RISKS AND UNCERTAINTIES

AES is a diversified power generation and utility company organized into five market-oriented SBUs. See additional discussion of the Company's principal markets in Note 15—Segment and Geographic Information. Within our five SBUs, we have two primary lines of business: Generation and Utilities. The Generation line of business uses a wide range of fuels and technologies to generate electricity such as coal, gas, hydro, wind, solar and biomass. Our Utilities business comprises businesses that transmit, distribute, and in certain circumstances, generate power. In addition, the Company has operations in the renewables area. These efforts include projects primarily in wind and solar.

Operating and Economic Risks — The Company operates in several developing economies where macroeconomic conditions are usually more volatile than developed economies. Deteriorating market conditions often expose the Company to the risk of decreased earnings and cash flows due to, among other factors, adverse fluctuations in the commodities and foreign currency spot markets. Additionally, credit markets around the globe continue to tighten their standards, which could impact our ability to finance growth projects through access to capital markets. Currently, the Company has a below-investment grade rating from Standard & Poor's of BB-. This could affect the Company's ability to finance new and/or existing development projects at competitive interest rates. As of December 31, 2017, the Company had $949 million of unrestricted cash and cash equivalents.

During 2017, 69% of our revenue was generated outside the U.S. and a significant portion of our international operations is conducted in developing countries. We continue to invest in several developing countries to expand our existing platform and operations. International operations, particularly the operation, financing and development of projects in developing countries, entail significant risks and uncertainties, including, without limitation:


•	economic, social and political instability in any particular country or region;


•	inability to economically hedge energy prices;


•	volatility in commodity prices;


•	adverse changes in currency exchange rates;


•	government restrictions on converting currencies or repatriating funds;


•	unexpected changes in foreign laws, regulatory framework, or in trade, monetary or fiscal policies;


•	high inflation and monetary fluctuations;


•	restrictions on imports of coal, oil, gas or other raw materials required by our generation businesses to operate;


•	threatened or consummated expropriation or nationalization of our assets by foreign governments;


•	unwillingness of governments, government agencies, similar organizations or other counterparties to honor their commitments;


•	unwillingness of governments, government agencies, courts or similar bodies to enforce contracts that are economically advantageous to subsidiaries of the Company and economically unfavorable to counterparties, against such counterparties, whether such counterparties are governments or private parties;


•	inability to obtain access to fair and equitable political, regulatory, administrative and legal systems;


•	adverse changes in government tax policy;


•	difficulties in enforcing our contractual rights, enforcing judgments, or obtaining a just result in local jurisdictions; and


•	potentially adverse tax consequences of operating in multiple jurisdictions.

Any of these factors, individually or in combination with others, could materially and adversely affect our business, results of operations and financial condition. In addition, our Latin American operations experience volatility in revenue and earnings which have caused and are expected to cause significant volatility in our results of operations and cash flows. The volatility is caused by regulatory and economic difficulties, political instability, indexation of certain PPAs to fuel prices, and currency fluctuations being experienced in many of these countries. This volatility reduces the predictability and enhances the uncertainty associated with cash flows from these businesses.

Our inability to predict, influence or respond appropriately to changes in law or regulatory schemes, including any inability to obtain reasonable increases in tariffs or tariff adjustments for increased expenses, could adversely impact our results of operations or our ability to meet publicly announced projections or analysts' expectations. Furthermore, changes in laws or regulations or changes in the application or interpretation of regulatory provisions in jurisdictions where we operate, particularly our Utility businesses where electricity tariffs are subject to regulatory review or approval, could adversely affect our business, including, but not limited to:


•	changes in the determination, definition or classification of costs to be included as reimbursable or pass-through costs;


•	changes in the definition or determination of controllable or noncontrollable costs;


•	adverse changes in tax law;


•	changes in the definition of events which may or may not qualify as changes in economic equilibrium;


•	changes in the timing of tariff increases;


•	other changes in the regulatory determinations under the relevant concessions; or


•	changes in environmental regulations, including regulations relating to GHG emissions in any of our businesses.

Any of the above events may result in lower margins for the affected businesses, which can adversely affect our results of operations.

Alto Maipo — The Company's subsidiary, AES Gener, is currently constructing Alto Maipo, a hydroelectric facility near Santiago Chile. Increased project costs, or delays in construction, at Alto Maipo could have an adverse impact on the Company. Alto Maipo has experienced construction difficulties, which have resulted in an increase in projected costs over the original $2 billion budget. These overages led to a series of negotiations with the intention of restructuring the project’s existing financial structure and obtaining additional funding. On March 17, 2017, AES Gener completed the legal and financial restructuring of Alto Maipo, and through the Company’s 67% ownership interest in AES Gener, AES now has an effective 62% indirect economic interest in Alto Maipo. See Note 14—Equity for additional information regarding the restructuring.

