0000728391-16-000051.txt : 20160512 0000728391-16-000051.hdr.sgml : 20160512 20160512161501 ACCESSION NUMBER: 0000728391-16-000051 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 86 CONFORMED PERIOD OF REPORT: 20160512 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20160512 DATE AS OF CHANGE: 20160512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IPALCO ENTERPRISES, INC. CENTRAL INDEX KEY: 0000728391 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 351575582 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08644 FILM NUMBER: 161643858 BUSINESS ADDRESS: STREET 1: ONE MONUMENT CIRCLE STREET 2: PO BOX 1595 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 BUSINESS PHONE: 3172618261 MAIL ADDRESS: STREET 1: ONE MONUMENT CIRCLE STREET 2: P.O. BOX 1595 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 FORMER COMPANY: FORMER CONFORMED NAME: IPALCO ENTERPRISES INC DATE OF NAME CHANGE: 19920703 8-K 1 a51216ipalco8-k.htm 8-K SEC Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 12, 2016
IPALCO ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Indiana
 
1-8644
 
35-1575582
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)

 
 
 
One Monument Circle, Indianapolis, Indiana
 
46204
(Address of principal executive offices)
 
(Zip Code)
317-261-8261
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 

1


Item 8.01     Other Events.
IPALCO Enterprises, Inc. (the “Company”) is filing this Current Report on Form 8-K for the purpose of updating certain information from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, originally filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2016, and amended by Amendment No. 1 thereto filed with the SEC on April 29, 2016, solely to reflect, for all periods presented, the retrospective effects of the adoption of an accounting standards update in the audited consolidated financial statements of the Company and in the audited consolidated financial statements of its wholly-owned subsidiary, Indianapolis Power & Light Company (“IPL”).

The audited consolidated financial statements of the Company and of IPL as of December 31, 2015 and December 31, 2014 and for the three-year period ended December 31, 2015, including the notes thereto and the reports of Ernst & Young LLP thereon have been reissued as of May 12, 2016 and reflect the adoption of the Accounting Standards Update (“ASU”) 2015-03 “Simplifying the Presentation of Debt Issuance Costs” and retrospective application of this ASU to the consolidated balance sheets of the Company and of IPL as of December 31, 2015 and 2014, as described in Note 13 (the adoption of this ASU did not have any impact on the Company’s or on IPL’s consolidated statements of income, cash flows or common shareholders’ equity). Except as specifically noted herein and in the attached exhibits, this Current Report on Form 8-K does not reflect events or developments that occurred after February 23, 2016 and does not modify or update the disclosures in any significant way other than as described above and set forth in the exhibits hereto. Without limiting the foregoing, this filing does not purport to update or amend the information contained in the 2015 Form 10-K for any information, uncertainties, transactions, risks, events or trends occurring or known to management. The reissued audited consolidated financial statements of the Company and of IPL are filed herewith as Exhibit 99.1 and are incorporated by reference herein.


2


Item 9.01     Financial Statements and Exhibits.
(d) Exhibits
Exhibit
Description
99.1
Audited consolidated balance sheets of IPALCO Enterprises, Inc. and Indianapolis Power & Light Company as of December 31, 2015 and 2014, and the related consolidated statements of income, common shareholders' equity (deficit) and noncontrolling interest, and cash flows for each of the three years in the period ended December 31, 2015, including the notes and financial statement schedules thereto and the reports of Ernst & Young LLP thereon
101.INS
XBRL Instance Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.SCH
XBRL Taxonomy Extension Schema Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith as provided in Rule 406T of Regulation S-T)
 
 




SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
IPALCO ENTERPRISES, INC.
 
 
 
 
 
 
Date: May 12, 2016
 
By:
 
/s/ Craig L. Jackson
 
 
Name:
 
Craig L. Jackson
 
 
Title:
 
Chief Financial Officer



3
EX-99.1 2 exhibit991ipalco10k2015123.htm EXHIBIT 99.1 SEC Exhibit


PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS
 
Page No.
IPALCO Enterprises, Inc. and Subsidiaries – Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – 2015, 2014 and 2013
2
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
3
Consolidated Balance Sheets as of December 31, 2015 and 2014
4
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
5
Consolidated Statements of Common Shareholders' Equity (Deficit) and Noncontrolling Interest
 
     for the years ended December 31, 2015, 2014 and 2013
6
Notes to Consolidated Financial Statements
7
 
 
Indianapolis Power & Light Company and Subsidiary – Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – 2015, 2014 and 2013
38
Consolidated Statements of Income for the years ended December 31, 2015, 2014 and 2013
39
Consolidated Balance Sheets as of December 31, 2015 and 2014
40
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013
41
Consolidated Statements of Common Shareholder’s Equity for the years ended
 
     December 31, 2015, 2014 and 2013
42
Notes to Consolidated Financial Statements
43

1




 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of
IPALCO Enterprises, Inc.

We have audited the accompanying consolidated balance sheets of IPALCO Enterprises, Inc. and Subsidiaries (the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, common shareholders' equity (deficit) and noncontrolling interest, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedules listed in the Index at Item 15a. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of IPALCO Enterprises, Inc. and Subsidiaries at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
 
/s/ ERNST & YOUNG LLP
 
Indianapolis, Indiana
February 23, 2016
except for Note 13, as to which the date is
May 12, 2016


2



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 2015, 2014 and 2013
(In Thousands)
 
 
2015
 
2014
 
2013
UTILITY OPERATING REVENUES
 
$
1,250,399

 
$
1,321,674

 
$
1,255,734

 
 
 
 
 
 
 
UTILITY OPERATING EXPENSES:
 
 
 
 
 
 
Fuel
 
315,600

 
411,217

 
376,450

Other operating expenses
 
224,282

 
218,932

 
235,082

Power purchased
 
145,064

 
116,648

 
94,265

Maintenance
 
131,574

 
113,248

 
112,913

Depreciation and amortization
 
188,267

 
185,263

 
182,305

Taxes other than income taxes
 
43,617

 
45,218

 
45,425

Income taxes - net
 
57,284

 
70,235

 
58,548

Total utility operating expenses
 
1,105,688


1,160,761


1,104,988

UTILITY OPERATING INCOME
 
144,711


160,913


150,746

 
 
 
 
 
 
 
OTHER INCOME AND (DEDUCTIONS):
 
 
 
 
 
 
Allowance for equity funds used during construction
 
15,302

 
7,381

 
4,331

Loss on early extinguishment of debt
 
(21,956
)
 

 
(35
)
Miscellaneous income and (deductions) - net
 
(2,994
)
 
(2,236
)
 
(2,845
)
Income tax benefit applicable to nonoperating income
 
25,718

 
22,191

 
20,806

Total other income and (deductions) - net
 
16,070


27,336


22,257

 
 
 
 
 
 
 
INTEREST AND OTHER CHARGES:
 
 
 
 
 
 
Interest on long-term debt
 
106,936

 
108,104

 
104,602

Other interest
 
2,063

 
1,865

 
1,794

Allowance for borrowed funds used during construction
 
(12,809
)
 
(4,963
)
 
(2,517
)
Amortization of redemption premiums and expense on debt
 
5,067

 
5,275

 
5,075

Total interest and other charges - net
 
101,257


110,281


108,954

NET INCOME 
 
59,524

 
77,968

 
64,049

 
 
 
 
 
 
 
LESS: PREFERRED DIVIDENDS OF SUBSIDIARY
 
3,213

 
3,213

 
3,213

NET INCOME APPLICABLE TO COMMON STOCK
 
$
56,311


$
74,755


$
60,836

 
 
 
 
 
 
 
See notes to consolidated financial statements.


3



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands)
 
 
December 31, 2015
 
December 31, 2014
ASSETS
 
 
 
 
UTILITY PLANT:
 
 
 
 
Utility plant in service
 
$
4,992,594

 
$
4,658,023

Less accumulated depreciation
 
2,320,955

 
2,264,606

Utility plant in service - net
 
2,671,639

 
2,393,417

Construction work in progress
 
766,406

 
447,399

Spare parts inventory
 
12,336

 
14,816

Property held for future use
 
1,002

 
1,002

Utility plant - net
 
3,451,383

 
2,856,634

OTHER ASSETS:
 
 

 
 

Nonutility property - at cost, less accumulated depreciation
 
517

 
522

Other long-term assets
 
5,664

 
6,221

Other assets - net
 
6,181

 
6,743

CURRENT ASSETS:
 
 

 
 

Cash and cash equivalents
 
21,521

 
26,933

Accounts receivable and unbilled revenue (less allowance
 
 

 
 

for doubtful accounts of $2,498 and $2,076, respectively)
 
124,167

 
139,709

Fuel inventories - at average cost
 
66,834

 
47,550

Materials and supplies - at average cost
 
57,997

 
60,185

Deferred tax asset - current
 

 
61,782

Regulatory assets
 
8,002

 
93

Prepayments and other current assets
 
26,063

 
23,161

Total current assets
 
304,584

 
359,413

DEFERRED DEBITS:
 
 

 
 

Regulatory assets
 
448,200

 
419,193

Miscellaneous
 
6,821

 
10,539

Total deferred debits
 
455,021

 
429,732

TOTAL
 
$
4,217,169

 
$
3,652,522

CAPITALIZATION AND LIABILITIES
 
 
 
 
CAPITALIZATION:
 
 
 
 
Common shareholders' equity:
 
 
 
 
Paid in capital
 
$
383,448

 
$
168,610

Accumulated deficit
 
(30,515
)
 
(17,339
)
Total common shareholders' equity
 
352,933

 
151,271

Cumulative preferred stock of subsidiary
 
59,784

 
59,784

Long-term debt (Note 7)
 
2,153,276

 
1,935,717

Total capitalization
 
2,565,993

 
2,146,772

CURRENT LIABILITIES:
 
 
 
 
Short-term debt (Note 7)
 
166,655

 
50,000

Accounts payable
 
155,428

 
110,623

Accrued expenses
 
19,482

 
25,187

Accrued real estate and personal property taxes
 
17,712

 
19,177

Regulatory liabilities
 
28,169

 
27,943

Accrued interest
 
31,690

 
30,726

Customer deposits
 
30,719

 
28,337

Other current liabilities
 
12,623

 
12,881

Total current liabilities
 
462,478

 
304,874

DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
 
 
 
 
Regulatory liabilities
 
639,516

 
610,917

Deferred income taxes - net
 
397,394

 
421,127

Non-current income tax liability
 
7,147

 
7,042

Unamortized investment tax credit
 
3,910

 
5,229

Accrued pension and other postretirement benefits
 
80,734

 
96,464

Asset retirement obligations
 
58,986

 
59,098

Miscellaneous
 
1,011

 
999

Total deferred credits and other long-term liabilities
 
1,188,698

 
1,200,876

COMMITMENTS AND CONTINGENCIES (Note 10)
 

 

TOTAL
 
$
4,217,169

 
$
3,652,522

 
 
 
 
 
See notes to consolidated financial statements.

