UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 

FORM 10-K
(Mark One)
þ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20192020
or
¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number1-8644
IPALCO ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of incorporation)
1-8644
(Commission File Number)
35-1575582
(IRS Employer Identification No.)
One Monument Circle
Indianapolis, Indiana 46204
(Address of principal executive offices, including zip code)
317-261-8261
(Registrant's telephone number, including area code)
Indiana35-1575582
(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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
N/AN/AN/A

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☐ No þ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes þ☑ No ¨☐

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 filerþ
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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 February 27, 2020,24, 2021, 108,907,318 shares of IPALCO Enterprises, Inc. common stock, no par value, 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 Infrastructures Fund G.P., a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec. 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of registrant’s Proxy Statement for its annual meeting of stockholders are incorporated by reference in Part III hereof.

2


IPALCO ENTERPRISES, INC.
Annual Report on Form 10-K
ForFiscalYear EndedDecember 31, 2019
Table of Contents
Item No.Page No.
 
 DEFINED TERMS
4
   
 PART I 
1.Business
7
1A.Risk Factors
21
1B.Unresolved Staff Comments
33
2.Properties
33
3.Legal Proceedings
33
4.Mine Safety Disclosures
34
PART II
5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
34
6.Selected Financial Data
35
7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
35
7A.Quantitative and Qualitative Disclosures About Market Risk
49
8.Financial Statements and Supplementary Data
52
9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
133
9A.Controls and Procedures
133
9B.Other Information
134
   
PART III
10.Directors, Executive Officers and Corporate Governance
134
11.Executive Compensation
134
12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
134
13.Certain Relationships and Related Transactions, and Director Independence
134
14.Principal Accounting Fees and Services
135
   
PART IV
15.Exhibits, Financial Statements and Financial Statement Schedules
137
16.Form 10-K Summary
148
   
SIGNATURES
149



3


DEFINED TERMSIPALCO ENTERPRISES, INC.
Annual Report on Form 10-K
For Fiscal Year Ended December 31, 2020
Table of Contents
Item No.Page No.
DEFINED TERMS
5
PART I
ITEM 1.BUSINESS
8
ITEM 1A.RISK FACTORS
21
ITEM 1B.UNRESOLVED STAFF COMMENTS
34
ITEM 2.PROPERTIES
34
ITEM 3.LEGAL PROCEEDINGS
35
ITEM 4.MINE SAFETY DISCLOSURES
35
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES
35
ITEM 6.SELECTED FINANCIAL DATA
36
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
37
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
52
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
55
IPALCO ENTERPRISES, INC. AND SUBSIDIARIES
     Report of Independent Registered Public Accounting Firm
56
     Consolidated Statements of Operations
58
     Consolidated Statements of Comprehensive Income/(Loss)
59
     Consolidated Balance Sheets
60
     Consolidated Statements of Cash Flows
61
     Consolidated Statements of Common Shareholders' Equity and Noncontrolling Interest
62
     Notes to Consolidated Financial Statements
63
       Note 1 - Overview and Summary of Significant Accounting Policies
63
       Note 2 - Regulatory Matters
69
       Note 3 - Property, Plant and Equipment
76
       Note 4 - Fair Value
77
       Note 5 - Derivative Instruments and Hedging Activities
80
       Note 6 - Equity
82
       Note 7 - Debt
84
       Note 8 - Income Taxes
86
       Note 9 - Benefit Plans
88
       Note 10 - Commitments and Contingencies
95
3

       Note 11 - Related Party Transactions
96
       Note 12 - Business Segment Information
97
       Note 13 - Revenue
97
       Note 14 - Leases
99
       Note 15 - Risks and Uncertainties
100
INDIANAPOLIS POWER & LIGHT COMPANY AND SUBSIDIARY
Report of Independent Registered Public Accounting Firm
101
Consolidated Statements of Operations
103
Consolidated Balance Sheets
104
Consolidated Statements of Cash Flows
105
Consolidated Statements of Common Shareholder's' Equity
106
Notes to Consolidated Financial Statements
107
Note 1 - Overview and Summary of Significant Accounting Policies
107
Note 2 - Regulatory Matters
112
Note 3 - Property, Plant and Equipment
119
Note 4 - Fair Value
120
Note 5 - Derivative Instruments and Hedging Activities
122
Note 6 - Equity
123
Note 7 - Debt
125
Note 8 - Income Taxes
127
Note 9 - Benefit Plans
129
Note 10 - Commitments and Contingencies
136
Note 11 - Related Party Transactions
137
Note 12 - Business Segment Information
138
Note 13 - Revenue
138
Note 14 - Leases
140
Note 15 - Risks and Uncertainties
140
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
142
ITEM 9A.CONTROLS AND PROCEDURES
142
ITEM 9B.OTHER INFORMATION
142
PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
143
ITEM 11.EXECUTIVE COMPENSATION
143
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
143
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
143
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
144
PART IV
ITEM 15.EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
146
ITEM 16.FORM 10-K SUMMARY
158
SIGNATURES
159


4

DEFINED TERMS
The following is a list of frequently used abbreviations or acronyms that are found in this Form 10-K:
2016 Base Rate OrderThe order issued in March 2016 by the IURC authorizing IPL to, among other things, increase its basic rates and charges by $30.8 million annually
2018 IPALCO Notes$400 million of 5.00% Senior Secured Notes due May 1, 2018
2018 Base Rate OrderThe 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
ACE2030 IPALCO Notes$475 million of 4.25% Senior Secured Notes due May 1, 2030
ACEAffordable Clean Energy
AESThe AES Corporation
AES U.S. InvestmentsAES U.S. Investments, Inc.
AOCIAccumulated Other Comprehensive Income
AROAOCLAccumulated Other Comprehensive Loss
AROAsset Retirement Obligations
ASCAccounting Standards Codification
ASUAccounting Standards Update
BACTBTABest Achievable Control Technology
BTABest Technology Available
CAAU.S. Clean Air Act
CAIRCCGTClean Air Interstate Rule
CCGTCombined Cycle Gas Turbine
CCRCoal Combustion Residuals
CCTClean Coal Technology
CDPQCDP Infrastructures Fund G.P., a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec
CERCLACECLCurrent Expected Credit Loss
CERCLAComprehensive Environmental Response, Compensation, and Liability Act
CO2
Carbon Dioxide
COSOCommittee of Sponsoring Organizations of the Treadway Commission
CPCNCOVID-19Certificate of Public Convenience and NecessityThe disease caused by the novel coronavirus that caused a global pandemic beginning in 2020
CPPClean Power Plan
Credit Agreement$250 million IPL Revolving Credit Facilities Amended and Restated Credit Agreement, dated as of June 19, 2019
CSAPRCross-State Air Pollution Rule
CWACumulative DeficienciesCumulative Net Operating Income Deficiencies. The Cumulative Deficiencies calculation provides that only five years' worth of historical earnings deficiencies or surpluses are included, unless it has been greater than five years since the most recent rate case.
CWAU.S. Clean Water Act
D.C. CircuitU.S. Court of Appeals for the District of Columbia Circuit
Defined Benefit Pension PlanEmployees’ Retirement Plan of Indianapolis Power & Light Company
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act
DOEU.S. Department of Energy
DSMDOJU.S. Department of Justice
DSMDemand Side Management
ECCRAEnvironmental Compliance Cost Recovery Adjustment
ELGEffluent Limitation Guidelines
EPAU.S. Environmental Protection Agency
EPActEnergy Policy Act of 2005
ERISAEmployee Retirement Income Security Act of 1974
FACFuel Adjustment Charge
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
FGDsFlue-Gas Desulfurizations
Financial Statements
Audited Consolidated Financial Statements of IPALCO in “Item 8. Financial Statements and Supplementary Data” included in Part II of this Form 10-K
FTRsFinancial Transmission Rights


5

GAAPGenerally Accepted Accounting Principles in the United States
GHGGreenhouse Gas
IBEWInternational Brotherhood of Electrical Workers
IDEMIndiana Department of Environmental Management
IOSHAIndiana Occupational Safety and Health Administration
IPALCOIPALCO Enterprises, Inc.
IPLIndianapolis Power & Light Company, which also does business as AES Indiana
IRPIntegrated Resource Plan
ISOIndependent System Operator
IURCIndiana Utility Regulatory Commission
kWhKilowatt hours
LIBORLondon InterBank Offer Rate
MATSMercury and Air Toxics Standards
Mid-AmericaMid-America Capital Resources, Inc.
MISOMidcontinent Independent System Operator, Inc.
MTMMWMark-to-MarketMegawatts
MWMWhMegawattsMegawatt hours
MWhNAAQSMegawatt hours
NAAQSNational Ambient Air Quality Standards
NERCNorth American Electric Reliability Corporation
NODANOVNotice of Data Availability
NOVNotice of Violation
NOx
Nitrogen Oxides
NPDESNational Pollutant Discharge Elimination System
NSPSNew Source Performance Standards
PCBsNSRPolychlorinated BiphenylsNew Source Review
NWP 12Nationwide Permit 12
Pension PlansEmployees’ Retirement Plan of Indianapolis Power & Light Company and Supplemental Retirement Plan of Indianapolis Power & Light Company
PM2.5Fine particulate matter or particulate matter with an aerodynamic diameter less than or equal to a nominal 2.5 micrometers
PSDPrevention of Significant Deterioration
PurchasersCitibank, N.A. and its affiliate, CRC Funding, LLC
Receivables Sale AgreementSecond Amended and Restated Receivables Sale Agreement, dated as of June 25, 2009, as amended, as described herein
RF
ReliabilityFirst
RSPAES Retirement Savings Plan
RTORegional Transmission Organization
SEASenate Enrolled Act
SECUnited States Securities and Exchange Commission
Securities ActSecurities Act of 1933, as Amended
Service CompanyAES US Services, LLC
SIPState Implementation Plan
SO2
Sulfur Dioxides
Subscription AgreementSubscription Agreement dated as of December 14, 2014, by and between IPALCO and CDPQ
Supplemental Retirement PlanSupplemental Retirement Plan of Indianapolis Power & Light Company
TCJATax Cuts and Jobs Act
Term Loan$65 million IPALCO Term Loan Facility Credit Agreement, dated as of October 31, 2018
Third Amended and Restated Articles of IncorporationThird Amended and Restated Articles of Incorporation of IPALCO Enterprises, Inc.
Thrift PlanEmployees’ Thrift Plan of Indianapolis Power & Light Company
TDSICTransmission, Distribution, and Storage System Improvement Charge


U.S.
U.S.United States of America
U.S. SBUAES U.S. Strategic Business Unit
USDUnited States Dollars
VEBAVoluntary Employees' Beneficiary Association

6

PART I

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. None of the information on our website is incorporated into, or deemed to be a part of, this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any reference to our website is intended to be an inactive textual reference only.

FORWARD‑LOOKINGFORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 headings “Item 1. Business,” “Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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:

▪impacts of weather on retail sales;
▪growth in our service territory and changes in retail demand and demographic patterns;
▪weather-related damage to our electrical system;
▪commodity and other input costs;
▪performance of our suppliers;
▪transmission and distribution system reliability and capacity, including natural gas pipeline system and supply constraints;
▪regulatory actions and outcomes, including, but not limited to, the review and approval of our 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, and liabilities related to, current and future environmental laws and requirements;
▪interest rates and the use of interest rate hedges, 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;

▪impacts of weather on retail sales;
▪growth in our service territory and changes in retail demand and demographic patterns;
▪weather-related damage to our electrical system;
▪commodity and other input costs;
▪performance of our suppliers;
▪transmission and distribution system reliability and capacity, including natural gas pipeline system and supply constraints;
▪regulatory actions and outcomes, including, but not limited to, the review and approval of our 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, and liabilities related to, current and future environmental laws and requirements;
▪interest rates and the use of interest rate hedges, 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, including the outbreak of the novel coronavirus COVID-19, 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;
7

▪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;
▪issues related to our participation in MISO, including the cost associated with membership, our continued ability to recover costs incurred, and the risk of default of other MISO participants;
▪changes in tax laws and the effects of our tax strategies;
▪the use of derivative contracts;
▪product development, technology changes, and changes in prices of products and technologies; and
▪
▪issues related to our participation in MISO, including the cost associated with membership, our continued ability to recover costs incurred, and the risk of default of other MISO participants;
▪changes in tax laws and the effects of our tax strategies;
▪the use of derivative contracts;
▪product development, technology changes, and changes in prices of products and technologies; and
▪the risks and other factors discussed in this report and other IPALCOfilings with the SEC.

filings with the SEC.

Most of these factors affect us through our consolidated subsidiary, IPL. 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” of this 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.

ITEM 1. BUSINESS

OVERVIEW
 
IPALCO is a holding company incorporated under the laws of the state of Indiana. OurIndiana whose principal subsidiary is IPL. IPL, which also does business as AES Indiana, is 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.” All of our operations are conducted within the U.S. and principally within the state of Indiana. Please see Note 12, “Business Segment Information” to the Financial Statements.

IPL

IPALCO owns all of the outstanding common stock of IPL. IPL was incorporated under the laws of the state of Indiana in 1926. IPL is engaged primarily in generating, transmitting, distributing and selling electric energy to more than 500,000approximately 512,000 retail customers in the city of Indianapolis and neighboring areas within the state of Indiana; the most distant point being about 40 miles from Indianapolis. IPL has an exclusive right to provide electric service to those customers. IPL’s service area covers about 528 square miles with an estimated population of approximately 955,000.965,000. IPL’s generation, transmission and distribution facilities, and changes to our sources of electric generation, are further described below under “Properties.” There have been no significant changes in the services rendered by IPL during 2019.2020. 

IPL is a transmission company member of RF. RF is one of eight Regional Reliability Councils under the NERC, which has been designated as the Electric Reliability Organization under the EPAct. RF seeks to preserve and enhance electric service reliability and security for the interconnected electric systems within the RF geographic area by setting and enforcing electric reliability standards. RF members cooperate under agreements to augment the reliability of its members’ electricity supply systems in the RF region through coordination of the planning and operation of the members’ generation and transmission facilities. Smaller electric utility systems, independent power producers and power marketers can participate as full members of RF.

EMPLOYEESHUMAN CAPITAL MANAGEMENT

IPL's employees are essential to delivering and maintaining reliable service to our customers. As of JanuaryDecember 31, 2020, IPL had 1,2061,192 employees of whom 1,1331,123 were full time. Of the total employees, 834819 were represented by the IBEW in two bargaining units: a physical unit and a clerical-technical unit. In February 2020, the membership of the IBEW clerical-technical unit ratified a three-year labor agreement with us that expires on


February 13, 2023. In December 2018, the IBEW physical unit ratified a three-year agreement with us that expires on December 6, 2021. Both collective bargaining agreements shall continue in full force and effect from year to year unless either party provides prior written notice at least sixty (60) days prior to the expiration, or anniversary thereof, of its desire to amend or terminate the agreement. As of January 31, 2020,2021, neither IPALCO nor any of its majority-owned subsidiaries other than IPL had any employees.

8


Safety

As part of AES, safety is one of our core values. Ensuring safe operations at our facilities, so each person can return home safely, is the cornerstone of our daily activities and decisions. Safety efforts are led globally by the AES Chief Operating Officer and supported by safety committees that operate at the local site level. Hazards in the workplace are actively identified and management tracks incidents so remedial actions can be taken to improve workplace safety.

We work with the Safety Management System (“SMS”), a Global Safety Standard that applies to all AES employees and employees of AES subsidiaries, as well as contractors working in AES facilities and construction projects. The SMS requires continuous safety performance monitoring; risk assessment and performance of periodic integrated environmental, health and safety audits. The SMS provides a consistent framework for all AES operational businesses and construction projects to set expectations for risk identification and reduction, measure performance and drive continuous improvements. The SMS standard is consistent with the OHSAS 18001/ISO 45001 standard.

Our safety performance is also measured by both leading and lagging metrics. Our leading safety metrics track safety observations, safety meeting engagement and the reporting of non-injury near misses. Our lagging safety metrics track lost workday cases, severity rate, and recordable incidents. We are committed to excellence in safety and have implemented various programs to increase safety awareness and improve work practices.

In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate. This includes having employees work from home to the extent they were able, while implementing additional safety measures for employees continuing critical on-site work.

Talent

We believe our success depends on our ability to attract, develop and retain key personnel. The skills, experience and industry knowledge of key employees significantly benefit our operations and performance. We have a comprehensive approach to managing our talent and developing our leaders in order to ensure our people have the right skills for today and tomorrow whether that requires us to build new business models or leverage leading technologies.

We emphasize employee development and training. To empower employees, we provide a range of development programs and opportunities, skills, and resources they need to be successful by focusing on experience and exposure as well as formal programs including our AES' ACE Academy for Talent Development, and our Trainee Program.

We believe that our individual differences make us stronger. Our Global Diversity and Inclusion Program is led by the AES Diversity and Inclusion Officer. Governance and standards are guided by the AES Chief Human Resources Officer, with input from members of AES' Executive Leadership Team.

Compensation

Our compensation philosophy emphasizes pay-for-performance. Our incentive plans are designed to reward strong performance, with greater compensation paid when performance exceeds expectations and less compensation paid when performance falls below expectations. We invest significant time and resources to ensure our compensation programs are competitive and reward the performance of our people. Every year, our people who are not part of a collective bargaining agreement are eligible for an annual merit-based salary increase. In addition, individuals are eligible for a salary increase if they receive a significant promotion. For non-collectively bargained employees at certain levels in the organization we offer annual incentives (bonus) and long-term compensation to reinforce the alignment between employees and AES.


9

SERVICE COMPANY

The Service Company provides services including operations, accounting, legal, human resources, information technology and other corporate services on behalf of companies that are part of the U.S. SBU, including among other companies, IPALCO and IPL. The Service Company allocates the costs for these services based on cost drivers designed to result in fair and equitable allocations. This includes ensuring that the regulated utilities served, including IPL, are not subsidizing costs incurred for the benefit of other businesses. Please see Note 11, “Related Party Transactions – Service Company” to the Financial Statements and “Item 13. Certain Relationships and Related Transactions, and Director Independence” of this Form 10-K for additional details.

PROPERTIES

Our executive offices are located at One Monument Circle, Indianapolis, Indiana. This facility and the remainder of our material properties in our business and operations are owned directly by IPL. The following is a description of these material properties.

We own two distribution service centers in Indianapolis. We also own the building in Indianapolis that houses our customer service center. 

We own and operate four generating stations, all within the state of Indiana. Our largest generating station, Petersburg, is coal-fired, and we planhave plans to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 byin 2021 and 2023, respectively (for further discussion, see Note 2, “Regulatory Matters - IRP Filing”). 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 CCGT natural gas plant. IPL took operational control and commenced commercial operations of this CCGT in April 2018. The fourth station, Georgetown, is a small peaking station that uses natural gas to power combustion turbines. For electric generation, the net winter design capacity is 3,705 MW and net summer design capacity is 3,560 MW. Our highest summer peak level of 3,139 MW was recorded in August 2007 and the highest winter peak level of 2,971 MW was recorded in January 2009.

Our sources of electric generation are as follows:
FuelName Number of
Units		Winter
Capacity
(MW)		Summer
Capacity
(MW)		Location
Coal
Petersburg(1)
41,709 1,709 Pike County, Indiana
 Total41,709 1,709  
GasHarding Street61,026 963 Marion County, Indiana
Eagle Valley1709 679 Morgan County, Indiana
 Georgetown2200 158 Marion County, Indiana
 Total91,935 1,800  
OilPetersburg38 8 Pike County, Indiana
 Harding Street353 43 Marion County, Indiana
 Total661 51  
Grand Total193,705 3,560  
(1) We planhave plans to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 byin 2021 and 2023, respectively (for further discussion, see Note 2, “Regulatory Matters - IRP Filing”).

Net electrical generation during 20192020 at our Petersburg, Eagle Valley, Harding Street and Georgetown plants accounted for approximately 58.4%47.0%, 34.0%38.9%, 7.2%13.1% and 0.4%1.0%, respectively, of our total net generation. Even though the capacity of our Harding Street plant far exceeds that of the Eagle Valley plant, we expect the generation at


Eagle Valley to continue to far exceed that of Harding Street due to the relatively lower cost to produce electricity at Eagle Valley.

Our electric system is directly interconnected with the electric systems of Indiana Michigan Power Company, Vectren Corporation, Hoosier Energy Rural Electric Cooperative, Inc., and the electric system jointly owned by Duke Energy Indiana, Indiana Municipal Power Agency and Wabash Valley Power Association, Inc. Our transmission
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system includes 458 circuit miles of 345,000 volt lines and 408 circuit miles of 138,000 volt lines. The distribution system consists of 5,0185,059 circuit miles of underground primary and secondary cables and 6,1166,119 circuit miles of overhead primary and secondary wire. Underground street lighting facilities include 775777 circuit miles of underground cable. Also included in the system are 138139 substations. Depending on the voltage levels at the substation, some substations may be considered both a bulk power substation and a distribution substation. There are 73 bulk power substations and 118114 distribution substations; 52 substations are considered both bulk power and distribution substations.

All critical facilities we own are well maintained, in good condition and meet our present needs. Our plants generally have enough capacity to meet the daily needs of our retail customers when all of our units are available. During periods when our generating capacity is not sufficient to meet our retail demand, or when MISO provides a lower cost alternative to some of our available generation, we purchase power on the MISO wholesale market.

SEASONALITY

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. IPL’s business is not dependent on any single customer or group of customers. Additionally, retail kWh sales, after adjustments for weather variations, are impacted by changes in service territory economic activity and the number of retail customers we have, as well as DSM energy efficiency programs implemented by IPL. For the ten years ending in 2019,2020, IPL’s retail kWh sales have decreased at a compound annual rate of 0.5%1.4%. This decrease also includes the impacts of COVID-19 in 2020. Conversely, the number of our retail customers grew at a compound annual rate of 0.8%0.9% during that same period. Going forward, we expect flat or modest retail kWh sales growth annually, which will continue to be negatively impacted by our DSM programs. Please see Note 2, “Regulatory Matters – DSM” to the Financial Statements for more details. IPL’s electricity sales for 20152016 through 20192020 are set forth in the table of statistical information included at the end of this section.

Weather and Weather-Related Damage in our Service Area

Extreme high and low temperatures in our service area have a significant impact on revenues as many of our retail customers use electricity to power air conditioners, electric furnaces and heat pumps. The impact is partially mitigated by 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. The effect is generally more significant with high temperatures than with low temperatures as many of our customers use gas heat. In addition, before the 2018 Base Rate Order was implemented on December 5, 2018, IPL had the opportunity to share 50% of wholesale margins above a stated benchmark, so extreme temperatures generally provided additional income by selling power on the wholesale market (see below). However, beginning December 5, 2018, 100% of annual wholesale margins earned above (or below) the benchmark of $16.3 million are passed back (or charged) to customer rates through a rider.

Storm activity can also have an adverse effect on our operating performance. Severe storms often damage transmission and distribution equipment, thereby causing power outages, which reduce revenues and increase repair costs. Partially mitigating this impact is IPL’s ability to timely recover certain operation and maintenance repair costs related to severe storms. In our 2016 and 2018 Base Rate Orders, we received approval for a storm damage restoration reserve account that allows us to defer major storm costs over a benchmark that meet certain criteria considered to be severe, for recovery in a future basic rate proceeding. Because IPL's basic rates and charges include an annual amount for recovery for such severe storm costs, if actual severe storm costs are below that level, IPL will record a regulatory liability for the shortfall to be passed to customers in a future basic rate proceeding. Conversely, if IPL's major storm costs are above the level in basic rates, IPL will defer the excess for future recovery.

MISO OPERATIONS 

IPL is one of many transmission system owner members in MISO. MISO is a regional transmission organization which maintains functional control over the combined transmission systems of its members and manages one of the


largest energy and ancillary services markets in the U.S. MISO policies are developed, in part, through a stakeholder process in which we are an active participant. We focus our participation in this process primarily on items that could impact our customers, shared cost of transmission expansion, resource adequacy, results of
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operations, financial condition and cash flows. Additionally, we attemptparticipate in the process to influenceimpact MISO and FERC policy by filing comments with MISO, the FERC, or the IURC.

