0000728391-18-000046.txt : 20181106 0000728391-18-000046.hdr.sgml : 20181106 20181105174932 ACCESSION NUMBER: 0000728391-18-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 50 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181106 DATE AS OF CHANGE: 20181105 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: 181160968 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 ipalco10q20180930q3.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 September 30, 2018
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 every Interactive Data File required to be submitted 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 such files). Yes þ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ¨ 
Accelerated filer ¨  
Non-accelerated filer þ
Smaller reporting company ¨

Emerging growth company ¨
  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

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 November 5, 2018, 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 September 30, 2018
 
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 and Nine Months ended
 
 
     September 30, 2018 and 2017
 
Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended
 
 
     September 30, 2018 and 2017
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
     Note 1 - Overview and Summary of Significant Accounting Policies
 
     Note 2 - Regulatory Matters
 
     Note 3 - Fair Value
 
     Note 4 - Debt
 
     Note 5 - Income Taxes
 
     Note 6 - Benefit Plans
 
     Note 7 - Commitments and Contingencies
 
     Note 8 - Business Segment Information
 
     Note 9 - Revenue
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:
 
 
2017 Form 10-K
IPALCO’s Annual Report on Form 10-K for the year ended December 31, 2017, as amended
2018 Rate Order
The order issued in October 2018 by the IURC authorizing IPL to, among other things, increase its basic rates and charges by $43.9 million annually
 
2020 IPALCO Notes
$405 million of 3.45% Senior Secured Notes due July 15, 2020
2024 IPALCO Notes
$405 million of 3.70% Senior Secured Notes due September 1, 2024
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, dated as of October 16, 2015
 
CWA
U.S. Clean Water Act
DOE
U.S. Department of Energy
DSM
Demand Side Management
ECCRA
Environmental Compliance Cost Recovery Adjustment
EPA
U.S. Environmental Protection Agency
FAC
Fuel Adjustment Clause
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
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
GHG
Greenhouse Gas
IDEM
Indiana Department of Environmental Management
IPALCO
IPALCO Enterprises, Inc.
IPL
Indianapolis Power & Light Company
IURC
Indiana Utility Regulatory Commission
kWh
Kilowatt hours
MISO
Midcontinent Independent System Operator, Inc.
MW
Megawatts
MWh
Megawatt hours
NAAQS
National Ambient Air Quality Standards
NOV
Notice of Violation
NOx

Nitrogen Oxide
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
RTO
Regional Transmission Organization
SEC
Securities and Exchange Commission
SIP
State Implementation Plan
SO2

Sulfur Dioxide
TCJA
Tax Cuts and Jobs Act
U.S.
United States of America
 

3


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

We encourage investors, the media, our customers and others interested in the Company to review the information we post at https://www.iplpower.com.

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 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:
 
growth in our service territory and changes in demand and demographic patterns;
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 actions, 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 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;
cyber-attacks and information security breaches;
catastrophic events such as fires, explosions, 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;

4


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.

All of the above 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in IPALCO’s 2017 Form 10-K for a more detailed discussion of the foregoing and certain other factors that could cause actual results to differ materially from those reflected in any forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to publicly update or review any forward-looking information, whether as a result of new information, future events or otherwise. If one or more forward-looking statements are updated, no inference should be drawn that additional updates will be made with respect to those or other forward-looking statements.


5


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS 

IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In Thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2018
2017
 
2018
2017
 
 
 
 
 
 
UTILITY OPERATING REVENUES
$
385,149

$
355,314

 
$
1,099,331

$
1,014,048

 
 
 
 
 
 
UTILITY OPERATING EXPENSES:
 
 
 
 
 
Fuel
90,599

77,061

 
252,435

210,521

Other operating expenses
73,155

63,329

 
207,397

189,728

Power purchased
39,267

44,470

 
131,580

141,058

Maintenance
36,489

29,706

 
107,828

96,032

Depreciation and amortization
57,880

52,711

 
172,492

156,099

Taxes other than income taxes
12,781

11,804

 
42,036

33,640

Income taxes - net
13,538

23,049

 
29,620

53,189

Total utility operating expenses
323,709

302,130

 
943,388

880,267

UTILITY OPERATING INCOME
61,440

53,184

 
155,943

133,781

 
 
 
 
 
 
OTHER INCOME AND (DEDUCTIONS):
 
 
 
 
 
Allowance for equity funds used during construction
459

6,628

 
7,839

19,576

Loss on early extinguishment of debt

(8,875
)
 

(8,875
)
Miscellaneous income and (deductions) - net
124

368

 
(1,768
)
712

Income tax benefit applicable to nonoperating income
2,966

8,308

 
6,072

15,492

Total other income and (deductions) - net
3,549

6,429

 
12,143

26,905

 
 
 
 
 
 
INTEREST AND OTHER CHARGES:
 
 
 
 
 
Interest on long-term debt
28,634

30,575

 
86,139

89,077

Other interest
461

466

 
1,410

1,263

Allowance for borrowed funds used during construction
(7,155
)
(5,702
)
 
(20,032
)
(16,763
)
Amortization of redemption premiums and expense on debt
977

1,081

 
2,948

3,241

Total interest and other charges - net
22,917

26,420

 
70,465

76,818

NET INCOME 
42,072

33,193

 
97,621

83,868

 
 
 
 
 
 
LESS: PREFERRED DIVIDENDS OF SUBSIDIARY
803

803

 
2,410

2,410

NET INCOME APPLICABLE TO COMMON STOCK
$
41,269

$
32,390

 
$
95,211

$
81,458

 
 
 
 
 
 
See notes to unaudited condensed consolidated financial statements.
 

6


IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In Thousands)
 
September 30,
December 31,
 
2018
2017
ASSETS
 
 
UTILITY PLANT:
 
 
Utility plant in service
$
6,154,285

$
5,385,053

Less accumulated depreciation
2,213,760

2,129,617

Utility plant in service - net
3,940,525

3,255,436

Construction work in progress
81,535

711,396

Spare parts inventory
14,231

13,157

Property held for future use
1,002

1,002

Utility plant - net
4,037,293

3,980,991

OTHER ASSETS:
 

 

Nonutility property - at cost, less accumulated depreciation
417

502

Intangible assets - net
37,444

16,036

Other long-term assets
4,612

6,185

Other assets - net
42,473

22,723

CURRENT ASSETS:
 

 

Cash and cash equivalents
15,745

30,681

Accounts receivable and unbilled revenue (less allowance
 

 

for doubtful accounts of $2,769 and $2,830, respectively)
161,545

157,577

Fuel inventories - at average cost
27,157

32,393

Materials and supplies - at average cost
66,772

63,623

Regulatory assets
14,532

35,341

Prepayments and other current assets
33,483

34,094

Total current assets
319,234

353,709

DEFERRED DEBITS:
 

 

Regulatory assets
389,189

378,904

Miscellaneous
5,401

4,234

Total deferred debits
394,590

383,138

TOTAL
$
4,793,590

$
4,740,561

CAPITALIZATION AND LIABILITIES
 
 
CAPITALIZATION:
 
 
Common shareholders' equity:
 
 
Paid in capital
$
597,736

$
597,467

Accumulated deficit
(15,169
)
(25,191
)
Total common shareholders' equity
582,567

572,276

Cumulative preferred stock of subsidiary
59,784

59,784

Long-term debt (Note 4)
2,480,080

2,477,538

Total capitalization
3,122,431

3,109,598

CURRENT LIABILITIES:
 
 
Short-term and current portion of long-term debt (Note 4)
104,000

148,000

Accounts payable
124,054

125,297

Accrued expenses
21,986

27,926

Accrued real estate and personal property taxes
26,707

18,145

Regulatory liabilities
22,406

2,532

Accrued income taxes
9,544


Accrued interest
35,369

34,332

Customer deposits
31,862

31,306

Other current liabilities
10,522

10,392

Total current liabilities
386,450

397,930

DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
 
 
Regulatory liabilities
895,225

851,754

Deferred income taxes - net
240,095

245,257

Non-current income tax liability
4,645

4,651

Unamortized investment tax credit
271

954

Accrued pension and other postretirement benefits
15,600

50,070

Asset retirement obligations
128,359

79,535

Miscellaneous
514

812

Total deferred credits and other long-term liabilities
1,284,709

1,233,033

COMMITMENTS AND CONTINGENCIES (Note 7)


TOTAL
$
4,793,590

$
4,740,561




See notes to unaudited condensed consolidated financial statements.

