Overview and Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2021

Overview and Summary Of Significant Accounting Policies

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, which does business as AES Indiana. Substantially all of IPALCO’s business consists of generating, transmitting, distributing and selling of electric energy conducted through its principal subsidiary, AES Indiana. AES Indiana was incorporated under the laws of the state of Indiana in 1926. AES Indiana has approximately 515,000 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. AES Indiana has an exclusive right to provide electric service to those customers. AES Indiana owns and operates four generating stations, all within the state of Indiana. AES Indiana’s largest generating station, Petersburg, is coal-fired, and AES Indiana retired 230 MW Petersburg Unit 1 on May 31, 2021 and has plans to retire 415 MW Petersburg Unit 2 in 2023, which would result in 630 MW of total retired economic capacity at this station (for further discussion, see Note 2, "Regulatory Matters - IRP Filing and Replacement Generation"). The second largest station, Harding Street, uses natural gas and fuel oil to power combustion turbines. In addition, AES Indiana operates a 20 MW battery energy storage unit at this location, which provides frequency response. The third station, Eagle Valley, is a CCGT natural gas plant. The fourth station, Georgetown, is a small peaking station that uses natural gas to power combustion turbines. As of September 30, 2021, AES Indiana’s net electric generation capacity for winter is 3,475 MW and net summer capacity is 3,330 MW.

Consolidation

The accompanying Financial Statements include the accounts of IPALCO, AES Indiana and Mid-America Capital Resources, Inc., a non-regulated wholly-owned subsidiary of IPALCO. All significant intercompany amounts have been eliminated in consolidation.

Interim Financial Presentation

The accompanying Financial Statements are unaudited; however, they have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income, changes in equity, and cash flows. 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 2020 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.

Cash, Cash Equivalents and Restricted Cash

The following table provides a summary of cash, cash equivalents and restricted cash amounts as shown on the Unaudited Condensed Consolidated Statements of Cash Flows:


	September 30,		December 31,
	2021		2020
	(In Thousands)
Cash, cash equivalents and restricted cash
Cash and cash equivalents	$	13,126	$	20,502
Restricted cash	5		6,120
Total cash, cash equivalents and restricted cash	$	13,131	$	26,622

Accounts Receivable

The following table summarizes our accounts receivable balances at September 30, 2021 and December 31, 2020:


	September 30,		December 31,
	2021		2020
	(In Thousands)
Accounts receivable, net
Customer receivables	$	105,578	$	91,335
Unbilled revenue	62,665		72,334
Amounts due from related parties	118		490

Other	10,375		4,189
Allowance for credit losses	(1,100)		(3,155)
Total accounts receivable, net	$	177,636	$	165,193

The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the periods indicated (in Thousands):


Nine Months Ended September 30, 2021	Beginning Allowance Balance at January 1, 2021		Current Period Provision		Write-offs Charged Against Allowances		Recoveries Collected		Ending Allowance Balance at September 30, 2021
Allowance for credit losses	$	3,155	$	1,333	$	(4,903)	$	1,515	$	1,100


Nine Months Ended September 30, 2020	Beginning Allowance Balance at January 1, 2020		Current Period Provision		Write-offs Charged Against Allowances		Recoveries Collected		Ending Allowance Balance at September 30, 2020
Allowance for credit losses	$	921	$	4,366	$	(3,127)	$	1,360	$	3,520

The allowance for credit losses primarily relates to utility customer receivables, including unbilled amounts. Expected credit loss estimates are developed by disaggregating customers into those with similar credit risk characteristics and using historical credit loss experience. In addition, we also consider how current and future economic conditions are expected to impact collectability, as applicable, including the economic impacts of the COVID-19 pandemic on our receivable balance as of September 30, 2021. Amounts are written off when reasonable collections efforts have been exhausted. During 2021, the current period provision and allowance for credit losses have decreased due to lower past due customer receivable balances.

Inventories

The following table summarizes our inventories balances at September 30, 2021 and December 31, 2020:


	September 30,		December 31,
	2021		2020
	(In Thousands)
Inventories
Fuel	$	17,230	$	36,953
Materials and supplies, net	59,132		58,553
Total inventories	$	76,362	$	95,506

AOCL

The amounts reclassified out of AOCL by component during the three and nine months ended September 30, 2021 and 2020 are as follows (in thousands):


Details about AOCL components	Affected line item in the Condensed Consolidated Statements of Operations	Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020
Net (gains) / losses on cash flow hedges (Note 4):	Interest expense	$	1,807	$	1,807	$	3,011	$	3,614
	Income tax benefit	(449)		(463)		(733)		(926)
Total reclassifications for the period, net of income taxes		$	1,358	$	1,344	$	2,278	$	2,688

See Note 4, "Derivative Instruments and Hedging Activities - Cash Flow Hedges" for further information on the changes in the components of AOCL.

New Accounting Pronouncements Adopted in 2021

The Company assessed and determined that the new accounting pronouncements adopted did not have a material impact on the Company's consolidated financial statements.

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
2020-04 and 2021-01, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in these updates provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform, and clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. These amendments are effective for a limited period of time (March 12, 2020 - December 21, 2022).	March 12, 2020 - December 31, 2022	The Company is currently evaluating the impact of adopting the standard on the Financial Statements.