MISO has functional control of our transmission facilities and our transmission operations are integrated with those of MISO. Our participation and authority to sell wholesale power at market-based rates are subject to the FERC jurisdiction. Transmission service over our facilities is provided through MISO’s tariff.

As a member of MISO, we offer our available electricity production of each of our generation assets into the MISO day-ahead and real-time markets. MISO dispatches generation assets in economic order considering transmission constraints and other reliability issues to meet the total demand in the MISO region. MISO settles hourly offers and bids based on locational marginal prices, which is pricing for energy at a given location based on a market clearing price that takes into account physical limitations, generation and demand throughout the MISO region. MISO evaluates the market participants’ energy offers and demand bids optimizing for energy and ancillary services products to economically and reliably dispatch the entire MISO system. The IURC has authorized IPL to recover its ongoing costs from MISO and such costs are being recovered per specific rate orders. The unamortized balance of total MISO costs deferred as regulatory assets was $80.4$69.9 million and $95.5$80.4 million as of December 31, 20192020 and 2018,2019, respectively.

We have preserved our right to withdraw from MISO by tendering our Notice of Withdrawal (subject to the FERC and the IURC approval). We have made no decision to seek withdrawal from MISO at this time. We will continue to assess the relative costs and benefits of being a MISO member, as well as actively advocate for our positions through the existing MISO stakeholder process and in filings with the FERC or IURC. 

See also Note 2, “Regulatory Matters” to the Financial Statements for additional details on the regulatory oversight of the FERC and the IURC.

REGULATION

General 

IPL is a regulated public utility principally engaged in providing electric service to the Indianapolis metropolitan area. An inherent business risk facing any regulated public utility is that of unexpected or adverse regulatory action. Regulatory discretion is reasonably broad in Indiana, as it is elsewhere. We attempt to work cooperatively with regulators and those who participate in the regulatory process, while remaining vigilant in protecting or asserting our legal rights in the regulatory process. We take an active role in addressing regulatory policy issues in the current regulatory environment. Additionally, there is increased activity by environmental regulators, in particular under a President Biden administration, which has had and will continue to have a significant impact on our operations and financial statements for the foreseeable future. We maintain our books and records consistent with GAAP reflecting the impact of regulation. See Note 1, “Overview and Summary of Significant Accounting Policies” to the Financial Statements.

Retail Ratemaking

IPL’s tariff rates for electric service to retail customers consist of basic rates and charges which are set and approved by the IURC after public hearings. In addition, IPL’s rates include various adjustment mechanisms including, but not limited to: (i) a rider to reflect changes in fuel and purchased power costs to meet IPL’s retail load requirements, referred to as the FAC, (ii) a rider for the timely recovery of costs (including a return) incurred to comply with environmental laws and regulations, referred to as the ECCRA, (iii) a rider to reflect changes in ongoing MISO costs, referred to as the Regional Transmission Organization Adjustment, (iv) a rider to reflect changes in net capacity sales above and below an established annual benchmark of $11.3 million (beginning December 5, 2018), referred to as the Capacity Adjustment, (v) a rider for passing through to customers wholesale sales margins above and below an established annual benchmark of $16.3 million (beginning December 5, 2018), referred to as the Off-System Sales Margin Adjustment, (vi) a rider for a return on and (vi)of investments for eligible TDSIC improvements, and (vii) cost recovery, lost margin recoveries and performance incentives from our DSM programs. Each of these tariff rate components may be set and approved by the IURC in separate proceedings at different points in time (currently the FAC proceedings occur on a quarterly basis and IPL's other rider proceedings all occur on an annual basis). These components function somewhat independently of one


another, but the overall structure of our rates and charges would be subject to review at the time of any review of our basic rates and charges.

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For additional discussion of the regulatory environment related to our business, see the discussion in Note 2, “Regulatory Matters” to the Financial Statements, which is incorporated by reference herein.

ENVIRONMENTAL MATTERS
 
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 regulated materials, including ash; the use and discharge of water used in generation boilers and for cooling purposes; 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, suspension or revocation of permits and/or facility shutdowns. There can be no assurance that we have been or will be at all times in full compliance with such laws, regulations and permits.

From time to time, we are subject to enforcement actions for claims of noncompliance with environmental laws and regulations. IPL cannot assure that it will be successful in defending against any claim of noncompliance. However, with the possible exception of the New Source Review NOV from the EPA (see Note 10, “Commitments and Contingencies - Environmental Loss Contingencies - New Source Review and other CAA NOVs” to the Financial Statements for additional details), we do not believe any currently open environmental investigations will result in fines material to our results of operations, financial condition and cash flows.

Under certain environmental laws, we could be held responsible for costs relating to contamination at our past or present facilities and at third-party waste disposal sites. We could also be held liable for human exposure to hazardous substances or for other environmental damage. Our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances may adversely affect our business, results of operations, financial condition and cash flows. A discussion of the legislative and regulatory initiatives most likely to affect us follows.

MATS

In April 2012, the EPA’s rule to establish maximum achievable control technology standards for hazardous air pollutants regulated under the CAA emitted from coal and oil-fired electric utilities, known as “MATS”, became effective. IPL management developed and implemented a plan, which was approved by the IURC, to comply with this rule and all four Petersburg units have been and remain in compliance with the MATS rule since applicable deadlines.

Several lawsuits challenging the EPA’s MATS rule were filed by other parties and consolidated into a single proceeding before the D.C. Circuit. In April 2014, the D.C. Circuit issued an opinion upholding the MATS rule. Numerous states and two trade groups petitioned the U.S. Supreme Court to review this opinion. In June 2015, the U.S. Supreme Court remanded MATS to the D.C. Circuit due to the EPA’s failure to consider costs before deciding to regulate power plants under Section 112 of the CAA. In December 2015, the D.C. Circuit issued an order remandingCAA and subsequently remanded MATS to the EPA without vacatur while the EPA worked to account for costs of the rule pursuant to the U.S. Supreme Court’s decision.vacatur. The EPA published its final appropriate and necessary findings in the Federal Register in April 2016. Several2016, which was followed by several lawsuits were filed appealing that finding in the D.C. Circuit. In April 2017, the U.S. Court of Appeals for the D.C. Circuit, which ordered that these challenges be held in abeyance pending further order from the court as the EPA reconsidersreconsidered the finding. On February 7, 2019,May 22, 2020, the EPA published a proposed rulefinal finding that it is not “appropriate and necessary” to regulate hazardous air pollutant emissions from coal- and oil-fired electric generating units (EGUs), but that the EPA would not remove the source category from the CAA Section 112(c) list of source categories and would not change the MATS requirements. Several petitioners have filed for judicial review of the final finding. Further rulemakings and/or proceedings are possible; however, in the meantime, MATS remains in effect. We currently cannot predict the outcome of the regulatory or judicial process, or its impact, if any, on our MATS compliance planning or ultimate costs.



Waste Management and CCR

In the course of operations, our facilities generate solid and liquid waste materials requiring eventual disposal or processing. Waste materials generated at our electric power and distribution facilities include asbestos, CCR, oil, scrap metal, rubbish, small quantities of industrial hazardous wastes such as spent solvents, tree-and-land-clearing wastes and polychlorinated biphenyl contaminated liquids and solids. We endeavor to ensure that all our solid and liquid wastes are disposed of in accordance with applicable national, regional, state and local regulations. With the exception of CCR, we do not usually physically dispose of waste materials on our property. Instead, they are usually shipped off-site for final disposal, treatment or recycling. Some of our CCRs are beneficially used on-site and off-site, including as a raw material for production of wallboard, concrete or cement and as agricultural soil amendment, and some are disposed off-site in permitted disposal facilities. A small amount of CCR, which consists of bottom
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ash, fly ash and air pollution control wastes, is disposed of at our Petersburg coal-fired power generation plant using engineered, permitted landfills.

The EPA's final CCR rule became effective in October 2015.2015 (the "CCR Rule"). 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 ash ponds, including location restrictions, design and operating criteria, groundwater monitoring, corrective action and closure requirements and post-closure care. On December 16, 2016, President Obama signed into law the Water Infrastructure Improvements for the Nation Act ("WIIN Act"), which includes provisions to implement the CCR rule through a state permitting program, or if the state chooses not to participate, a possible federal permit program. On December 19, 2019,February 20, 2020, the EPA issued a prepublication version ofpublished a proposed rule to establish a federal CCR permit program that would operate in states without approved CCR permit programs. If this rule is finalized before Indiana establishes a state-level CCR permit program, IPL could eventually be required to apply for a federal CCR permit from the EPA.

The EPA has indicated that they will implement a phased approach to amending the CCR rule. In July 2018, theRule. On November 12, 2020, EPA published its final Part B Rule, and indicated that it would address the issue of beneficial use of CCR Rule Amendments (Phase One, Part One)for closure of ash ponds that are subject to forced closure in the Federal Register. In August 2018, the U.S. Courta separate and future rulemaking. This future rulemaking could impact IPL's Petersburg plant's ability to use CCR for closure 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. In October 2018, some environmental groups filed a petition for review challenging the EPA's final CCR rule amendments (Phase One, Part One) which have since been remanded without vacatur to the EPA.ash ponds. On August 14, 2019, the28, 2020, EPA published thefinal amendments to the CCR rule; the amendments relate to the CCR rule's criteria for determining beneficial use and the regulation of CCR piles, among other revisions. On December 2, 2019, the EPA published additional proposed amendments to the CCR ruleRule titled "A"A Holistic Approach to Closure Part A: Deadline to Initiate Closure,."

IPL was not able to meet which amends certain location restrictions set in the CCR rule for ash ponds at the Harding Street and Eagle Valley generating stations by the deadline of October 17, 2018. As a result, the ash ponds, which are currently being used for managing non-CCR wastewaters will be required to close by October 31, 2020 or sooner.

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 all existing ash ponds at Petersburg and did so as of November 11, 2018. To comply with the CCR rule, IPL installed a dry bottom ash handling system at a cost of approximately $46 million, which was completed in the third quarter of 2017.

regulatory provisions that govern CCR. The CCR rule,Rule, current or proposed amendments to the CCR rule,Rule, the results of groundwater monitoring data or the outcome of CCR-related litigation could have a material impact on our business, financial condition and results of operations. We would seek recovery of any resulting expenditures; however, there is no guarantee we would be successful in this regard. See Note 3, “Property, Plant and Equipment - ARO” to the Financial Statements of this Form 10-K for further information.

On July 29, 2019,December 2, 2020, the EPA published its proposedfinal rule that would codify thatdeclining to impose industry-wide CERCLA financial responsibility demonstrations are not required for Electric Power Generation, Transmissionrequirements on facilities in the electric power generation, transmission, and Distribution entities under CERCLA.distribution industries. Under Section 108(b) of CERCLA, the EPA must impose regulations on classes of facilities to ensure that such entities establish and maintain evidence of financial responsibility consistent with the degree and duration of risk associated with the production, transportation, treatment and storage of hazardous substances. The level of financial responsibility required is determined by the President, in his discretion. Some constituents of the CCR wastewater leachate detected through the CCR rule could, theoretically be classified as hazardous substances. The proposedfinal rule if finalized, would maintainmaintains the status quo in the Electric Power Generation, Transmission and Distribution industry that such financial responsibility demonstrations are not required. If, however additional financial



responsibility requirements are imposed as a result of this rulemaking or associated litigation (if any), it could have a material impact on our business, financial condition and results of operations.

Environmental Wastewater Requirements

In November 2015, the EPA published its final ELG rule to reduce toxic pollutants discharged into waterways by steam-electric power plants through technology applications. The wastewater treatment technologies installed and operated for compliance with the requirements of the October 2012 NPDES permit described above and the dry bottom ash handling system installed for compliance with the CCR Rule at Petersburg meet the requirements of the final ELG rule. On November 22, 2019, the EPA published proposed revisions to the 2015 ELG Rule related to flue gas desulfurization wastewater and bottom ash transport water. On April 12, 2019, the U.S. Court of Appeals for the Fifth Circuit vacated and remanded portions of the EPA’s 2015 ELG Rule related to legacy wastewaters and combustion residual leachate. On October 13, 2020, the EPA published final revisions to the 2015 ELG Rule related to flue gas desulfurization wastewater and bottom ash transport water, but did not address the portions of the ELG rule that were remanded by the U.S. Court of Appeals for the Fifth Circuit. Petitions have been filed for judicial review of the final revisions. It is too early to determine whether any outcome of this decisionlitigation or current or future revisions to the ELG rule might have a material impact on our business, financial condition and results of operations.

In June 2016, the EPA published the final national chronic aquatic life criterion for the pollutant, Selenium, in fresh water. IPL’s NPDES permits may be updated to include Selenium water-quality based effluent limits based on a site-specific evaluation process, which includes determining if there is a reasonable potential to exceed the revised final Selenium water quality standards for the specific receiving water body utilizing actual and/or projected discharge information for the IPL generating facilities. As a result, it is not yet possible to predict the potential impacts of this criteria. However, if additional capital expenditures are necessary, they could be material. We would seek recovery of these capital expenditures; however, there is no guarantee we would be successful.


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"Waters of the U.S." and “Navigable Waters Protection” Rules

In June 2015, the EPA and the U.S. Army Corps of Engineers ("the agencies") published a rule defining federal jurisdiction over waters of the U.S., known as the "Waters of the U.S." rule. This rule, which initially became effective in August 2015, could expand or otherwise change the number and types of waters or features subject to CWA permitting. However, after appealing the agencies engaged in a two-step process to repeal the 2015 "Waters2014 “Waters of the U.S."” rule and replace it with a newly promulgated rule called the “Navigable Waters Protection” rule. The agencies completed the first step on October 22, 2019, by publishingthe agencies, on April 21, 2020, issued the final “Navigable Waters Protection” rule repealingwhich again revised the 2015 "Waters of the U.S." rule. The agencies next proposed a revised definition of waters of the U.S. on December 11, 2018 and released the prepublication versionPetitions have been filed for judicial review of the final “Navigable Waters Protection” rule on January 23, 2020.rule. It is too early to determine whether any outcome of litigation or current or future revisions to the newly promulgated “Navigable Waters Protection”ELG rule might have a material impact on our business, financial condition and results of operations. In addition, we cannot predict the outcome of the judicial or regulatory process.

Climate Change Legislation and Regulation

One byproduct of burning coal and other fossil fuels is the emission of GHGs, including CO2. We face certain risks related to existing and potential international, federal, state, regional and local GHG legislation and regulations, including risks related to increased capital expenditures or other compliance costs which could have a material adverse effect on our results of operations, financial condition and cash flows.

The possible impact of any existing or future international, federal, regional or state GHG legislation, regulations or proposals will depend on various factors, including but not limited to: 

▪The geographic scope of legislation and/or regulation (e.g., international, federal, regional, state), which entities are subject to the legislation and/or regulation (e.g., electricity generators, load-serving entities, electricity deliverers, etc.), the enactment date of the legislation and/or regulation and the compliance deadlines set forth therein;
▪The level of reductions of GHGs being sought by the regulation and/or legislation (e.g., 10%, 20%, 50%, etc.) and the year selected as a baseline for determining the amount or percentage of mandated GHG reduction (e.g., 10% reduction from 1990 emission levels, 20% reduction from 2000 emission levels, etc.);
▪The legislative and/or regulatory structure (e.g., a GHG cap-and-trade program, a carbon tax, GHG emission limits, etc.);
▪In any cap-and-trade program, the mechanism used to determine the price of emission allowances or offsets to be auctioned by designated governmental authorities or representatives;

▪The geographic scope of legislation and/or regulation (e.g., international, federal, regional, state), which entities are subject to the legislation and/or regulation (e.g., electricity generators, load-serving entities, electricity deliverers, etc.), the enactment date of the legislation and/or regulation and the compliance deadlines set forth therein;
▪The level of reductions of GHGs being sought by the regulation and/or legislation (e.g., 10%, 20%, 50%, etc.) and the year selected as a baseline for determining the amount or percentage of mandated GHG reduction (e.g., 10% reduction from 1990 emission levels, 20% reduction from 2000 emission levels, etc.);
▪The legislative and/or regulatory structure (e.g., a GHG cap-and-trade program, a carbon tax, GHG emission limits, etc.);
▪In any cap-and-trade program, the mechanism used to determine the price of emission allowances or offsets to be auctioned by designated governmental authorities or representatives;
▪The price of offsets and emission allowances in the secondary market, including any price floors or price caps on the costs of offsets and emission allowances;
▪The operation of and emissions from regulated units;
▪The permissibility of using offsets to meet reduction requirements and the requirements of such offsets (e.g., type of offset projects allowed, the amount of offsets that can be used for compliance purposes, any geographic limitations regarding the origin or location of creditable offset projects), as well as the methods required to determine whether the offsets have resulted in reductions in GHG emissions and that those reductions are permanent (i.e., the verification method);
▪Whether the use of proceeds of any auction conducted by responsible governmental authorities is reinvested in developing new energy technologies, is used to offset any cost impact on certain energy consumers or is used to address issues unrelated to power;
▪How the price of electricity is determined, including whether the price includes any costs resulting from any new climate change legislation and the potential to transfer compliance costs pursuant to legislation, market or contract, to other parties;
▪Any impact on fuel demand and volatility that may affect the market clearing price for power;
▪The effects of any legislation or regulation on the operation of power generation facilities that may in turn affect reliability;
▪The availability and cost of carbon control technology;
▪Whether any federal legislation regulating GHG emissions will preclude the EPA from regulating GHG emissions under the CAA or preempt private nuisance suits or other litigation by third parties;
▪Any opportunities to change the use of fuel at the generation facilities or opportunities to increase efficiency; and
▪Our ability to recover any resulting costs from our customers and the timing of such recovery.

▪The price of offsets and emission allowances in the secondary market, including any price floors or price caps on the costs of offsets and emission allowances;
▪The operation of and emissions from regulated units;
▪The permissibility of using offsets to meet reduction requirements and the requirements of such offsets (e.g., type of offset projects allowed, the amount of offsets that can be used for compliance purposes, any geographic limitations regarding the origin or location of creditable offset projects), as well as the methods required to determine whether the offsets have resulted in reductions in GHG emissions and that those reductions are permanent (i.e., the verification method);
▪Whether the use of proceeds of any auction conducted by responsible governmental authorities is reinvested in developing new energy technologies, is used to offset any cost impact on certain energy consumers or is used to address issues unrelated to power;
▪How the price of electricity is determined, including whether the price includes any costs resulting from any new climate change legislation and the potential to transfer compliance costs pursuant to legislation, market or contract, to other parties;
▪Any impact on fuel demand and volatility that may affect the market clearing price for power;
▪The effects of any legislation or regulation on the operation of power generation facilities that may in turn affect reliability;
▪The availability and cost of carbon control technology;
▪Whether any federal legislation regulating GHG emissions will preclude the EPA from regulating GHG emissions under the CAA or preempt private nuisance suits or other litigation by third parties;
▪Any opportunities to change the use of fuel at the generation facilities or opportunities to increase efficiency; and
▪Our ability to recover any resulting costs from our customers and the timing of such recovery.

Except as noted in the discussion below, at this time, we cannot estimate the costs of compliance with existing, proposed or potential international, federal, state or regional GHG emissions reductions legislation or initiatives due in part to the fact that many of these proposals are in earlier stages of development and any final laws or regulations, if adopted, could vary drastically from current proposals. Any international, federal, state or regional
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legislation adopted in the U.S. that would require the reduction of GHG emissions could have a material adverse effect on our business and/or results of operations, financial condition and cash flows.

The U.S. Congress has considered several different draft bills pertaining to GHG legislation, including comprehensive GHG legislation that would impact many industries and more limited legislation focusing only on the utility and electric generation industry. Although no legislation pertaining to GHG emissions has been passed to date by the U.S. Congress, similar legislation may be considered or passed by the U.S. Congress in the future. In addition, in the past Midwestern state governors (including the Governor of Indiana) and the premier of Manitoba, Canada committed to reduce GHG emissions through the implementation of a cap-and-trade program pursuant to the Midwestern Greenhouse Gas Reduction Accord. Though the participating states and province are no longer pursuing this commitment, similar applicable state or regional initiatives may be pursued in the future, particularly in connection with the CPP (discussed below).

The EPA regulates GHG emissions from certain stationary sources under the regulations formerly-called the “Tailoring Rule.” The regulations were implemented pursuant to two CAA programs: the Title V Operating Permit program and the program requiring a permit if undergoing certain new construction or major modifications, the PSD program. Obligations relating to Title V permits include recordkeeping and monitoring requirements. Sources subject to PSD can be required to implement BACT. In June 2014, the U.S. Supreme Court ruled that the EPA had exceeded its statutory authority in issuing the Tailoring Rule by regulating under the PSD program sources based solely on their GHG emissions. However, the U.S. Supreme Court also held that the EPA could impose GHG BACT requirements for sources already required to implement PSD for certain other pollutants when GHG increases exceed a “significance” threshold. Currently, the EPA uses a 75,000 ton per year GHG threshold to determine if increases are significant. On October 3, 2016, the EPA published a proposed rule that would set a GHG significant emissions increase threshold of 75,000 tons per year, that, if exceeded as part of a major modification that otherwise triggered PSD, would require GHG BACT. Therefore, if future modifications to IPL’s sources require PSD review for other pollutants and GHG increases exceed the EPA’s GHG significance thresholds, such modifications may also trigger GHG BACT requirements. The EPA has issued guidance on what BACT entails for the control of GHG and individual states are now required to determine what controls are required for facilities within their jurisdiction on a case-by-case basis.



future.
On October 23, 2015, the EPA finalized CO2 emission rules for existing power plants under CAA Section 111(d) (called the CPP). The CPP provided for interim emissions performance rates to be achieved beginning in 2022 and final emissions performance rates to be achieved starting in 2030. 

Additionally, theThe final NSPS for CO2 emissions from new, modified and reconstructed fossil-fuel-fired power plants were published in the Federal Register on October 23, 2015. Several states and industry groups challenged the NSPS for CO2 in the D.C. Circuit Court. Pursuant to a court order issued in August 2017, the litigation is being held in indefinite abeyance pending further court order. On December 20, 2018, the EPA published proposed revisions to the final NSPS for new, modified and reconstructed coal-fired electric utility steam generating units. The EPA proposed that the Best System of Emissions Reduction (BSER) for these units is highly efficient generation that would be equivalent to supercritical steam conditions for larger units and sub-critical steam conditions for smaller units, and not partial carbon capture and sequestration (CCS), which had been the BSER for these units in the 2015 final NSPS. The EPA did not include revisions for natural-gas combined cycle or simple cycle units in the December 20, 2018 proposal. Challenges to the GHG NSPS are being held in abeyance at this time.

On February 9, 2016, the U.S. Supreme Court issued orders staying implementation of the CPP pending resolution of challenges to the rule. On October 16, 2017, the EPA published in the Federal Register a proposed rule that would rescind the CPP. On July 8, 2019, the EPA published a final rule to repeal the CPP. On September 27, 2019, the D.C. Circuit granted motions to dismiss as moot the consolidated challenges to the CPP and challenges to the EPA's denial of reconsideration of the CPP.

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 ACE Rule. On July 8, 2019, the EPA published the final ACE Rule along with associated revisions to implementing regulations. The final ACE Rule replacesestablished CO2 emission rules for existing power plants under CAA Section 111(d) and replaced the CPP and determinesEPA's 2015 CPP. In accordance with the ACE rule, the EPA determined that heat rate improvement measures are the Best System of Emissions Reductions for existing coal-fired electric generating units. The final rule requires the State of Indiana to develop a State Plan to establish CO2emission limits for designated facilities, including IPL Petersburg’sPetersburg's coal-fired electric generating units. States have three years to develop their plans under the rule. On February 19, 2020, Indiana published a First Notice for the Indiana ACE Rule indicating that IDEM intends to determine the best system of emissions reductions and CO2 standards for affected units. Impacts remain largely uncertain because Indiana's State Plan has not yet been developed. On January 19, 2021, the D.C. Circuit vacated and remanded to EPA the ACE Rule, although the parties have an opportunity to request a rehearing at the D.C. Circuit or seek a review of the decision by the U.S. Supreme Court. The impact of this decision remains uncertain.