7



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
 
Nine Months Ended
 
September 30,
 
2018
2017
CASH FLOWS FROM OPERATIONS:
 
 
Net income
$
97,621

$
83,868

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
172,492

156,103

Amortization of deferred financing costs and debt premium
2,948

3,241

Deferred income taxes and investment tax credit adjustments - net
(16,852
)
(14,546
)
Loss on early extinguishment of debt

8,875

Allowance for equity funds used during construction
(7,839
)
(19,576
)
Change in certain assets and liabilities:
 

 

Accounts receivable
(3,968
)
2,635

Fuel, materials and supplies
2,088

(4,626
)
Income taxes receivable or payable
24,226

5,143

Financial transmission rights
(2,321
)
(788
)
Accounts payable and accrued expenses
(7,560
)
(10,864
)
Accrued real estate and personal property taxes
8,561

3,020

Accrued interest
1,037

2,951

Accrued pension and other postretirement benefits
(34,469
)
(15,828
)
Short-term and long-term regulatory assets and liabilities
82,306

21,183

Prepaids and other current assets
(11,750
)
156

Other - net
1,186

(4,841
)
Net cash provided by operating activities
307,706

216,106

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
Capital expenditures - utility
(161,830
)
(163,714
)
Project development costs
(761
)
(1,315
)
Cost of removal and regulatory recoverable ARO payments
(13,544
)
(7,523
)
Other
(6,248
)
(2,957
)
Net cash used in investing activities
(182,383
)
(175,509
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 

Short-term debt borrowings
100,000

126,500

Short-term debt repayments
(144,000
)
(80,650
)
Long-term borrowings, net of discount

404,633

Retirement of long-term debt, including early payment premium

(408,152
)
Dividends on common stock
(85,189
)
(75,476
)
Preferred dividends of subsidiary
(2,410
)
(2,410
)
Deferred financing costs paid

(3,652
)
Payments for financed capital expenditures
(8,469
)
(9,788
)
Other
(191
)
(228
)
Net cash used in financing activities
(140,259
)
(49,223
)
Net change in cash and cash equivalents
(14,936
)
(8,626
)
Cash and cash equivalents at beginning of period
30,681

34,953

Cash and cash equivalents at end of period
$
15,745

$
26,327




Supplemental disclosures of cash flow information:
 
 
Cash paid during the period for:
 
 
Interest (net of amount capitalized)
$
66,177

$
70,395

Income taxes
$
15,800

$
47,100

Non-cash investing activities:
 

Accruals for capital expenditures
$
41,109

$
33,184




See notes to unaudited condensed consolidated financial statements.

8


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 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 490,000 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. IPL’s largest generating station, Petersburg, is coal-fired. The second largest station, Harding Street, uses natural gas and fuel oil to power combustion turbines. In addition, IPL operates a 20 MW battery energy storage unit at this location, which provides frequency response. The third station, Eagle Valley, is a newly constructed 671 MW CCGT natural gas plant. IPL took operational control and commenced commercial operations of this CCGT plant in April 2018. The fourth station, Georgetown, is a small peaking station that uses natural gas to power combustion turbines. As of September 30, 2018, IPL’s net electric generation capacity for winter is 3,667 MW and net summer capacity is 3,552 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 IPALCO’s 2017 Form 10-K 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.

Reclassifications

Certain immaterial amounts from prior periods have been reclassified to conform to the current year presentation.


9



ARO

In 2018, IPL recorded additional ARO liabilities of $53.1 million to reflect revisions to cash flow and timing estimates due to accelerated ash pond closure dates and revised estimated closure costs after review of updates to the CCR rule and revised estimated costs associated with our coal storage areas. The following is a roll forward of the ARO legal liability for the nine months ended September 30, 2018 (in thousands):
Balance as of January 1, 2018
 
$
79,535

Revisions to cash flow and timing estimates
 
53,059

Liabilities settled
 
(7,301
)
Accretion expense
 
3,066

Balance as of September 30, 2018
 
$
128,359


New Accounting Pronouncements Adopted in 2018

The following table provides a brief description of recent accounting pronouncements that had an impact on the Company’s Financial Statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on the Company’s Financial Statements.
New Accounting Standards Adopted
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
This standard changes the presentation of non-service costs associated with defined benefit plans and updates the guidance so that only the service cost component will be eligible for capitalization. Transition method: retrospective for presentation of non-service cost expense and prospective for the change in capitalization.
January 1, 2018
The adoption of this standard resulted in a $(1.4) million reclassification of non-service pension costs (credits) from Other operating expenses to Miscellaneous income and (deductions) - net for the nine months ended September 30, 2017.
2014-09, 2015-14, 2016-08,
2016-10, 2016-12, 2016-20, 2017-10, 2017-13, Revenue from Contracts
with Customers (Topic
606)

See discussion of the ASUs below.


January 1, 2018
See impact upon adoption of the standard below.


Adoption of ASC Topic 606, Revenue from Contracts with Customers

On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers”, and its subsequent corresponding updates (“ASC 606”). Under this standard, an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applied the modified retrospective method of adoption to those contracts that were not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under the previous revenue recognition standard. For contracts that were modified before January 1, 2018, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.

There was no cumulative effect to our January 1, 2018 Condensed Consolidated Balance Sheet resulting from the adoption of ASC 606.


10



New Accounting Pronouncements Issued But Not Yet Effective

The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s Financial Statements once adopted. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on the Company’s Financial Statements.
New Accounting Standards Issued But Not Yet Effective
ASU Number and Name
Description
Date of Adoption
Effect on the financial statements upon adoption
2018-15, Intangibles—
Goodwill and Other—
Internal-Use Software
(Subtopic 350-40):
Customer’s Accounting for
Implementation Costs
Incurred in a Cloud
Computing Arrangement
That Is a Service Contract

This standard aligns the accounting for implementation costs incurred for a cloud computing arrangement that is a service with the requirement for capitalizing implementation costs associated with developing or obtaining internal-use software. Transition method: retrospective or prospective.

January 1, 2020. Early adoption is permitted.

The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.

2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item. Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures.  

January 1, 2019. Early adoption is permitted.
The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.
2017-08, Receivables -
Nonrefundable Fees and
Other Costs (Subtopic
310-20): Premium
Amortization on
Purchased Callable Debt
Securities

This standard shortens the period of amortization for the premium on certain callable debt securities to the earliest call date. Transition method: modified retrospective.

January 1, 2019. Early adoption is permitted.

The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.

2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
The standard updates the impairment model for financial assets measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities.
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.
2016-02, 2018-01, 2018-10, 2018-11, Leases (Topic 842)
See discussion of the ASUs below.
January 1, 2019. Early adoption is permitted.
The Company will adopt the standard on January 1, 2019; see below for the evaluation of the impact of its adoption on its consolidated financial statements.

ASU 2016-02 and its subsequent corresponding updates require lessees to recognize assets and liabilities for most leases but recognize expenses in a manner similar to the current accounting methods. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance also eliminates the current real estate-specific provisions.

The standard must be adopted using a modified retrospective approach at the beginning of the earliest
comparative period presented in the financial statements (January 1, 2017). The FASB amended the standard to
add an optional transition method that allows entities to continue to apply the guidance in ASC 840 Leases in the
comparative periods presented in the year they adopt the new lease standard. Under this transition method, the
Company will apply the transition provisions on January 1, 2019. At transition, lessees and lessors are permitted
to make an election to apply a package of practical expedients that allow them not to reassess: (1) whether any
expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases, and (3)

11



whether initial direct costs for any expired or existing leases qualify for capitalization under ASC 842. These three
practical expedients must be elected as a package and must be consistently applied to all leases. Furthermore,
entities are also permitted to make an election to use hindsight when determining lease term and lessees can elect
to use hindsight when assessing the impairment of right-of-use assets.

The Company has established a task force focused on the identification of contracts that would be under the scope of the new standard and on the assessment and measurement of the right-of-use asset and related liability. Additionally, the implementation team has been working on the configuration of a lease accounting tool that will support the implementation and the subsequent accounting. The implementation of this tool is the latest phase and it is expected to be completed by the effective date. The implementation team is also in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard.

As the Company has preliminarily concluded that at transition it would be using the package of practical expedients, the main impact expected as of the effective date is the recognition of the right-of-use asset and the related liability in the financial statements for all those contracts that contain a lease and for which the Company is the lessee. However, income statement presentation and the expense recognition pattern are not expected to change.

Under ASC 842, it is expected that fewer contracts will contain a lease. Under the new rules, all operating leases will be recorded as right-of-use assets with an off-setting lease liability.

2. REGULATORY MATTERS
 
Basic Rates and Charges

On October 31, 2018, the IURC issued an order approving an uncontested settlement agreement previously filed with the IURC by IPL for a $43.9 million, or 3.2%, increase to annual revenues (the "2018 Rate Order"). The 2018 Rate Order includes recovery through rates of the CCGT at Eagle Valley completed in the first half of 2018, as well as other construction projects and changes to operating income since the previous base rate order. New base rates and charges are expected to be effective on December 5, 2018. The 2018 Rate Order also provides customers approximately $50 million in benefits, to be flowed to customers over a two-year period via the ECCRA rate adjustment mechanism beginning in March 2019. These benefits to date are recorded in long-term regulatory liabilities as of September 30, 2018. In addition, the 2018 Rate Order provides that annual wholesale margins earned above the benchmark of $16.3 million shall be passed back to customers through a rate adjustment mechanism. Conversely, any wholesale margin below the benchmark will be charged to customers through the same rate adjustment mechanism. Similarly, the 2018 Rate Order provides that all capacity sales above (or below) a benchmark of $11.3 million shall be passed back (or charged to) customers through a rate adjustment mechanism.

