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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 0-19281
THE AES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 54-1163725
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1001 NORTH 19TH STREET, ARLINGTON, VIRGINIA 22209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 522-1315
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, par value $0.01
per share New York Stock Exchange
$2.6875 Term Convertible
Securities, Series A New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Warrants to Purchase Common Stock,
par value $.01 per share NASDAQ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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The aggregate market value of Registrant's voting stock held by
non-affiliates of Registrant, at February 2, 1999, was $4,045,655,274. The
number of shares outstanding of Registrant's Common Stock, par value $0.01 per
share, at February 2, 1999, was 180,567,229.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders of the Registrant to
be held on April 20, 1999. Certain information therein is incorporated by
reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
(a) General development of business.
OVERVIEW
The AES Corporation and its subsidiaries and affiliates (collectively "AES"
or the "Company") are helping to meet the world's needs by providing electricity
to customers in many countries in a socially responsible way.
A majority of the Company's sales of electricity are made to customers
(generally electric utilities or regional electric companies) on a wholesale
basis for further resale to end users. This is referred to as the electricity
"generation" business. Sales by these generation companies are usually made
under long-term contracts from power plants owned by the Company's subsidiaries
and affiliates, although the Company does, in certain circumstances, make sales
into regional electricity markets without contracts. The Company's ownership
portfolio of power facilities includes new plants constructed for such purposes
("greenfield" plants) as well as existing power plants acquired through
competitively bid privatization initiatives and negotiated acquisitions.
AES now operates and owns (entirely or in part) a diverse portfolio of
electric power plants (including those within the integrated distribution
companies discussed below) with a total capacity of 24,076 megawatts ("MW"). Of
that total, 29% are fueled by coal or petroleum coke, 24% are fueled by natural
gas, 33% are hydroelectric facilities, 6% are fueled by oil, and the remaining
8% are capable of using multiple fossil fuels. Of the total MW, 5,025 (nine
plants) are located in the United States, 817 (eight plants) are in China, 1,818
(five plants) are in the U.K., 1,281 (three plants) are in Hungary, 6,456
(forty-one plants) are in Brazil, 885 (six plants) are in Argentina, 5,384
(seven plants) are in Kazakhstan (including 4,000 MW attributable to Ekibastuz
which currently has a reliable capacity of approximately 25%), 210 (one plant)
are in the Dominican Republic, 110 (one plant) are in Canada, 695 (two plants)
are in Pakistan, 405 (one plant) are in the Netherlands, 288 (one plant) are in
Australia, 282 (three plants) are in Panama (acquired in 1999) and 420 (one
plant) are in India (operational control acquired in 1999).
AES is also currently in the process of adding approximately 5,254 MW to
its operating portfolio by constructing several new plants. These include a 180
MW coal-fired plant, and a 700 MW natural gas-fired plant in the United States,
a 600 MW natural gas-fired plant in Brazil, a 2,100 MW coal-fired plant in
China, an 830 MW natural gas-fired plant in Argentina, a 360 MW coal-fired plant
in England, and a 484 MW natural gas-fired plant in Mexico.
As a result, AES's total MW of 96 power plants in operation or under
construction is approximately 29,330 and net equity ownership (total MW adjusted
for the Company's ownership percentage) represents approximately 19,819 MW.
AES also owns interests (both majority and minority) in companies that sell
electricity directly to commercial, industrial, governmental and residential
customers. This is referred to as the electricity "distribution" business.
Electricity sales by AES's distribution businesses are generally made pursuant
to the provisions of long-term electricity sale concessions granted by the
appropriate governmental authority as part of the original privatization of each
distribution company. In certain cases, these distribution companies are
"integrated", in that they also own electric power plants for the purpose of
generating a portion of the electricity they sell. Each distribution company
also purchases, in varying proportions, electricity from third-party wholesale
suppliers, including in certain cases, other subsidiaries of the Company.
AES has majority ownership in three distribution companies in Argentina,
one in Brazil, one in El Salvador, a heat and electricity distribution business
in Kazakhstan, one in the Republic of Georgia (operational control acquired in
1999) and less than majority ownership in three additional distribution
companies in Brazil. These ten companies serve a total of approximately 13.2
million customers with gigawatt hour sales exceeding 63,000. On a net equity
basis, AES's ownership represents approximately 3 million customers and gigawatt
hour sales exceeding 22,000.
AES has been successful in growing its business and serving additional
customers by participating in competitive bidding under privatization
initiatives and has been particularly interested in acquiring existing
businesses or assets in electricity markets that are promoting competition and
eliminating rate of return regulation. In such privatizations, sellers generally
seek to complete competitive solicitations in less than one year, much quicker
than the time periods associated with greenfield development, and usually
require payment in full on transfer. AES believes that its experience in
competitive markets and its worldwide integrated group structure, with its
significant geographic coverage and presence, enable it to react quickly and
creatively in such situations.
Because of this relatively quick process or other considerations, it may
not always be possible to arrange "project financing" (the Company's
historically preferred financing method, which is discussed further under Item
1(c), "Narrative description of business" below. Additionally, as in the past,
certain acquisitions or the commencement of construction in several greenfield
developments would potentially require the Company to obtain substantial
additional financing including both debt and equity.
The Company, a corporation organized under the laws of Delaware, was formed
in 1981. AES has its principal offices located at 1001 North 19th Street, Suite
2000, Arlington, Virginia 22209, and its telephone number is (703) 522-1315.
CAUTIONARY STATEMENTS AND RISK FACTORS
The Company wishes to caution readers that the following important
factors, among others, indicate areas affecting the Company which involve risk
and uncertainty (see also the Company's cautionary statements made in connection
with AES's Year 2000 efforts contained in its Discussion and Analysis of
Financial Condition and Results of Operations which is contained in its Current
Report on Form 8-K filed on March 18, 1999 (the "March 1999 Form 8-K"), which is
incorporated herein by reference). These factors should be considered when
reviewing the Company's business, and are relied upon by AES in issuing any
forward-looking statements. Such factors could affect AES's actual results and
cause such results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, AES. Some or all of these
factors may apply to the Company's businesses as currently maintained or to be
maintained.
o Changes in company-wide operation and plant availability (including
wholly and partially owned facilities) compared to the Company's
historical performance; changes in the Company's historical operating
cost structure, including but not limited to those costs associated
with fuel, operations, supplies, raw materials, maintenance and
repair, people, transmission of electricity and insurance.
o In certain non-U.S. countries where the Company is or is seeking to
conduct business: unexpected changes in electricity tariff rates or
tariff adjustments for increased expenses; the ability or inability of
AES to obtain, or hedge against, foreign currency; foreign exchange
rates and fluctuations in those rates; the economic, political and
military conditions affecting property damage, interruption of
business and expropriation risks; changes in trade, monetary and
fiscal policies, laws and regulations; other activities of
governments, agencies and similar organizations; social and economic
conditions; local inflation and monetary fluctuations; import and
other charges or taxes; conditions or restrictions impairing
repatriation of earnings or other cash flow; nationalizations and
unstable governments and legal systems, and intergovernmental
disputes.
o Changes in the amount of, and rate of growth in, AES's selling,
general and administrative expenses; the impact of AES's ongoing
evaluation of its development costs, business strategies and asset
valuations, including, but not limited to, the effect of a failure to
successfully complete certain development projects.
o Legislation intended to promote competition in U.S. and non-U.S.
electricity markets, such as those currently receiving serious
consideration in the United States Congress to repeal (i) the Public
Utility Regulatory Policies Act of 1978, as amended, or at least to
repeal the obligation of utilities to purchase electricity from
qualifying facilities, and (ii) the Public Utility Holding Company Act
of 1935, as amended; changes in regulatory rule-making by the Federal
Energy Regulatory Commission or other regulatory bodies; changes in
energy taxes; or new legislative or regulatory initiatives in non-U.S.
countries; changes in national, state or local environmental, safety,
tax and other laws and regulations applicable to the Company or its
operations.
o The prolonged failure by any customer of the Company or any of its
subsidiaries to fulfill its contractual payment obligations presently
or in the future, either because such customer is financially unable
to fulfill such contractual obligation or otherwise refuses to do so.
o Successful and timely completion of (i) the respective construction
for each of the Company's electric generating projects now under
construction and those projects yet-to-begin construction or (ii)
capital improvements to its existing facilities.
o Changes in inflation, fuel, electricity and other commodity prices in
U.S. and non-U.S. markets; conditions in financial markets, including
fluctuations in interest rates and the availability of capital; and
changes in the economic and electricity consumption growth rates in
U.S. and non-U.S. countries.
o Unusual weather conditions and the specific needs of each plant to
perform unanticipated facility maintenance or outages (including
annual or multi-year).
o The costs and other effects of legal and administrative cases and
proceedings, settlements and investigations, claims, and changes in
those items, developments or assertions by or against AES; the effect
of new, or changes in, accounting policies and practices and the
application of such policies and practices.
o Changes or increases in taxes on property, plant, equipment,
emissions, gross receipts, income or other aspects of the Company's
business or operations.
(b) Financial information about industry segments.
The Company considers its reportable segments to be electrical generation
and distribution. See note 12 to the consolidated financial statements
incorporated by reference to the Company's March 1999 Form 8-K.
(c) Narrative description of business.
The Company attempts to participate in competitive power markets as they
develop either through greenfield development or by acquiring and operating
existing facilities or systems in these markets. The Company operates electric
generating facilities that utilize natural gas, coal, oil, hydropower, or
combinations thereof. In addition, the Company participates in electricity
distribution and retail supply businesses and will continue to review
opportunities in such markets in the future. Other elements of the Company's
strategy include:
o Supplying energy to customers at the lowest cost possible, taking into
account factors such as reliability and environmental performance;
o Constructing or acquiring projects of a relatively large size
(generally larger than 100 megawatts);
o When available, entering into power sales contracts with electric
utilities or other customers with significant credit strength; and
o Where possible, participating in distribution and retail supply
markets that grant concessions with long-term pricing arrangements.
The Company also strives for operating excellence as a key element of its
strategy, which it believes it accomplishes by minimizing organizational layers
and maximizing company-wide participation in decision-making. AES has attempted
to create an operating environment that results in safe, clean and reliable
electricity generation and distribution. Because of this emphasis, the Company
prefers to operate all facilities which it develops or acquires; however, there
can be no assurance that the Company will have operating control of all of its
facilities.
The Company's focus is the wholesale generation and supply of electricity,
and electricity distribution businesses and integrated utilities. Asset
composition, operating margins and a variety of other business characteristics
differ significantly from one type of business to another. References to power
sales agreements, fuel supply agreements and plants generally mean those related
to the generation business. Concession (or service) contracts, supply contracts
and networks are generally associated with the distribution businesses.
Integrated utilities have characteristics of both businesses. In addition,
integrated utilities may generate more or less of their own electricity. For
example, Light (as defined below) generates a comparatively low percentage of
its own electricity while CEMIG (as defined below) generates almost all of its
own electricity needs.
Most of AES's electric generation plants sell electricity under long-term
power sales contracts. The Company attempts, whenever possible, to structure the
revenue provisions of its plants' power sales contracts such that changes in the
revenue components of these contracts correspond, as closely as possible, to
fluctuations in the cost components of the plant (primarily fuel costs). A
plant's revenues from a power sales contract usually consists of two components,
energy payments and capacity payments. Energy payments are based on a plant's
net electrical output (the amount of electricity delivered on a kilowatt-hour
basis), with payment rates usually indexed to the fuel costs of the contracting
utility or to general inflation indices. Capacity payments are based on either a
plant's net electrical output or its available capacity (the ratio of kilowatt
hours the plant delivers to the total kilowatt hours requested by the customer).
Capacity payment rates vary over the term of a power sales contract according to
various schedules.
To the extent possible, the Company attempts to structure an electric
generation plant's fuel supply contract so that fuel costs are indexed in a
manner similar to the energy payments a project receives under the power sales
contract. In this way, project revenues are partially hedged against
fluctuations in fuel costs.
As with fuel prices, AES has hedged a substantial portion of its projects
against the risk of fluctuations in interest rates. In each project with fixed
capacity payments, AES has attempted to hedge all or a significant portion of
its risk of interest rate fluctuations by arranging for fixed-rate financing or
variable-rate financing with interest rate swaps or other hedging mechanisms.
Those projects with fluctuating capacity payments are hedged by arranging for
floating rate financing.
The Company attempts to finance each domestic and foreign project primarily
under loan agreements and related documents which, except as noted below,
require the loans to be repaid solely from the project's revenues and provide
that the repayment of the loans (and interest thereon) is secured solely by the
capital stock, physical assets, contracts and cash flow of that project
subsidiary or affiliate. This type of financing is usually referred to as
"project financing." The lenders under these project financing structures
generally cannot look to AES or its other projects for repayment, unless such
entity explicitly agrees to undertake liability. AES has explicitly agreed to
undertake certain limited obligations and contingent liabilities, most of which
by their terms will only be effective or will be terminated upon the occurrence
of future events. These obligations and liabilities take the form of guarantees,
letter of credit reimbursement agreements, and, in certain circumstances,
agreements to pay to project lenders or other parties amounts up to the amounts
of distributions previously made by the applicable subsidiary or
affiliate to AES. To the extent AES becomes liable under guarantees and letter
of credit reimbursement agreements, distributions received by AES from other
projects are subject to the possibility of being utilized by AES to satisfy
these obligations. To the extent of these obligations, the lenders to a project
effectively have recourse to AES and to the distributions to AES from other
projects. The aggregate contractual liability of AES is, in each case, usually a
small portion of the aggregate project debt, and thus the project financing
structures are generally described herein as being "substantially non-recourse"
to AES and its other projects.
PRINCIPLES AND PRACTICES
A core part of AES's corporate culture is a commitment to "shared
principles." These principles describe how AES people endeavor to behave,
recognizing that they don't always live up to these standards. The principles
are:
Integrity - AES strives to act with integrity, or "wholeness." The Company
seeks to honor its commitments. The goal is that the things AES people say
and do in all parts of the Company should fit together with truth and
consistency.
