XML 31 R9.htm IDEA: XBRL DOCUMENT

Fair Value

12 Months Ended

Dec. 31, 2020

FAIR VALUE

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

Fair Value Hierarchy and Valuation Techniques

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

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

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

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

Whenever possible, quoted prices in active markets are used to determine the fair value of our financial instruments. Our financial instruments are not held for trading or other speculative purposes. The estimated fair

value of financial instruments has been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Financial Assets

VEBA Assets

IPALCO has VEBA investments that are to be used to fund certain employee postretirement health care benefit plans. These assets are primarily comprised of open-ended mutual funds, which are valued using the net assets value per unit. These investments are recorded at fair value within "Other non-current assets" on the accompanying Consolidated Balance Sheets and classified as equity securities. All changes to fair value on the VEBA investments are included in income in the period that the changes occur. These changes to fair value were not material for the years ended December 31, 2020, 2019, or 2018. Any unrealized gains or losses are recorded in "Other income / (expense), net" on the accompanying Consolidated Statements of Operations.

FTRs

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

Financial Liabilities

Interest Rate Hedges

In March 2019, we entered into forward interest rate hedges, which were amended in April 2020. The interest rate hedges have a combined notional amount of $400.0 million. All changes in the market value of the interest rate hedges are recorded in AOCL. See also Note 5, "Derivative Instruments and Hedging Activities - Cash Flow Hedges" for further information.

Summary

The fair value of assets and liabilities at December 31, 2020 measured on a recurring basis and the respective category within the fair value hierarchy for IPALCO was determined as follows:


Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2020		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
VEBA investments:
Money market funds	$	16	$	16	$	—	$	—
Mutual funds	3,209		—		3,209		—
Total VEBA investments	3,225		16		3,209		—
Financial transmission rights	543		—		—		543
Total financial assets measured at fair value	$	3,768	$	16	$	3,209	$	543
Financial liabilities:
Interest rate hedges	$	63,215	$	—	$	63,215	$	—
Total financial liabilities measured at fair value	$	63,215	$	—	$	63,215	$	—

The fair value of assets and liabilities at December 31, 2019 measured on a recurring basis and the respective category within the fair value hierarchy for IPALCO was determined as follows:


Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2019		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
VEBA investments:
Money market funds	$	25	$	25	$	—	$	—
Mutual funds	2,854		—		2,854		—
Total VEBA investments	2,879		25		2,854		—
Financial transmission rights	864		—		—		864
Total financial assets measured at fair value	$	3,743	$	25	$	2,854	$	864
Financial liabilities:
Interest rate hedges	$	26,560	$	—	$	26,560	$	—
Total financial liabilities measured at fair value	$	26,560	$	—	$	26,560	$	—

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


	Reconciliation of Financial Instruments Classified as Level 3
	(In Thousands)
Balance at January 1, 2019	$	3,046
Unrealized gain recognized in earnings	53
Issuances	2,846
Settlements	(5,081)
Balance at December 31, 2019	$	864

Issuances	1,889
Settlements	(2,210)
Balance at December 31, 2020	$	543

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

Debt

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

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


	December 31, 2020				December 31, 2019
	Face Value		Fair Value		Face Value		Fair Value
	(In Thousands)
Fixed-rate	$	2,683,800	$	3,295,588	$	2,523,800	$	2,876,140
Variable-rate	75,000		75,000		155,000		155,000
Total indebtedness	$	2,758,800	$	3,370,588	$	2,678,800	$	3,031,140

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

•unamortized deferred financing costs of $26.0 million and $20.7 million at December 31, 2020 and 2019, respectively; and

•unamortized discounts of $6.6 million and $6.5 million at December 31, 2020 and 2019, respectively.

Indianapolis Power And Light Company

Entity Information [Line Items]

Fair Value

FAIR VALUE

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

Fair Value Hierarchy and Valuation Techniques

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

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

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

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

Whenever possible, quoted prices in active markets are used to determine the fair value of IPL’s financial instruments. IPL’s financial instruments are not held for trading or other speculative purposes. The estimated fair value of financial instruments has been determined by using available market information and appropriate valuation

methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that IPL could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Financial Assets

FTRs

Summary

The fair value of assets and liabilities at December 31, 2020 measured on a recurring basis and the respective category within the fair value hierarchy for IPL was determined as follows:


Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2020		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
Financial transmission rights	$	543	$	—	$	—	$	543
Total financial assets measured at fair value	$	543	$	—	$	—	$	543

The fair value of assets and liabilities at December 31, 2019 measured on a recurring basis and the respective category within the fair value hierarchy for IPL was determined as follows:


Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2019		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
Financial transmission rights	$	864	$	—	$	—	$	864
Total financial assets measured at fair value	$	864	$	—	$	—	$	864


	Reconciliation of Financial Instruments Classified as Level 3
	(In Thousands)
Balance at January 1, 2019	$	3,046
Unrealized gain recognized in earnings	53
Issuances	2,846
Settlements	(5,081)
Balance at December 31, 2019	$	864

Issuances	1,889
Settlements	(2,210)
Balance at December 31, 2020	$	543

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

Debt

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

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


	December 31, 2020				December 31, 2019
	Face Value		Fair Value		Face Value		Fair Value
	(In Thousands)
Fixed-rate	$	1,803,800	$	2,302,973	$	1,713,800	$	2,049,758
Variable-rate	75,000		75,000		90,000		90,000
Total indebtedness	$	1,878,800	$	2,377,973	$	1,803,800	$	2,139,758

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

•unamortized deferred financing costs of $17.4 million and $16.7 million at December 31, 2020 and 2019, respectively; and

•unamortized discounts of $6.0 million and $6.2 million at December 31, 2020 and 2019, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details