Due to the uncertainty of these regulations, and existing and potential associated litigation, it is too early to determine the potential impact, but any rule could have a material impact on our business, financial condition and results of operations. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful in this regard.

On the international level, on December 12, 2015, 195 nations, including the U.S., finalized the text of an international climate change accord in Paris, France (the “Paris Agreement”), which agreement was signed and officially entered into on April 22, 2016. The Paris Agreement calls for countries to set their own GHG emissions targets, make these emissions targets more stringent over time and be transparent about the GHG emissions reporting and the measures each country will use to achieve its GHG emissions targets. A long-term goal of the Paris Agreement is to limit global temperature increase to well below two degrees Celsius from temperatures in the pre-industrial era. The U.S. had proposed that implementation of the CPP would fulfill much of its intended reductions under the Paris Agreement, but in August 2017, the U.S. informed the United Nations it would withdrawwithdrawal from the Paris Agreement but would continue to participate in related meetings during the withdrawal process. On November 4, 2019, the U.S. announced that it had officially notified the U.N. that the U.S. will withdraw from the Paris Agreement. As such, the U.S. will officially be able to withdrawbecame effective on November 4, 2020. However, on January 20, 2021, President Biden signed and submitted an instrument for the U.S. to rejoin the Paris Agreement, which will become effective on February 19, 2021.

Based on the above, there is some uncertainty with respect to the impact of GHG rules on IPL. The GHG BACT requirements will not apply at least until we construct a new major source or make a major modification of an existing major source, and the NSPS will not require us to comply with an emissions standard until we construct a new electric generating unit. We do not have any planned major modifications of an existing source or plans to construct a new major source which are expected to be subject to these regulations at this time. Furthermore, the EPA, states and other utilities are still evaluating potential impacts of the GHG regulations in our industry. In light of these uncertainties, we cannot predict the impact of the EPA’s current and future GHG regulations on our consolidated results of operations, cash flows, and financial condition, but it could be material.
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Unit Retirements and Replacement Generation

Four coal-fired units at IPL’s Eagle Valley Station site in Indiana were retired in April 2016. IPL replaced this generation with a 671 MW CCGT at the Eagle Valley site, which was completed in April 2018, at a cost of $597 million. IPL also completed a refuel of its Harding Street Station Units 5, 6 and 7 from coal to natural gas (approximately 610 total MW net capacity) at a total cost of approximately $105 million. The Harding Street 5 and 6 refueling projects were completed in December 2015 and the Harding Street 7 refuel was completed in the second quarter of 2016. The costs to build and operate the CCGT and the Harding Street Station refueling projects, including a return, are reflected in the basic rates and charges from IPL's 2018 Base Rate Order effective on December 5, 2018.

In December 2019, IPL filed its IRP, which describes IPL's Preferred Resource Portfolio for meeting generation capacity needs for serving its retail customers over the next several years.years, which includes plans to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 in 2021 and 2023, respectively. See Note 2, "Regulatory Matters - IRP Filing" to the Financial Statements for additional details.

New Source Review and Other CAA NOVs

See Note 10, “Commitments and Contingencies - Environmental Loss Contingencies - New Source Review and other CAA NOVs” to the Financial Statements for additional details.

CSAPR

CSAPR, which became effective in January 2015, addresses the "good neighbor" provision of the CAA, which prohibits sources within each state from emitting any air pollutant in an amount which will contribute significantly to any other state’s nonattainment, or interference with maintenance of, any NAAQS. The CSAPR is implemented, in part, through a market-based program under which compliance may be achievable through the acquisition and use of emissions allowances created by the EPA. Following implementation and legal challenges of the EPA’s 2005 federal CAIR, the federal CSAPR became effective in January 2015 requiring the further reduction of SO2 and NOx emissions from power plants in 28 states, including Indiana, which contribute to ozone and/or fine particle pollution in other states. In October 2016, the EPA published a final rule to update the CSAPR to address the 2008 ozone NAAQS (“CSAPR Update Rule”). The CSAPR Update Rule found that NOxozone season emissions in 22 states (including Indiana) affect the ability of downwind states to attain and maintain the 2008 ozone NAAQS, and accordingly, the EPA issued federal implementation plans that both generally provide updated CSAPR NOxozone season emission budgets for electric generating units within these states and that implement these budgets through modifications to the CSAPR NOxozone season allowance trading program. Implementation began in the 2017 ozone season (May through September 2017). Affected facilities receive fewer ozone season NOx allowances in 2017 and later, possibly resulting in the need to purchase additional allowances. Additionally, on September 13, 2019, the D.C. Circuit remanded a portion of the October 2016 CSAPR Update Rule to the EPA. WithIn December 2018, EPA determined that the 2016 CSAPR Update Rule fully satisfied 20 states (including Indiana) good neighbor obligations with respect to the 2008 Ozone NAAQS (“CSAPR Close-Out Rule”), obviating the need for EPA to promulgate Federal Implementation Plans (FIPs) in these new standardsstates. In October 2019, the D.C. Circuit vacated and requirements, there has not beenremanded the CSAPR Close-Out Rule. On July 28, 2020, the D.C. Circuit ordered EPA to issue FIPs addressing seven states’ (including Indiana) outstanding 2008 NAAQS “good neighbor” obligations by March 15, 2021. On October 30, 2020, EPA published a significant impactproposed rule addressing 21 states', including Indiana's, outstanding "good neighbor" obligations with respect to date, however atthe 2008 ozone NAAQS. The proposed rule could result in affected facilities receiving fewer ozone season NOx allowances as soon as the 2021 Ozone Season.

At this time we cannot predict what the impact of these standards and requirements will be in future years, or if there will be an impact resulting from future rulemakings or legal outcomes, but itany such impact could be material.material to our business, financial condition or results of operation.

NAAQS

Under the CAA, the EPA sets NAAQS for six criteria pollutants considered harmful to public health and the environment, including particulate matter, NOx, ozone and SO2, which result from fossil-fuel combustion. Areas meeting the NAAQS are designated attainment areas while those that do not meet the NAAQS are considered nonattainment areas. Each state must develop a plan to bring nonattainment areas into compliance with the NAAQS, which may include imposing operating limits on individual plants. The EPA is required to review NAAQS at five-year intervals.

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Ozone. In October 2015, the EPA published a final rule lowering the NAAQS for ozone to 70 parts per billion from 75 parts per billion. The EPA published its final designations for the areas in which our operations are located on November 16, 2017. None of our operations are located in areas designated as nonattainment.

In December 2013, eight northeastern states petitioned the EPA to add nine upwind states, including Indiana, to the Ozone Transport Region, a group of states required to impose enhanced restrictions on NOx emissions. In November 2017, the EPA published a final rule denying the petition. In December 2017, eight northeastern states filed a petition for review challenging the final rule denying the petition. On April 23, 2019, the D.C. Circuit denied the petition.



In March 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's Petersburg, Harding Street, and Eagle Valley stations on the basis that they are contributing significantly to New York’s ability to meet the 2008 ozone NAAQS. On October 18, 2019,July 14, 2020, the EPA published finalD.C. Circuit Court vacated and remanded EPA’s denial of the petition. States subsequently filedEPA must now issue a petition for review innew decision based on the D.C. Circuit challenging the EPA’s denial.Court’s decision. If the Section 126 petition is ultimately granted, our units could be subject to additional requirements, which could be material. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful.

Additionally, on November 16, 2016, the state of Maryland submitted a petition to the EPA pursuant to Section 126 of the CAA requesting new limitations on NOx emissions from 36 upwind generating units, including IPL's 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. The States of Maryland and Delaware, in addition to environmental groups, have a filed 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 units 2 and 3 could be subject to additional requirements, which could be material. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful.

Fine Particulate Matter.  In 2013, the EPA published the 2012 annual PM2.5 standard of 12 micrograms per cubic meter of air and the 24-hour PM2.5 standard of 35 micrograms per cubic meter of air. In 2015, the EPA published its final attainment designations for the 2012 PM2.5 standard. In addition to the PM2.5 standard, there is also a 24-hour PM10 standard of 150 micrograms per cubic meter of air. No IPL operations are currently located in nonattainment areas. On December 18, 2020, EPA issued a final rule retaining current particulate matter standards based on its required routine review of such standards. Petitioners subsequently filed for judicial review.

NOx and SO2. In 2010, a one-hour primary NAAQS became effective for NOx and a new one-hour SO2primary NAAQS also became effective. In 2013, the EPA published in the Federal Registerits final designation,designations, which include portions of Marion, Morgan, and Pike counties as nonattainment with respect to the one-hour SO2standard.

In 2015, IDEM published its final rule establishing reduced SO2limits for IPL facilities in accordance with the new one-hour standard, for the areas in which IPL’s Harding Street, Petersburg, and Eagle Valley generating stations operate, with compliance required by January 1, 2017. Improvements to the existing FGD systems at Petersburg station were required to meet the emission limits imposed by the rule. The rule has not impacted IPL’s Eagle Valley or Harding Street generating stations as these facilities ceased coal combustion in advance of the compliance date.

On August 15, 2018,May 21, 2020, the EPA finalized the redesignation of Marion County, the county in which IPL Harding Street is located, to attainment of the SO2 NAAQS. On July 14, 2020, the EPA proposed redesignation of Morgan County, the county in which IPL Eagle Valley is located, to approve Indiana's State Implementation Plan (SIP) addressingattainment of the SO2 NAAQS. IDEM has imposed additional SO2 limits on Petersburg and on August 17, 2020, EPA approved those limits as part of a SIP revision concluding that Indiana has appropriately demonstrated that the plan provides for attainment of the 2010 SO2 standard for certain locations including those of IPL's Harding Street and Petersburg Generating Stations. On March 22, 2019, the EPA finalized approval of Indiana’s attainment plan for the area that includes Harding. The EPA has not approved the attainment plan for the area that includes Petersburg. Instead IDEM has imposed additional SO2 limits on Petersburg through a Commissioner’s Order issued July 31, 2019. On September 18, 2019, IDEM requested EPA approval of those limits as part of the SIP. Once the limits are approved as part of the SIP, IDEM can resubmit the attainment plan for EPA approval for the area that includes Petersburg.NAAQS.

On April 26, 2017, the IURC approved IPL’s request for NAAQS SO2 compliance at its Petersburg generation station with 80% of qualifying costs recovered through a rate adjustment mechanism and the remainder recorded as a regulatory asset for recovery in a subsequent rate case. The approved capital cost of the NAAQS SO2 compliance plan is approximately $29 million. Subsequently, on September 18, 2019, IDEM issued a Commissioner’s Order further reducing SO2 limits which are being achieved through operation of existing controls.

Based on these current and potential national ambient air quality standards, the state of Indiana is required to determine whether certain areas within the state meet the NAAQS. With respect to Marion, Morgan and Pike Counties, as well as any other areas determined to be in “nonattainment,”"nonattainment," the state of Indiana will be required to modify its State Implementation Plan to detail how the state will regain its attainment status. As part of this process, it is possible that the IDEM or the EPA may require reductions of emissions from our generating stations to reach attainment status for ozone, fine particulate matter or SO2. At this time, we cannot predict what the impact will be to IPL with respect to these new ambient standards, but it could be material.



Cooling Water Intake Regulations

We use water as a coolant at our generating stations. Under the CWA, cooling water intake structures are required to reflect the BTA for minimizing adverse environmental impact. In 2014, the EPA's final standards became effective to protect fish and other aquatic organisms drawn into cooling water systems at large power plants and other facilities. These standards, based on Section 316(b) of the CWA, require affected facilities to choose amongst seven BTA options to reduce fish impingement. In addition, certain facilities must conduct studies to assist permitting authorities to determine whether and what site-specific controls, if any, would be required to reduce entrainment of aquatic organisms. It is possible this process, which includes permitting and public input, could result in the need to install closed-cycle cooling systems (closed-cycle cooling towers) or other technology. Finally, the standards require that new units added to an existing facility must reduce both impingement and entrainment that achieves one of two alternatives under national BTA standards. IPL’s NPDES permits will be updated with the requirements of this rule, including any source-specific requirements arising from the evaluation process described above. As a result, it is not yet possible to predict the total impacts of this final rule, including any challenges to such final rule and the outcome of any such challenges. However, if additional capital expenditures are necessary, they could be material. We would seek recovery of these capital expenditures; however, there is no guarantee we would be successful. 
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Other

CWA - Regulation of Water Discharge
In response to Executive Orders,
IPL and other utilities at times apply the EPA continues evaluating various existing regulations to be considered for repeal, replacement or modification. We cannot predict at this timeNationwide Permit 12 (NWP 12) issued by the likely outcomeU.S. Army Corps of Engineers (Corps) in completing transmission and distribution projects that may involve waters of the EPA’sU.S. NWP 12 is the nationwide permit for Utility Line Activities, specifically activities required for construction and maintenance, provided the activity does not result in the loss of greater than ½-acre of waters of the U.S. for each single and complete project. 

On April 15, 2020, in a proceeding involving the construction of the Keystone XL pipeline, the U.S. District Court for the District of Montana (Montana District Court) vacated NWP 12 and enjoined its application. On April 27, 2020, the Corps moved for the Montana District Court to stay pending appeal those portions of the April 15, 2020 order that vacate NWP 12 and enjoin its application. In the alternative, the Corps asked the Montana District Court to stay its vacatur and injunction as they relate to anything other than the Keystone XL pipeline. On May 11, 2020, following request from the Corps, the Montana District Court amended its order to vacate NWP 12 only for oil and gas pipeline construction projects, allowing electric utility transmission and distribution projects to continue. On May 13, the Corps appealed the Montana District Court decision with the Ninth Circuit Court and requested a stay. On May 28, 2020, the Ninth Circuit denied a motion to stay. On June 16, 2020, the Solicitor General, on behalf of the U.S. Army Corps of Engineers, filed an application with the U.S. Supreme Court asking the Court to stay the district court order that vacated and enjoined the Corps from issuing authorizations under NWP 12 as it relates to the construction of new oil and gas pipelines. On July 6, 2020, the U.S. Supreme Court stayed the district court order, allowing the use of NWP 12 for oil and gas pipeline projects except for Keystone XL. On January 13, 2021, the U.S. Army Corps of Engineers published a final rulemaking for the reissuance and modification of NWPs, including NWP 12 relating exclusively to the construction of oil or natural gas pipelines and the new NWP 57 for construction of electric or telecommunication utility lines. It is too early to determine whether future outcomes or decisions related to this matter may have a material impact on our business, financial condition or results of operations.

On April 23, 2020, the U.S. Supreme Court issued a decision in the Hawaii Wildlife Fund v. County of Maui case related to whether a CWA permit is required when pollutants originate from a point source but are conveyed to navigable waters through a nonpoint source such as groundwater. The Court held that discharges to groundwater require a permit if the addition of the pollutants through groundwater is the functional equivalent of a direct discharge from the point source into navigable waters. On December 10, 2020, EPA published a Notice of Availability of draft guidance memorandum addressing how the Supreme Court's decision applies to NPDES permits. It is too early to determine whether this decision may have a material impact on our business, financial condition or results of operations. 

Biden Administration Actions Affecting Environmental Regulations

On January 20, 2021, President Biden issued an Executive Order (EO) titled “Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis” directing Agencies to, among other tasks, review regulations issued under the prior Administration to determine whether they should be suspended, revoked, or revised. As provided for by the EO, EPA submitted a letter to DOJ seeking to obtain abeyances or stays of proceedings in pending litigation that seeks review of other existing regulations promulgated during the Trump Administration. The Biden Administration also issued a Memorandum titled “Regulatory Freeze Pending Review” directing Agencies to refrain from proposing or what impact itissuing any rules until the Biden Administration has reviewed and approved those rules. These actions may have an impact on regulations that may affect our business.business, financial condition, or results of operations.

Summary

Environmental laws and regulations presently require us to incur material capital expenditures and operating costs. See “Capital Expenditures” discussion in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity - Capital Requirements" for additional details regarding our environmental capital projects. We would expect to seek recovery of both capital and operating costs related to such compliance, although there can be no assurances that we would be successful. In addition, environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. As a result, our operating expenses and continuing capital expenditures associated with environmental matters may increase. More stringent standards may also limit our operating flexibility and have a negative impact on our wholesale volumes and margins. Depending on the level and timing of recovery allowed by the IURC, these costs
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could materially and adversely affect our results of operations, financial condition and cash flows. We may seek recovery of any operating or capital expenditures; however, there can be no assurances that we would be successful.


ENERGY SUPPLY

Approximately 58%48% of the total kWh we generated in 20192020 was from coal as compared to approximately 58% and 69% in 2019 and 88% in 2018, and 2017, respectively. Our existing coal contracts provide for allapproximately 96% of our current projected requirements in 20202021 and approximately 57%28% in total for the three-year period ending December 31, 2022.2023. We have long-term coal contracts with fourtwo suppliers. Approximately 33% of our existing coal under contract for the three-year period ending December 31, 2022 comes from one supplier. We have one contract with this supplier, which employs non-unionized labor, for the provision of coal from three separate mines.

Historically, we used coal as a fuel source at the Petersburg, Harding Street and Eagle Valley stations. However, the Harding Street station unit 7 conversion from coal to natural gas was completed in the second quarter of 2016 and the coal-fired units at Eagle Valley were retired in April 2016, and, as a result, we no longer burn coal at Harding Street or Eagle Valley. In addition, we plan to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 by 2023 (for further discussion, see Note 2,
“Regulatory Matters - IRP Filing”).

Pricing provisions in some of our long-term coal contracts allow for price changes under certain circumstances. Substantially all of our coal is currently mined in the state of Indiana, and all of our coal supply is mined by unaffiliated suppliers or third parties. Our goal is to carry a 25-50 day system supply of coal to offset unforeseen occurrences such as equipment breakdowns and transportation or mine delays. Our present inventory is within our target range.



Natural gas and fuel oil provided the remaining kWh generation in 2019.2020. Natural gas is used in our steam boiler units at Harding Street Station, (Units 5 and 6 beginning in December 2015 and Unit 7 beginning in the second quarter of 2016), our CCGT at Eagle Valley and combustion turbines. IPL sources natural gas from the wholesale market delivered to our plants by interstate pipeline and local distribution companies. IPL holds firm pipeline transportation commitments on Texas Gas Transmission interstate pipeline and has firm redelivery contracts with the local distribution companies that serve IPL plants. IPL has established physical natural gas hedges for firm supply of approximately 50%96% of the expected consumption at Eagle Valley during the 20202021 winter period.period, which price off the daily natural gas index for the respective physical hubs. We do not maintain a natural gas inventory; however, our experience has been that natural gas is readily available at liquid supply points on interstate pipelines, and we expect this availability to continue in the future. Fuel oil is used for start-up and flame stabilization in coal-fired generating units, as primary fuel in two older combustion turbines, and as an alternate fuel in two other combustion turbines. 

As a result of the completion of the CCGT at the Eagle Valley Station in April 2018, the Harding Street Station refueling projects and the retirement of coal-fired units at Eagle Valley in the second quarter of 2016, we have experienced and expect to continue experiencing an increase in the percentage of generation from natural gas. The generation fuel mix from coal and natural gas will continue to change as the relative prices of the commodities change. Currently, approximately 58%52% of the total kWh we generate is from coalnatural gas and approximately 42%48% is from natural gas.coal.

Additionally, we meet the electricity demands of our retail customers with energy purchased under power purchase agreements and by purchases in MISO. We are committed under long-term power purchase agreements to purchase all energy from two wind projects that have a combined maximum output capacity of 300 MW. We have 96.4 MW of solar-generated electricity in our service territory under long-term contracts, of which 95.9 MW was in operation as of December 31, 2019.2020. We also purchase up to 8 MW of energy from a combined heat and power facility located in Indianapolis, Indiana. 

Total electricity sold to our retail customers in 20192020 came from the following sources: 49.6%46.5% from IPL-owned natural gas-fired units, 37.8% from IPL-owned coal-fired steam generation, 40.2% from IPL-owned natural gas-fired units, and 10.2%15.7% from power purchased under power purchase agreements (primarily wind and solar) and from the wholesale power market.




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STATISTICAL INFORMATION ON OPERATIONS

The following table of statistical information presents additional data on our operations:
 Years Ended December 31,
 20202019201820172016
Revenues (In Thousands):
     
Residential$575,329 $597,809 $592,625 $541,055 $532,564 
Small commercial and industrial194,904 215,878 217,896 205,473 208,928 
Large commercial and industrial500,208 564,216 565,720 561,194 557,491 
Public lighting9,257 7,335 9,797 9,906 10,023 
Other(1)
14,402 14,136 10,427 9,967 8,610 
Retail electric revenues1,294,100 1,399,374 1,396,465 1,327,595 1,317,616 
Wholesale46,482 68,474 38,789 8,574 15,804 
Miscellaneous12,403 13,795 15,251 13,419 14,010 
Total revenues$1,352,985 $1,481,643 $1,450,505 $1,349,588 $1,347,430 
kWh Sales (In Millions):
     
Residential5,115 5,200 5,335 4,915 5,152 
Small commercial and industrial1,709 1,840 1,907 1,800 1,850 
Large commercial and industrial5,839 6,283 6,558 6,448 6,620 
Public lighting30 42 51 53 57 
Sales – retail customers12,693 13,365 13,851 13,216 13,679 
Wholesale1,866 2,718 1,241 268 507 
Total kWh sold14,559 16,083 15,092 13,484 14,186 
Retail Customers at End of Year:     
Residential451,735 448,210 443,184 439,741 435,622 
Small commercial and industrial54,253 53,751 49,239 48,684 48,204 
Large commercial and industrial4,567 4,635 4,680 4,705 4,763 
Public lighting986 980 976 959 955 
Total retail customers511,541 507,576 498,079 494,089 489,544 
  Years Ended December 31,
  2019 2018 2017 2016 2015
Revenues (In Thousands):
  
  
  
  
  
Residential $611,945
 $599,037
 $551,022
 $541,174
 $488,582
Small commercial and industrial 221,150
 219,175
 205,473
 208,928
 192,232
Large commercial and industrial 556,383
 568,408
 561,194
 557,491
 526,461
Public lighting 9,896
 9,845
 9,906
 10,023
 10,823
Retail electric revenues 1,399,374
 1,396,465
 1,327,595
 1,317,616
 1,218,098
Wholesale 68,474
 38,789
 8,574
 15,804
 19,307
Miscellaneous 13,795
 15,251
 13,419
 14,010
 12,994
Total revenues $1,481,643
 $1,450,505
 $1,349,588
 $1,347,430
 $1,250,399
kWh Sales (In Millions):
  
  
  
  
  
Residential 5,200
 5,335
 4,915
 5,152
 5,062
Small commercial and industrial 1,840
 1,907
 1,800
 1,850
 1,837
Large commercial and industrial 6,283
 6,558
 6,448
 6,620
 6,757
Public lighting 42
 51
 53
 57
 53
Sales – retail customers 13,365
 13,851
 13,216
 13,679
 13,709
Wholesale 2,718
 1,241
 268
 507
 689
Total kWh sold 16,083
 15,092
 13,484
 14,186
 14,398
Retail Customers at End of Year:  
  
  
  
  
Residential 448,210
 443,184
 439,741
 435,622
 431,182
Small commercial and industrial 53,751
 49,239
 48,684
 48,204
 47,919
Large commercial and industrial 4,635
 4,680
 4,705
 4,763
 4,737
Public lighting 980
 976
 959
 955
 953
Total retail customers 507,576
 498,079
 494,089
 489,544
 484,791
           
(1) Other retail revenue includes miscellaneous charges to customers.

HOW TO CONTACT IPALCO AND SOURCES OF OTHER INFORMATION

Our principal executive offices are located at One Monument Circle, Indianapolis, Indiana 46204, and our telephone number is (317) 261-8261. Our website address is www.iplpower.com. The information on our website is not incorporated by reference into this report. The SEC maintains an internet website that contains this report and other information that we file electronically with the SEC at www.sec.gov.