DSM

On February 7, 2018, the IURC approved a settlement agreement establishing a new three-year DSM plan for IPL through 2020. The approval included cost recovery of programs as well as performance incentives, depending on the level of success of the programs. The order also approved recovery of lost revenues, consistent with the provisions of the settlement agreement.

Taxes

On January 3, 2018, the IURC opened a generic investigation to review and consider the impacts from the TCJA and how any resulting benefits should be realized by customers. The IURC’s order opening this investigation directed Indiana utilities to apply regulatory accounting treatment, such as the use of regulatory assets and regulatory liabilities, for all estimated impacts resulting from the TCJA. On February 16, 2018, the IURC issued an order establishing two phases of the investigation. The first phase (“Phase I”) directed respondent utilities (including IPL) to make a filing to remove from respondents’ rates and charges for service, the impact of a lower federal income tax rate. The second phase (“Phase II”) was established to address remaining issues from the TCJA, including treatment of deferred taxes and how these benefits will be realized by customers. On August 29, 2018, the IURC approved a settlement agreement filed by IPL and various other parties to resolve the Phase I issues of the TCJA tax expense via a credit through the ECCRA rate adjustment mechanism of $9.5 million. The 2018 Rate

12



Order described above resolved the Phase II and all other issues regarding the TCJA impact on IPL's rates and includes an additional credit of $14.3 million to be paid by IPL to its customers through the ECCRA rate adjustment mechanism over two years beginning in March 2019.

3. FAIR VALUE
 
Fair Value Hierarchy
 
As of September 30, 2018 and December 31, 2017, all of IPALCO’s financial assets or liabilities adjusted to fair value on a recurring basis (excluding pension assets – see Note 6, “Benefit Plans”) were considered Level 3, based on the 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 customers, IPL records a regulatory liability matching the value of the FTRs. These financial assets and liabilities were not material to the Financial Statements in the periods covered by this report, individually or in the aggregate. See Note 5, “Regulatory Assets and Liabilities” in IPALCO’s 2017 Form 10-K for more information.
 
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 using market-based rates 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. In 2018, IPL recorded additional ARO liabilities of $53.1 million to reflect revisions to cash flow and timing estimates due to accelerated ash pond closure dates and revised estimated closure costs after review of updates to the CCR rule and revised estimated costs associated with our coal storage areas. As of September 30, 2018 and December 31, 2017, ARO liabilities were $128.4 million and $79.5 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.

The following table shows the face value and the fair value of fixed-rate and variable-rate indebtedness (Level 2) for the periods ending:  
 
September 30, 2018
December 31, 2017
 
Face Value
Fair Value
Face Value
Fair Value
 
(In Thousands)
Fixed-rate
$
2,418,800

$
2,515,484

$
2,418,800

$
2,655,000

Variable-rate
194,000

194,000

238,000

238,000

Total indebtedness
$
2,612,800

$
2,709,484

$
2,656,800

$
2,893,000

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

unamortized deferred financing costs of $22.0 million and $24.4 million at September 30, 2018 and December 31, 2017, respectively; and

unamortized discounts of $6.7 million and $6.9 million at September 30, 2018 and December 31, 2017, respectively.


13


4. DEBT
 
Long-Term Debt
 
The following table presents our long-term debt:
 
 
September 30,
December 31,
Series
Due
2018
2017
 
 
(In Thousands)
IPL first mortgage bonds:
 
 
3.875% (1)
August 2021
$
55,000

$
55,000

3.875% (1)
August 2021
40,000

40,000

3.125% (1)
December 2024
40,000

40,000

6.60%
January 2034
100,000

100,000

6.05%
October 2036
158,800

158,800

6.60%
June 2037
165,000

165,000

4.875%
November 2041
140,000

140,000

4.65%
June 2043
170,000

170,000

4.50%
June 2044
130,000

130,000

4.70%
September 2045
260,000

260,000

4.05%
May 2046
350,000

350,000

Unamortized discount – net

(6,256
)
(6,353
)
Deferred financing costs
 
(15,782
)
(16,168
)
Total IPL first mortgage bonds
1,586,762

1,586,279

IPL unsecured debt:




Variable (2)
December 2020
30,000

30,000

Variable (2)
December 2020
60,000

60,000

Deferred financing costs

(258
)
(344
)
Total IPL unsecured debt
 
89,742

89,656

Total Long-term Debt – IPL
1,676,504

1,675,935

Long-term Debt – IPALCO:
 

 

3.45% Senior Secured Notes
July 2020
405,000

405,000

3.70% Senior Secured Notes
September 2024
405,000

405,000

Unamortized discount – net

(451
)
(534
)
Deferred financing costs
 
(5,973
)
(7,863
)
Total Long-term Debt – IPALCO
803,576

801,603

Total Consolidated IPALCO Long-term Debt
$
2,480,080

$
2,477,538


(1)
First mortgage bonds issued to the Indiana Finance Authority, to secure the loan of proceeds from tax-exempt bonds issued by the Indiana Finance Authority.
(2)
Unsecured notes 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.


14


IPALCO Term Loan

On October 31, 2018, IPALCO closed on a new credit facility consisting of a $65 million term loan maturing July 1, 2020. The term loan is variable rate and is secured by IPALCO’s pledge of all the outstanding common stock of IPL. The lien on the pledged shares is shared equally and ratably with IPALCO’ existing senior secured notes. The term loan proceeds were used to pay down outstanding borrowings under IPL’s line of credit and for general corporate purposes.

IPALCO’s Senior Secured Notes

In August 2017, IPALCO completed the sale of the $405 million 2024 IPALCO Notes pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 2024 IPALCO Notes were issued pursuant to an Indenture dated August 22, 2017, by and between IPALCO and U.S. Bank, National Association, as trustee. The 2024 IPALCO Notes were priced to the public at 99.901% of the principal amount. Net proceeds to IPALCO were approximately $399.3 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, together with cash on hand, to redeem IPALCO's outstanding $400 million 5.00% Senior Secured Notes due 2018 on September 21, 2017, and to pay certain related fees, expenses and make-whole premiums. A loss on early extinguishment of debt of $8.9 million for IPALCO's 5.00% Senior Secured Notes due 2018 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 and 2024 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 also agreed to register the 2024 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 Morgan Stanley & Co. LLC and PNC Capital Markets LLC, as representatives of the initial purchasers of the 2024 IPALCO Notes, dated August 22, 2017. IPALCO filed its registration statement on Form S-4 with respect to the 2024 IPALCO Notes with the SEC on November 13, 2017, and this registration statement was declared effective on December 5, 2017. The exchange offer was completed on January 12, 2018.

Line of Credit

As of September 30, 2018 and December 31, 2017, IPL had $104.0 million and $148.0 million in outstanding borrowings on the committed line of credit, respectively. 

5. INCOME TAXES
 
U.S. Tax Reform

On December 22, 2017, the U.S. federal government enacted the TCJA. The TCJA significantly changes U.S. corporate income tax law. Notable items impacting the effective tax rate for the 2018 tax year related to the TCJA include a rate reduction in the corporate tax rate to 21% from 35% and an increase in the estimated flow-through depreciation partially offset by the repeal of the manufacturer’s production deduction.

Effective Tax Rate

IPALCO’s effective combined state and federal income tax rates were 20.4% and 19.8% for the three and nine months ended September 30, 2018, respectively, as compared to 31.3% and 31.6% for the three and nine months ended September 30, 2017, respectively. The decreases in the effective tax rates versus the comparable periods were primarily due to the impact of the TCJA (as explained above). Partially offsetting the decreases to the effective tax rates were increases caused by the lower allowance for equity funds used during construction in 2018.
 

