v3.26.1
Derivative Instruments and Hedging Activities
 3 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
For further information on the Company’s derivative and hedge accounting policies, see Note 1—General and Summary of Significant Accounting Policies—Derivatives and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the 2025 Form 10-K.
Volume of Activity — The following tables present the Company’s maximum notional (in millions) over the remaining contractual period by type of derivative as of March 31, 2026, and the dates through which the maturities for each type of derivative range:
Interest Rate and Foreign Currency DerivativesMaximum Notional Translated to USD
Latest Maturity (1)
Interest rate$11,010 2058
Foreign currency:
Chilean peso162 2028
Colombian peso157 2028
Euro116 2028
Commodity DerivativesMaximum NotionalLatest Maturity
Natural Gas (in MMBtu)83 2029
Power (in MWhs) (2)
32 2040
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(1)Maturity dates are consistent for both designated and non-designated positions.
(2)Includes one contract designated as a cash flow hedge with a final maturity date in 2038.
Accounting and Reporting — Assets and Liabilities — The following tables present the fair value of the Company’s derivative assets and liabilities as of the dates indicated (in millions):
Fair ValueMarch 31, 2026December 31, 2025
AssetsDesignatedNot DesignatedTotalDesignatedNot DesignatedTotal
Interest rate derivatives$238 $— $238 $279 $— $279 
Foreign currency derivatives6 6 12 11 13 24 
Commodity derivatives8 175 183 4 182 186 
Total assets
$252 $181 $433 $294 $195 $489 
Liabilities
Interest rate derivatives$46 $— $46 $59 $— $59 
Foreign currency derivatives1 23 24 4 24 28 
Commodity derivatives30 127 157 46 151 197 
Total liabilities
$77 $150 $227 $109 $175 $284 
March 31, 2026December 31, 2025
Fair ValueAssetsLiabilitiesAssetsLiabilities
Current$249 $132 $261 $154 
Noncurrent184 95 228 130 
Total
$433 $227 $489 $284 
Earnings and Other Comprehensive Income (Loss) — The following table presents the pre-tax gains (losses) recognized in AOCL and earnings on the Company’s derivative instruments for the periods indicated (in millions):
Three Months Ended March 31,
20262025
Cash flow hedges
Gains (losses) recognized in AOCL
Interest rate derivatives$(8)$(166)
Foreign currency derivatives(1)4 
Commodity derivatives20 30 
Total$11 $(132)
Gains (losses) reclassified from AOCL into earnings
Interest rate derivatives — Interest expense
$(3)$15 
Foreign currency derivatives — Foreign currency transaction gains (losses)
2 3 
Commodity derivatives — Cost of sales—Non-Regulated
— 2 
Total$(1)$20 
Gains reclassified from AOCL to earnings due to change in forecast
$— $8 
Gains (losses) recognized in earnings related to
Not designated as hedging instruments:
Foreign currency derivatives — Foreign currency transaction gains (losses)
1 (2)
Commodity derivatives — Revenue—Non-Regulated33 23 
Commodity derivatives — Cost of sales—Non-Regulated8 (5)
Total$42 $16 
Reclassifications from AOCL to earnings are forecasted to decrease pre-tax income from continuing operations by $7 million for the twelve months ended March 31, 2027, primarily related to foreign currency derivatives.
FAIR VALUE FAIR VALUE
The fair value of current financial assets and liabilities, debt service reserves, and other deposits approximate their reported carrying amounts. The estimated fair values of the Company’s assets and liabilities have been determined using available market information. Because these amounts are estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For further information on our valuation techniques and policies, see Note 5—Fair Value in Item 8.—Financial Statements and Supplementary Data of our 2025 Form 10-K.