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ITEM 1A. RISK FACTORS

Investors should consider carefully the following risk factors that could cause our business, operating results and financial condition to be materially adversely affected. We routinely encounter and address risks, some of which may cause our future results to be materially different than we presently anticipate. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our business or financial performance. The categories of risk we have identified in "Item 1A. Risk Factors" include risks associated with our operations, governmental regulation and laws, our indebtedness and financial condition. These risk factors should be read in conjunction with the other detailed information concerning IPALCO and IPL set forth in the Notes to the Financial Statements and in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein. The risks and uncertainties described below are not the only ones we face.


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RISKS ASSOCIATED WITH OUR OPERATIONS

Our electric generating facilities are subject to operational risks that could result in unscheduled plant outages, unanticipated operation and/or maintenance expenses, increased fuel or purchased power costs and other significant liabilities for which we may not have adequate insurance coverage.

We operate coal, oil and natural gas generating facilities, which involve certain risks that can adversely affect energy costs, output and efficiency levels. These risks include:

•unit or facility shutdowns due to a breakdown or failure of equipment or processes;
•increased prices for fuel and fuel transportation as existing contracts expire or as such contracts are adjusted through price re-opener provisions or automatic adjustments;  
•disruptions in the availability or delivery of fuel and lack of adequate inventories;
•shortages of or delays in obtaining equipment;
•loss of cost-effective disposal options for solid waste generated by the facilities;
•accidents and injuries;
•reliability of our suppliers;
•inability to comply with regulatory or permit requirements;
•operational restrictions resulting from environmental or permit limitations or governmental interventions;
•construction delays and cost overruns;
•disruptions in the delivery of electricity;
•labor disputes or work stoppages by employees;
•the availability of qualified personnel;
•events occurring on third party systems that interconnect to and affect our system;
•operator error; and
•catastrophic events.

The above risks could result in unscheduled plant outages, unanticipated operation and/or maintenance expenses, increased capital expenditures and/or increased fuel and purchased power costs, any of which could have a material adverse effect on our results of operations, financial condition and cash flows. These risks are partially mitigated by IPL'sour ability to generally pass fuel and purchased power costs through to customers through the FAC.Fuel Adjustment Charge (“FAC”). If unexpected plant outages occur frequently and/or for extended periods of time, however, this could result in adverse regulatory action.

Additionally, as a result of the above risks and other potential hazards associated with the power generation industry, we may from time to time become exposed to significant liabilities for which we may not have adequate insurance coverage. Power generation involves hazardous activities, including acquiring, transporting and unloading fuel, operating large pieces of rotating equipment and delivering electricity to transmission and distribution systems. The control and management of these risks depend upon adequate development and training of personnel and on the existence of operational procedures, preventative maintenance plans and specific programs supported by quality control systems which reduce, but do not eliminate, the possibility of the occurrence and impact of these risks.

The hazardous activities described above can also cause significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment, contamination of, or damage to, the environment and suspension of operations. The occurrence of any one of these events may result in ourus being named as a defendant in lawsuits asserting claims for substantial damages, environmental cleanup costs, personal injury and fines and/or penalties. We maintain an amount of insurance protection that we believe is adequate, but there can be no assurance that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. A successful claim for which we are not fully insured could adversely affect our results of operations, financial condition and cash flows. In addition, except for IPL’sour large substations, transmission and distribution assets are not covered by insurance and are considered to be outside the scope of


property insurance. Further, due to rising insurance costs and changes in the insurance markets, we cannot provide assurance that insurance coverage will continue to be available on terms similar to those presently available to us or at all. Any such losses not covered by insurance could have a material adverse effect on our financial condition, results of operations and cash flows.


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The current outbreak of the novel coronavirus, or COVID-19, has adversely affected, and it or the future outbreak of any other highly infectious or contagious diseases could materially and adversely affect, our generation facilities, transmission and distribution systems, results of operations, financial condition and cash flows. Further, the spread of the COVID-19 outbreak has caused disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of an as yet unknown magnitude and duration.

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 150 countries, including every state in the U.S. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the U.S. declared a national emergency with respect to COVID-19.

The outbreak of COVID-19 has impacted global economic activity, caused significant volatility and negative pressure in financial markets and reduced the demand for energy in our service territory. In addition to reduced revenues and lower margins resulting from decreased energy demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, including expenses relating to events outside of our control. The global impact of the outbreak has been rapidly evolving and many countries, including the U.S., have reacted by instituting quarantines, mandating business and school closures as well as restricting travel. In addition to triggering a period of global economic slowdown or a global recession, COVID-19 or another pandemic could have material and adverse effects on our results of operations, financial condition and cash flows due to, among other factors:

•further decline in customer demand as a result of general decline in business activity;
•further destabilization of the markets and decline in business activity negatively impacting our customer growth or the number of customers in our service territory as well as our customers’ ability to pay for our services when due (or at all);
•delay or inability in obtaining regulatory actions and outcomes that could be material to our business, including for recovery of COVID-19 related expenses and losses, such as uncollectible customer amounts, and the review and approval of our applications, rates and charges by the IURC;
•difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis;
•negative impacts on the health of our essential personnel, especially if a significant number of them are affected, and on our operations as a result of implementing stay-at-home, quarantine and other social distancing measures;
•a deterioration in our ability to ensure business continuity during a disruption, including increased cybersecurity attacks related to the work-from-home environment;
•delays or inability to access, transport and deliver fuel or other materials to our facilities due to restrictions on business operations or other factors affecting us and our third-party suppliers;
•the inability to hedge the entire exposure of our operations from availability and cost of fuel and other commodities that experience significant volatility;
•delays or inability to access equipment or the availability of personnel to perform planned and unplanned maintenance, which can, in turn, lead to disruption in operations;
•delays or inability in achieving our financial goals, growth strategy and digital transformation; and
•delays in the implementation of expected rules and regulations.

We continue to review and modify our plans as conditions change. Despite our efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of this outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.

COVID-19 continues to present material uncertainty which could materially and adversely affect our generation facilities, transmission and distribution systems, results of operations, financial condition and cash flows. To the extent COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.


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We may be negatively affected by a lack of growth or a decline in the number of customers or in customer usage.

Customer growth and customer usage are affected by a number of factors outside our control, such as energy efficiency and DSM measures, population changes, job and income growth, housing starts, new business formation and the overall level of economic activity. A lack of growth, or a decline, in the number of customers in our service territory or in customer demand for electricity could have a material adverse effect on our results of operations, financial condition and cash flows and may cause us to fail to fully realize anticipated benefits from investments and expenditures.

The availability and cost of fuel and other commodities have experienced and could continue to experience significant volatility and we may not be able to hedge the entire exposure of our operations from availability and price volatility. In addition, a significant amount of our electricity is generated by coal.

Our business is sensitive to changes in the price of coal, natural gas, purchased power and emissions allowances. In addition, changes in the prices of steel, copper and other raw materials can have a significant impact on our costs. We also are dependent on purchased power, in part, to meet our seasonal planning reserve margins. Any changes in fuel prices could affect the prices we charge, our operating costs and our competitive position with respect to our products and services.

Our exposure to fluctuations in the price of fuel is limited because, pursuant to Indiana law, we may apply to the IURC for a change in our FAC every three months to recover our estimated fuel costs, which may be above or below the levels included in our basic rates and charges. In addition, we may generally recover the energy portion of our purchased power costs in these quarterly FAC proceedings subject to a benchmark (please see Note 2, “Regulatory Matters – FAC and Authorized Annual Jurisdictional Net Operating Income” to the Financial Statements for additional details regarding the benchmark and the process to recover fuel costs). As part of this cost-recovery process, we must present evidence in each proceeding that we have made every reasonable effort to acquire fuel and generate or purchase power or both so as to provide electricity to our retail customers at the lowest fuel cost reasonably possible. If we are unable to timely or fully recover our fuel and purchased power costs, it could have a material adverse effect on our results of operations, financial condition and cash flows.  

Approximately 48% of the energy we produced in 2020 was generated by coal as compared to approximately 58% and 69% in 2019 and 2018, respectively. While we have approximately 28% in total of our current coal requirements for the three-year period ending December 31, 2023 under long-term contracts as of the date of this report, the balance is yet to be purchased and will be purchased under a combination of long-term contracts, short-term contracts and on the spot market. Prices can be highly volatile in both the short-term market and on the spot market. The coal market has experienced significant price volatility in the last several years. We are now in a global market for coal in which our domestic price is increasingly affected by international supply disruptions and demand balance. Coal exports from the U.S. have increased significantly at times in recent years. In addition, domestic developments such as government-imposed direct costs and permitting issues that affect mining costs and supply availability, and the variable demand of retail customer load and the performance of our generation fleet have an impact on our fuel procurement operations. In addition, pricing provisions in some of our coal contracts with terms of one year or more allow for price changes under certain circumstances.

Because of our dependence on coal to meet customer demand for electricity, our business and operations could be materially adversely affected by unexpected price volatility in the coal market, price increases pursuant to the provisions of certain of our long-term coal contracts, and the continued regulatory and political scrutiny of coal. As discussed below, regulators, politicians and non-governmental organizations have expressed concern about GHG emissions and are taking actions which, in addition to the potential physical risk associated with climate change, could have a material adverse impact on our results of operations, financial condition and cash flows. Our dependence on coal also means that the output of our coal-fired generation units can be greatly affected by the costs of other fuels combusted by generation facilities that compete with our coal-fired generation units. Natural gas prices over the last several years have been relatively low and some gas-fired generators that previously were primarily used during periods of peak and intermediate electric demand have run even during periods of relatively low demand. This has caused many coal-fired generators, including ours, to run fewer hours during these periods of base-load demand.

In addition, substantially all of our coal supply is currently mined in the state of Indiana, and all of our coal supply is currently mined by unaffiliated suppliers or third parties. Our current goal is to carry a 25-50 day system supply of
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coal to offset unforeseen occurrences such as equipment breakdowns and transportation or mine delays. IPL has long-term contracts with two suppliers. In recent years, the coal industry has undergone significant restructuring as a result of debt restructurings, bankruptcy proceedings and other factors. Further restructuring may result in a failure of our suppliers to fulfill their contractual obligations or fewer suppliers and, consequently, increased dependency on any one supplier. Any significant disruption in the ability of our suppliers, particularly our most significant suppliers, to mine or deliver coal or other fuel, or any failure on the part of our suppliers to fulfill their contractual obligations could have a material adverse effect on our business. In the event of disruptions or failures, there can be no assurance that we would be able to purchase power or find another supplier of fuel on similarly favorable terms, which could also limit our ability to recover fuel costs through the FAC proceedings.

Catastrophic events could adversely affect our facilities, systems and operations.

Catastrophic events such as fires, explosions, cyber-attacks, 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 could adversely affect our generation facilities, transmission and distribution systems, results of operations, financial condition and cash flows. Our Petersburg Plant, which is our largest source of generating capacity, is located in the Wabash Valley seismic zone, adjacent to the New Madrid seismic zone, which are both areas of significant seismic activity in the central U.S.

Our business is sensitive to weather and seasonal variations.

Weather conditions significantly affect the demand for electric power, and accordingly, our business is affected by variations in general weather conditions and unusually severe weather. As a result of these factors, our operating revenues and associated operating expenses are not generated evenly by month during the year. We forecast electric sales on the basis of normal weather, which represents a long-term historical average. Significant variations from normal weather (such as warmer winters and cooler summers) could have a material impact on our revenue, operating income and net income and cash flows. In addition, severe or unusual weather, such as floods, tornadoes and ice or snow storms, may cause outages and property damage that may require us to incur additional costs that may not be insured or recoverable from customers. While we are permitted to seek recovery of certain severe storm damage costs, if we are unable to fully recover such costs in a timely manner, it could have a material adverse effect on our results of operations, financial condition and cash flows.

Our membership in a regional transmission organization presents risks that could have a material adverse effect on our results of operations, financial condition and cash flows.

We are a member of MISO, a FERC-regulated regional transmission organization. MISO serves the electrical transmission needs of a 15-state area including much of the Mid-U.S. and Canada and maintains functional operational control over our electric transmission facilities, as well as that of the other utility members of MISO. We retain control over our distribution facilities. As a result of membership in MISO and its operational control, our continued ability to import power, when necessary, and export power to the wholesale market has been, and may continue to be, impacted. We offer our generation and bid our load into this market on a day-ahead basis and settle differences in real time. Given the nature of MISO’s policies regarding use of transmission facilities, and its administration of the energy and ancillary services markets, it is difficult to predict near-term operational impacts. We cannot assure MISO’s reliable operation of the regional transmission system, or the impact of its operation of the energy and ancillary services markets.

The rules governing the various regional power markets may also change from time to time which could affect our costs and revenues and have a material adverse effect on our results of operations, financial condition and cash flows. We may expand or otherwise change our transmission system according to decisions made by MISO in addition to our internal planning process. In addition, various proposals and proceedings before the FERC relating to MISO or otherwise may cause transmission rates to change from time to time. We also incur fees and costs to participate in MISO.

To the extent that we rely, at least in part, on the performance of MISO to maintain the reliability of our transmission system, it puts us at some risk for the performance of MISO. In addition, actions taken by MISO to secure the reliable operation of the entire transmission system operated by MISO could result in voltage reductions, rolling blackouts, or sustained system-wide blackouts on IPL’s transmission and distribution system, any of which could have a material adverse effect on our results of operations, financial condition and cash flows. See also “Item 1. Business - MISO Operations and“Item 1. Business - Regulation – Retail Ratemaking.”
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Our transmission and distribution system is subject to operational, reliability and capacity risks.

The ongoing reliable performance of our transmission and distribution system is subject to risks due to, among other things, weather damage, intentional or unintentional damage, equipment or process failure, catastrophic events, such as fires and/or explosions, facility outages, labor disputes, accidents or injuries, operator error, or inoperability of key infrastructure internal or external to us and events occurring on third party systems that interconnect to and affect our system. The failure of our transmission and distribution system to fully operate and deliver the energy demanded by customers could have a material adverse effect on our results of operations, financial condition and cash flows, and if such failures occur frequently and/or for extended periods of time, could result in adverse regulatory action. In addition, the advent and quick adaptation of new products and services that require increased levels of electrical energy cannot be predicted and could result in insufficient transmission and distribution system capacity. As with all utilities, potential concern with the adequacy of transmission capacity on IPL’s system or the regional systems operated by MISO could result in MISO, the NERC, the FERC or the IURC requiring us to upgrade or expand our transmission system through additional capital expenditures or share in the costs of regional expansion. Also, as a result of the above risks and other potential risks and hazards associated with transmission and distribution operations, we may from time to time become exposed to significant liabilities for which we may not have adequate insurance coverage. Except for IPL’s large substations, transmission and distribution assets are not covered by insurance and are considered to be outside the scope of property insurance. Otherwise, we maintain an amount of insurance protection that we believe is adequate, but there can be no assurance that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. Further, any increased costs or adverse changes in the insurance markets may cause delays or inability in maintaining insurance coverage on terms similar to those presently available to us or at all. A successful claim for which we are not fully insured could have an adverse impact on our results of operations, financial condition and cash flows.

Current and future conditions in the economy may adversely affect our customers, suppliers and other counterparties, which may adversely affect our results ofoperations, financial conditionand cash flows.

Our business, results of operations, financial condition and cash flows have been and will continue to be affected by general economic conditions. Slowing economic growth, credit market conditions, fluctuating consumer and business confidence, fluctuating commodity prices, and other challenges affecting the general economy, have caused and may continue to cause some of our customers to experience deterioration of their businesses, cash flow shortages, and difficulty obtaining financing. As a result, existing customers may reduce their electricity consumption and may not be able to fulfill their payment obligations to us in the normal, timely fashion. In addition, some existing commercial and industrial customers may discontinue their operations. Sustained downturns, recessions or a sluggish economy generally affect the markets in which we operate and negatively influence our energy operations. A contracting, slow or sluggish economy could reduce the demand for energy in areas in which we are doing business. For example, during economic downturns, our commercial and industrial customers may see a decrease in demand for their products, which in turn may lead to a decrease in the amount of energy they require. Furthermore, projects which may result in potential new customers may be delayed until economic conditions improve. Some of our suppliers, customers and other counterparties, and others with whom we transact business experience financial difficulties, which may impact their ability to fulfill their obligations to us. For example, our counterparties on forward purchase contracts and financial institutions involved in our credit facility may become unable to fulfill their contractual obligations to us or result in their declaring bankruptcy or similar insolvency-like proceedings. We may not be able to enter into replacement agreements on terms as favorable as our existing agreements. Reduced demand for our electric services, failure by our customers to timely remit full payment owed to us and supply delays or unavailability could have a material adverse effect on our results of operations, financial condition and cash flows. In particular, the projected economic growth and total employment in Indianapolis are important to the realization of our forecasts for annual energy sales.

Economic conditions relating to the asset performance and interest rates of the Pension Planscould materially and adversely impact our results of operations, financial condition and cashflows.

Pension costs are based upon a number of actuarial assumptions, including an expected long-term rate of return on pension plan assets, level of employer contributions, the expected life span of pension plan beneficiaries and the discount rate used to determine the present value of future pension obligations. Any of these assumptions could prove to be wrong, resulting in a shortfall of our Pension Plans’ assets compared to pension obligations under the Pension Plans. Further, the performance of the capital markets affects the values of the assets that are held in trust
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to satisfy future obligations under the Pension Plans. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below our projected return rates. A decline in the market value of the Pension Plans’ assets will increase the funding requirements under the Pension Plans if the actual asset returns do not recover these declines in value in the foreseeable future. Future pension funding requirements, and the timing of funding payments, may also be subject to changes in legislation. We are responsible for funding any shortfall of our Pension Plans’ assets compared to obligations under the Pension Plans, and a significant increase in our pension liabilities could materially and adversely impact our results of operations, financial condition, and cash flows. We are subject to the Pension Protection Act of 2006, which requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, our required contributions to these plans, at times, have increased and may increase in the future. In addition, our pension and postemployment benefit plan liabilities are sensitive to changes in interest rates. As interest rates decrease, the discounted liabilities increase benefit expense and funding requirements. Further, changes in demographics, including increased numbers of retirements or changes in life expectancy assumptions, may also increase the funding requirements for the obligations related to the pension and other postemployment benefit plans. Declines in market values and increased funding requirements could have a material adverse effect on our results of operations, financial condition and cash flows. Please see Note 9, “Benefit Plans” to the Financial Statements included in this Form 10-K for further discussion.

Counterparties providing materials or services may fail to perform their obligations, which could harmour results ofoperations, financial conditionand cash flows.

We enter into transactions with and rely on many counterparties in connection with our business, including for the purchase and delivery of inventory, including fuel and equipment components, for our capital improvements and additions and to provide professional services, such as actuarial calculations, payroll processing and various consulting services. If any of these counterparties fails to perform its obligations to us or becomes unavailable, our business plans may be materially disrupted, we may be forced to discontinue or delay certain operations if a cost-effective alternative is not readily available or we may be forced to enter into alternative arrangements at then-current market prices that may exceed our contractual prices and cause delays. Although our agreements are designed to mitigate the consequences of a potential default by the counterparty, our actual exposure may be greater than the relief provided by these mitigation provisions. Any of the foregoing could result in regulatory actions, cost overruns, delays or other losses, any of which (or a combination of which) could have a material adverse effect on our results of operations, financial condition and cash flows.

Further, our construction program calls for extensive expenditures for capital improvements and additions, including the installation of environmental upgrades, improvements to and replacements of generation, transmission and distribution facilities, as well as other initiatives. As a result, we have engaged, and will continue to engage, numerous contractors and have entered into a number of agreements to acquire the necessary materials and/or obtain the required construction related services. In addition, some contracts provide for us to assume the risk of price escalation and availability of certain metals and key components. This could force us to enter into alternative arrangements at then-current market prices that may exceed our contractual prices and cause construction delays. It could also subject us to enforcement action by regulatory authorities to the extent that such a contractor failure resulted in a failure by IPL to comply with requirements or expectations, particularly with regard to the cost of the project. As a result of these events, we might incur losses or delays in completing construction.

Accidental improprieties and undetected errors in our internal controls and information reporting could result in the disallowance of cost recovery, noncompliant disclosure or incorrect payment processing.

Our internal controls, accounting policies and practices and internal information systems are designed to enable us to capture and process transactions and information in a timely and accurate manner in compliance with GAAP, laws and regulations, taxation requirements and federal securities laws and regulations in order to, among other things, disclose and report financial and other information in connection with the recovery of our costs and with our reporting requirements under federal securities, tax and other laws and regulations and to properly process payments. We have also implemented corporate governance, internal control and accounting policies and procedures in connection with the Sarbanes-Oxley Act of 2002. Our internal controls and policies have been and continue to be closely monitored by management and our Board of Directors. While we believe these controls, policies, practices and systems are adequate to verify data integrity, unanticipated and unauthorized actions of employees, temporary lapses in internal controls due to shortfalls in oversight or resource constraints could lead to improprieties and undetected errors that could result in the disallowance of cost recovery, noncompliant disclosure
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and reporting or incorrect payment processing. The consequences of these events could have a material adverse effect on our results of operations, financial condition and cash flows.

If we are unable to maintain a qualified and properly motivated workforce, it could have a material adverse effect on our results of operations, financial condition and cash flows.

One of the challenges we face is to retain a skilled, efficient and cost-effective workforce while recruiting new talent to replace losses in knowledge and skills due to resignations, terminations or retirements. This undertaking could require us to make additional financial commitments and incur increased costs. If we are unable to successfully attract and retain an appropriately qualified workforce, it could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, we have employee compensation plans that reward the performance of our employees. We seek to ensure that our compensation plans encourage acceptable levels for risk and high performance through pay mix, performance metrics and timing. We also have policies and procedures in place to mitigate potential excessive risk-taking by employees to achieve performance targets which could result in events that could have a material adverse effect on our results of operations, financial condition and cash flows.

We are subject to collective bargaining agreements that could adversely affect our business,results ofoperations, financial conditionand cash flows.

We are subject to collective bargaining agreements with employees who are members of a union. Approximately 69% of our employees are represented by a union in two bargaining units: a physical unit and a clerical-technical unit. While we believe that we maintain a satisfactory relationship with our employees, it is possible that labor disruptions affecting some or all of our operations could occur during the period of the collective bargaining agreements or at the expiration of the collective bargaining agreements before new agreements are negotiated. We may not be able to successfully train new personnel as current workers with significant knowledge and expertise retire. We also may be unable to staff our business with qualified personnel in the event of significant absenteeism related to a pandemic illness. Work stoppages by, or poor relations or ineffective negotiations with, our employees or other workforce issues could have a material adverse effect on our results of operations, financial condition and cash flows.

The use of non-derivative and derivative instruments in the normal course of business could result in losses that could negatively impact our results of operations, financial position and cash flows.

We sometimes use non-derivative and derivative instruments, such as swaps, options, futures and forwards, to manage commodity and financial risks. We may at times enter into forward contracts to hedge the risk of volatility in earnings from wholesale marketing activities. These trades are affected by a range of factors, including variations in power demand, fluctuations in market prices, market prices for alternative commodities and optimization opportunities. We have attempted to manage our commodities price risk exposure by establishing and enforcing risk limits and risk management policies. Despite our efforts, however, these risk limits and management policies may not work as planned and fluctuating prices and other events could adversely affect our results of operations, financial condition and cash flows. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these instruments can involve management’s judgment or the use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of some of these contracts. We could also recognize financial losses as a result of volatility in the market values of these contracts, a counterparty failing to perform, or the underlying transactions which the instruments are intended to hedge failing to materialize, which could result in a material adverse effect on our results of operations, financial condition and cash flows.

Potential security breaches (including cyber-security breaches) and terrorism risks could adversely affect our businesses.