15


6. BENEFIT PLANS
 
The following table (in thousands) presents information for the nine months ended September 30, 2018, relating to the Pension Plans:
Net unfunded status of plans:
 

Net unfunded status at December 31, 2017
$
(43,161
)
Net benefit cost components reflected in net unfunded status during first quarter:
 

   Service cost
(2,113
)
   Interest cost
(6,305
)
   Expected return on assets
10,200

   Curtailment(1)
(449
)
   Employer contributions
30,000

Net unfunded status at March 31, 2018
$
(11,828
)
Net benefit cost components reflected in net unfunded status during second quarter:
 

   Service cost
(2,113
)
   Interest cost
(6,305
)
   Expected return on assets
10,200

Net unfunded status at June 30, 2018
$
(10,046
)
Net benefit cost components reflected in net unfunded status during third quarter:
 

   Service cost
(2,112
)
   Interest cost
(6,305
)
   Expected return on assets
10,200

   Employer contributions
26

Net unfunded status at September 30, 2018
$
(8,237
)



Regulatory assets related to pensions(2):


Regulatory assets at December 31, 2017
$
211,125

Amount reclassified through net benefit cost: 
 

   Amortization of prior service cost
(959
)
   Amortization of net actuarial loss
(2,851
)
   Curtailment(1)
(781
)
Regulatory assets at March 31, 2018
$
206,534

Amount reclassified through net benefit cost: 
 

   Amortization of prior service cost
(960
)
   Amortization of net actuarial loss
(2,850
)
Regulatory assets at June 30, 2018
$
202,724

Amount reclassified through net benefit cost: 
 

   Amortization of prior service cost
(959
)
   Amortization of net actuarial loss
(2,851
)
Regulatory assets at September 30, 2018
$
198,914




(1)
As a result of the announced AES restructuring in the first quarter of 2018, we recognized a plan curtailment of $1.2 million in the first quarter of 2018.
(2)
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 not yet recognized as components of net periodic benefit costs.


16


Pension Expense
 
The following table presents net periodic benefit cost information relating to the Pension Plans combined:
 
For the Three Months Ended
For the Nine Months Ended
 
September 30,
September 30,
 
2018
2017
2018
2017
 
(In Thousands)
(In Thousands)
Components of net periodic benefit cost:
 
 
 
 
Service cost
$
2,112

$
1,836

$
6,338

$
5,508

Interest cost
6,305

6,326

18,915

18,979

Expected return on plan assets
(10,200
)
(11,168
)
(30,600
)
(33,503
)
Amortization of prior service cost
959

1,060

2,878

3,180

Amortization of actuarial loss
2,851

3,298

8,552

9,897

Curtailments and settlements(1)


1,230

146

Net periodic benefit cost
$
2,027

$
1,352

$
7,313

$
4,207


(1)
As a result of the announced AES restructuring in the first quarter of 2018, we recognized a plan curtailment of $1.2 million for the nine months ended September 30, 2018. The settlement loss of $0.1 million for the nine months ended September 30, 2017 was the result of a lump sum distribution paid out of the Supplemental Retirement Plan.

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 of $7.4 million and $7.0 million at September 30, 2018 and December 31, 2017, respectively, were not material to the Financial Statements in the periods covered by this report.

7. 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.
 
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 and Other CAA NOVs
 
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. In addition, on October 1, 2015, IPL received a NOV from the EPA pursuant to CAA Section 113(a) alleging violations of the CAA, the Indiana SIP, and the Title V operating permit related to alleged particulate matter and opacity violations at IPL Petersburg Unit 3. Also, on February 5, 2016, the EPA issued a NOV pursuant to CAA Section 113(a) alleging violations of New Source Review and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Generating Station. Since receiving the letters, IPL management
has met with the EPA staff regarding possible resolutions of the NOVs. Settlements and litigated outcomes of similar New Source Review 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 these cases could have a material impact on our business. At this time, we cannot determine whether these NOVs could have a material impact on our business, financial condition or results of operations. 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 these New Source Review cases and other CAA NOV matters.

8. BUSINESS 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 nonutility business activities aggregated separately. The “All Other” nonutility category primarily includes the 2020 IPALCO Notes and the 2024 IPALCO Notes; approximately $4.6 million and $18.3 million of cash and cash equivalents as of September 30, 2018 and December 31, 2017, respectively; long-term investments of $4.1 million and $5.1 million at September 30, 2018 and December 31, 2017, respectively; and income taxes and interest related to those items. All other assets represented less than 1% of IPALCO’s total assets as of September 30, 2018 and December 31, 2017. The accounting policies of the identified segment are consistent with those policies and procedures described in the summary of significant accounting policies.

The following table provides information about IPALCO’s business segments (in thousands):
 
 
Three Months Ended
 
Three Months Ended
 
 
September 30, 2018
 
September 30, 2017
 
 
Utility
 
All Other
 
Total
 
Utility
 
All Other
 
Total
Operating revenues
 
$
385,149

 
$

 
$
385,149

 
$
355,314

 
$

 
$
355,314

Income taxes
 
$
13,560

 
$
(2,988
)
 
$
10,572

 
$
22,940

 
$
(8,199
)
 
$
14,741

Interest and other charges - net
 
$
15,255

 
$
7,662

 
$
22,917

 
$
16,330

 
$
10,090

 
$
26,420

Net income
 
$
46,785

 
$
(4,713
)
 
$
42,072

 
$
43,816

 
$
(10,623
)
 
$
33,193

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
Nine Months Ended
 
 
September 30, 2018
 
September 30, 2017
 
 
Utility
 
All Other
 
Total
 
Utility
 
All Other
 
Total
Operating revenues
 
$
1,099,331

 
$

 
$
1,099,331

 
$
1,014,048

 
$

 
$
1,014,048

Income taxes
 
$
29,569

 
$
(6,021
)
 
$
23,548

 
$
52,826

 
$
(15,129
)
 
$
37,697

Interest and other charges - net
 
$
47,461

 
$
23,004

 
$
70,465

 
$
48,704

 
$
28,114

 
$
76,818

Net income
 
$
114,846

 
$
(17,225
)
 
$
97,621

 
$
105,468

 
$
(21,600
)
 
$
83,868

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2018
 
As of December 31, 2017
 
 
Utility
 
All Other
 
Total
 
Utility
 
All Other
 
Total
Total assets
 
$
4,785,124

 
$
8,466

 
$
4,793,590

 
$
4,719,547

 
$
21,014

 
$
4,740,561


9. REVENUE

Revenue is primarily earned from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities.


17



Retail revenues - IPL energy sales to utility customers are based on the reading of meters at the customer’s location that occurs on a systematic basis throughout the month. IPL sells electricity directly to end-users, such as homes and businesses, and bills customers directly. Retail revenues have a single performance obligation, as the promise to transfer energy and other distribution and/or transmission services are not separately identifiable from other promises in the contracts and, therefore, are not distinct. Additionally, as the performance obligation is satisfied over time as energy is delivered, and the same method is used to measure progress, the performance obligation meets the criteria to be considered a series.

In exchange for the exclusive right to sell or distribute electricity in our service area, IPL is subject to rate regulation by federal and state regulators. This regulation sets the framework for the prices (“tariffs”) that IPL is allowed to charge customers for electric services. Since tariffs are approved by the regulator, the price that IPL has the right to bill corresponds directly with the value to the customer of IPL’s performance completed in each period. Therefore, revenue under these contracts is recognized using an output method measured by the MWhs delivered each month at the approved tariff. Customer payments are typically due on a monthly basis.

Wholesale revenues - Power produced at the generation stations in excess of our retail load is sold into the MISO market. Such sales are made at either the day-ahead or real-time hourly market price, and these sales are classified as wholesale revenues. We sell to and purchase power from MISO, and such sales and purchases are settled and accounted for on a net hourly basis.

In the MISO market, wholesale revenue is recorded at the spot price based on the quantities of MWh delivered in each hour during each month. As a member of MISO, we are obligated to declare the availability of our energy production into the wholesale energy market, but we are not obligated to commit our previously declared availability. As such, contract terms end as the energy for each day is delivered to the market in the case of the day-ahead market and for each hour in the case of the real-time market.

Miscellaneous revenues - Miscellaneous revenues are mainly comprised of MISO transmission revenues. MISO transmission revenues are earned when IPL’s power lines are used in transmission of energy by power producers other than IPL. As IPL owns and operates transmission lines in central and southern Indiana, demand charges collected from network customers by MISO are allocated to the appropriate transmission owners (including IPL) and recognized as transmission revenues.

Transmission revenues have a single performance obligation, as transmission services represent a distinct service. Additionally, as the performance obligation is satisfied over time and the same method is used to measure progress, the performance obligation meets the criteria to be considered a series. The price that the transmission operator has the right to bill corresponds directly with the value to the customer of IPL’s performance completed in each period as the price paid is the transmission operators allocation of the tariff rate (as approved by the regulator) charged to network participants.

IPL’s revenue from contracts with customers was $379.5 million for the three months ended September 30, 2018 and $1,083.2 million for the nine months ended September 30, 2018, respectively. The following table presents our revenue from contracts with customers and other revenue (in thousands):
 
For the Three Months Ended,
For the Nine Months Ended,
 
September 30, 2018
September 30, 2018
Retail Revenues
 
 
     Retail revenue from contracts with customers
$
366,030

$
1,045,286

     Other retail revenues (1)
4,293

12,157

Wholesale Revenues
10,844

30,007

Miscellaneous Revenues
 
 
     Transmission and other revenue from contracts with customers
2,631

7,906

     Other miscellaneous revenues (2)
1,351

3,975

Total Revenues
$
385,149

$
1,099,331

    
(1) Other retail revenue represents alternative revenue programs not accounted for under ASC 606
(2) Other miscellaneous revenue includes lease and other miscellaneous revenues not accounted for under ASC 606


18



The balances of receivables from contracts with customers were $159.4 million and $155.7 million as of September 30, 2018 and January 1, 2018, respectively. Payment terms for all receivables from contracts with customers are typically within 30 days.