Recurring Measurements
The following table presents, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of the dates indicated (in millions). For the Company’s investments in marketable debt securities, the security classes presented were determined based on the nature and risk of the security and are consistent with how the Company manages, monitors, and measures its marketable securities:
 March 31, 2026December 31, 2025
 Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
DEBT SECURITIES:
Available-for-sale:
Certificates of deposit
$— $3 $— $3 $— $3 $— $3 
Government debt securities— 3 — 3 — — — — 
Total debt securities— 6 — 6 — 3 — 3 
EQUITY SECURITIES:
Mutual funds57 — — 57 57 — — 57 
Common stock
— — — — 1 — — 1 
Total equity securities57 — — 57 58 — — 58 
DERIVATIVES:
Interest rate derivatives— 238 — 238 — 279 — 279 
Foreign currency derivatives— 12 — 12 — 24 — 24 
Commodity derivatives108 69 6 183 109 72 5 186 
Total derivatives — assets
108 319 6 433 109 375 5 489 
TOTAL ASSETS$165 $325 $6 $496 $167 $378 $5 $550 
Liabilities
Contingent consideration (1)
$— $— $209 $209 $— $— $205 $205 
DERIVATIVES:
Interest rate derivatives— 46 — 46 — 59 — 59 
Foreign currency derivatives— 24 — 24 — 28 — 28 
Commodity derivatives100 24 33 157 110 42 45 197 
Total derivatives — liabilities
100 94 33 227 110 129 45 284 
TOTAL LIABILITIES$100 $94 $242 $436 $110 $129 $250 $489 
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(1)The Level 3 contingent consideration is mainly related to the acquisition of Bellefield in June 2023.
As of March 31, 2026, all available-for-sale debt securities had stated maturities within one year. For the three months ended March 31, 2026, no impairments of marketable securities were recognized in earnings or other comprehensive income (loss). Credit-related impairments are recognized as an allowance with a corresponding impact recognized as a credit loss in Other expense. Gains and losses on sale of investments are determined using the specific-identification method. The following table presents gross proceeds from the sale of available-for-sale securities for the periods indicated (in millions):
Three Months Ended March 31,
20262025
Gross proceeds from sale of available-for-sale securities$1 $3 
The Company accounts for equity securities without readily determinable fair values using the measurement
alternative in accordance with ASC 321. These securities are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer. Upward adjustments resulting from observable price changes are recorded in Other income and impairments and downward adjustments are recorded in Other expense. As of both December 31, 2025 and March 31, 2026, the carrying amount of equity securities accounted for using the measurement alternative was $19 million, inclusive of $22 million of cumulative upward adjustments recorded in Other income in prior years and a $48 million downward adjustment recorded in Other expense in June 2025 to reflect observable price changes for our investment in 5B Holdings Ptd. Ltd. ("5B").
The following tables present a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2026 and 2025 (derivative balances are presented net), in millions. Transfers between Level 3 and Level 2 principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.
Derivative Assets and Liabilities
Three Months Ended March 31, 2026Interest RateForeign CurrencyCommodityContingent ConsiderationTotal
Balance at January 1, 2026
$— $— $(40)$(205)$(245)
Total realized and unrealized gains (losses):
Included in earnings— — 1 (6)(5)
Included in other comprehensive income (loss) — derivative activity— — 14 — 14 
Settlements— — (2)2 — 
Balance at March 31, 2026$— $— $(27)$(209)$(236)
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$— $— $1 $(6)$(5)
Derivative Assets and Liabilities
Three Months Ended March 31, 2025Interest RateForeign CurrencyCommodityContingent ConsiderationTotal
Balance at January 1, 2025
$(1)$52 $(21)$(145)$(115)
Total realized and unrealized gains (losses):
Included in earnings— 1 — (38)(37)
Included in other comprehensive income (loss) — derivative activity(1)— 26 — 25 
Settlements— (10)(1)10 (1)
Transfers of assets (liabilities), net into Level 3
— — (2)— (2)
Balance at March 31, 2025$(2)$43 $2 $(173)$(130)
Total gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period
$— $(6)$— $(38)$(44)
The following table summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of March 31, 2026 (in millions, except range amounts):
Type of DerivativeFair ValueUnobservable Input
Amount or Range (Average)
Commodity:
CAISO energy swap$(24)
Forward CAISO energy prices per MWH from 2032 through 2038
$5.85 to $132.82 ($50.22)
MISO energy swap
(3)
Forward MISO energy prices per MWH from 2032 through 2040
$22.76 to $91.39 ($47.98)
Total$(27)
For the CAISO and MISO energy swaps, increases (decreases) in the estimates above would decrease (increase) the value of the derivatives.