We operate in a highly regulated industry that requires the continued operation of sophisticated systems and network infrastructure at our generation stations, fuel storage facilities and transmission and distribution facilities. We also use various financial, accounting and other systems in our businesses. These systems and facilities are vulnerable to unauthorized access due to hacking, viruses, other cyber-security attacks and other causes. In particular, given the importance of energy and the electric grid, there is the possibility that our systems and facilities could be targets of terrorism or acts of war. We have implemented measures to help prevent unauthorized access to our systems and facilities, including network and system monitoring, identification and deployment of secure technologies, and certain other measures to comply with mandatory regulatory reliability
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standards. Pursuant to NERC requirements, we have a robust cyber-security plan in place and are subject to regular audits by an independent auditor approved by NERC. We routinely test our systems and facilities against these regulatory requirements in order to measure compliance, assess potential security risks, and identify areas for improvement. In addition, we provide cyber-security training for our employees and perform exercises designed to raise employee awareness of cyber risks on a regular basis. To date, cyber-attacks on our business and operations have not had a material impact on our operations or financial results. Despite our efforts, if our systems or facilities were to be breached or disabled, we may be unable to recover them in a timely manner to fulfill critical business functions, including the supply of electric services to our customers, and we could experience decreases in revenues and increases in costs that could adversely affect our results of operations, cash flows and financial condition.

In the course of our business, we also store and use customer, employee, and other personal information and other confidential and sensitive information, including personally identifiable information and personal financial information. If our or our third-party vendors’ systems were to be breached or disabled, sensitive and confidential information and other data could be compromised, which could result in negative publicity, remediation costs and potential litigation, damages, consent orders, injunctions, fines and other relief.

To help mitigate these risks, we maintain insurance coverage against some, but not all, potential losses, including coverage for illegal acts against us. However, insurance may not be adequate to protect us against all costs and liabilities associated with these risks.

RISKS ASSOCIATED WITH GOVERNMENTAL REGULATION AND LAWS

We may not always be able to recover our costs to deliver electricity to our retail customers. The costs we can recover and the return on capital we are permitted to earn for certain aspects of our business are regulated and governed by the laws of Indiana and the rules, policies and procedures of the IURC.

We are currently obligated to supply electric energy to retail customers in our service territory. Even though rate regulation is premised on full recovery of prudently incurred costs and a reasonable rate of return on invested capital, there can be no assurance that the IURC will agree that all of our costs have been prudently incurred or are recoverable. There also is no assurance that the regulatory process in which rates are determined will always result in rates that will produce a full or timely recovery of our costs and authorized return. From time to time, the demand for electric energy required to meet our service obligations could exceed our available electric generating capacity. When our retail customer demand exceeds our generating capacity for units operating under MISO economic dispatch, recovery of our cost to purchase electric energy in the MISO market to meet that demand is subject to a stipulation and settlement agreement. The agreement includes a benchmark which compares hourly purchased power costs to daily natural gas prices. Purchased power costs above the benchmark must meet certain criteria in order for us to fully recover them from our retail customers, such as consideration of the capacity of units available but not selected by the MISO economic dispatch. We may not always have the ability to pass all of the purchased power costs on to our customers, and even if we are able to do so, there may be a significant delay between the time the costs are incurred and the time the costs are recovered. Since these situations most often occur during periods of peak demand, the market price for electric energy at the time we purchase it could be very high, and we may not be allowed to recover all of such costs through our FAC. Even if a supply shortage were brief, we could suffer substantial losses that could adversely affect our results of operations, financial condition and cash flows.

Changes in, or reinterpretations of, the laws, rules, policies and procedures that set electric rates, permitted rates of return, changes in IPL’s rate structure, regulations regarding ownership of generation assets and electric service, the supply of generation, reliability initiatives, fuel and purchased power (which account for a substantial portion of our operating costs), capital expenditures and investments and the recovery of these and other costs on a full or timely basis through rates, power market prices and changes to the frequency and timing of rate increases could have a material adverse effect on our results of operations, financial condition and cash flows.

We may be negatively affected by a lack of growth or a decline in the number of customers or in customer usage.

Customer growth and customer usage are affected by a number of factors outside our control, such as energy efficiency and DSM measures, population changes, job and income growth, housing starts, new business formation and the overall level of economic activity. A lack of growth, or a decline, in the number of customers in our service territory or in customer demand for electricity could have a material adverse effect on our results of operations, financial condition and cash flows and may cause us to fail to fully realize anticipated benefits from investments and expenditures.

The availability and cost of fuel and other commodities have experienced and could continue to experience significant volatility and we may not be able to hedge the entire exposure of our operations from availability and price volatility. In addition, a significant amount of our electricity is generated by coal and a substantial amount of our coal supply comes from one supplier.

Our business is sensitive to changes in the price of coal, natural gas, purchased power and emissions allowances. In addition, changes in the prices of steel, copper and other raw materials can have a significant impact on our costs. We also are dependent on purchased power, in part, to meet our seasonal planning reserve margins. Any changes in fuel prices could affect the prices we charge, our operating costs and our competitive position with respect to our products and services.

Our exposure to fluctuations in the price of fuel is limited because, pursuant to Indiana law, we may apply to the IURC for a change in our FAC every three months to recover our estimated fuel costs, which may be above or below the levels included in our basic rates and charges. In addition, we may generally recover the energy portion of our purchased power costs in these quarterly FAC proceedings subject to a benchmark (please see Note


2, “Regulatory Matters – FAC and Authorized Annual Jurisdictional Net Operating Income” to the Financial Statements for additional details regarding the benchmark and the process to recover fuel costs). As part of this cost-recovery process, we must present evidence in each proceeding that we have made every reasonable effort to acquire fuel and generate or purchase power or both so as to provide electricity to our retail customers at the lowest fuel cost reasonably possible. If we are unable to timely or fully recover our fuel and purchased power costs, it could have a material adverse effect on our results of operations, financial condition and cash flows.  

Approximately 58% of the energy we produced in 2019 was generated by coal as compared to approximately 69% and 88% in 2018 and 2017, respectively. While we have approximately 57% in total of our current coal requirements for the three-year period ending December 31, 2022 under long-term contracts as of the date of this report, the balance is yet to be purchased and will be purchased under a combination of long-term contracts, short-term contracts and on the spot market. Prices can be highly volatile in both the short-term market and on the spot market. The coal market has experienced significant price volatility in the last several years. We are now in a global market for coal in which our domestic price is increasingly affected by international supply disruptions and demand balance. Coal exports from the U.S. have increased significantly at times in recent years. In addition, domestic developments such as government-imposed direct costs and permitting issues that affect mining costs and supply availability, and the variable demand of retail customer load and the performance of our generation fleet have an impact on our fuel procurement operations. In addition, pricing provisions in some of our coal contracts with terms of one year or more allow for price changes under certain circumstances.

Because of our dependence on coal to meet customer demand for electricity, our business and operations could be materially adversely affected by unexpected price volatility in the coal market, price increases pursuant to the provisions of certain of our long-term coal contracts, and the continued regulatory and political scrutiny of coal. As discussed below, regulators, politicians and non-governmental organizations have expressed concern about GHG emissions and are taking actions which, in addition to the potential physical risk associated with climate change, could have a material adverse impact on our results of operations, financial condition and cash flows. Our dependence on coal also means that the output of our coal-fired generation units can be greatly affected by the costs of other fuels combusted by generation facilities that compete with our coal-fired generation units. Natural gas prices over the last several years have been relatively low and some gas-fired generators that previously were primarily used during periods of peak and intermediate electric demand have run even during periods of relatively low demand. This has caused many coal-fired generators, including ours, to run fewer hours during these periods of base-load demand.

In addition, substantially all of our coal supply is currently mined in the state of Indiana, and all of our coal supply is currently mined by unaffiliated suppliers or third parties. Our current goal is to carry a 25-50 day system supply of coal to offset unforeseen occurrences such as equipment breakdowns and transportation or mine delays. IPL has long-term contracts with four suppliers, with about 33% of our existing coal under contract for the three-year period ending December 31, 2022 coming from one supplier. In recent years, the coal industry has undergone significant restructuring as a result of debt restructurings, bankruptcy proceedings and other factors. Further restructuring may result in a failure of our suppliers to fulfill their contractual obligations or fewer suppliers and, consequently, increased dependency on any one supplier. Any significant disruption in the ability of our suppliers, particularly our most significant suppliers, to mine or deliver coal or other fuel, or any failure on the part of our suppliers to fulfill their contractual obligations could have a material adverse effect on our business. In the event of disruptions or failures, there can be no assurance that we would be able to purchase power or find another supplier of fuel on similarly favorable terms, which could also limit our ability to recover fuel costs through the FAC proceedings.

Catastrophic events could adversely affect our facilities, systems and operations.

Catastrophic events such as fires, explosions, cyber-attacks, 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 could adversely affect our generation facilities, transmission and distribution systems, results of operations, financial condition and cash flows. Our Petersburg Plant, which is our largest source of generating capacity, is located in the Wabash Valley seismic zone, adjacent to the New Madrid seismic zone, which are both areas of significant seismic activity in the central U.S.



Concerns about GHG emissions and the potential risks associated with climate change have led to increased regulation and other actions that could impact our business.

One byproduct of burning coal and other fossil fuels is the emission of GHGs, including CO2. At the federal, state and regional levels, policies are under development or have been developed to regulate GHG emissions. In 2019,2020, IPL emitted approximately 1310 million tons of CO2 from our power plants. IPL uses CO2 emission estimation methodologies supported by “The“The Greenhouse Gas Protocol” reporting standard on GHG emissions. Our CO2
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emissions are determined from emissions monitoring data and calculations using actual fuel heat inputs and fuel type CO2 emission factors.

There currently is no U.S. federal legislation imposing mandatory GHG emission reductions (including for CO2) that affects our electric power generation facilities. However, in 2015, the EPA promulgated a rule establishing NSPS for CO2 emissions for newly constructed and modified/reconstructed fossil-fueled EUSGUs larger than 25 MW. Also in 2015,MW, and the EPA promulgated the CPP, which requires interim reductions by preexisting EUSGUs beginningproposed revisions to this rule in 2022, with full compliance achieved by 2030. These actions have been challengedDecember 2018. In addition, in Court and the current Administration has announced plans to significantly amend or rescind the rules. In 2016,July 2019, the EPA adoptedpublished the final ACE Rule along with associated revisions to implementing regulations, pertaining towhich established CO2 emission rules for existing power plants under CAA Section 111(d) and replaced the EPA's 2015 CPP, although the D.C. Circuit vacated and remanded the ACE Rule in January 2021. In addition, it is likely that there will be increased focus on climate change from a President Biden administration and a Democrat-controlled U.S. Congress, both of which may result in additional legislation and regulations regarding GHG emissions that require new and existing sources of GHG emissions to potentially obtain new source review permits from the EPA prior to construction or modification, but only if such sources also must obtain a new source review permit for increases in other regulated pollutants.emissions.

For further discussion of the regulation of GHG emissions in the U.S., including the U.S. Supreme Court's issued order staying implementation of the CPP, and the EPA's proposal to rescind the CPP, see "Item 1. Business -Environmental Matters - Climate Change Legislation and Regulation."

In December 2015, the Parties to the United Nations Framework Convention on Climate Change convened for the 21st Conference of the Parties and the resulting Paris Agreement established a long-term goal of keeping the increase in global average temperature well below 2°C above pre-industrial levels. We anticipate that the Paris Agreement will continue the trend toward efforts to de-carbonize the global economy. While future participation byAlthough the United States inU.S. was officially able to withdraw from the Paris Agreement remains uncertain, such participation could further limit GHG emissions.on November 4, 2020, on January 20, 2021, President Biden began the 30-day process of rejoining the Paris Agreement, which will become effective for the U.S. on February 19, 2021.

Any existing or future international, federal, state or regional legislation or regulation of GHG emissions could have a material adverse impact on our financial performance. The actual impact on our financial performance will depend on a number of factors, including among others, the degree and timing of GHG emissions reductions required under any such legislation or regulations, the price and availability of offsets, the extent to which market-based compliance options are available, the extent to which we would be entitled to receive GHG emissions allowances without having to purchase them in an auction or on the open market and the impact of such legislation or regulation on our ability to recover costs incurred through rate increases or otherwise. Our cost of compliance could be substantial. Although we would seek recovery of costs associated with new climate change or GHG regulations, our inability to fully or timely recover such costs could have a material adverse effect on our results of operations, financial condition and cash flows. Additionally, concerns over GHG emissions and their effect on the environment have led, and could lead further, to reduced demand for coal-fired power, which could have a material adverse effect on our results of operations, financial condition and cash flows.

Furthermore, according to the Intergovernmental Panel on Climate Change, physical risks from climate change could include, but are not limited to, increased runoff and earlier spring peak discharge in many glacier and snow-fed rivers, warming of lakes and rivers, an increase in sea level, changes and variability in precipitation and in the intensity and frequency of extreme weather events. Physical impacts may have the potential to significantly affect our business and operations. For example, extreme weather events could result in increased downtime and operation and maintenance costs at our electric power generation facilities and our support facilities. Variations in weather conditions, primarily temperature and humidity, would also be expected to affect the energy needs of customers. A decrease in energy consumption could decrease our revenues. In addition, while revenues would be expected to increase if the energy consumption of customers increased, such increase could prompt the need for additional investment in generation capacity. Changes in the temperature of lakes and rivers and changes in precipitation that result in drought could adversely affect the operations of our fossil-fuel fired electric power generation facilities. If any of the foregoing risks materialize, costs may increase or revenues may decrease and there could be a material adverse effect on our results of operations, financial condition and cash flows.

If any of the foregoing risks materialize, costs may increase or revenues may decrease and there could be a material adverse effect on our business and on our consolidated results of operations, financial condition, cash


flows and reputation. Please see “Item 1. Business - Environmental Matters” for additional information of environmental matters impacting us, including those relating to regulation of GHG emissions.


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We are subject to numerous environmental laws, rules and regulations that require capital expenditures, increase our cost of operations, may expose us to environmental liabilities or make continued operation of certain generating units unprofitable.

We are subject to various federal, state, regional and local environmental protection and health and safety laws, rules and regulations governing, among other things, the generation, storage, handling, use, disposal and transportation of regulated materials, including CCR; the use and discharge of water used in generation boilers and for cooling purposes; the emission and discharge of hazardous and other materials into the environment; and the health and safety of our employees. Such laws, rules and regulations can become stricter over time, and we could also become subject to additional environmental laws, rules and regulations and other requirements in the future. Environmental laws, rules and regulations also generally require us to comply with inspections and obtain and comply with a wide variety of environmental licenses, permits, and other governmental authorizations. These laws and regulations often require a lengthy and complex process of obtaining and renewing licenses, permits and other governmental authorizations from federal, state and local agencies. If we are not able to timely comply with inspections and obtain, maintain or comply with all environmental laws, rules and regulations, and all licenses, permits, and other government authorizations required to operate our business, then our operations could be prevented, delayed or subject to additional costs. A violation of environmental laws, rules, regulations, permits or other requirements can result in substantial fines, penalties, other sanctions, permit revocation, facility shutdowns, the imposition of stricter environmental standards and controls or other injunctive measures affecting operating assets. Compliance with these laws, regulations and other requirements requires us to expend significant funds and resources and could at some point become prohibitively expensive or result in our shutting down (temporarily or permanently) or altering the operation of our facilities. Under certain environmental laws, we could also be held responsible for costs relating to contamination at our past or present facilities and at third-party waste disposal sites. We could also be held strictly, jointly and severally liable for human exposure to hazardous substances or for other environmental damage. From time to time we are subject to enforcement and litigation actions for claims of noncompliance with environmental laws, rules and regulations or other environmental requirements. We cannot assure that we will be successful in defending against any claim of noncompliance. Any actual or alleged violation of environmental laws, rules, regulations and other requirements also may require us to expend significant resources to defend against any such alleged violations and expose us to unexpected costs. Our costs and liabilities relating to environmental matters could have a material adverse effect on our results of operations, financial condition and cash flows.

The amount of capital expenditures required to comply with environmental laws or regulations could be impacted by the outcome of the EPA’s NOVs described in Note 10, “Commitments and Contingencies - Environmental Loss Contingencies - New Source Review and other CAA NOVs” to the Financial Statements. These NOVs could also result in fines, which could be material. IPL retired four coal-fired units at Eagle Valley in April 2016, as described in “Item 1. Business - Environmental Matters - Unit Retirements and Replacement Generation.” The primarily coal-fired units that have been retired and/or converted were not equipped with the advanced environmental control technologies needed to comply with existing and expected regulations.

In addition, we are subject to potentially significant remediation expenses, enforcement initiatives, private party lawsuits and reputational risk associated with CCR, which consists of bottom ash, fly ash, and air pollution control wastes generated at our current and former coal-fired generation plant sites. We expect to incur substantial costs to comply with CCR rules and requirements and any changes to theexisting CCR rules or requirements or other new rules or requirements addressing CCR may require us to incur additional costs. Also, we may become subject to CCR-related lawsuits or involved in other CCR-related litigation that may requiresrequire us to incur other costs or expose us to unexpected liabilities, which could be significant. In addition, CCR and its production at our facilities have been the subject of interest from environmental non-governmental organizations and the media. Any of the foregoing could have a material adverse effect on our results of operations, financial condition and cash flows.

Please see “Item 1. Business - Environmental Matters” for additional information of environmental matters impacting us.



The use of non-derivative and derivative instruments in the normal course of business could result in losses that could negatively impact our results of operations, financial position and cash flows.

We sometimes use non-derivative and derivative instruments, such as swaps, options, futures and forwards, to manage commodity and financial risks. We may at times enter into forward contracts to hedge the risk of volatility in earnings from wholesale marketing activities. These trades are affected by a range of factors, including variations in power demand, fluctuations in market prices, market prices for alternative commodities and optimization opportunities. We have attempted to manage our commodities price risk exposure by establishing and enforcing risk limits and risk management policies. Despite our efforts, however, these risk limits and management policies may not work as planned and fluctuating prices and other events could adversely affect our results of operations, financial condition and cash flows. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these instruments can involve management’s judgment or the use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of some of these contracts. We could also recognize financial losses as a result of volatility in the market values of these contracts, a counterparty failing to perform, or the underlying transactions which the instruments are intended to hedge failing to materialize, which could result in a material adverse effect on our results of operations, financial condition and cash flows.

The Dodd-Frank Act contains significant requirements related to derivatives that, among other things, could reduce the cost effectiveness of entering into derivative transactions.

In July 2010, The Dodd-Frank Act was signed into law. The Dodd-Frank Act contains significant requirements relating to derivatives, including, among others, a requirement that certain transactions be cleared on exchanges that would necessitate the posting of cash collateral for these transactions. We are considered an end-user under the Dodd-Frank Act and therefore are exempt from most of the collateral and margining requirements. We are required to report any bilateral derivative contracts, unless our counterparty is a major swap participant or has elected to report on our behalf. Even though we qualify for an exception from these requirements, our counterparties that do not qualify for the exception may pass along any increased costs incurred by them through higher prices and reductions in unsecured credit limits or be unable to enter into certain transactions with us. The occurrence of any of these events could have an adverse effect on our results of operations, financial condition and cash flows.

Our business is sensitive to weather and seasonal variations.

Weather conditions significantly affect the demand for electric power, and accordingly, our business is affected by variations in general weather conditions and unusually severe weather. As a result of these factors, our operating revenues and associated operating expenses are not generated evenly by month during the year. We forecast electric sales on the basis of normal weather, which represents a long-term historical average. Significant variations from normal weather (such as warmer winters and cooler summers) could have a material impact on our revenue, operating income and net income and cash flows. In addition, severe or unusual weather, such as floods, tornadoes and ice or snow storms, may cause outages and property damage that may require us to incur additional costs that may not be insured or recoverable from customers. While we are permitted to seek recovery of certain severe storm damage costs, if we are unable to fully recover such costs in a timely manner, it could have a material adverse effect on our results of operations, financial condition and cash flows.

Our membership in a regional transmission organization presents risks that could have a material adverse effect on our results of operations, financial condition and cash flows.

We are a member of MISO, a FERC-regulated regional transmission organization. MISO serves the electrical transmission needs of a 15-state area including much of the Mid-U.S. and Canada and maintains functional operational control over our electric transmission facilities, as well as that of the other utility members of MISO. We retain control over our distribution facilities. As a result of membership in MISO and its operational control, our continued ability to import power, when necessary, and export power to the wholesale market has been, and may continue to be, impacted. We offer our generation and bid our load into this market on a day-ahead basis and settle differences in real time. Given the nature of MISO’s policies regarding use of transmission facilities, and its administration of the energy and ancillary services markets, it is difficult to predict near-term operational impacts. We cannot assure MISO’s reliable operation of the regional transmission system, or the impact of its operation of the energy and ancillary services markets.



The rules governing the various regional power markets may also change from time to time which could affect our costs and revenues and have a material adverse effect on our results of operations, financial condition and cash flows. We may expand or otherwise change our transmission system according to decisions made by MISO in addition to our internal planning process. In addition, various proposals and proceedings before the FERC relating to MISO or otherwise may cause transmission rates to change from time to time. We also incur fees and costs to participate in MISO.

To the extent that we rely, at least in part, on the performance of MISO to maintain the reliability of our transmission system, it puts us at some risk for the performance of MISO. In addition, actions taken by MISO to secure the reliable operation of the entire transmission system operated by MISO could result in voltage reductions, rolling blackouts, or sustained system-wide blackouts on IPL’s transmission and distribution system, any of which could have a material adverse effect on our results of operations, financial condition and cash flows. See also “Item 1. Business - MISO Operations and“Item 1. Business - Regulation – Retail Ratemaking.”

If we were found not to be in compliance with the mandatory reliability standards, we could be subject to sanctions, including substantial monetary penalties, which likely would not be recoverable from customers through regulated rates.

As an owner and operator of a bulk power transmission system, IPL is subject to mandatory reliability standards promulgated by the NERC and enforced by the FERC. The standards are based on the functions that need to be performed to ensure the bulk power system operates reliably and is guided by reliability and market interface principles. Compliance with reliability standards may subject us to higher operating costs or increased capital expenditures. Although we expect to recover costs and expenditures from customers through regulated rates, there can be no assurance that the IURC will approve full recovery in a timely manner. If we were found not to be in compliance with the mandatory reliability standards, we could be subject to sanctions, including substantial monetary penalties, which likely would not be recoverable from customers through regulated rates and could have a material adverse effect on our results of operations, financial condition and cash flows.

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We are subject to extensive laws and local, state and federal regulation, as well as litigation and other proceedings that could affect our operations and costs.

We are subject to extensive regulation at the federal, state and local levels. For example, at the federal level, IPL, as an electric utility, is regulated by the FERC and the NERC and, at the state level, we are regulated by the IURC. The regulatory power of the IURC over IPL is both comprehensive and typical of the traditional form of regulation generally imposed by state public utility commissions. We face the risk of unexpected or adverse regulatory action. Regulatory discretion is reasonably broad in Indiana. IPL is subject to regulation by the IURC as to our services and facilities, the valuation of property, the construction, purchase, or lease of electric generating facilities, the classification of accounts, rates of depreciation, the increase or decrease in retail rates and charges, the issuance of securities and long-term debt, the acquisition and sale of some public utility properties or securities and certain other matters.

IPL’s tariff rates for electric service to retail customers consist of basic rates and charges which are set and approved by the IURC after public hearings. In addition, IPL’s rates typically include various adjustment mechanisms and we must seek approval from the IURC through such public proceedings of our rate adjustment mechanism factors to reflect changes in certain costs. There can be no assurance that we will be granted approval of rate adjustment mechanism factors that we request from the IURC. The failure to obtain IURC approval of requested relief, or any other adverse rate determination by the IURC could have a material adverse effect on our results of operations, financial condition and cash flows.

As a result of the EPAct and subsequent legislation affecting the electric utility industry, we have been required to comply with rules and regulations in areas including mandatory reliability standards, cyber security, transmission expansion and energy efficiency. We are currently unable to predict the long-term impact, if any, to our results of operations, financial condition and cash flows as a result of these rules and regulations. Complying with the regulatory environment to which we are subject requires us to expend a significant amount of funds and resources. The failure to comply with this regulatory environment could subject us to substantial financial costs and penalties and changes, either forced or voluntary, in the way we operate our business.