The Company has elected to apply the optional disclosure exemptions under ASC 606. Therefore, the Company has not included disclosure pertaining to revenue expected to be recognized in any future year related to remaining performance obligations, as we exclude contracts with an original length of one year or less, contracts for which we recognize revenue based on the amount we have the right to invoice for services performed, and contracts with variable consideration allocated entirely to a wholly unsatisfied performance obligation when the consideration relates specifically to our efforts to satisfy the performance obligation and depicts the amount to which we expect to be entitled.




19


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.

FORWARD-LOOKING INFORMATION

The following discussion may contain forward-looking statements regarding us, our business, prospects and
our results of operations that are subject to certain risks and uncertainties posed by many factors and events that
could cause our actual business, prospects and results of operations to differ materially from those that may be
anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include,
but are not limited to, those described in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in IPALCO’s 2017 Form 10-K and subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and factors that may affect our business.

OVERVIEW OF OUR BUSINESS

IPALCO is a holding company incorporated under the laws of the state of Indiana. Our principal subsidiary is IPL, a regulated electric utility operating in the state of Indiana. Substantially all of our business consists of the generation, transmission, distribution and sale of electric energy conducted through IPL. Our business segments are “utility” and “all other.” For additional information regarding our business, see Item 1. Business” of our 2017 Form 10-K.

RECENT BUSINESS DEVELOPMENTS

In September 2018, Lisa Krueger was named President of the AES U.S. region, which encompasses IPALCO and IPL and their Ohio sister companies, DPL Inc. and The Dayton Power and Light Company, and other conventional power plants in the U.S. outside of AES’ Distributed Energy and sPower businesses. In addition, on November 2, 2018, AES announced that Gustavo Pimenta, AES’ Senior Vice President and Deputy Chief Financial officer who currently holds the positions of director and/or Chief Financial Officer at AES U.S. subsidiary level businesses, including IPALCO and IPL, was appointed Executive Vice President and Chief Financial Officer of AES, effective January 1, 2019. As a result, we anticipate that there will be management and director changes at the AES U.S. subsidiary level businesses, including IPALCO and IPL.

EXECUTIVE SUMMARY

Compared with the three and nine months ended of the prior year, the results for the three and nine months ended September 30, 2018 reflect higher net income of $8.9 million, or 27%, and $13.8 million, or 16%, respectively, primarily due to factors including, but not limited to:

increased retail margins due to favorable weather in our service territory; and
increased wholesale margins due to the commencement of commercial operations of the newly constructed CCGT plant at Eagle Valley in April 2018.

These were partially offset by:

higher maintenance expense due to the timing and duration of plant outages; and
lower allowance for equity funds used during construction as a result of decreased construction activity.


20


RESULTS OF OPERATIONS
 
The electric utility business is affected by seasonal weather patterns throughout the year and, therefore, operating revenues and associated expenses are not generated evenly by month during the year. 
 
Comparison of three months ended September 30, 2018 and three months ended September 30, 2017
 
Utility Operating Revenues
 
Utility operating revenues during the three months ended September 30, 2018 increased by $29.8 million compared to the same period in 2017, which resulted from the following changes (dollars in thousands):
 
 
Three Months Ended
 
 
 
 
September 30,
 
 
Percentage
 
2018
2017
 
Change
Change
Utility operating revenues:
 
 
 
 
 
Retail revenues
$
370,323

$
350,320

(1) 
$
20,003

5.7%
Wholesale revenues
10,844

1,530

 
9,314

608.8%
Miscellaneous revenues
3,982

3,464

(1) 
518

15.0%
Total utility operating revenues
$
385,149

$
355,314

 
$
29,835

8.4%
 
 
 
 
 
 
(1) Prior period amounts have been reclassified to conform to the current year presentation
 
 
 
 
 
 
Heating degree days:
 
 
 
 
 
Actual
33

31

 
2

6.5%
30-year average
70

67

 
 
 
 
 
 
 
 
 
Cooling degree days:
 
 
 
 
 
Actual
959

772

 
187

24.2%
30-year average
744

761

 
 
 
 
Retail Revenues

The increase in retail revenues of $20.0 million was primarily due to a 3% increase in the volume of kWh sold ($7.2 million) and a net increase in the weighted average price per kWh sold ($12.8 million) as follows (in millions):

Volume:
 
Increase in the volume of kWh sold was primarily due to favorable weather in our service territory during the third quarter of 2018 versus the comparable period (as demonstrated by the 24% increase in cooling degree days, as shown above)

$
7.2

Price:
 
Increase in DSM program rate adjustment mechanism revenues
 
11.6

Increase in environmental rate adjustment mechanism revenues
11.4

Increase in fuel revenues
2.2

Decrease due to the deferral of revenue as a regulatory liability to adjust for the impacts of the TCJA on customer rates and charges for service in 2018
(5.9
)
Decrease in MISO, Capacity and Off System Sales rider revenues
(1.5
)
Unfavorable block rate and other retail rate variances, primarily attributable to our declining block rate structure, which generally provides for residential and commercial customers to be charged a lower per kWh rate at higher consumption levels. Therefore, as volumes increase, the weighted average price per kWh decreases.
(5.0
)
Net increase in the weighted average price of retail kWh sold
$
12.8

 
 
Net increase in retail revenues
$
20.0



21


Wholesale Revenues

The increase in wholesale revenues of $9.3 million was primarily due to an increase in the quantity of kWh sold primarily due to increased generation capacity as a result of the commencement of commercial operations of the newly constructed CCGT plant at Eagle Valley in April 2018. We sold 360.6 million kWh in the wholesale market during the third quarter of 2018 compared to only 38.2 million kWh during the third quarter of 2017. 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 revenues is impacted by our retail load requirements, generation capacity and unit availability. Currently, 50% of IPL’s wholesale margins above and below an established annual benchmark of $6.3 million are shared with our retail customers through a rate rider.

Utility Operating Expenses
 
The following table illustrates our changes in operating expenses during the three months ended September 30, 2018 compared to the same period in 2017 (dollars in thousands):
 
Three Months Ended
 
 
 
September 30,
 
 
 
2018
2017
$ Change

% Change

Utility operating expenses:
 
 
 
 
   Fuel
$
90,599

$
77,061

$
13,538

17.6
 %
   Other operating expenses
73,155

63,329

9,826

15.5
 %
   Power purchased
39,267

44,470

(5,203
)
(11.7
)%
   Maintenance
36,489

29,706

6,783

22.8
 %
   Depreciation and amortization
57,880

52,711

5,169

9.8
 %
   Taxes other than income taxes
12,781

11,804

977

8.3
 %
   Income taxes - net
13,538

23,049

(9,511
)
(41.3
)%
      Total utility operating expenses
$
323,709

$
302,130

$
21,579

7.1
 %
 
 
 
 
 

The $13.5 million increase in fuel expense was primarily due to (i) a $14.1 million increase in the quantity of fuel consumed versus the comparable period, primarily due to increased generation capacity as a result of the commencement of commercial operations of the newly constructed CCGT plant at Eagle Valley in April 2018 and (ii) a $0.9 million increase due to the higher price of coal we consumed versus the comparable period; partially offset by (iii) a $1.4 million decrease in deferred fuel costs and (iv) a $1.1 million decrease due to the lower 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 $9.8 million increase in other operating expenses was primarily due to higher DSM program costs of $9.6 million mostly as a result of differences in spending patterns and increased amortization of previously deferred costs due to the implementation of new rates beginning in July 2018 (these program costs are recoverable through customer rates and are offset by an increase in DSM revenues).

The $5.2 million decrease in purchased power costs was primarily due to (i) a 29% decrease in the volume of power purchased during the period ($10.5 million); partially offset by (ii) a $7.0 million increase in the market price of purchased power. The volume of power purchased each period is primarily influenced by retail demand, generating unit capacity and outages, and the fact that at times it is less expensive to buy power in the market than to produce it. The $10.5 million volume decrease is primarily attributable to commenced commercial operations of the CCGT plant at Eagle Valley in April 2018 (as discussed above), which is generally called upon by MISO whenever it is available due to its relatively lost cost to produce electricity. The market price of purchased power is influenced primarily by changes in the market price of delivered fuel (primarily natural gas), the supply of and demand for electricity, and the time of day which power is purchased. We are generally permitted to defer and recover underestimated purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into fuel expense in the same period that our rates are adjusted to reflect these variances.

22



The $6.8 million increase in maintenance expenses was primarily due to the timing and duration of outages (including an extended scheduled outage at our 535 MW Petersburg Generating Station Unit 3 that began in September of 2018; partially offset by outages in the prior period).