4



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2015, 2014 and 2013
(In Thousands)
 
 
2015
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net income
 
$
59,524

 
$
77,968

 
$
64,049

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
201,475

 
188,477

 
182,663

(Deferral) amortization of regulatory assets
 
(8,731
)
 
1,123

 
3,686

Amortization of debt premium
 
596

 
942

 
865

Deferred income taxes and investment tax credit adjustments - net
 
31,566

 
47,455

 
(10,284
)
Loss on early extinguishment of debt
 
21,956

 

 
377

Allowance for equity funds used during construction
 
(14,996
)
 
(7,136
)
 
(4,088
)
Gain on sale of nonutility property
 

 

 
(297
)
Change in certain assets and liabilities:
 
 

 
 

 
 

Accounts receivable
 
15,542

 
3,699

 
(1,900
)
Fuel, materials and supplies
 
(18,372
)
 
5,094

 
(10,337
)
Income taxes receivable or payable
 

 
590

 
3,026

Financial transmission rights
 
2,086

 
(1,947
)
 
(1,869
)
Accounts payable and accrued expenses
 
(716
)
 
(24,322
)
 
16,124

Accrued real estate and personal property taxes
 
(1,465
)
 
(47
)
 
(181
)
Accrued interest
 
965

 
1,034

 
(2,288
)
Pension and other postretirement benefit expenses
 
(15,730
)
 
2,785

 
(180,337
)
Short-term and long-term regulatory assets and liabilities
 
(22,980
)
 
(44,252
)
 
148,169

Prepaids and other current assets
 
(4,949
)
 
1,725

 
(2,986
)
Other - net
 
6,654

 
809

 
6,983

Net cash provided by operating activities
 
252,425

 
253,997

 
211,375

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
Capital expenditures - utility
 
(672,849
)
 
(381,626
)
 
(242,124
)
Project development costs
 
(8,980
)
 
(9,657
)
 
(6,047
)
Proceeds from the sales of assets
 

 

 
225

Grants under the American Recovery and Reinvestment Act of 2009
 

 

 
923

Cost of removal, net of salvage
 
(12,064
)
 
(6,036
)
 
(7,553
)
Other
 
(1,224
)
 
(39
)
 
57

Net cash used in investing activities
 
(695,117
)
 
(397,358
)
 
(254,519
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 

 
 

 
 

Short-term debt borrowings
 
388,850

 
105,000

 
150,500

Short-term debt repayments
 
(272,000
)
 
(105,000
)
 
(150,500
)
Long-term borrowings, net of discount
 
753,350

 
128,358

 
169,728

Retirement of long-term debt and early tender premium
 
(552,179
)
 

 
(110,377
)
Dividends on common stock
 
(69,487
)
 
(78,400
)
 
(59,500
)
Issuance of common stock
 
214,366

 

 

Equity contributions from AES
 

 
106,400

 
49,091

Preferred dividends of subsidiary
 
(3,213
)
 
(3,213
)
 
(3,213
)
Deferred financing costs paid
 
(8,824
)
 
(1,724
)
 
(1,996
)
Payments for financed capital expenditures
 
(13,215
)
 

 

Other
 
(368
)
 
(194
)
 
(9
)
Net cash provided by financing activities
 
437,280

 
151,227

 
43,724

Net change in cash and cash equivalents
 
(5,412
)
 
7,866

 
580

Cash and cash equivalents at beginning of period
 
26,933

 
19,067

 
18,487

Cash and cash equivalents at end of period
 
$
21,521

 
$
26,933

 
$
19,067

 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
Interest (net of amount capitalized)
 
$
95,137

 
$
103,938

 
$
106,175

Income taxes
 
$

 
$

 
$
45,000

 
 
As of December 31,
 
 
2015
 
2014
 
2013
Non-cash investing activities:
 
 
 
 
 
 

Accruals for capital expenditures
 
$
79,553

 
$
37,293

 
$
17,957

 
 
 
 
 
 
 
See notes to consolidated financial statements.

5



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Common Shareholders' Equity (Deficit)
and Noncontrolling Interest
(In Thousands)
 
 
Paid in
Capital
 
Accumulated
Deficit
 
Total Common Shareholders' Equity (Deficit)
 
Cumulative Preferred Stock of Subsidiary
Balance at January 1, 2013
 
$
11,811

 
$
(15,030
)
 
$
(3,219
)
 
$
59,784

Net income
 
 

 
60,836

 
60,836

 
3,213

Preferred stock dividends
 
 

 
 

 
 

 
(3,213
)
Distributions to AES
 
 

 
(59,500
)
 
(59,500
)
 
 

Contributions from AES
 
49,091

 
 

 
49,091

 
 

Other
 
566

 
 
 
566

 
 
Balance at December 31, 2013
 
$
61,468

 
$
(13,694
)
 
$
47,774

 
$
59,784

Net income
 
 

 
74,755

 
74,755

 
3,213

Preferred stock dividends
 
 

 
 

 
 

 
(3,213
)
Distributions to AES
 
 

 
(78,400
)
 
(78,400
)
 
 

Contributions from AES
 
106,400

 
 

 
106,400

 
 

Other
 
742

 
 
 
742

 
 
Balance at December 31, 2014
 
$
168,610

 
$
(17,339
)
 
$
151,271

 
$
59,784

Net income
 
 

 
56,311

 
56,311

 
3,213

Preferred stock dividends
 
 

 
 

 
 

 
(3,213
)
Distributions to shareholders
 
 

 
(69,487
)
 
(69,487
)
 
 

Issuance of common stock
 
214,366

 
 
 
214,366

 
 
Other
 
472

 
 

 
472

 
 

Balance at December 31, 2015
 
$
383,448

 
$
(30,515
)
 
$
352,933

 
$
59,784

 
See notes to consolidated financial statements.


6



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2015,  2014 and 2013

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

IPALCO is a holding company incorporated under the laws of the state of Indiana. IPALCO, acquired by AES in March 2001, is owned by AES U.S. Investments (88.4%) and CDPQ (11.6%), IPALCO’s minority interest holder (see Note 6, “Equity - Equity Transactions” for details). AES U.S. Investments is owned by AES U.S. Holdings, LLC (85%) and CDPQ (15%). IPALCO owns all of the outstanding common stock of IPL. Substantially all of IPALCO’s business consists of generating, transmitting, distributing and selling of electric energy conducted through its principal subsidiary, IPL. IPL was incorporated under the laws of the state of Indiana in 1926. IPL has approximately 480,000 retail customers in the city of Indianapolis and neighboring cities, towns and communities, and adjacent rural areas all within the state of Indiana, with the most distant point being approximately forty miles from Indianapolis. IPL has an exclusive right to provide electric service to those customers. IPL owns and operates four generating stations all within the state of Indiana. Our largest generating station, Petersburg, is coal-fired. The second largest station, Harding Street, is converting its coal-fired units to natural gas and uses natural gas and fuel oil to power combustion turbines. The third station, Eagle Valley, is coal-fired and we plan to retire its coal-fired units in the second quarter of 2016. The fourth station, Georgetown, is a small peaking station that uses natural gas to power combustion turbines. IPL’s net electric generation capacity for winter is 3,259 MW and net summer capacity is 3,141 MW.

IPALCO’s other direct subsidiary is Mid-America. Mid-America is the holding company for IPALCO’s unregulated activities, which have not been material to the financial statements in the periods covered by this report. IPALCO’s regulated business is conducted through IPL. IPALCO has two business segments: utility and nonutility. The utility segment consists of the operations of IPL and everything else is included in the nonutility segment.

Principles of Consolidation

IPALCO’s consolidated financial statements are prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The consolidated financial statements include the accounts of IPALCO, its regulated utility subsidiary, IPL, and its unregulated subsidiary, Mid-America. All intercompany items have been eliminated in consolidation. Certain costs for shared resources amongst IPL and IPALCO, such as labor and benefits, are allocated to each entity based on allocation methodologies that management believes to be reasonable. We have evaluated subsequent events through the date this report is issued.

All income of Mid-America, as well as nonoperating income of IPL, are included below UTILITY OPERATING INCOME in the accompanying Consolidated Statements of Income.

Use of Management Estimates

The preparation of financial statements in conformity with GAAP requires that management make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may also be affected by the estimates and assumptions management is required to make. Actual results may differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation.

Regulatory Accounting

The retail utility operations of IPL are subject to the jurisdiction of the IURC. IPL’s wholesale power transactions are subject to the jurisdiction of the FERC. These agencies regulate IPL’s utility business operations, tariffs, accounting, depreciation allowances, services, issuances of securities and the sale and acquisition of utility properties. The financial statements of IPL are based on GAAP, including the provisions of FASB ASC 980 “Regulated Operations,” which gives recognition to the ratemaking and accounting practices of these agencies. See also Note 5, “Regulatory Assets and Liabilities” for a discussion of specific regulatory assets and liabilities.
 

7



Revenues and Accounts Receivable

Revenues related to the sale of energy are generally recognized when service is rendered or energy is delivered to customers. However, the determination of the energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to certain customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is accrued. In making its estimates of unbilled revenue, IPL uses complex models that consider various factors including daily generation volumes; known amounts of energy usage by nearly all residential, small commercial and industrial customers; estimated line losses; and estimated customer rates based on prior period billings. Given the use of these models, and that customers are billed on a monthly cycle, we believe it is unlikely that materially different results will occur in future periods when revenue is billed. At December 31, 2015 and 2014, customer accounts receivable include unbilled energy revenues of $42.1 million and $48.4 million, respectively, on a base of annual revenue of $1.3 billion in 2015 and 2014. An allowance for potential credit losses is maintained and amounts are written off when normal collection efforts have been exhausted. Our provision for doubtful accounts included in “Other operating expenses” on the accompanying Consolidated Statements of Income was $4.3 million, $4.9 million and $3.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.

IPL’s basic rates include a provision for fuel costs as established in IPL’s most recent rate proceeding, which last adjusted IPL’s rates in 1996. IPL is permitted to recover actual costs of purchased power and fuel consumed, subject to certain restrictions. This is accomplished through quarterly FAC proceedings, in which IPL estimates the amount of fuel and purchased power costs in future periods. Through these proceedings, IPL is also permitted to recover, in future rates, underestimated fuel and purchased power costs from prior periods, subject to certain restrictions, and therefore the over or underestimated costs are deferred or accrued and amortized into fuel expense in the same period that IPL’s rates are adjusted. See also Note 2, “Regulatory Matters,” for a discussion of other costs that IPL is permitted to recover through periodic rate adjustment proceedings and the status of current rate adjustment proceedings.

In addition, we are one of many transmission system owner members of MISO, a regional transmission organization which maintains functional control over the combined transmission systems of its members and manages one of the largest energy markets in the U.S. In the MISO market, IPL offers its generation and bids its demand into the market on an hourly basis. MISO settles these hourly offers and bids based on locational marginal prices, which is pricing for energy at a given location based on a market clearing price that takes into account physical limitations, generation, and demand throughout the MISO region. MISO evaluates the market participants’ energy offers and demand bids to economically and reliably dispatch the entire MISO system. IPL accounts for these hourly offers and bids, on a net basis, in UTILITY OPERATING REVENUES when in a net selling position and in UTILITY OPERATING EXPENSES – Power Purchased when in a net purchasing position. 
 
Contingencies

IPALCO accrues for loss contingencies when the amount of the loss is probable and estimable. IPL is subject to various environmental regulations, and is involved in certain legal proceedings. If IPL’s actual environmental and/or legal obligations are different from our estimates, the recognition of the actual amounts may have a material impact on our results of operations, financial condition and cash flows; although that has not been the case during the periods covered by this report. As of December 31, 2015 and 2014, total loss contingencies accrued were $5.6 million and $5.2 million, respectively, which were included in “Other Current Liabilities” on the accompanying Consolidated Balance Sheets.  