Fairness - AES wants to treat fairly its people, its customers, its
suppliers, its stockholders, governments and the communities in which it
operates. Defining what is fair is often difficult, but the Company
believes it is helpful to routinely question the relative fairness of
alternative courses of action.
Fun - AES desires that people employed by the Company and those people with
whom the Company interacts have fun in their work. AES's goal has been to
create and maintain an environment in which each person can flourish in the
use of her or his gifts and skills and thereby enjoy the time spent at AES.
Social Responsibility - The Company believes that it has a responsibility
to be involved in projects that provide social benefits, such as lower
costs to customers, a high degree of safety and reliability, increased
employment and a cleaner environment.
AES recognizes that most companies have standards and ethics by which they
operate and that business decisions are based, at least in part, on such
principles. The Company believes that an explicit commitment to a particular set
of standards is a useful way to encourage ownership of those values among its
people. While the people at AES acknowledge that they won't always live up to
these standards, they believe that being held accountable to these shared values
will help them behave more consistently with such principles.
AES makes an effort to support these principles in ways that acknowledge a
strong corporate commitment and encourage people to act accordingly. For
example, AES conducts annual surveys, both company-wide and at each location,
designed to measure how well its people are doing in supporting these principles
- -- through interactions within the Company and with people outside the Company.
These surveys are perhaps most useful in revealing failures, and helping to deal
with those failures. AES's principles are relevant because they help explain how
AES people approach the Company's business. The Company seeks to adhere to these
principles, not as a means to achieve economic success but because adherence is
a worthwhile goal in and of itself.
In order to create a fun working environment for its people and implement
its strategy of operational excellence, AES has adopted decentralized
organizational principles and practices. For example, AES works to minimize the
number of supervisory layers in its organization. Most of the Company's plants
operate without shift supervisors. The project subsidiaries are responsible for
all
major facility-specific business functions, including financing and capital
expenditures. Criteria for hiring new AES people include a person's willingness
to accept responsibility and AES's principles as well as a person's experience
and expertise. The Company has generally organized itself into multi-skilled
teams to develop projects, rather than forming "staff" groups (such as a human
resources department or an engineering staff) to carry out specialized
functions.
AES BUSINESSES
The following tables set forth information regarding the Company's
businesses that are in operation or under construction. A further description of
each business follows the tables. For a description of risk factors and
additional factors that may apply to the Company's businesses, see also the
information contained under the caption "Cautionary Statements and Risk Factors"
in Item 1 above, and Item 7, "Discussion and Analysis of Financial Condition and
Results of Operations" incorporated herein by reference to the March 1999 Form
8-K.
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YEAR OF
ACQUISITION OR APPROXIMATE
COMMENCEMENT CAPACITY IN AES EQUITY
GENERATION OF COMMERCIAL MEGAWATTS GEOGRAPHIC INTEREST
FACILITIES IN OPERATION FUEL OPERATIONS (MWS) LOCATION (PERCENT)
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North America
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Deepwater Pet coke 1986 143 Texas, U.S. 100
Beaver Valley Coal 1987 125 Pennsylvania, U.S. 80
Placerita Gas 1989 120 California, U.S. 100
Thames Coal 1990 181 Connecticut, U.S. 100
Shady Point Coal 1991 320 Oklahoma, U.S. 100
Hawaii Coal 1992 180 Hawaii, U.S. 100
Kingston Gas 1997 110 Canada 50
Alamitos Gas 1998 2,083 California, U.S. 100
Redondo Beach Gas 1998 1,310 California, U.S. 100
Huntington Beach Gas 1998 563 California, U.S. 100
Latin America
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San Nicolas Multiple 1993 650 Argentina 69
Rio Juramento (2 plants) Hydro 1995 112 Argentina 98
San Juan (2 plants) Hydro/Gas 1996 78 Argentina 98
Light (4 plants) Hydro 1996 788 Brazil 14
CEMIG (37 plants) Hydro 1997 5,668 Brazil 9
Los Mina Oil 1997 210 Dominican Republic 100
Quebrada de Ullum Hydro 1998 45 Argentina 100
EGE Bayano (2 plants) Hydro/Thermal 1999 192 Panama 49
EGE Chiriqui Hydro 1999 90 Panama 49
Asia and the Pacific
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Cili Misty Mountain Hydro 1994 26 China 51
Yangchun Sun Spring Oil 1995 15 China 25
Wuxi Tin Hill Oil 1996 63 China 55
Wuhu Grassy Lake Coal 1996 250 China 25
Ekibastuz Coal 1996 4,000 Kazakhstan 70
Chengdu Lotus City Gas 1997 48 China 35
Tau Power (6 plants) Coal/Hydro 1997 1,384 Kazakhstan 85
Hefei Prosperity Lake Oil 1997 115 China 70
Jiaozuo Aluminum Power Coal 1997 250 China 70
Lal Pir Oil 1997 344 Pakistan 90
Pak Gen Oil 1998 351 Pakistan 90
Aixi Heart River Coal 1998 50 China 70
OPGC Coal 1998 420 India 49
Mt. Stuart Oil 1999 288 Australia 100
Europe
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Kilroot (NIGEN) Coal/Oil 1992 520 United Kingdom 47
Belfast West (NIGEN) Coal 1992 240 United Kingdom 47
Medway Gas 1995 688 United Kingdom 25
Borsod Coal 1996 171 Hungary 63
Tisza II Oil/Gas 1996 860 Hungary 96
Tiszapalkonya Coal 1996 250 Hungary 96
Indian Queens Gas 1997 140 United Kingdom 100
Elsta Gas 1998 405 Netherlands 50
Barry Gas 1998 230 United Kingdom 100
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TOTALS 24,076
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PROJECTED YEAR OF APPROXIMATE
COMMENCEMENT CAPACITY IN AES EQUITY
GENERATION FACILITIES OF COMMERCIAL MEGAWATTS GEOGRAPHIC INTEREST
UNDER CONSTRUCTION FUEL OPERATIONS* (MWS) LOCATION (PERCENT)
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Warrior Run Coal 1999 180 Maryland 100
Yangcheng Sun City Coal 2000 2,100 China 25
Uruguaiana Gas 2000 600 Brazil 100
Merida III Gas 2000 484 Mexico 55
Fifoots Point Coal 2000 360 U.K. 100
Parana Gas 2001 830 Argentina 67
Ironwood Gas 2002 700 Pennsylvania 100
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TOTALS 5,254
* Dates for commencement of commercial operation are projections only and may
be subject to change.
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APPROXIMATE NUMBER AES EQUITY
YEAR OF OF APPROXIMATE GEOGRAPHIC INTEREST
DISTRIBUTION FACILITIES ACQUISITION CUSTOMERS SERVED GIGAWATT HOURS LOCATION (PERCENT)
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Light 1996 2,700,000 19,981 Rio de Janeiro, Brazil 14
EDEN 1997 270,000 3,572 Buenos Aires, Argentina 60
EDES 1997 129,000 1,182 Buenos Aires, Argentina 60
CEMIG 1997 4,143,000 32,179 Minas Gerais, Brazil 9
Tau Power/Altai 1997 150,000 2,000 Kazakhstan 75
Sul 1997 804,000 5,772 Porto Alegre, Brazil 96
CLESA 1998 188,000 561 Santa Ana, El Salvador 64
Electropaulo 1998 4,319,000 34,789 Sao Paulo, Brazil 10
EDELAP 1998 278,000 2,000 Buenos Aires, Argentina 60
Telasi 1998 370,000 2,200 Tbilisi, Georgia 75
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TOTALS 13,351,000 104,236
BUSINESSES IN NORTH AMERICA
AES currently owns and operates, through subsidiaries and affiliates, ten
generation facilities in the United States and Canada representing approximately
5,135 MW.
Deepwater is a 143 MW petroleum coke-fired cogeneration facility located
near Houston, Texas. Fuel is supplied from the adjacent Lyondell Citgo refinery
under an all-requirements contract with Thyssen Citgo Petcoke Corp. that extends
through the end of the second quarter of 2000. The facility sells electricity
under two marketing agreements which expire December 31, 1999 to Dynegy
Marketing and Trade, and Williams Energy Marketing and Trade. Its remaining
output is delivered as available to Houston Lighting and Power Company under
Qualifying Facility tariffs. Thereafter Deepwater has committed essentially all
of its capacity under a contract with Texas Untilities Electricity Company for
the period January 1, 2000 through December 31, 2001. Although Deepwater
commenced commercial operation in 1986, making it the first of AES's commercial
plants, the Company did not gain control of the facility until 1995.
Beaver Valley is a 125 MW pulverized coal-fired cogeneration facility
located in Monaca, Pennsylvania. AES is the managing partner and operator of
Beaver Valley. West Penn Power Company purchases electricity produced by the
plant under a power sales contract with a remaining term of approximately 18
years. The facility sells steam to NOVA Chemicals Inc. for use in its chemical
processing activities under a requirements contract with a remaining term of
approximately four years.
Placerita is a 120 MW natural gas-fired, combined-cycle cogeneration
facility near Los Angeles, California. In December 1998, Placerita executed an
agreement to sell its power purchase agreement with Southern California Edison
("Edison")
for a lump-sum payment, completion of which is subject to approval by the
California Public Utilities Commission (the "CPUC"). If approved by the CPUC,
Placerita will use the proceeds of the sale to (i) redeem its project financing
loan and (ii) buyout its existing leveraged lease from Ford Motor Credit as well
as certain of the facility's existing steam and fuel contracts. Placerita
thereafter will sell electricity into the newly established California Power
Exchange.
Thames is a 181 MW coal-fired, circulating fluidized bed ("CFB")
cogeneration plant located in Montville, Connecticut. Power generated by Thames
is sold to Connecticut Light and Power Company under a contract with a remaining
term of approximately 16 years. Thames also sells steam to Stone Container
Paperboard Corporation for use in its recycled paperboard plant located adjacent
to the plant.
Shady Point is a 320 MW coal-fired, CFB cogeneration plant in LeFlore
County, Oklahoma. The Shady Point facility includes a 240-ton per day food
grade, liquid CO2 plant, which utilizes in its CO2 production processes
approximately 65,000 pounds per hour of process steam produced by the plant.
Shady Point sells electricity to Oklahoma Gas and Electric Company under a
contract with a remaining term of approximately 9 years.
Hawaii is a 180 MW coal-fired, CFB cogeneration plant located in Kapolei,
Oahu, Hawaii. Hawaii sells electricity to Hawaiian Electric Company, Inc. under
a contract with a remaining term of 25 years. Steam generated by the plant is
sold to Chevron USA Inc. for use in its oil refining operations under a steam
sales agreement with a remaining term of 15 years.
Kingston is a 110 MW gas-fired, combined-cycle cogeneration facility
located in Ernestown Township, Ontario. Kingston is owned by a partnership
comprised of AES and two partners, each owning 25 percent. The plant began
commercial operations in February 1997 and operates as a baseload facility.
Energy generated by the plant is sold to Celanese Canada, Inc. in the form of
steam and Dowthern. The Company operates the business through various agreements
entered into at the time of its acquisition of its interest in the facility.
AES Alamitos, AES Redondo Beach and AES Huntington Beach are natural
gas-fired facilities with a combined generating capacity of 3,956 MW located in
southern California. Each of the facilities sells its electricity to Williams
Energy Services Company ("Williams") pursuant to long-term tolling agreements.
Under the agreements, Williams delivers natural gas to the plants and owns and
markets the electrical output. AES completed its acquisition of the three
stations from Edison for approximately $786 million in May 1998 in association
with Edison's divestiture of the bulk of its generating capacity. In connection
with the acquisition, AES Southland, a wholly owned subsidiary of the Company,
obtained $713 million of non-recourse project financing. Pursuant to
California's electricity restructuring law, Edison will remain under contract to
operate and maintain the facilities until May 2000, after which AES will assume
operations.
BUSINESSES IN LATIN AMERICA
AES currently owns and operates, through subsidiaries and affiliates,
fifty-one generating facilities in Latin America representing approximately
7,833 MW. In addition, AES has majority ownership in three distribution
companies in Argentina, one in Brazil and one in El Salvador, and less than
majority ownership in three additional integrated distribution companies in
Brazil. These eight distribution companies serve a total of more than 12.8
million customers with gigawatt hour sales exceeding 100,000.
San Nicolas is a 650 MW power plant in San Nicolas, Argentina. San Nicolas
sells a total of 345 MW of electricity (approximately 53 percent of the plant's
output capability) under two power
sales contracts, each with a remaining term of three years. Under the contracts
three distribution companies all of which are controlled by AES through its
ownership interest in Empresa Distribuidora de Energia Norte S.A. ("EDEN"),
Empresa Distribuidora de Energia Sur S.A. ("EDES") and Empresa Distribuidora de
La Plata S.A. ("EDELAP") (all described below), purchase 345 MW of electricity.
The plant sells additional electricity, when it is profitable to do so, into the
Argentine spot market.
Hidroelectrica Rio Juramento S.A. ("Rio Juramento") is a 112 MW
hydroelectric station in the province of Salta, Argentina. The station consists
of a 102 MW facility with a large storage reservoir capable of inter-year
storage, and a 10 MW facility capable of inter-seasonal storage. Rio Juramento
has exclusive rights to operate the facility under a long-term concession
agreement, and sells electricity in the Argentine spot market.
Hidrotermica San Juan, S.A. ("San Juan") is the owner and operator of two
power generating facilities totaling 78 MW in the province of San Juan,
Argentina. San Juan includes a 45 MW hydroelectric power plant and a 33 MW gas
combustion power plant.
Los Mina is a 210 MW oil-fired, simple-cycle power plant located in Santo
Domingo, Dominican Republic. Los Mina operates two simple-cycle combustion
turbine generators on land adjacent to a government owned electricity
substation, and supplies power to the interconnected grid of the Corporacion
Dominicana de Electricidad ("CDE"), the government-owned utility. The facility
burns oil supplied by Shell. The facility began operations in May 1996. Due to a
design flaw, Los Mina has experienced recurring turbine blade failure and was
out of service and unable to provide electricity in several instances during the
period prior to and after the date of AES's acquisition of the facility in 1997.