The $5.2 million increase in depreciation and amortization costs was primarily related to the impact of additional assets placed in service, excluding the Eagle Valley CCGT. IPL is permitted to defer depreciation on the CCGT until the unit is included in our basic rates and charges.

The $9.5 million decrease in income taxes - net was primarily due to the decrease in the federal corporate income tax rate to 21% from 35% as a result of the passage of the TCJA, which was signed into law in December 2017.

Other Income and Deductions

Other income and deductions decreased $2.9 million, from income of $6.4 million for the three months ended September 30, 2017, to income of $3.5 million for the same period in 2018, reflecting a 45% decrease. This decrease was primarily due to (i) a $6.2 million decrease in the allowance for equity funds used during construction as a result of decreased construction activity (primarily the Eagle Valley CCGT) and (ii) a decrease in the income tax benefit of $5.3 million, which was primarily due to a lower tax rate due to the passage of the TCJA (as discussed above) as well as the change in pretax nonoperating income during the comparable periods; partially offset by (iii) an $8.9 million loss on early extinguishment of debt from the redemption of IPALCO's $400 million 5.00% Senior Secured Notes due 2018 during the third quarter of 2017.

Interest and Other Charges

Interest and other charges decreased $3.5 million, or 13%, primarily due to (i) lower interest on long-term debt of $1.9 million and (ii) a $1.5 million increase in the allowance for borrowed funds used during construction primarily due to the CCGT unit at Eagle Valley. IPL is permitted to continue recognizing allowance for borrowed funds used during construction on the Eagle Valley CCGT until it is included in our basic rates and charges.


23


Comparison of nine months ended September 30, 2018 and nine months ended September 30, 2017
 
Utility Operating Revenues
 
Utility operating revenues during the nine months ended September 30, 2018 increased by $85.3 million compared to the same period in 2017, which resulted from the following changes (dollars in thousands):
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
Percentage
 
2018
2017
 
Change
Change
Utility operating revenues:
 
 
 
 
 
Retail revenues
$
1,057,443

$
998,147

(1) 
$
59,296

5.9%
Wholesale revenues
30,007

5,904

 
24,103

408.2%
Miscellaneous revenues
11,881

9,997

(1) 
1,884

18.8%
Total utility operating revenues
$
1,099,331

$
1,014,048

 
$
85,283

8.4%
 
 
 
 
 
 
(1) Prior period amounts have been reclassified to conform to the current year presentation
 
 
 
 
 
 
Heating degree days:
 
 
 
 
 
Actual
3,370

2,590

 
780

30.1%
30-year average
3,367

3,350

 
 
 
 
 
 
 
 
 
Cooling degree days:
 
 
 
 
 
Actual
1,539

1,088

 
451

41.5%
30-year average
1,053

1,096

 
 
 
 
Retail Revenues

The increase in retail revenues of $59.3 million was primarily due to a 6% increase in the volume of kWh sold ($41.7 million) and a net increase in the weighted average price per kWh sold ($17.6 million) as follows (in millions):

Volume:
 
Increase in the volume of kWh sold was primarily due to favorable weather in our service territory during the first nine months of 2018 versus the comparable period (as demonstrated by the 30% increase in heating degree days and 41% increase in cooling degree days, as shown above)


$
41.7

Price:
 
Increase in environmental rate adjustment mechanism revenues

 
29.6

Increase in fuel revenues
15.9

Increase in DSM program rate adjustment mechanism revenues

13.1

Decrease in MISO, Capacity and Off System Sales rider revenues
0.4

Decrease due to the deferral of revenue as a regulatory liability to adjust for the impacts of the TCJA on customer rates and charges for service in 2018

(16.9
)
Unfavorable block rate and other retail rate variances, primarily attributable to our declining block rate structure, which generally provides for residential and commercial customers to be charged a lower per kWh rate at higher consumption levels. Therefore, as volumes increase, the weighted average price per kWh decreases.
(24.5
)
Net increase in the weighted average price of retail kWh sold
$
17.6

 
 
Net increase in retail revenues
$
59.3






24


Wholesale Revenues

The increase in wholesale revenues of $24.1 million was primarily due to an increase in the quantity of kWh sold primarily due to increased generation capacity as a result of the commencement of commercial operations of the newly constructed CCGT plant at Eagle Valley in April 2018. We sold 953.5 million kWh in the wholesale market during the first nine months of 2018 compared to only 179.3 million kWh during the first nine months of 2017. 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. Currently, 50% of IPL’s wholesale margins above and below an established annual benchmark of $6.3 million are shared with our retail customers through a rate rider.

Utility Operating Expenses
 
The following table illustrates our changes in operating expenses during the nine months ended September 30, 2018 compared to the same period in 2017 (dollars in thousands):
 
Nine Months Ended
 
 
 
September 30,
 
 
 
2018
2017
$ Change

% Change

Utility operating expenses:
 
 
 
 
   Fuel
$
252,435

$
210,521

$
41,914

19.9
 %
   Other operating expenses
207,397

189,728

17,669

9.3
 %
   Power purchased
131,580

141,058

(9,478
)
(6.7
)%
   Maintenance
107,828

96,032

11,796

12.3
 %
   Depreciation and amortization
172,492

156,099

16,393

10.5
 %
   Taxes other than income taxes
42,036

33,640

8,396

25.0
 %
   Income taxes - net
29,620

53,189

(23,569
)
(44.3
)%
      Total utility operating expenses
$
943,388

$
880,267

$
63,121

7.2
 %
 
 
 
 
 

The $41.9 million increase in fuel costs was primarily due to (i) a $53.7 million increase in the quantity of fuel consumed versus the comparable period, primarily due to increased generation capacity as a result of the commencement of commercial operations of the newly constructed CCGT plant at Eagle Valley in April 2018 and (ii) a $2.3 million increase due to the higher price of coal we consumed versus the comparable period; partially offset by (iii) a $7.2 million decrease due to the lower price of natural gas we consumed versus the comparable period and (iv) a $7.1 million decrease in deferred fuel costs. 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 $17.7 million increase in other operating expenses was primarily due to (i) higher DSM program costs of $12.2 million mostly as a result of differences in spending patterns and, to a lesser extent, increased amortization of previously deferred costs due to the implementation of new rates beginning in July 2018 (these program costs are recoverable through customer rates and are offset by an increase in DSM revenues), (ii) higher MISO non-purchased power costs (primarily transmission related expenses) of $6.7 million, (iii) a $6.1 million increase in deferred environmental project expenses due to differences between the amount of recoverable expenses incurred in the period and the inclusion of such expenses in billing rates through IPL's environmental rider; partially offset by (iv) lower salaries expense of $4.0 million.

The $9.5 million decrease in purchased power costs was primarily due to (i) a 21% decrease in the volume of power purchased during the period ($24.2 million); partially offset by (ii) a $14.4 million increase in the market price of purchased power. The volume of power purchased each period is primarily influenced by retail demand, generating unit capacity and outages, and the fact that at times it is less expensive to buy power in the market than to produce it. The primary driver for the $24.2 million volume decrease is primarily attributable to commenced commercial operations of the CCGT plant at Eagle Valley in April 2018 (as discussed above), which is generally called upon by MISO whenever it is available due to its relatively low cost to produce electricity. The market price of purchased power is influenced primarily by changes in the market price of delivered fuel (primarily natural gas), the

25


supply of and demand for electricity, and the time of day during which power is purchased. We are generally permitted to defer and recover underestimated purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into fuel expense in the same period that our rates are adjusted to reflect these variances.

The $11.8 million increase in maintenance expenses was primarily due to the timing and duration of outages (including a 63-day scheduled outage at our 415 MW Petersburg Generating Station Unit 2 that occurred during the first half of 2018 and an extended scheduled outage at our 535 MW Petersburg Generating Station Unit 3 that began in September of 2018; partially offset by outages in the prior period).

The $16.4 million increase in depreciation and amortization costs was primarily related to the impact of additional assets placed in service, excluding the Eagle Valley CCGT. IPL is permitted to defer depreciation on the CCGT until the unit is included in our basic rates and charges.

The $8.4 million increase in taxes other than income taxes was primarily due to higher tax expense for real estate & personal property taxes of $7.2 million mostly as a result of (i) an increase in the assessed property tax value, (ii) prior period true-up adjustments and (iii) an increase in property tax rates.

The $23.6 million decrease in income taxes - net was primarily due to the decrease in the federal corporate income tax rate to 21% from 35% as a result of the passage of the TCJA, which was signed into law in December 2017.

