0000728391-16-000065.txt : 20160805 0000728391-16-000065.hdr.sgml : 20160805 20160804173939 ACCESSION NUMBER: 0000728391-16-000065 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 55 CONFORMED PERIOD OF REPORT: 20160630 FILED AS OF DATE: 20160805 DATE AS OF CHANGE: 20160804 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08644 FILM NUMBER: 161808590 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 10-Q 1 ipalco10q20160630q2.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8644 
IPALCO ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Indiana
 
35-1575582
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
One Monument Circle
Indianapolis, Indiana
 
46204
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant’s telephone number, including area code: 317-261-8261

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No þ
(The registrant is a voluntary filer. The registrant has filed all applicable reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ 
Accelerated filer ¨   
Non-accelerated filer (Do not check if a smaller reporting company) þ
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
At August 4, 2016, 108,907,318 shares of IPALCO Enterprises, Inc. common stock were outstanding, of which 89,685,177 shares were owned by AES U.S. Investments, Inc. and 19,222,141 shares were owned by CDP Infrastructure Fund GP, a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec.

DOCUMENTS INCORPORATED BY REFERENCE

None.



IPALCO ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q 
For Quarter Ended June 30, 2016
 
TABLE OF CONTENTS
 
Item No.
 
Page No.
 
 
 
 
DEFINED TERMS
 
 
 
 
FORWARD-LOOKING STATEMENTS
 
 
 
 
PART I - FINANCIAL INFORMATION
 
1.
Financial Statements
 
 
Unaudited Condensed Consolidated Statements of Operations for the Three Months and Six Months
 
 
     ended June 30, 2016 and 2015
 
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months ended
 
 
     June 30, 2016 and 2015
 
Notes to Unaudited Condensed Consolidated Financial Statements
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3.
Quantitative and Qualitative Disclosure About Market Risk
4.
Controls and Procedures
 
 
 
 
PART II - OTHER INFORMATION
 
1.
Legal Proceedings
1A.
Risk Factors
2.
Unregistered Sales of Equity Securities and Use of Proceeds
3.
Defaults Upon Senior Securities
4.
Mine Safety Disclosures
5.
Other Information
6.
Exhibits
 
 
 
 
SIGNATURES

2


DEFINED TERMS
The following is a list of frequently used abbreviations or acronyms that are found in this Form 10-Q:
 
 
2015 Form 10-K
IPALCO’s Annual Report on Form 10-K for the year ended December 31, 2015, as amended
2016 IPALCO Notes
$400 million of 7.25% Senior Secured Notes due April 1, 2016
2018 IPALCO Notes
$400 million of 5.00% Senior Secured Notes due May 1, 2018
2020 IPALCO Notes
$405 million of 3.45% Senior Secured Notes due July 15, 2020
AES
The AES Corporation
AES U.S. Investments
AES U.S. Investments, Inc.
ARO
Asset Retirement Obligations
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
CAA
U.S. Clean Air Act
CCGT
Combined Cycle Gas Turbine
CCR
Coal Combustion Residuals
CDPQ
CDP Infrastructure Fund GP, a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec
Credit Agreement
$250 million Revolving Credit Facilities Amended and Restated Credit Agreement, by and among Indianapolis Power & Light Company, the Lenders Party thereto, PNC Bank, National Association, as Administrative Agent, PNC Capital Markets LLC, as Sole Bookrunner and Sole Lead Arranger, Fifth Third Bank, as Syndication Agent and BMO Harris Bank N.A., as Documentation Agent, Dated as of May 6, 2014, and as Amended under the First Amendment to Credit Agreement, Dated as of October 16, 2015.
CPCN
Certificate of Public Convenience and Necessity
CWA
U.S. Clean Water Act
Defined Benefit Pension Plan
Employees’ Retirement Plan of Indianapolis Power & Light Company
DSM
Demand Side Management
EPA
U.S. Environmental Protection Agency
ERISA
Employee Retirement Income Security Act of 1974
FAC
Fuel Adjustment Clause
FERC
Federal Energy Regulatory Commission
FGD
Flue-Gas Desulfurization
Financial Statements
Unaudited Condensed Consolidated Financial Statements of IPALCO in “Item 1. Financial Statements” included in Part I – Financial Information of this Form 10-Q
FTRs
Financial Transmission Rights
GAAP
Generally accepted accounting principles in the United States
IDEM
Indiana Department of Environmental Management
IPALCO
IPALCO Enterprises, Inc.
IPL
Indianapolis Power & Light Company
IURC
Indiana Utility Regulatory Commission
kWh
Kilowatt hours
MATS
Mercury and Air Toxics Standards
MISO
Midcontinent Independent System Operator, Inc.
MW
Megawatts
NAAQS
National Ambient Air Quality Standards
NOV
Notice of Violation
NPDES
National Pollutant Discharge Elimination System
Pension Plans
Employees’ Retirement Plan of Indianapolis Power & Light Company and Supplemental Retirement Plan of Indianapolis Power & Light Company
PSD
Prevention of Significant Deterioration
SEC
Securities and Exchange Commission
Service Company
AES U.S. Services, LLC

3


SO2
Sulfur Dioxides
Subscription Agreement
Subscription Agreement dated as of December 14, 2014, by and between IPALCO and CDPQ
U.S.
United States of America
U.S. SBU
AES U.S. Strategic Business Unit
VIE
Variable Interest Entity
 

4


Throughout this document, the terms the Company, we, us, and our refer to IPALCO and its consolidated subsidiaries.

FORWARD‑LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 including, in particular, the statements about our plans, strategies and prospects under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I – Financial Information of this Form 10-Q. Forward-looking statements involve many risks and uncertainties and express an expectation or belief and contain a projection, plan or assumption with regard to, among other things, our future revenues, income, expenses or capital structure. Such statements of future events or performance are not guarantees of future performance and involve estimates, assumptions and uncertainties. The words “could,” “may,” “predict,” “anticipate,” “would,” “believe,” “estimate,” “expect,” “forecast,” “project,” “objective,” “intend,” “continue,” “should,” “plan,” and similar expressions, or the negatives thereof, are intended to identify forward-looking statements unless the context requires otherwise.
 
Some important factors that could cause our actual results or outcomes to differ materially from those discussed in the forward-looking statements include, but are not limited to:
 
fluctuations in customer growth and demand;
impacts of weather on retail sales and wholesale prices;
impacts of renewable energy generation, natural gas prices and other market factors on wholesale prices;
weather-related damage to our electrical system;
fuel, commodity and other input costs;
performance of our suppliers;
generating unit availability and capacity;
transmission and distribution system reliability and capacity, including natural gas pipeline system and supply constraints;
purchased power costs and availability;
availability and price of capacity;
regulatory action, including, but not limited to, the review of our basic rates and charges by the IURC;
federal and state legislation and regulations;
changes in our credit ratings or the credit ratings of AES;  
fluctuations in the value of pension plan assets, fluctuations in pension plan expenses and our ability to fund defined benefit pension plans;
changes in financial or regulatory accounting policies;
environmental matters, including costs of compliance with current and future environmental laws and requirements;
interest rates, inflation rates and other costs of capital;
the availability of capital;
the ability of subsidiaries to pay dividends or distributions to IPALCO;
level of creditworthiness of counterparties to contracts and transactions;
labor strikes or other workforce factors, including the ability to attract and retain key personnel;
facility or equipment maintenance, repairs and capital expenditures;
significant delays or unanticipated cost increases associated with large construction projects;
the availability and cost of funds to finance working capital and capital needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material;
local economic conditions;
catastrophic events such as fires, explosions, cyber-attacks, terrorist acts, acts of war, pandemic events, or natural disasters such as floods, earthquakes, tornadoes, severe winds, ice or snow storms, droughts, or other similar occurrences;
costs and effects of legal and administrative proceedings, audits, settlements, investigations and claims and the ultimate disposition of litigation;
industry restructuring, deregulation and competition;
issues related to our participation in MISO, including the cost associated with membership, allocation of costs, costs associated with transmission expansion, the recovery of costs incurred, and the risk of default of other MISO participants;
changes in tax laws and the effects of our strategies to reduce tax payments;
the use of derivative contracts; and
product development, technology changes, and changes in prices of products and technologies.


5



All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and many are beyond our control. See “Item 1A. Risk Factors” and “Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations” as described in IPALCO’s 2015 Form 10-K and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I – Financial Information of this Form 10-Q for a more detailed discussion of the foregoing and certain other factors that could cause actual results to differ materially from those reflected in such forward-looking statements.



6


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS 

IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In Thousands)
 
Three Months Ended,
 
Six Months Ended,
 
June 30,
 
June 30,
 
2016
2015
 
2016
2015
 
 
 
 
 
 
UTILITY OPERATING REVENUES
$
323,289

$
292,477

 
$
651,034

$
624,678

 
 
 
 
 
 
UTILITY OPERATING EXPENSES:
 
 
 
 
 
Fuel
53,167

77,084

 
119,664

162,516

Other operating expenses
62,209

54,832

 
119,443

109,808

Power purchased
40,421

31,409

 
92,869

73,985

Maintenance
36,480

40,755

 
67,001

72,037

Depreciation and amortization
57,916

42,931

 
111,151

89,376

Taxes other than income taxes
11,404

10,559

 
22,538

23,492

Income taxes - net
17,429

8,781

 
33,833

26,982

Total utility operating expenses
279,026

266,351

 
566,499

558,196

UTILITY OPERATING INCOME
44,263

26,126

 
84,535

66,482

 
 
 
 
 
 
OTHER INCOME AND (DEDUCTIONS):
 
 
 
 
 
Allowance for equity funds used during construction
6,596

3,079

 
13,377

6,297

Loss on early extinguishment of debt

(19,323
)
 

(19,323
)
Miscellaneous income and (deductions) - net
(58
)
(742
)
 
(1,134
)
(1,368
)
Income tax benefit applicable to nonoperating income
2,800

12,557

 
6,263

18,581

Total other income and (deductions) - net
9,338

(4,429
)
 
18,506

4,187

 
 
 
 
 
 
INTEREST AND OTHER CHARGES:
 
 
 
 
 
Interest on long-term debt
27,452

27,695

 
53,553

55,341

Other interest
621

499

 
1,363

948

Allowance for borrowed funds used during construction
(5,624
)
(2,567
)
 
(11,458
)
(5,233
)
Amortization of redemption premiums and expense on debt
1,080

1,335

 
2,106

2,669

Total interest and other charges - net
23,529

26,962

 
45,564

53,725

NET INCOME (LOSS) 
30,072

(5,265
)
 
57,477

16,944

 
 
 
 
 
 
LESS: PREFERRED DIVIDENDS OF SUBSIDIARY
804

804

 
1,607

1,607

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK
$
29,268

$
(6,069
)
 
$
55,870

$
15,337

 
 
 
 
 
 
See notes to unaudited condensed consolidated financial statements.
 

7


IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In Thousands)
 
June 30,
December 31,
 
2016
2015
ASSETS
 
 
UTILITY PLANT:
 
 
Utility plant in service
$
4,983,921

$
4,992,594

Less accumulated depreciation
2,049,303

2,320,955

Utility plant in service - net
2,934,618

2,671,639

Construction work in progress
821,456

766,406

Spare parts inventory
15,214

12,336

Property held for future use
1,002

1,002

Utility plant - net
3,772,290

3,451,383

OTHER ASSETS:
 

 

Nonutility property - at cost, less accumulated depreciation
514

517

Other long-term assets
5,619

5,664

Other assets - net
6,133

6,181

CURRENT ASSETS:
 

 

Cash and cash equivalents
44,470

21,521

Accounts receivable and unbilled revenue (less allowance
 
 

   for doubtful accounts of $2,555 and $2,498, respectively)
145,449

124,167

Fuel inventories - at average cost
49,887

66,834

Materials and supplies - at average cost
57,437

57,997

Regulatory assets
22,585

8,002

Prepayments and other current assets
42,842

26,063

Total current assets
362,670

304,584

DEFERRED DEBITS:
 

 

Regulatory assets
445,641

448,200

Miscellaneous
4,781

6,821

Total deferred debits
450,422

455,021

TOTAL
$
4,591,515

$
4,217,169

CAPITALIZATION AND LIABILITIES
 
 
CAPITALIZATION:
 
 
Common shareholders equity:
 
 
Paid in capital
$
596,714

$
383,448

Accumulated deficit
(26,923
)
(30,515
)
Total common shareholders equity
569,791

352,933

Cumulative preferred stock of subsidiary
59,784

59,784

Long-term debt (Note 5)
2,498,200

2,153,276

Total capitalization
3,127,775

2,565,993

CURRENT LIABILITIES:
 
 
Short-term debt (Note 5)

166,655

Accounts payable
117,374

155,428

Accrued expenses
19,563

19,482

Accrued real estate and personal property taxes
17,585

17,712

Regulatory liabilities
21,294

28,169

Accrued interest
33,356

31,690

Customer deposits
33,168

30,719

Other current liabilities
13,807

12,623

Total current liabilities
256,147

462,478

DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
 
 
Regulatory liabilities
653,998

639,516

Deferred income taxes - net
423,102

397,394

Non-current income tax liability
7,254

7,147

Unamortized investment tax credit
3,295

3,910

Accrued pension and other postretirement benefits
59,715

80,734

Asset retirement obligations
58,513

58,986

Miscellaneous
1,716

1,011

Total deferred credits and other long-term liabilities
1,207,593

1,188,698

COMMITMENTS AND CONTINGENCIES (Note 8)


TOTAL
$
4,591,515

$
4,217,169

 
 
 
See notes to unaudited condensed consolidated financial statements.

8


IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
 
Six Months Ended,
 
June 30,
 
2016
2015
CASH FLOWS FROM OPERATIONS:
 
 
Net income
$
57,477

$
16,944

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
109,225

98,667

Amortization (deferral) of regulatory assets
3,957

(7,147
)
Amortization of debt premium
78

528

Deferred income taxes and investment tax credit adjustments - net
18,575

8,401

Loss on early extinguishment of debt

19,323

Allowance for equity funds used during construction
(13,166
)
(6,160
)
Change in certain assets and liabilities:
 

 

Accounts receivable
(21,283
)
6,798

Fuel, materials and supplies
17,508

(20,817
)
Income taxes receivable
(6,005
)

Financial transmission rights
(5,885
)
(8,174
)
Accounts payable and accrued expenses
2,925

6,660

Accrued real estate and personal property taxes
(127
)
(6
)
Accrued interest
1,665

(6,154
)
Pension and other postretirement benefit expenses
(21,019
)
(28,159
)
Short-term and long-term regulatory assets and liabilities
(16,407
)
10,340

Prepaids and other current assets
(4,889
)
(7,889
)
Other - net
6,995

192

Net cash provided by operating activities
129,624

83,347

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Capital expenditures - utility
(425,587
)
(286,261
)
Project development costs
(493
)
(6,503
)
Cost of removal, net of salvage
(8,417
)
(6,205
)
Other
(1,463
)
29

Net cash used in investing activities
(435,960
)
(298,940
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 

Short-term debt borrowings
223,000

132,000

Short-term debt repayments
(389,850
)
(77,000
)
Long-term borrowings, net of discount
347,662

404,712

Retirement of long-term debt, including make-whole provision

(384,324
)
Dividends on common stock
(52,278
)
(37,564
)
Issuance of common stock
134,276

214,366

Equity contributions from shareholders
78,738


Preferred dividends of subsidiary
(1,607
)
(1,607
)
Deferred financing costs paid
(3,809
)
(4,111
)
Retention payments on capital expenditures
(6,693
)
(718
)
Other
(154
)
(368
)
Net cash provided by financing activities
329,285

245,386

Net change in cash and cash equivalents
22,949

29,793

Cash and cash equivalents at beginning of period
21,521

26,933

Cash and cash equivalents at end of period
$
44,470

$
56,726

 
 
 
Supplemental disclosures of cash flow information:
 
 
Cash paid during the period for:
 
 
Interest (net of amount capitalized)
$
41,773

$
57,191

Income taxes
$
15,000

$

 
As of June 30,
 
2016
2015
Non-cash investing activities:
 
 
Accruals for capital expenditures
$
42,382

$
57,829

 
 
 
See notes to unaudited condensed consolidated financial statements.

9


IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

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 (82.35%) and CDPQ (17.65%). 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 more than 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, has converted its coal-fired units to natural gas and uses natural gas and fuel oil to power combustion turbines. The third station, Eagle Valley, retired its coal-fired units in April 2016 and the CCGT at Eagle Valley is expected to be placed into service in April 2017. The fourth station, Georgetown, is a small peaking station that uses natural gas to power combustion turbines. As of June 30, 2016, IPL’s net electric generation capacity for winter is 2,993 MW and net summer capacity is 2,878 MW.

Principles of Consolidation
 
The accompanying Financial Statements include the accounts of IPALCO, IPL and Mid-America Capital Resources, Inc., a non-regulated wholly-owned subsidiary of IPALCO. All significant intercompany amounts have been eliminated. The accompanying Financial Statements are unaudited; however, they have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the SEC. Accordingly, they do not include all of the disclosures required by GAAP for annual fiscal reporting periods. In the opinion of management, all adjustments of a normal recurring nature necessary for fair presentation have been included. The electric utility business is affected by seasonal weather patterns throughout the year and, therefore, the operating revenues and associated operating expenses are not generated evenly by month during the year. These unaudited Financial Statements have been prepared in accordance with the accounting policies described in the audited financial statements filed as Exhibit 99.1 to IPALCO’s current report on Form 8-K filed with the SEC on May 12, 2016, and should be read in conjunction therewith.
 
