<SEC-DOCUMENT>0001193125-13-231697.txt : 20130703
<SEC-HEADER>0001193125-13-231697.hdr.sgml : 20130703
<ACCEPTANCE-DATETIME>20130522173158
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001193125-13-231697
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20130522

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AES CORP
		CENTRAL INDEX KEY:			0000874761
		STANDARD INDUSTRIAL CLASSIFICATION:	COGENERATION SERVICES & SMALL POWER PRODUCERS [4991]
		IRS NUMBER:				541163725
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		4300 WILSON BOULEVARD
		CITY:			ARLINGTON
		STATE:			VA
		ZIP:			22203
		BUSINESS PHONE:		7035221315

	MAIL ADDRESS:	
		STREET 1:		4300 WILSON BOULEVARD
		CITY:			ARLINGTON
		STATE:			VA
		ZIP:			22203

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AES CORPORATION
		DATE OF NAME CHANGE:	19930328
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><U>VIA EDGAR AND BY HAND </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">May 22, 2013 </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr.&nbsp;William&nbsp;H. Thompson </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Accounting Branch Chief </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr.&nbsp;Tony Watson </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Accountant
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mr.&nbsp;Jason Niethamer </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Assistant Chief Accountant </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Division of Corporation Finance </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Securities and Exchange Commission </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">100 F
Street, N.E. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Washington, D.C. 20549 </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Commission File No.&nbsp;001-12291 </FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Dear
Mr.&nbsp;Thompson, Mr.&nbsp;Watson and Mr.&nbsp;Niethamer: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">We are in receipt of your comment letter dated May&nbsp;9, 2013 regarding the
Annual Report on Form 10-K (the &#147;2012 10-K&#148;) for the year ended December&nbsp;31, 2012 of The AES Corporation (the &#147;Company&#148;) filed with the Securities and Exchange Commission (the &#147;Commission&#148;) on February&nbsp;27,
2013. Our responses to your comments follow. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;7. Management&#146;s Discussion and Analysis of Financial Condition and Results of
Operations, page 105 </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Comment 1 &#150; Consolidated Results of Operations, page 115 </B></FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>1.</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Please tell us what consideration you have given to providing disclosures that explain in greater detail the impact on your effective income tax rates and
obligations of having proportionally higher earnings in countries where you have lower statutory tax rates. In this regard, please tell us what consideration you gave to explaining the relationship between the foreign and domestic effective tax
rates in greater detail. It appears as though separately discussing the foreign effective income tax rates may be important information necessary to understanding your results of operations. We refer you to Item&nbsp;303(a)(3)(i) of Regulation S-K
and Section III.B of SEC Release 34-48960. </I></FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>RESPONSE: </B>The Company respectfully asserts that its current disclosure
regarding effective tax rates is appropriate. In support of this assertion, the Company notes that it already discloses the principal items which impacted the effective tax rate. For 2012, foreign tax rates were not the principal driver of the
Company&#146;s effective tax rate. Rather, as noted on page 137 in the Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations of the 2012 10-K, the principal item impacting the effective tax rate was
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the impairment of goodwill at Dayton Power&nbsp;&amp; Light, which was not deductible for Federal income tax purposes. The Company expands on this disclosure in Note 22 &#150; Income Taxes to the
consolidated financial statements on page 232 of the 2012 10-K, under the header &#147;Effective and Statutory Tax Rate Reconciliation.&#148; In that table, the Company discloses that the impairment at DPL represented 203% of the 225% tax rate
