Fair Value

12 Months Ended

Dec. 31, 2017

Entity Information [Line Items]

Fair Value

FAIR VALUE

The fair value of financial assets and liabilities approximate their reported carrying amounts. The estimated fair values of the Company’s assets and liabilities have been determined using available market information. As these amounts are estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Fair Value Hierarchy and Valuation Techniques

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

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

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

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

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

FTRs

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

Other Financial Liabilities

As of December 31, 2017 and 2016, all of IPALCO's financial assets or liabilities measured at fair value on a recurring basis were considered Level 3, based on the fair value hierarchy.

Summary

The fair value of assets and liabilities at December 31, 2017 measured on a recurring basis and the respective category within the fair value hierarchy for IPALCO was determined as follows:

Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2017		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
Financial transmission rights	$	2,532	$	—	$	—	$	2,532
Total financial assets measured at fair value	$	2,532	$	—	$	—	$	2,532
Financial liabilities:
Other derivative liabilities	$	78	$	—	$	—	$	78
Total financial liabilities measured at fair value	$	78	$	—	$	—	$	78

The fair value of assets and liabilities at December 31, 2016 measured on a recurring basis and the respective category within the fair value hierarchy for IPALCO was determined as follows:

Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2016		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
Financial transmission rights	$	4,393	$	—	$	—	$	4,393
Total financial assets measured at fair value	$	4,393	$	—	$	—	$	4,393
Financial liabilities:
Other derivative liabilities	$	100	$	—	$	—	$	100
Total financial liabilities measured at fair value	$	100	$	—	$	—	$	100

The following table sets forth a reconciliation of financial instruments, measured at fair value on a recurring basis, classified as Level 3 in the fair value hierarchy (note, amounts in this table indicate carrying values, which approximate fair values):

	Derivative Financial  Instruments, net Liability
	(In Thousands)
Balance at January 1, 2016	$	4,029
Unrealized gain recognized in earnings	46
Issuances	10,892
Settlements	(10,674		)
Balance at December 31, 2016	4,293
Unrealized gain recognized in earnings	23
Issuances	9,647
Settlements	(11,509		)
Balance at December 31, 2017	$	2,454

Non-Recurring Fair Value Measurements

IPL’s ARO liabilities relate primarily to environmental issues involving asbestos-containing materials, ash ponds, landfills and miscellaneous contaminants associated with its generating plants, transmission system and distribution system. We use the cost approach to determine the fair value of IPL’s ARO liabilities, which is estimated by discounting expected cash outflows to their present value at the initial recording of the liabilities. Cash outflows are based on the approximate future disposal costs as determined by market information, historical information or other management estimates. These inputs to the fair value of the ARO liabilities would be considered Level 3 inputs under the fair value hierarchy. As of December 31, 2017 and 2016, ARO liabilities were $79.5 million and $80.6 million, respectively. See Note 3, “Utility Plant in Service” for a rollforward of the ARO liability. 

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

Debt

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

The following table shows the face value and the fair value of fixed-rate and variable-rate indebtedness (Level 2) for the periods ending:

	December 31, 2017				December 31, 2016
	Face Value		Fair Value		Face Value		Fair Value
	(In Millions)
Fixed-rate	$	2,418.8	$	2,655.0	$	2,438.5	$	2,543.5
Variable-rate	238.0		238.0		140.0		140.0
Total indebtedness	$	2,656.8	$	2,893.0	$	2,578.5	$	2,683.5

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

• unamortized deferred financing costs of $24.4 million and $22.2 million at December 31, 2017 and 2016, respectively.

• unamortized discounts of $6.9 million and $6.8 million at December 31, 2017 and 2016, respectively.

Indianapolis Power And Light Company [Member]

Entity Information [Line Items]

Fair Value

FAIR VALUE

The fair value of financial assets and liabilities approximate their reported carrying amounts. The estimated fair values of IPL’s assets and liabilities have been determined using available market information. As these amounts are estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Fair Value Hierarchy and Valuation Techniques

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

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

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

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

Whenever possible, quoted prices in active markets are used to determine the fair value of IPL’s financial instruments. IPL’s 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 IPL could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

FTRs

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

Other Financial Liabilities

As of December 31, 2017 and 2016, all of IPL’s financial assets or liabilities measured at fair value on a recurring basis were considered Level 3, based on the fair value hierarchy.

Summary

The fair value of assets and liabilities at December 31, 2017 measured on a recurring basis and the respective category within the fair value hierarchy for IPL was determined as follows:

Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2017		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
Financial transmission rights	$	2,532	$	—	$	—	$	2,532
Total financial assets measured at fair value	$	2,532	$	—	$	—	$	2,532
Financial liabilities:
Other derivative liabilities	$	78	$	—	$	—	$	78
Total financial liabilities measured at fair value	$	78	$	—	$	—	$	78

The fair value of assets and liabilities at December 31, 2016 measured on a recurring basis and the respective category within the fair value hierarchy for IPL was determined as follows:

Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2016		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
Financial transmission rights	$	4,393	$	—	$	—	$	4,393
Total financial assets measured at fair value	$	4,393	$	—	$	—	$	4,393
Financial liabilities:
Other derivative liabilities	$	100	$	—	$	—	$	100
Total financial liabilities measured at fair value	$	100	$	—	$	—	$	100

The following table sets forth a reconciliation of financial instruments, measured at fair value on a recurring basis, classified as Level 3 in the fair value hierarchy (note, amounts in this table indicate carrying values, which approximate fair values):

	Derivative Financial  Instruments, net Liability
	(In Thousands)
Balance at January 1, 2016	$	4,029
Unrealized gain recognized in earnings	46
Issuances	10,892
Settlements	(10,674		)
Balance at December 31, 2016	4,293
Unrealized gain recognized in earnings	23
Issuances	9,647
Settlements	(11,509		)
Balance at December 31, 2017	$	2,454

Non-Recurring Fair Value Measurements

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. IPL uses the cost approach to determine the fair value of its ARO liabilities, which is estimated by discounting expected cash outflows to their present value at the initial recording of the liabilities. Cash outflows are based on the approximate future disposal costs as determined by market information, historical information or other management estimates. These inputs to the fair value of the ARO liabilities would be considered Level 3 inputs under the fair value hierarchy. As of December 31, 2017 and 2016, ARO liabilities were $79.5 million and $80.6 million, respectively. See Note 3, “Utility Plant in Service” for a rollforward of the ARO liability. 

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

Debt

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

The following table shows the face value and the fair value of fixed-rate and variable-rate indebtedness (Level 2) for the periods ending: 

	December 31, 2017				December 31, 2016
	Face Value		Fair Value		Face Value		Fair Value
	(In Millions)
Fixed-rate	$	1,608.8	$	1,837.8	$	1,633.5	$	1,717.2
Variable-rate	238.0		238.0		140.0		140.0
Total indebtedness	$	1,846.8	$	2,075.8	$	1,773.5	$	1,857.2

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

• unamortized deferred financing costs of $16.5 million and $17.2 million at December 31, 2017 and 2016, respectively.

• unamortized discounts of $6.4 million and $6.5 million at December 31, 2017 and 2016, respectively.