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 that management is required to make. Actual results may differ from those estimates.
 
New Accounting Pronouncements
 
The following table provides a brief description of recent accounting pronouncements that had and/or could have a material impact on the Company’s consolidated financial statements:
New Accounting Standards Adopted
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
Given the absence of authoritative guidance within ASU 2015-03, this standard 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. Transition method: retrospective.
January 1, 2016
Deferred financing costs related to lines-of-credit of approximately $0.3 million recorded within Deferred Debits were not reclassified as of December 31, 2015.
2015-03, Interest - Imputation of Interest (Subtopic 835-30)
The standard 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 standard. Transition method: retrospective.
January 1, 2016
Deferred financing costs of approximately $20.8 million previously classified within Deferred Debits were reclassified to reduce the related debt liabilities as of December 31, 2015.

10



2015-02, Consolidation —
Amendments to the
Consolidation Analysis
(Topic 810)
The standard 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. Transition method: retrospective.

January 1, 2016
There were no changes to the consolidation conclusions.
New Accounting Standards Issued But Not Yet Effective
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

This standard updates the impairment model for financial assets measured at amortized cost to an expected loss model rather than an incurred loss model. It also allows for the presentation of credit losses on available-for-sale debt securities as an allowance rather than a write down. Transition method: various.


January 1, 2020 Early adoption is permitted only as of January 1, 2019.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
The standard simplifies the following aspects of accounting for share-based payment awards: accounting for income taxes, classification of excess tax benefits on the statement of cash flows, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities and classification of employee taxes paid on statement of cash flows when an employer withholds shares for tax-withholding purposes. Transition method: Various.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-06, Derivatives and Hedging (Topic 815) - Contingent Put and Call Options in Debt Instruments
This standard clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. When a call (put) option is contingently exercisable, an entity will no longer assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. Transition method: a modified retrospective basis to existing debt instruments as of the effective date.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2016-05, Derivatives and Hedging (Topic 815) - Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships
The standard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not require de-designation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met. Transition method: prospective or a modified retrospective basis.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2016-02, Leases (Topic 842)
The standard creates Topic 842, Leases, which supersedes Topic 840, Leases, and introduces a lessee model that brings substantially all leases onto the balance sheet while retaining most of the principles of the existing lessor model in U.S. GAAP and aligning many of those principles with ASC 606, Revenue from Contracts with Customers. Transition method: modified retrospective approach with certain practical expedients.
January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2016-01, Financial Instruments - Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
The standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. Also, it amends certain disclosure requirements associated with the fair value of financial instruments. Transition: cumulative effect in Retained Earnings as of adoption or prospectively for equity investments without readily determinable fair value.
January 1, 2018. Limited early adoption permitted.
The Company is currently evaluating the impact of adopting the standard, but does not anticipate a material impact on its consolidated financial statements.
2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory
The standard replaces the current lower of cost or market test with a lower of cost or net realizable value test. Transition method: prospectively.
January 1, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2014-09, 2016-08,
2016-10, 2016-12
Revenue from Contracts
with Customers (Topic
606),


The Revenue from Contracts with Customers standard provides
a single and comprehensive revenue recognition model for all
contracts with customers to improve comparability. The
standard contains principles to determine the measurement and
timing of revenue recognition. 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. The amendments to
the standard provide further clarification on contract revenue
recognition specifically related to the implementation of the
principal versus agent evaluation, the identification of
performance obligations, clarification on accounting for licenses
of intellectual property, and allows for the election to account for
shipping and handling activities performed after control of a
good has been transferred to the customer as a fulfillment cost.
Transition method: a full retrospective or modified retrospective
approach.



January 1, 2018 (deferred by ASU No. 2015-14). Early application is permitted only as of January 1, 2017.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.


11



2. REGULATORY MATTERS
 
In March 2016, the IURC issued an order authorizing IPL to increase its basic rates and charges by $30.8 million annually. The order also authorized IPL to collect, over a ten year period, $117.7 million of previously deferred regulatory assets related to IPL’s participation in the regional transmission organization known as MISO. Such deferred costs will be amortized to expense over ten years. Accordingly, $11.8 million of IPL’s long-term MISO regulatory asset as of December 31, 2015 has been reclassified to current regulatory assets as of June 30, 2016 on the accompanying Unaudited Condensed Consolidated Balance Sheets. The rate order also authorized an increase in IPL’s depreciation rates of $24.3 million annually compared to the twelve months ended June 30, 2014, which is the period upon which the rate increase was calculated. IPL also received approval to implement three new rate riders for current recovery from customers of ongoing MISO costs, capacity costs and sharing at 50% of wholesale sales margins with customers. The order approved recovery of IPL’s pension expenses and a return on IPL’s discretionary pension fundings. While the IURC noted in the order that they found IPL’s Service Company cost allocations to be reasonable, IPL was directed to request the FERC to review its Service Company allocations. Such review is currently underway. The IURC also closed their investigation into IPL’s underground network.

Some of the intervening parties in the IURC rate case filed petitions for reconsideration of the IURC’s March 2016 order with respect to certain issues. These petitions were subsequently denied by the IURC. In addition, certain intervening parties have filed notices of appeal of the order.


12



The amounts of regulatory assets and regulatory liabilities are as follows:
 
 
June 30, 2016
 
December 31, 2015
 
Recovery Period
 
 
(In Thousands)
 
 
Regulatory Assets
 
 
 
 
 
 
Current:
 
 
 
 
 
 
Undercollections of rate riders
 
$
8,632

 
$

 
Approximately 1 year(1)
Amounts being recovered through base rates
 
13,953

 
8,002

 
Approximately 1 year(1)
Total current regulatory assets
 
$
22,585

 
$
8,002

 
 
Long-term:
 
 
 
 
 
 
Unrecognized pension and other
 
 
 
 
 
 
postretirement benefit plan costs
 
$
217,698

 
$
226,889

 
Various(2)
Income taxes recoverable through rates
 
42,004

 
35,765

 
Various
Deferred MISO costs
 
120,243

 
128,610

 
Through 2026(3)
Unamortized Petersburg Unit 4 carrying
 
 
 
 
 
 
charges and certain other costs
 
10,720

 
11,248

 
Through 2026(1) (4)
Unamortized reacquisition premium on debt
 
22,616

 
23,268

 
Over remaining life of debt
Environmental projects
 
29,392

 
16,876

 
Through 2034(1)(4)
Other miscellaneous
 
2,968

 
5,544

 
To be determined(1)(5)
Total long-term regulatory assets
 
$
445,641

 
$
448,200

 
 
Total regulatory assets
 
$
468,226

 
$
456,202

 
 
Regulatory Liabilities
 
 
 
 
 
 
Current:
 
 
 
 
 
 
Deferred fuel over-collection
 
$
11,259

 
$
19,746

 
Approximately 1 year(1)
FTRs
 
10,035

 
4,150

 
Approximately 1 year(1)
DSM program costs
 

 
4,273

 
Approximately 1 year(1)
Total current regulatory liabilities
 
$
21,294

 
$
28,169

 
 
Long-term:
 
 
 
 
 
 
ARO and accrued asset removal costs
 
$
651,725

 
$
637,065

 
Not Applicable
Unamortized investment tax credit
 
2,065

 
2,451

 
Through 2021
Other miscellaneous
 
208

 

 
 
Total long-term regulatory liabilities
 
$
653,998

 
$
639,516

 
 
Total regulatory liabilities
 
$
675,292

 
$
667,685

 
 
 
(1)
Recovered (credited) per specific rate orders
(2)
IPL receives a return on its discretionary funding
(3)
The majority of these costs are being recovered per specific rate order; for the remaining costs recovery is probable but timing not yet determined
(4)
Recovered with a current return
(5)
A portion of this amount will be recovered over the next two years



13


3. FAIR VALUE
 
Fair Value Hierarchy
 
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.
 
As of June 30, 2016 and December 31, 2015, all of IPALCO’s financial assets or liabilities adjusted to fair value on a recurring basis (excluding pension assets – see Note 7, “Benefit Plans”) were considered Level 3, based on the above fair value hierarchy. These primarily consisted of FTRs, which are used to offset MISO congestion charges. Because the benefit associated with FTRs is a flow-through to IPL’s jurisdictional customers, IPL records a regulatory liability matching the value of the FTRs. In addition, IPALCO had one financial asset, a nonutility investment accounted for using the cost method of accounting, which is measured at fair value on a nonrecurring basis, again using Level 3 measurements. No adjustments were made to this asset during the periods covered by this report. All of these financial assets and liabilities were not material to the Financial Statements in the periods covered by this report, individually or in the aggregate.
 
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.

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 June 30, 2016 and December 31, 2015, ARO liabilities were $58.5 million and $59.0 million, respectively. 

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.


14


The following table shows the face value and the fair value of fixed-rate and variable-rate indebtedness (Level 2) for the periods ending:  
 
June 30, 2016
December 31, 2015
 
Face Value
Fair Value
Face Value
Fair Value
 
(In Millions)
Fixed-rate
$
2,438.5

$
2,716.8

$
2,088.4

$
2,225.3

Variable-rate
90.0

90.0

256.9

256.9

Total indebtedness
$
2,528.5

$
2,806.8

$
2,345.3

$
2,482.2

 
The difference between the face value and the carrying value of this indebtedness represents the following:

unamortized deferred financing costs of $23.4 million and $20.8 million at June 30, 2016 and December 31, 2015, respectively; and

unamortized discounts of $6.9 million and $4.6 million at June 30, 2016 and December 31, 2015, respectively.

4. EQUITY
 
On February 11, 2015, IPALCO issued and sold 100 shares of IPALCO’s common stock to CDPQ under the Subscription Agreement. On April 1, 2015, IPALCO issued and sold 11,818,828 shares of IPALCO’s common stock to CDPQ for $214.4 million under the Subscription Agreement. On March 1, 2016, IPALCO issued and sold 7,403,213 shares of IPALCO’s common stock to CDPQ for $134.3 million under the Subscription Agreement. After completion of these transactions, CDPQ’s direct and indirect interest in IPALCO is 30%. On June 1, 2016, IPALCO received equity capital contributions of (i) $64.8 million from AES U.S. Investments and (ii) $13.9 million from CDPQ. IPALCO then made the same investments in IPL. The proceeds were primarily used for funding needs related to IPL’s environmental and replacement generation projects. The capital contributions on June 1, 2016 were made on a proportional share basis and, therefore, did not change CDPQ’s or AES’ ownership interests in IPALCO.

15


5. DEBT
 
Long-Term Debt
 
The following table presents our long-term debt:
 
 
June 30,
December 31,
Series
Due
2016
2015
 
 
(In Thousands)
IPL first mortgage bonds:
 
 
5.40% (1)
August 2017
$
24,650

$
24,650

3.875% (2)
August 2021
55,000

55,000

3.875% (2)
August 2021
40,000

40,000

4.55% (2)
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

260,000

4.05%
May 2046
350,000


Unamortized discount – net
 
(6,537
)
(4,242
)
Deferred financing costs (3)
 
(17,429
)
(13,703
)
Total IPL first mortgage bonds
1,609,484

1,265,505

IPL unsecured debt:
 
 
Variable (4)
December 2020
30,000

30,000

Variable (4)
December 2020
60,000

60,000

Total IPL unsecured debt
 
90,000

90,000

Total Long-term Debt – IPL
1,699,484

1,355,505

Long-term Debt – IPALCO:
 

 

5.00% Senior Secured Notes
May 2018
400,000

400,000

3.45% Senior Secured Notes
July 2020
405,000

405,000

Unamortized discount – net
 
(335
)
(371
)
Deferred financing costs (3)
 
(5,949
)
(6,858
)
Total Long-term Debt – IPALCO
798,716

797,771

Total Consolidated IPALCO Long-term Debt
$
2,498,200

$
2,153,276


(1)
First mortgage bonds are issued to the city of Petersburg, Indiana, to secure the loan of proceeds from tax-exempt bonds issued by the city.
(2)
First mortgage bonds are issued to the Indiana Finance Authority, to secure the loan of proceeds from tax-exempt bonds issued by the Indiana Finance Authority.
(3)
The Company adopted ASU No. 2015-03 on January 1, 2016, which requires the use of the full retrospective approach with respect to the presentation of debt issuance costs, including deferred charges.
(4)
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.


16


Significant Transactions

IPL First Mortgage Bonds

In May 2016, IPL issued $350 million aggregate principal amount of first mortgage bonds, 4.05% Series, due May 2046, pursuant to Rule 144A and Regulation S under the Securities Act. Net proceeds from this offering were approximately $343.6 million, after deducting the initial purchasers’ discounts and fees and expenses for the offering payable by IPL. The net proceeds from this offering were used to finance a portion of IPL’s construction program and capital costs related to environmental and replacement generation projects, to repay outstanding borrowings under IPL’s 364-day delayed-draw term loan and other short-term debt, and for other general corporate purposes.

IPL Unsecured Notes

In May 2016, IPL repaid $91.85 million in outstanding borrowings under its 364-day delayed-draw term loan with a portion of the proceeds from its $350 million aggregate principal amount of first mortgage bonds as described above in IPL First Mortgage Bonds.

IPALCOs 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 $19.3 million for the 2016 IPALCO Notes tendered in June 2015 is included as a separate line item within “Other Income and (Deductions)” in the accompanying Unaudited Condensed 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.

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 June 30, 2016 and December 31, 2015, IPL had $0.0 million and $75.0 million in outstanding borrowings on the committed line of credit, respectively. 


17


6. INCOME TAXES
 
IPALCO’s effective combined state and federal income tax rates were 33.3% and 33.0% for the three and six months ended June 30, 2016, respectively, as compared to 38.4% and 35.4% for the three and six months ended June 30, 2015, respectively. The decrease in the effective tax rates versus the comparable periods was primarily the result of an increase in the allowance for equity funds used during construction in 2016 and the manufacturer’s production deduction (Internal Revenue Code Section 199) that had been previously disallowed due to a Net Operating Loss carryover.
 
7. BENEFIT PLANS
 
The following table (in thousands) presents information for the six months ended June 30, 2016, relating to the Pension Plans:
Net unfunded status of plans:
 

Net unfunded status at December 31, 2015, before tax adjustments
$
(76,314
)
Net benefit cost components reflected in net unfunded status during first quarter:
 

   Service cost
(1,754
)
   Interest cost
(6,454
)
   Expected return on assets
10,873

   Employer contributions
15,900

Net unfunded status at March 31, 2016, before tax adjustments
$
(57,749
)
Net benefit cost components reflected in net unfunded status during second quarter:
 

   Service cost
$
(1,755
)
   Interest cost
(6,454
)
   Expected return on assets
10,874

Net unfunded status at June 30, 2016, before tax adjustments
$
(55,084
)
 
 
Regulatory assets related to pensions(1):
 
Regulatory assets at December 31, 2015, before tax adjustments
$
235,094

Amount reclassified through net benefit cost: 
 

Amortization of prior service cost
(1,296
)
Amortization of net actuarial loss
(3,474
)
Regulatory assets at March 31, 2016, before tax adjustments
$
230,324

Amount reclassified through net benefit cost: 
 

Amortization of prior service cost
$
(1,296
)
Amortization of net actuarial loss
(3,474
)
Regulatory assets at June 30, 2016, before tax adjustments
$
225,554

 
 
(1)
Amounts that would otherwise be charged/credited to Accumulated Other Comprehensive Income or Loss upon application of ASC 715, “Compensation – Retirement Benefits,” are recorded as a regulatory asset or liability because IPL has historically recovered and currently recovers pension and other postretirement benefit expenses in rates. These are unrecognized amounts yet to be recognized as components of net periodic benefit costs.

 

18


Pension Expense
 
The following table presents net periodic benefit cost information relating to the Pension Plans combined:

 
For the Three Months Ended,
For the Six Months Ended,
 
June 30,
June 30,
 
2016
2015
2016
2015
 
(In Thousands)
(In Thousands)
Components of net periodic benefit cost:
 
 
 
 
Service cost
$
1,755

$
2,078

$
3,509

$
4,157

Interest cost
6,454

7,408

12,908

14,816

Expected return on plan assets
(10,874
)
(11,206
)
(21,747
)
(22,412
)
Amortization of prior service cost
1,296

1,217

2,592

2,433

Amortization of actuarial loss
3,474

3,475

6,948

6,950

Net periodic benefit cost
$
2,105

$
2,972

$
4,210

$
5,944


In addition, IPL provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. These postretirement health care benefits and the related unfunded obligation were $4.7 million and $4.5 million at June 30, 2016 and December 31, 2015, respectively. The related expense was not material to the Financial Statements in the periods covered by this report.

8. COMMITMENTS AND CONTINGENCIES
 
Legal Loss Contingencies
 
IPALCO and IPL are involved in litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management believes that the final outcome will not have a material adverse effect on IPALCO’s results of operations, financial condition and cash flows. Amounts accrued or expensed for legal or environmental contingencies collectively during the periods covered by this report have not been material to the Financial Statements of IPALCO.
 