Concentrations of Risk

Substantially all of IPL’s customers are located within the Indianapolis area. In addition, approximately 65% of IPL’s full-time employees are covered by collective bargaining agreements in two bargaining units: a physical unit and a clerical-technical unit. IPL’s contract with the physical unit expires on December 10, 2018, and the contract with the clerical-technical unit expires February 20, 2017.  Additionally, IPL has long-term coal contracts with four suppliers, with about 53% of our existing coal under contract for the three-year period ending December 31, 2018 coming from one supplier. Substantially all of the coal is currently mined in the state of Indiana.
 
Allowance For Funds Used During Construction

In accordance with the Uniform System of Accounts prescribed by FERC, IPL capitalizes an allowance for the net cost of funds (interest on borrowed funds and a reasonable rate of return on equity funds) used for construction purposes during the period of construction with a corresponding credit to income. IPL capitalized amounts using pretax composite rates of 8.1%8.3% and 8.6% during 20152014 and 2013, respectively. For the Eagle Valley CCGT, Harding Street refueling projects, and NPDES projects, IPL capitalized amounts using a pretax composite rate of 7.3% and 7.6% during 2015 and 2014, respectively. 

8



Utility Plant and Depreciation

Utility plant is stated at original cost as defined for regulatory purposes. The cost of additions to utility plant and replacements of retirement units of property are charged to plant accounts. Units of property replaced or abandoned in the ordinary course of business are retired from the plant accounts at cost; such amounts, less salvage, are charged to accumulated depreciation. Depreciation is computed by the straight-line method based on functional rates approved by the IURC and averaged 4.2%4.1%, and 4.0% during 2015, 2014 and 2013, respectively. Depreciation expense was $198.8 million, $185.9 million, and $180.0 million for the years ended December 31, 2015, 2014 and 2013, respectively, which includes depreciation expense that has been deferred as a regulatory asset.

Derivatives

We have only limited involvement with derivative financial instruments and do not use them for trading purposes. IPALCO accounts for its derivatives in accordance with ASC 815 “Derivatives and Hedging.” In addition, IPL has entered into contracts involving the physical delivery of energy and fuel. Because these contracts qualify for the normal purchases and normal sales scope exception in ASC 815, IPL has elected to account for them as accrual contracts, which are not adjusted for changes in fair value.

Fuel, Materials and Supplies

We maintain coal, fuel oil, materials and supplies inventories for use in the production of electricity. These inventories are accounted for at the lower of cost or market, using the average cost.

Impairment of Long-lived Assets
 
GAAP requires that we measure long-lived assets for impairment when indicators of impairment exist. If an asset is deemed to be impaired, we are required to write down the asset to its fair value with a charge to current earnings. The net book value of our utility plant assets was $3.5 billion and $2.9 billion as of December 31, 2015 and 2014, respectively. We do not believe any of these assets are currently impaired. In making this assessment, we consider such factors as: the overall condition and generating and distribution capacity of the assets; the expected ability to recover additional expenditures in the assets, such as CCT projects; the anticipated demand and relative pricing of retail electricity in our service territory and wholesale electricity in the region; and the cost of fuel.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of the existing assets and liabilities, and their respective income tax bases. The Company establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company’s tax positions are evaluated under a more likely than not recognition threshold and measurement analysis before they are recognized for financial statement reporting.
Uncertain tax positions have been classified as noncurrent income tax liabilities unless expected to be paid within one year. The Company’s policy for interest and penalties is to recognize interest and penalties as a component of the provision for income taxes in the Consolidated Statements of Operations.
Income taxes payable which are includable in allowable costs for ratemaking purposes in future years are recorded as regulatory assets with a corresponding deferred tax liability. Investment tax credits that reduced federal income taxes in the years they arose have been deferred and are being amortized to income over the useful lives of the properties in accordance with regulatory treatment.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost, which approximates fair value. All highly liquid short-term investments with original maturities of three months or less are considered cash equivalents.

Pension and Postretirement Benefits

We recognize in our Consolidated Balance Sheets an asset or liability reflecting the funded status of pension and other postretirement plans with current-year changes in the funded status, that would otherwise be recognized in AOCI, recorded as a

9



regulatory asset as this can be recovered through future rates. All plan assets are recorded at fair value. We follow the measurement date provisions of the accounting guidance, which require a year-end measurement date of plan assets and obligations for all defined benefit plans.

We account for and disclose pension and postretirement benefits in accordance with the provisions of GAAP relating to the accounting for pension and other postretirement plans. These GAAP provisions require the use of assumptions, such as the discount rate for liabilities and long-term rate of return on assets, in determining the obligations, annual cost and funding requirements of the plans.
Effective January 1, 2016, we will apply a disaggregated discount rate approach for determining service cost and interest cost for our defined benefit pension plans and postretirement plans. This approach is consistent with the requirements of ASC 715 and is considered to be preferential to the aggregated single rate discount approach, which has historically been used in the U.S., because it is more consistent with the philosophy of a full yield curve valuation.
The change in discount rate approach did not have an impact on the measurement of the benefit obligations at December 31, 2015, nor will it impact future remeasurements. This change in approach will impact the service cost and interest cost recorded in 2016 and future years. It will also impact the actuarial gains and losses recorded in future years, as well as the amortization thereof.
The expected 2016 service costs and interest costs included in Note 9, “Benefit Plans” reflect the change in methodology described above. The impact of the change in approach on expected service costs in 2016 is shown below:
$ in thousands
 
Expected 2016 Service Cost
 
Expected 2016 Interest Cost
 
 
Disaggregated rate approach
 
Aggregate rate approach
 
Impact of change
 
Disaggregated rate approach
 
Aggregate rate approach
 
Impact of change
Pension
 
$
7,018

 
$
7,382

 
$
(364
)
 
$
25,634

 
$
30,916

 
$
(5,282
)
Repair and Maintenance Costs

Repair and maintenance costs are expensed as incurred.

Per Share Data

IPALCO is owned by AES U.S. Investments and CDPQ, IPALCO’s minority interest holder. IPALCO does not report earnings on a per-share basis.

New Accounting Pronouncements

ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU No. 2014-09 which clarifies principles for recognizing revenue and will result in a common revenue standard for GAAP and International Financial Reporting Standards. The objective of the new standard is to provide a single and comprehensive revenue recognition model for all contracts with customers to improve comparability. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The standard requires an entity to recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year, resulting in the new revenue standard being effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. Early adoption is now permitted only as of the original effective date for public entities (that is, no earlier than 2017 for calendar year-end entities). The standard permits the use of either a full retrospective or modified retrospective approach. The Company has not yet selected a transition method and is currently evaluating the impact of adopting the standard on its consolidated financial statements.

ASU No. 2015-02, Consolidation - Amendments to the Consolidation Analysis (Topic 810)

In February 2015, the FASB issued ASU 2015-02, which makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The standard amends the evaluation of whether (1) fees paid to a decision-maker or service providers represent a variable interest, (2) a limited partnership or similar entity has the characteristics of a VIE and (3) a reporting entity is the primary beneficiary of a VIE. The standard is effective for

10



annual periods beginning after December 15, 2015 and interim periods therein. Early adoption is permitted. The Company does not expect this standard to have an impact on its consolidated financial statements upon adoption.

ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30)

In April 2015, the FASB issued ASU No. 2015-03, which simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. The standard is effective for annual reporting periods beginning after December 15, 2015 and interim periods therein, and requires the use of the full retrospective approach. Early adoption is permitted for financial statements that have not been previously issued. As of December 31, 2015, the Company had approximately $20.8 million in deferred financing costs classified in other noncurrent assets that would be reclassified to reduce the related debt liabilities upon adoption of ASU No. 2015-03.

ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued ASU No. 2015-05, which clarifies how customers in cloud computing arrangements should determine whether the arrangement includes a software license and eliminates the existing requirement for customers to account for software licenses they acquired by analogizing to the accounting guidance on leases. The standard is effective for annual reporting periods beginning after December 15, 2015 and interim periods therein. Early adoption is permitted. The standard permits the use of a prospective or retrospective approach. The Company expects to utilize the prospective approach upon adoption of this standard, which is not expected to have a material impact on its consolidated financial statements.

ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330)

In July 2015, the FASB issued ASU No. 2015-11, which simplifies the subsequent measurement of inventory. It replaces the current lower of cost or market test with a lower of cost or net realizable value test. The standard is effective for public entities for annual reporting periods beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. The new guidance must be applied prospectively. As the Company already uses the net realizable value to make lower of cost or market determinations, there will be no impact on its consolidated financial statements upon adoption of this standard.

ASU No. 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements

In August 2015, the FASB issued ASU No. 2015-15, which clarifies that the SEC Staff would not object to an entity presenting debt issuance costs related to line-of-credit arrangements as an asset that is subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This standard should be adopted concurrent with adoption of ASU 2015-03 (which is described above). As of December 31, 2015, the Company had deferred financing costs related to lines of credit of approximately $0.3 million recorded within Deferred Debits that would not be reclassified upon adoption of this standard.

ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments

In September 2015, the FASB issued ASU 2015-16, which simplifies the measurement-period adjustments in business combinations. It eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. An acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The standard is effective for public entities for annual reporting periods beginning after December 15, 2015, and interim periods therein. Early adoption is permitted for financial statements that have not been issued. The new guidance should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this standard. The Company will adopt this standard on January 1, 2016, which is not expected to have a material impact on the Company's consolidated financial statements.

ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes

Effective December 31, 2015, the Company prospectively adopted ASU No. 2015-17, which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction; that is, companies will remain prohibited from offsetting

11



deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. Additionally, the current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the update. As the Company elected to apply this ASU prospectively, prior periods were not adjusted.

ASU No. 2016-01, Financial Instruments - Overall (Topic 825-10): Recognition and Measurement of Financial Assets
and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, which was designed to improve the recognition and measurement of
financial instruments through targeted changes to existing GAAP. The guidance requires equity investments (except those that
are accounted for under the equity method of accounting or result in consolidation of the investee) to be measured at fair value
with changes in fair value recognized in net income; that entities use the exit price notion when measuring financial instrument
fair values; that an entity separate presentation of financial assets and liabilities by measurement category and form of financial
asset on the Balance Sheets or Notes to the financial statements; that an entity present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit
risk (or own credit) when the entity has elected to measure the liability at fair value in accordance with the fair value option
for financial instruments. Also, the standard eliminates the requirement for public entities to disclose the methods and
significant assumptions used to estimate the fair value required to be disclosed for financial instruments measured at amortized
cost on the Balance Sheets. The standard is effective beginning with interim periods starting after December 31, 2017 and
cannot be applied early. The Company is currently evaluating the applicability and materiality of the standard, but doesn't
anticipate a material impact on the Company's consolidated financial statements.

2. REGULATORY MATTERS

General

IPL is subject to regulation by the IURC as to its services and facilities, the valuation of property, the construction, purchase, or lease of electric generating facilities, the classification of accounts, rates of depreciation, retail rates and charges, the issuance of securities (other than evidences of indebtedness payable less than twelve months after the date of issue), the acquisition and sale of some public utility properties or securities and certain other matters.

In addition, IPL is subject to the jurisdiction of the FERC with respect to short-term borrowing not regulated by the IURC, the sale of electricity at wholesale and the transmission of electric energy in interstate commerce, the classification of accounts, reliability standards, and the acquisition and sale of utility property in certain circumstances as provided by the Federal Power Act. As a regulated entity, IPL is required to use certain accounting methods prescribed by regulatory bodies which may differ from those accounting methods required to be used by unregulated entities.