Other Income and Deductions

Other income and deductions decreased $14.8 million, from income of $26.9 million for the nine months ended September 30, 2017, to income of $12.1 million for the same period in 2018, reflecting a 55% decrease. This decrease was primarily due to (i) an $11.7 million decrease in the allowance for equity funds used during construction as a result of decreased construction activity (primarily the Eagle Valley CCGT), (ii) a decrease in the income tax benefit of $9.4 million, which was primarily due to a lower tax rate due to the passage of the TCJA (as discussed above) as well as the change in pretax nonoperating income during the comparable period and (iii) a $1.2 million one-time pension curtailment charge recorded in March 2018; partially offset by (iv) an $8.9 million loss on early extinguishment of debt from the redemption of IPALCO's $400 million 5.00% Senior Secured Notes due 2018 during the third quarter of 2017.

Interest and Other Charges

Interest and other charges decreased $6.4 million, or 8%, primarily due to (i) a $3.3 million increase in the allowance for borrowed funds used during construction primarily due to the CCGT unit at Eagle Valley and (ii) lower interest on long-term debt of $2.9 million. IPL is permitted to continue recognizing allowance for borrowed funds used during construction on the Eagle Valley CCGT until it is included in our basic rates and charges.

26


KEY TRENDS AND UNCERTAINTIES

During the remainder of 2018 and beyond, we expect that our financial results will be driven primarily by retail demand, weather, generating unit availability, and outage costs. In addition, IPL’s financial results will likely be driven by many other factors including, but not limited to:

rate case outcomes;
wholesale and capacity prices;
the passage of new legislation, implementation of regulations or other changes in regulation; and
timely recovery of capital expenditures.

If favorable outcomes related to these factors do not occur, or if the challenges described below and elsewhere in this section impact us more significantly than we currently anticipate, or if commodities move unfavorably, then these adverse factors, or other adverse factors unknown to us, may impact our operating margin, net income and cash flows. We continue to monitor our operations and address challenges as they arise. For a discussion of the risks related to our business, see “Item 1. Business” and “Item 1A. Risk Factors” as described in IPALCO’s 2017 Form 10-K.

Regulatory and Environmental

Please see Note 2, “Regulatory Matters” to the Financial Statements for an update on regulatory matters. We also are subject to numerous environmental laws and regulations in the jurisdictions in which we operate. We face certain risks and uncertainties related to these environmental laws and regulations, including existing and potential GHG legislation or regulations, and actual or potential laws and regulations pertaining to water discharges, waste management (including disposal or beneficial reuse of CCR) and certain air emissions, such as SO2, NOx, particulate matter and mercury. Such risks and uncertainties could result in increased capital expenditures or other compliance costs which could have a material adverse effect on our consolidated results of operations. Please see Note 7, “Commitments and Contingencies” to the Financial Statements for a description of certain environmental matters. In addition, the following discussion of the impact of environmental laws and regulations on the Company updates the discussion provided in “Item 1. Business - Regulatory Matters” and “Item 1. Business - Environmental Matters” in IPALCO’s 2017 Form 10-K.

The DOE issued a Notice of Proposed Rule Making on September 29, 2017, which directed the FERC to exercise its authority to set just and reasonable rates that recognize the “resiliency” value provided by generation plants with certain characteristics, including having 90-days or more of on-site fuel and operating in markets where they do not receive rate base treatment through state ratemaking. On January 8, 2018, the FERC terminated this proceeding and established a new one soliciting comments from the RTOs regarding resiliency. RTO responses were submitted on March 9, 2018, but the timing and outcome of this proceeding, including effects on wholesale energy markets, remain uncertain.

Waste Management and 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, corrective action and closure requirements and post-closure care. The EPA has indicated that they will implement a phased approach to amending the CCR rule with Phase One being finalized no later than June 2019, and Phase Two no later than December 2019. On July 30, 2018, the EPA published final CCR Rule Amendments (Phase One, Part One) in the Federal Register. As a result of EPA statements published during this rulemaking, IPL Petersburg is expected to incur additional operational costs and pond closure costs. On August 21, 2018, the U.S. Court of Appeals for the District of Columbia issued a decision in certain CCR litigation matters, which may result in additional revisions to the CCR Rule. The CCR rule, current or proposed amendments to the CCR rule, the results of groundwater monitoring data or the outcome of CCR-related litigation could have a material impact on our business, financial condition or results of operations.

The existing ash ponds at Petersburg did not meet certain structural stability requirements set forth in the CCR rule. As such, IPL was ultimately required to cease use of the ash ponds by April 11, 2018. IDEM has granted IPL a variance extending that deadline to November 1, 2018 for a portion of the ash pond system.


27


See Note 3, “Fair Value - Non-recurring Fair Value Measurements” to the Financial Statements for additional details on the increase in IPL's ARO liabilities related to ash ponds during the nine months ended September 30, 2018.

NAAQS

On March 12, 2018, the state of New York submitted a petition to the EPA pursuant to Section 126 of the CAA requesting new limitations on NOx emissions from dozens of upwind generating stations, including IPL Petersburg, Harding Street, and Eagle Valley on the basis that they are contributing significantly to New York’s ability to meet the 2008 ozone NAAQS. On May 11, 2018, EPA published an extension of their deadline to respond from May 13, 2018 to November 9, 2018. If this petition is granted, our units could be subject to additional requirements. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful in this regard.

Additionally, on November 16, 2016, the state of Maryland submitted a petition to the EPA pursuant to Section 126 of the CAA requesting that new limitations on NOx emissions from 36 upwind generating units, including IPL Petersburg Generating Station Units 2 and 3, on the basis that they are contributing significantly to Maryland’s ability to meet the 2008 ozone NAAQS. On October 5, 2018, the EPA published a denial of Maryland’s petition. On October 15, 2018, Maryland filed a petition with the U.S. Court of Appeals for the District of Columbia challenging the EPA’s denial. If the Section 126 petition is ultimately granted, our Petersburg Generating Station Unit 2 and 3 could be subject to additional requirements. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful in this regard.

Climate Change Regulation

On August 31, 2018, the EPA published in the Federal Register proposed Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units, known as the Affordable Clean Energy (ACE) Rule. In addition, the EPA proposed associated revisions to implementing regulations and the New Source Review program. The proposed ACE Rule would replace the EPA’s 2015 Clean Power Plan and proposes to determine that heat rate improvement measures are the best system of emission reduction for existing coal-fired electric generating units. We are still reviewing the proposed ACE Rule and the proposed revisions and it is too early to determine the potential impact. However, the impact could be material. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful in this regard.

CAPITAL RESOURCES AND LIQUIDITY
 
Overview

As of September 30, 2018, we had unrestricted cash and cash equivalents of $15.7 million and available borrowing capacity of $146.0 million under our $250 million unsecured revolving credit facility after accounting for 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 26, 2020. 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 September 30, 2018, we have $106.5 million of total debt issuance authority remaining 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 million remains available under the order as of September 30, 2018. As an alternative to the sale of all or a portion of $65 million in principal of the long-term debt mentioned above, we have the authority to issue up to $65 million of new preferred stock, all of which authority remains available under the order as of September 30, 2018. 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

28


activities; (iii) borrowing capacity on our committed credit facility; and (iv) additional debt financing. From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management believes such repurchases are favorable to make. The amounts involved in any such repurchases may be material.

Cash Flows

The following table provides a summary of our cash flows (in thousands):
 
 
Nine Months Ended September 30,
 
 
 
 
2018
 
2017
 
$ Change
Net cash provided by operating activities
 
$
307,706

 
$
216,106

 
$
91,600

Net cash used in investing activities
 
(182,383
)
 
(175,509
)
 
(6,874
)
Net cash used in financing activities
 
(140,259
)
 
(49,223
)
 
(91,036
)
     Net change in cash and cash equivalents
 
(14,936
)
 
(8,626
)
 
(6,310
)
Cash and cash equivalents at beginning of period
 
30,681

 
34,953

 
(4,272
)
Cash and cash equivalents at end of period
 
$
15,745

 
$
26,327

 
$
(10,582
)

Operating Activities

The following table summarizes the key components of our consolidated operating cash flows (in thousands):
 
 
Nine Months Ended September 30,
 
 
 
 
2018
 
2017
 
$ Change
Net income
 
$
97,621

 
$
83,868

 
$
13,753

Depreciation and amortization
 
172,492

 
156,103

 
16,389

Amortization of deferred financing costs and debt premium
 
2,948

 
3,241

 
(293
)
Deferred income taxes and investment tax credit adjustments - net
 
(16,852
)
 
(14,546
)
 
(2,306
)
Loss on early extinguishment of debt
 

 
8,875

 
(8,875
)
Allowance for equity funds used during construction
 
(7,839
)
 
(19,576
)
 
11,737

     Net income, adjusted for non-cash items
 
248,370

 
217,965

 
30,405

Net change in operating assets and liabilities
 
59,336

 
(1,859
)
 
61,195

Net cash provided by operating activities
 
$
307,706

 
$
216,106

 
$
91,600

The net change in operating assets and liabilities for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 was driven by changes in the following (in thousands):
Increase from short-term and long-term regulatory assets and liabilities primarily due to proceeds IPL received pursuant to a settlement agreement and an increase to regulatory liabilities to record the impacts of the TCJA on customer rates
 
$
61,123

Increase from income taxes receivable or payable due to lower tax sharing payments
19,083

Decrease from accrued pension and other postretirement benefits due to higher employer contributions
(18,641
)
Other - net
(370
)
Net change in operating assets and liabilities
$
61,195

Investing Activities
During the nine months ended September 30, 2018, net cash used in investing activities was primarily related to capital expenditures of $161.8 million. The primary drivers of these expenditures include $92.7 million on maintenance projects, $32.5 million on transmission and distribution projects, $10.6 million on NPDES compliance, $10.3 million on NAAQS compliance, and $10.6 million on the Eagle Valley CCGT plant.