Environmental Loss Contingencies
 
We are subject to various federal, state, regional and local environmental protection and health and safety laws and regulations governing, among other things, the generation, storage, handling, use, disposal and transportation of hazardous materials; the emission and discharge of hazardous and other materials into the environment; and the health and safety of our employees. These laws and regulations often require a lengthy and complex process of obtaining and renewing permits and other governmental authorizations from federal, state and local agencies. Violation of these laws, regulations or permits can result in substantial fines, other sanctions, permit revocation and/or facility shutdowns. We cannot assure that we have been or will be at all times in full compliance with such laws, regulations and permits.
 
New Source Review
 
In October 2009, IPL received a NOV and Finding of Violation from the EPA pursuant to the CAA Section 113(a). The NOV alleges violations of the CAA at IPL’s three primarily coal-fired electric generating facilities at the time, dating back to 1986. The alleged violations primarily pertain to the PSD and nonattainment New Source Review requirements under the CAA. Since receiving the letter, IPL management has met with the EPA staff regarding possible resolutions of the NOV. At this time, we cannot predict the ultimate resolution of this matter. However, settlements and litigated outcomes of similar cases have required companies to pay civil penalties, install additional pollution control technology on coal-fired electric generating units, retire existing generating units, and invest in additional environmental projects. A similar outcome in this case could have a material impact on our business. We would seek recovery of any operating or capital expenditures, but not fines or penalties, related to air pollution control technology to reduce regulated air emissions; however, there can be no assurances that we would be successful in this regard. IPL has recorded a contingent liability related to this matter.
 

19




9. RELATED PARTY TRANSACTIONS
 
Service Company

Effective January 1, 2014, the Service Company began providing services including operations, accounting, legal, human resources, information technology and other corporate services on behalf of companies that are part of the U.S. SBU, including among other companies, IPALCO and IPL. The Service Company allocates the costs for these services based on cost drivers designed to result in fair and equitable allocations. This includes ensuring that the regulated utilities served, including IPL, are not subsidizing costs incurred for the benefit of non-regulated businesses. Total costs incurred by the Service Company on behalf of IPALCO were $13.5 million and $12.2 million during the six-month periods ended June 30, 2016 and 2015, respectively, and were included in “Other operating expenses” on our Unaudited Condensed Consolidated Statements of Operations. Total costs incurred by IPALCO on behalf of the Service Company were $4.1 million and $3.7 million during the six-month periods ended June 30, 2016 and 2015, respectively. IPALCO had a prepaid balance with the Service Company of $3.2 million and $1.2 million as of June 30, 2016 and December 31, 2015, respectively.

CDPQ

Please refer to Note 4, “Equity” for further details.

Other

In 2014, IPL engaged a third party vendor as part of its replacement generation construction projects. A member of the AES Board of Directors is also currently a member of the Supervisory Board of this vendor. IPL had billings from this vendor of $169.9 million and $91.1 million during the six-month periods ended June 30, 2016 and 2015, respectively. IPL had a payable balance to this vendor of $11.1 million and $34.0 million as of June 30, 2016 and December 31, 2015, respectively.

10. SEGMENT INFORMATION
 
Operating segments are components of an enterprise that engage in business activities from which it may earn revenues and incur expenses, for which separate financial information is available, and is evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources. Substantially all of our business consists of the generation, transmission, distribution and sale of electric energy conducted through IPL which is a vertically integrated electric utility. IPALCO’s reportable business segment is its utility segment, with all other non-utility business activities aggregated separately. The non-utility category primarily includes the 2018 IPALCO Notes and the 2020 IPALCO Notes; approximately $15.2 million and $1.7 million of cash and cash equivalents, as of June 30, 2016 and December 31, 2015, respectively; long-term investments of $5.1 million and $5.2 million at June 30, 2016 and December 31, 2015, respectively; and income taxes, deferred taxes, and interest related to those items. All other non-utility assets represented less than 1% of IPALCO’s total assets as of June 30, 2016 and December 31, 2015. Net income for the utility segment was $70.1 million and $45.0 million for the six-month periods ended June 30, 2016 and 2015, respectively, and $36.4 million and $15.3 million for the three-month periods ended June 30, 2016 and 2015, respectively. The accounting policies of the identified segment are consistent with those policies and procedures described in the summary of significant accounting policies. Intersegment sales, if any, are generally based on prices that reflect the current market conditions.
 




20


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with the Financial Statements and the notes thereto included in “Item 1. Financial Statements” included in Part I – Financial Information of this Form 10-Q. The following discussion contains forward-looking statements. Our actual results may differ materially from the results suggested by these forward-looking statements. Please see “Forward–Looking Statements” at the beginning of this Form 10-Q.
 
RESULTS OF OPERATIONS
 
The electric utility business is affected by seasonal weather patterns throughout the year and, therefore, the operating revenues and associated expenses are not generated evenly by month during the year. 
 
Comparison of three months ended June 30, 2016 and three months ended June 30, 2015
 
Utility Operating Revenues
 
Utility operating revenues during the three months ended June 30, 2016 increased by $30.8 million compared to the same period in 2015, which resulted from the following changes (dollars in thousands):
 
 
Three Months Ended
 
 
 
June 30,
 
Percentage
 
2016
2015
Change
Change
Utility operating revenues:
 
 
 
 
Retail revenues
$
314,105

$
280,952

$
33,153

11.8%
Wholesale revenues
3,012

6,624

(3,612
)
(54.5)%
Miscellaneous revenues
6,172

4,901

1,271

25.9%
Total utility operating revenues
$
323,289

$
292,477

$
30,812

10.5%
 
 
 
 
 
Heating degree days:
 
 
 
 
Actual
508

408

100

24.5%
30-year average
499

499

 
 
 
 
 
 
 
Cooling degree days:
 
 
 
 
Actual
401

399

2

0.5%
30-year average
343

339

 
 
 
 
 
 
 
 
The increase in retail revenues of $33.2 million was primarily due to (i) a net increase in the weighted average price per kWh sold ($29.8 million) and (ii) the one-time impact of recognizing in IPL’s unbilled revenue calculation the increase in IPL’s base rates relating to revenues that were previously charged through IPL’s environmental cost recovery rate adjustment mechanism, or rider ($3.8 million). While billed through a rider, such revenues relating to environmental cost recovery were not includable in our unbilled calculation. The $29.8 million increase in the weighted average price of retail kWh sold was primarily due to a $20.4 million increase in revenues related to environmental projects, primarily MATS; a $4.6 million increase in DSM program rate adjustment mechanism revenues; and the impacts of implementing the 2016 rate order along with other retail rate variances, partially offset by a $12.3 million decrease in fuel revenues. The change in the volume of kWh sold was immaterial.

The decrease in wholesale revenues of $3.6 million was primarily due to a 55% decrease in the quantity of kWh sold ($4.2 million) as IPL’s generation units were not called upon by MISO to produce electricity as often during the second quarter of 2016 compared to the second quarter of 2015 largely due to unit availability, partially offset by a 22% increase in the weighted average price per kWh sold ($0.6 million). Our ability to be dispatched in the MISO market is primarily driven by the

21


locational marginal price of electricity and variable generation costs. The amount of electricity available for wholesale sales is impacted by our retail load requirements, generation capacity and unit availability.

Utility Operating Expenses
 
The following table illustrates our primary operating expense changes from the three months ended June 30, 2015 to the three months ended June 30, 2016 (dollars in millions):
 
 
Operating expenses for the three months ended June 30, 2015
$
266.4

Decrease in fuel costs
(23.9
)
Increase in depreciation and amortization costs
15.0

Increase in power purchased
9.0

Increase in income taxes - net
8.6

Decrease in maintenance expenses
(4.3
)
Increase in MISO non-purchased power costs
4.3

Increase in DSM program costs
3.3

Other miscellaneous variances
0.6

Operating expenses for the three months ended June 30, 2016
$
279.0

 
 
 
The $23.9 million decrease in fuel costs was primarily due to a $13.4 million decrease in deferred fuel costs, which was primarily the result of the one-time impact of recognizing in IPL’s deferred fuel calculation the increase in base rates relating to fuel revenues that were previously charged through a rate adjustment mechanism or rider ($14.2 million). While part of the fuel rider, IPL’s unbilled fuel revenues were offset in the financial statements by an increase to fuel expense, which is no longer necessary now that these fuel revenues are included in base rates. In addition, the decrease in fuel costs includes a $4.2 million decrease in the price of coal we consumed versus the comparable period, a $3.8 million decrease in the quantity of fuel consumed as the result of a decrease in total kWh sales volume versus the comparable period, and a $2.2 million decrease in the price of natural gas we consumed versus the comparable period. We are generally permitted to recover underestimated fuel and purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into expense in the same period that our rates are adjusted to reflect these variances.
 
The increase in depreciation and amortization costs of $15.0 million was primarily due to an $8.8 million impact from the amortization of previously deferred environmental costs, as well as the deferral for less of these costs in the current year. The remaining $6.2 million increase was primarily due to additional assets placed in service and new depreciation and ARO rates implemented beginning in April 2016, partially offset by the impact of the retirements of coal assets at our Eagle Valley and Harding Street stations.

The $9.0 million increase in purchased power costs was primarily due to a 32% increase in the volume of power purchased during the period ($8.9 million), partially offset by an 8% decrease in the market price of purchased power ($2.6 million). The volume of power we purchase each period is primarily influenced by our retail demand, our generating unit capacity and outages, and the fact that at times it is less expensive for us to buy power in the market than to produce it ourselves. The market price of purchased power is influenced primarily by changes in the market price of delivered fuel (primarily natural gas), the price of environmental emissions allowances, the supply of and demand for electricity, and the time of day in which power is purchased. Additionally, MISO non-fuel purchased power costs increased $2.6 million, which includes both the current period costs and the amortization of previously deferred costs, which were included in customer billing rates beginning April 1, 2016. Such costs were deferred as a regulatory asset prior to April 1, 2016 and are now being amortized to expense over a ten-year period.

The $8.6 million increase in income taxes - net was primarily due to the tax effect of the increase in pretax net operating income, for the reasons previously described.

Maintenance expenses decreased $4.3 million versus the comparable period primarily due to decreased outages and the retirement of our Eagle Valley station’s coal-fired units in April 2016.

MISO non-purchased power costs increased $4.3 million, which includes both the current period costs and the amortization of previously deferred costs, which were included in IPL's customer billing rates beginning April 1, 2016. Such costs were deferred as a regulatory asset prior to April 1, 2016 and are now being amortized to expense over a ten-year period.

22



The increase in DSM program costs of $3.3 million, which are included in “Other operating expenses” on our Unaudited Condensed Consolidated Statements of Operations and are recoverable through customer rates, is correlated to an increase in DSM rate adjustment mechanism revenues as a result of timing differences in spending patterns.

Other Income and Deductions
 
Other income and deductions increased $13.7 million, from a loss of $4.4 million for the three months ended June 30, 2015, to income of $9.3 million for the same period in 2016. The increase was primarily due to (i) a $19.3 million loss on early extinguishment of debt for $366.5 million of 2016 IPALCO Notes that were tendered in June 2015 and (ii) a $3.5 million increase in the allowance for equity funds used during construction as a result of increased construction activity during 2016. These increases were partially offset by a decrease in the income tax benefit of $9.8 million, which was primarily due to the change in pretax nonoperating income during the comparable periods.

Interest and Other Charges
 
Interest and other charges decreased $3.4 million, or 13%, for the three months ended June 30, 2016, primarily due to a $3.1 million change in the allowance for borrowed funds used during construction as a result of increased construction activity.   

Comparison of six months ended June 30, 2016 and six months ended June 30, 2015
 
Utility Operating Revenues
 
Utility operating revenues during the six months ended June 30, 2016 increased by $26.4 million compared to the same period in 2015, which resulted from the following changes (dollars in thousands):
 
 
Six Months Ended
 
 
 
June 30,
 
Percentage
 
2016
2015
Change
Change
Utility operating revenues:
 
 
 
 
Retail revenues
$
635,873

$
602,113

$
33,760

5.6%
Wholesale revenues
3,788

12,306

(8,518
)
(69.2)%
Miscellaneous revenues
11,373

10,259

1,114

10.9%
Total utility operating revenues
$
651,034

$
624,678

$
26,356

4.2%
 
 
 
 
 
Heating degree days:
 
 
 
 
Actual
2,971

3,644

(673
)
(18.5)%
30-year average
3,250

3,222

 
 
 
 
 
 
 
Cooling degree days:
 
 
 
 
Actual
401

399

2

0.5%
30-year average
343

343

 
 
 
 
 
 
 
 
The increase in retail revenues of $33.8 million was primarily due to a net increase in the weighted average price per kWh sold ($45.8 million), partially offset by a 5% decrease in the volume of kWh sold ($15.8 million). The $45.8 million increase in the weighted average price of retail kWh sold was primarily due to a $35.1 million increase in revenues related to environmental projects, primarily MATS; DSM program rate adjustment mechanism revenues of $7.0 million; and the impact of implementing the 2016 rate order and favorable block rate variances, which generally provides for residential and commercial customers to be charged a higher per kWh rate at lower consumption levels. Therefore, as volumes decrease, the weighted average price per kWh increases. The increase in the weighted average price of retail kWh sold was partially offset by a $19.3 million decrease in fuel revenues. The majority of the increases in environmental and DSM revenues are offset by increased operating expenses,

23


including depreciation and amortization. The $15.8 million decrease in the volume of kWh sold was primarily due to warmer temperatures in our service territory during the first half of 2016 versus the comparable period (as demonstrated by the 18% decrease in heating degree days, as shown above). The increase in retail revenues also includes the one-time impact of recognizing in IPL’s unbilled revenue calculation the increase in IPL’s base rates relating to revenues that were previously charged through IPL’s environmental cost recovery rate adjustment mechanism, or rider ($3.8 million). While billed through a rider, such revenues relating to environmental cost recovery were not includable in our unbilled calculation.

The decrease in wholesale revenues of $8.5 million was primarily due to a 69% decrease in the quantity of kWh sold ($8.7 million) as IPL’s generation units were not called upon by MISO to produce electricity as often during the first half of 2016 compared to the first half of 2015 largely due to unit availability; partially offset by a 6% increase in the weighted average price per kWh sold ($0.2 million). Our ability to be dispatched in the MISO market is primarily driven by the locational marginal price of electricity and variable generation costs. The amount of electricity available for wholesale sales is impacted by our retail load requirements, generation capacity and unit availability.

Utility Operating Expenses
 
The following table illustrates our primary operating expense changes from the six months ended June 30, 2015 to the six months ended June 30, 2016 (dollars in millions):
 
 
Operating expenses for the six months ended June 30, 2015
$
558.2

Decrease in fuel costs
(42.9
)
Increase in depreciation and amortization costs
21.8

Increase in power purchased
18.9

Increase in income taxes - net
6.9

Increase in DSM program costs
5.4

Decrease in maintenance expenses
(5.0
)
Increase in non-purchased power MISO costs
4.3

Other miscellaneous variances
(1.1
)
Operating expenses for the six months ended June 30, 2016
$
566.5

 
 
 
The $42.9 million decrease in fuel costs was primarily due to (i) a $29.3 million decrease in the quantity of fuel consumed as the result of a decrease in total kWh sales volume versus the comparable period, (ii) an $8.2 million decrease in the price of natural gas we consumed versus the comparable period, (iii) a $4.7 million decrease in the price of coal we consumed versus the comparable period, (iv) a $0.9 million decrease in the price of oil we consumed versus the comparable period; partially offset by (v) a $0.6 million increase in deferred fuel costs, which includes the one-time impact of recognizing in IPL’s deferred fuel calculation the increase in base rates relating to fuel revenues that were previously charged through a rate adjustment mechanism or rider ($14.2 million). While part of the fuel rider, IPL’s unbilled fuel revenues were offset in the financial statements by an increase to fuel expense, which is no longer necessary now that these fuel revenues are included in base rates. We are generally permitted to recover underestimated fuel and purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into expense in the same period that our rates are adjusted to reflect these variances.
 
The increase in depreciation and amortization costs of $21.8 million was primarily due to an $11.2 million impact from the amortization of previously deferred environmental costs, as well as the deferral for less of these costs in the current year. The remaining $10.6 million increase was due to additional assets placed in service and new depreciation and ARO rates implemented beginning in April 2016, partially offset by the impact of the retirements of coal assets at our Eagle Valley and Harding Street stations.

The $18.9 million increase in purchased power costs was primarily due to a 98% increase in the volume of power purchased during the period ($62.3 million), partially offset by a 32% decrease in the market price of purchased power ($46.4 million). The volume of power we purchase each period is primarily influenced by our retail demand, our generating unit capacity and outages, and the fact that at times it is less expensive for us to buy power in the market than to produce it ourselves. The market price of purchased power is influenced primarily by changes in the market price of delivered fuel (primarily natural gas), the price of environmental emissions allowances, the supply of and demand for electricity, and the time of day in which power is purchased. Additionally, MISO non-fuel purchased power costs increased $2.6 million, which includes both the current period costs and the amortization of previously deferred costs, which were included in customer billing rates beginning April 1, 2016.

24


Such costs were deferred as a regulatory asset prior to April 1, 2016 and are now being amortized to expense over a ten-year period.

The $6.9 million increase in income taxes - net was primarily due to the tax effect of the increase in pretax net operating income, for the reasons previously described.

The increase in DSM program costs of $5.4 million, which are included in “Other operating expenses” on our Unaudited Condensed Consolidated Statements of Operations and are recoverable through customer rates, is correlated to an increase in DSM rate adjustment mechanism revenues as a result of timing differences in spending patterns.

