Derivative Instruments and Hedging Activities (Notes)

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

For further information on the Company’s derivative and hedge accounting policies, see Note 1, “Overview and Summary of Significant Accounting Policies - Financial Derivatives” and Note 5, “Derivative Instruments and Hedging Activities” to IPALCO’s 2023 Form 10-K.

At March 31, 2024, AES Indiana’s outstanding derivative instruments were as follows:

Commodity	Accounting Treatment	Unit	Notional (in thousands)	Sales (in thousands)	Net Notional (in thousands)
FTRs	Not Designated	MWh	1,399	—	1,399

Cash Flow Hedges

As part of our risk management processes, we identify the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. The fair values of cash flow hedges are determined by current public market prices. IPALCO’s three forward-starting interest rate swaps with a combined notional value of $400 million were terminated for total cash proceeds of $23.1 million, in conjunction with the issuance of the 2034 IPALCO Notes in March 2024. The AOCI associated with the interest rate swaps through the date of the termination will be amortized out of AOCI into interest expense over the 10-year life of the 2034 IPALCO Notes.

The following table provides information on gains or losses recognized in AOCI for the cash flow hedges for the periods indicated:

	Interest Rate Hedges for the Three Months Ended March 31,
$ in thousands (net of tax)	2024		2023
Beginning accumulated derivative gain	$	29,294	$	22,269
Net gains / (losses) associated with current period hedging transactions	6,626		(8,532)
Net losses reclassified to interest expense, net of tax	760		1,358
Ending accumulated derivative gain in AOCI	$	36,680	$	15,095
Net gain expected to be reclassified to earnings in the next twelve months	$	1,737

Derivatives Not Designated as Hedge

AES Indiana’s FTRs and forward power contracts do not qualify for hedge accounting or the normal purchases and sales exceptions under ASC 815. Accordingly, FTRs are recorded at fair value using the income approach when acquired and subsequently amortized over the annual period as they are used. The forward power contracts are recorded at fair value using the market approach with changes in the fair value charged or credited to the Condensed Consolidated Statements of Operations in the period in which the change occurred. This is commonly referred to as “MTM accounting”. Realized gains and losses on the forward power contracts are included in future FAC filings, therefore any realized and unrealized gains and losses are deferred as regulatory liabilities or regulatory assets.

Certain qualifying derivative instruments have been designated as normal purchases or normal sales contracts, as provided under GAAP. Derivative contracts that have been designated as normal purchases or normal sales under GAAP are not subject to hedge or MTM accounting and are recognized in the Condensed Consolidated Statements of Operations on an accrual basis.

When applicable, IPALCO has elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivative agreements. As of March 31, 2024 and December 31, 2023, IPALCO did not have any offsetting positions.

The following table summarizes the fair value, balance sheet classification and hedging designation of IPALCO’s derivative instruments (in thousands):

Commodity	Hedging Designation	Balance sheet classification	March 31, 2024		December 31, 2023
FTRs	Not a Cash Flow Hedge	Derivative assets, current	$	393	$	1,388
Interest rate hedges	Cash Flow Hedge	Derivative assets, current	$	—	$	14,294