Independent of the IURC’s ability to review basic rates and charges, Indiana law requires electric utilities under the jurisdiction of the IURC to meet operating expense and income test requirements as a condition for approval of requested changes in the FAC. Additionally, the fuel charge applied for can be reduced if a utility’s rolling twelve-month operating income, determined at quarterly measurement dates, exceeds a utility’s authorized annual jurisdictional net operating income and there are not sufficient applicable cumulative net operating income deficiencies against which the excess rolling twelve-month jurisdictional net operating income can be offset.

Future events, including the advent of retail competition within IPL’s service territory, could result in the deregulation of part of IPL’s existing regulated business. In addition to effects on our business that could result from any deregulation, such as a loss of customers and increased costs to retain or attract customers upon deregulation, adjustments to IPL’s accounting records may be required to eliminate the historical impact of regulatory accounting. Such adjustments, as required by FASB ASC 980 “Regulated Operations,” could eliminate the effects of any actions of regulators that have been recognized as assets and liabilities. Required adjustments could include the expensing of any unamortized net regulatory assets, the elimination of certain tax liabilities, and a write down of any impaired utility plant balances. We expect IPL to meet the criteria for the application of ASC 980 for the foreseeable future.

We are subject to litigation, regulatory proceedings, administrative proceedings, audits, settlements, investigations and claims from time to time that require us to expend significant funds to address. There can be no assurance that the outcome of these matters will not have a material adverse effect on our business, results of operations, financial condition and cash flows. Asbestos and other regulated substances are, and may continue to be, present at our facilities, and we have been named as a defendant in asbestos litigation. The continued presence of asbestos and other regulated substances at these facilities could result in additional litigation being brought against us, which could have a material adverse effect on our results of operations, financial condition and cash flows. Please see Note 2, “Regulatory Matters” andNote 10, “Commitments and Contingencies” to the Financial Statements for a summary of significant regulatory matters and legal proceedings involving us.


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Tax legislation initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.

We are subject to the tax laws and regulations of the U.S. federal, state and local governments. From time to time, legislative measures may be enacted that could adversely affect our overall tax positions regarding income or other taxes. There can be no assurance that our effective tax rate or tax payments will not be adversely affected by these legislative measures.

For example, the U.S. federal government enacted tax reform in 2017 that, among other things, reduces U.S. federal corporate income tax rates, imposes limits on tax deductions for interest expense and changes the rules related to capital expenditure cost recovery. There are a number of uncertainties and ambiguities as to the interpretation and application of many of the provisions of the tax reform measure. Given the unpredictability of these possible changes and their potential interdependency, it remains difficult to assess the overall effect such tax changes will have on our earnings and cash flow, and the extent to which such changes could adversely impact our results of operations. As the impacts of the law are determined, and as yet-to-be released regulations and other guidance interpreting the new law are issued and finalized, our financial results could be materially impacted.

In addition, U.S. federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our tax positions will be sustained if challenged by relevant tax authorities and if not sustained, there could be a material impact on our results of operations.

RISKS RELATED TO OUR INDEBTEDNESS AND FINANCIAL CONDITION

We rely on access to the financial markets. General economic conditions and disruptions in the financial markets could adversely affect our ability to raise capital on favorable terms or at all, and cause increases in our interest expense.

From time to time we rely on access to the capital and credit markets as a source of liquidity for capital requirements not satisfied by operating cash flows. These capital and credit markets experience volatility and disruption from time to time and the ability of corporations to raise capital can be negatively impacted. Disruptions in the capital and credit markets make it harder and more expensive to raise capital. Our ability to raise capital on favorable terms or at all can be adversely affected by unfavorable market conditions or declines in our creditworthiness, and we may be unable to access adequate funding to refinance our debt as it becomes due or finance capital expenditures. The extent of any impact will depend on several factors, including our operating cash flows, financial condition and prospects, the overall supply and demand in the credit markets, our credit ratings, credit capacity, the cost of financing, the financial condition, performance and prospects of other companies in our industry or with similar financial circumstances and other general economic and business conditions. It may also depend on the performance of credit counterparties and financial institutions with which we do business. Access to funds under our existing financing arrangements is also dependent on the ability of our counterparties to meet their financing commitments and our satisfying conditions to borrowing. Our inability to obtain financing on reasonable terms, or at all, with creditworthy counterparties could adversely affect our results of operations, financial condition and cash flows. If our available funding is limited or we are forced to fund our operations at a higher cost, these conditions may require us to curtail our business activities and increase our cost of funding, both of which would adversely impact our profitability.

See Note 7, “Debt” to the Financial Statements for information regarding indebtedness. See also “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” for information related to market risks.

Our transmission and distribution system is subject to operational, reliability and capacity risks.

The ongoing reliable performance of our transmission and distribution system is subject to risks due to, among other things, weather damage, intentional or unintentional damage, equipment or process failure, catastrophic events, such as fires and/or explosions, facility outages, labor disputes, accidents or injuries, operator error, or inoperability of key infrastructure internal or external to us and events occurring on third party systems that


interconnect to and affect our system. The failure of our transmission and distribution system to fully operate and deliver the energy demanded by customers could have a material adverse effect on our results of operations, financial condition and cash flows, and if such failures occur frequently and/or for extended periods of time, could result in adverse regulatory action. In addition, the advent and quick adaptation of new products and services that require increased levels of electrical energy cannot be predicted and could result in insufficient transmission and distribution system capacity. As with all utilities, potential concern with the adequacy of transmission capacity on IPL’s system or the regional systems operated by MISO could result in MISO, the NERC, the FERC or the IURC requiring us to upgrade or expand our transmission system through additional capital expenditures or share in the costs of regional expansion. Also, as a result of the above risks and other potential risks and hazards associated with transmission and distribution operations, we may from time to time become exposed to significant liabilities for which we may not have adequate insurance coverage. Except for IPL’s large substations, transmission and distribution assets are not covered by insurance and are considered to be outside the scope of property insurance. Otherwise, we maintain an amount of insurance protection that we believe is adequate, but there can be no assurance that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. Further, any increased costs or adverse changes in the insurance markets may cause delays or inability in maintaining insurance coverage on terms similar to those presently available to us or at all. A successful claim for which we are not fully insured could have an adverse impact on our results of operations, financial condition and cash flows.

Current and future conditions in the economy may adversely affect our customers, suppliers and other counterparties, which may adversely affect our results ofoperations, financial conditionand cash flows.

Our business, results of operations, financial condition and cash flows have been and will continue to be affected by general economic conditions. Slowing economic growth, credit market conditions, fluctuating consumer and business confidence, fluctuating commodity prices, and other challenges affecting the general economy, have caused and may continue to cause some of our customers to experience deterioration of their businesses, cash flow shortages, and difficulty obtaining financing. As a result, existing customers may reduce their electricity consumption and may not be able to fulfill their payment obligations to us in the normal, timely fashion. In addition, some existing commercial and industrial customers may discontinue their operations. Sustained downturns, recessions or a sluggish economy generally affect the markets in which we operate and negatively influence our energy operations. A contracting, slow or sluggish economy could reduce the demand for energy in areas in which we are doing business. For example, during economic downturns, our commercial and industrial customers may see a decrease in demand for their products, which in turn may lead to a decrease in the amount of energy they require. Furthermore, projects which may result in potential new customers may be delayed until economic conditions improve. Some of our suppliers, customers and other counterparties, and others with whom we transact business experience financial difficulties, which may impact their ability to fulfill their obligations to us or result in their declaring bankruptcy or similar insolvency-like proceedings. For example, our counterparties on forward purchase contracts and financial institutions involved in our credit facility may become unable to fulfill their contractual obligations. We may not be able to enter into replacement agreements on terms as favorable as our existing agreements. Reduced demand for our electric services, failure by our customers to timely remit full payment owed to us and supply delays or unavailability could have a material adverse effect on our results of operations, financial condition and cash flows. In particular, the projected economic growth and total employment in Indianapolis are important to the realization of our forecasts for annual energy sales.

The level of our indebtedness, and the security provided for this indebtedness, could adversely affect our financial flexibility.

As of December 31, 2019,2020, we had on a consolidated basis $2,651.6$2,726.2 million of indebtedness and total common shareholders’ equity of $546.5$521.0 million. IPL had $1,713.8$1,803.8 million of first mortgage bonds outstanding as of December 31, 2019,2020, which are secured by the pledge of substantially all of the assets of IPL under the terms of IPL’s mortgage and deed of trust. This level of indebtedness and related security could have important consequences, including the following:

•increasing our vulnerability to general adverse economic and industry conditions;
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•requiring us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund other corporate purposes;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and


•limiting, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds, as needed.

We expect to incur additional debt in the future, subject to the terms of our debt agreements and regulatory approvals for any IPL debt. To the extent we become more leveraged, the risks described above would increase. Further, actual cash requirements in the future may be greater than expected. Accordingly, our cash flow from operations may not be sufficient to repay at maturity all of the outstanding debt as it becomes due and, in that event, we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms or at all to refinance our debt as it becomes due. For a further discussion of outstanding debt, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” and Note 7, “Debt” to the Financial Statements of this Form 10-K.

We have variable rate debt that bears interest based on a prevailing rate that is reset based on a market index that can be affected by market demand, supply, market interest rates and other market conditions. We also maintain both cash on deposit and investments in cash equivalents from time to time that could be impacted by interest rate fluctuations. As such, any event which impacts market interest rates could have a material effect on our results of operations, financial condition and cash flows. In addition, ratings agencies issue credit ratings on us and our debt that affect our borrowing costs under our financial arrangements and affect our potential pool of investors and funding sources. Our credit ratings also govern the collateral provisions of certain of our contracts. If the rating agencies were to downgrade our credit ratings, our borrowing costs would likely further increase, our potential pool of investors and funding resources could be reduced, and we could be required to post additional cash collateral under selected contracts. These events would likely reduce our liquidity and profitability and could have a material adverse effect on our results of operations, financial condition and cash flows.

Economic conditions relating to the asset performance and interest rates of the Pension Planscould materially and adversely impact our results of operations, financial condition and cashflows.

Pension costs are based upon a number of actuarial assumptions, including an expected long-term rate of return on pension plan assets, level of employer contributions, the expected life span of pension plan beneficiaries and the discount rate used to determine the present value of future pension obligations. Any of these assumptions could prove to be wrong, resulting in a shortfall of our Pension Plans’ assets compared to pension obligations under the Pension Plans. Further, the performance of the capital markets affects the values of the assets that are held in trust to satisfy future obligations under the Pension Plans. These assets are subject to market fluctuations and will yield uncertain returns, which may fall below our projected return rates. A decline in the market value of the Pension Plans’ assets will increase the funding requirements under the Pension Plans if the actual asset returns do not recover these declines in value in the foreseeable future. Future pension funding requirements, and the timing of funding payments, may also be subject to changes in legislation. We are responsible for funding any shortfall of our Pension Plans’ assets compared to obligations under the Pension Plans, and a significant increase in our pension liabilities could materially and adversely impact our results of operations, financial condition, and cash flows. We are subject to the Pension Protection Act of 2006, which requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, our required contributions to these plans, at times, have increased and may increase in the future. In addition, our pension and postemployment benefit plan liabilities are sensitive to changes in interest rates. As interest rates decrease, the discounted liabilities increase benefit expense and funding requirements. Further, changes in demographics, including increased numbers of retirements or changes in life expectancy assumptions, may also increase the funding requirements for the obligations related to the pension and other postemployment benefit plans. Declines in market values and increased funding requirements could have a material adverse effect on our results of operations, financial condition and cash flows. Please see Note 9, “Benefit Plans” to the Financial Statements included in this Form 10-K for further discussion.

Counterparties providing materials or services may fail to perform their obligations, which could harmour results ofoperations, financial conditionand cash flows.

We enter into transactions with and rely on many counterparties in connection with our business, including for the purchase and delivery of inventory, including fuel and equipment components, for our capital improvements and additions and to provide professional services, such as actuarial calculations, payroll processing and various consulting services. If any of these counterparties fails to perform its obligations to us or becomes unavailable, our business plans may be materially disrupted, we may be forced to discontinue or delay certain operations if a cost-effective alternative is not readily available or we may be forced to enter into alternative arrangements at then-


current market prices that may exceed our contractual prices and cause delays. Although our agreements are designed to mitigate the consequences of a potential default by the counterparty, our actual exposure may be greater than the relief provided by these mitigation provisions. Any of the foregoing could result in regulatory actions, cost overruns, delays or other losses, any of which (or a combination of which) could have a material adverse effect on our results of operations, financial condition and cash flows.

Further, our construction program calls for extensive expenditures for capital improvements and additions, including the installation of environmental upgrades, improvements to generation, transmission and distribution facilities, as well as other initiatives. As a result, we have engaged, and will continue to engage, numerous contractors and have entered into a number of agreements to acquire the necessary materials and/or obtain the required construction related services. In addition, some contracts provide for us to assume the risk of price escalation and availability of certain metals and key components. This could force us to enter into alternative arrangements at then-current market prices that may exceed our contractual prices and cause construction delays. It could also subject us to enforcement action by regulatory authorities to the extent that such a contractor failure resulted in a failure by IPL to comply with requirements or expectations, particularly with regard to the cost of the project. As a result of these events, we might incur losses or delays in completing construction.

Accidental improprieties and undetected errors in our internal controls and information reporting could result in the disallowance of cost recovery, noncompliant disclosure or incorrect payment processing.

Our internal controls, accounting policies and practices and internal information systems are designed to enable us to capture and process transactions and information in a timely and accurate manner in compliance with GAAP, laws and regulations, taxation requirements and federal securities laws and regulations in order to, among other things, disclose and report financial and other information in connection with the recovery of our costs and with our reporting requirements under federal securities, tax and other laws and regulations and to properly process payments. We have also implemented corporate governance, internal control and accounting policies and procedures in connection with the Sarbanes-Oxley Act of 2002. Our internal controls and policies have been and continue to be closely monitored by management and our Board of Directors. While we believe these controls, policies, practices and systems are adequate to verify data integrity, unanticipated and unauthorized actions of employees, temporary lapses in internal controls due to shortfalls in oversight or resource constraints could lead to improprieties and undetected errors that could result in the disallowance of cost recovery, noncompliant disclosure and reporting or incorrect payment processing. The consequences of these events could have a material adverse effect on our results of operations, financial condition and cash flows.

New accounting standards or changes to existing accounting standards could materially affect how we report our results of operations, financial condition and cash flows.

Our Financial Statements are prepared in accordance with GAAP. The SEC, FASB or other authoritative bodies or governmental entities may issue new pronouncements or new interpretations of existing accounting standards that may require us to change our accounting policies. These changes are beyond our control, can be difficult to predict and could materially affect how we report our results of operations, financial condition and cash flows. We could be required to apply a new or revised standard retroactively, which could adversely affect our financial condition. In addition, in preparing our Financial Statements, management is required to make estimates and assumptions. Actual results could differ significantly from those estimates.

We are subject to extensive laws and local, state and federal regulation, as well as litigation and other proceedings that could affect our operations and costs.

As an electric utility, we are subject to extensive regulation at both the federal and state level. For example, at the federal level, we are regulated by the FERC and the NERC and, at the state level, we are regulated by the IURC. The regulatory power of the IURC over IPL is both comprehensive and typical of the traditional form of regulation generally imposed by state public utility commissions. We face the risk of unexpected or adverse regulatory action. Regulatory discretion is reasonably broad in Indiana. We are subject to regulation by the IURC as to our services and facilities, the valuation of property, the construction, purchase, or lease of electric generating facilities, the classification of accounts, rates of depreciation, the increase or decrease in retail rates and charges, the issuance of securities and long-term debt, the acquisition and sale of some public utility properties or securities and certain other matters.



IPL’s tariff rates for electric service to retail customers consist of basic rates and charges which are set and approved by the IURC after public hearings. In addition, IPL’s rates typically include various adjustment mechanisms and we must seek approval from the IURC through such public proceedings of our rate adjustment mechanism factors to reflect changes in certain costs. There can be no assurance that we will be granted approval of rate adjustment mechanism factors that we request from the IURC. The failure to obtain IURC approval of requested relief, or any other adverse rate determination by the IURC could have a material adverse effect on our results of operations, financial condition and cash flows.

As a result of the EPAct and subsequent legislation affecting the electric utility industry, we have been required to comply with rules and regulations in areas including mandatory reliability standards, cyber security, transmission expansion and energy efficiency. We are currently unable to predict the long-term impact, if any, to our results of operations, financial condition and cash flows as a result of these rules and regulations. Complying with the regulatory environment to which we are subject requires us to expend a significant amount of funds and resources. The failure to comply with this regulatory environment could subject us to substantial financial costs and penalties and changes, either forced or voluntary, in the way we operate our business.

Independent of the IURC’s ability to review basic rates and charges, Indiana law requires electric utilities under the jurisdiction of the IURC to meet operating expense and income test requirements as a condition for approval of requested changes in the FAC. Additionally, the fuel charge applied for can be reduced if a utility’s rolling twelve-month operating income, determined at quarterly measurement dates, exceeds a utility’s authorized annual jurisdictional net operating income and there are not sufficient applicable cumulative net operating income deficiencies against which the excess rolling twelve-month jurisdictional net operating income can be offset.

Future events, including the advent of retail competition within IPL’s service territory, could result in the deregulation of part of IPL’s existing regulated business. In addition to effects on our business that could result from any deregulation, such as a loss of customers and increased costs to retain or attract customers upon deregulation, adjustments to IPL’s accounting records may be required to eliminate the historical impact of regulatory accounting. Such adjustments, as required by FASB ASC 980 “Regulated Operations,” could eliminate the effects of any actions of regulators that have been recognized as assets and liabilities. Required adjustments could include the expensing of any unamortized net regulatory assets, the elimination of certain tax liabilities, and a write down of any impaired utility plant balances. We expect IPL to meet the criteria for the application of ASC 980 for the foreseeable future.

We are subject to litigation, regulatory proceedings, administrative proceedings, audits, settlements, investigations and claims from time to time that require us to expend significant funds to address. There can be no assurance that the outcome of these matters will not have a material adverse effect on our business, results of operations, financial condition and cash flows. Asbestos and other regulated substances are, and may continue to be, present at our facilities, and we have been named as a defendant in asbestos litigation. The continued presence of asbestos and other regulated substances at these facilities could result in additional litigation being brought against us, which could have a material adverse effect on our results of operations, financial condition and cash flows. Please see Note 2, “Regulatory Matters” andNote 10, “Commitments and Contingencies” to the Financial Statements for a summary of significant regulatory matters and legal proceedings involving us.

If we are unable to maintain a qualified and properly motivated workforce, it could have a material adverse effect on our results of operations, financial condition and cash flows.

One of the challenges we face is to retain a skilled, efficient and cost-effective workforce while recruiting new talent to replace losses in knowledge and skills due to resignations, terminations or retirements. This undertaking could require us to make additional financial commitments and incur increased costs. If we are unable to successfully attract and retain an appropriately qualified workforce, it could have a material adverse effect on our results of operations, financial condition and cash flows. In addition, we have employee compensation plans that reward the performance of our employees. We seek to ensure that our compensation plans encourage acceptable levels for risk and high performance through pay mix, performance metrics and timing. We also have policies and procedures in place to mitigate excessive risk-taking by employees since excessive risk-taking by our employees to achieve performance targets could result in events that could have a material adverse effect on our results of operations, financial condition and cash flows.



We are subject to collective bargaining agreements that could adversely affect our business,results ofoperations, financial conditionand cash flows.

We are subject to collective bargaining agreements with employees who are members of a union. Approximately 69% of our employees are represented by a union in two bargaining units: a physical unit and a clerical-technical unit. While we believe that we maintain a satisfactory relationship with our employees, it is possible that labor disruptions affecting some or all of our operations could occur during the period of the collective bargaining agreements or at the expiration of the collective bargaining agreements before new agreements are negotiated. We may not be able to successfully train new personnel as current workers with significant knowledge and expertise retire. Work stoppages by, or poor relations or ineffective negotiations with, our employees or other workforce issues could have a material adverse effect on our results of operations, financial condition and cash flows.

Potential security breaches (including cyber-security breaches) and terrorism risks could adversely affect our businesses.

We operate in a highly regulated industry that requires the continued operation of sophisticated systems and network infrastructure at our generation stations, fuel storage facilities and transmission and distribution facilities. We also use various financial, accounting and other systems in our businesses. These systems and facilities are vulnerable to unauthorized access due to hacking, viruses, other cyber-security attacks and other causes. In particular, given the importance of energy and the electric grid, there is the possibility that our systems and facilities could be targets of terrorism or acts of war. We have implemented measures to help prevent unauthorized access to our systems and facilities, including network and system monitoring, identification and deployment of secure technologies, and certain other measures to comply with mandatory regulatory reliability standards. Pursuant to NERC requirements, we have a robust cyber-security plan in place and are subject to regular audits by an independent auditor approved by NERC. We routinely test our systems and facilities against these regulatory requirements in order to measure compliance, assess potential security risks, and identify areas for improvement. In addition, we provide cyber-security training for our employees and perform exercises designed to raise employee awareness of cyber risks on a regular basis. To date, cyber-attacks on our business and operations have not had a material impact on our operations or financial results. Despite our efforts, if our systems or facilities were to be breached or disabled, we may be unable to recover them in a timely manner to fulfill critical business functions, including the supply of electric services to our customers, and we could experience decreases in revenues and increases in costs that could adversely affect our results of operations, cash flows and financial condition.

In the course of our business, we also store and use customer, employee, and other personal information and other confidential and sensitive information, including personally identifiable information and personal financial information. If our or our third-party vendors’ systems were to be breached or disabled, sensitive and confidential information and other data could be compromised, which could result in negative publicity, remediation costs and potential litigation, damages, consent orders, injunctions, fines and other relief.

To help mitigate these risks, we maintain insurance coverage against some, but not all, potential losses, including coverage for illegal acts against us. However, insurance may not be adequate to protect us against all costs and liabilities associated with these risks.

IPALCO is a holding company and parent of IPL and other subsidiaries. IPALCO’s cash flow is dependent on operating cash flows of IPL and its ability to pay cash to IPALCO.

IPALCO is a holding company with no material assets other than the common stock of its subsidiaries, and accordingly all cash is generated by the operating activities of our subsidiaries, principally IPL. As such, IPALCO’s cash flow is largely dependent on the operating cash flows of IPL and its ability to pay cash to IPALCO. IPL’s mortgage and deed of trust, its amended articles of incorporation and its Credit Agreement and unsecured notes contain restrictions on IPL’s ability to issue certain securities or pay cash dividends to IPALCO. For example, there are restrictions that require maintenance of a leverage ratio which could limit the ability of IPL to pay dividends. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity” for a discussion of these restrictions. See Note 7, “Debt” to the Financial Statements for information regarding indebtedness. In addition, IPL is regulated by the IURC, which possesses broad oversight powers to ensure that the needs of utility customers are being met. The IURC could impose additional restrictions on the ability of IPL to distribute, loan or advance cash to IPALCO pursuant to these broad powers. While we do not expect any of the foregoing restrictions to significantly affect IPL’s ability to pay funds to IPALCO in the future, a


significant limitation on IPL’s ability to pay dividends or loan or advance funds to IPALCO would have a material adverse effect on IPALCO’s results of operations, financial condition and cash flows.

Tax legislation initiatives or challenges to our tax positions could adversely affect our results of operations and financial condition.

We are subject to the tax laws and regulations of the U.S. federal, state and local governments. From time to time, legislative measures may be enacted that could adversely affect our overall tax positions regarding income or other taxes. There can be no assurance that our effective tax rate or tax payments will not be adversely affected by these legislative measures.