Maintenance expenses decreased $5.0 million versus the comparable period primarily due to decreased outages and the retirement of our Eagle Valley station’s coal-fired units in April 2016.

MISO non-purchased power costs increased $4.3 million, which includes both the current period costs and the amortization of previously deferred costs, which were included in IPL's customer billing rates beginning April 1, 2016. Such costs were deferred as a regulatory asset prior to April 1, 2016 and are now being amortized to expense over a ten-year period.

Other Income and Deductions
 
Other income and deductions increased $14.3 million, from income of $4.2 million for the six months ended June 30, 2015, to income of $18.5 million for the same period in 2016. The increase was primarily due to (i) a $19.3 million loss on early extinguishment of debt for $366.5 million of 2016 IPALCO Notes that were tendered in June 2015 and (ii) a $7.1 million increase in the allowance for equity funds used during construction as a result of increased construction activity. These increases were partially offset by a decrease in the income tax benefit of $12.3 million, which was primarily due to the change in pretax nonoperating income during the comparable periods.

Interest and Other Charges
 
Interest and other charges decreased $8.2 million, or 15%, for the six months ended June 30, 2016, primarily due to a $6.2 million change in the allowance for borrowed funds used during construction as a result of increased construction activity and
lower interest of $1.8 million on long-term debt.   


25



CAPITAL RESOURCES AND LIQUIDITY
 
Overview
 
As of June 30, 2016, we had unrestricted cash and cash equivalents of $44.5 million and available borrowing capacity of $250.0 million under our $250.0 million unsecured revolving credit facility after outstanding borrowings and existing letters of credit. 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. We have approval from FERC to borrow up to $500 million of short-term indebtedness outstanding at any time through July 27, 2018. In December 2015, we received an order from the IURC granting us authority through December 31, 2018 to, among other things, issue up to $650 million in aggregate principal amount of long-term debt and refinance up to $196.5 million in existing indebtedness. As of June 30, 2016, we have a total of $146.5 million of remaining debt issuance authority available under this order. This order also grants us authority to have up to $500 million of long-term credit agreements and liquidity facilities outstanding at any one time, of which $250.0 million remains available, and, as an alternative to the sale of all or a portion of $65 million in principal of the long-term debt mentioned above, issue up to $65 million of new preferred stock, all of which remains available under the order as of June 30, 2016. We also have 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. We do not believe such restrictions will be a limiting factor in our ability to issue debt in the ordinary course of prudent business operations.

We believe that existing cash balances, cash generated from operating activities and borrowing capacity on our committed credit facility will be adequate for the foreseeable future to meet anticipated operating expenses, interest expense on outstanding indebtedness, recurring capital expenditures and to pay dividends to AES U.S. Investments and CDPQ. Sources for principal payments on outstanding indebtedness and nonrecurring capital expenditures are expected to be obtained from: (i) existing cash balances; (ii) cash generated from operating activities; (iii) borrowing capacity on our committed credit facility; and (iv) additional debt financing. In addition, due to current and expected future environmental regulations and replacement generation projects, equity capital from AES and CDPQ has been used as a significant funding source during the first half of 2016 and in recent years. In March 2016 and April 2015, IPALCO received equity capital contributions of $134.3 million and $214.4 million, respectively, from the issuance of 7,403,213 and 11,818,828 shares of common stock, respectively, to CDPQ for funding needs primarily related to existing environmental and replacement generation projects at IPL, which IPALCO then made the same investments in IPL. On June 1, 2016, IPALCO received equity capital contributions of (i) $64.8 million from AES U.S. Investments and (ii) $13.9 million from CDPQ. IPALCO then made the same investments in IPL. The proceeds were primarily used for funding needs related to IPL’s environmental and replacement generation projects.

Capital Requirements
 
Capital Expenditures
 
Our construction program is composed of capital expenditures necessary for prudent utility operations and compliance with environmental laws and regulations, along with discretionary investments designed to replace aging equipment or improve overall performance. Our capital expenditures totaled $432.3 million (which includes $6.7 million of payments for financed capital expenditures) and $287.0 million (which includes $0.7 million for financed capital expenditures) for the six-month periods ended June 30, 2016 and 2015, respectively. The increase in capital expenditures of $145.3 million in 2016 versus 2015 was primarily driven by construction costs related to replacement generation and our environmental construction program. Construction expenditures during the first six months of 2016 and 2015 were financed primarily with internally generated cash provided by operations, borrowings on our credit facility, long-term borrowings, and equity capital contributions.

Our capital expenditure program, including development and permitting costs, for the three-year period from 2016 to 2018 is currently estimated to cost approximately $541 million (excluding environmental compliance and replacement generation costs). It includes approximately $294 million for additions, improvements and extensions to transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers and street lighting facilities. The capital expenditure program also includes approximately $178 million for power plant-related projects and $69 million for other miscellaneous equipment.

IPL also plans to spend a total of $632 million (of which $535 million has been expended through June 30, 2016) on replacement generation costs through 2018 as a result of the retirement of existing facilities not equipped with advanced environmental control technologies required to comply with existing and expected regulations. The balance of $97 million is projected to be expended in the three-year period from 2016 to 2018.  Please see “Item 1. Business - Environmental Matters - Unit Retirements and Replacement Generation” as described in IPALCO’s 2015 Form 10-K for more details.

26



In addition to the amounts listed above, IPL plans to spend additional amounts related to environmental compliance, including $53 million for the three-year period from 2016 to 2018 to comply with the MATS rule (the majority of the $53 million is expected to be spent in 2016). IPL plans to spend a total of $454 million for this project (of which $425 million has been expended for this project through June 30, 2016). Please see “Item 1. Business - Environmental Matters - MATS” as described in IPALCO’s 2015 Form 10-K for more details.

Other environmental expenditures include costs for compliance with the NPDES permit program under the CWA. The costs for NPDES at our Petersburg station for 2016 to 2018 are expected to be $97 million. IPL plans to spend a total of $224 million for this project (of which $180 million has been expended through June 30, 2016). Also, as a result of environmental regulations, IPL completed the refueling of Unit 7 at our Harding Street station in the second quarter of 2016, converting from coal-fired to natural gas-fired. The 2016 to 2018 cost of the projects necessary to complete this conversion, including costs for NPDES, MATS compliance and dry ash handling, are expected to be $57 million (IPL plans to spend a total of $101 million on this project, including amounts already expended through June 30, 2016). IPL has also included in the 2016 to 2018 forecast $149 million related to environmental compliance for CCR and NAAQS regulations and studies related to cooling water intake requirements in sections 316(a) and 316(b) of the CWA. Please see “Item 1. Business - Environmental Matters - Environmental Wastewater Requirements” as described in IPALCO’s 2015 Form 10-K for more details.

IPL also plans on spending $17 million for the three-year period from 2016 to 2018 for an energy storage facility at its Harding Street station (the majority of the $17 million is expected to be spent in 2016). The total cost of this project is expected to be $26 million (of which $24 million has been expended through June 30, 2016).

Capital Resources

Indebtedness

IPL First Mortgage Bonds

In May 2016, IPL issued $350 million aggregate principal amount of first mortgage bonds, 4.05% Series, due May 2046, pursuant to Rule 144A and Regulation S under the Securities Act. For further discussion, please see Note 5, “Debt - IPL First Mortgage Bonds” to the Financial Statements.

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. Net proceeds from this offering were used to fund the purchase of the 2016 IPALCO Notes. For further discussion, please see Note 5, “Debt - IPALCOs Senior Secured Notes” to the Financial Statements.

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 can be affected by our credit ratings. Any reduction in our debt or credit ratings may adversely affect the trading price of our outstanding debt securities. On April 13, 2016, S&P upgraded the Corporate Credit Rating of IPALCO and IPL to ‘BBB-’ from ‘BB+’ based on S&P’s one-notch upgrade of AES. At the same time, S&P affirmed the issue-level ratings at IPALCO and IPL.


27


The following table presents the debt ratings and credit ratings (issuer/corporate rating) and outlook for IPALCO and IPL, along with the dates each rating was effective or affirmed.
Debt rating
 
IPALCO
 
IPL
 
Outlook
 
Effective or Affirmed
Fitch Ratings
 
BB+ (a)
 
BBB+ (b)
 
Stable
 
December 2015
Moody's Investors Service, Inc.
 
Baa3 (a)
 
A2 (b)
 
Stable
 
October 2015
Standard & Poor's Financial Services LLC
 
BB+ (a)
 
BBB+ (b)
 
Stable
 
April 2016
 
 
 
 
 
 
 
 
 
Credit rating
 
IPALCO
 
IPL
 
Outlook
 
Effective or Affirmed
Fitch Ratings
 
BB+
 
BBB-
 
Stable
 
December 2015
Moody's Investors Service, Inc.
 
 
Baa1
 
Stable
 
October 2015
Standard & Poor's Financial Services LLC
 
BBB-
 
BBB-
 
Stable
 
April 2016
(a)
Rating relates to IPALCO's Senior Secured Notes.
(b)
Rating relates to IPL's Senior Secured Notes.

Dividend Distributions
 
All of IPALCO’s outstanding common stock is held by AES U.S. Investments and CDPQ. During the first six months of 2016 and 2015, we paid $52.3 million and $37.6 million, respectively, in dividends to our shareholders. Future distributions to our shareholders will be determined at the discretion of our board of directors and will depend primarily on dividends received from IPL. Dividends from IPL are affected by IPL’s actual results of operations, financial condition, cash flows, capital requirements, regulatory considerations, and other such factors as IPL’s board of directors deems relevant.

Pension Funding
 
We contributed $15.9 million and $25.0 million to the Pension Plans during the first six months of 2016 and 2015, respectively. We currently do not expect to make additional pension funding payments in 2016. Funding for the qualified Defined Benefit Pension Plan is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under ERISA, as amended by the Pension Protection Act of 2006, as well as targeted funding levels necessary to meet certain thresholds.

Regulatory Matters
 
In March 2016, the IURC issued an order authorizing IPL to increase its basic rates and charges by $30.8 million annually. For further discussion, please see Note 2, “Regulatory Matters” to the Financial Statements.

Environmental Matters
 
We are subject to various federal, state, regional and local environmental protection and health and safety laws, as well as regulations governing, among other things, the generation, storage, handling, use, disposal and transportation of hazardous materials; the emission and discharge of hazardous and other materials into the environment; and the health and safety of our employees. These laws and regulations often require a lengthy and complex process of obtaining and renewing permits and other governmental authorizations from federal, state and local agencies. Violation of these laws, regulations or permits can result in substantial fines, other sanctions, suspension or revocation of permits and/or facility shutdowns. We cannot assure that we have been or will be at all times in full compliance with such laws, regulations and permits.

CCR

The EPA’s final CCR rule became effective on October 19, 2015. Generally, the rule regulates CCR as nonhazardous solid waste and establishes national minimum criteria for existing and new CCR landfills and existing and new CCR surface impoundments (ash ponds), including location restrictions, design and operating criteria, groundwater-monitoring and corrective action, and closure requirements and post closure care.

IPL does not reasonably anticipate that the existing ash ponds at Petersburg will be able to successfully demonstrate compliance with certain structural stability requirements set forth in the CCR rule by the October 17, 2016 deadline. As such, IPL would be required to cease use of the ash ponds by April 17, 2017. However, IDEM has granted IPL a variance extending that deadline to April 11, 2018. In order to handle the bottom ash material that would otherwise be sluiced to the ash ponds, IPL plans to install a dry bottom ash handling system at an estimated cost of approximately $47 million. On May 31, 2016, IPL

28


filed its CCR compliance plans with the IURC. IPL is seeking approval for a CPCN to install the bottom ash dewatering system at its Petersburg generating station. We expect to recover through our environmental rate adjustment mechanism any operating or capital expenditures related to the installation of this system. Recovery of these costs is sought through an Indiana statute that allows for 80% recovery of qualifying costs through a rate adjustment mechanism with the remainder recorded as a regulatory asset to be considered for recovery in the next base rate case proceeding. However, there can be no assurances that we will be successful in that regard. In light of the uncertainties at this time, we cannot predict the impact of these requirements on our consolidated results of operations, cash flows, or financial condition, but it is expected to be material.

NAAQS

SO2. On August 23, 2010, a new one-hour SO2 primary NAAQS became effective. On August 5, 2013, EPA published in the Federal Register its final designations, which include portions of Marion, Morgan, and Pike counties as nonattainment with respect to the one-hour SO2 standard. On September 30, 2015, IDEM published its final rule establishing reduced SO2 limits for IPL facilities in accordance with the new one-hour standard, for the areas in which IPL’s Harding Street, Petersburg, and Eagle Valley generating stations operate with compliance required by January 1, 2017. The rule will not impact IPL’s Eagle Valley or Harding Street generating stations as these facilities have ceased coal combustion in advance of the compliance date. However, improvements to the existing FGD systems at Petersburg station will be required by the rule. IPL estimates costs for compliance at Petersburg station at approximately $48 million for measures that enhance the performance and integrity of the FGD systems. On May 31, 2016, IPL filed its SO2 NAAQS compliance plans with the IURC. IPL is seeking approval for a CPCN for these measures at its Petersburg generating station. We expect to recover through our environmental rate adjustment mechanism any operating or capital expenditures related to compliance with the rule. Recovery of these costs is sought through an Indiana statute that allows for 80% recovery of qualifying costs through a rate adjustment mechanism with the remainder recorded as a regulatory asset to be considered for recovery in the next base rate case proceeding. However, there can be no assurances that we will be successful in that regard. In light of the uncertainties at this time, we cannot predict the impact of the rule on our consolidated results of operations, cash flows, or financial condition, but it is expected to be material.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 
 
There have been no material changes to our quantitative and qualitative disclosure about market risk as previously disclosed in the 2015 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
 
Evaluation of Disclosure Controls and Procedures
 
We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e) and 15-d-15(e)), as required by paragraph (b) of the Exchange Act Rules 13a-15 or 15d-15, as of June 30, 2016. Our management, including the principal executive officer and principal financial officer, is engaged in a comprehensive effort to review, evaluate and improve our controls; however, management does not expect that our disclosure controls or our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree of compliance with the policies or procedures deteriorates. We have interests in certain unconsolidated entities. As we do not
control or manage these entities, our disclosure controls and procedures with respect to such entities is generally more limited than those we maintain with respect to our consolidated subsidiaries. 
 
Based upon the controls evaluation performed, the principal executive officer and principal financial officer have concluded that as of June 30, 2016, our disclosure controls and procedures were effective to provide reasonable assurance that material information relating to us and our consolidated subsidiaries is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
 
Changes in Internal Controls
 
In the course of our evaluation of disclosure controls and procedures, management considered certain internal control areas in which we have made and are continuing to make changes to improve and enhance controls. Based upon that evaluation, the principal executive officer and principal financial officer concluded that there were no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of the Exchange Act Rules 13a-15 or 15d-15 that occurred during the six months ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
 
Please see Note 8, “Commitments and Contingencies” to the Financial Statements included in Part I – Financial Information of this Form 10-Q for a summary of certain legal proceedings involving us. We are also subject to routine litigation, claims and administrative proceedings arising in the ordinary course of business, none of which we believe, based on currently available information, will result in a material adverse effect on our results of operations, financial condition, or cash flows. 
 
ITEM 1A.  RISK FACTORS
 
There have been no material changes to the risk factors as previously disclosed in the 2015 Form 10-K. 
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None. 
 
ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5.  OTHER INFORMATION

None.
 

29



ITEM 6. EXHIBITS
Exhibit No.
Document
 
 
4.1
Sixty-Fourth Supplemental Indenture, dated as of May 1, 2016, to the Mortgage and Deed of Trust, dated as of May 1, 1940, between IPL and the Bank of New York Mellon Trust Company, NA, as Trustee
 
10.1
Second Amendment dated as of April 22, 2016 to Credit Agreement by and among IPL, the Lenders party thereto, Fifth Third Bank, as syndication agent, BMO Harris Bank N.A., as document agent and PNC Bank, National Association, as administrative agent, dated as of May 6, 2014 (as amended by First Amendment thereto dated as of October 16, 2015)
10.2
First Amendment dated as of April 22, 2016 to $91,850,000 364-Day Delayed Draw Term Loan Facility Credit Agreement by and among IPL, the Lenders party thereto, U.S. Bank National Association, as administrative agent, dated as of October 16, 2015
10.3
First Amendment dated as of April 29, 2016 to Note Purchase and Covenants Agreement by and among IPL, the Lenders party thereto and PNC Bank, National Association, as administrative agent relating to $30,000,000 Indiana Finance Authority Environmental Facilities Refunding Revenue Notes, Series 2015A (Indianapolis Power & Light Company Project) and $60,000,000 Indiana Finance Authority Environmental Facilities Refunding Revenue Notes, Series 2015B (Indianapolis Power & Light Company Project) dated as of December 22, 2015
31.1
Certification by Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a)
31.2
Certification by Principal Financial Officer required by Rule 13a-14(a) or 15d-14(a)
32
Certification required by Rule 13a-14(b) or 15d-14(b)
101.INS
XBRL Instance Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.SCH
XBRL Taxonomy Extension Schema Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
 
 
 

30


SIGNATURES
 
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 thereunto duly authorized.
 
 
 
 
 
IPALCO ENTERPRISES, INC.
 