IPL is also affected by the regulatory jurisdiction of the EPA at the federal level, and the IDEM at the state level. Other significant regulatory agencies affecting IPL include, but are not limited to, the NERC, the U.S. Department of Labor and the IOSHA.  

Basic Rates and Charges

Our basic rates and charges represent the largest component of our annual revenues. Our basic rates and charges are determined after giving consideration, on a pro-forma basis, to all allowable costs for ratemaking purposes including a fair return on the fair value of the utility property used and useful in providing service to customers. These basic rates and charges are set and approved by the IURC after public hearings. Such proceedings, which have occurred at irregular intervals, involve IPL, the IURC, the Indiana Office of Utility Consumer Counselor, and other interested stakeholders. Pursuant to statute, the IURC is to conduct a periodic review of the basic rates and charges of all Indiana utilities at least once every four years, but the IURC has the authority to review the rates of any Indiana utility at any time. Once set, the basic rates and charges authorized do not assure the realization of a fair return on the fair value of property.

Our basic rates and charges were last adjusted in 1996; however, IPL filed a petition with the IURC on December 29, 2014, for authority to increase its basic rates and charges. IPL's proposed increase, filed as part of IPL's rebuttal testimony in this proceeding, is $63.3 million annually, or 5.3%. An order on this proceeding will likely be issued by the IURC early in 2016. The petition also includes requests to implement rate adjustment mechanisms for short-term recovery of fluctuations in the following costs: (1) capacity purchase costs; (2) off-systems sales margins; and (3) MISO non-fuel charges (MISO fuel charges are already included in the FAC rate mechanism as described below). No assurances can be given as to the timing or outcome of this proceeding. See “Rate Case and Downtown Underground Network Investigation” below for further details. 


12



Our declining block rate structure generally provides for residential and commercial customers to be charged a lower per kWh rate at higher consumption levels. Therefore, as volumes increase, the weighted average price per kWh decreases. Numerous factors including, but not limited to, weather, inflation, customer growth and usage, the level of actual operating and maintenance expenditures, capital expenditures including those required by environmental regulations, fuel costs, generating unit availability and purchased power costs, can affect the return realized.

Rate Case and Downtown Underground Network Investigation

As discussed above, IPL filed a petition with the IURC on December 29, 2014, for authority to increase its basic rates and charges. In response to underground network incidents that occurred in the downtown Indianapolis area, the IURC issued an order on March 20, 2015 opening an investigation of our ongoing investment in, and operation and maintenance of, our network facilities. In 2015, the IURC combined this pending investigation with our petition filed in 2014 proposing to increase our basic rates and charges. The outcome of the rate case and/or downtown underground network investigation cannot be predicted.

FAC and Authorized Annual Jurisdictional Net Operating Income

IPL may apply to the IURC for a change in IPL’s fuel charge every three months to recover IPL’s estimated fuel costs, including the energy portion of purchased power costs, which may be above or below the levels included in IPL’s basic rates and charges. IPL must present evidence in each FAC proceeding that it has made every reasonable effort to acquire fuel and generate or purchase power or both so as to provide electricity to its retail customers at the lowest fuel cost reasonably possible.

Independent of the IURC’s ability to review basic rates and charges, Indiana law requires electric utilities under the jurisdiction of the IURC to meet operating expense and income test requirements as a condition for approval of requested changes in the FAC. Additionally, customer refunds may result if a utility’s rolling twelve-month operating income, determined at quarterly measurement dates, exceeds a utility’s authorized annual jurisdictional net operating income and there are not sufficient applicable cumulative net operating income deficiencies against which the excess rolling twelve-month jurisdictional net operating income can be offset.

ECCRA 

IPL may apply to the IURC for approval of a rate adjustment known as the ECCRA every six months to recover costs to comply with certain environmental regulations applicable to IPL's generating stations. The total amount of IPL’s equipment approved for ECCRA recovery as of December 31, 2015 was $978 million. The jurisdictional revenue requirement that was approved by the IURC to be included in IPL’s rates for the six-month period from September 2015 through February 2016 was $82.0 million. During the years ended December 31, 2015, 2014 and 2013, we made environmental compliance expenditures of $252.2 million, $176.3 million, and $126.6 million, respectively. The vast majority of such costs are recoverable through our ECCRA filings.

DSM

In March 2014, legislation, referred to as the SEA 340, was approved that effectively ended the IURC’s energy efficiency targets established in a 2009 statewide Generic DSM Order. Although SEA 340 puts an end to established efficiency targets, IPL will continue to offer cost-effective energy efficiency and demand response programs as one of many resources to meet future demand for electricity.

In December 2014, we received approval from the IURC of our 2015-2016 DSM plan. The approval includes cost recovery on a set of DSM programs to be offered in 2015-2016 that is similar to the 2014 set of programs. Similar to the current DSM framework, we are eligible to receive performance incentives dependent upon the level of success of the programs. Additionally, we were granted authority to record a regulatory asset for recovery in a future base rate case proceeding for lost margins which result from decreased kWh related to implementation of these DSM programs.

In May 2015, SEA 412 became law in Indiana. Among other things, SEA 412 requires the IURC to adopt rules regarding the submission of an integrated resource plan. The IURC rulemaking required by SEA 412 is currently in progress. SEA 412 also requires certain electricity suppliers to submit energy efficiency plans to the IURC at least once every three years.


13



Wind and Solar Power Purchase Agreements

We are committed under a power purchase agreement to purchase all wind-generated electricity through 2029 from a wind project in Indiana. We are also committed under another agreement to purchase all wind-generated electricity for 20 years from a project in Minnesota. The Indiana project has a maximum output capacity of approximately 100 MW. The Minnesota project, which began commercial operation in October 2011, has a maximum output capacity of approximately 200 MW. In addition, we have 97 MW of solar-generated electricity in our service territory under long-term contracts in 2016, of which 95 MW was in operation as of December 31, 2015. We have authority from the IURC to recover the costs for all of these agreements through an adjustment mechanism administered within the FAC.

MISO Transmission Expansion Cost Sharing

MISO transmission system owner members including IPL share the costs of transmission expansion projects with other MISO transmission system owner members after such projects are approved by the MISO board of directors. As required by FERC, IPL participates in a regional transmission planning process with MISO and other MISO transmission providers to produce a regional transmission plan. Upon approval by the MISO board of directors the transmission system owner members must make a good faith effort to build and/or pay for the approved projects they submitted. Costs allocated to IPL for the projects of other transmission system owner members are collected by MISO per their tariff. These charges are difficult to estimate and amounted to $12.1 million in 2015. It is probable, but not certain, that these costs will be recovered through IPL's tariff, subject to IURC approval. Through December 31, 2015, we have deferred as a long-term regulatory asset $19.7 million of MISO transmission expansion costs.

3.  UTILITY PLANT IN SERVICE

The original cost of utility plant in service segregated by functional classifications follows:
 
 
As of December 31,
 
 
2015
 
2014
 
 
(In Thousands)
Production
 
$
3,111,674

 
$
2,862,579

Transmission
 
293,767

 
268,594

Distribution
 
1,371,029

 
1,323,190

General plant
 
216,124

 
203,660

Total utility plant in service
 
$
4,992,594

 
$
4,658,023

 
 
 
 
 

Substantially all of IPL’s property is subject to a $1,283.5 million direct first mortgage lien, as of December 31, 2015, securing IPL’s first mortgage bonds. Property under capital leases as of December 31, 2015 and 2014 was insignificant. Total non-contractually or legally required removal costs of utility plant in service at December 31, 2015 and 2014 were $673.8 million and $636.8 million, respectively; and total contractually or legally required removal costs of utility plant in service at December 31, 2015 and 2014 were $59.0 million and $59.1 million, respectively. Please see ARO” below for further information.

IPL anticipates material additional costs to comply with various pending and final federal legislation and regulations and it is IPL’s intent to seek recovery of any additional costs. The majority of the expenditures for construction projects designed to reduce SO2 and mercury emissions are recoverable from jurisdictional retail customers as part of IPL’s CCT projects; however, since jurisdictional retail rates are subject to regulatory approval, there can be no assurance that all costs will be recovered in rates.
 
ARO

ASC 410 “Asset Retirement and Environmental Obligations” addresses financial accounting and reporting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation. A legal obligation for purposes of ASC 410 is an obligation that a party is required to settle as a result of an existing law, statute, ordinance, written or oral contract or the doctrine of promissory estoppel. 


14



IPL’s ARO relates primarily to environmental issues involving asbestos, ash ponds, landfills and miscellaneous contaminants associated with its generating plants, transmission system and distribution system. The following is a reconciliation of the ARO legal liability year end balances:
 
 
2015
 
2014
 
 
(In Millions)
Balance as of January 1
 
$
59.1

 
$
41.4

Liabilities incurred
 
0.6

 

Liabilities settled
 
(2.5
)
 

Revisions in estimated cash flows
 
(1.3
)
 
15.4

Accretion expense
 
3.1

 
2.3

Balance as of December 31
 
$
59.0

 
$
59.1

 
 
 
 
 

As of December 31, 2015 and 2014, IPL did not have any assets that are legally restricted for settling its ARO liability.    

4. FAIR VALUE

The fair value of financial assets and liabilities approximate their reported carrying amounts. The estimated fair values of the Company's assets and liabilities have been determined using available market information. As 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.

Fair Value Hierarchy and Valuation Techniques

ASC 820 defined and established a framework for measuring fair value and expands disclosures about fair value measurements for financial assets and liabilities that are adjusted to fair value on a recurring basis and/or financial assets and liabilities that are measured at fair value on a nonrecurring basis, which have been adjusted to fair value during the period. In accordance with ASC 820, we have categorized our financial assets and liabilities that are adjusted to fair value, based on the priority of the inputs to the valuation technique, following the three-level fair value hierarchy prescribed by ASC 820 as follows:

Level 1 - unadjusted quoted prices for identical assets or liabilities in an active market; 

Level 2 - inputs from quoted prices in markets where trading occurs infrequently or quoted prices of instruments with similar attributes in active markets; and

Level 3 - unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

Whenever possible, quoted prices in active markets are used to determine the fair value of our financial instruments. Our financial instruments are not held for trading or other speculative purposes. The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

FTRs

In connection with IPL’s participation in MISO, in the second quarter of each year IPL is granted financial instruments that can be converted into cash or FTRs based on IPL’s forecasted peak load for the period. FTRs are used in the MISO market to hedge IPL’s exposure to congestion charges, which result from constraints on the transmission system. IPL converts all of these financial instruments into FTRs. IPL’s FTRs are valued at the cleared auction prices for FTRs in MISO’s annual auction. Because of the infrequent nature of this valuation, the fair value assigned to the FTRs is considered a Level 3 input under the fair value hierarchy required by ASC 820. An offsetting regulatory liability has been recorded as these revenues or costs will be flowed through to customers through the FAC. As such, there is no impact on our Consolidated Statements of Income.


15



Other Financial Liabilities

As of December 31, 2015 and 2014, all of IPALCO's financial assets or liabilities measured at fair value on a recurring basis were considered Level 3, based on the fair value hierarchy.