During the nine months ended September 30, 2017, net cash used in investing activities was primarily related to capital expenditures of $163.7 million. The primary drivers of these expenditures include $80.6 million on maintenance projects, $27.8 million on transmission and distribution projects, $23.9 million on NPDES compliance, $19.4 million on the Eagle Valley CCGT plant and $11.0 million on the Petersburg bottom ash project.

29



Financing Activities

During the nine months ended September 30, 2018, net cash used in financing activities primarily relates to dividends paid to shareholders of $85.2 million, net repayments on debt of $44.0 million and payments for financed capital expenditures of $8.5 million.

During the nine months ended September 30, 2017, net cash used in financing activities primarily relates to dividends paid to shareholders of $75.5 million and payments for financed capital expenditures of $9.8 million; partially offset by net borrowings of $42.3 million.

Capital Requirements
 
Capital Expenditures
 
Our capital expenditure program, including development and permitting costs, for the three-year period from 2018 through 2020 (including amounts already expended in the first nine months of 2018) is currently estimated to cost approximately $614 million (excluding environmental compliance and replacement generation costs), and includes estimates as follows (amounts in millions):

 
 
For the Three-Year Period
 
 
from 2018 through 2020
Additions, improvements and extensions (1)
 
$
330

Power plant-related projects
 
194

Other miscellaneous equipment
 
90

Total estimated costs of capital expenditure program
 
$
614

 
 
 
(1) Additions, improvements and extensions to transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers and street lighting facilities

Additionally, IPL plans to spend the following amounts on replacement generation and environmental compliance costs:
 
 
Total Estimated Costs
 
Total Costs Expended
 
Remaining Costs
 
 
 
of Project (1)
 
Through September 30, 2018 (1)
 
of Project
 
Replacement generation (2)
 
$
642

 
$
640

 
$
2

 
NPDES (3)
 
224

 
221

 
3

 
CCR and NAAQS SO2 (4)
 
76

 
66

 
10

 
Cooling water intake regulations (5)
 
$
68

 
$

 
$
68

 
 
 
 
 
 
 
 
 
(1) Reflects total costs from project inception.
(2) IPL plans to spend a total of $642 million 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 expended regulations.
(3) Includes costs for compliance with the NPDES permit program under the CWA. With $221 million spent through September 2018, the remaining $3 million is expected to be expended during the remainder of 2018.
(4) IPL plans to spend a total of $76 million through 2018 for projects underway related to environmental compliance for CCR and NAAQS SO2.
(5) Includes spending for studies related to cooling water intake requirements in sections 316(a) and 316(b) of the CWA, NAAQS Ozone and Office of Surface Mining for the remainder of 2018 through 2020.

For additional details on each of these projects, see “Item 1. Business - Environmental Matters" in IPALCO’s 2017 Form 10-K.

Credit Ratings

Our ability to borrow money or to refinance existing indebtedness and the interest rates at which we can borrow money or refinance existing indebtedness are affected by our credit ratings. In addition, the applicable interest rates

30


on IPL’s $250 million unsecured revolving credit facility and other unsecured notes (as well as the amount of certain other fees in the Credit Agreement) are dependent upon the credit ratings of IPL. Downgrades in the credit ratings of AES could result in IPL’s and/or IPALCO’s credit ratings being downgraded. Any reduction in our debt or credit ratings may adversely affect the trading price of our outstanding debt securities.

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 ratings
 
IPALCO
 
IPL
 
Outlook
 
Effective or Affirmed
Fitch Ratings
 
BBB (a)
 
A (b)
 
Stable
 
November 2018
Moody’s Investors Service
 
Baa3 (a)
 
A2 (b)
 
Stable
 
October 2016
S&P Global Ratings
 
BBB- (a)
 
A- (b)
 
Stable
 
March 2018
 
 
 
 
 
 
 
 
 
Credit ratings
 
IPALCO
 
IPL
 
Outlook
 
Effective or Affirmed
Fitch Ratings
 
BBB-
 
BBB+
 
Stable
 
November 2018
Moody’s Investors Service
 
 
Baa1
 
Stable
 
October 2016
S&P Global Ratings
 
BBB
 
BBB
 
Stable
 
March 2018
(a)
Ratings relate to IPALCOs Senior Secured Notes
(b)
Ratings relate to IPLs Senior Secured Bonds.

We cannot predict whether our current debt and credit ratings or the debt and credit ratings of IPL will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. A security rating is not a recommendation to buy, sell or hold securities. Such ratings may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating.

Dividend Distributions
 
All of IPALCO’s outstanding common stock is held by AES U.S. Investments and CDPQ. During the first nine months of 2018 and 2017, IPALCO paid $85.2 million and $75.5 million, respectively, in dividends to its 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 such other factors as IPL’s Board of Directors deems relevant.

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 2017 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures — The Company, under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer “CFO”), evaluated the effectiveness of its “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of September 30, 2018, to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

31



Changes in Internal Controls over Financial Reporting — There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
 
In the normal course of business, we are subject to various lawsuits, actions, claims, and other proceedings. We are also from time to time involved in other reviews, investigations and proceedings by governmental and regulatory agencies regarding our business, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. We have accrued in our Financial Statements for litigation and claims where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We believe the amounts provided in our Financial Statements, as prescribed by GAAP, for these matters are adequate in light of the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims and other matters (including those matters noted below), and to comply with applicable laws and regulations will not exceed the amounts reflected in our Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided for in our Financial Statements cannot be reasonably determined, but could be material.

Please see Note 2, “Regulatory Matters” and Note 7, “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. In addition, our Form 10-K for the fiscal year ended December 31, 2017 and Forms 10-Q for the quarters ended March 31, 2018 and June 30, 2018, and the Notes to the Financial Statements included therein, contain descriptions of certain legal proceedings in which we are or were involved. The information included in, or incorporated by reference into, this Item 1 to Part II should be read in conjunction with such Form 10-K and Forms 10-Q.

ITEM 1A.  RISK FACTORS
 
There have been no material changes to the risk factors as previously disclosed in the 2017 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.
 

32



ITEM 6. EXHIBITS
Exhibit No.
Document
 
 
31.1
31.2
32.1
32.2
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)
 
 
 

33


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:
 
November 5, 2018
 
/s/ Gustavo Pimenta
 
 
 
 
Gustavo Pimenta
 
 
 
 
Chief Financial Officer
 
 
 
 
(Principal Financial Officer) 
 
 
 
 
 
Date:
 
November 5, 2018
 
/s/ Karin M. Nyhuis
 
 
 
 
Karin M. Nyhuis
 
 
 
 
Controller
 
 
 
 
(Principal Accounting Officer)

34
EX-31.1 2 ipalco10q20180930ex311.htm EXHIBIT 31.1 Exhibit


Exhibit 31.1
 
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
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:
 
November 5, 2018
 
/s/ Craig L. Jackson
 
 
 
 
Craig L. Jackson
 
 
 
 
Chief Executive Officer



EX-31.2 3 ipalco10q20180930ex312.htm EXHIBIT 31.2 Exhibit


Exhibit 31.2
 
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
I, Gustavo Pimenta, 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:
 
November 5, 2018
 
/s/ Gustavo Pimenta
 
 
 
 
Gustavo Pimenta
 
 
 
 
Chief Financial Officer


EX-32.1 4 ipalco10q20180930ex321.htm EXHIBIT 32.1 Exhibit


Exhibit 32.1
 
Certification Pursuant to Rule 13a-14(b)/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 September 30, 2018 (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.
 
Craig L. Jackson, Chief Executive Officer of IPALCO Enterprises, Inc. (“IPALCO”), 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:
 
November 5, 2018
 
/s/ Craig L. Jackson
 
 
 
 
Craig L. Jackson
 
 
 
 
Chief Executive 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.


EX-32.2 5 ipalco10q20180930ex322.htm EXHIBIT 32.2 Exhibit


Exhibit 32.2
 
Certification Pursuant to Rule 13a-14(b)/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 September 30, 2018 (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.
 
Gustavo Pimenta, Chief Financial Officer of IPALCO Enterprises, Inc. (“IPALCO”), 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:
 
November 5, 2018
 
/s/ Gustavo Pimenta
 
 
 
 
Gustavo Pimenta
 
 
 
 
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.


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