Contingent consideration is primarily related to future milestone payments associated with acquisitions of renewables development projects. The estimated fair value of contingent consideration is determined using probability-weighted discounted cash flows based on internal forecasts, which are considered Level 3 inputs. Changes in Level 3 inputs, particularly changes in the probability of achieving development milestones, could result in material changes to the fair value of the contingent consideration and could materially impact the amount of expense or income recorded each reporting period. Contingent consideration is updated quarterly with any prospective changes in fair value recorded through earnings. Gains and losses on the remeasurement of contingent consideration are recognized in Other income and Other expense, respectively, on the Condensed Consolidated Statements of Operations.
Nonrecurring Measurements
The Company measures fair value using the applicable fair value measurement guidance. Impairment expense, shown as pre-tax loss below, is measured by comparing the fair value at the evaluation date to the then-latest available carrying amount and is included in Asset impairment expense on the Condensed Consolidated Statements of Operations. The following table summarizes our major categories of asset groups measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):
Measurement Date
Carrying Amount (1)
Fair Value
Three Months Ended March 31, 2025Level 1Level 2Level 3Pre-tax Loss
Held-for-sale businesses: (2)
Mong Duong (3)
3/31/2025383 — 371 — 17 
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(1)Represents the carrying values of the asset groups at the dates of measurement, before fair value adjustment.
(2)See Note 18—Held-for-Sale and Dispositions for further information.
(3)The pre-tax loss recognized was calculated using the fair value of the Mong Duong disposal group less costs to sell of $5 million.
AES Clean Energy Development Projects — On a quarterly basis, the Company reviews the status of development projects to identify projects that are no longer viable and will be abandoned. The fair value of each abandoned project with no salvage value is determined to be zero as there are no future projected cash flows, resulting in a full write-off of the carrying value of project development intangibles and capitalized development costs incurred.
The Company recognized $6 million and $31 million of pre-tax asset impairment expense related to AES Clean Energy Development Projects during the three months ended March 31, 2026 and 2025, respectively. See Note 16—Asset Impairment Expense for further information.
Financial Instruments Not Measured at Fair Value in the Condensed Consolidated Balance Sheets
The following table presents (in millions) the carrying amount, fair value, and fair value hierarchy of the Company’s financial assets and liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of the periods indicated, but for which fair value is disclosed:
March 31, 2026
Carrying
Amount
Fair Value
TotalLevel 1Level 2Level 3
Assets:
Financing receivables (1)
$828 $930 $— $— $930 
Liabilities:Non-recourse debt24,080 25,245 — 22,601 2,644 
Recourse debt6,171 5,101 — 5,101 — 
December 31, 2025
Carrying
Amount
Fair Value
TotalLevel 1Level 2Level 3
Assets:
Financing receivables (1)
$855 $955 $— $— $955 
Liabilities:Non-recourse debt23,178 23,749 — 20,448 3,301 
Recourse debt5,984 5,003 — 5,003 — 
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(1)For both periods presented, amounts primarily relate to the Mong Duong loan receivable, payment deferrals granted to mining customers as part of our green blend agreements in Chile, the sale of the Redondo Beach land, and the fair value of the Argentine FONINVEMEM receivables. These are included in Loan receivable and Other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets. See Note 5—Financing Receivables for further information.