Modified blades have been installed in both of Los Mina's units and the
availability of the plant has reached 100% during 1998 and Los Mina is
processing claims with its insurer for recovery of the cost of repairs.
Furthermore, hurricane Georges caused a contractually defined force maejure
event to occur during the third quarter of 1998 which is affecting CDE's ability
to accept power from Los Mina. Although no assurance can be given that Los Mina
will be able to collect on the insurance claims, the Company believes that the
outcome of the matter will not have a material adverse effect on its
consolidated financial position, results of operation or cash flows.
Quebrada de Ullum is a 45 MW hydroelectric plant located on the San Juan
River in San Juan Province, Argentina. The Company acquired the facility and
began operations in April 1998 as part of a 40-year concession agreement it
signed with the Province for its 230 MW Caracoles project. The project is a
mixed hydroelectric/irrigation system that, when completed, will consist of the
existing Quebrada de Ullum plant and two newly constructed dams and their
associated facilities. The Province of San Juan, with credit support from the
Republic of Argentina, is providing the funds for the irrigation portion of the
project.
Empresa de Generacion Chiriqui S.A. ("EGE Chiriqui") and Empresa de
Generacion Bayano ("EGE Bayano") are two Panamanian hydroelectric generation
businesses. EGE Bayano is comprised of a 150 MW hydro facility and 42 MW of
thermal capacity, located near Panama City, Panama. EGE Chiriqui is comprised of
two existing run-of-river hydro facilities for a total of 90 MW in the western
part of Panama in the mountains near Costa Rica. EGE Bayano and EGE Chiriqui
sell their power pursuant to five-year contracts with local distribution
companies that were privatized in September 1998 (now owned by Union Fenosa and
Constellation). Thereafter, the units will sell their capacity and energy on the
spot market or under new contracts with the distribution companies. The Company
purchased EGE Chiriqui and EGE Bayano in January 1999
from Instituto de Recursos Hidraulicos y Electrificacion ("IRHE"), a
government-owned utility company in Panama, for approximately $91 million. The
Company owns 49% of both businesses with IRHE retaining a 49% share of the
companies and the remaining 2% to be owned by employees. Pursuant to an
agreement entered into as part of the acquisition, the Company controls both
businesses.
Light Servicos de Electricidade, S.A. ("Light") is a Brazilian electric
power generation, transmission and distribution system serving 28 municipalities
in the state of Rio de Janeiro, Brazil. Light is controlled by a consortium
comprised of AES, Electricite de France, Reliant Energy Industries, Inc.,
Houston Industries, Companhia Siderurgica Nacional and Banco Nacional de
Desenvolvimento Economico E Social (the "Light Consortium"). In connection with
the purchase of the controlling interest by the Light Consortium in 1996, the
Ministry of Mines and Energy of Brazil granted a 30-year concession to Light
which obligates Light to provide electric services to all customers within its
concession. Light generates about 16 percent of the total electricity it
distributes through four hydroelectric complexes having an aggregate installed
generating capacity of approximately 788 MW. Light purchases 53% of its
distributed electricity from Furnas Centrais Electricas S.A., a power generation
and transmission company owned by Eletrobras, and the remaining 31% is purchased
from Itaipu Binacional, a power generation company owned by the Republic of
Brazil and the Republic of Paraguay ("Itaipu"). AES has principal responsibility
within Light for all matters relating to the generation and purchase for
distribution of all electricity through its participation in the Light
Consortium.
Companhia Energetica de Minas Gerais ("CEMIG") is an integrated electric
utility serving the State of Minas Gerais in Brazil. Through a consortium
consisting of AES and two partners (the "CEMIG Consortium"), AES has significant
operating influence over CEMIG, including the right to appoint its chief
operating officer, and otherwise shares control of CEMIG with the State of Minas
Gerais. As it did with Light, the Ministry of Mines and Energy of Brazil granted
concessions to CEMIG pursuant to the terms of six concession agreements which
obligate CEMIG to provide electric services to all customers within its
concession, and authorizes CEMIG to charge its customers a tariff for electric
services. CEMIG transmits and distributes electricity, generated or purchased by
it, to substantially all areas in Minas Gerais. In addition to the approximately
5,668 MW of mostly hydroelectric power it generates through its interest in 37
facilities, CEMIG also purchases approximately 33% of its electricity sales from
Itaipu.
In the first quarter of 1999, the Governor of the State of Minas Gerais
formed a commission of inquiry charged with investigating whether the
privatization of CEMIG violates CEMIG's corporate statutes and whether the sale
process violated Minas Gerais or Brazilian federal law. A state legislative
committee and a commission of state attorneys currently are conducting hearings
on the matter. No action has been filed against AES or its partners in CEMIG and
AES has not had the opportunity to testify in front of the legislative committee
regarding its acquisition. In addition, there have been two suits filed against
the State of Minas Gerais in relation to the sale. The first attempts to set
aside the auction itself as being invalidly held and conducted and the second
questions the validity of the shareholders agreement under which AES acquired
its interest in CEMIG. Brazilian courts have rendered decisions in the second
suit that upholds the sale processes and the shareholders agreement. AES, the
CEMIG Consortium and CEMIG are not defendants in either of these suits.
Based on the Company's investigation of the items currently under review by
the legislative committee as well as the two claims, AES believes the auction
process and the shareholders agreement were and are in compliance with state and
federal law. If AES is named as a defendant in either of the cases or called to
testify by the legislative committee, it plans to vigorously defend its
acquisition of its interest in CEMIG. The Company believes that if the State of
Minas Gerais or a Brazilian court were to overturn the sale, the State would be
obligated to fully compensate AES.
EDEN and EDES are two privatized former state-owned Argentine distribution
companies. EDEN and EDES have 95-year territorial exclusive franchise
concessions and serve approximately 400,000 customers in the northern and
southern portions of the Province of Buenos Aires. EDEN and EDES purchase their
electric power through both spot market purchases in the wholesale electricity
market and contract purchases from San Nicolas, which is also controlled by AES.
The San Nicolas contract, which expires in 2001, provides for purchases of
approximately 2,332 gigawatt hours of electricity per year.
Sul is an electricity distribution company that provides electricity to the
central and western portion of the State of Rio Grande do Sul, Brazil. Sul has
an exclusive concession to distribute electricity to its service area that
expires in 2027. Sul's location in the State of Rio Grande do Sul borders
Argentina which may allow AES to integrate its Brazilian and Argentine
operations. Sul will be one of AES Uruguaiana's customers (described below in
"Projects under Construction").
Compania de Luz Electrica de Santa Ana ("CLESA") is an electricity
distribution company located in Santa Ana, El Salvador. In February 1998, the
Company acquired approximately 80% of the outstanding shares of CLESA for a
purchase price of approximately $97 million. The shares were purchased from
Comision Ejecutiva Hidroelectrica del Rio Lempa ("CEL"), a government-owned
utility company, in an auction held in January 1998. In May 1998, Energia Global
International, Ltd. purchased 20% of AES's interest in CLESA from AES for
approximately $15 million under an option agreement
negotiated during the acquisition. CLESA serves 188,000 customers and its area
of service borders Guatemala and Honduras to the north. CLESA purchases its
electricity in the local spot market and from CEL under an annual contract.
EDELAP is an electric distribution company located in the province of
Buenos Aires, Argentina. In June 1998, a subsidiary of AES acquired 90% of
EDELAP for approximately $355 million from a joint venture between Reliant
Energy Industries, Inc. and a subsidiary of Techint S.A., an Argentine
industrial firm. EDELAP serves approximately 278,000 customers in and around the
city of La Plata, the capital of Buenos Aires Province. EDELAP purchases
electricity it sells to retail customers from other generators, including AES's
San Nicolas. In November 1998, the Company sold one-third of its 90% interest in
EDELAP to a Public Service Enterprise Group, Inc. ("PSEG") subsidiary for
approximately $61 million and a proportionate percentage of related project
debt. The effect of the sale leaves AES with a 60% controlling interest in
EDELAP with a 30% interest owned by PSEG and the remaining 10% owned by an
EDELAP employee fund.
BUSINESSES IN ASIA AND THE PACIFIC
In Asia and the Pacific, AES currently operates and owns (entirely or in
part), through subsidiaries and affiliates, interests in nineteen generation
facilities representing approximately 7,604 MW of generating capacity. In
addition, AES has majority ownership and operates the heat distribution networks
of Altai in Kazakhstan.
The Company founded AES China Generating Co. Ltd. ("AES Chigen") in
December 1993 to develop, acquire, finance, construct, own and operate electric
power generation facilities in the People's Republic of China ("China" or the
"PRC"). AES Chigen has developed nine power projects which currently are in
operation or under construction in China.
Cili Misty Mountain, located in Cili County, Hunan Province, PRC, consists
of three hydroelectric generating units amounting to 26 MW. Cili Misty Mountain
is owned by Xiangci-AES, a 25-year joint venture formed by Hunan Cili Electric
Power Company and AES Chigen. Power is purchased by Hunan Cili Electric Power
Company.
Yangchun Sun Spring, located in Yangchun, Guangdong Province, consists of
one existing 8.6 MW diesel engine generating facility which was constructed
prior to the Company's involvement, and another 6.5 MW diesel engine generating
facility which commenced commercial operation in April 1996. The facility is
owned by Yangchun Fuyang, a 12.5-year cooperative joint venture formed by
Yangchun Municipal Power Supply, Shenzhen Futian Gas Turbine Power Co., Ltd. and
a wholly-owned subsidiary of AES Chigen. Yangchun Municipal Power Supply Bureau
purchases the plant's electricity and Yangchun Municipal Power Supply provides
fuel, both in accordance with 12.5-year agreements.
Wuxi Tin Hill is an oil-fired, combined cycle power plant which consists of
a 48 MW gas turbine generating facility and a 15 MW heat recovery steam turbine
generating facility located in Xishan (previously known as Wuxi County), Jiangsu
Province, PRC. The gas turbine generating plant commenced commercial operation
in March 1996. The heat recovery steam turbine generating plant commenced
commercial operation in the first quarter of 1997. Wuxi Tin Hill is owned by
Wuxi-AES-CAREC and Wuxi-AES- Zhonghang, two 16-year cooperative joint ventures
formed among AES Chigen and China National Aero-Engine Corporation ("CAREC") and
Wuxi Power Industry. Xishan Electricity Management Office purchases the power
and steam generated by the plant in accordance with a 16-year purchase contract.
Fuel to the plant is supplied via two local State-owned oil companies under
16-year contracts.
Wuhu Grassy Lake is a 250 MW coal-fired power plant located near Wuhu,
Anhui Province,
PRC. It is the phase IV expansion of an existing 325 MW coal-fired power
station. Both units of the power plant have now commenced commercial operations.
Wuhu Grassy Lake is owned by Wuhu Shaoda, a 20-year equity joint venture owned
by an AES Chigen subsidiary, China Power International Holdings Limited, Anhui
Liyuan Electric Power Development Company Limited, and Wuhu Energy Development
Company Limited. Power is purchased pursuant to a 20-year operation and off-take
contract with Anhui Provincial Electric Power Corporation.
Chengdu Lotus City is a 48 MW natural gas-fired power plant located in
Chengdu, Sichuan Province, PRC. Construction of the power plant commenced in
September 1996 and commenced commercial operation during 1997. Chengdu Lotus
City is owned by Chengdu AES-Kaihua, a 16-year cooperative joint venture formed
by AES Chigen, Huaxi Electric Power Shareholding Company Ltd. ("Huaxi"),
Huachuan Petroleum & Natural Gas Exploration ("Huachuan") and Development
Company and CAREC. Huaxi purchases the facility s generated power and Huachuan
provides fuel, both pursuant to separate 15-year agreements.
Hefei Prosperity Lake is an oil-fired combined cycle power plant consisting
of two 38 MW gas turbine generating units ("gas turbine unit") and one 39 MW
heat recovery steam turbine generating unit ("steam turbine unit"). It is
located within the boundaries of an existing 325 MW coal-fired power plant in
Hefei, Anhui Province, PRC. Construction of the power plant commenced in
November 1996. The gas turbine unit commenced commercial operation in the third
quarter of 1997 and the steam turbine unit went into commercial operation in the
fourth quarter of 1998. Hefei Prosperity Lake is owned Liyuan-AES and Zhongli
Energy, two 16-year cooperative joint ventures formed among a subsidiary of AES
Chigen, Hefei Municipal Construction and Investment Company and by Anhui Liyuan
Electric Power Development Company Limited. Anhui Provincial Electric Power
Corporation purchases power from the plant pursuant to a 16-year operation and
off-take contract.
Jiaozuo Aluminum Power is a 250 MW coal-fired power plant located adjacent
to the Jiaozuo Aluminum Mill ("Jiaozuo Mill") in Jiaozuo, Henan Province, PRC.
The first 125 MW unit of the power facility commenced commercial operation in
1997, while the second unit became commercial in 1998. Jiaozuo Aluminum Power is
owned by Jiaozuo Wan Fang, a 23-year cooperative joint venture owned 70 percent
by an AES Chigen wholly-owned subsidiary and 30 percent by Jiaozuo Mill. Power
is purchased under 23-year contracts by Jiaozuo Mill and by the Henan Electric
Power Corporation. Jiaozuo Aluminum Power purchases fuel under one-year
negotiated contracts from the local area.
Ekibastuz is a 4,000 MW (design capacity) mine-mouth, coal-fired power
facility in eastern Kazakhstan. Due to economic difficulties over the ten years
prior to the Company's purchase, the facility has experienced a reduction in
performance and has operated at a capacity factor of up to approximately 25
percent. In its 1996 acquisition of the facility, AES agreed to increase the
capacity to 63 percent over a five-year period (contingent on the purchaser's
performance of its obligations under the power sales contract). For a further
description of Ekibastuz, see the information contained in the section entitled
"Results of Operations" contained in Item 7, "Discussion and Analysis of
Financial Condition and Results of Operations" incorporated herein by reference
to the March 1999 Form 8-K.