Following the restructuring described above, the project continued to face construction difficulties, including greater than expected costs and slower than anticipated productivity by construction contractors toward agreed-upon milestones. Furthermore, during the second quarter of 2017, as a result of the failure to perform by one of its construction contractors, Constructora Nuevo Maipo S.A. (“CNM”), Alto Maipo terminated CNM’s contract. As a result of the termination of CNM, Alto Maipo’s construction debt of $618 million and derivative liabilities of $132 million are in technical default and presented as current in the balance sheet as of December 31, 2017.

Construction at the project is continuing and the project is over 61% complete. In February 2018, Alto Maipo signed an amended EPC contract with Strabag, the permanent replacement contractor selected to complete CNM’s work, subject to approval by the project's senior lenders as part of the second refinancing. Alto Maipo is working to resolve the challenges described above, however, there can be no assurance that Alto Maipo will succeed in these efforts and if there are further delays or cost overruns, or if Alto Maipo is unable to reach an agreement with the non-recourse lenders, there is a risk these lenders may seek to exercise remedies available as a result of the default noted above, or Alto Maipo may not be able to meet its contractual or other obligations and may be unable to continue with the project. If any of the above occur, there could be a material impairment for the Company.

The carrying value of the long-lived assets and deferred tax assets of Alto Maipo as of December 31, 2017 was approximately $1.4 billion and $60 million, respectively. Even though certain of the construction difficulties have not been formally resolved, construction costs continue to be capitalized as management believes the project is probable of completion. Management believes the carrying value of the long-lived asset group is recoverable and was not impaired as of December 31, 2017. In addition, management believes it is more likely than not that the deferred tax assets will be realized, they could be reduced if estimates of future taxable income are decreased.

Puerto Rico — In September 2017, Puerto Rico was severely impacted by Hurricanes Irma and Maria, disrupting the operations of AES Puerto Rico and AES Ilumina. Puerto Rico’s infrastructure was severely damaged, including electric infrastructure and transmission lines. The extensive structural damage caused by hurricane winds and flooding is expected to take considerable time to repair. The Company sustained modest damage to its AES Ilumina solar plant, resulting in a $2 million loss, and minor damage to its AES Puerto Rico thermal plants.

Our subsidiaries in Puerto Rico have long-term PPAs with state-owned PREPA. As a result of the hurricanes, PREPA has declared an event of Force Majeure. However, both units of AES Puerto Rico and approximately 75% of AES Ilumina are available to generate electricity which, in accordance with the PPAs, will allow AES Puerto Rico to invoice capacity, even under Force Majeure.

Due to the extensive damage from the hurricanes, energy demand in Puerto Rico has decreased and is expected to remain low until economic activity has recovered. Despite the decrease in demand, AES Puerto Rico was dispatched starting in February 2018. AES Puerto Rico continues to be the lowest cost and EPA compliant energy provider in Puerto Rico. Therefore, we expect AES Puerto Rico to continue to be a critical supplier to PREPA.

Starting prior to the hurricanes, PREPA has been facing economic challenges that could impact the Company, and on July 2, 2017, filed for bankruptcy under Title III. As a result of the bankruptcy filing, AES Puerto Rico and AES Ilumina’s non-recourse debt of $365 million and $36 million, respectively, is in default and has been classified as current as of December 31, 2017. In November 2017, AES Puerto Rico signed a Forbearance and Standstill Agreement with its lenders to prevent the lenders from taking any action against the company due to the default events. This agreement will expire on March 22, 2018.

The Company's receivable balances in Puerto Rico as of December 31, 2017 totaled $86 million, of which $53 million was overdue. After the filing of Title III protection, and up until the disruption caused by the hurricanes, AES in Puerto Rico was collecting the overdue amounts from PREPA in line with historic payment patterns.

Considering the information available as of the filing date, management believes the carrying amount of our assets in Puerto Rico of $627 million is recoverable as of December 31, 2017 and no reserve on the receivables is required.

Foreign Currency Risks — AES operates businesses in many foreign countries and such operations could be impacted by significant fluctuations in foreign currency exchange rates. Fluctuations in currency exchange rate between U.S. dollar and the following currencies could create significant fluctuations in earnings and cash flows: the Argentine peso, the Brazilian real, the Dominican Republic peso, the Euro, the Chilean peso, the Colombian peso, and the Philippine peso.

Concentrations — Due to the geographical diversity of its operations, the Company does not have any significant concentration of customers or sources of fuel supply. Several of the Company's generation businesses rely on PPAs with one or a limited number of customers for the majority of, and in some cases all of, the relevant businesses' output over the term of the PPAs. However, no single customer accounted for 10% or more of total revenue in 2017, 2016 or 2015.

The cash flows and results of operations of our businesses depend on the credit quality of our customers and the continued ability of our customers and suppliers to meet their obligations under PPAs and fuel supply agreements. If a substantial portion of the Company's long-term PPAs and/or fuel supply were modified or terminated, the Company would be adversely affected to the extent that it would be unable to replace such contracts at equally favorable terms.