8
| Settlements |  |  | - |  |  | 13 |  |  | (3) |  |  | (8) |  |  | 2
| Transfers of assets (liabilities) into Level 3(2) |  |  | (117) |  |  | - |  |  | - |  |  | - |  |  | (117)
| Transfers of (assets) liabilities out of Level 3(2) |  |  | 3 |  |  | - |  |  | - |  |  | - |  |  | 3
Balance at end of period |  | $ | (128) |  | $ | (18) |  | $ | 51 |  | $ | (53) |  | $ | (148)
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) |  | $ | 29 |  | $ | (71) |  | $ | (44)
|  |  |  | Year Ended December 31, 2010
|  |  |  | Interest |  | Cross |  | Foreign |  | Commodity |  |
|  |  |  | Rate |  | Currency |  | Currency |  | & Other |  | Total
|  |  | (in millions)
Balance at beginning of period |  | $ | (12) |  | $ | (12) |  | $ | - |  | $ | 24 |  | $ | -
| Total gains (losses) (realized and unrealized): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Included in earnings(1) |  |  | 1 |  |  | 4 |  |  | 25 |  |  | 21 |  |  | 51
|  | Included in other comprehensive income |  |  | (12) |  |  | 13 |  |  | - |  |  | - |  |  | 1
|  | Included in regulatory assets |  |  | (3) |  |  | - |  |  | - |  |  | 1 |  |  | (2)
| Settlements |  |  | 7 |  |  | 5 |  |  | (1) |  |  | (28) |  |  | (17)
| Transfers of assets (liabilities) into Level 3(2) |  |  | - |  |  | - |  |  | (2) |  |  | - |  |  | (2)
| Transfers of (assets) liabilities out of Level 3(2) |  |  | 18 |  |  | - |  |  | - |  |  | - |  |  | 18
Balance at end of period |  | $ | (1) |  | $ | 10 |  | $ | 22 |  | $ | 18 |  | $ | 49
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 |  | $ | - |  | $ | 7 |  | $ | 24 |  | $ | 9 |  | $ | 40
(1) The gains (losses) included in earnings for these Level 3 derivatives are classified as follows: interest rate and cross currency derivatives as interest expense, foreign currency derivatives as foreign currency transaction gains (losses) and commodity and other derivatives as either non-regulated revenue, non-regulated cost of sales, or other expense. See Note 6—Derivative Instruments and Hedging Activities for further information regarding the classification of gains and losses included in earnings in the Consolidated Statements of Operations. (2) Transfers in and out of Level 3 are determined as of the end of the reporting period and are from and to Level 2. The only L evel 1 derivative instruments as of December 31, 2011 are exchange-traded commodity futures for which the pricing is observable in active markets, and as such these are not expected to transfer to other levels. The (assets) liabilities transferred out of Level 3 are primarily the result of a decrease in the significance of unobservable inputs used to calculate the credit valuation adjustments of these derivative instruments. Similarly, the assets (liabilities) transferred into Level 3 are primarily the result of an increase in the significance of unobservable inputs used to calculate the credit valuation adjustments of these derivative instruments. The following table presents a reconciliation of available-for-sale securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2011 and 2010:
|  |  |  | Year Ended December 31,
|  |  |  | 2011 |  | 2010
|  |  | (in millions)
Balance at beginning of period(1) |  | $ | 42 |  | $ | 42
| Settlements |  |  | (42) |  |  | -
Balance at end of period |  | $ | - |  | $ | 42
Total gains (losses) for the period included in earnings attributable to the |  |  |  |  |  |
| change in unrealized gains/losses relating to assets held at the |  |  |  |  |  |
| end of the period |  | $ | - |  | $ | -
(1) Available-for-sale securities in Level 3 are variable rate demand notes which have failed remarketing and for which there are no longer adequate observable inputs to measure the fair value. Nonrecurring Measurements: For purposes of impairment evaluation, the Company measured the fair value of long-lived assets and equity method investments under the fair value measurement accounting guidance. To measure the amount of impairment, t he Company compares the fair value of assets and liabilities at the evaluation date to the carrying amount at the end of the month prior to the evaluation date. 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:
|  |  |  |  |  | Year Ended December 31, 2011
|  |  |  | Carrying |  | Fair Value |  | Gross
|  |  |  | Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | (Gain) Loss
|  |  |  | (in millions)
Long-lived assets held and used: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Wind turbines and deposits |  | $ | 161 |  | $ | - |  | $ | 45 |  | $ | - |  | $ | 116
| Tisza II |  |  | 94 |  |  | - |  |  | - |  |  | 42 |  |  | 52
| Kelanitissa |  |  | 66 |  |  | - |  |  | - |  |  | 24 |  |  | 42
| Bohemia |  |  | 14 |  |  | - |  |  | 5 |  |  | - |  |  | 9
Discontinued operations and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
businesses held for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Edelap, Edes and Central Dique |  |  | 350 |  |  | - |  |  | 4 |  |  | - |  |  | 346