Tau Power, also known as Altai, is a joint venture owned by AES and
Israel-based Suntree Power. In October 1997, Tau Power completed its acquisition
and takeover of two hydroelectric stations and four combined heat and power
stations in the province of East Kazakhstan. The total electric capacity of the
stations included in the agreement is 1,384 MW, with additional thermal capacity
of over 1,000 MW electric equivalent. The power stations included in the
agreement signed are: the 332 MW Ust-Kamenogorsk GES, the 702 MW Shulbinsk GES,
the 240 MW Ust-Kamenogorsk TETS, the 50 MW Leninogorsk TETS, the 50 MW Sogrinsk
TETS and the 10 MW Semipalatinsk TETS. Included in the transaction, AES obtained
ownership and control of the retail sales department of the former utility and
assumed the existing power supply contracts with the fifty largest customers in
East Kazakhstan,
including the electricity distribution companies. Altai controls and operates
the local heat distribution networks supplying heat to approximately 150,000
customers in its service area.
Lal Pir and Pak Gen are adjacent 344 and 351 MW, respectively, oil-fired
facilities in Punjab Province, Pakistan. Lal Pir commenced commercial operation
during the fourth quarter of 1997 and Pak Gen commenced commercial operation in
the first quarter of 1998. The Pakistan Water and Power Development Authority
("WAPDA") purchases the electrical capacity and electrical output of the
facilities through two separate 30-year power sales agreements. The Pakistan
State Oil Company Limited ("PSO"), the state-owned petroleum company, supplies
fuel under 30-year agreements. Certain of the obligations of WAPDA under the
power sales agreements and of PSO under the fuel supply agreements are
guaranteed by the Government of Pakistan.
Aixi Heart River is a 50 MW coal-fired CFB power plant located in Nanchuan,
Sichuan Province, PRC that commenced commercial operation in 1998. Aixi Heart
River is owned by Fuling Aixi, a 25-year cooperative joint venture formed by
Sichuan Fuling Banxi Colliery and a wholly owned subsidiary of AES Chigen. The
minority partner will provide fuel to the plant and Sichuan Fuling Power Company
will purchase the power generated by the facility, both pursuant to separate
25-year agreements.
In January 1999, the Company completed its acquisition of a 49% share in
the Orissa Power Generation Corporation ("OPGC") for approximately $144 million
from the government of the eastern Indian State of Orissa. OPGC owns and
operates a 420 MW mine-mouth coal-fired power station in the State of Orissa.
OPGC will be managed by the Company in accordance with a shareholders' agreement
between a subsidiary of the Company and the State of Orissa. Electricity from
the plant is sold to the Grid Corporation of Orissa under the terms of a 30-year
power purchase agreement. The base load facility generates low cost competitive
electricity and is located adjacent to the 500 MW Ib Valley greenfield project
that is being developed by AES which is discussed below.
Mt. Stuart is a 288 MW power station located at Townsville, North
Queensland, Australia that commenced commercial operation on January 1, 1999.
The facility consists of two 144 MW open-cycle gas turbines. The plant burns
liquefied petroleum gas and sells electricity to the Queensland Transmission and
Supply Corporation under a 10-year power purchase agreement. Mt. Stuart operates
as a peaking station and, therefore, it is estimated that the facility will
operate for only three to five percent of the year.
BUSINESSES IN EUROPE
AES currently owns and operates, through subsidiaries and affiliates, nine
plants in Europe representing approximately 3,504 MW. In addition, AES has
majority ownership in an electricity distribution company in the Republic of
Georgia.
NIGEN is a joint venture between AES and a Belgian utility that consists of
two power plants in Northern Ireland: Kilroot, a 520 MW dual-fired (coal and
oil) power plant, and Belfast West, a 240 MW coal-fired power plant. The Kilroot
and Belfast West plants have entered into power sales contracts, subject to
cancellation in 13 years and three years, respectively, with Northern Ireland
Electricity, plc, a transmission and distribution company.
Medway Power Limited is a 688 MW combined cycle gas-fired power plant in
Southeast England on the Isle of Grain. Medway is owned by a joint venture among
an AES subsidiary and subsidiaries of Southern Electric plc ("Southern") and
SEEBOARD plc ("SEEBOARD"). The plant began operations in November 1995. AES,
through a subsidiary, operates and maintains the plant. Medway Power sells its
entire output through national electricity pool trading arrangements (the
"Pool") at prices based on the supply of, and demand for, electricity available
in the Pool. In addition, Medway
Power has entered into a so-called Contract for Differences with each of
Southern and SEEBOARD. Under the contracts, Southern and SEEBOARD pay Medway
Power capacity payments based on the plant's available capacity, and energy cost
payments based on the plant's actual sales of electricity to the Pool. The
contracts reflect fuel costs and the variable transmission charges incurred for
delivery of the electricity. The basis of the contracts is 660 MW such that
sales in excess of 660 MW are sold into the Pool at market prices.
Tiszai Eromu Rt. owns and operates three power plants totaling 1,281 MW of
gross capacity and two associated coal mines in Hungary. The plants consist of
(i) the Tisza II facility, an 860 MW oil and natural gas-fired facility, (ii)
the Tiszapalkonya facility, a 250 MW coal-fired facility, and (iii) the Borsod
facility, a 171 MW coal-fired facility. Each plant sells electricity to Magyar
Villamos Muvek Rt., a Hungarian, state-owned integrated utility. Tisza II's
contract with MVM was to expire in 2010, but in 1998 Tisza II executed an
extension on its contract to run through 2017 and allow the facility to deliver
60 MW more of capacity through upgrades to the facility. Borsod's contract with
MVM expires in 2001 and development work for the replacement of the Borsod
facility has been ongoing. Tiszapalkonya's contract to supply power to MVM
expires in 2000.
Indian Queens is a 140 MW oil-fired, simple cycle plant located in Cornwall
County, England. The plant began commercial operation in October, 1996. Power
generated by Indian Queens is sold into the national electricity pool in the UK.
Indian Queens, because of its design, also sells ancillary services to the
National Grid Company, the operator of the UK's high-voltage transmission
system.
Elsta is a 405 MW gas-fired, combined-cycle cogeneration plant that
achieved commercial operation in September 1998 located at the chemical
manufacturing facilities of Dow Benelux N.V. in the Zeeland Province of the
Netherlands. AES owns 50% of Elsta and the remaining interest in Elsta is held
equally by two Dutch utilities: N.V. Delta Nutsbedrijven ("Deltan") and N.V.
Provinciale Noordbrabantse Energie-Maatschappij ("PNEM"). Pursuant to a 20-year
power sales agreement, Dow Benelux purchases between 85 and 125 MW of electrical
capacity, and an average of 500 MT/hr of multi-pressure process steam energy.
Dow Benelux also has dispatch rights on steam energy subject to minimum and
maximum purchase obligations. The project's minority partners, Deltan and PNEM,
have agreed to purchase electrical capacity from the plant not purchased by Dow
(280-320 MW) for an initial contract period of 20 years following the commercial
operation date.
Barry is a 230 MW gas-fired combined cycle facility located in Barry, South
Wales, United Kingdom. Construction began in October 1996 and the facility
commenced commercial operation in the third quarter of 1998. The Barry facility
sells electricity into the national electricity spot market in the United
Kingdom. In February 1997, Barry raised 112 million British Pound Sterling of
non-recourse project financing, underwritten solely by The Industrial Bank of
Japan, Limited.
Telasi is the electricity distribution company of Tbilisi, Georgia. In
December 1998, the Company completed its acquisition of a 75% interest in Telasi
for approximately $26 million. It was acquired from the Georgian government,
which sold this stake in Telasi pursuant to a competitively bid process marking
the first significant privatization in the Georgian power sector. Telasi serves
370,000 industrial, commercial, and residential customers or roughly half of the
total power needs of Georgia. Telasi operates no power plants but rather
purchases power from the state-owned electric utility, Sakenergo, as well as
directly from a number of hydro-electric stations. As part of the acquisition,
the Company has the right to purchase some of those hydro facilities.
For a further description of the tariff rate structures, the tariff rate
adjustment escalators and the currency exchange rate adjustments that may affect
the tariff structures in future years for AES's distribution businesses,
especially those located in Latin America, please see the information contained
in Item 7, "Discussion and Analysis of Financial Condition and Results of
Operations" incorporated herein by reference to the March 1999 Form 8-K.
PROJECTS UNDER CONSTRUCTION
In September 1995, AES successfully completed the financing and began
construction of Warrior Run, a 180 MW coal-fired thermal cogeneration facility
near the city of Cumberland in Allegheny County, Maryland. Engineering,
procurement and construction of the project under a turn-key contract with
Raytheon Engineers & Contractors, Inc. and ABB/Combustion Engineering is
expected to be completed in the fourth quarter of 1999. Potomac Edison, a
subsidiary of Allegheny Power System, Inc. will purchase electricity under a
30-year agreement, which has been approved by the Maryland Public Service
Commission.
The Company began preliminary construction work on its Parana project in
September 1997. Parana is an 830 MW gas-fired, combined cycle power plant.
Parana will be located in San Nicolas, Argentina, adjacent to San Nicolas, in
which AES owns a controlling interest. Parana is in the process of arranging for
project financing for the facility and has entered into a lump sum, turnkey
construction contract with Nichimen Corporation and Mitsubishi Heavy Industries
for the plant. Project output will be sold into the Argentine electric market.
Total capital cost is estimated at $440 million, and the project is expected to
commence commercial operation in 2001.
Yangcheng Sun City, currently under construction, is a 2,100 MW coal-fired
mine-mouth power plant located in Yangcheng, Shanxi Province, PRC. Construction
of the power plant commenced in the second quarter of 1997 and AES made its
initial equity investment in the third quarter of 1997. AES Chigen, through a
wholly-owned subsidiary, is responsible for overseeing the management of
construction and operations of the plant. AES Chigen is committed to invest $98
million of equity in the project and will own 25 percent of the 20-year joint
venture with five other partners owning the remaining 75 percent. The project
will be funded with $1.21 billion of debt provided by the China Construction
Bank, China State Development Bank, U.S. Export-Import Bank, and Kreditanstalt
fur Wiederaufbau (KfW) and $393 million of equity.
Yangcheng Sun City is one of the first "coal-by-wire" power projects in
China. The power will be produced in Shanxi Province and shipped via a 755
kilometer transmission line to Jiangsu Province, a coastal province. The project
is being constructed over a 60-month period by the Shanxi Provincial Power
Company under a fixed-price, fixed-schedule turnkey contract. The first unit is
scheduled to commence commercial operation in 2000. Low sulfur coal will be
supplied by the Shanxi Provincial Coal Transportation and Sales Company.
In 1998, the Company began constructing a 484 MW combined-cycle, gas fired
power generation facility ("Merida III") in the city of Merida, Yucatan, Mexico.
The Comision Federal de Electricidad ("CFE"), a decentralized public agency of
the Federal Government of the United Mexican States selected a consortium led by
AES to develop, construct, own, operate and maintain Merida III. Merida III will
consist of two natural gas-fired turbines, two heat recovery steam generators, a
single steam turbine, and certain other common facilities. Engineering,
procurement and construction of the project is under a turn-key contract with
Westinghouse that began in 1998 and is expected to be completed in 2000. CFE
will purchase energy and capacity from Merida III under a 25-year agreement
signed by CFE and Merida III in March of 1997. In June 1998, the Company raised
$173 million of non-recourse project financing for constructing Merida III from
a consortium of institutions, including the Japan Export-Import Bank and the
International Financial Corporation.
In 1998, AES began constructing a 600 MW gas-fired combined cycle power
plant to be located at the border city of Uruguaiana, in the State of Rio Grande
do Sul, Brazil ("AES Uruguaiana"). AES Uruguaiana will purchase gas from
Argentina and sell its electrical output under a 20-year power purchase
agreement to the privatized distribution companies that made up CEEE, the former
electric distribution company for the State of Rio Grande do Sul, Brazil. One of
these distribution companies is AES Sul, which the Company operates and in which
it owns an approximately 96% interest
(see above description of that business). Uruguaiana will consist of two
gas-fired turbines, two heat recovery steam generators and a single steam
turbine. Engineering, procurement and construction of the project is under a
turn-key contract with Siemens Westinghouse. The plant is expected to reach full
commercial operations in the third quarter of 2000.
In January 1998, the Company acquired AES Fifoots Point for 5.2 million
British Pounds Sterling. AES Fifoots Point is a 360 MW coal-fired generating
plant located near Newport, South Wales that was decommissioned by National
Power in 1995; the plant was originally commissioned between 1961 and 1963. The
Company intends to refurbish AES Fifoots Point and executed a re-construction
agreement with a consortium of General Electric International, Inc. and ABB
Combustion Services in December 1999 that provides for the plant to be in
commercial operation by January 2000. Total capital cost for the project is an
estimated 109 million pounds. Following refurbishment, the plant is expected to
have a gross electricial output of 393 MW and deliver power to the U.K. power
pool. Coal will be provided by Celtic Energy under a 10-year agreement wherein
the coal price is indexed to the market price of electricity. The Company is in
the process of arranging for project financing for AES Fifoots Point and expects
a closing to occur early in the second quarter of 1999. The Company can provide
no assurances, however, that the financing will occur and the project is subject
to a number of other risks including those relating to construction,
governmental approvals and project operational agreements.
AES Ironwood is a planned 700 MW natural gas-fired, combined cycle power
generating facility to be located in South Lebanon Township, Pennsylvania.