Summary

The fair value of assets and liabilities at December 31, 2015 measured on a recurring basis and the respective category within the fair value hierarchy for IPALCO was determined as follows:
Assets and Liabilities at Fair Value
 
 
Level 1
Level 2
Level 3
 
Fair value at December 31, 2015
Based on quoted market prices in active markets
Other observable inputs
Unobservable inputs
 
(In Thousands)
Financial assets:
 
 
 
 
Financial transmission rights
$
4,150

$

$

$
4,150

Total financial assets measured at fair value
$
4,150

$

$

$
4,150

Financial liabilities:
 
 
 
 
Other derivative liabilities
$
121

$

$

$
121

Total financial liabilities measured at fair value
$
121

$

$

$
121


The fair value of assets and liabilities at December 31, 2014 measured on a recurring basis and the respective category within the fair value hierarchy for IPALCO was determined as follows:
Assets and Liabilities at Fair Value
 
 
Level 1
Level 2
Level 3
 
Fair value at December 31, 2014
Based on quoted market prices in active markets
Other observable inputs
Unobservable inputs
 
(In Thousands)
Financial assets:
 
 
 
 
Financial transmission rights
$
6,235

$

$

$
6,235

Total financial assets measured at fair value
$
6,235

$

$

$
6,235

Financial liabilities:
 
 
 
 
Other derivative liabilities
$
140

$

$

$
140

Total financial liabilities measured at fair value
$
140

$

$

$
140



16



The following table sets forth a reconciliation of financial instruments, measured at fair value on a recurring basis, classified as Level 3 in the fair value hierarchy  (note, amounts in this table indicate carrying values, which approximate fair values):
 
Derivative Financial 
Instruments, net
Liability
 
(In Thousands)
Balance at January 1, 2014
$
4,133

Unrealized gain recognized in earnings
16

Issuances
15,710

Settlements
(13,764
)
Balance at December 31, 2014
$
6,095

Unrealized gain recognized in earnings
47

Issuances
13,281

Settlements
(15,394
)
Balance at December 31, 2015
$
4,029

 
 

Non-Recurring Fair Value Measurements

ASC 410 “Asset Retirement and Environmental Obligations” addresses financial accounting and reporting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation. A legal obligation for purposes of ASC 410 is an obligation that a party is required to settle as a result of an existing law, statute, ordinance, written or oral contract or the doctrine of promissory estoppel. IPL’s ARO liabilities relate primarily to environmental issues involving asbestos-containing materials, ash ponds, landfills and miscellaneous contaminants associated with its generating plants, transmission system and distribution system. We use the cost approach to determine the fair value of IPL’s ARO liabilities, which is estimated by discounting expected cash outflows to their present value at the initial recording of the liabilities. Cash outflows are based on the approximate future disposal costs as determined by market information, historical information or other management estimates. These inputs to the fair value of the ARO liabilities would be considered Level 3 inputs under the fair value hierarchy. As of December 31, 2015 and 2014, ARO liabilities were $59.0 million and $59.1 million, respectively. See Note 3, “Utility Plant in Service,” for a rollforward of the ARO liability. 

Financial Instruments not Measured at Fair Value in the Consolidated Balance Sheets

Debt

The fair value of our outstanding fixed-rate debt has been determined on the basis of the quoted market prices of the specific securities issued and outstanding. In certain circumstances, the market for such securities was inactive and therefore the valuation was adjusted to consider changes in market spreads for similar securities. Accordingly, the purpose of this disclosure is not to approximate the value on the basis of how the debt might be refinanced.

The following table shows the face value and the fair value of fixed-rate and variable-rate indebtedness (Level 2) for the periods ending:
 
 
December 31, 2015
 
December 31, 2014
 
 
Face Value
 
Fair Value
 
Face Value
 
Fair Value
 
 
(In Millions)
Fixed-rate
 
$
2,088.4

 
$
2,225.3

 
$
1,955.3

 
$
2,231.2

Variable-rate
 
256.9

 
256.9

 
50.0

 
50.0

Total indebtedness
 
$
2,345.3

 
$
2,482.2

 
$
2,005.3

 
$
2,281.2

 
 
 
 
 
 
 
 
 

The difference between the face value and the carrying value of this indebtedness represents unamortized discounts of $4.6 million and $4.3 million at December 31, 2015 and 2014, respectively.


17



5. REGULATORY ASSETS AND LIABILITIES

Regulatory assets represent deferred costs or credits that have been included as allowable costs or credits for ratemaking purposes. IPL has recorded regulatory assets or liabilities relating to certain costs or credits as authorized by the IURC or established regulatory practices in accordance with ASC 980. IPL is amortizing non tax‑related regulatory assets to expense over periods ranging from 1 to 35 years. Tax-related regulatory assets represent the net income tax costs to be considered in future regulatory proceedings generally as the tax-related amounts are paid.

The amounts of regulatory assets and regulatory liabilities at December 31 are as follows:
 
 
2015
 
2014
 
Recovery Period
 
 
(In Thousands)
 
 
Regulatory Assets
 
 
 
 
 
 
Current:
 
 
 
 
 
 
Environmental projects
 
$
8,002

 
$
93

 
Through 2016(1)
Total current regulatory assets
 
$
8,002

 
$
93

 
 
Long-term:
 
 
 
 
 
 
Unrecognized pension and other
 
 
 
 
 
 
postretirement benefit plan costs
 
$
226,889

 
$
229,590

 
Various
Income taxes recoverable through rates
 
35,765

 
31,335

 
Various
Deferred MISO costs
 
128,610

 
110,500

 
To be determined(2)
Unamortized Petersburg Unit 4 carrying
 
 
 
 
 
 
charges and certain other costs
 
11,248

 
12,302

 
Through 2026(1) (3)
Unamortized reacquisition premium on debt
 
23,268

 
24,585

 
Over remaining life of debt
Environmental projects
 
16,876

 
7,671

 
Through 2021(1)
Other miscellaneous
 
5,544

 
3,210

 
To be determined(2)
Total long-term regulatory assets
 
$
448,200

 
$
419,193

 
 
Total regulatory assets
 
$
456,202

 
$
419,286

 
 
Regulatory Liabilities
 
 
 
 
 
 
Current:
 
 
 
 
 
 
Deferred fuel
 
$
19,746

 
$
17,837

 
Through 2016(1)
FTRs
 
4,150

 
6,235

 
Through 2016(1)
DSM program costs
 
4,273

 
2,001

 
Through 2016(1)
Environmental projects
 

 
1,870

 
Through 2016(1)
Total current regulatory liabilities
 
$
28,169

 
$
27,943

 
 
Long-term:
 
 
 
 
 
 
ARO and accrued asset removal costs
 
$
637,065

 
$
607,628

 
Not Applicable
Unamortized investment tax credit
 
2,451

 
3,289

 
Through 2021
Total long-term regulatory liabilities
 
$
639,516

 
$
610,917

 
 
Total regulatory liabilities
 
$
667,685

 
$
638,860

 
 
 
(1)
Recovered (credited) per specific rate orders
(2)
Recovery is probable but timing not yet determined
(3)
Recovered with a current return

18



Deferred Fuel

Deferred fuel costs are a component of current regulatory assets and are expected to be recovered through future FAC proceedings. IPL records deferred fuel in accordance with standards prescribed by the FERC. The deferred fuel adjustment is the result of variances between estimated fuel and purchased power costs in IPL’s FAC and actual fuel and purchased power costs. IPL is generally permitted to recover underestimated fuel and purchased power costs in future rates through the FAC proceedings and therefore the costs are deferred when incurred and amortized into fuel expense in the same period that IPL’s rates are adjusted to reflect these costs. 

Deferred fuel was a regulatory liability of $19.7 million and $17.8 million as of December 31, 2015 and 2014, respectively. The deferred fuel liability increased $1.9 million in 2015 as a result of IPL charging more for fuel than our actual costs to our jurisdictional customers.

Unrecognized Pension and Postretirement Benefit Plan Costs

In accordance with ASC 715 “Compensation – Retirement Benefits” and ASC 980, we recognize a regulatory asset equal to the unrecognized actuarial gains and losses and prior service costs. Pension expenses are recorded based on the benefit plan’s actuarially determined pension liability and associated level of annual expenses to be recognized. The other postretirement benefit plan’s deferred benefit cost is the excess of the other postretirement benefit liability over the amount previously recognized.

Income Taxes Recoverable Through Rates

This amount represents the portion of deferred income taxes that we believe will be recovered through future rates, based upon established regulatory practices, which permit the recovery of current taxes. Accordingly, this regulatory asset is offset by a deferred tax liability and is expected to be recovered, without interest, over the period underlying book-tax timing differences reverse and become current taxes.

Deferred MISO Costs

These consist of administrative costs for transmission services, transmission expansion cost sharing, and certain other operational and administrative costs from the MISO market. IPL received orders from the IURC that granted authority for IPL to defer such costs and seek recovery in a future basic rate case. Recovery of these costs is believed to be probable, but not certain. See Note 2, “Regulatory Matters.” 

ARO and Accrued Asset Removal Costs

In accordance with ASC 410 and ASC 980, IPL recognizes the cost of removal component of its depreciation reserve that does not have an associated legal retirement obligation as a deferred liability. This amount is net of the portion of legal ARO costs that is currently being recovered in rates.


19



6. EQUITY

Equity Transactions

On December 15, 2014, AES announced that it entered into an agreement with CDPQ, a long-term institutional investor headquartered in Quebec, Canada.  Pursuant to the agreement, on February 11, 2015 CDPQ purchased from AES 15% of AES U.S. Investments and 100 shares of IPALCO’s common stock were issued to CDPQ. In addition, CDPQ agreed to invest approximately $349 million in IPALCO through 2016 (of which $214.4 million has been contributed through December 31, 2015), in exchange for a 17.65% equity stake, funding existing growth and environmental projects at IPL. 

After completion of these transactions, CDPQ’s direct and indirect interests in IPALCO will total approximately 30%, AES will own 85% of AES U.S. Investments, and AES U.S. Investments will own 82.35% of IPALCO.  There will be no significant change in management or operational control of AES U.S. Investments, IPALCO or IPL as a result of these transactions. 

In connection with the initial closing under the agreement, CDPQ, AES U.S. Investments, and IPALCO entered into a Shareholders’ Agreement. The Shareholders’ Agreement established the general framework governing the relationship between and among CDPQ and AES U.S. Investments, and their respective successors and transferees, as shareholders of IPALCO. Pursuant to the Shareholders’ Agreement, the board of directors of IPALCO will initially consist of 11 directors, two nominated by CDPQ and 9 nominated by AES U.S. Investments. The Shareholders’ Agreement contains restrictions on IPALCO making certain major decisions without the prior affirmative vote of a majority of the board of directors of IPALCO. In addition, for so long as CDPQ holds at least 5% of IPALCO’s common shares, CDPQ will have review and consultation rights with respect to certain actions of IPALCO. Certain transfer restrictions and other transfer rights apply to CDPQ and AES U.S. Investments under the Shareholders’ Agreement, including certain rights of first offer, drag along rights, tag along rights, put rights and rights of first refusal.

On February 11, 2015, in connection with the initial closing under the Subscription Agreement and the entry into the Shareholders’ Agreement, IPALCO submitted the Third Amended and Restated Articles of Incorporation for filing with the Indiana Secretary of State, as approved and adopted by the IPALCO Board. The purpose of the Third Amended and Restated Articles of Incorporation is to amend, among other things, Article VI of the Second Amended and Restated Articles of Incorporation of IPALCO in order to effectuate changes to the size and composition of the IPALCO Board in furtherance of the terms and conditions of the IPALCO Shareholder’s Agreement.