 
 
 
 
Date:
 
August 4, 2016
 
/s/ Craig L. Jackson
 
 
 
 
Craig L. Jackson
 
 
 
 
Chief Financial Officer
 
 
 
 
(Principal Financial Officer) 
 
 
 
 
 
Date:
 
August 4, 2016
 
/s/ Kurt A. Tornquist
 
 
 
 
Kurt A. Tornquist
 
 
 
 
Controller
 
 
 
 
(Principal Accounting Officer)

31


Exhibit 31.1
 
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
 
 
I, Kenneth J. Zagzebski, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of IPALCO Enterprises, Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
 
August 4, 2016
 
/s/ Kenneth J. Zagzebski
 
 
 
 
Kenneth J. Zagzebski
 
 
 
 
Chief Executive Officer

32


Exhibit 31.2
 
Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
 
 
I, Craig L. Jackson, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of IPALCO Enterprises, Inc. (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date:
 
August 4, 2016
 
/s/ Craig L. Jackson
 
 
 
 
Craig L. Jackson
 
 
 
 
Chief Financial Officer

33


Exhibit 32
 
Certification Pursuant to Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q for the period ended June 30, 2016 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
Kenneth J. Zagzebski, Chief Executive Officer and Craig L. Jackson, Chief Financial Officer of IPALCO Enterprises, Inc. (“IPALCO”), each certifies that, to the best of his knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of IPALCO.
Date:
 
August 4, 2016
 
/s/ Kenneth J. Zagzebski
 
 
 
 
Kenneth J. Zagzebski
 
 
 
 
Chief Executive Officer
 
 
 
 
 
Date:
 
August 4, 2016
 
/s/ Craig L. Jackson
 
 
 
 
Craig L. Jackson
 
 
 
 
Chief Financial Officer
 
A signed original of this written statement required by Section 906 has been provided to IPALCO and will be retained by IPALCO and furnished to the Securities and Exchange Commission or its staff upon request.

34
EX-4.1 2 ipalco10q20160630ex41.htm EXHIBIT 4.1 Exhibit











INDIANAPOLIS POWER & LIGHT COMPANY
TO
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
Trustee

________

Sixty-Fourth Supplemental Indenture
________


Dated as of May 1, 2016


ESTABLISHING FIRST MORTGAGE BONDS,
4.05% Series, Due 2046
















i


TABLE OF CONTENTS*

of
SIXTY-FOURTH SUPPLEMENTAL INDENTURE
of
INDIANAPOLIS POWER & LIGHT COMPANY

                            
 
 
Page
PARTIES
 
1
RECITALS
 
1
SECTION 1
Granting clauses
3
 
     Part I Electric Distributing Systems
3
 
     Part II Reserved
4
 
     Part III Indeterminate Permits and Franchises
4
 
     Part IV Other Property
4
SECTION 2
Definitions
5
SECTION 3
Designation and Authentication of 2046 Bonds
7
SECTION 4
Optional Redemption
10
SECTION 5
Registration, Transfer and Exchange
12
SECTION 6
Restrictions on Transfer and Exchange
15
SECTION 7
Temporary Offshore Global Bond
17
SECTION 8
Form of fully registered bond
17
 
Form of Trustee's certificate on bonds
18
SECTION 9
Temporary Bonds
23
SECTION 10
Annual Payments for Maintenance and Improvement Fund
23
SECTION 11
Compliance with Section 47 of Original Mortgage with
 
 
   respect to dividend restrictions
24

*Table of Contents is not part of this Sixty-Fourth Supplemental Indenture and should not be considered such. It is included herein only for purposes of convenient reference.

















ii



 
 
Page
SECTION 12
Rule 144A Information Request
24
SECTION 13
Acceptance of trusts by Trustee and conditions of
 
 
   Acceptance
24
SECTION 14
Successors and assigns
25
SECTION 15
Limitation of rights hereunder
26
SECTION 16
Compliance with terms, provisions and conditions of
 
 
   Mortgage
26
SECTION 17
Execution in counterparts
26
SECTION 18
Waiver of jury trial
26
SIGNATURES AND SEALS
27
ACKNOWLEDGEENTS
29
 
 
 
EXHIBITS
 
 
 
 
 
EXHIBIT A
Certificate of Beneficial Ownership
 
EXHIBIT B
DTC Legend
 
EXHIBIT C
Regulation S Certificate
 
EXHIBIT D
Restricted Legend
 
EXHIBIT E
Rule 144A Certificate
 
EXHIBIT F
Temporary Offshore DTC Legend
 








1



THIS SIXTY-FOURTH SUPPLEMENTAL INDENTURE, dated as of May 1, 2016, between INDIANAPOLIS POWER & LIGHT COMPANY, a corporation of the State of Indiana, hereinafter sometimes called the “Company,” party of the first part, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking association, as Trustee, hereinafter sometimes called the “Trustee,” party of the second part;

WHEREAS, the Company by a Mortgage and Deed of Trust (hereinafter sometimes called the “Original Mortgage” when referred to as existing prior to any supplement thereto or modification thereof, and the “Mortgage” when referred to as now or heretofore supplemented and modified) dated as of May 1, 1940, made to The Bank of New York Mellon Trust Company, N.A., successor to American National Bank and Trust Company of Chicago, as Trustee, to secure the payment of the bonds issued from time to time under the Mortgage for the purposes of and subject to the limitations specified in the Mortgage, and to secure the performance of the covenants therein contained, conveyed to the Trustee thereunder upon certain trusts, terms and conditions, and with and subject to certain provisos and covenants therein contained, all and singular the property, rights and franchises which the Company then owned or should thereafter acquire, excepting the property expressly excepted by the terms of the Original Mortgage or any indenture supplemental thereto, to which Mortgage reference is hereby made for greater certainty; and

WHEREAS, the Original Mortgage has been supplemented and modified by supplemental indentures dated as of May 1, 1942, as of February 1, 1948, as of April 1, 1949, as of October 1, 1949 (two), as of February 1, 1951, as of March 1, 1953, as of June l, 1956, as of March 1, 1958, as of October 1, 1960, as of August l, 1964, as of April l, 1966, as of May l, 1967, as of May l, 1968, as of October l, 1970, as of March l, 1972, as of March 15, 1973, as of February 15, 1974, as of August 15, 1974, as of September 15, 1975, as of June l, 1976, as of July 1, 1976, as of August 1, 1977, as of September l, 1978, as of August 1, 1981 (two), as of November l, 1983, as of November l, 1984, as of December 1, 1984, as of September 1, 1985, as of October 1, 1986, as of June 1, 1989, as of August 1, 1989, as of October 15, 1991, as of August l, 1992, as of April 1, 1993 and as of October 1, 1993 (two), as of February 1, 1994 (two), as of January 15, 1995, as of October 1, 1995, as of August 1, 2001 (four), as of August 1, 2003, as of January 1, 2004, as of April 1, 2005 (two), as of September 1, 2006 (two), as of October 1, 2006, as of June 1, 2007, as of May 1, 2009 (three), as of August 1, 2011 (two), as of November 1, 2011, as of June 1, 2013, as of June 1, 2014 and as of September 1, 2015; and




2



WHEREAS, Section 8 of the Original Mortgage provides, among other things, that the form of each series of bonds (other than the initial issue of bonds) issued thereunder shall be established by an indenture supplemental thereto authorized by resolution of the Board of Directors of the Company, and that the form of each series, as established by the Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof, and may also contain such other provisions as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and secured under the Original Mortgage or any indenture supplemental thereto or in modification thereof; and

WHEREAS, the Company now desires to provide for the establishment, execution, authentication and delivery under the Mortgage of bonds of a series to be known as its “First Mortgage Bonds, 4.05% Series, Due 2046” (the bonds of said series being hereinafter sometimes referred to as the “2046 Bonds”), limited to the aggregate principal amount of Three Hundred Fifty Million Dollars ($350,000,000); and

WHEREAS, all things necessary to make the 2046 Bonds hereinafter described, when duly executed by the Company and authenticated and delivered by the Trustee, a valid, binding and legal obligation of the Company, and to make this Sixty-Fourth Supplemental Indenture a valid and binding agreement supplemental to the Original Mortgage, have been done and performed; and

WHEREAS, the execution and delivery by the Company of this Sixty-Fourth Supplemental Indenture, and the terms of the 2046 Bonds, have been duly authorized by the Board of Directors of the Company by appropriate resolutions of said Board; and

WHEREAS, it is provided in and by the Original Mortgage that the Company will execute and deliver such further instruments and do such further acts as may be necessary or proper to carry out more effectively the purposes of the Mortgage, and to make subject to the lien thereof any property thereafter acquired and intended to be subject to the lien thereof; and

WHEREAS, the Company has, since the date of execution and delivery of the Original Mortgage, purchased and acquired property and desires by this Sixty-Fourth Supplemental Indenture specifically to convey to the Trustee such property for the better protection and security of the bonds issued and to be issued under the Original Mortgage, or any indenture supplemental thereof;




3



NOW, THEREFORE, THIS INDENTURE WITNESSETH that, in consideration of the premises and of the acceptance or purchase of the 2046 Bonds by the registered owners thereof, and of the sum of one dollar, lawful money of the United States of America, to the Company duly paid by the Trustee at or before the execution and delivery of this Sixty-Fourth Supplemental Indenture, the receipt whereof is hereby acknowledged, the Company and the Trustee, respectively, have entered into, executed and delivered this Sixty-Fourth Supplemental Indenture, for the uses and purposes hereinafter expressed, that is to say:

SECTION 1. The Company has granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over and confirmed, and by these presents does grant, bargain, sell, release, convey, assign, transfer, mortgage, pledge, set over and confirm (subject, however, to excepted encumbrances as defined in the Mortgage), unto said The Bank of New York Mellon Trust Company, N.A., as Trustee, as herein provided, and its successors in the trusts declared in the Original Mortgage and herein, all of the property, real, personal and mixed, tangible and intangible, of every kind, character and description which the Company has acquired since the execution and delivery of the Original Mortgage and now owns (except property, rights and assets of a character similar to that excluded from the lien and operation of the Mortgage by the Granting Clauses of the Original Mortgage, which property, rights and assets are excluded from the lien and operation of the Mortgage only to the extent provided therein), including, but without otherwise limiting the generality of the foregoing, the following described property situated within the State of Indiana:

PART I.
ELECTRIC DISTRIBUTING SYSTEMS.

All electric distributing systems of the Company acquired by it after May 1, 1940, the date of the Original Mortgage, and located in the Counties of Bartholomew, Boone, Daviess, Gibson, Greene, Hamilton, Hancock, Hendricks, Johnson, Knox, Madison, Marion, Monroe, Morgan, Owen, Pike, Putnam, Shelby, and Sullivan, State of Indiana; and any additions to or extensions of any such systems, together with the buildings, erections, structures, transmission lines, power stations, sub-stations, engines, boilers, condensers, pumps, turbines, machinery, tools, conduits, manholes, insulators, dynamos, motors, lamps, cables, wires, poles, towers, cross-arms, piers, abutments, switchboard equipment, meters, appliances, instruments, apparatus, appurtenances, maps, records, ledgers, contracts, facilities and other property or equipment used or provided for use in connection with the construction, maintenance, repair




4



and operation thereof; together also with all of the rights, privileges, rights-of-way, franchises, licenses, grants, liberties, immunities, ordinances, permits and easements of the Company in respect of the construction, maintenance, repair and operation of said systems.


PART II.
[Reserved]

PART III.
INDETERMINATE PERMITS AND FRANCHISES.

All indeterminate permits, franchises, ordinances, licenses, and other authorizations by or from any state, county, municipality, or other governmental authority, acquired by the Company after May 1, 1940, the date of the Original Mortgage, including particularly, but not limited to, any indeterminate permits under the Public Service Commission Act of the State of Indiana, and all Acts amendatory thereof and supplemental thereto, and all right, title and interest therein now owned by the Company, and all renewals, extensions and modifications of said indeterminate permits, franchises, ordinances, licenses, and other authorizations, and of the indeterminate permits, franchises, ordinances, licenses, and other authorizations referred to in Part VII of the Granting Clauses of the Original Mortgage.

PART IV.
OTHER PROPERTY.

All other property, whether real, personal or mixed (except any in the Mortgage expressly excepted), now owned by the Company and wheresoever situated, including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing or of any general description contained in the Mortgage) all lands, flowage rights, water rights, flumes, raceways, dams, rights-of-way and roads; all plants for the generation of electricity by water, steam and/or other power, power houses, telephone systems, water systems, power plants, hot water plants, sub-stations, transmission lines, distribution systems, bridges, culverts and tracts; all offices, buildings and structures and the equipment thereof; all machinery, engines, boilers, dynamos, machines, regulators, meters, transformers, generators and motors; all appliances whether electrical, gas or mechanical, conduits, cables and lines; all pipes whether for water, and power, or other purposes; all mains and pipes, service pipes, fittings, valves and connections, poles, wires, tools, implements, apparatus,



5



furniture and chattels; all municipal franchises, indeterminate permits, and other permits; all lines for the transportation, transmission and/or distribution of electric current, and power or water for any purpose, including towers, poles, wires, cables, pipes, conduits and all apparatus for use in connection therewith; all real estate, lands, leases, leaseholds; all contracts, whether heat, light, power, water or street lighting contracts; all easements, servitudes, licenses, permits, rights, powers, franchises, privileges, rights-of-way and other rights in or relating to real estate or the occupancy of the same and (except as hereinafter or in the Mortgage expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in connection with any property hereinbefore described or referred to;

Together with all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 64 of the Original Mortgage), the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now has or may hereafter acquire in and to the aforesaid property, indeterminate permits, franchises, ordinances, licenses and other authorizations and every part and parcel thereof.

SECTION 2. Capitalized terms not otherwise defined in this Sixty-Fourth Supplemental Indenture shall have the following meanings:

“Agent Member” means a member of, or a participant in, the Depositary.

“Certificate of Beneficial Ownership” means a certificate substantially in the form of Exhibit A.

“Certificated Bond” means a 2046 Bond in registered individual form without interest coupons.

“Clearstream” means Clearstream Banking SA and its successors.

“Depositary” means the depositary of each Global Bond, which will initially be DTC or its nominee.






6



“DTC” means The Depository Trust Company, a New York Corporation, and its successors.

“DTC Legend” means the legend set forth in Exhibit B.

“Euroclear” means Euroclear Bank S.A./N.V., and its successors and assigns, as operator of the Euroclear System.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Global Bond” means a 2046 Bond in registered global form without interest coupons.

“Initial Purchasers” means the initial purchasers party to a purchase agreement with the Company relating to the sale of the 2046 Bonds by the Company.

“Officers’ Certificate” means a certificate signed in the name of the Company (i) by the chairman of the Board of Directors, the president or chief executive officer or a senior vice president or vice president and (ii) by the chief financial officer, the treasurer or any assistant treasurer or the secretary or any assistant secretary.

“Offshore Global Bond” means a Global Bond representing 2046 Bonds issued and sold pursuant to Regulation S.

“Permanent Offshore Global Bond” means an Offshore Global Bond that does not bear the Temporary Offshore DTC Legend.

“Regulation S” means Regulation S under the Securities Act.

“Regulation S Certificate” means a certificate substantially in the form of Exhibit C hereto.

“Restricted Period” means the relevant 40-day distribution compliance period as defined in Regulation S.

“Restricted Legend” means the legend set forth in Exhibit D.

“Rule 144A” means Rule 144A under the Securities Act.




7



“Rule 144A Certificate” means (i) a certificate substantially in the form of Exhibit E hereto or (ii) a written certification addressed to the Company and the Trustee to the effect that the person making such certification (x) is acquiring such 2046 Bond (or beneficial interest) for its own account or one or more accounts with respect to which it exercises sole investment discretion and that it and each such account is a qualified institutional buyer within the meaning of Rule 144A, (y) is aware that the transfer to it or exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A, and (z) acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A(d)(4) or has determined not to request such information.

“Securities Act” means the Securities Act of 1933, as amended.

“Temporary Offshore Global Bond” means an Offshore Global Bond that bears the Temporary Offshore DTC Legend.

“Temporary Offshore DTC Legend” means the legend set forth in Exhibit F.

“U.S. Global Bond” means a Global Bond that bears the Restricted Legend representing 2046 Bonds issued and sold pursuant to Rule 144A.

SECTION 3. (a) There shall be and is hereby established a series of bonds, limited in aggregate principal amount to Three Hundred Fifty Million Dollars ($350,000,000) to be issued under and secured by the Mortgage, to be designated ‘‘4.05% Series, Due 2046’’, each of which shall also bear the descriptive title ‘‘First Mortgage Bonds’’; said 2046 Bonds shall mature on May 1, 2046, and shall be issued only as fully registered bonds without coupons in the denomination of two thousand dollars and any larger denomination which is a whole multiple of one thousand dollars; said 2046 Bonds shall accrue interest from and including the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance of the 2046 Bonds through but excluding the date on which interest is paid, at the rate per annum designated in the title thereof; interest shall be payable in arrears semi-annually, on May 1 and November 1 of each year commencing November 1, 2016, or if such day shall be a legal holiday or a day on which banking institutions are authorized by law to close in the City of Chicago, Illinois, the day next succeeding such day which shall not be a legal holiday or a day on which such institutions are authorized to close; and the principal of, premium, if any, and interest on said bond shall be payable in lawful money of the United States of America at the office or agency of the Company in the City of Chicago, Illinois. The person in whose name any such 2046 Bond is registered at the close of business on any record date (as hereinafter defined) with respect to any interest payment date shall be entitled to



8



receive the interest payable on such interest payment date, except if and to the extent the Company shall default in the payment of the interest due on such interest payment date, in which case such defaulted interest shall be paid to the person in whose name such 2046 Bond is registered on the date of payment of such defaulted interest or on a subsequent record date for such payment if one shall have been established as hereinafter provided. A subsequent record date with respect to payment of interest in default may be established by or on behalf of the Company by notice mailed to the holders of the 2046 Bonds not less than ten (10) days preceding such record date, which record date shall not be more than thirty (30) days prior to the subsequent interest payment date. The term “record date” as used in this Section with respect to any regular interest payment date shall mean the tenth day next preceding such interest payment date, whether or not such day shall be a business day.