Originally slated to sell its output to affiliates of GPU Energy, the power
purchase agreements (the "PPAs") that AES Ironwood had executed with the
affiliates were terminated in December 1998. The termination occurred
automatically under the PPAs as a result of outstanding appeals associated with
the restructuring plans submitted to the Pennsylvania Utility Commission by GPU
Energy, which were not resolved by the date specified in the PPAs. In accordance
with the PPAs, GPU Energy reimbursed AES Ironwood approximately $31 million in
development fees, plus accrued interest, on December 31, 1998. In February 1999,
AES Ironwood executed a new PPA with Williams Energy Marketing and Trading
Company, a subsidiary of The Williams Company, Inc., for the entire output of
the planned 700 MW facility. The PPA is a twenty-year tolling arrangement under
which AES Ironwood will provide capacity and fuel conversion services, and
Williams will supply the fuel, and will own and market the power output. AES
Ironwood began preliminary construction in 1998 and plans for commencement of
commercial operation in 2002.
PROJECTS IN ADVANCED STAGES OF DEVELOPMENT
The Company currently is pursuing over 100 new business opportunities in
various stages of development. Successful completion of each of these projects
are subject to numerous risks as discussed elsewhere in this Annual Report on
Form 10-K, and no assurance can be given that any of the projects or businesses
will be completed or acquired. Listed below are development projects that have
achieved certain milestone objectives the Company deems significant.
San Francisco Energy Company, L.P. ("SFEC") is developing a 240 MW natural
gas-fired facility to be located in San Francisco, California. SFEC is a joint
venture between AES Pacific, Inc., which is a subsidiary of the Company and the
general partner in SFEC, and Sonat Inc. SFEC signed a Standard Offer Contract in
1994 with Pacific Gas & Electric ("PG&E") as the winner of the San Francisco
portion of the California Public Utilities Commission's ("CPUC") Biennial
Resource Plan Update ("BRPU"). The contract calls for the full capacity of the
plant to be purchased by PG&E for 30 years, with an option to terminate after 17
years. However, a ruling by the Federal Energy Regulatory Commission ("FERC")
has questioned the validity of the BRPU process, pursuant to which SFEC was
awarded its contract. The Company believes that SFEC's contract with PG&E is
valid, but the Company is currently involved in a regulatory proceeding before
the CPUC with PG&E over the validity of the contract. The Company does not
believe that the ultimate resolution of this matter will have a material adverse
effect on the Company. Substantial risks to the successful completion of this
project exist, including those relating to the regulatory proceedings, project
siting, financing, construction and permitting.
AES has been developing AES Puerto Rico which is to be a 454 MW coal-fired
cogeneration facility in Guayama, Puerto Rico. The Puerto Rico Electricity Power
Authority has agreed to purchase the electrical output of the facility pursuant
to a 25-year power sales agreement. The project originally received approval of
its environmental impact statement from the Puerto Rico Environmental Quality
Board, but that approval was challenged. In June 1998, the Puerto Rico Supreme
Court ruled in favor of the project on an appeal to its environmental impact
statement. The environmental impact statement approval is now final and
unappealable. The project received its Prevention of Significant Deterioration
permit from the U.S. Environmental Protection Agency (the "EPA") in September of
1998 and that permit is currently under appeal with the EPA's Environmental
Appeals Board.
AES also has been developing a 500 MW coal-fired facility in the State of
Orissa, India ("Ib Valley"). Ib Valley has been re-configured and therefore
re-permitted over the past two years. Ib Valley signed an amended power purchase
agreement with the Grid Corporation of Orissa in 1998 and a new sovereign
payment guarantee is expected to be executed in the near future.
In January 1998, the Company was selected by the Government of Bangladesh's
Ministry of Energy and Mineral Resources as the winning bidder to build, own and
operate a 360 MW (net) gas-fired combined cycle power plant at a site near
Dhaka, Bangladesh ("Haripur"). Haripur is expected to commence commercial
operations in the year 2000, and electricity will be sold to the Bangladesh
Power Development Board under the terms of a 22-year power purchase agreement.
Also, in June 1998, the Government of Bangladesh selected the Company as
the First-Ranked Sponsor to build, own and operate a 450 MW (net) gas-fired
combined cycle power plant at a site near Dhaka, Bangladesh on the Meghna River
(the "Meghnaghat Project"). The site is about three miles from AES's Haripur
project. Electricity from the Meghnaghat Project is anticipated to be sold to
the Bangladesh Power Development Board under the terms of a 22-year power
purchase agreement, which is expected to be signed shortly. Commercial
operations of the Meghnaghat plant is expected to commence in the year 2000.
Titus Gas Transmission and Distribution Company, a subsidiary of Petrobangla,
will supply natural gas to the facility from a nearby pipeline for the term of
the power purchase agreement.
In August 1998, the Company won a bid to acquire six coal-fired, electric
generating plants from NGE Generation, Inc., an affiliate of New York State
Electric & Gas Corporation ("NYSEG"), for approximately $950 million. The
facilities represent the bulk of NYSEG's coal-fired generation assets and were
auctioned as part of NYSEG's implementation of its restructuring plan in
accordance with New York's introduction of wholesale and retail competition into
the state's electricity generation market. The six facilities, located in
western and west-central New York, are the 675 MW Kintigh facility (AES
Somerset), the 306 MW Milliken facility (AES Cayuga), the 126 MW Goudey facility
(AES Westover), the 161 MW Greenidge facility (AES Greenidge), the 85 MW
Hickling facility (AES Hickling) and the 71 MW Jennison facility (AES Jennison).
The facilities include low-cost generating plants and, with the exception of
some of the smaller units, are expected to run as based-load units in a
competitive New York electricity generation market. Sulfur dioxide scrubbers
have already been installed at the largest plants, Kintigh and Milliken. The
acquisition is expected to be completed during the second quarter of 1999 and is
subject to customary closing conditions, including the receipt of various
governmental approvals.
In November 1998, an agency of the Government of Sri Lanka selected the
Company as the preferred bidder to develop a 160 MW combined-cycle power plant
to be located at Kelanitissa, Sri Lanka. A letter of intent has been issued by
the Government of Sri Lanka to a new company, AES Kelanitissa Private Limited,
formed by a consortium led by AES and Hayley's Engineering Ltd, the local
minority partner. AES will build, own, operate and transfer ("BOOT") the power
plant under a concession that would be valid for a period of 20 years, with the
facility's electrical output sold into the national grid. It is expected that
the open cycle mode of the plant will reach 100 MW capacity by the end of 2000,
with capacity increasing to 160 MW at commencement of combined cycle operations
thereafter in 2001.
In November 1998, the Company and CILCORP Inc. agreed to terms on a
definitive agreement under which AES will acquire all of CILCORP's 13,610,680
common shares at a price of $65 per share, or approximately $885 million.
CILCORP was formed in 1985 and is headquartered in Peoria, Illinois. CILCORP is
an energy services company whose largest subsidiary, CILCO, is an 85 year-old
natural gas and electric utility serving approximately a quarter of a million
retail customers in central Illinois. In
1997, CILCORP had consolidated revenues of $976 million and net assets of $1.3
billion. CILCORP and its subsidiaries employ approximately 1,800 people and
operate two coal-fired generating facilities with a combined capacity of 1150
megawatts.
The transaction, under which CILCORP will become a wholly-owned subsidiary
of AES, requires the approval of CILCORP shareholders, which is expected to
occur in the second quarter of 1999. The acquisition is subject to review by the
Federal Energy Regulatory Commission ("FERC"), the Illinois Commerce Commission
("ICC"), the Securities and Exchange Commission ("SEC"), the United States
Department of Justice ("DOJ"), and the Federal Trade Commission ("FTC"). The
project has passed review by the ICC, DOJ and the FTC. The Company expects the
transaction to be completed by mid-1999, subject to ongoing review by the FERC
and the SEC.
In January 1999, the Company was selected by Florida's Orlando Utilities
Commission ("OUC") to enter into exclusive negotiations with OUC to purchase its
Indian River Steam Electric Plant. The Indian River Plant is a 610 MW facility
burning oil and natural gas, located in Titusville, Florida. The plant consists
of three steam turbines that were built in the 1970s. Recently, the OUC has
informed the Company that it is also negotiating with other bidders. The
successful completion of this transaction is subject to a number of conditions,
including certain regulatory approvals and the negotiation and execution of
definitive documentation.
In February 1999, a subsidiary of the Company was selected by the Hungarian
utility, the MVM, to build, own and operate a 190 MW gas-fired combined cycle
power plant at the site of one of AES's existing power plants in Tiszaujvaros,
located in eastern Hungary (the "Phoenix Project"). Electricity from Phoenix
Project will be sold to the MVM under the terms of a 15-20 year power purchase
agreement, that is expected to be signed during the second quarter of 1999.
Commercial operation of the Phoenix plant is expected to commence in the year
2004. Fuel for the facility will either come from a nearby pipeline owned by the
Hungarian oil and gas company, MOL or from Gazprom. Successful completion of
this transaction is subject to a number of conditions, including financing,
permits and other government approvals.
In March 1999, the Company won a bid to acquire Ecogen Energy which
operates two gas-fired power stations in Victoria, Australia for approximately
A$350 million. The power stations, Newport and Jeeralang, have a total capacity
of 966 MW. Successful completion of the transaction remains subject to the
transfer of various approvals and licenses.
REGULATORY OUTLOOK
Currently eighteen states in the United States have passed legislation that
permit utility customers to choose their electricity supplier in a competitive
electricity market (so-called "retail access" or "customer choice" laws), and
all but two of the remaining states are considering such legislation. While such
"customer choice" plans differ in detail, they usually share important elements:
(1) they allow customers to choose their electricity suppliers by a certain date
(the dates in the existing or proposed legislation vary between 1998 and 2003);
(2) they allow utilities to recover so-called "stranded costs"--the remaining
costs of uneconomic generating or regulatory assets; and (3) they reaffirm the
validity of existing QF contracts, and make provisions to assure payment over
the contract life.
In order to guarantee payment of utilities' costs and the costs of QF
contracts, some states have used or are proposing to use financial methods to
"securitize" these payments. The "securitization" process might involve the
following steps: first, the financial obligations to be "securitized" would be
legally affirmed through legislation. This legal obligation then is used to
borrow money in public debt markets to pay off the obligation. The legal
obligation allows the borrower to obtain a good credit rating and therefore a
lower interest rate. In some cases, the benefits of the lower interest rate are
passed on to retail electric customers (perhaps in the form of a rate decrease).
"Securitization" of QF contract obligations, if applied to AES contracts in the
future, would significantly reduce the risk to AES that its power sales
contracts would not be honored due to potential financial difficulties of the
utility purchaser.
In addition to state restructuring legislation, members of Congress have
proposed new federal
legislation to encourage customer choice and recovery of stranded assets. Some
argue that federal legislation is needed to avoid the "patchwork" effect of each
state acting separately to pass restructuring legislation; others argue that
each state should decide whether to allow retail choice. In 1997 several bills
were (and others are expected to be) submitted to Congress on electricity
restructuring. While it is uncertain whether or when federal legislation dealing
with electricity restructuring might be passed, it is the opinion of the Company
that such legislation would not have a materially adverse effect on the
Company's U.S. business.
In addition to the federal restructuring legislation proposals, a number of
bills have been proposed by members of Congress to repeal all or portions of
PURPA and/or PUHCA--as separate legislation if a comprehensive restructuring
bill fails to pass. The Company believes that the repeal of PURPA and/or PUHCA
is unlikely (and inappropriate) unless it is a part of a comprehensive
restructuring bill.
In anticipation of restructuring legislation, many U.S. utilities are
seeking ways to lower their costs in order to become more competitive. These
include the costs that utilities are required to pay under QF contracts, which
the utilities may view as excessive when compared to current market prices. Many
utilities are therefore seeking ways to lower these contract prices by
renegotiating the contracts, or in some cases by litigation. While the Company
is generally open to renegotiation of existing contracts, it believes that the
aforementioned electricity market restructuring legislation will likely reduce
both the pressure to renegotiate and the need for such contract renegotiations.
Despite the recent movement toward electricity restructuring, electricity
markets in the United States are still heavily regulated. United States laws and
regulations still govern to some extent wholesale electricity transactions, the
type of fuel utilized, the type of energy produced, and power plant ownership.
State regulatory commissions have jurisdiction over retail electricity
transactions. United States power projects also are subject to laws and
regulations controlling emissions and other substances produced by a plant and
the siting of plants. These laws and regulations generally require that a wide
variety of permits and other approvals be obtained before the construction or
operation of a power plant commences, and that the facility operate in
compliance with these permits thereafter. FERC must also approve rates charged
by certain power marketers such as those of the Company's subsidiary, AES Power.
In the United States, so-called Qualifying Facilities ("QFs") are relieved
of compliance with extensive federal, state and local regulations by the
provisions of the Public Utility Regulatory Policies Act, as amended ("PURPA").
Each of AES's current domestic plants is a QF. Loss of QF status, if not
prevented, would subject these plants to more extensive regulations. The Company
believes, however, that it will usually be able to react in a manner that would
avoid the loss of QF status.
AES must obtain exemptions from, or become subject to regulation by, the
Securities and Exchange Commission under the Public Utility Holding Company Act
("PUHCA") in regard to both its domestic and foreign utility company holdings.
There are a number of exemptions from PUHCA that are available for both domestic
and foreign utility company owners, including those for QFs, Exempt Wholesale
Generators and Foreign Utility Companies. AES has obtained, and believes that it
will be able to obtain and maintain in the future, appropriate PUHCA exemptions
for its utility acquisitions although no assurances can be given.
In addition, as one of the Company's major non-U.S. markets, changes in
Brazilian regulatory structures will have an impact on the Company. The
electricity industry in Brazil is regulated by the Brazilian federal government,
acting through the Ministry of Mines and Energy, which has exclusive authority
over the electricity sector through regulatory powers assigned to it. This
sector is currently in a state of rapid change in Brazil. For example, pursuant
to a federal law enacted in 1996, regulatory policy
for the sector, which was implemented by the Departmento Nacional de Aguas e
Energia Eletrica ("DNAEE"), is now implemented by a new autonomous national
electric energy agency (Agencia Nacional de Energia Eletrica or "ANEEL"). ANEEL
is an independent regulatory agency and to delegate certain functions to
agencies based in certain states of Brazil. However, ANEEL cannot delegate any
authority regarding tariffs to state agencies.