| Carbon reduction projects |  |  | 49 |  |  | - |  |  | - |  |  | - |  |  | 40(1)
| Wind projects |  |  | 22 |  |  | - |  |  | - |  |  | - |  |  | 22
| Borsod(2) |  |  | (9) |  |  | - |  |  | - |  |  | - |  |  | -
| Eastern Energy(2) |  |  | (123) |  |  | - |  |  | - |  |  | - |  |  | -
| Thames(2) |  |  | (7) |  |  | - |  |  | - |  |  | - |  |  | -
| Brazil Telecom businesses |  |  | 142 |  |  | - |  |  | 893 |  |  |  |  |  | (751)
Equity method affiliates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Yangcheng |  |  | 100 |  |  | - |  |  | - |  |  | 26 |  |  | 74
Goodwill: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Chigen |  |  | 17 |  |  | - |  |  | - |  |  | - |  |  | 17
|  |  |  |  |  | Year Ended December 31, 2010
|  |  |  | Carrying |  | Fair Value |  | Gross
|  |  |  | Amount |  | Level 1 |  | Level 2 |  | Level 3 |  | (Gain) Loss
|  |  |  | (in millions)
Long-lived assets held and used: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Southland (Huntington Beach) |  | $ | 288 |  | $ | - |  | $ | - |  | $ | 88 |  | $ | 200
| Tisza II |  |  | 160 |  |  | - |  |  | - |  |  | 75 |  |  | 85
| Deepwater |  |  | 83 |  |  | - |  |  | - |  |  | 4 |  |  | 79
Discontinued operations and |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
businesses held for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Eastern Energy |  |  | 827 |  |  | - |  |  | - |  |  | - |  |  | 827
| Barka |  |  | 20 |  |  | - |  |  | 124 |  |  | - |  |  | (104)
| Ras Laffan |  |  | 120 |  |  | - |  |  | 226 |  |  | - |  |  | (106)
Goodwill: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Deepwater |  |  | 18 |  |  | - |  |  | - |  |  | - |  |  | 18
| Other |  |  | 3 |  |  | - |  |  | - |  |  | - |  |  | 3
The carrying amounts and fair value of the asset groups also include other assets and liabilities; however, impairment expense recognized was limited to the carrying amounts of long-lived assets. The businesses, currently in liquidation/bankruptcy proceedings, had negative carrying amounts at the measurement date. Related gains on deconsolidation have been deferred pending the resolution of bankruptcy protection/liquidation proceedings. Long-lived Assets Held and Used Wind Turbines and Deposits ― During the third quarter of 2011, the Company determined that certain wind turbines and deposits held by our Wind Generation business were impaired. The long-lived assets with a carrying amount of $161 million were written down to their estimated fair value of $45 million under the market approach. This resulted in the recognition of asset impairment expense of $116 million for the year ended December 31, 2011. Tisza II ― In the fourth quart er of 2011, t he Company determined there were impairment indicators for the long-lived assets at Tisza II, our gas-fired ge neration plant in Hungary. The asset group had a carrying amount of $94 million and was written down to its estimated fair va lue of $42 million resulting in the recognition of asset impairment expense of $52 million. Kelanitissa ― In 2011, the Company determined the long-lived assets at Kelanitissa, our diesel-fired plant in Sri Lanka, were impaired. The long-lived assets with a carrying amount of $66 million were written down to their estimated fair value of $24 million based on a discounted cash flow analysis. This resulted in the recognition of asset impairment expense of $42 million for the year ended December 31, 2011. For further discussion of these impairments, see Note 20—Impairment Expense. Discontinued Operations and Held for Sale Businesses Edelap, Edes and Central Dique― During the fourth quarter of 2011, the Company sold its ownership interest in two distribution companies Empresa Distribuidora La Plata S.A. (“Edelap”), Empresa Distribuidora de Energia Sur S.A. (“Edes”) and a 68 MW generation plant, Central Dique S.A. (collectively, “Argentina distribution businesses”) in Argentina. These businesses had a carrying amount of $3 50 million, which was written down to the net sale pri ce of $4 million resulting in a loss on disposal of $3 46 million. Carbon Reduction Projects ― In 2011, t he Company determined that it would sell its interest in carbon reduction projects, our emission reduction credit projects in Asia and Latin America. The long-lived asset groups with an aggregate carrying amount of $49 million were written down to their estimated fair value of $5 million based on discounted cash flows analysis. Wind Projects― In the fourth quart er of 2011, the Company determined that it would not pursue certain wind development proje cts in Poland and the U.K. The operating results of these projects have been presented as discontinued operations as they met the applicable criteria for reporting discontinued operations. The intangible assets, primarily project development rights, with an aggregate carrying