(b)    The Bank of New York Mellon Trust Company, N.A. is hereby designated and appointed the office and agency of the Company for the payment of the principal of, premium, if any, and interest on the 2046 Bonds. All reference herein to the office or agency of the Company for the payment of the principal of, premium, if any, and interest on the 2046 Bonds shall be to The Bank of New York Mellon Trust Company, N.A. In the event of the resignation or inability to act of The Bank of New York Mellon Trust Company, N.A., then a successor paying agent for all such purposes shall be appointed by the Board of Directors of the Company. The Bank of New York Mellon Trust Company, N.A. is hereby designated and appointed the office and agency of the Company for the registration, transfer and exchange of such bonds. All reference herein to the office or agency of the Company for the registration, transfer or exchange of the 2046 Bonds shall be to The Bank of New York Mellon Trust Company, N.A. In the event of the resignation or inability to act of The Bank of New York Mellon Trust Company, N.A., then a successor agent for the registration, transfer and exchange of the 2046 Bonds shall be appointed by the Board of Directors of the Company.

(c)    The 2046 Bonds shall be dated as of the date of authentication thereof, except as otherwise provided in Section 10 of the Original Mortgage.

(d)    The 2046 Bonds shall be limited to an aggregate principal amount of Three Hundred Fifty Million Dollars ($350,000,000) and shall be issued under the provisions of Article VI of the Original Mortgage.




9



(e)    (1)    Except as otherwise provided in paragraph (f), Section 6(b)(3) or (c), or Section 5(b)(4), each 2046 Bond (other than a Permanent Offshore Bond) will bear the Restricted Legend.

(2)    Each Global Bond will bear the DTC Legend.

(3)    Each Temporary Offshore Global Bond will bear the Temporary Offshore DTC Legend.

(4)    2046 Bonds initially offered and sold in reliance on Regulation S will be issued as provided in Section 7(a).

(f)    If the Company determines (upon the advice of counsel and such other certifications and evidence as the Company may reasonably require) that a 2046 Bond is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) and that the Restricted Legend is no longer necessary or appropriate in order to ensure that subsequent transfers of the 2046 Bond (or a beneficial interest therein) are effected in compliance with the Securities Act, the Company may instruct the Trustee to cancel such 2046 Bond and issue to the holder thereof (or to its transferee) a new 2046 Bond of like tenor and amount, registered in the name of the holder thereof (or its transferee), that does not bear the Restricted Legend, and the Trustee, upon receipt of such new 2046 Bond from the Company, will comply with such instruction.

(g)    By its acceptance of any 2046 Bond bearing the Restricted Legend (or any beneficial interest in such a 2046 Bond), each holder thereof and each owner of a beneficial interest therein acknowledges the restrictions on transfer of such 2046 Bond (and any such beneficial interest) set forth in this Sixty-Fourth Supplemental Indenture and in the Restricted Legend and agrees that it will transfer such 2046 Bond (and any such beneficial interest) only in accordance with the Mortgage, as supplemented by this Sixty-Fourth Supplemental Indenture, and such legend.

(h)    A 2046 Bond will not be valid until the Trustee manually signs the certificate of authentication on the 2046 Bond, with the signature conclusive evidence that the 2046 Bond has been authenticated under this Sixty-Fourth Supplemental Indenture.

(i)    At any time and from time to time after the execution and delivery of this Sixty-Fourth Supplemental Indenture, the Company may deliver 2046 Bonds executed by the Company to the Trustee for authentication. The Trustee will authenticate and deliver 2046



10



Bonds for original issue in the aggregate principal amount not to exceed Three Hundred Fifty Million Dollars ($350,000,000).

SECTION 4. Except as provided in this Section 4, the 2046 Bonds shall not be redeemable.

Upon the notice and in the manner and with the effect provided in the Mortgage and in this Section 4, the 2046 Bonds shall be redeemable by the Company prior to the maturity thereof out of monies deposited with the Trustee representing the proceeds of mortgaged and pledged property taken by the exercise of the power of eminent domain or otherwise as provided in paragraph B of Section 69 of the Mortgage, at the principal amount of the 2046 Bonds as to be redeemed and accrued interest to the date of redemption.

Upon the notice and in the manner and with the effect provided in this Section 4, the 2046 Bonds shall be redeemable prior to November 1, 2045, as a whole or in part, at the option of the Company, at a redemption price, together with accrued and unpaid interest to the date of redemption, equal to the greater of (i) 100% of the principal amount of the 2046 Bonds being redeemed; or (ii) the sum of the present values of the principal amount of the 2046 Bonds to be redeemed and the remaining scheduled payments of interest on the 2046 Bonds from the redemption date to November 1, 2045, discounted from their respective scheduled payment dates to the redemption date semi-annually, assuming a 360-day year consisting of twelve 30-day months at a discount rate equal to the Treasury Yield plus twenty-five (25) basis points. On or after November 1, 2045, the 2046 Bonds shall be redeemable, as a whole or in part, at the option of the Company, at a redemption price equal to 100% of the principal amount of the 2046 Bonds being redeemed plus accrued and unpaid interest to the date of redemption.

“Treasury Yield” means, with respect to any redemption date, the annual rate equal to the semi-annual equivalent yield to maturity (to November 1, 2045) of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue expressed as a percentage of its principal amount equal to the Comparable Treasury Price for such redemption date.

“Comparable Treasury Issue” means the United States treasury security selected by an independent investment banker as having a maturity comparable to the remaining term (to November 1, 2045) of the 2046 Bonds to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term (to November 1, 2045) of the 2046 Bonds.




11



“Comparable Treasury Price” means, with respect to any date of redemption, (i) the average of the bid and asked prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount, on the third business day preceding the redemption date, as set forth in the daily statistical release published by the Federal Reserve Bank of New York and designated “Composite 3:30 p.m. Quotations for U.S. Government Securities,” or (ii) if this release is not published or does not contain such prices on the business day in question, the Reference Treasury Dealer Quotation for the redemption date.

“Reference Treasury Dealer Quotation” means, with respect to the Reference Treasury Dealer and redemption date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue expressed in each case as a percentage of its principal amount and quoted in writing to the Company by the Reference Treasury Dealer at 5:00 p.m. on the third business day preceding the redemption date.

“Reference Treasury Dealer” means Merrill Lynch, Pierce, Fenner & Smith Incorporated and its successors or any other primary United States government securities dealer in New York City appointed by the Company.

The notice required for the redemption of the 2046 Bonds shall be as provided in Section 59 of the Mortgage and applicable procedures of the Depositary. If the redemption price is not known at the time such notice is to be given, such notice shall include the formula by which the redemption price will be determined and the actual redemption price, calculated as described in the terms of the 2046 Bonds, will be set forth in an Officers’ Certificate of the Company delivered to the Trustee no later than two business days prior to the redemption date.

If fewer than all the 2046 Bonds are to be redeemed, selection of 2046 Bonds for redemption will be made by the Trustee in the manner specified in the Mortgage.

Unless the Company defaults in payment of the redemption price, from and after the date of redemption, the 2046 Bonds or portions thereof called for redemption will cease to bear interest, and the holders of the 2046 Bonds will have no right in respect of the 2046 Bonds except the right to receive the redemption price.

No sinking fund is provided for the 2046 Bonds.




12



SECTION 5. (a) The 2046 Bonds will be issued in registered form only, without coupons, and except under the circumstances described in subsection (b)(2) or (b)(4) of this Section 5, the 2046 Bonds will be issued in global form only. The Company shall cause the agent for the registration, transfer and exchange named in Section 3(b) (the “Transfer Agent”) to maintain a register (the “Register”) of the 2046 Bonds, for registering the record ownership of 2046 Bonds by the holders thereof and transfers and exchanges of 2046 Bonds.

(b)    (1)    Each Global Bond will be registered in the name of the Depositary or its nominee and, so long as DTC is serving as the Depositary thereon will bear the DTC Legend.

(2)    Each Global Bond will be delivered to the Transfer Agent as custodian for the Depositary. Transfers of a Global Bond (but not a beneficial interest therein) will be limited to transfers thereof in whole, but not in part, to the Depositary, its successors or their respective nominees, except (i) as set forth in Section 5(b)(4) and (ii) transfers of portions thereof in the form of Certificated Bonds may be made upon request of an Agent Member (for itself or on behalf of a beneficial owner) by written notice given to the Transfer Agent by or on behalf of the Depositary in accordance with customary procedures of the Depositary and in compliance with this Section and Section 6.

(3)    Agent Members will have no rights under the Mortgage or this Sixty-Fourth Supplemental Indenture with respect to any Global Bond held on their behalf by the Depositary, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Bond for all purposes whatsoever. Notwithstanding the foregoing, the Depositary or its nominee may grant proxies and otherwise authorize any person (including any Agent Member and any person that holds a beneficial interest in a Global Bond through an Agent Member) to take any action which a holder is entitled to take under the Mortgage or this Sixty-Fourth Supplemental Indenture or the 2046 Bonds, and nothing herein will impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any security.

(4)    If (x) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for a Global Bond and a successor depositary is not appointed by the Company within 90 days of the notice, or (y) a completed default (as defined in the Mortgage) has occurred and is continuing and the Transfer Agent has received a request from the Depositary, or (z) the Company determines that the 2046 Bonds will no longer be represented by Global Bonds, the Company will prepare, execute and deliver to the Transfer Agent, and upon receipt the Transfer Agent will promptly exchange each beneficial interest



13



in each Global Bond for one or more Certificated Bonds of the same series in authorized denominations having an equal aggregate principal amount registered in the name of the owner of such beneficial interest, as identified to the Transfer Agent by the Depositary, and thereupon each Global Bond will be deemed canceled. If a Global Bond does not bear the Restricted Legend, then the Certificated Bonds issued in exchange therefor will not bear the Restricted Legend. If a Global Bond bears the Restricted Legend, then the Certificated Bonds issued in exchange therefor will bear the Restricted Legend, provided that any holder of any such Certificated Bond issued in exchange for a beneficial interest in a Temporary Offshore Global Bond will have the right upon presentation to the Transfer Agent, with a copy to the Company, of a duly completed Certificate of Beneficial Ownership after the Restricted Period to exchange such Certificated Bond for a Certificated Bond of like tenor and amount that does not bear the Restricted Legend, registered in the name of such holder, and the Company will prepare, execute and deliver such Certificated Bond to the Transfer Agent.

(c)    A holder may transfer a 2046 Bond (or a beneficial interest therein) to another person or exchange a 2046 Bond (or a beneficial interest therein) for another 2046 Bond or 2046 Bonds of any authorized denomination by presenting to the Transfer Agent, with a copy to the Company, a written request therefor stating the name of the proposed transferee or requesting such an exchange, accompanied by any certification, opinion or other document required by Section 6. The Company will prepare, execute and deliver such 2046 Bond to the Transfer Agent, and upon receipt the Transfer Agent will promptly register any transfer or exchange that meets the requirements of this Section by noting the same in the Register maintained by the Transfer Agent for the purpose; provided that

(x)    no transfer or exchange will be effective until it is registered in the Register and

(y)    the Company and the Transfer Agent will not be required (i) to issue, register the transfer of or exchange any 2046 Bond for a period of ten (10) days before any interest payment date of such bonds, (ii) to issue, register the transfer of or exchange any 2046 Bond for a period of fifteen (15) days before a selection of 2046 Bonds to be redeemed or purchased, (iii) to register the transfer of or exchange any 2046 Bond so selected for redemption or purchase in whole or in part, except, in the case of a partial redemption or purchase, that portion of any 2046 Bond not being redeemed or purchased, or (iv) if a redemption or a purchase is to occur after a record date but on or before the corresponding interest payment date, to register the transfer of or exchange any 2046 Bond on or after the record date and before the date of redemption or purchase. Prior to the registration of any transfer, the Company, the Trustee and their agents will treat the person in whose name any



14



2046 Bond is registered as the owner and holder thereof for all purposes (whether or not the 2046 Bond is overdue), and will not be affected by notice to the contrary.

(d)    From time to time the Company will execute and the Trustee will authenticate additional 2046 Bonds as necessary in order to permit the registration of a transfer or exchange in accordance with this Section.

(e)    No service charge will be imposed in connection with any transfer or exchange of any 2046 Bond, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than a transfer tax or other similar governmental charge payable upon exchange pursuant to subsection (b)(4)).

(f)    (1)    If a beneficial interest in a Global Bond is transferred or exchanged for a beneficial interest in another Global Bond, the Transfer Agent will (x) record a decrease upon its official records in the principal amount of the Global Bond being transferred or exchanged equal to the principal amount of such transfer or exchange and (y) upon its official records record a like increase in the principal amount of the other Global Bond. Any beneficial interest in one Global Bond that is transferred to a person who takes delivery in the form of an interest in another Global Bond, or exchanged for an interest in another Global Bond of the same series, will, upon transfer or exchange, cease to be an interest in such Global Bond and become an interest in the other Global Bond and, accordingly, will thereafter be subject to all transfer and exchange restrictions, if any, and other procedures applicable to beneficial interests in such other Global Bond for as long as it remains such an interest.

(2)    If a Certificated Bond is transferred or exchanged for another Certificated Bond, the Transfer Agent will (x) cancel the Certificated Bond being transferred or exchanged, (y) deliver one or more new Certificated Bonds in authorized denominations having an aggregate principal amount equal to the principal amount of such transfer or exchange to the transferee (in the case of a transfer) or the holder of the canceled Certificated Bond (in the case of an exchange), registered in the name of such transferee or holder, as applicable, and (if such transfer or exchange involves less than the entire principal amount of the canceled Certificated Bond) deliver to the holder thereof one or more Certificated Bonds in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Certificated Bond, registered in the name of the holder thereof.




15



SECTION 6. (a) The transfer or exchange of any 2046 Bond (or a beneficial interest therein) may only be made in accordance with this Section and Section 5 and, in the case of a Global Bond (or a beneficial interest therein), the applicable rules and procedures of the Depositary. The Transfer Agent shall refuse to register any requested transfer or exchange that does not comply with the preceding sentence.

(b)    Subject to paragraph (c), the transfer or exchange of any 2046 Bond (or a beneficial interest therein) of the type set forth in column A below for a 2046 Bond (or a beneficial interest therein) of the type set forth opposite in column B below may only be made in compliance with the certification requirements (if any) described in the clause of this paragraph set forth opposite in column C below.

A
B
C
U.S. Global Bond
U.S. Global Bond
U.S. Global Bond
Certificated Bond
Certificated Bond
Certificated Bond
Offshore Global Bond
Offshore Global Bond
Offshore Global Bond
U.S. Global Bond
Offshore Global Bond
Certificated Bond
Certificated Bond
U.S. Global Bond
Offshore Global Bond
U.S. Global Bond
Offshore Global Bond
Certificated Bond
(1)
(2)
(3)
(3)
(4)
(2)
(4)
(1)
(3)

(1)    No certification is required.

(2)    The person requesting the transfer or exchange must deliver or cause to be delivered to the Transfer Agent a duly completed Regulation S Certificate.

(3)    The person requesting the transfer or exchange must deliver or cause to be delivered to the Transfer Agent (x) a duly completed Rule 144A Certificate or (y) a duly completed Regulation S Certificate, and/or (z) an opinion of counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer or exchange is being made in compliance with the Securities Act and any applicable securities laws of any state of the United States; provided that if the requested transfer or exchange is made by the holder of a 2046 Bond that does not bear the Restricted Legend, then no certification is required. In the event that (i) the requested transfer or exchange takes place after the Restricted Period and a duly completed Regulation S Certificate is delivered to the Transfer Agent or (ii) a 2046 Bond that does not bear the Restricted Legend is surrendered for transfer or exchange, upon transfer or exchange the Transfer Agent will deliver a Certificated Bond that does not bear the Restricted Legend.



16




(4)    The person requesting the transfer or exchange must deliver or cause to be delivered to the Transfer Agent a duly completed Rule 144A Certificate.

(c)    No certification is required in connection with any transfer or exchange of any 2046 Bond (or a beneficial interest therein)

(1)    after such 2046 Bond is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision); provided that the Company has provided the Transfer Agent with an Officer’s Certificate to that effect, and the Company may require from any person requesting a transfer or exchange in reliance upon this clause (1) an opinion of counsel and any other reasonable certifications and evidence in order to support such certificate; or

(2)    sold pursuant to an effective registration statement.

Any Certificated Bond delivered in reliance upon this paragraph will not bear the Restricted Legend.

(d)    The Transfer Agent will retain copies of all certificates, opinions and other documents received in connection with the transfer or exchange of a 2046 Bond (or a beneficial interest therein), and the Company will have the right to inspect and make copies thereof at any reasonable time upon written notice to the Transfer Agent.