ANEEL is responsible for (i) granting and supervising concessions for
electricity generation, transmission and distribution, including approval of
applications for the setting of electricity tariffs; (ii) supervising and
performing financial examinations of the concessionary companies; (iii) issuing
regulations for the electricity sector; and (iv) planning, coordinating and
executing water resource studies and granting and supervising concessions for
the use of water resources. Due to electricity tariffs' significant weight in
the measurement of national inflation, tariff increases have been controlled by
the Ministry of Finance, although it is not its official responsibility.
In addition to the powers currently granted to DNAEE, ANEEL has the
following responsibilities: (i) to implement and regulate the exploitation of
electric energy and the use of hydroelectric power pursuant to the Power Sector
Law; (ii) to promote the bidding process for the granting of new concessions;
(iii) to solve administrative disputes among utilities, IPP companies,
self-producers and customers; and (iv) to determine the criteria for the
establishment of the cost of the transmission of energy pursuant to the Power
Sector Law. Nevertheless, until regulations regarding the implementation of
ANEEL are promulgated, DNAEE will continue to monitor and regulate the Brazilian
electricity sector.
UNITED STATES ENVIRONMENTAL REGULATIONS
The construction and operation of power projects are subject to extensive
environmental and land use regulation. In the United States those regulations
applicable to AES primarily involve the discharge of effluents into the water,
emissions into the air and the use of water, but can also include wetlands
preservation, endangered species, waste disposal and noise regulation. These
laws and regulations often require a lengthy and complex process of obtaining
licenses, permits and approvals from federal, state and local agencies. If such
laws and regulations are changed and AES's facilities are not "grandfathered"
(that is, made exempt by the fact that the facility pre-existed the law) or
otherwise are not excluded, extensive modifications to a project's technologies
and facilities could be required. If environmental laws or regulations were to
change in the future, there can be no assurance that AES would be able to
recover all or any increased costs from its customers or that its business and
financial condition would not be materially and adversely affected. In addition,
the Company may be required to make significant capital or other expenditures in
connection with such changes in environmental laws or regulations. While AES
expects that environmental and land use regulations in the United States will
continue to become more stringent over time, the Company is not aware of any
currently planned changes in law that would result in a material adverse effect
on its consolidated financial position.
Clean Air Act. The original Clean Air Act of 1970 set guidelines for
emissions standards for major pollutants (e.g. SO2 and NOx) from newly-built
sources. In late 1990, Congress passed a set of amendments to the Clean Air Act
(the "1990 Amendments"). All of AES's domestic operating plants perform at
levels better than federal emission standards mandated for such plants under the
Clean Air Act (as amended). The 1990 Amendments attempt to reduce acid rain
precursor emissions (SO2 and NOX) from existing sources -- particularly large,
older power plants that were exempted from certain regulations under the
original Clean Air Act. Because AES's facilities are relatively new cogeneration
units with low air emissions that qualify as "existing sources" under the 1990
Amendments, they have been "grandfathered" from certain acid rain compliance
provisions of the 1990 Amendments. Other provisions of the Clean Air Act related
to the reduction of ozone precursor emissions (VOC and NOx) have triggered "
reasonably available control technology" ("RACT") requirements by various states
to
reduce such emissions.
The hazardous air pollutant provisions of the 1990 Amendments presently
exclude electric steam generating facilities such as AES's domestic plants;
however, the 1990 Amendments directed that the Environmental Protection Agency
("EPA" or the "Agency") prepare a study on hazardous air pollutant ("HAP")
emissions from power plants. In the fall of 1996, EPA released an interim report
on HAP emissions from power plants that tentatively concluded that the risk of
contracting cancer from exposure to HAPs (except mercury) from most plants was
very low (less than one in 1 million). EPA is developing a separate study on
mercury emissions from power plants. The draft mercury study report is currently
being reviewed by the federal Scientific Advisory Board and it is not certain
when a final report will be released. A final comprehensive HAP report with
recommendations is expected to be issued after EPA's review of mercury emissions
from power plants is complete. If it is determined that mercury from power
plants should be regulated, the use of "maximum available control technology"
("MACT") for mercury (which is now not subject to regulation) could be required.
In 1997, EPA published new rules that tighten ambient air quality standards
for ozone and small particulate matter (so-called PM 2.5). These new standards
increase the number of so-called "nonattainment regions" for ozone and
particulates. If new ozone and particulate matter nonattainment areas are
created, AES's plants may be faced with further emission reduction requirements
that could necessitate the installation of additional control technology.
In order to make further improvements in air quality in the eastern United
States, EPA in 1997 issued a call for states to revise their "state
implementation plans" (SIPs) for ozone precursors--primarily NOX. EPA
recommended further reductions of up to 65% for some states, depending on local
conditions. As a result, AES will be required to make further reductions in NOX
emissions at its Beaver Valley plant in Pennsylvania (AES's other plants have
emission levels well below baseline levels).
The Company does not believe that any of the potential additional
requirements discussed above will have a material adverse effect on its results
of operations and consolidated financial position.
Hazardous Waste Regulation. Based on a 1988 study, EPA has decided not to
regulate most coal combustion ash as a hazardous waste; however, EPA reserved
making a decision with respect to coal ash from fluidized bed combustion (the
burning of coal in the presence of limestone), which is still being evaluated by
the Agency. AES, along with other CFB owners and manufacturers, is currently
participating in a study to evaluate whether or not CFB ash should be classified
as hazardous. EPA is required to make a determination on whether to regulate CFB
ash in 1998. If EPA decides to regulate fluidized bed coal ash as a hazardous or
special waste, AES could incur additional ash disposal costs to dispose of ash
from its plants that utilize fluidized bed boilers.
FOREIGN ENVIRONMENTAL REGULATIONS
AES now has ownership interests in operating power plants and distribution
companies in many countries outside the United States. Each of these countries
and the localities therein have separate laws and regulations governing the
siting, permitting, ownership and power sales from AES's plants. These laws and
regulations are often quite different than those in effect in the United
States--and AES's non-U.S. businesses have been in substantial compliance with
these different laws and regulations. In addition, projects funded by the World
Bank are subject to World Bank environmental standards, which may be more
stringent than local country standards but are typically not as strict as U.S.
standards. Whenever feasible, AES attempts to use advanced environmental
technologies (such as CFB coal technology or advanced gas turbines) in order to
minimize environmental impacts.
Based on current trends, AES expects that environmental and land use
regulations affecting its
plants located outside the United States will likely become more stringent over
time. This appears to be due in part to a greater participation by local
citizenry in the monitoring and enforcement of environmental laws, better
enforcement of applicable environmental laws by the regulatory agencies, and the
adoption of more sophisticated environmental requirements. If foreign
environmental and land use regulations were to change in the future, the Company
may be required to make significant capital or other expenditures in order to
comply. There can be no assurance that AES would be able to recover all or any
increased costs from its customers or that its business, financial condition or
results of operations would not be materially and adversely affected by future
changes in foreign environmental and land use regulations.
EMPLOYEES
At December 31, 1998, AES and its subsidiaries employed approximately
11,700 people. The total number of people employed in facilities which AES
operates or has an equity interest in is approximately 39,400.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE REGISTRANT
The following is certain information concerning the present executive
officers and significant employees of the Registrant set out in alphabetical
order.
Dennis W. Bakke, 53 years old, co-founded the Registrant with Roger Sant in
1981 and has been a director of the Registrant since 1986. He has been President
of the Registrant since 1987 and Chief Executive Officer since January 1994.
From 1987 to 1993, he served as Chief Operating Officer of the Registrant; from
1982 to 1986, he served as Executive Vice President of the Registrant; and from
1985 to 1986 he also served as Treasurer of the Registrant. He served with Mr.
Sant as Deputy Assistant Administrator of the Federal Energy Agency ("FEA") from
1974 to 1976 and as Deputy Director of the Energy Productivity Center, an energy
research organization affiliated with The Mellon Institute at Carnegie-Mellon
University, from 1978 to 1981. He is a trustee of Rivendell School and a member
of the Board of Directors of MacroSonix Corporation in Richmond, Virginia.
Mark S. Fitzpatrick, 48 years old, has served as a Senior Vice President of
the Registrant since January 1998, and was appointed Vice President of the
Registrant in 1987. Mr. Fitzpatrick became Managing Director of Applied Energy
Services Electric Limited for the United Kingdom and Western Europe operations
in 1990. From 1984 to 1987, he served as a project director of the AES Beaver
Valley and AES Thames projects.
Paul T. Hanrahan, 41 years old, has been a Senior Vice President of the
Registrant since January 1998 and was appointed Vice President of the Registrant
effective January 1994. Since May 1, 1998, Mr. Hanrahan has been Managing
Director of AES Americas South, a business group within AES responsible for all
of AES's activities in Argentina, Paraguay, Southern Brazil, Peru and Chile.
From February 1995 until becoming Managing Director of AES Americas South he was
President and Chief Executive Officer of AES Chigen, where he served as
Executive Vice President, Chief Operating Officer and Secretary from December
1993 until February 1995. He was General Manager of AES Transpower, Inc., a
subsidiary of the Registrant, from 1990 to 1993.
Lenny M. Lee, 40 years old, was appointed Managing Director of AES
Transpower in June 1998. As Managing Director of AES Transpower, Mr. Lee leads
the AES group responsible for all of AES's business, including project
development and plant operations, in Australia, New Zealand, portions of
Southeast Asia (Thailand, Indonesia, Malaysia and Vietnam), Hawaii and Southern
China. Prior to his appointment, Mr. Lee developed various projects within the
same group. Mr. Lee has been with the Company since August 1987.
William R. Luraschi, 35 years old, has been Vice President of the
Registrant since January 1998, Secretary since February 1996 and General Counsel
of the Registrant since January 1994. Prior to that, Mr. Luraschi was an
attorney with the law firm of Chadbourne & Parke L.L.P.
David G. McMillen, 60 years old, was named Vice President of the Company in
December 1991. He was appointed President of AES Shady Point in 1995 and is
currently plant manager of the AES Shady Point facility. He was President of AES
Thames from 1989 to 1995. From 1985 to 1988, he served as plant manager of the
AES Beaver Valley plant and from 1986 to 1988 he served as President of AES
Beaver Valley.
Dr. Roger F. Naill, 51 years old, has been Vice President for Planning at
AES since 1981. Prior to joining the Registrant, Dr. Naill was Director of the
Office of Analytical Services at the U.S. Department of Energy.
Shahzad S. Qasim, 44 years old, was appointed Managing Director of AES
Oasis effective April 1998. As Managing Director of AES Oasis, Mr. Qasim leads
the AES group responsible for all of AES's business, including project
development and plant operations, in Pakistan, India, portions of South Asia and
the Middle East. Prior to his appointment, Mr. Qasim had been developing various
projects within the same geographical region for the Company. Mr. Qasim has been
with the Company since November 1992; before he joined the Company Mr. Qasim was
with the international management consulting fim of McKinsey & Company.
William Ruccius, 47 years old, was appointed Managing Director of AES
Orient in June 1998. As Managing Director of AES Orient, Mr. Ruccius leads the
AES group responsible for all of AES's business, including project development
and plant operations, in Northern China and most of North and East Asia
including the Philippines. From June 1996 until his appointment as Managing
Director, he was President and CEO of AES Lal Pir and AES Pak Gen, the Company's
duel Pakistani generating facilities. Prior to that Mr. Ruccius was Plant
Manager at AES Hawaii from April 1995 to June 1996 and worked at AES Deepwater
from June 1993 to April 1995.
John Ruggirello, 48 years old, has been Senior Vice President of the
Registrant since January 1999, and was appointed Vice President in January 1997.
Mr. Ruggirello heads an AES group responsible for project development,
construction and plant operations in much of the eastern United States and
Canada. He served as President of AES Beaver Valley from 1990 to 1996.
J. Stuart Ryan, 40 years old, was appointed Senior Vice President of the
Registrant effective January 1998, was appointed Vice President in January 1994
and is Managing Director of the AES Pacific group which is responsible for the
Company's business in the western United States. Between 1994 and 1998, Mr. Ryan
lead the AES Transpower group responsible for AES's activities in Asia
(excluding China). From 1994 through 1997, he served as Vice President of the
Registrant. Prior to 1994, Mr. Ryan served as general manager of a group within
AES.
Roger W. Sant, 67 years old, co-founded the Company with Dennis Bakke in
1981. He has been Chairman of the Board and a director of the Registrant since
its inception, and he held the office of Chief Executive Officer through
December 31, 1993. He currently is Chairman of the Boards of Directors of The
Summit Foundation and The World Wildlife Fund U.S., and serves on the Boards of
Directors of The World Resources Institute, the World Wide Fund for Nature and
Marriott International, Inc. He was Assistant Administrator for Energy
Conservation and the Environment of the Federal Energy Agency ("FEA") from 1974
to 1976 and the Director of the Energy Productivity Center, an energy research
organization affiliated with The Mellon Institute at Carnegie-Mellon University,
from 1977 to 1981.
Barry J. Sharp, 39 years old, was appointed Senior Vice President effective
January 1998 and had been Vice President and Chief Financial Officer since 1987.
He also served as Secretary of the Registrant until February 1996. From 1986 to
1987, he served as the Company's Director of Finance and Administration. Mr.
Sharp is a certified public accountant.
Sarah Slusser, 36 years old, was appointed Vice President of the Registrant
in January 1999, and was appointed President of AES Aurora, Inc., effective
April 1997. AES Aurora is a wholly owned subsidiary of the Company and a group
of AES which is responsible for business development, construction and
operations of facilities and projects in Mexico, Central America, the Caribbean
and the Gulf States in the United States. Prior to that, Ms. Slusser served as
Project Director for various AES projects in the same region from 1993 to 1997.