For example, the U.S. federal government enacted tax reform in 2017 that, among other things, reduces U.S. federal corporate income tax rates, imposes limits on tax deductions for interest expense and changes the rules related to capital expenditure cost recovery. There are a number of uncertainties and ambiguities as to the interpretation and application of many of the provisions of the newly enacted tax reform measure. Given the unpredictability of these possible changes and their potential interdependency, it remains difficult to assess the overall effect such tax changes will have on our earnings and cash flow, and the extent to which such changes could adversely impact our results of operations. As the impacts of the new law are determined, and as yet-to-be released regulations and other guidance interpreting the new law are issued and finalized, our financial results could be materially impacted.

In addition, U.S. federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our tax positions will be sustained if challenged by relevant tax authorities and if not sustained, there could be a material impact on our results of operations.

Our ownership by AES subjects us to potential risks that are beyond our control.

All of IPL’s common stock is owned by IPALCO, all of whose common stock is owned by AES U.S. Investments (82.35%) and CDPQ (17.65%). Due to our relationship with AES, any adverse developments and announcements concerning AES may impair our ability to access the capital markets and to otherwise conduct business. In particular, downgrades in AES’s credit ratings could result in IPL’s or IPALCO’s credit ratings being downgraded.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.


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ITEM 2. PROPERTIES

Information relating to our properties is contained in “Item 1. Business – Properties.”

Mortgage Financing on Properties  

IPL’s mortgage and deed of trust secures first mortgage bonds issued by IPL. Pursuant to the terms of the mortgage and deed of trust, substantially all property owned by IPL is subject to a direct first mortgage lien securing indebtedness of $1,713.8$1,803.8 million at December 31, 2019.2020. In addition, IPALCO has outstanding $875.0$880.0 million of debt obligations which are secured by its pledge of all of the outstanding common stock of IPL.

ITEM 3. 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“Item 1. Business – Environmental Matters” herein, Note 2, “Regulatory Matters” and Note 10, “Commitments and Contingencies” to the Financial Statements for a summarysummaries of significant legal proceedings involving us.us, which are incorporated by reference herein.


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

As of February 27, 2020,24, 2021, all of the outstanding common stock of IPALCO is owned by AES U.S. Investments (82.35%) and CDPQ (17.65%). As a result, our stock is not listed for trading on any stock exchange.

Dividends

During the years ended December 31, 2020, 2019 and 2018, we declared and 2017, we paid distributions to our shareholders totaling $108.7 million, $136.4 million $130.2 million and $105.1$130.2 million, respectively. 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 and such other factors as our Board of Directors deems relevant. Please see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity” of this Form 10-K for a discussion of limitations on dividends from IPL. In order for us to make any dividend payments to our shareholders, we must, at the time and as a result of such dividends, either maintain certain credit ratings on our senior long-term debt or be in compliance with leverage and interest coverage ratios contained in IPALCO’s Third Amended and Restated Articles of Incorporation. We do not believe this requirement will be a limiting factor in paying dividends in the ordinary course of prudent business operations.


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Dividend and Capital Structure Restrictions

IPL’s mortgage and deed of trust and its amended articles of incorporation contain restrictions on IPL’s ability to issue certain securities or pay cash dividends. So long as any of the several series of bonds of IPL issued under its mortgage remains outstanding, and subject to certain exceptions, IPL is restricted in the declaration and payment of dividends, or other distribution on shares of its capital stock of any class, or in the purchase or redemption of such shares, to the aggregate of its net income, as defined in the mortgage, after December 31, 1939. In addition, pursuant to IPL’s articles, no dividends may be paid or accrued, and no other distribution may be made on IPL’s common stock unless dividends on all outstanding shares of IPL preferred stock have been paid or declared and set apart for payment. As of December 31, 2019,2020, and as of the filing of this report, IPL was in compliance with these restrictions.

IPL is also restricted in its ability to pay dividends if it is in default under the terms of its Credit Agreement, or unsecured notes, which could happen if IPL fails to comply with certain covenants. These covenants, among other things, require IPL to maintain total debt to total capitalization not in excess of 0.650.67 to 1. As of December 31, 2019,2020, and as of the filing of this report, IPL was in compliance with all covenants and no event of default existed.

IPALCO’s Third Amended and Restated Articles of Incorporation contain provisions which state that IPALCO may not make a distribution to its shareholders or make a loan to any of its affiliates (other than its subsidiaries), unless: (a) there exists no event of default (as defined in the articles) and no such event of default would result from the making of the distribution or loan; and either (b)(i) at the time of, and/or as a result of, the distribution or loan, IPALCO’s leverage ratio does not exceed 0.67 to 1 and IPALCO’s interest coverage ratio is not less than 2.50 to 1 or, (b)(ii) if such ratios are not within the parameters, IPALCO’s senior long-term debt rating from one of the three major credit rating agencies is at least investment grade. As of December 31, 2019,2020, and as of the filing of this report, IPALCO was in compliance with all covenants and no event of default existed.

IPALCO is also restricted in its ability to pay dividends if it is in default under the terms of its Term Loan, which could happen if IPALCO fails to comply with certain covenants. These covenants, among other things, require IPALCO to maintain a ratio of total debt to total capitalization not in excess of 0.67 to 1. As of December 31, 2019, and as of the filing of this report, IPALCO was in compliance with all covenants and no event of default existed.

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ITEM 6. SELECTED FINANCIAL DATA

The following table presents our selected consolidated financial data which should be read in conjunction with our Financial Statements and the related notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The “Results of Operations” discussion in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” addresses significant fluctuations in operating data. IPALCO is owned by AES U.S. Investments and CDPQ, and therefore does not report earnings or dividends on a per-share basis. Other data that management believes is important in understanding trends in our business is also included in this table. 
 Years Ended December 31,
 20202019201820172016
 (In Thousands)
Statement of Operations Data:     
Revenues$1,352,985 $1,481,643 $1,450,505 $1,349,588 $1,347,430 
Operating income$262,532 $296,752 $236,358 $239,198 $261,829 
Earnings from operations before income tax$138,559 $167,921 $147,474 $157,744 $192,270 
Net income$109,967 $132,393 $134,025 $108,793 $131,060 
Balance Sheet Data (end of period):     
Total assets$4,969,919 $4,928,669 $4,862,053 $4,740,561 $4,702,281 
Long-term debt (less current maturities)$2,556,278 $2,092,430 $2,649,064 $2,477,538 $2,474,840 
Common shareholders’ equity$520,988 $546,476 $573,266 $572,276 $571,183 
Cumulative preferred stock of subsidiary$59,784 $59,784 $59,784 $59,784 $59,784 
Other Data:     
Capital expenditures(1)
$235,736 $219,242 $235,764 $228,861 $607,716 
  Years Ended December 31,
  2019 2018 2017 2016 2015
  (In Thousands)
Statement of Operations Data:  
  
  
  
  
Revenues $1,481,643
 $1,450,505
 $1,349,588
 $1,347,430
 $1,250,399
Operating income $296,752
 $236,358
 $239,198
 $261,829
 $204,483
Earnings from operations before income tax $167,921
 $147,474
 $157,744
 $192,270
 $91,090
Net income $132,393
 $134,025
 $108,793
 $131,060
 $59,524
Balance Sheet Data (end of period):          
Total assets $4,928,669
 $4,862,053
 $4,740,561
 $4,702,281
 $4,217,169
Long-term debt (less current maturities) $2,092,430
 $2,649,064
 $2,477,538
 $2,474,840
 $2,153,276
Common shareholders’ equity $546,476
 $573,266
 $572,276
 $571,183
 $352,933
Cumulative preferred stock of subsidiary $59,784
 $59,784
 $59,784
 $59,784
 $59,784
Other Data:  
  
  
  
  
Capital expenditures(1)
 $219,242
 $235,764
 $228,861
 $607,716
 $686,064
           
(1)Capital expenditures includes $0.0 million, $5.6 million, $11.4 million, $10.6 million $15.5 million and $13.2$15.5 of payments for financed capital
expenditures in 2020, 2019, 2018, 2017 and 2016, and 2015, respectively.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with our Financial Statements and the notes thereto. The following discussion contains forward-looking statements. Our actual results may differ materially from the results suggested by these forward-looking statements. Please see “Forward-Looking Statements” and “Item 1A. Risk Factors.” For a list of certain abbreviations or acronyms in this discussion, see “Defined Terms” at the beginning of this Form 10-K.

EXECUTIVE SUMMARY

Compared with the prior year, the results for the year ended December 31, 20192020 reflect higherlower earnings from operations before income tax of $20.4$29.4 million, or 14%17%, primarily due to factors including, but not limited to:

increased retail rates following the 2018 Base Rate Order, which approved a $43.9 million, or 3.2%, increase in annual revenues and also increased the benchmark for recovery of wholesale margins and capacity sales.

This was partially offset by:

•a net decrease in the volume of retail kWh sold mostly due to milder weather;weather and lower demand due to the impact of COVID-19; and
increased•a reduction in revenues due to an accrued regulatory liability for excess earnings under the FAC provisions.

These were partially offset by:

•a decrease in maintenance expense primarily driven by higher distribution line clearance costs, including vegetation management;expenses; and
•lower allowance for borrowed funds used during construction following the 2018 Base Rate order (resulting in higher interest expense).pension costs.

See "Results of Operations" below for further discussion.



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OVERVIEW OF 20192020 RESULTS AND STRATEGIC PERFORMANCE

The most important matters on which we focus in evaluating our financial condition and operating performance and allocating our resources include: (i) recurring factors which have significant impacts on operating performance such as: regulatory action, environmental matters, weather and weather-related damage in our service area, customer growth and the local economy; (ii) our progress on performance improvement and growth strategies designed to maintain high standards in several operating areas (including safety, customer satisfaction, operations, financial and enterprise-wide performance, talent management/people, capital allocation/sustainability and corporate social responsibility) simultaneously; and (iii) our short-term and long-term financial and operating strategies. For a discussion of how we are impacted by regulation and environmental matters, please see Note 2, “Regulatory Matters” to the Financial Statements and “Environmental Matters” in “Item 1. Business.”

Operational Excellence

Our objective is to optimize IPL’s performance in the U.S. utility industry by focusing on the following areas: safety, operations (reliability and customer satisfaction), financial and enterprise-wide performance (efficiency and cost savings, talent management/people, capital allocation/sustainability and corporate social responsibility). We set and measure these objectives carefully, balancing them in a way and to a degree necessary to ensure a sustainable high level of performance in these areas simultaneously as compared to our peers. We monitor our performance in these areas, and where practical and meaningful, compare performance in some areas to peer utilities. Because some of our financial and enterprise-wide performance measures are company-specific performance goals, they are not benchmarked.

Our safety performance is measured by both leading and lagging metrics. Our leading safety metrics track safety observations, safety meeting engagement and the reporting of non-injury near misses. Our lagging safety metrics track lost work dayworkday cases, severity rate, and recordable incidents. We are committed to excellence in safety and have implemented various programs to increase safety awareness and improve work practices.

IPL measures delivery reliability by Customer Average Interruption Duration Index ("CAIDI"), System Average Interruption Duration Index ("SAIDI") and System Average Interruption Frequency Index ("SAIFI") and benchmarks the reliability metrics against other utilities at both the state and national levels. IPL also measures customer centricity on more of an individual basis by the industry metric of Customers that Experience Multiple Interruption of five or more times ("CEMI-5"). IPL measures generation reliability by Commercial Availability (“CA”), Equivalent Forced Outage Factor (“EFOF”) and Equivalent Availability Factor (“EAF”) metrics and benchmarks both EFOF and EAF results nationally. We measure Customer Satisfaction using J.D. Power in their Electric Utility Residential Customer Satisfaction Study and Research America Market Research - Consumer Insight. Monitoring performance in the areas such as competitive rates, operational reliability and customer service supports our ongoing work to deliver reliable service to our customers.




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RESULTS OF OPERATIONS 

The following review of consolidated results of operations and "Capital Resources and Liquidity" sections compare the results for the year ended December 31, 20192020 to the results for the year ended December 31, 2018.2019. For discussion comparing the results for the year ended December 31, 20182019 to the results for the year ended December 31, 2017,2018, see Item 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations of our 20182019 Annual Report on Form 10-K, filed with the SEC on February 26, 2019.27, 2020.

In addition to the discussion on operations below, please see the “Statistical Information on Operations” table included in “Item 1. Business” of this report for additional data such as kWh sales and number of customers by customer class.

Statements of Operations Highlights
Years Ended December 31,
(In Thousands)202020192018
REVENUES$1,352,985 $1,481,643 $1,450,505 
OPERATING COSTS AND EXPENSES:   
Fuel247,105 340,466 331,701 
Power purchased135,767 133,674 164,542 
Operation and maintenance416,169 428,201 431,620 
Depreciation and amortization246,896 240,314 232,332 
Taxes other than income taxes44,516 42,236 53,952 
Total operating expenses1,090,453 1,184,891 1,214,147 
OPERATING INCOME262,532 296,752 236,358 
OTHER INCOME / (EXPENSE), NET:   
Allowance for equity funds used during construction4,574 3,486 8,477 
Interest expense(129,493)(121,771)(95,509)
Loss on early extinguishment of debt(2,424)— — 
Other income / (expense), net3,370 (10,546)(1,852)
Total other income / (expense), net(123,973)(128,831)(88,884)
EARNINGS FROM OPERATIONS BEFORE INCOME TAX138,559 167,921 147,474 
Less: income tax expense28,592 35,528 13,449 
NET INCOME 109,967 132,393 134,025 
Less: dividends on preferred stock3,213 3,213 3,213 
NET INCOME APPLICABLE TO COMMON STOCK$106,754 $129,180 $130,812 



39

  Years Ended December 31,
(In Thousands) 2019 2018 2017
REVENUES $1,481,643
 $1,450,505
 $1,349,588
       
OPERATING COSTS AND EXPENSES:      
Fuel 340,466
 331,701
 281,542
Power purchased 133,674
 164,542
 189,847
Operation and maintenance 428,201
 431,620
 385,906
Depreciation and amortization 240,314
 232,332
 208,451
Taxes other than income taxes 42,236
 53,952
 44,644
Total operating expenses 1,184,891
 1,214,147
 1,110,390
       
OPERATING INCOME 296,752
 236,358
 239,198
       
OTHER INCOME / (EXPENSE), NET:      
Allowance for equity funds used during construction 3,486
 8,477
 25,798
Interest expense (121,771) (95,509) (101,130)
Loss on early extinguishment of debt —
 —
 (8,875)
Other income / (expense), net (10,546) (1,852) 2,753
Total other income / (expense), net (128,831) (88,884) (81,454)
       
EARNINGS FROM OPERATIONS BEFORE INCOME TAX 167,921
 147,474
 157,744
       
Less: income tax expense 35,528
 13,449
 48,951
NET INCOME  132,393
 134,025
 108,793
       
Less: dividends on preferred stock 3,213
 3,213
 3,213
NET INCOME APPLICABLE TO COMMON STOCK $129,180
 $130,812
 $105,580





2020 versus 2019
2019 versus 2018

Revenues

Revenues increaseddecreased in 20192020 from the prior year by $31.1$128.7 million, which resulted from the following changes (dollars in thousands):
 2019 2018 Change Percentage Change 20202019ChangePercentage Change
Revenues:        Revenues:    
Retail Revenues $1,399,374
 $1,396,465
 $2,909
 0.2 %Retail Revenues$1,294,100 $1,399,374 $(105,274)(7.5)%
Wholesale Revenues 68,474
 38,789
 29,685
 76.5 %Wholesale Revenues46,482 68,474 (21,992)(32.1)%
Miscellaneous Revenues 13,795
 15,251
 (1,456) (9.5)%Miscellaneous Revenues12,403 13,795 (1,392)(10.1)%
Total Revenues $1,481,643
 $1,450,505
 $31,138
 2.1 %Total Revenues$1,352,985 $1,481,643 $(128,658)(8.7)%
Heating Degree Days(1):
        
Heating Degree Days(1):
    
Actual 5,298
 5,417
 (119) (2.2)%Actual4,905 5,298 (393)(7.4)%
30-year Average 5,365
 5,367
    30-year Average5,350 5,365   
Cooling Degree Days(1):
        
Cooling Degree Days(1):
    
Actual 1,318
 1,625
 (307) (18.9)%Actual1,192 1,318 (126)(9.6)%
30-year Average 1,074
 1,066
    30-year Average1,078 1,074   
        
(1) Heating and cooling degree-days are a measure of the relative heating or cooling required for a home or business. The heating degrees in a day are calculated as the degrees that the average actual daily temperature is below 65 degrees Fahrenheit. For example, if the average temperature on March 20th was 40 degrees Fahrenheit, the heating degree days for that day would be the 25-degree difference between 65 degrees and 40 degrees. Similarly, cooling degree days in a day are calculated as the degrees that the average actual daily temperature is above 65 degrees Fahrenheit.

Retail Revenues

The increasedecrease in retail revenues of $2.9$105.3 million was primarily due to the following (in millions):
Volume: 
Net decrease in the volume of kWh sold, primarily due to milder weather in our service territory versus the comparable period (as demonstrated by the 2% decrease in heating degree days and 19% decrease in cooling degree days, as shown above)$(49.5)
Price: 
Net increase in the weighted average price of retail kWh sold, primarily due to new basic rates and charges that were effective on December 5, 2018 as a result of implementing the 2018 Base Rate Order and favorable block rate(1) and other retail rate variances, partially offset by decreases in environmental and DSM program rate adjustment mechanism revenues(2).
46.7
Increase in other retail revenues primarily due to updated estimates of 2018 DSM shared savings and lost revenues recorded in 2019.5.7
Net increase in price$52.4
  
Net increase in retail revenues$2.9
Volume:
Net decrease in the volume of kWh sold, primarily due to milder weather in our service territory versus the comparable period and lower demand resulting from impacts of COVID-19$(65.8)
Price:
Net decrease in the weighted average price of retail kWh sold, primarily due to lower fuel revenues, including a $10.0 million reduction due to excess earnings under FAC provisions (see Note 2, "Regulatory Matters - FAC and Authorized Annual Jurisdictional Net Operating Income" to the Financial Statements for more information), partially offset by favorable block rate(1) and other retail rate variances
(40.7)
(1)Other:Block rate variances are primarily attributable to our declining block rate structure, which generally provides for residential and commercial customers to be charged a higher per kWh rate at lower consumption levels. Therefore, as volumes decrease, the weighted average price per kWh increases and vice versa.1.2 
(2)Net decrease in retail revenuesThe decreases in environmental and DSM program rate adjustment mechanism revenues are offset by decreases in operating expenses.$(105.3)


(1)Block rate variances are primarily attributable to our declining block rate structure, which generally provides for residential and commercial customers to be charged a higher per kWh rate at lower consumption levels. Therefore, as volumes decrease, the weighted average price per kWh increases and vice versa.

Wholesale Revenues

The increasedecrease in wholesale revenues of $29.7$22.0 million was primarily due to a $46.2$21.5 million increase in the quantity of kWh sold primarily due to increased generation capacity asvolume decrease and a result of the commencement of commercial operations of the newly constructed CCGT plant at Eagle Valley in April 2018 as well as increased unit availability as a result of outages, partially offset by a $16.5$0.5 million decrease in the weighted average price per kWh sold. We sold 2,718.41,866.0 million kWh in the wholesale market during 20192020 compared to 1,241.42,718.4 million kWh during 2018.2019 primarily due to lower demand and lower unit availability (mostly attributed to the timing of outages). 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. For the comparable period in 2018, 50% of IPL's annual wholesale margins above (or below) an established benchmark of $6.3 million were passed back (or charged) to
customer rates through the Off System Sales Margin rider (in accordance with the 2016 Base Rate Order). Effective December 5, 2018, with the implementation of the 2018 Base Rate Order, 100% of annual wholesale margins earned above (or below) a benchmark of $16.3 million are passed back (or charged) to customer rates through the Off System Sales Margin rider.

40

Operating Costs and Expenses

The following table illustrates our changes in Operating costs and expenses from 20182019 to 20192020 (in thousands):
Years Ended
December 31,
20202019$ Change% Change
Operating costs and expenses:
Fuel$247,105 $340,466 $(93,361)(27.4)%
Power purchased135,767 133,674 2,093 1.6 %
Operation and maintenance416,169 428,201 (12,032)(2.8)%
Depreciation and amortization246,896 240,314 6,582 2.7 %
Taxes other than income taxes44,516 42,236 2,280 5.4 %
      Total operating costs and expenses$1,090,453 $1,184,891 $(94,438)(8.0)%
 Years Ended  
 December 31,  
 20192018$ Change% Change
Operating costs and expenses:    
Fuel$340,466
$331,701
$8,765
2.6 %
Power purchased133,674
164,542
(30,868)(18.8)%
Operation and maintenance428,201
431,620
(3,419)(0.8)%
Depreciation and amortization240,314
232,332
7,982
3.4 %
Taxes other than income taxes42,236
53,952
(11,716)(21.7)%
      Total operating costs and expenses$1,184,891
$1,214,147
$(29,256)(2.4)%
     

Fuel

The increasedecrease in fuel costs of $8.8$93.4 million was primarily due to (i) the following:

•a $34.0 million increase in the quantity of fuel consumed versus the comparable period and (ii) a $15.7 million increase from deferred fuel costs, partially offset by (iii) a $30.5$38.0 million decrease due to the lower price of natural gas consumed versus the comparable periodperiod;
•a $34.4 million decrease in the quantity of fuel consumed versus the comparable period;
•an $11.6 million decrease from deferred fuel costs; and (iv) a $11.4
•an $8.9 million decrease due to the lower price of coal 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. For further discussion, please see Note 2, "Regulatory Matters - FAC and Authorized Annual Jurisdictional Net Operating Income” to the Financial Statements of this Form 10-K. Additionally, fuel and purchased power costs incurred for wholesale energy sales are considered in the Off System Sales Margin rider discussed above. As a result of the 100% sharing that began December 5, 2018, fluctuations in such costs will not have an impact on our earnings from operations before income taxes.rider.

Power Purchased

The decreaseincrease in purchased power costs of $30.9$2.1 million was primarily due to (i) the following:

•a 42% decrease$48.6 million increase due to a 45% increase in the volume of power purchased during the period ($55.5 million) and (ii) capacity expense (including deferrals) declining by $3.6 million versus the prior period primarily due to the CCGT plant at Eagle Valley commencing commercial operations in April 2018 (as discussed above),period; partially offset by (iii)
•a $28.3$46.7 million increasedecrease 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 relative cost of producing power versus purchasing power in the market. The primary driver for the $55.5$48.6 million volume decreaseincrease was due to IPL's generation units running less frequently during 2020 due to lower demand and the commencementmarket prices of commercial operations of the CCGT plant at Eagle Valley in April 2018,purchased power, as well as the timing and duration of outages during these respective periods. 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 during which power is purchased.


41

Operation and Maintenance

The decrease in Operation and maintenance expense of $3.4$12.0 million was primarily due to the following:

lower•decreased maintenance expenses of $13.7 million primarily due to decreased outage costs; and
•a $6.2 million write-off of materials and supplies inventory recorded in December 2019 (for further discussion, see Note 2, “Regulatory Matters - IRP Filing”).

These decreases were partially offset by:

•increase in MISO non-purchased power costs (primarily transmission related expenses) of $4.3 million; and
•higher DSM program costs of $15.7$3.2 million (these program costs are recoverable through customer rates and are offset by a decreasean increase in DSM revenues); and.
decrease in deferred environmental project expenses of $15.6 million 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 (these project expenses are recoverable through customer rates and are offset by a decrease in environmental revenues).

These were partially offset by:

increased maintenance expenses of $18.2 million primarily due to increased distribution line clearance costs, including vegetation management; and
•
a $6.2 million write-off of materials and supplies inventory recorded in December 2019 (for further discussion, see Note 2, “Regulatory Matters - IRP Filing”).

Depreciation and Amortization

The increase in Depreciation and amortization expense of $8.0$6.6 million was mostly attributed to the impact of additional assets placed in service (primarily the newly constructed CCGT plant at Eagle Valley) and no longer deferring depreciation expense on the Eagle Valley CCGT (in accordance with the 2018 Base Rate Order).service.