Paid In Capital and Capital Stock

On June 27, 2014, and July 31, 2013, IPALCO received equity capital contributions of $106.4 million and $49.1 million, respectively, from AES for funding needs related to IPL’s environmental and replacement generation projects. IPALCO then made the same equity capital contributions to IPL.

On April 1, 2015, IPALCO issued and sold 11,818,828 shares of IPALCO's common stock to CDPQ for $214.4 million for funding needs primarily related to IPL's environmental construction program. IPALCO then made the same investment in IPL. As a result of this transaction, CDPQ's direct ownership interest in IPALCO is 11.6% and CDPQ's combined direct and indirect ownership interest in IPALCO is 24.9%.

There have been no changes to IPALCO’s capital stock balances during the three years ended December 31, 2015.

Dividend Restrictions

IPL’s mortgage and deed of trust and its amended articles of incorporation contain restrictions on IPL’s ability to issue certain securities or pay cash dividends. So long as any of the several series of bonds of IPL issued under its mortgage remains outstanding, and subject to certain exceptions, IPL is restricted in the declaration and payment of dividends, or other distribution on shares of its capital stock of any class, or in the purchase or redemption of such shares, to the aggregate of its net income, as defined in the mortgage, after December 31, 1939. The amount which these mortgage provisions would have permitted IPL to declare and pay as dividends at December 31, 2015, exceeded IPL’s retained earnings at that date. In addition, pursuant to IPL’s articles, no dividends may be paid or accrued and no other distribution may be made on IPL’s common stock unless dividends on all outstanding shares of IPL preferred stock have been paid or declared and set apart for payment.

IPL is also restricted in its ability to pay dividends if it is in default under the terms of its Credit Agreement and its unsecured notes, which could happen if IPL fails to comply with certain covenants. These covenants, among other things, require IPL to

20



maintain a ratio of total debt to total capitalization not in excess of 0.65 to 1, in order to pay dividends. As of December 31, 2015 and as of the filing of this report, IPL was in compliance with all covenants and no event of default existed.

Cumulative Preferred Stock

IPL has five separate series of cumulative preferred stock. Holders of preferred stock are entitled to receive dividends at rates per annum ranging from 4.0% to 5.65%. During each year ended December 31, 2015, 2014 and 2013, total preferred stock dividends declared were $3.2 million. Holders of preferred stock are entitled to two votes per share for IPL matters, and if four full quarterly dividends are in default on all shares of the preferred stock then outstanding, they are entitled to elect the smallest number of IPL directors to constitute a majority of IPL’s board of directors. Based on the preferred stockholders’ ability to elect a majority of IPL’s board of directors in this circumstance, the redemption of the preferred shares is considered to be not solely within the control of the issuer and the preferred stock was considered temporary equity and presented in the mezzanine level of the audited consolidated balance sheets in accordance with the relevant accounting guidance for non-controlling interests and redeemable securities. IPL has issued and outstanding 500,000 shares of 5.65% preferred stock, which are now redeemable at par value, subject to certain restrictions, in whole or in part. Additionally, IPL has 91,353 shares of preferred stock which are redeemable solely at the option of IPL and can be redeemed in whole or in part at any time at specific call prices.

At December 31, 2015, 2014 and 2013, preferred stock consisted of the following:
 
 
December 31, 2015
 
December 31,
 
 
Shares
Outstanding
 
Call Price
 
2015
 
2014
 
2013
 
 
 
 
Par Value, plus premium, if applicable
 
 
 
 
(In Thousands)
Cumulative $100 par value,
 
 
 
 
 
 
 
 
 
 
authorized 2,000,000 shares
 
 
 
 
 
 
 
 
 
 
4% Series
 
47,611

 
$
118.00

 
$
5,410

 
$
5,410

 
$
5,410

4.2% Series
 
19,331

 
103.00

 
1,933

 
1,933

 
1,933

4.6% Series
 
2,481

 
103.00

 
248

 
248

 
248

4.8% Series
 
21,930

 
101.00

 
2,193

 
2,193

 
2,193

5.65% Series
 
500,000

 
100.00

 
50,000

 
50,000

 
50,000

Total cumulative preferred stock
 
591,353

 
 

 
$
59,784

 
$
59,784

 
$
59,784

 
 
 
 
 
 
 
 
 
 
 


21



7.  DEBT

Long-Term Debt

The following table presents our long-term debt:
 
 
 
 
December 31,
Series
 
Due
 
2015
 
2014
 
 
 
 
(In Thousands)
IPL first mortgage bonds (see below):
 
 
 
 
4.90% (1)
 
January 2016
 
$

 
$
30,000

4.90% (1)
 
January 2016
 

 
41,850

4.90% (1)
 
January 2016
 

 
60,000

5.40% (2)
 
August 2017
 
24,650

 
24,650

3.875% (1)
 
August 2021
 
55,000

 
55,000

3.875% (1)
 
August 2021
 
40,000

 
40,000

4.55% (1)
 
December 2024
 
40,000

 
40,000

6.60%
 
January 2034
 
100,000

 
100,000

6.05%
 
October 2036
 
158,800

 
158,800

6.60%
 
June 2037
 
165,000

 
165,000

4.875%
 
November 2041
 
140,000

 
140,000

4.65%
 
June 2043
 
170,000

 
170,000

4.50%
 
June 2044
 
130,000

 
130,000

4.70%
 
September 2045
 
260,000

 

Unamortized discount – net
 
 
 
(4,242
)
 
(2,940
)
Total IPL first mortgage bonds
 
1,279,208

 
1,152,360

IPL unsecured debt:
 
 
 
 
Variable (3)
 
December 2020
 
30,000

 

Variable (3)
 
December 2020
 
60,000

 

Total IPL unsecured debt
 
90,000

 

Total Long-term Debt – IPL
 
1,369,208

 
1,152,360

Long-term Debt – IPALCO:
 
 

 
 

7.25% Senior Secured Notes
 
April 2016
 

 
400,000

5.00% Senior Secured Notes
 
May 2018
 
400,000

 
400,000

3.45% Senior Secured Notes
 
July 2020
 
405,000

 

Unamortized discount – net
 
 
 
(371
)
 
(1,347
)
Total Long-term Debt – IPALCO
 
804,629

 
798,653

Total Consolidated IPALCO Long-term Debt
 
2,173,837

 
1,951,013

Less: Current Portion of Long-term Debt
 

 

Net Consolidated IPALCO Long-term Debt
 
$
2,173,837

 
$
1,951,013

 

(1)
First mortgage bonds are issued to the Indiana Finance Authority, to secure the loan of proceeds from the tax-exempt bonds issued by the Indiana Finance Authority.
(2)
First mortgage bonds are issued to the city of Petersburg, Indiana, to secure the loan proceeds from various tax-exempt instruments issued by the city.
(3)
Unsecured notes are issued to the Indiana Finance Authority by IPL to facilitate the loan of proceeds from various tax-exempt notes issued by the Indiana Finance Authority. The notes have a final maturity date of December 2038, but are subject to a mandatory put in December 2020.

22



Debt Maturities

Maturities on long-term indebtedness subsequent to December 31, 2015, are as follows:
Year
Amount
 
(In Thousands)
2016
$

2017
24,650

2018
400,000

2019

2020
495,000

Thereafter
1,258,800

Total
$
2,178,450

 
 

Significant Transactions

IPL First Mortgage Bonds

The mortgage and deed of trust of IPL, together with the supplemental indentures thereto, secure the first mortgage bonds issued by IPL. Pursuant to the terms of the mortgage, substantially all property owned by IPL is subject to a first mortgage lien securing indebtedness of $1,283.5 million as of December 31, 2015. The IPL first mortgage bonds require net earnings as calculated thereunder be at least two and one-half times the annual interest requirements before additional bonds can be authenticated on the basis of property additions. IPL was in compliance with such requirements as of December 31, 2015.

In June 2013, IPL issued $170 million aggregate principal amount of first mortgage bonds, 4.65% Series, due June 2043. Net proceeds from this offering were approximately $167.9 million, after deducting the initial purchasers’ discounts, fees and expenses for the offering payable by IPL. The net proceeds from the offering were used in June 2013 to finance the redemption of $110 million aggregate principal amount of IPL first mortgage bonds, 6.30% Series, due July 2013, and to pay related fees, expenses and applicable redemption prices. We used all remaining proceeds to finance a portion of our environmental construction program and for other general corporate purposes.

In June 2014, IPL issued $130 million aggregate principal amount of first mortgage bonds, 4.50% Series, due June 2044. Net proceeds from this offering were approximately $126.8 million, after deducting the initial purchasers’ discounts, fees and expenses for the offering payable by IPL. The net proceeds from the offering were used: (i) to finance a portion of IPL’s construction program; (ii) to finance a portion of IPL’s capital costs related to environmental and replacement generation projects; and (iii) for other general corporate purposes. 

In September 2015, IPL issued $260 million aggregate principal amount of first mortgage bonds, 4.70% Series, due September 2045, pursuant to Rule 144A and Regulation S under the Securities Act. Net proceeds from this offering were approximately $255.6 million, after deducting the initial purchasers’ discounts and fees and expenses for the offering payable by IPL. The net proceeds from the offering were used to finance a portion of IPL's construction program and capital costs related to environmental and replacement generation projects and for other general corporate purposes. 

In December 2015, IPL refunded $131.9 million aggregate principal amount of first mortgage bonds, 4.90% Series, due January 2016 from the proceeds of unsecured notes with a syndication of banks. For further discussion, please see “– IPL Unsecured Notes” below.

IPL Unsecured Notes

In October 2015, IPL entered into an unsecured $91.9 million 364-day committed credit facility with a delayed draw feature at variable rates with a syndication of banks. It was drawn on in October and December 2015 to fund the October 2015 termination of IPL’s $50 million accounts receivable securitization program and to assist in the December 2015 refunding of $41.9 million of IPL's outstanding aggregate principal amount of 4.90% Environmental Facilities Refunding Revenue Bonds (Indianapolis Power & Light Company Project) Series 2009A due in January 2016. This agreement matures on October 14, 2016, and bears interest at variable rates as described in the credit agreement. This credit facility contain customary

23



representations, warranties and covenants, including a leverage covenant consistent with the leverage covenant contained in IPL's Credit Agreement.

In December 2015, the Indiana Finance Authority issued on behalf of IPL an aggregate principal amount of $90 million of Environmental Facilities Refunding Revenue Notes due December 2038 (Indianapolis Power & Light Company Project). These unsecured notes were issued in two series: $30 million Series 2015A notes and $60 million 2015B notes. These notes were initially purchased by a syndication of banks who will hold the notes until the mandatory put date of December 22, 2020. The proceeds of the 2015A notes and the 2015B notes were loaned to IPL to assist it in refunding the $30 million Indiana Finance Authority Environmental Facilities Refunding Revenue Bonds (Indianapolis Power & Light Company Project) Series 2009B and $60 million Indiana Finance Authority Environmental Facilities Refunding Revenue Bonds (Indianapolis Power & Light Company Project) Series 2009C each series due January 1, 2016. These notes bear interest at a variable rate as described in the notes purchase and covenants agreement. The agreement contains customary representations, warranties and covenants, including a leverage covenant consistent with the leverage covenant contained in IPL's Credit Agreement.