Paul D. Stinson, 42 years old, was appointed Vice President of the
Registrant effective January 1998. Since April 1997 Mr. Stinson has been
Managing Director of AES Silk Road, Ltd., a wholly owned subsidiary of the
Company, which is a group of AES responsible for business development,
construction and operations of facilities and projects in Russia, Kazakhstan,
Pakistan and other parts of Asia. Mr. Stinson served as Managing Director of
Medway Power Ltd. from 1994 until 1997 and was Plant Manager of the Medway Power
Station owned by Medway Power Ltd. from 1992 to 1997.
Thomas A. Tribone, 46 years old, has been an Executive Vice President since
January 1998, and was appointed Senior Vice President of the Registrant in 1990.
Mr. Tribone leads AES Americas, a group responsible for power marketing, project
development, construction and plant operations in northern portions of South
America including much of Brazil. From 1987 to 1990 he served as Vice President
for project development and from 1985 to 1987 he served as project director of
the AES Shady Point plant.
Kenneth R. Woodcock, 55 years old, has been Senior Vice President of the
Registrant since 1987 and now handles AES relationships with the investment
community as well as support for AES business development activities worldwide.
From 1984 to 1987, he served as a Vice President for Business Development. Prior
to the founding of AES he served in the United States federal government in
energy and environment departments.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
See the information contained in Note 12 to the consolidated financial
statements of the Company contained in the March 1999 Form 8-K, such information
being incorporated herein by reference.
ITEM 2. PROPERTIES
Offices are maintained by the Registrant in many places around the world
which are generally occupied pursuant to the provisions of long- and short-term
leases, none of which is material to the Company. With a few exceptions, the
Registrant's facilities which are described in Item 1 hereof are subject to
mortgages or other liens or encumbrances as part of the related project
financings. The land interest held by the majority of the facilities is that of
a lessor or, in the case of the facilities located in the People's Republic of
China, a land use right that is leased or owned by the related joint venture
that owns the project. However, in a few instances there exists no accompanying
project financing for the facility and in a few of these cases the land interest
may not be subject to any encumbrance and is owned by the subsidiary or
affiliate owning the facility outright.
ITEM 3. LITIGATION.
The Company is involved in certain legal proceedings in the normal course
of business. It is the opinion of the Company that none of the pending
litigation is expected to have a material adverse effect on its results of
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market Information.
The common stock of the Company is currently traded on the New York Stock
Exchange (NYSE) under the symbol "AES". The following tables set forth the high
and low sale prices for the common stock as reported by the NYSE for the periods
indicated.
Price Range of Common Stock
---------------------------
1998 High Low 1997 High Low
- ---- ---- --- ---- ---- ---
First Quarter $ 54 5/16 $39 3/8 First Quarter $34 1/8 $22 3/8
Second Quarter 58 45 1/4 Second Quarter 37 3/4 27 1/2
Third Quarter 55 3/8 23 Third Quarter 45 1/4 34 5/8
Fourth Quarter 47 3/8 32 Fourth Quarter 49 5/8 35
(b) Holders.
As of March 3, 1999, there were 1,091 registered holders of the
Registrant's Common Stock, par value $0.01 per share.
(c) Dividends.
Under the terms of the Company's $600 million corporate revolving loan and
letters of credit facility entered into with a commercial bank syndicate, the
Company is currently prohibited from paying cash dividends. In addition, the
Registrant is precluded from paying cash dividends on its Common Stock under the
terms of a guaranty to the utility customer in connection with the AES Thames
project in the event certain net worth and liquidity tests of the Registrant are
not met. The Registrant has met these tests at all times since making the
guaranty.
The ability of the Registrant's project subsidiaries to declare and pay
cash dividends to the Registrant is subject to certain limitations in the
project loans and other agreements entered into by such project subsidiaries.
Such limitations permit the payment of cash dividends out of current cash flow
for quarterly, semiannual or annual periods only at the end of such periods and
only after payment of principal and interest on project loans due at the end of
such periods, and in certain cases after providing for debt service reserves.
ITEM 6. SELECTED FINANCIAL DATA.
(in millions, except for share data)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data
Revenues $2,398 $1,411 $ 835 $ 679 $ 533
Operating costs and expenses 1,665 1,043 557 426 297
Operating income 733 368 278 253 236
Income before income taxes, minority
interest and extraordinary item 546 284 207 175 151
Extraordinary item 4 (3) --- -- 2
Net income 311 185 125 107 100
Basic earnings per share:
Before extraordinary item $1.73 $1.13 $0.83 $ 0.71 $ 0.67
Extraordinary item 0.02 (0.02) --- -- 0.01
Basic earnings per share $1.75 $1.11 $0.83 $ 0.71 $ 0.68
Diluted earnings per share:
Before extraordinary item $1.67 $1.11 $0.80 $ 0.70 $ 0.66
Extraordinary item 0.02 (0.02) --- -- 0.01
Diluted earnings per share $1.69 $1.09 $0.80 $ 0.70 $ 0.67
Dividends per share - common stock --- -- --- -- --
Ratio of earnings to fixed charges (1) 1.75x 1.46x 1.88x 2.20x 2.10x
(1) For the purposes of this ratio, earnings include income before taxes
and fixed charges excluding capitalized interest. Fixed charges include
interest, whether capitalized or expensed, and amortization of deferred
financing costs, whether capitalized or expensed. Due to the project specific
nature of the Company's construction financing, fixed charges on most projects
in construction are funded with proceeds from project finance borrowings and do
not require the use of funds from operations. If such construction-related fixed
charges had been excluded in calculating the ratio of earnings to fixed charges,
such ratios would have been 2.10x, 2.23x, 2.03x, 1.69x, and 1.92x for the five
years ended December 31, 1998, respectively.
- ------------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $10,781 $8,909 $3,622 $2,341 $1,915
Project financing debt (long-term) 3,597 3,489 1,558 1,098 1,019
Other notes payable (long-term) 1,644 1,096 450 125 125
Stockholders' equity 1,794 1,481 721 549 401
ITEM 7. DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
For the discussion and analysis of financial condition and results of
operations, see the information contained in Item 5 of the March 1999 Form 8-K,
such information being incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the information contained under the caption "Market Risks" contained in
Item 5 of the March 1999 Form 8-K, such information being incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the information contained in Item 7 of the March 1999 Form 8-K, such
information being incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
See the information with respect to the ages of the Registrant's directors
in the table and the information contained under the caption "Election of
Directors" contained in of the Proxy Statement for the Annual Meeting of
Stockholders of the Registrant to be held on April 20, 1999 filed by the Company
with the Securities and Exchange Commission on the date hereof, which
information is incorporated herein by reference. See also the information with
respect to executive officers of the Registrant under the caption entitled
"Executive Officers and Significant Employees of the Registrant" in Item 1 of
Part I hereof, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
See the information contained under the captions "Compensation of Executive
Officers" and "Compensation of Directors" contained in the Proxy Statement for
the Annual Meeting of Stockholders of the Registrant to be held on April 20,
1999 filed by the Company with the Securities and Exchange Commission on the
date hereof, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS.
(a) Security Ownership of Certain Beneficial Owners.
See the information contained under the caption "Security Ownership of
Certain Beneficial Owners, Directors, and Executive Officers" contained in the
Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be
held on April 20, 1999 filed by the Company with the Securities and Exchange
Commission on the date hereof, which information is incorporated herein by
reference.
(b) Security Ownership of Directors and Executive Officers.
See the information contained under the caption "Security Ownership of
Certain Beneficial Owners, Directors, and Executive Officers" contained in the
Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be
held on April 20, 1999 filed by the Company with the Securities and Exchange
Commission on the date hereof, which information is incorporated herein by
reference.
(c) Changes in Control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the information for Mr. Thomas I. Unterberg, a director of the
Registrant, contained under the caption "Election of Directors" contained in the
Proxy Statement for the Annual Meeting of Stockholders of the Registrant to be
held on April 20, 1999 filed by the Company with the Securities and Exchange
Commission on the date hereof, which information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements (all financial statements listed below are
of the Company and its consolidated subsidiaries).
- Independent Auditors' Report is contained in Item 7 of the
March 1999 Form 8-K and such information is incorporated
herein by reference.
- Consolidated Balance Sheets at December 31, 1997 and 1998
are contained in Item 7 of the March 1999 Form 8-K and such
information is incorporated herein by reference.
- Consolidated Statements of Operations -- For the Years Ended
December 31, 1996, 1997 and 1998 are contained in Item 7 of
the March 1999 Form 8-K and such information is incorporated
herein by reference.
- Consolidated Statements of Cash Flows -- For the Years Ended
December 31, 1996, 1997 and 1998 are contained in Item 7 of
the March 1999 Form 8-K and such information is incorporated
herein by reference.
- Consolidated Statements of Changes in Stockholders' Equity
-- For the Years Ended December 31, 1996, 1997 and 1998 are
contained in Item 7 of the March 1999 Form 8-K, and such
information is incorporated herein by reference.
- Notes to Consolidated Financial Statements -- For the Years
Ended December 31, 1996, 1997 and 1998 are contained in Item
7 of the March 1999 Form 8-K and such information is
incorporated herein by reference.
(2) Financial Statement Schedules
- See Index to Financial Statement Schedules of the Registrant
and subsidiaries at page S-1 hereof, which index is
incorporated herein by reference.
(3) Exhibits
3.1 Fifth Amended and Restated Certificate of Incorporation of The
AES Corporation is incorporated here in by reference to Exhibit
3.1 to the Quarterly Report on Form 10-Q of the Registrant for
the quarterly period ended June 30, 1998 filed August 14, 1998.
3.2 By-Laws of The AES Corporation, as amended is incorporated here
in by reference to Exhibit 3.2 to the Quarterly Report on Form
10-Q of the Registrant for the quarterly period ended June 30,
1998 filed August 14, 1998.
4.1 Amended and Restated Declaration of Trust of AES Trust I, among
The AES Corporation, The First National Bank of Chicago and First
Chicago Delaware, Inc., to provide for the issuance of the
$2.6875 Term Convertible Securities, Series A is incorporated
herein by reference to Exhibit 4.1 to Annual Report on Form 10-K
of the Registrant for the year ended December 31, 1997 filed
March 30, 1998.
4.2 Junior Subordinated Indenture, between The AES Corporation and
The First National Bank of Chicago, to provide for the issuance
of the $2.6875 Term Convertible Securities, Series A is
incorporated herein by reference to Exhibit 4.1 to Annual Report
on Form 10-K of the Registrant for the year ended December 31,
1997 filed March 30, 1998.
4.3 First Supplemental Indenture to Junior Subordinated Indenture,
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance of the $2.6875
Term Convertible Securities, Series A is incorporated herein by
reference to Exhibit 4.1 to Annual Report on Form 10-K of the
Registrant for the year ended December 31, 1997 filed March 30,
1998.
4.4 Guarantee Agreement, between The AES Corporation and The First
National Bank of Chicago, as initial guarantee trustee, to
provide for the issuance of the $2.6875 Term Convertible
Securities, Series A is incorporated herein by reference to
Exhibit 4.1 to Annual Report on Form 10-K of the Registrant for
the year ended December 31, 1997 filed March 30, 1998.
4.5 Second Supplemental Indenture dated as of October 13, 1997
between the Company and the First National Bank of Chicago, as
trustee, to provide for the issuance from time to time of the
10.25% Senior Subordinated Notes Due 2006, is incorporated herein
by reference to Exhibit 4.2.1 of the Registration Statement on
Form S-3/A (Registration No. 333-39857) filed November 19, 1997.
4.6 Indenture dated as of October 29, 1997 between The AES
Corporation and The First National Bank of Chicago, as trustee,
to provide for the issuance from time to time of the 8.50% Senior
Subordinated Notes due 2007 of the Company and the 8.875% Senior
Subordinated Debentures due 2027, is incorporated herein by
reference to Exhibit 4.1 to the Registration Statement on Form
S-4 (Registration No. 333-44845) filed January 23, 1998.
4.7 First Supplemental Indenture dated as of November 21, 1997
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance from time to
time of the 8.50% Senior Subordinated Notes due 2007 of the
Company and the 8.875% Senior Subordinated Debentures due 2027,
is incorporated herein by reference to Exhibit 4.1.2 to the
Registration Statement on Form S-4 (Registration No. 333-44845)
filed January 23, 1998.
4.8 Junior Subordinated Debt Trust Securities Indenture dated as of
March 1, 1997 between the Company and The First National Bank of
Chicago, to provide for the issuance of the $2.75 Term
Convertible Securities, Series B, is incorporated herein by
reference to Exhibit 4.1 to the Registration Statement on Form
S-3 (Registration No. 333-46189) filed February 12, 1998.
4.9 Second Supplemental Indenture dated as of October 29, 1997
between the Company and The First National Bank of Chicago, to
provide for the issuance of the $2.75 Term Convertible
Securities, Series B, is incorporated herein by reference to
Exhibit 4.1.1 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.10 Amended and Restated Declaration of Trust of AES Trust II, to
provide for the issuance of the $2.75 Term Convertible
Securities, Series B, is incorporated herein by reference to
Exhibit 4.3 to the Registration Statement on Form S-3
(Registration No. 333-46189) filed February 12, 1998.
4.11 Restated Certificate of Trust of AES Trust II, to provide for the
issuance of the $2.75 Term Convertible Securities, Series B, is
incorporated herein by reference to Exhibit 4.4 to the
Registration Statement on Form S-3 (Registration No. 333-46189)
filed February 12, 1998.
4.12 Form of Preferred Security, to provide for the issuance of the
$2.75 Term Convertible Securities, Series B, is incorporated
herein by reference to Exhibit 4.5 to the Registration Statement
on Form S-3 (Registration No. 333-46189) filed February 12, 1998.
4.13 Form of Junior Subordinated Debt Trust Security, to provide for
the issuance of the $2.75 Term Convertible Securities, Series B,
is incorporated herein by reference to Exhibit 4.6 to the
Registration Statement on Form S-3 (Registration No. 333-46189)
filed February 12, 1998.