(e)    Neither the Trustee nor the Transfer Agent shall have any obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under the Mortgage or this Sixty-Fourth Supplemental Indenture or under applicable law with respect to any transfer of any interest in any 2046 Bonds (including any transfers between or among the Depositary’s participants or beneficial owners of interests in any Global Bond) other than to require delivery of such certificates and other documentation, as is expressly required by, and to do so if and when expressly required by, the terms of this Sixty-Fourth Supplemental Indenture and to examine the same to determine substantial compliance as to form with the express requirements hereof.

(f)    The Company, the Trustee, and the Transfer Agent reserve the right to require the delivery of such legal opinions, certifications or other evidence as may reasonably be required in order to determine that the proposed transfer is being made in compliance with the Securities Act or the Exchange Act, or rules or regulations adopted by the Securities and Exchange Commission from time to time thereunder, and applicable state securities laws.



17




SECTION 7. (a) Each 2046 Bond originally sold by the Initial Purchasers in reliance upon Regulation S will be evidenced by one or more Offshore Global Bonds that bear the Temporary Offshore DTC Legend.

(b)    An owner of a beneficial interest in a Temporary Offshore Global Bond (or a person acting on behalf of such an owner) may provide to the Transfer Agent (and the Transfer Agent will accept) a duly completed Certificate of Beneficial Ownership at any time after the Restricted Period (it being understood that the Transfer Agent will not accept any such certificate during the Restricted Period). Promptly after acceptance of a Certificate of Beneficial Ownership with respect to such a beneficial interest, the Transfer Agent will cause such beneficial interest to be exchanged for an equivalent beneficial interest in a Permanent Offshore Global Bond, and will (x) permanently reduce the principal amount of such Temporary Offshore Global Bond by the amount of such beneficial interest and (y) increase the principal amount of such Permanent Offshore Global Bond by the amount of such beneficial interest.

(c)    Notwithstanding anything to the contrary contained herein, beneficial interests in a Temporary Offshore Global Bond may be held through the Depositary only through Euroclear and Clearstream and their respective direct and indirect participants.

SECTION 8. The 2046 Bonds, and the Trustee’s Certificate to be endorsed thereon, shall be in the following forms, respectively:








18



[FORM OF FACE OF 2046 BOND]

INDIANAPOLIS POWER & LIGHT COMPANY
FIRST MORTGAGE BOND, 4.05% Series, Due 2046
Due May 1, 2046
No. ___                                 $___________

INDIANAPOLIS POWER & LIGHT COMPANY, a corporation of the State of Indiana (hereinafter called the ‘‘Company’’), for value received, hereby promises to pay ______ or registered assigns, on May 1, 2046, at the office or agency of the Company for such purpose in the City of Chicago, State of Illinois, ________________________ Dollars in lawful money of the United States of America, and to pay to the registered owner hereof interest thereon from and including the most recent date to which interest has been paid, or if no interest has been paid, from May ___, 2016, through but excluding the date on which interest is paid, at the rate of four and five hundredths percent (4.05%) per annum in like lawful money at said office or agency on May 1 and November 1 in each year commencing November 1, 2016, or if such day shall be a legal holiday or a day on which banking institutions are authorized by law to close in the City of Chicago, Illinois, the day next succeeding such day which shall not be a legal holiday or a day on which such institutions are authorized to close, until the Company’s obligation with respect to the payment of such principal shall have been discharged. The interest payable hereunder on May 1 or November 1 will, subject to the exception provided in Section 3 of the Sixty-Fourth Supplemental Indenture hereinafter mentioned, be paid to the person in whose name this bond is registered at the close of business on the record date, which shall be the tenth day next preceding such interest payment date, whether or not such day shall be a business day.

REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS BOND SET FORTH ON THE REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL, FOR ALL PURPOSES, HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH IN THIS PLACE.

No recourse shall be had for the payment of the principal of or interest on this bond against any incorporator or any past, present or future subscriber to the capital stock, stockholder, officer or director of the Company or of any predecessor or successor corporation, as such, either directly or through the Company or any predecessor or successor corporation, under any rule of law, statute, or constitution or by the enforcement of any assessment or otherwise, all such liability of incorporators, subscribers, stockholders, officers and directors, as such, being waived and released by the terms of the Mortgage, as herein defined.



19




This bond shall not become obligatory until The Bank of New York Mellon Trust Company, N.A., the Trustee under the Mortgage (the “Trustee”), or its successor thereunder, shall have signed the form of certificate endorsed hereon.

IN WITNESS WHEREOF, INDIANAPOLIS POWER & LIGHT COMPANY has caused this bond to be signed in its name by its President or one of its Vice Presidents, by his or her signature or a facsimile thereof, and its corporate seal to be affixed hereon, attested by its Secretary or one of its Assistant Secretaries, by his or her signature or a facsimile thereof.

INDIANAPOLIS POWER & LIGHT COMPANY

Dated_______________    By_______________________________

Attest:

By_____________________________

[FORM OF TRUSTEE’S CERTIFICATE ON BONDS]
Trustee’s Certificate
This 2046 Bond is one of the bonds, of the series herein designated, provided for in the within-mentioned Mortgage and Sixty-Fourth Supplemental Indenture thereto.

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., Trustee

By________________________________
Authorized Signature







[FORM OF REVERSE SIDE OF BOND]

INDIANAPOLIS POWER & LIGHT COMPANY



20




First Mortgage Bond, 4.05% Series, Due 2046
Due May 1, 2046

This bond is one of an issue of bonds of the Company, issuable in series, and is one of a series known as its First Mortgage Bonds, 4.05% Series, Due 2046 (herein called the ‘‘2046 Bonds’’) limited in aggregate principal amount to Three Hundred Fifty Million Dollars ($350,000,000) and established by a Sixty-Fourth Supplemental Indenture dated as of May 1, 2016, all bonds of all series issued and to be issued under and equally secured (except insofar as any sinking or other fund, established in accordance with the provisions of the Mortgage hereinafter mentioned, may afford additional security for the bonds of any particular series) by a Mortgage and Deed of Trust, dated as of May 1, 1940, executed by the Company to American National Bank and Trust Company of Chicago (predecessor to The Bank of New York Mellon Trust Company, N.A.), as the Trustee (which Mortgage and Deed of Trust as supplemented and modified by all supplemental indentures thereto is hereinafter referred to as the ‘‘Mortgage’’), to which Mortgage reference is made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the bearers or registered owners of the bonds in respect of such security, the duties and immunities of the Trustee and the terms and conditions upon which the bonds are secured.

The 2046 Bonds are subject to redemption as provided in Section 4 of the Sixty-Fourth Supplemental Indenture, to which reference is made for full description of redemption provisions and prices.

With the consent of the Company and to the extent permitted by and as provided in the Mortgage, the rights and obligations of the Company and/or of the holders of the bonds and/or coupons and/or the terms and provisions of the Mortgage and/or any instruments supplemental thereto may be modified or altered by affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) in principal amount of the bonds affected by such modification or alteration then outstanding under the Mortgage (excluding bonds disqualified from voting by reason of the Company’s interest therein as provided in the Mortgage); provided that no such modification or alteration shall permit the extension of the maturity of the principal of this 2046 Bond or the reduction in the rate of interest hereon or any other modification in the terms of payment of such principal or interest without the consent of the holder hereof. The principal hereof may be declared or may become due and payable prior to the stated date of maturity hereof, on the conditions, in the manner and at the time set forth in the Mortgage, upon the occurrence of a completed default as in the Mortgage provided.




21



No reference herein to the Mortgage, and no provision of this 2046 Bond or of the Mortgage, shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay, subject to the provisions of the Sixty-Fourth Supplemental Indenture, the principal of, and premium, if any, and interest on this 2046 Bonds at the place, at the respective times and at the rate and the manner herein prescribed.

This 2046 Bond is issuable only in full registered form without coupons in denominations of Two Thousand Dollars ($2,000) and any larger denomination which is a whole multiple of One Thousand Dollars ($1,000).

The 2046 Bonds shall be transferable by the registered holder thereof, in person or by attorney duly authorized in writing, on the books of the Company at the office or agency of the Company for such purpose in the City of Chicago, Illinois, upon surrender thereof for cancellation at said office and upon presentation of a written instrument of transfer duly executed. Thereupon, the Company shall issue in the name of the transferee, and the Trustee shall authenticate and deliver, a new registered 2046 Bond, in an authorized denomination, of equal principal amount. Any such transfer shall be subject to the terms and conditions specified in the Mortgage and in the Sixty-Fourth Supplemental Indenture.

Upon redemption of this 2046 Bond in part and surrender thereof at the office or agency of the Company for such purpose in the City of Chicago, Illinois, for exchange, the Trustee shall authenticate and deliver a new registered 2046 Bond in an authorized denomination and principal amount equal to the reduced principal amount due on that series after such partial redemption.

[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto

Insert Taxpayer Identification No.                    

Please print or typewrite name and address including zip code of assignee
                                    
                                    

the within bond and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer said bond on the books of the Company with full power of substitution in the premises.




22



[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL
CERTIFICATES BEARING A RESTRICTED LEGEND]

In connection with any transfer of this bond the undersigned confirms that such transfer is made without utilizing any general solicitation or general advertising and further as follows:

Check One

    (1)    This bond is being transferred to a “qualified institutional buyer” in compliance with Rule 144A under the Securities Act of 1933, as amended and certification in the form of Exhibit E to the Sixty-Fourth Supplemental Indenture is being furnished herewith.

    (2)    This bond is being transferred to a Non-U.S. Person in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Regulation S thereunder, and certification in the form of Exhibit C to the Sixty-Fourth Supplemental Indenture is being furnished herewith.
or
    (3)    This bond is being transferred other than in accordance with (1) or (2) above and documents are being furnished which comply with the conditions of transfer set forth in this bond and the Sixty-Fourth Supplemental Indenture.

If none of the foregoing boxes is checked, the Trustee is not obligated to register this bond in the name of any person other than the holder hereof unless and until the conditions to any such transfer of registration set forth herein and in the Sixty-Fourth Supplemental Indenture have been satisfied.

Date:         
                                    
Seller

By                    

NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned



23



instrument in every particular, without alteration or any change whatsoever.




Signature Guarantee:2                            

By:                        
To be executed by an executive officer


                
2 
Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the transfer agent, which requirements include membership or participation in the Note Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.


[END OF 2046 BOND FORM]

SECTION 9. Until the 2046 Bonds in definitive form are ready for delivery, the Company may execute, and upon its request in writing the Trustee shall authenticate and deliver, in lieu thereof, fully registered 2046 Bonds in temporary form, as provided in Section 15 of the Original Mortgage.

SECTION 10. The covenant of the Company to make annual payments to the Trustee for a Maintenance and Improvement Fund as contained in Section 41 of the Original Mortgage and in the first twenty-four Supplemental Indentures to the Original Mortgage creating the several series of First Mortgage Bonds under such Supplemental Indentures shall not apply to nor be for the benefit of the 2046 Bonds, and the Company reserves the right, without any consent of, or other action by, the holder of the 2046 Bonds, to amend, modify or delete the provisions of the Mortgage relating to such Maintenance and Improvement Fund and by acceptance of the 2046 Bonds the holder thereof waives any right or privilege so to consent or take any other action with respect thereto.




24



SECTION 11. The Company covenants that, so long as any of the 2046 Bonds shall remain outstanding, it will comply with all of the provisions of Section 47 of the Original Mortgage, including the provisions with respect to limitations on dividends and distributions and the purchase and redemption of stock.

SECTION 12. The Company shall furnish to the holders or beneficial holders of the 2046 Bonds and prospective purchasers, upon their request, the information required under Rule 144A(d)(4) under the Securities Act until such time as such 2046 Bonds are no longer “restricted securities” within the meaning of Rule 144 under the Securities Act, assuming these 2046 Bonds have not been owned by the Company or an affiliate of the Company.

SECTION 13. The Trustee hereby accepts the trusts herein declared, provided and created and agrees to perform the same upon the terms and conditions herein and in the Mortgage set forth and upon the following terms and conditions:

The recitals contained herein and in the bonds shall be taken as the statements of the Company and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or adequacy of the security afforded hereby, or as to the validity of this Sixty-Fourth Supplemental Indenture or of the 2046 Bonds issued hereunder.

No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it has reasonable grounds for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Trustee shall be under no obligation to take any action or exercise any of the rights or powers vested in it by this Indenture at the request or direction of the Holders pursuant to this Indenture unless and until such Holders shall have offered to the Trustee security or indemnity satisfactory in form and substance to the Trustee against the costs, expenses or liabilities which might be incurred by the Trustee’s compliance with such request or direction. The Trustee may execute any of the trusts or powers hereof and perform any of its duties directly or by or through attorneys or agents and shall not be answerable for the misconduct or negligence of any attorney or agent if appointed with due care. In no event shall the Trustee be responsible or liable for any special, indirect, punitive or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit), irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action. In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages,



25



accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services. Delivery of reports, information and documents to the Trustee pursuant to Section 52 of the Original Mortgage is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on certificates of officers of the Company).

The Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that the Company shall provide to the Trustee an incumbency certificate listing designated persons authorized to provide such instructions, which incumbency certificate shall be amended whenever a person is to be added or deleted from the listing. If the Company elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee’s understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Company agrees to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk or interception and misuse by third parties.

SECTION 14. Whenever in this Sixty-Fourth Supplemental Indenture either of the parties hereto is named or referred to, this shall, subject to the provisions of Article XVII of the Original Mortgage, be deemed to include the successors or assigns of such party, and all the covenants and agreements in this Sixty-Fourth Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustee, shall, subject as aforesaid, bind and inure to the benefit of the respective successors and assigns of such parties, whether so expressed or not.




26



SECTION 15. Nothing in this Sixty-Fourth Supplemental Indenture expressed or implied, is intended or shall be construed to confer upon, or to give to, any person, co-partnership or corporation, other than the parties hereto and the holders of the bonds outstanding under the Mortgage, any right, remedy, or claim under or by reason of this Sixty-Fourth Supplemental Indenture or any covenant, condition or stipulation hereof; and all the covenants, conditions, stipulations, promises and agreements in this Sixty-Fourth Supplemental Indenture contained by or on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto and of the holders of the bonds outstanding under the Mortgage.

SECTION 16. The Company covenants that all of the terms, provisions and conditions of the Mortgage shall be applicable to the 2046 Bonds issued hereunder, except as herein otherwise provided and except insofar as the same may be inconsistent with the provisions of this Sixty-Fourth Supplemental Indenture.

SECTION 17. This Sixty-Fourth Supplemental Indenture is dated as of May 1, 2016, although executed and delivered on the date of the acknowledgement hereof by the Trustee; and shall be simultaneously executed and delivered in several counterparts, and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument.

SECTION 18. EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THE MORTGAGE OR THE 2046 BONDS.

(signature pages to follow)






27

IN WITNESS WHEREOF, INDIANAPOLIS POWER & LIGHT COMPANY, party of the first part, has caused its corporate name to be hereunto affixed and this instrument to be signed and acknowledged by its President or a Vice-President, and its corporate seal to be hereto affixed and attested by its Secretary or an Assistant Secretary, for and on its behalf, and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., party of the second part, as Trustee, has caused its corporate name to be hereunto affixed and this instrument to be signed and acknowledged by one of its Authorized Officers, and its corporate seal to be hereto affixed and attested by one of its Authorized Officers, all as of the day, month and year first above written.

INDIANAPOLIS POWER & LIGHT
COMPANY


By /s/ Craig L. Jackson            
(SEAL)    Craig L. Jackson,
Vice President and Chief Financial Officer

Attest:


By: /s/ Judi L. Sobecki            
JUDI L. SOBECKI,
Vice President, General Counsel and Secretary





28





THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., AS TRUSTEE


By /s/ Karen Franklin            
Karen Franklin,
Authorized Officer
Attest:                                         

(SEAL)


By: /s/ Nancy Storms            
Nancy Storms,
Authorized Officer



29




STATE OF INDIANA        )
) SS:
COUNTY OF MARION        )

On this 17th day of May, in the year 2016, before me, a Notary Public in and for the County and State aforesaid, personally came CRAIG L. JACKSON, Vice President and Chief Financial Officer and JUDI L. SOBECKI, Vice President, General Counsel and Secretary, of Indianapolis Power & Light Company, one of the corporations described in and which executed the foregoing instrument, to me personally known and known to me personally to be such Vice President and Chief Financial Officer and Vice President, General Counsel and Secretary, respectively. Said CRAIG L. JACKSON and JUDI L. SOBECKI being by me severally duly sworn did depose and say that the said CRAIG L. JACKSON resides in Montgomery County, Ohio and the said JUDI L. SOBECKI resides in Butler County, Ohio; that said CRAIG L. JACKSON is Vice President and Chief Financial Officer and said JUDI L. SOBECKI is Vice President, General Counsel and Secretary of said Indianapolis Power & Light Company; that each of them knows the corporate seal of said corporation; that the seal affixed to said instrument and bearing the name of said corporation is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that each of them signed his name thereto by like order; and each of them acknowledged the execution of said instrument on behalf of said corporation to be his free and voluntary act and deed and the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal this 17th day of May, 2016.