amount of $22 million were fully written off based on discounted cash flows analysis. Eastern Energy, Thames and Borsod ― In 2011, t hese businesses filed for bankruptcy protection and/or liquidation. As of Dec ember 31, 2011, they were accounted for as cost method investments with the p rior period operating results presented as discontinued operations. G ain s resultin g from their deconsolidation have been deferred pending the finalization of liquidation/bankruptcy proceedings. See Note 1 ― General and Summary of Significant Accounting Policies, Principles of Consolidation for further information. Brazil Telecom Businesses― In the fourth quart er of 2011, the Company completed the sale of its ownership interest in two telecommunication businesses in Brazil. The businesses had a carrying amount of $142 million and were sold for $893 million (net of selling costs) resulting in a gain of $751 million before income tax and noncontrolling interests. For further discussion, see Note 22—Discontinued Operations and Held for Sale Businesses. Equity Method Affiliate Yangcheng International Power Generating Co. Ltd. (“Yangcheng”) ―During the third quarter of 2011, the Company determined that the carrying amount of Yangcheng, a 2,100 MW venture in China in which AES owns a 25% interest, had incurred an other-than-temporary impairment. Yangcheng's carrying amount of $100 million was written down to its estimated fair value of $26 million determined under the income approach, resulting in the recognition of other non-operating expense of $74 million for the year ended December 31, 2011. See Note 7—Investments In and Advances to Affiliates and Note 8—Other Non-Operating Expense for further information. Goodwill During the third quarter of 2011, the Company determined there were impairment indicators for the goodwill at Chigen, our holding company in China that holds AES' interests in Chinese ventures, including its investment in Yangcheng. Goodwill of $17 million was written down to its implied fair value of zero during an interim impairment evaluation, resulting in the recognition of goodwill impairment of $17 million for the year ended December 31, 2011. For further discussion, see Note 9—Goodwill and Other Intangible Assets. Long-lived Assets Held and Used Tisza II and Southland (Huntington Beach). During the third quarter of 2010, the Company determined there were impairment indicators for the long-lived assets at Tisza II, our gas-fired generation plant in Hungary, and Southland, our gas-fired generation plants in California. These long-lived assets had carrying amounts of $160 million and $288 million, respectively, and were written down to their fair value of $75 million and $88 million, respectively. These resulted in the recognition of asset impairment expense of $85 million and $200 million, respectively, during the year ended December 31, 2010. Deepwater. In the fourth quarter of 2010, the Company determined there were impairment indicators for the long-lived assets at Deepwater, our pet-coke-fired generation facility in Texas. These long-lived assets had a carrying amount of $83 million and were written down to their fair value of $4 million. This resulted in the recognition of asset impairment expense of $79 million. For further discussion of these impairments, see Note 20—Impairment Expense. Discontinued Operations and Held for Sale Businesses In the fourth quarter of 2010, the Company determined there were impairment indicators for the long-lived assets at Eastern Energy. These long-lived assets had a carrying amount of $827 million and were considered fully impaired. As a result, an impairment loss of $827 million was recognized, which is included in Income from operations of discontinued businesses in the Consolidated Statement of Operations. The Company determined the fair value of nonfinancial assets and liabilities of our held for sale businesses during the year ended December 31, 2010. These businesses included Barka in Oman, Ras Laffan in Qatar, and Eastern Energy, our coal-fired generation plants in New York. For further discussion, see Note 22—Discontinued Operations and Held for Sale Businesses. Goodwill During the third quarter of 2010, the Company determined there were impairment indicators for the long-lived assets and goodwill at Deepwater, our pet coke-fired generation plant in Texas. Goodwill with an aggregate carrying amount of $18 million was written down to its implied fair value of zero, resulting in the recognition of goodwill impairment of $18 million for the year ended December 31, 2010. For further discussion, see Note 9—Goodwill and Other Intangible Assets.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 3, 10, 14, 15 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15B -Subparagraph a, b -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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