4.14 Preferred Securities Guarantee with respect to Preferred
Securities, to provide for the issuance of the $2.75 Term
Convertible Securities, Series B, is incorporated herein by
reference to Exhibit 4.7 to the Registration Statement on Form
S-3 (Registration No. 333-46189) filed February 12, 1998.
4.15 Junior Subordinated Indenture dated as of August 10, 1998,
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance of the 4.5%
Convertible Junior Subordinated Debentures due 2005 is
incorporated here in by reference to Exhibit 4.15 to the
Quarterly Report on Form 10-Q of the Registrant for the quarterly
period ended June 30, 1998 filed August 14, 1998.
4.16 First Supplemental Indenture dated as of August 10. 1998, to the
Junior Subordinated Indenture dated as of August 10, 1998,
between The AES Corporation and The First National Bank of
Chicago, as trustee, to provide for the issuance of the 4.5%
Convertible Junior Subordinated Debentures due 2005 is
incorporated here in by reference to Exhibit 4.16 to the
Quarterly Report on Form 10-Q of the Registrant for the quarterly
period ended June 30, 1998 filed August 14, 1998.
4.17 Senior Indenture dated December 8, 1998 between the Registrant
and the First National Bank of Chicago to provide for the
issuance of $200 million of 8% Senior Note due 2008 is
incorporated herein by reference to Exhibit 4.01 to the Current
Report on Form 8-K of the Registrant filed December 11, 1998.
4.18 First Supplemental Indenture dated December 8, 1998 to the Senior
Indenture between the Registrant and the First National Bank of
Chicago to provide for the issuance of $200 million of 8% Senior
Note due 2008 is incorporated herein by reference to Exhibit 4.02
to the Current Report on Form 8-K of the Registrant filed
December 11, 1998.
4.19 Other instruments defining the rights of holders of long-term
indebtedness of the Registrant and its consolidated subsidiaries
is incorporated here in by reference to Exhibit 4.17 to the
Quarterly Report on Form 10-Q of the Registrant for the quarterly
period ended June 30, 1998 filed August 14, 1998.
10.1 Amended Power Sales Agreement, dated as of December 10, 1985,
between Oklahoma Gas and Electric Company and AES Shady Point,
Inc. is incorporated herein by reference to Exhibit 10.5 to the
Registration Statement on Form S-1 (Registration No. 33-40483).
10.2 First Amendment to the Amended Power Sales Agreement, dated as of
December 19, 1985, between Oklahoma Gas and Electric Company and
AES Shady Point, Inc. is incorporated herein by reference to
Exhibit 10.45 to the Registration Statement on Form S-1
(Registration No. 33-46011).
10.3 Electricity Purchase Agreement, dated as of December 6, 1985,
between The Connecticut Light and Power Company and AES Thames,
Inc. is incorporated herein by reference to Exhibit 10.4 to the
Registration Statement on Form S-1 (Registration No. 33-40483).
10.4 Power Purchase Agreement, dated March 25, 1988, between AES
Barbers Point, Inc. and Hawaiian Electric Company, Inc., as
amended, is incorporated herein by reference to Exhibit 10.6 to
the Registration Statement on Form S-1 (Registration No.
33-40483).
10.5 The AES Corporation Profit Sharing and Stock Ownership Plan is
incorporated herein by reference to Exhibit 4(c)(1) to the
Registration Statement on Form S-8 (Registration No. 33-49262).
10.6 The AES Corporation Incentive Stock Option Plan of 1991, as
amended, is incorporated herein by reference to Exhibit 10.30 to
the Annual Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1995.
10.7 Applied Energy Services, Inc. Incentive Stock Option Plan of 1982
is incorporated herein by reference to Exhibit 10.31 to the
Registration Statement on Form S-1 (Registration No. 33-40483).
10.8 Deferred Compensation Plan for Executive Officers, as amended, is
incorporated herein by reference to Exhibit 10.32 to Amendment
No. 1 to the Registration Statement on Form S-1 (Registration No.
33-40483).
10.9 Deferred Compensation Plan for Directors is incorporated herein
by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q
of the Registrant for the quarter ended March 31, 1998, filed May
15, 1998.
10.10 The AES Corporation Stock Option Plan for Outside Directors is
incorporated herein by reference to Exhibit 10.43 to the
Annual Report on Form 10-K of Registrant for the Fiscal Year
ended December 31, 1991.
10.11 The AES Corporation Supplemental Retirement Plan is
incorporated herein by reference to Exhibit 10.64 to the
Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1994.
11 Statement of computation of earnings per share.
12 Statement of computation of ratio of earnings to fixed
charges.
21 Significant subsidiaries of The AES Corporation.
23 Consent of independent auditors, Deloitte & Touche LLP.
24 Powers of attorney.
27 Financial Data Schedule (Article 5).
(b) Reports on Form 8-K.
- Registrant filed a Current Report on Form 8-K dated November 30,
1998 to disclose certain recent developments related to various
acquisitions and project developments, including the Agreement
and Plan of Merger among The AES Corporation, Cilcorp, Inc., and
Midwest Energy, Inc. dated as of November 22, 1998.
- Registrant filed a Current Report on Form 8-K dated December 11,
1998 to disclose certain agreements relating to the Company's
offering of $200 million of 8% Senior Notes due 2008.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 30, 1999 THE AES CORPORATION
(Company)
By: /s/ Dennis W. Bakke
----------------------
Name: Dennis W. Bakke
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
* /s/ Roger W. Sant Chairman of the Board March 30, 1999
- -------------------
(Roger W. Sant)
/s/ Dennis W. Bakke President, Chief Executive Officer March 30, 1999
- ----------------------------- and Director (principal executive officer)
(Dennis W. Bakke)
* /s/ Hazel R. O'Leary Director March 30, 1999
- -----------------------------
(Hazel R. O'Leary)
* /s/ Dr. Alice F. Emerson Director March 30, 1999
- -----------------------------
(Dr. Alice F. Emerson)
* /s/ Robert F. Hemphill, Jr. Director March 30, 1999
- -----------------------------
(Robert F. Hemphill, Jr.)
* /s/ Frank Jungers Director March 30, 1999
- -----------------------------
(Frank Jungers)
* /s/ John H. McArthur Director March 30, 1999
- -----------------------------
(John H. McArthur)
* /s/ Thomas I. Unterberg Director March 30, 1999
- -----------------------------
(Thomas I. Unterberg)
* /s/ Robert H. Waterman, Jr. Director March 30, 1999
- -----------------------------
(Robert H. Waterman, Jr.)
/s/ Barry J. Sharp Senior Vice President and Chief Financial Officer March 30, 1999
- ----------------------------- (principal financial and accounting officer)
(Barry J. Sharp)
By: * /s/ William R. Luraschi March 30, 1999
--------------------------------------
Attorney-in-Fact
THE AES CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report S-2
Schedule I - Condensed Financial Information of Registrant S-3
Schedule II - Valuation and Qualifying Accounts S-7
Schedules other than those listed above are omitted as the information is
either not applicable, not required, or has been furnished in the financial
statements or notes thereto incorporated by reference into Item 8 hereof.
S-1
INDEPENDENT AUDITORS' REPORT
To the Stockholders of The AES Corporation:
We have audited the consolidated financial statements of The AES Corporation as
of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, and have issued our report thereon dated February 4,
1999; such financial statements and report are included in The AES Corporation's
Current Report on Form 8-K, filed March 18, 1999, and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedules of The AES Corporation, listed in the index to the consolidated
financial statement schedules on page S-1. These consolidated financial
statement schedules are the responsibility of the AES Corporation's management.
Our responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Washington, DC
February 4, 1999
S-2
THE AES CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF UNCONSOLIDATED BALANCE SHEETS
(in millions)
December 31,
------------
1997 1998
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 5 $ 44
Accounts and notes receivable from subsidiaries 130 333
Prepaid expenses and other current assets 25 69
----------- -----------
Total current assets 160 446
Investment in and advances to subsidiaries 2,879 3,390
Office Equipment
Cost 5 6
Accumulated depreciation (4) (4)
----------- -----------
Office equipment, net 1 2
Other Assets
Deferred financing costs (less accumulated amortization: 1997, $11, 1998, $18) 57 61
Project development costs 81 121
Deferred income taxes -- 39
Escrow deposits and other assets 55 21
----------- -----------
Total other assets 193 242
----------- -----------
TOTAL $ 3,233 $ 4,080
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6 $ 7
Accrued and other liabilities 53 50
Notes payable -- 8
----------- -----------
Total current liabilities 59 65
Long-term Liabilities
Notes payable 1,096 1,644
Deferred income taxes 44 24
Other long-term liabilities 3 3
----------- -----------
Total long-term liabilities 1,143 1,671
Company obligated mandatorily redeemable preferred securities of subsidiary trusts
holding solely junior subordinated debentures of AES 550 550
Stockholders' Equity:
Preferred stock -- --
Common stock 2 2
Additional paid-in capital 1,030 1,243
Retained earnings 581 892
Accumulated other comprehensive loss (131) (343)
Treasury stock (1) --
----------- -----------
Total stockholders' equity 1,481 1,794
----------- -----------
TOTAL $ 3,233 $ 4,080
=========== ===========
See notes to Schedule I
S-3
THE AES CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF UNCONSOLIDATED OPERATIONS
(in millions)
For the Years Ended
December 31,
-------------------
1996 1997 1998
---- ---- ----
Revenues
Service revenues $ 59 $ 22 $ 16
Equity in earnings 142 256 357
----------- ---------- ----------
Total revenues 201 278 373
Operating costs and expenses:
Cost of services 46 5 --
Selling, general and administrative expenses 30 36 49
----------- ---------- ----------
Total operating costs and expenses 76 41 49
Operating income 125 237 324
Interest expense, net (15) (26) (48)
----------- ---------- ----------
Income before income taxes and extraordinary item 110 211 276
Income tax (benefit) expense (15) 23 (35)
----------- ---------- ----------
Income before extraordinary item 125 188 311
Extraordinary item - net loss on extinguishment of
debt (net of applicable income tax benefit) -- 3 -
----------- ---------- ----------
Net income $ 125 $ 185 $ 311
=========== ========== ==========
See notes to Schedule I
S-4
THE AES CORPORATION
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF UNCONSOLIDATED CASH FLOWS
(in millions)
For the Years Ended
December 31,
-------------------
1996 1997 1998
------------- -------------- -------------
Net cash provided by (used in) operating activities $ 23 $ (30) $ (46)
INVESTING ACTIVITIES
Acquisitions (148) (1,274) (556)
Dividends from subsidiaries 130 152 125
Project development costs, net (16) (3) (40)
Investment in subsidiaries (341) (410) (222)
Escrow deposits and other (47) 1 33
----------- ------------ ------------
Net cash used in investing activities (422) (1,534) (660)
FINANCING ACTIVITIES
Borrowings (repayments) under the revolver 163 (186) 206
Issuance of notes payable and coupon bearing securities 243 1,536 350
Principal payments on notes payable -- (275) -
Proceeds from issuance of common stock 2 502 200
Payments for deferred financing costs (6) (13) (11)
----------- ------------ ------------
Net cash provided by financing activities 402 1,564 745
Increase in cash and cash equivalents 3 -- 39
Cash and cash equivalents, beginning 2 5 5
----------- ------------ ------------
Cash and cash equivalents, ending $ 5 $ 5 $ 44
=========== ============ ============
See notes to Schedule I
S-5
THE AES CORPORATION
SCHEDULE I
NOTES TO SCHEDULE I
1. SIGNIFICANT ACCOUNTING PRINCIPLES
Accounting for Subsidiaries -- The AES Corporation has accounted for the
earnings of its subsidiaries on the equity method in the unconsolidated
condensed financial information.
Revenues -- Construction management fees earned by the parent from its
consolidated subsidiaries are eliminated.
Income Taxes -- The unconsolidated income tax expense or benefit computed
for the Company in accordance with Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, reflects the tax assets and liabilities of
the Company on a stand alone basis and the effect of filing a consolidated U.S.
income tax return with certain other affiliated companies.
Accounts and Notes Receivable from Subsidiaries -- Such amounts have been
shown in current or long-term assets based on terms in agreements with
subsidiaries, but payment is dependent upon meeting conditions precedent in the
subsidiary loan agreements.
2. NOTES PAYABLE
First
Interest Final Call
Rate Maturity Date 1997 1998
---------------- ------------- ------------- -------------- -------------
Corporate revolving bank loan(1) 7.21% 2000 -- $ 27 $ 233
Senior Notes 8.00% 2008 2000 -- 200
Senior subordinated notes 10.25% 2006 2001 250 250
Senior subordinated notes 8.38% 2007 2002 325 325
Senior subordinated notes 8.50% 2007 2002 375 375
Senior subordinated notes 8.88% 2027 2004 125 125
Convertible junior subordinated notes 4.50% 2005 2001 -- 150
Unamortized discounts (6) (6)
-------------- -------------
Subtotal 1,096 1,652
Less current maturities -- (8)
-------------- -------------
TOTAL $ 1,096 $ 1,644
============== =============
(1) Weighted average interest rate at December 31, 1998 on floating rate loan.
S-6
THE AES CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
Balance at Charged to Balance at
Beginning Costs and Amounts End of
of Period Expenses Written off Period
---------- ---------- ----------- ----------
Description
Allowance for contract receivables
Year ended December 31, 1996 $ - $20 $ - $20
Year ended December 31, 1997 $20 $17 $ - $37
Year ended December 31, 1998 $37 $22 $ - $59
Amortization of deferred costs
Year ended December 31, 1996 $31 $ 5 $ - $36
Year ended December 31, 1997 $36 $16 $ - $52
Year ended December 31, 1998 $52 $25 $(7) $70
S-7
EXHIBIT INDEX
Sequentially
Exhibit Description of Exhibit Numbered Page
- ------- ---------------------- -------------
11 Statement of computation of earnings per share.
12 Statement of computation of ratio of earnings to fixed charges.
21 Significant subsidiaries of The AES Corporation.
23 Consent of Independent Auditors, Deloitte & Touche LLP.
24 Powers of Attorney.
27 Financial Data Schedule (Article 5).