IPALCO’s Senior Secured Notes

In June 2015, IPALCO completed the sale of the 2020 IPALCO Notes pursuant to Rule 144A and Regulation S under the Securities Act. The 2020 IPALCO Notes were issued pursuant to an Indenture dated June 25, 2015, by and between IPALCO and U.S. Bank, National Association, as trustee. The 2020 IPALCO Notes were priced to the public at 99.929% of the principal amount. Net proceeds to IPALCO were approximately $399.5 million after deducting underwriting costs and estimated offering expenses. These costs are being amortized to the maturity date using the effective interest method. We used the net proceeds from this offering to fund the purchase of the 2016 IPALCO Notes validly tendered and to pay for a related consent solicitation, to redeem any 2016 IPALCO Notes that remained outstanding after the completion of the tender, and to pay certain related fees, expenses and make-whole premiums. Of the 2016 IPALCO Notes outstanding, $366.5 million were tendered in June 2015. The remainder, $33.5 million, was redeemed in July 2015. An early tender premium was paid related to the tender offer and a redemption premium was paid related to the redemption of the 2016 IPALCO Notes. A loss on early extinguishment of debt of $22.1 million for the 2016 IPALCO Notes is included as a separate line item within “Other Income and (Deductions)” in the accompanying Consolidated Statements of Operations.

The 2020 IPALCO Notes are secured by IPALCO's pledge of all of the outstanding common stock of IPL. The lien on the pledged shares is shared equally and ratably with IPALCO's existing senior secured notes. IPALCO has entered into a Pledge Agreement Supplement with the Bank of New York Mellon Trust Company, N.A., as Collateral Agent, dated June 25, 2015, to the Pledge Agreement between IPALCO and The Bank of New York Mellon Trust Company, N.A., dated November 14, 2001, as supplemented by a Pledge Agreement Supplement dated April 15, 2008 and a Pledge Agreement Supplement dated May 18, 2011, each by IPALCO in favor of the Collateral Agent. IPALCO also agreed to register the 2020 IPALCO Notes under the Securities Act by filing an exchange offer registration statement or, under specified circumstances, a shelf registration statement with the SEC pursuant to a Registration Rights Agreement that IPALCO entered into with J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, as representatives of the initial purchasers of the 2020 IPALCO Notes. IPALCO filed its registration statement on Form S-4 with respect to the 2020 IPALCO Notes with the SEC on September 28, 2015, and this registration statement was declared effective on October 15, 2015. The exchange offer was completed on November 16, 2015.

The 2018 IPALCO Notes and 2020 IPALCO Notes are secured by IPALCO’s pledge of all of the outstanding common stock of IPL.

Line of Credit

IPL entered into an amendment and restatement of its 5-year $250 million revolving credit facility in May 2014, and a further amendment and extension of the credit facility on October 16, 2015 (the “Credit Agreement”) with a syndication of banks. This Credit Agreement is an unsecured committed line of credit to be used: (i) to finance capital expenditures; (ii) to refinance indebtedness under the existing credit agreement; (iii) to support working capital; and (iv) for general corporate purposes. This agreement matures on October 16, 2020, and bears interest at variable rates as described in the Credit Agreement. It includes an uncommitted $150 million accordion feature to provide IPL with an option to request an increase in the size of the facility at any time prior to October 16, 2019, subject to approval by the lenders. Prior to execution, IPL and IPALCO had existing general banking relationships with the parties in this agreement. As of December 31, 2015 and 2014, IPL had $75.0 million and $0 million in outstanding borrowings on the committed line of credit, respectively.


24



Restrictions on Issuance of Debt 

All of IPL’s long-term borrowings must first be approved by the IURC and the aggregate amount of IPL’s short-term indebtedness must be approved by the FERC. IPL has approval from FERC to borrow up to $500 million of short-term indebtedness outstanding at any time through July 28, 2016. In December 2015, IPL received an order from the IURC granting IPL authority through December 31, 2018 to, among other things, issue up to $650 million in aggregate principal amount of long-term debt (inclusive of $260 million of first mortgage bonds issued in September 2015), refinance up to $196.5 million in existing indebtedness (inclusive of $90 million of unsecured notes issued in December 2015), have up to $500 million of long-term credit agreements and liquidity facilities outstanding at any one time, and, as an alternative to the sale of all or a portion of $65 million in principal amount of the long-term debt mentioned above, issue up to $65 million of new preferred stock. IPL also has restrictions on the amount of new debt that may be issued due to contractual obligations of AES and by financial covenant restrictions under our existing debt obligations. Under such restrictions, IPL is generally allowed to fully draw the amounts available on its credit facility, refinance existing debt and issue new debt approved by the IURC and issue certain other indebtedness.

Credit Ratings
 
Our ability to borrow money or to refinance existing indebtedness and the interest rates at which we can borrow money or refinance existing indebtedness are affected by our credit ratings. In addition, the applicable interest rates on IPL’s Credit Agreement and other unsecured notes (as well as the amount of certain other fees on the Credit Agreement and the 364-day unsecured notes) are dependent upon the credit ratings of IPL. Downgrades in the credit ratings of AES could result in IPL’s and/or IPALCO’s credit ratings being downgraded.

Accounts Receivable Securitization

IPL formed IPL Funding in 1996 as a special-purpose entity to purchase receivables originated by IPL pursuant to a receivables purchase agreement between IPL and IPL Funding. IPL Funding also entered into a sale facility as defined in the Receivables Sale Agreement, which matured as extended on October 24, 2012. At that time, the Purchasers replaced The Royal Bank of Scotland plc and Windmill Funding Corporation as Agent and Investor, respectively. On October 20, 2014, Citibank, as the sole Liquidity Provider, and CRC Funding entered into a Transfer Supplement pursuant to which Citibank assigned to CRC Funding, and CRC Funding assumed, all of Citibank’s Commitment and Purchase Interest, and accordingly, CRC Funding was both the Investor and a Liquidity Provider, referred to as the “Purchaser.”

Pursuant to the terms of the Receivables Sale Agreement, the Purchasers agree to purchase from IPL Funding, on a revolving basis, interests in the pool of receivables purchased from IPL up to the lesser of (1) an amount determined pursuant to the sale facility that took into account certain eligibility requirements and reserves relating to the receivables, or (2) $50 million. That amount was $0 million and $50 million as of December 31, 2015 and 2014, respectively. As collections reduce accounts receivable included in the pool, IPL Funding sells ownership interests in additional receivables acquired from IPL to return the ownership interests sold to the maximum amount permitted by the sale facility. IPL Funding is included in the Consolidated Financial Statements of IPALCO. 
 
On October 16, 2015, IPL closed on a new unsecured $91.9 million 364-day committed credit facility with a syndication of banks. The first $50 million of the term loan was drawn at closing to fund the October 19, 2015 termination of IPL's $50 million accounts receivable securitization program. Please see “– IPL Unsecured Notes” above for details.



25



8. INCOME TAXES

IPALCO follows a policy of comprehensive interperiod income tax allocation. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property.

AES files federal and state income tax returns which consolidate IPALCO and its subsidiaries. Under a tax sharing agreement with AES, IPALCO is responsible for the income taxes associated with its own taxable income and records the provision for income taxes as if IPALCO and its subsidiaries each filed separate income tax returns. IPALCO is no longer subject to U.S. or state income tax examinations for tax years through March 27, 2001, but is open for all subsequent periods.

On March 25, 2014, the State of Indiana amended Indiana Code 6-3-2-1 through Senate Bill 001, which phases in an additional 1.6% reduction to the state corporate income tax rate that was initially being reduced by 2%. While the statutory state income tax rate remained at 6.75% for the calendar year 2015, the deferred tax balances were adjusted according to the anticipated reversal of temporary differences.  The change in required deferred taxes on plant and plant-related temporary differences resulted in a reduction to the associated regulatory asset of $1.0 million. The change in required deferred taxes on non-property related temporary differences which are not probable to cause a reduction in future base customer rates resulted in a tax benefit of $0.4 million.

On September 13, 2013, the Internal Revenue Service released final regulations addressing the acquisition, production and improvement of tangible property and proposed regulations addressing the disposition of property. These regulations replace previously issued temporary regulations and are effective for tax years beginning on or after January 1, 2014. IPL management has opted to fully implement the new regulations effective with its 2014 income tax return. IPL has recorded the tax effect of a $245.9 million favorable Internal Revenue Code Section 481(a) adjustment to its balance sheet as a result of the regulations. This amount represents the cumulative effective of accelerated deductions related to repairs of tangible property through December 31, 2013. The adjustment does not impact the income statement.

Internal Revenue Code Section 199 permits taxpayers to claim a deduction from taxable income attributable to certain domestic production activities. IPL’s electric production activities qualify for this deduction. Beginning in 2010 and thereafter, the deduction is equal to 9% of the taxable income attributable to qualifying production activity. There was no tax benefit associated with the Internal Revenue Code Section 199 domestic production deduction for tax years 2015 and 2014, primarily due to the election of the final tangible property regulations. The tax benefit associated with tax year 2013 was $3.7 million.

In 2015, IPALCO elected to early adopt ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes,” under the prospective method. To simplify presentation of deferred income taxes, ASU 2015-17 requires that deferred tax liabilities and assets be classified as non-current in a statement of financial position, removing the previous requirement to report both current and non-current deferred tax liabilities and assets separately. By early adopting under the prospective method, previous reporting periods have not been retrospectively adjusted.


26



Income Tax Provision

Federal and state income taxes charged to income are as follows: 
 
 
2015
 
2014
 
2013
 
 
(In Thousands)
Charged to utility operating expenses:
 
 
 
 
 
 
Current income taxes:
 
 
 
 
 
 
Federal
 
$
18,661

 
$
944

 
$
53,937

State
 
5,758

 
110

 
15,191

Total current income taxes
 
24,419

 
1,054

 
69,128

Deferred income taxes:
 
 

 
 

 
 

Federal
 
29,165

 
58,114

 
(8,048
)
State
 
5,019

 
12,498

 
(1,031
)
Total deferred income taxes
 
34,184

 
70,612

 
(9,079
)
Net amortization of investment credit
 
(1,319
)
 
(1,431
)
 
(1,501
)
Total charge to utility operating expenses
 
57,284

 
70,235

 
58,548

Charged to other income and deductions:
 
 

 
 

 
 

Current income taxes:
 
 

 
 

 
 

Federal
 
(18,661
)
 
(459
)
 
(16,909
)
State
 
(5,758
)
 
(5
)
 
(4,193
)
Total current income taxes
 
(24,419
)
 
(464
)
 
(21,102
)
Deferred income taxes:
 
 

 
 

 
 

Federal
 
(2,573
)
 
(18,082
)
 
246

State
 
1,274

 
(3,645
)
 
50

Total deferred income taxes
 
(1,299
)
 
(21,727
)
 
296

Net provision to other income and deductions
 
(25,718
)
 
(22,191
)
 
(20,806
)
Total federal and state income tax provisions
 
$
31,566

 
$
48,044

 
$
37,742

 
 
 
 
 
 
 

Effective and Statutory Rate Reconciliation

The provision for income taxes (including net investment tax credit adjustments) is different than the amount computed by applying the statutory tax rate to pretax income. The reasons for the difference, stated as a percentage of pretax income, are as follows: 
 