whereas foreign taxes reduced the tax rate by 21%. When adjusted for the DPL impairment, the foreign taxes reduced the tax rate by only 3%, consistent with prior years.</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The Company believes its disclosure in MD&amp;A together with the financial statement disclosure appropriately describes the actual and potential impact on its effective tax rate of business conducted in
jurisdictions with differing tax rates and aligns with the guidance contained in Item&nbsp;303(a)(3)(i) of Regulation S-K and Section III.B of SEC Release 34-48960.&nbsp;However, the Company acknowledges that when foreign taxes are significant to
changes in the worldwide effective tax rate, the Company will address such impact in future MD&amp;A.&nbsp;Furthermore, in light of the Staff&#146;s comment, the Company will, in its MD&amp;A for all future periods (beginning with the second quarter
of 2013), provide the following paragraph under Income Taxes that highlights the potential impact on the effective tax rate of foreign earnings: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Our effective tax rate reflects the tax effect of significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35 percent. 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. </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>Note 14. Contingencies, page 208 </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Comment 2 &#150; Environmental, page 209
</B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>2.</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note in your disclosure on environmental contingencies that you believe it is reasonably possible that costs associated with such liabilities may exceed current
reserves in amounts that could be material but cannot be estimated. Please clarify if your inability to estimate includes not only the additional possible loss but also the range of loss that could exceed current reserves. Additionally, please
elaborate on how you can conclude that additional costs in excess of current reserves &#147;could be material&#148; if you are unable to estimate what that range of additional costs might be. </I></FONT></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>RESPONSE: </B>Currently, the Company has a robust process in place to determine the environmental reserves required; however, the Company does not
have a process to estimate the range of possible loss that could exceed current reserves. Although the current process does not allow the Company to estimate the range of losses, based on our experience with claims of this nature, the Company
concluded that losses in excess of current reserves could be material. In future filings, the Company will expand its disclosure to include a range of reasonably possible losses that could exceed current reserves. For example &#147;In aggregate, the
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Company estimates that the range of potential losses related to environmental matters, where estimable, to be in the range of $xx million to $xx million. The amounts considered reasonably
possible do not include amounts reserved as discussed above.&#148; To support this disclosure, the Company will refine its internal process to quantify the range of reasonably possible losses that could exceed current reserves. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Comment 3 &#150; Environmental, page 209 </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>3.</I></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>If you conclude that you cannot estimate the reasonably possible additional loss or range of loss, please supplementally: (1)&nbsp;explain to us the procedures you
undertake on a quarterly basis to attempt to develop a range of reasonably possible loss for disclosure and (2)&nbsp;for each material matter, what specific factors are causing the inability to estimate and when you expect those factors to be
alleviated. We recognize that there are a number of uncertainties and potential outcomes associated with environmental loss contingencies. Nonetheless, an effort should be made to develop estimates for purposes of disclosure, including determining
which of the potential outcomes are reasonably possible and what the reasonably possible range of losses would be for those reasonably possible outcomes. </I></FONT></TD></TR></TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>RESPONSE: </B>As noted in the Company&#146;s response to Comment 2, the Company will provide a range of loss in future filings with the Commission. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Comment 4 &#150; Note 24. Acquisitions and Dispositions, page 240 </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>