/s/ Denise L. Simmons        
Denise L. Simmons,
Notary Public

My Commission Expires:
April 11, 2020


My County of Residence is:
Marion
(NOTARIAL SEAL)



30








30



STATE OF INDIANA    )
) SS:
COUNTY OF MARION    )

On this 17th day of May, in the year 2016, before me, a Notary Public in and for the County and State aforesaid, personally came KAREN FRANKLIN and NANCY STORMS, Authorized Officers of The Bank of New York Mellon Trust Company, N.A., one of the corporations described in and which executed the foregoing instrument, to me personally known and known to me personally to be such Authorized Officers. Said KAREN FRANKLIN and NANCY STORMS, being by me severally sworn did depose and say that the said KAREN FRANKLIN resides in Brown County, Indiana, and that the said NANCY STORMS resides in Marion County, Indiana; that said KAREN FRANKLIN and NANCY STORMS, are Authorized Officers of said The Bank of New York Mellon Trust Company, N.A.; that each of them knows the corporate seal of said corporation; that the seal affixed to said instrument and bearing the name of said corporation is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation; that each of them signed his name thereto by like authority; and each of them acknowledged the execution of said instrument on behalf of said corporation to be his free and voluntary act and deed and the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth.

IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal this 17th day of May, 2016.
/s/ Andrea J. Myers            
Andrea J. Myers,
Notary Public
My Commission Expires:
May 28, 2023

My County of Residence is:
Marion        
(NOTARIAL SEAL)

I affirm, under penalties of perjury, that I have taken reasonable care to redact each Social Security Number in this document, unless required by law.

Signed: /s/ Steven W. Thornton        
Steven W. Thornton

This instrument was prepared by
Steven W. Thornton, Barnes & Thornburg LLP,
11 South Meridian Street, Indianapolis, IN 46204

EXHIBIT A

[COMPLETE FORM I OR FORM II AS APPLICABLE.]
[FORM I]
Certificate of Beneficial Ownership

To:    The Bank of New York Mellon Trust Company, N.A.,
as Trustee
111 Sanders Creek Parkway
East Syracuse, NY 13057
Attention: DWACs
Email: exhibitrequests@bnymellon.com

[Euroclear Bank S.A./N.V., as operator of the Euroclear System] OR

[Clearstream Banking SA]

Re:    Indianapolis Power & Light Company
First Mortgage Bonds, 4.05% Series, Due 2046 (the “Bonds”)
Issued under the Sixty-Fourth Supplemental Indenture to the
Mortgage and Deed of Trust dated as of May 1, 1940
(as supplemented and amended) (the “Mortgage”)

Ladies and Gentleman:

We are the beneficial owner of $_________ principal amount of Bonds issued under the Mortgage and represented by a Temporary Offshore Global Bond (as defined in the Mortgage).

We hereby certify as follows:

[CHECK A OR B AS APPLICABLE.]
A.    We are a non-U.S. person (within the meaning of Regulation S under the Securities Act of 1933, as amended).

B.    We are a U.S. person (within the meaning of Regulation S under the Securities Act of 1933, as amended), that purchased the Bonds in a transaction that did not require registration under the Securities Act of 1933, as amended.
 
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

Very truly yours,

[NAME OF BENEFICIAL OWNER]


By:                
Name:
Title:
Address:
Date:                
    
[FORM II]

Certificate of Beneficial Ownership

To:    The Bank of New York Mellon Trust Company, N.A.,
as Trustee
111 Sanders Creek Parkway
East Syracuse, NY 13057
Attention: DWACs
Email: exhibitrequests@bnymellon.com

Re:    Indianapolis Power & Light Company
First Mortgage Bonds, 4.05% Series, Due 2046 (the “Bonds”)
Issued under the Sixty-Fourth Supplemental Indenture to the
Mortgage and Deed of Trust dated as of May 1, 1940
(as supplemented and amended) (the “Mortgage”)



Ladies and Gentleman:

This is to certify that based solely on certifications we have received in writing, by tested telex or by electronic transmission from member organizations (“Member Organizations”) appearing in our records as persons being entitled to a portion of the principal amount of Bonds represented by a Temporary Offshore Global Bond issued under the above-referenced Mortgage, that as of the date hereof, $________ principal amount of Bonds represented by the Temporary Offshore Global Bond being submitted herewith for exchange is beneficially owned by persons that are either (i) non-U.S. persons (within the meaning of Regulation S under the Securities Act of 1933, as amended) or (ii) U.S. persons that purchased the Bonds in a transaction that did not require registration under the Securities Act of 1933, as amended.

We further certify that (i) we are not submitting herewith for exchange any portion of such Temporary Offshore Global Bond excepted in such Member Organization certifications and (ii) as of the date hereof we have not received any notification from any Member Organization to the effect that the statements made by such Member Organization with respect to any portion of such Temporary Offshore Global Bond submitted herewith for exchange are no longer true and cannot be relied upon as of the date hereof.

You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Yours faithfully,

[EUROCLEAR BANK S.A./N.V., as
operator of the Euroclear System]
OR
[CLEARSTREAM BANKING SA]


By:                
Name:
Title:
Address:
Date:                 



EXHIBIT B

DTC LEGEND

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL BOND ARE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL BOND ARE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE TRANSFER PROVISIONS OF THE MORTGAGE.


EXHIBIT C

REGULATION S CERTIFICATE

______________, ____

The Bank of New York Mellon Trust Company, N.A.,
as Trustee
111 Sanders Creek Parkway
East Syracuse, NY 13057
Attention: DWACs
Email: exhibitrequests@bnymellon.com

Re:    Indianapolis Power & Light Company
First Mortgage Bonds, 4.05% Series, Due 2046 (the “Bonds”)
Issued under the Sixty-Fourth Supplemental Indenture to the
Mortgage and Deed of Trust dated as of May 1, 1940
(as supplemented and amended) (the “Mortgage”)

Dear Sirs:

Terms are used in this Certificate as used in Regulation S (“Regulation S”) under the Securities Act of 1933, as amended (the “Securities Act”), except as otherwise stated herein.

[CHECK A OR B AS APPLICABLE.]
A.    This Certificate relates to our proposed transfer of $_____ principal amount of Bonds issued under the Mortgage. We hereby certify as follows:

1.
The offer and sale of the Bonds was not and will not be made to a person in the United States (unless such person is excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(vi) or the account held by it for which it is acting is excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3)) and such offer and sale was not and will not be specifically targeted at an identifiable group of U.S. citizens abroad.

2.
Unless the circumstances described in the parenthetical in paragraph 1 above are applicable, either (a) at the time the buy order was originated, the buyer was outside the United States or we and any person acting on our behalf reasonably believed that the buyer was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market, and neither we nor any person acting on our behalf knows that the transaction was pre-arranged with a buyer in the United States.

3.
Neither we, any of our affiliates, nor any person acting on our or their behalf has made any directed selling efforts in the United States with respect to the Bonds.

4.
The proposed transfer of Bonds is not part of a plan or scheme to evade the registration requirements of the Securities Act.

5.
If we are a dealer or a person receiving a selling concession, fee or other remuneration in respect of the Bonds, and the proposed transfer takes place during the Restricted Period (as defined in the Mortgage), or we are an officer or director of the Company or an Initial Purchaser (as defined in the Mortgage), we certify that the proposed transfer is being made in accordance with the provisions of Rule 904(b) of Regulation S.

B.    This Certificate relates to our proposed exchange of $________ principal amount of Bonds issued under the Mortgage for an equal principal amount of Bonds to be held by us. We hereby certify as follows:

1.
At the time the offer and sale of the Bonds was made to us, either (i) we were not in the United States or (ii) we were excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(vi) or the account held by us for which we were acting was excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3); and we were not a member of an identifiable group of U.S. citizens abroad.

2.
Unless the circumstances described in paragraph 1(ii) above are applicable, either (a) at the time our buy order was originated, we were outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and we did not prearrange the transaction in the United States.

3.
The proposed exchange of Bonds is not part of a plan or scheme to evade the registration requirements of the Securities Act.
 
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

Very truly yours,

[NAME OF SELLER (FOR TRANSFERS)
OR OWNER (FOR EXCHANGES)]


By:                    
Name:
Title:
Address:
Date:                

EXHIBIT D

RESTRICTED LEGEND

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (I) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (II) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHICH NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (III) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (IV) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR (V) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (INCLUDING UNDER RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE), SUBJECT TO THE COMPANY’S AND THE TRUSTEE’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (III) PRIOR TO THE END OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR PURSUANT TO CLAUSE (V) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE.




EXHIBIT E

RULE 144A CERTIFICATE

______________, ____
The Bank of New York Mellon Trust Company, N.A.,
as Trustee
111 Sanders Creek Parkway
East Syracuse, NY 13057
Attention: DWACs
Email: exhibitrequests@bnymellon.com

Re:    Indianapolis Power & Light Company
First Mortgage Bonds, 4.05% Series, Due 2046 (the “Bonds”)
Issued under the Sixty-Fourth Supplemental Indenture to the
Mortgage and Deed of Trust dated as of May 1, 1940
(as supplemented and amended) (the “Mortgage”)

Ladies and Gentleman:

TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED.

This Certificate relates to:

[CHECK A OR B AS APPLICABLE.]
A.    Our proposed purchase of $________ principal amount of Bonds issued under the Mortgage.

B.    Our proposed exchange of $________ principal amount of Bonds issued under the Mortgage for an equal principal amount of Bonds to be held by us.

We and, if applicable, each account for which we are acting in the aggregate owned and invested more than $100,000,000 in securities of issuers that are not affiliated with us (or such accounts, if applicable), as of ___________, 20__, which is a date on or since close of our most recent fiscal year. We and, if applicable, each account for which we are acting, are a qualified institutional buyer within the meaning of Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”). If we are acting on behalf of an account, we exercise sole investment discretion with respect to such account. We are aware that the transfer of Bonds to us, or such exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. Prior to the date of this Certificate we have received such information regarding the Company as we have requested pursuant to Rule 144A(d)(4) or have determined not to request such information.
 
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

Very truly yours,

[NAME OF PURCHASER (FOR
TRANSFERS) OR OWNER (FOR
EXCHANGES)]


By:                
Name:
Title:
Address:

Date:                

EXHIBIT F

TEMPORARY OFFSHORE DTC LEGEND

THIS BOND IS A TEMPORARY GLOBAL BOND. PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD APPLICABLE HERETO, BENEFICIAL INTERESTS HEREIN MAY NOT BE HELD BY ANY PERSON OTHER THAN (1) A NON-U.S. PERSON OR (2) A U.S. PERSON THAT PURCHASED SUCH INTEREST IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). BENEFICIAL INTERESTS HEREIN ARE NOT EXCHANGEABLE FOR CERTIFICATED BONDS OTHER THAN A PERMANENT GLOBAL BOND IN ACCORDANCE WITH THE TERMS OF THE MORTGAGE. TERMS IN THIS LEGEND ARE USED AS USED IN REGULATION S UNDER THE SECURITIES ACT.


EX-10.1 3 ipalco10q20160630ex101.htm EXHIBIT 10.1 Exhibit

SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of April 22, 2016, is made by and among INDIANAPOLIS POWER & LIGHT COMPANY, an Indiana corporation (the “Borrower”), the lenders listed on the signature pages hereof (the “Lenders”), FIFTH THIRD BANK, as syndication agent, BMO HARRIS BANK N.A., as documentation agent and PNC BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders (the “Administrative Agent”) under the Credit Agreement referred to below:
WlTNESSETH:
WHEREAS, the Borrower, the Lenders, the agents and the Administrative Agent entered into the Credit Agreement dated as of May 6, 2014, as amended by a First Amendment thereto dated as of October 16, 2015 (collectively, the “Credit Agreement”), pursuant to which the Lenders have extended credit to the Borrower; and
WHEREAS, the Borrower has requested that the Lenders modify the method used to determine the Applicable Margin on the pricing grid of the Credit Agreement based upon the senior unsecured long-term debt ratings of the Borrower; and
WHEREAS, capitalized terms not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement.
NOW, THEREFORE, in consideration of their mutual covenants and agreements hereafter set forth, and intending to be legally bound, the parties hereto agree as follows:
ARTICLE I

Section 1.1
    Section 1.1 [Certain Definitions] of the Credit Agreement shall be amended to insert the following new definitions in the appropriate alphabetical order therein:
Second Amendment shall mean that certain Second Amendment to Credit Agreement, dated as of April 22, 2016, among Borrower, the Lenders and Administrative Agent.”

Second Amendment Effective Date shall mean the date that each of the conditions set forth in Section 2.3 of the Second Amendment has been satisfied to the satisfaction of the Administrative Agent.”


- 1 -


Section 1.2
    Amendment to Schedule 1.1(A). Schedule 1.1(A) [Pricing Grid – Variable Pricing and Fees Based on Borrower’s Rating] to the Credit Agreement is hereby amended and restated to read as set forth on the Schedule attached to this Amendment bearing such name and numerical reference.
ARTICLE II
    
Section 2.1
    No Other Amendments. Except as amended hereby, the terms and provisions of the Credit Agreement remain unchanged, are and shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms, and are hereby ratified and confirmed. Except as expressly provided herein, this Amendment shall not constitute an amendment, waiver, consent or release with respect to any provision of any Loan Document, a waiver of any Potential Default or Event of Default under any Loan Document, or a waiver or release of any of the Lenders’ or Administrative Agent’s rights and remedies (all of which are hereby reserved).
Section 2.2
    Representations and Warranties. The Borrower hereby represents and warrants to the Lenders and the Administrative Agent that the representations and warranties set forth in Article 6 of the Credit Agreement, are true and correct on and as of the date hereof (except for any representation or warranty which was expressly limited to an earlier date, in which case such representation and warranty shall be true and correct on and as of such date), and that no Event of Default, or Potential Default, has occurred or is continuing or exists on or as of the date hereof.
Section 2.3
    Conditions to Effectiveness. This Amendment shall become effective on the Second Amendment Effective Date upon execution and delivery to the Administrative Agent hereof by the Borrower, all of the Lenders and the Administrative Agent and the satisfaction of the following conditions precedents:
(a)
    Execution and Delivery of Amendment. The Borrower, the Lenders, and the Administrative Agent shall have executed and delivered this Amendment to the Administrative Agent, and all other documentation necessary for effectiveness of this Amendment shall have been executed and delivered all to the satisfaction of the Administrative Agent.
(b)
    Consents. All material consents required to effectuate the transactions contemplated by this Amendment and the other Loan Documents and shall have been obtained.

- 2 -


(c)
    Legal Details. All legal details and proceedings in connection with the transactions contemplated by this Amendment and the other Loan Documents shall be in form and substance reasonably satisfactory to the Administrative Agent and counsel for the Administrative Agent, and the Administrative Agent shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to the Administrative Agent and its counsel, as the Administrative Agent or its counsel may reasonably request.
Section 2.4
    Miscellaneous.
(a)
    This Amendment shall become effective as provided in Section 2.3.
(b)
    The Credit Agreement, as amended by this Amendment, is in all respects ratified, approved and confirmed, and shall, as so amended, remain in full force and effect. From and after the date that the amendments herein described take effect, all reference to the “Agreement” in the Credit Agreement and in the other Loan Documents, shall be deemed to be references to the Credit Agreement as amended by this Amendment.
(c)
    This Amendment shall be deemed to be a contract under the laws of the State of Indiana, and for all purposes shall be governed by, construed and enforced in accordance with the laws of said State.
(d)
    This Amendment may be executed in any number of counterparts by the different parties hereto on separate counterparts. Each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one in the same instrument.
(e)
    For purposes of determining withholding Taxes imposed under FATCA, from and after the date of this Amendment, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Credit Agreement as not qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).
(f)
    This Amendment amends the Credit Agreement, but is not intended to constitute, and does not constitute, a novation of the Obligations of the Borrower under the Credit Agreement or any other Loan Document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

- 3 -


[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written.
BORROWER:
INDIANAPOLIS POWER & LIGHT COMPANY
By:    
Connie R. Horwitz
Assistant Treasurer



[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

PNC BANK, NATIONAL ASSOCIATION, individually and as Administrative Agent
By:    
Tracy J. Venable
Senior Vice President

[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

FIFTH THIRD BANK, individually and as Syndication Agent

By:    
      
      

[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

BMO HARRIS BANK N.A., individually and as Documentation Agent
By:    
      
      

[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

BANK OF AMERICA, N.A.
By:    
      
      
[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

JPMORGAN CHASE BANK, N.A.
By:    
      
      

[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

U.S. BANK NATIONAL ASSOCIATION
By:    
      
      

[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

THE HUNTINGTON NATIONAL BANK
By:    

[SIGNATURE PAGE TO SECOND AMENDMENT TO CREDIT AGREEMENT]

SUNTRUST BANK
By:    

SCHEDULE 1.1(A)
PRICING GRID--
VARIABLE PRICING AND FEES BASED ON BORROWER’S RATING
The “Applicable Margin”, “Applicable Commitment Fee Rate” and “Applicable Letter of Credit Fee Rate” for any day are the respective rates per annum set forth below corresponding to the Status that exists on such day:
Level
Borrower’s Rating
(Fitch/Moody’s/S&P)
Applicable
Margin for LIBOR Loan

Applicable Margin for Base Rate Loan
Applicable Commitment Fee Rate
Applicable
Letter of Credit Fee Rate
1
≥ A-/A3/A-
1.000%
0.000%
0.125%
1.000%
2
≥ BBB+/Baa1/BBB+
1.125%
0.125%
0.150%
1.125%
3
≥ BBB/Baa2/BBB
1.250%
0.250%
0.175%
1.250%
4
≥ BBB-/Baa3/BBB-
1.500%
0.500%
0.200%
1.500%
5