 
2015
 
2014
 
2013
Federal statutory tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income tax, net of federal tax benefit
 
4.7
 %
 
4.8
 %
 
6.7
 %
Amortization of investment tax credits
 
(1.5
)%
 
(1.2
)%
 
(1.5
)%
Preferred dividends of subsidiary
 
1.3
 %
 
0.9
 %
 
1.1
 %
Depreciation flow through and amortization
 
(0.3
)%
 
(0.3
)%
 
(0.3
)%
Additional funds used during construction - equity
 
(3.5
)%
 
(0.3
)%
 
0.6
 %
Manufacturers’ Production Deduction (Sec. 199)
 
 %
 
 %
 
(3.8
)%
Other – net
 
0.2
 %
 
0.2
 %
 
0.5
 %
Effective tax rate
 
35.9
 %
 
39.1
 %
 
38.3
 %
 
 
 
 
 
 
 




27



Deferred Income Taxes

The significant items comprising IPALCO’s net accumulated deferred tax liability recognized on the audited Consolidated Balance Sheets as of December 31, 2015 and 2014, are as follows:
 
 
2015
 
2014
 
 
(In Thousands)
Deferred tax liabilities:
 
 
 
 
Relating to utility property, net
 
$
541,369

 
$
539,318

Regulatory assets recoverable through future rates
 
178,187

 
161,697

Other
 
11,768

 
14,211

Total deferred tax liabilities
 
731,324

 
715,226

Deferred tax assets:
 
 

 
 

Investment tax credit
 
1,507

 
2,019

Regulatory liabilities including ARO
 
260,555

 
247,118

Employee benefit plans
 
38,159

 
45,091

Net operating loss
 
23,161

 
51,364

Other
 
10,548

 
10,289

Total deferred tax assets
 
333,930

 
355,881

Net deferred tax liability
 
397,394

 
359,345

Less: deferred tax asset - current
 

 
(61,782
)
Deferred income taxes – net
 
$
397,394

 
$
421,127

 
 
 
 
 

Uncertain Tax Positions

The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2015, 2014 and 2013
 
 
2015
 
2014
 
2013
 
 
(In Thousands)
Unrecognized tax benefits at January 1
 
$
7,042

 
$
6,734

 
$
6,138

Gross increases – current period tax positions
 
962

 
975

 
986

Gross decreases – prior period tax positions
 
(857
)
 
(667
)
 
(390
)
Unrecognized tax benefits at December 31
 
$
7,147

 
$
7,042

 
$
6,734

 
 
 
 
 
 
 

The unrecognized tax benefits at December 31, 2015 represent tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the timing of the deductions will not affect the annual effective tax rate but would accelerate the tax payments to an earlier period.

Tax-related interest expense and income is reported as part of the provision for federal and state income taxes. Penalties, if incurred, would also be recognized as a component of tax expense. There are no interest or penalties applicable to the periods contained in this report.

 

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9. BENEFIT PLANS

Defined Contribution Plans

All of IPL’s employees are covered by one of two defined contribution plans, the Thrift Plan or the RSP:
 
The Thrift Plan
 
Approximately 84% of IPL’s active employees are covered by the Thrift Plan, a qualified defined contribution plan. All union new hires are covered under the Thrift Plan. Participants elect to make contributions to the Thrift Plan based on a percentage of their base compensation. Each participant’s contribution is matched up to certain thresholds of base compensation. The IBEW clerical-technical union new hires receive an annual lump sum company contribution into the Thrift Plan in addition to the company match. Employer contributions to the Thrift Plan were $3.1 million, $3.0 million and $3.0 million for 2015, 2014 and 2013, respectively.
 
The RSP
 
Approximately 16% of IPL’s active employees are covered by the RSP, a qualified defined contribution plan containing a profit sharing component. All non-union new hires are covered under the RSP. Participants elect to make contributions to the RSP based on a percentage of their taxable compensation. Each participant’s contribution is matched in amounts up to, but not exceeding, 5% of the participant’s taxable compensation. In addition, the RSP has a profit sharing component whereby IPL contributes a percentage of each employee’s annual salary into the plan on a pre-tax basis. The profit sharing percentage is determined by the AES board of directors on an annual basis. Employer payroll-matching and profit sharing contributions (by IPL) relating to the RSP were $0.3 million, $1.5 million and $1.8 million for 2015, 2014 and 2013, respectively. The decrease in the 2015 net contributions is a result of truing up prior year estimated profit sharing contributions.

Defined Benefit Plans

Approximately 77% of IPL’s active employees are covered by the qualified Defined Benefit Pension Plan; while approximately 7% of active employees are IBEW clerical-technical unit employees who are only eligible for the Thrift Plan, which is a defined contribution plan. The remaining 16% of active employees are covered by the RSP. The RSP is a qualified defined contribution plan containing a profit sharing component. All non-union new hires are covered under the RSP, while IBEW physical unit union new hires are covered under the Defined Benefit Pension Plan and Thrift Plan. The IBEW clerical-technical unit new hires are no longer covered under the Defined Benefit Pension Plan but do receive an annual lump sum company contribution into the Thrift Plan, in addition to the company match. The Defined Benefit Pension Plan is noncontributory and is funded by IPL through a trust. Effective April 1, 2015, benefits for non-union participants in the Defined Benefit Pension Plan are based on salary and years of service. Benefits for eligible union participants are based on each individual employee's pension band and years of service as opposed to their compensation. Pension bands are based primarily on job duties and responsibilities.

Additionally, a small group of former officers and their surviving spouses are covered under a funded non-qualified Supplemental Retirement Plan. The total number of participants in the plan as of December 31, 2015 was 24. The plan is closed to new participants.

IPL also provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. Approximately 171 active employees and 27 retirees (including spouses) were receiving such benefits or entitled to future benefits as of January 1, 2015. The plan is unfunded. These postretirement health care benefits and the related obligation were not material to the consolidated financial statements in the periods covered by this report.

29



The following table presents information relating to the Pension Plans: 
 
 
Pension benefits
as of December 31,
 
 
2015
 
2014
 
 
(In Thousands)
Change in benefit obligation:
 
 
 
 
Projected benefit obligation at January 1
 
$
748,421

 
$
650,713

Service cost
 
8,314

 
7,231

Interest cost
 
29,638

 
31,154

Actuarial (gain) loss
 
(31,989
)
 
90,693

Amendments (primarily increases in pension bands)
 
5,409

 
1,233

Settlements
 
(395
)
 

Benefits paid
 
(35,511
)
 
(32,603
)
Projected benefit obligation at December 31
 
723,887

 
748,421

Change in plan assets:
 
 

 
 

Fair value of plan assets at January 1
 
657,239

 
561,586

Actual return on plan assets
 
1,074

 
74,147

Employer contributions
 
25,166

 
54,109

Settlements
 
(395
)
 

Benefits paid
 
(35,511
)
 
(32,603
)
Fair value of plan assets at December 31
 
647,573

 
657,239

Unfunded status
 
$
(76,314
)
 
$
(91,182
)
Amounts recognized in the statement of financial position:
 
 

 
 

Noncurrent liabilities
 
$
(76,314
)
 
$
(91,182
)
Net amount recognized at end of year
 
$
(76,314
)
 
$
(91,182
)
Sources of change in regulatory assets (1):
 
 

 
 

Prior service cost arising during period
 
$
5,409

 
$
1,233

Net loss arising during period
 
11,757

 
58,439

Amortization of prior service cost
 
(4,867
)
 
(4,853
)
Amortization of loss
 
(14,096
)
 
(9,710
)
Total recognized in regulatory assets (1)
 
$
(1,797
)
 
$
45,109

Amounts included in regulatory assets (1):
 
 

 
 

Net loss
 
$
209,252

 
$
211,592

Prior service cost
 
25,842

 
25,299

Total amounts included in regulatory assets
 
$
235,094

 
$
236,891

 
 
 
 
 
(1) Represents amounts included in regulatory assets yet to be recognized as components of net prepaid (accrued) benefit costs.

Information for Pension Plans with a projected benefit obligation in excess of plan assets
 
 
 
Pension benefits
as of December 31,
 
 
2015
 
2014
 
 
(In Thousands)
Benefit obligation
 
$
723,887

 
$
748,421

Plan assets
 
647,573

 
657,239

Benefit obligation in excess of plan assets
 
$
76,314

 
$
91,182

 
 
 
 
 
 
IPL’s total benefit obligation in excess of plan assets was $76.3 million as of December 31, 2015 ($75.3 million Defined Benefit Pension Plan and $1.0 million Supplemental Retirement Plan).

30




Information for Pension Plans with an accumulated benefit obligation in excess of plan assets

 
 
Pension benefits
as of December 31,
 
 
2015
 
2014
 
 
(In Thousands)
Accumulated benefit obligation
 
$
712,297

 
$
734,328

Plan assets
 
647,573

 
657,239

Accumulated benefit obligation in excess of plan assets
 
$
64,724

 
$
77,089

 
 
 
 
 

IPL’s total accumulated benefit obligation in excess of plan assets was $64.7 million as of December 31, 2015 ($63.7 million Defined Benefit Pension Plan and $1.0 million Supplemental Retirement Plan).

Pension Benefits and Expense

Reported expenses relevant to the Defined Benefit Pension Plan are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience, including the performance of plan assets and actual benefits paid out in future years. Pension costs associated with the Defined Benefit Pension Plan are impacted by the level of contributions made to the plan, earnings on plan assets, the adoption of new mortality tables, and employee demographics, including age, job responsibilities, salary and employment periods. Changes made to the provisions of the Defined Benefit Pension Plan may impact current and future pension costs. Pension costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the corporate bond discount rates, as well as, the adoption of a new mortality table used in determining the projected benefit obligation and pension costs.

Effective January 1, 2016 the Company will apply a disaggregated discount rate approach for determining service cost and interest cost for its defined benefit pension plans and postretirement plans. Refer to Note 1, “Overview and Summary of Significant Accounting Policies” for further information relating to this change in estimate. The impact of the change in approach is a reduction in: (1) expected service costs of $0.4 million for pension plans in 2016 ($0.4 million Defined Benefit Pension Plan and $0.0 million Supplemental Retirement Plan), and (2) expected interest costs of $5.3 million for pension plans in 2016 ($5.3 million Defined Benefit Pension Plan and $0.0 million Supplemental Retirement Plan).

The 2015 net actuarial loss of $11.8 million is comprised of two parts: (1) a $43.8 million pension asset actuarial loss primarily due to lower than expected return on assets; partially offset by (2) a $32.0 million pension liability actuarial gain primarily due to an increase in the discount rate used to value pension liabilities. The unrecognized net loss of $209.3 million in the Pension Plans has accumulated over time primarily due to the long-term declining trend in corporate bond rates, the lower than expected return on assets during the year 2008, and the adoption of new mortality tables which increased the expected benefit obligation due to the longer expected lives of plan participants, since ASC 715 was adopted. During 2015, the accumulated net loss was decreased due to a combination of higher discount rates used to value pension liabilities; as well as, the year 2015 amortization of accumulated loss, which was partially offset by a lower than expected return on pension assets. The unrecognized net loss, to the extent that it exceeds 10% of the greater of the benefit obligation or the assets, will be amortized and included as a component of net periodic benefit cost in future years. The amortization period is approximately 9.77 years based on estimated demographic data as of December 31, 2015. The projected benefit obligation of $723.9 million, less the fair value of assets of $647.6 million results in an unfunded status of $(76.3) million at December 31, 2015.

31