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<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>We note that in the Electric Security Plan that you filed for approval with the Public Utility Commission of Ohio, you agreed to request separation of your
generation assets from your transmission and distribution assets in recognition that a restructuring of DP&amp;L operations will be necessary, in compliance with Ohio law. Please tell us how you considered the pending electric deregulation in the
purchase price allocation at the close of the DPL acquisition. As part of your response, please explain to us your valuation methodology with respect to each of the generation, transmission and distribution assets Given you report US-generation and
US-utilities as separate segments, explain your basis for viewing DPL as one component for goodwill evaluation. </I></FONT></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>RESPONSE: </B>We are responding to the Staff&#146;s comment in two parts. In the first part, we discuss the Company&#146;s valuation of DPL in
accordance with ASC 805 as of the Acquisition date. In the second part, we discuss the reportable segments and reporting units for DPL in accordance with ASC 280 and ASC 350<B> </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>Purchase Price Allocation and Valuation</I>. In accordance with ASC 805, the Company recorded the fair value of all identifiable assets and liabilities acquired in the DPL acquisition. The most
significant assets related to the generation, transmission and distribution assets. The fair value of each of the generation facilities of DPL were generally measured using an </FONT></P>

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income approach using a discounted cash flow model which incorporated market participant assumptions. The fair value of the regulated transmission and distribution assets using market participant
assumptions was determined to approximate the carrying amount as of the Acquisition date as the existing regulation associated with the assets results in the Public Utility Commission of Ohio allowing recovery of only historical cost plus a
regulated rate of return. A market participant would assume the regulated rate of return would approximate the discount rate as it would not be financially feasible or legally permissible to separate transmission and distribution assets from the
regulation and would assume there is no higher and better use for the assets. Under an income approach, discounting the estimated future cash flows by the regulated rate of return would result in a fair value that approximates the historical cost
(i.e., carrying amount). With regard to the separation of assets referenced in the Staff&#146;s comment, the Company did consider the potential separation at the acquisition date of DPL and concluded that the potential separation does not impact the
assumptions used in estimating the future cash flows used in the determination of the fair value of the assets acquired.&nbsp;The separation of the generation assets from the transmission and distribution assets in and of itself would not alter the
underlying assumptions related to the future cash flows of each generation facility. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Segment and Reporting Unit Analysis</I>. While the
Company reports US Generation and US Utilities as separate reportable segments, all of DPL&#146;s operations are included in the US Utilities reportable segment based on application of the segment accounting guidance within ASC 280. Specifically the
Chief Operating Decision Maker regularly reviews operating results for DPL Inc. (&#147;DPL&#148;) on a consolidated basis in order to make decisions and allocate resources, and therefore, DPL meets the definition of an operating segment. As
disclosed in Note 10 to the Company&#146;s 2012 consolidated financial statements &#150; Goodwill and Other Intangibles Assets of the 2012 Form 10-K the Company applied ASC 350 and determined there are two reporting units within the DPL operating
segment: Dayton Power and Light Company (&#147;DP&amp;L&#148;) and DPL Energy Resources, Inc. (&#147;DPLER&#148;). We evaluated the DP&amp;L reporting unit as one component for goodwill purposes (separate from the DPLER reporting unit) as the
operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes. Segment Management reviews stand-alone reports for DP&amp;L in the aggregate (generation, transmission and distribution). Separate discrete
financial information is not reviewed by Segment Management on the basis of generation and transmission and distribution assets </FONT></P> <P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Comment 5
&#150; Note 24. Acquisitions and Dispositions, page 240 </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Please tell us whether the &#147;refinements&#148; to your assumptions in determining step 1 and step 2 of the goodwill evaluation were applied retroactively as of
September&nbsp;30, 2012 or were the result of additional information subsequent to that date. In either event, please supplementally explain the nature of the &#147;refinements.&#148;</I> </FONT></TD></TR></TABLE>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>RESPONSE: </B>As further described below, in its interim unaudited financial statements included in the Form 10-Q for the quarter ended
September&nbsp;30, 2012 (&#147;the 2012 10-Q&#148;), the </FONT></P>

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Company estimated the goodwill impairment based on its application of ASC 350-20-35-18. The goodwill impairment was finalized during the fourth quarter of 2012 and the final impairment differed
from the estimate recognized in the quarter ended September&nbsp;30, 2012 10-Q by $33 million or less than 2%. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">As noted above, the Company
recognized an estimate of the goodwill impairment in accordance with ASC 350-20-35-18, which states as follows: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#147;If the
second step of the goodwill impairment test is not complete before the financial statements are issued or are available to be issued &#133;and a goodwill impairment loss is probable and can be reasonably estimated, the best estimate of that loss
shall be recognized in those financial statements.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company disclosed in the notes to its September&nbsp;30, 2012 interim unaudited
financial statements in its Q3 2012 Form 10-Q disclosure on page 37, the material assumptions included within the discounted cash flow valuation model and the fact that further refinements to these assumptions could have a significant impact on the
enterprise value and the resulting implied fair value of goodwill. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">During the fourth quarter of 2012, the Company completed the measurement
of the goodwill impairment charge. The refinements were made primarily to assumptions related to property, plant and equipment, intangibles, the valuation of intercompany agreements between DP&amp;L and DPLER and the associated deferred taxes on
these items. The refinements were based upon information that existed as of September&nbsp;30, 2012 and were retroactively applied as of September&nbsp;30, 2012. The refinements described above resulted in a $33 million reduction of the previously
estimated impairment loss, which was less than 2% of the original estimate of $1.85 billion. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;* </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Company acknowledges that: (i)&nbsp;the Company is responsible for the adequacy and accuracy of the
disclosure in its filings; (ii)&nbsp;Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filings; and (iii)&nbsp;the Company may not assert Staff comments
as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Please contact Ms.&nbsp;Sharon Virag, Vice-President and Controller, at 703-682-6323 or Zafar Hasan, Assistant General Counsel, at (703)&nbsp;682-1110 if you have any questions with respect to the
foregoing or if we may otherwise be of assistance. </FONT></P>

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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Very truly yours,</FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Thomas M. O&#146;Flynn</FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Thomas M. O&#146;Flynn</FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Executive Vice President and Chief Financial Officer</FONT></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The AES Corporation</FONT></TD></TR>
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