Taxes Other Than Income Taxes

The decreaseincrease in Taxes other than income taxes of $11.7$2.3 million was mostly attributed to lowerhigher property taxes of $10.0$1.9 million primarily as a result of lowerhigher assessed values and a favorable adjustment related to 2018 property taxes recorded in 2019.values.

Other Income / (Expense), Net

The following table illustrates our changes in Other income / (expense), net from 20182019 to 20192020 (in thousands):
 Years Ended  
 December 31,  
 20192018$ Change% Change
Other income/(expense), net    
Allowance for equity funds used during construction$3,486
$8,477
$(4,991)(58.9)%
Interest expense(121,771)(95,509)(26,262)27.5 %
Other income / (expense), net(10,546)(1,852)(8,694)469.4 %
      Total other income/(expense), net$(128,831)$(88,884)$(39,947)44.9 %
     

Allowance for Equity Funds Used During Construction

The decrease in Allowance for equity funds used during construction of $5.0 million was primarily due to a lower average construction work in progress balance compared to the comparable period (due to the commencement of commercial operations at the Eagle Valley CCGT in April 2018).



Years Ended
December 31,
20202019$ Change% Change
Other income/(expense), net
Allowance for equity funds used during construction$4,574 $3,486 $1,088 31.2 %
Interest expense(129,493)(121,771)(7,722)6.3 %
Loss on early extinguishment of debt(2,424)— (2,424)#DIV/0!
Other income / (expense), net3,370 (10,546)13,916 (132.0)%
      Total other income/(expense), net$(123,973)$(128,831)$4,858 (3.8)%
Interest Expense

The increase in Interest expense of $26.3$7.7 million was primarily due to a $23.1(i) amortization of unrealized losses on interest rate hedges of $5.4 million decreasebeginning in the allowance for borrowed funds used during construction, which IPL earned in the prior period on the Eagle Valley CCGT until the 2018 Base Rate Order was approved in December 2018,April 2020 and (ii) higher interest expense on long-term debt of $2.8 million.$3.0 million mostly due to higher rates.

Loss on Early Extinguishment of Debt

The increase in Loss on Early Extinguishment of Debt of $2.4 million was primarily due to a make-whole premium and write-off of deferred financing costs due to the redemption of $405 million of 2020 IPALCO Notes and $65 million IPALCO Term Loan in the second quarter of 2020.

Other Income/(Expense), Net

The decreaseincrease in Other income/(expense), net of $8.7$13.9 million was primarily due to an increasea decrease in defined benefit plan costs of $11.5$16.1 million due to a lowerhigher expected return on plan assets in 2019 compared to 2018.the prior year.


42

Income Tax Expense

The following table illustrates our changes in income tax expense from 20182019 to 20192020 (in thousands):
Years Ended
December 31,
20202019$ Change% Change
Income tax expense$28,592 $35,528 $(6,936)(19.5)%
 Years Ended  
 December 31,  
 20192018$ Change% Change
Income tax expense$35,528
$13,449
$22,079
164.2%
     

The increasedecrease in income tax expense of $22.1$6.9 million was primarily due to (i) tax benefits recorded in 2018 associated with the amortization of the impact of the lower income tax rate resulting from the TCJA on our deferred tax balances and (ii) higher pretax income versus the comparable period.

KEY TRENDS AND UNCERTAINTIES

During 20202021 and beyond, we expect that our financial results will be driven primarily by retail demand, weather, and maintenance costs. In addition, our financial results will likely be driven by many other factors including, but not limited to:
▪regulatory outcomes and impacts;
▪the passage of new legislation, implementation of regulations or other changes in regulation; and
▪timely recovery of capital expenditures.
▪regulatory outcomes and impacts;
▪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 report impact us more significantly than we currently anticipate, 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” of this Form 10-K.
COVID-19 Pandemic
The COVID-19 pandemic has impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. In response to the COVID-19 pandemic, the Governor of Indiana also issued an Executive Order prohibiting electric utilities, including us, from discontinuing electric utility service to customers through August 14, 2020, which prohibition has lapsed.
In addition to the impacts to demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control. We experienced impacts from the pandemic in 2020 and into 2021 and expect to continue to experience impacts for the remainder of 2021, and any such impacts during that time or in other future periods could have material and adverse effects on our results of operations, financial condition and cash flows. The following discussion highlights our assessment of the impacts of the COVID-19 pandemic on our current financial and operating status, and our financial and operational outlook based on information known as of this filing. Also see "Item 1A. Risk Factors" of this Form 10-K.

Business Continuity - During the COVID-19 pandemic, we are taking a variety of measures to ensure our ability to generate, transmit, distribute and sell electric energy, to ensure the health and safety of our employees, contractors, customers and communities and to provide essential services to the communities in which we operate. We continue to respond to this global crisis through comprehensive measures to protect our employees and others while fulfilling our vital role in providing our customers with electric energy. While stay-at-home restrictions have been lifted in our service territory, most of our management and administrative personnel are able to work remotely, and we have not experienced significant issues affecting our operations or ability to maintain effective internal controls and produce reliable financial information.

Demand - The economic impact of the COVID-19 pandemic started to materialize in Indiana in the second half of March 2020 and continued for the remainder of 2020 and into 2021. See Note 15, "Risks and Uncertainties - COVID-19 Pandemic" for further discussion of how the COVID-19 pandemic has impacted our sales demand and Note 13, "Revenue" to the Financial Statements for a disaggregation of retail revenues by customer class. The declines for small and large commercial and industrial customers were most severe in April and May, and partially
43

recovered the remainder of the year as stay-at-home orders were lifted. While we cannot predict the length and magnitude of the COVID-19 pandemic or how it could ultimately impact global or local economic conditions, continuous and/or further declines in future demand would adversely impact our financial results for 2021 and beyond.

Liquidity - We anticipate continuing to have sufficient liquidity to make all required payments, including payments for salaries and wages owed to our employees, during the COVID-19 pandemic. We also continue to not foresee a significant impact to our access to capital or our liquidity position as a result of the COVID-19 pandemic. During the second quarter of 2020, IPALCO accessed the capital markets to issue $475 million in principal amount of 4.25%, ten-year notes, which has been used to repay IPALCO debt due to mature in 2020. In addition, during the fourth quarter of 2020 IPL issued $90 million aggregate principal amount of first mortgage bonds and used the proceeds to refund $90 million of Indiana Finance Authority Environmental Facilities Refunding Revenue Bonds Series 2015A&B. For further discussion of our financial condition, liquidity, and capital requirements, see "Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity" of this Form 10-K.

Credit Exposures - We continue to monitor and manage our credit exposures in a prudent manner. During the year ended December 31, 2020 and into 2021, we experienced credit-related impacts from utility customers due to the prohibition of electric utilities, including us, from discontinuing electric utility service to customers and due to the economic impacts of the COVID-19 pandemic. This has resulted in an increase in past due customer receivable balances, and our allowance for credit losses has increased $2.2 million during the year ended December 31, 2020. See Note 1, "Overview and Summary of Significant Accounting Policies - Accounts Receivable" for further discussion of our allowance for credit losses. If these credit-related impacts from the COVID-19 pandemic continue into 2021 or beyond, further deterioration in our credit exposures and customer collections may result. See Note 2, "Regulatory Matters" for a discussion of regulatory measures which mitigate this impact.

Supply Chain - Our supply chain management has remained robust during this challenging time and we continue to closely manage and monitor developments.

Capital Projects - During the COVID-19 pandemic, our construction projects are proceeding without material delays. For further discussion of our capital requirements, see "Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity" of this Form 10-K.

CARES Act - The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by the U.S. Congress and signed into law on March 27, 2020. While we currently expect a limited impact from this legislation on our business, we have deferred the payment of federal payroll taxes in accordance with the provisions of this act. At December 31, 2020, the total deferral was approximately $2.5 million.

See Note 15, "Risks and Uncertainties" to the Financial Statements and "Item 1A. Risk Factors" of this Form 10-K for more information.

Operational
We planAs part of IPL's December 2019 Integrated Resource Plan filing, IPL has plans to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 22. IPL issued an all-source request for proposal to competitively procure replacement capacity by June 1, 2023, (forwhich is the first year IPL is expected to have a capacity shortfall. Proposals were received through February 28, 2020 and are currently being evaluated. On February 5, 2021, IPL announced an agreement to acquire a 195 MW solar project, subject to approval from the IURC. For further discussion, see Note 2, "“Regulatory Matters - IRP Filing” Filing"to the Financial Statements of this Form 10-K).10-K.
Regulatory Environment
For a discussion of the regulatory environment related to our business, including adjustments to fuel cost recovery that may be required by IPL's FAC if jurisdictional net operating income is higher than authorized, see “Item 1. Business – Regulation” and Note 2, “Regulatory Matters” to the Financial Statements of this Form 10-K.


44

Macroeconomic and Political

Federal Taxes — In December 2017, the U.S. federal government enacted the TCJA. The legislation significantly revised the U.S. corporate income tax system by, among other things, lowering corporate income tax rates and introducing new limitations on interest expense deductions beginning in 2018. These changes impacted our 2018 and 2019 effective tax rates and will materially impact our effective tax rate in future periods. Our interpretation of


the TCJA may change as the U.S. Treasury and the Internal Revenue Service issue additional guidance. Such changes may be material.

State Taxes —The state of Indiana has largely conformed to the TCJA.

Reference Rate Reform

In July 2017, the UK Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In the U.S., the Alternative Reference Rate Committee at the Federal Reserve identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for LIBOR; alternative reference rates in other key markets are under development. While IPALCO maintainsOn November 30, 2020, the ICE Benchmark Association ("IBA") announced it had begun consultation on its intention to cease publication of two specific LIBOR rates by December 31, 2021, while extending the timeline for the overnight, one-month, three-month, six-month, and 12-month USD LIBOR rates through June 30, 2023. The IBA expects to make separate announcements in this regard following the outcome of the consultation. We maintain financial instruments referencingthat use LIBOR as an interest rate benchmark, we have not yet executed any technical amendments or other contractual alternatives to address this matter.benchmark. Although the full impact of the reform remains unknown, we have begun to engage with IPALCO and IPLour counterparties to discuss specific action items to be undertaken in order to prepare for amendments when such contractsthey become due.

CAPITAL RESOURCES AND LIQUIDITY

As of December 31, 2019,2020, we had unrestricted cash and cash equivalents of $48.2$20.5 million and available borrowing capacity of $250 millionof $175 million under our unsecured revolving Credit Agreement. 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 the FERC to borrow up to $500 million of short-term indebtedness outstanding at any time through July 26, 2020.2022. In December 2018, we received an order from the IURC granting us authority through December 31, 2021 to, among other things, issue up to $350 million in aggregate principal amount of long-term debt, and refinance up to $185 million in existing indebtedness, all of which authority remains available under the order as of December 31, 2019.2020, and refinance up to $185 million in existing indebtedness, of which $95 million of authority remains available under the order as of December 31, 2020. 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 December 31, 2019.2020. As an alternative to the sale of all or a portion of $65 million in principal of the long-term debt, 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 December 31, 2019.2020. 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 Agreement 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 activities; (iii) borrowing capacity on our committed Credit Agreement; (iv) additional debt financing; and (v) equity capital contributions. 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.

IPL Unsecured NotesFirst Mortgage Bonds

In December 2020, the Indiana Finance Authority issued on behalf of IPL an aggregate principal amount of $90 million of Environmental Facilities Refunding Revenue Bonds, Series 2020A&B due December 2038. For further discussion, please see Note 7, " Debt - IPL First Mortgage Bonds."

IPL has $90$95 million of unsecured notes3.875% IPL first mortgage bonds that are due December 22, 2020.August 1, 2021. For further discussion, please see Note 7, “Debt - IPL Unsecured Notes.First Mortgage Bonds.”

IPALCO’s Senior Secured Notes and Term Loan

In April 2020, IPALCO has $405completed the sale of the $475 million of 3.45% Senior Secured2030 IPALCO Notes due July 15,priced at 4.25%, with the net proceeds from this offering used to retire the Term Loan on April 14, 2020. The remaining net proceeds, together with cash on hand, were used to redeem the 2020 IPALCO Notes on May 14, 2020, and a $65 million Term Loan due July 1, 2020.to pay certain related fees,
45

expenses and make-whole premiums. For further discussion, please see Note 7, “Debt - IPALCO's Senior Secured Notes and Term Loan.”



Cash Flows

The following table provides a summary of our cash flows:
Years ended December 31,$ Change
2020201920182020 vs. 2019
(in thousands)(in thousands)
Net cash provided by operating activities$295,425 $397,815 $381,012 $(102,390)
Net cash used in investing activities(275,769)(237,448)(253,952)(38,321)
Net cash used in financing activities(41,586)(145,414)(124,142)103,828 
     Net change in cash and cash equivalents(21,930)14,953 2,918 (36,883)
Cash, cash equivalents and restricted cash at beginning of period48,552 33,599 30,681 14,953 
Cash and cash equivalents at end of period$26,622 $48,552 $33,599 $(21,930)
  Years ended December 31, $ Change
  2019 2018 2017 2019 vs. 2018
  (in thousands) (in thousands)
Net cash provided by operating activities $397,815
 $381,012
 $285,260
 $16,803
Net cash used in investing activities (237,448) (253,952) (236,432) 16,504
Net cash used in financing activities (145,414) (124,142) (53,100) (21,272)
     Net change in cash and cash equivalents 14,953
 2,918
 (4,272) 12,035
Cash, cash equivalents and restricted cash at beginning of period 33,599
 30,681
 34,953
 2,918
Cash and cash equivalents at end of period $48,552
 $33,599
 $30,681
 $14,953
         


2020 versus 2019
2019 versus 2018

Operating Activities

The following table summarizes the key components of our consolidated operating cash flows:
Years ended December 31,$ Change
2020201920182020 vs. 2019
(in thousands)(in thousands)
Net income$109,967 $132,393 $134,025 $(22,426)
Depreciation and amortization246,896 240,314 232,332 6,582 
Amortization of debt premium3,942 4,109 3,975 (167)
Deferred income taxes and investment tax credit adjustments2,854 15,277 (15,735)(12,423)
Loss on early extinguishment of debt2,424 — — 2,424 
Allowance for equity funds used during construction(4,574)(3,486)(8,477)(1,088)
     Net income, adjusted for non-cash items361,509 388,607 346,120 (27,098)
Net change in operating assets and liabilities(66,084)9,208 34,892 (75,292)
     Net cash provided by operating activities$295,425 $397,815 $381,012 $(102,390)
  Years ended December 31, $ Change
  2019 2018 2017 2019 vs. 2018
  (in thousands) (in thousands)
Net income $132,393
 $134,025
 $108,793
 $(1,632)
Depreciation and amortization 240,314
 232,332
 208,451
 7,982
Amortization of debt premium 4,109
 3,975
 4,202
 134
Deferred income taxes and investment tax credit adjustments 15,277
 (15,735) (3,506) 31,012
Loss on early extinguishment of debt —
 —
 8,875
 —
Allowance for equity funds used during construction (3,486) (8,477) (25,798) 4,991
     Net income, adjusted for non-cash items 388,607
 346,120
 301,017
 42,487
Net change in operating assets and liabilities 9,208
 34,892
 (15,757) (25,684)
     Net cash provided by operating activities $397,815
 $381,012
 $285,260
 $16,803
         

The net change in operating assets and liabilities for the year ended December 31, 20192020 compared to the year ended December 31, 20182019 was driven by the following (in thousands):
Decrease from inventories is primarily due to higher inventory balances as IPL's generation units ran less frequently during 2020$(28,814)
Decrease from accounts payable due to timing of payments(23,369)
Decrease from short-term and long-term regulatory assets and liabilities is primarily due to a decrease in the ECCRA regulatory liability as we return certain benefits to customers(14,311)
Decrease from accrued and other current liabilities primarily due to a decrease in customer deposits as IPL credited back and did not collect customer deposits during a portion of 2020 per the IURC COVID-19 order(12,627)
Decrease from pension and other postretirement benefit obligations is primarily due to an increase in funded status due to lower net periodic benefit costs(12,405)
Decrease from higher accounts receivable balances primarily due to timing of collections(10,572)
Increase from accrued taxes payable/receivable primarily due to higher current portion income tax expense in the current year and lower tax sharing and property tax payments22,393 
Other4,413 
Net change in operating assets and liabilities$(75,292)

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Decrease from short-term and long-term regulatory assets and liabilities primarily due to proceeds IPL received in the prior year pursuant to a settlement agreement and a prior year increase to regulatory liabilities to record the impacts of the TCJA on customer rates. IPL has been passing both of these benefits on to customers in 2019. $(75,726)
Decrease from accrued taxes payable/receivable primarily due to timing of tax sharing payments and lower current income tax expense in 2019. (18,878)
Increase from pension and other postretirement benefit obligations primarily due to lower employer contributions 36,154
Increase from accounts receivable, primarily due to a decrease in Retail revenues at the end of 2019 as compared to the end of 2018 due to mild weather 16,413
Increase from inventories, primarily due to less consumption in 2019 17,226
Increase from accrued and other current liabilities and prepayments and other current assets primarily due to timing of payments 8,115
Other (8,988)
Net change in operating assets and liabilities $(25,684)




Investing Activities

Net cash used in investing activities increased $16.5$38.3 million for the year ended December 31, 20192020 compared to the year ended December 31, 2018,2019, which was primarily driven by (in thousands):
Higher cash outflows for capital expenditures due to higher growth related capital expenditures primarily from TDSIC Plan investments, partially offset by lower maintenance related capital expenditures$(22,081)
Higher cash outflows on cost of removal and regulatory recoverable ARO payments due to timing of such payments(15,948)
Other(292)
Net change in investing activities$(38,321)
Lower cash outflows for capital expenditures due to decreased growth and environmental related capital expenditures, partially offset by higher maintenance related capital expenditures $10,716
Lower cash outflows on cost of removal and regulatory recoverable ARO payments due to timing of such payments 7,705
Other (1,917)
Net change in investing activities $16,504

Financing Activities

Net cash used in financing activities decreased $21.3$103.8 million for the year ended December 31, 20192020 compared to the year ended December 31, 2018,2019, which was primarily driven by (in thousands):
Increase from long-term borrowings, net of discount due primarily to the April 2020 issuance of the $475 million 4.25% 2030 senior secured notes, and the December 2020 issuance of the $90M series 2020A and 2020B bonds$564,568 
Increase from net borrowings under revolving credit facilities due to higher net draws on IPL's line of credit in 202075,000 
Lower distributions to shareholders27,687 
Decrease from retirement of long-term debt, including early retirement premium primarily due to the April 2020 retirement of a $65.0 million Term Loan, the May 2020 retirement of the $405.0 million 3.45% senior secured notes, and the December 2020 repayment of the $90.0M series 2015A and 2015B notes(562,135)
Other(1,292)
Net change in financing activities$103,828
Decrease from long-term borrowings, net of discount due to the October 2018 issuance of a $65.0 million Term Loan and a November 2018 issuance of $105.0 million first mortgage bonds $(169,936)
Increase from net short-term borrowings due to higher net repayments on IPL's line of credit in 2018 148,000
Higher distributions to shareholders (6,247)
Lower payments for financed capital expenditures 5,806
Other 1,105
Net change in financing activities $(21,272)

Capital Requirements

Capital Expenditures

Our capital expenditure program, including development and permitting costs, for the three-year period from 20202021 through 20222023 is currently estimated to cost approximately $1.1$1.5 billion (excluding environmental compliance), and includes estimates as follows (amounts in millions):
For the three-year period
202120222023from 2021 through 2023
Transmission and distribution related additions, improvements and extensions$287 $268 $287 $842 (1)
Power plant related projects55 266 222 543 
Other miscellaneous equipment63 53 35 151 
Total estimated costs of capital expenditure program$405 $587 $544 $1,536 
(1) Additions, improvements and extensions to transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers and street lighting facilities

The amounts described in the capital expenditure program above include spending under IPL's TDSIC plan approved by the IURC on March 4, 2020 for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027 (which includes estimated spending of $176.5 million in 2021, $190.0 million in 2022 and $212.6 million in 2023, respectively). Total TDSIC costs expended through December 31, 2020 were $145.8 million.

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     For the three-year period 
  202020212022from 2020 through 2022 
Transmission and distribution related additions, improvements and extensions $208
$277
$307
$792
(1) 
Power plant-related projects 61
59
70
190
 
Other miscellaneous equipment 31
42
41
114
 
Total estimated costs of capital expenditure program $300
$378
$418
$1,096
 
       
(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 $18 millionestimated capital expenditure spending on environmental compliance costs for the three-year period 2020from 2021 through 20222023 includes the following (amounts in millions):
Total Estimated CostsTotal Costs ExpendedRemaining Costs
of ProjectThrough December 31, 2020of Project
NAAQS SO2 (1)
$27 $26 $1 
Cooling water intake regulations (2)
$9 $2 $7 
(1) Includes spending for projects underway related to environmental compliance for NAAQS SO2.
(2) Includes spending for studies related to cooling water intake requirements in section 316(b) of the CWA.
  Total Estimated Costs Total Costs Expended Remaining Costs 
  
of Project (1)
 
Through December 31, 2019 (1)
 of Project 
NAAQS Ozone $25
 $15
 $10
 
NAAQS SO2 (2)
 $29
 $28
 $1
 
Cooling water intake regulations (3)
 $8
 $1
 $7
 
        
(1) Reflects total costs from project inception.
(2) IPL plans to spend a total of $29 million through 2020 for projects underway related to environmental compliance for NAAQS SO2.
(3) Includes spending for studies related to cooling water intake requirements in section 316(b) of the CWA.

Please see “Item 1. Business - Environmental Matters" for additional details on each of these projects.



The amounts described in the capital expenditure program above include spending under IPL's TDSIC plan filed with the IURC on July 24, 2019 for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027.

Capital Resources

As IPALCO is a holding company, substantially all of its cash is generated by the operating activities of its subsidiaries, principally IPL. None of its subsidiaries, including IPL, are obligated under or have guaranteed to make payments with respect to the Term Loan, 20202024 IPALCO Notes or the 20242030 IPALCO Notes; however, all of IPL’s common stock is pledged to secure these debt obligations. Accordingly, IPALCO’s ability to make payments on the Term Loan, 20202024 IPALCO Notes and the 20242030 IPALCO Notes depends on the ability of IPL to generate cash and distribute it to IPALCO.  

Liquidity

We expect our existing sources of liquidity to remain sufficient to meet our anticipated operating needs. Our business is capital intensive, requiring significant resources to fund operating expenses, construction expenditures, scheduled debt maturities and carrying costs, potential margin requirements related to energyinterest rate and commodity hedges, taxes and dividend payments. For 20202021 and subsequent years, we expect to satisfy these requirements with a combination of cash from operations, funds from debt financing, and funds from equity capital contributions as our internal liquidity needs and market conditions warrant. We also expect that the borrowing capacity under the Credit Agreement will continue to be available to manage working capital requirements during those periods. The absence of adequate liquidity could adversely affect our ability to operate our business, and our results of operations, financial condition and cash flows.

Indebtedness

Significant Debt Transactions

For further discussion of our significant debt transactions, please see Note 7, “Debt” to the Financial Statements of this Form 10-K.

Line of Credit

IPL entered into an amendment and restatement of its 5-year $250 million revolving credit facility on June 19, 2019 with a syndication of bank lenders, as discussed in Note 7, “Debt - Line of Credit” to the Financial Statements. This Credit Agreement is an unsecured committed line of credit to be used: (i) to finance capital expenditures; (ii) to refinance certain existing indebtedness, (iii) to support working capital; and (iv) for general corporate purposes.

We had the following amounts available under the revolving Credit Agreement:
$ in millionsTypeMaturityCommitmentAmounts available at December 31, 2020
IPLRevolvingJune 2024$250.0 $175.0 
$ in millions Type Maturity Commitment Amounts available at December 31, 2019
IPL Revolving June 2024 $250.0
 $250.0

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 on IPL’s Credit Agreement and other unsecured notes (as well as the amount of certain other fees in the Credit Agreement) are dependent
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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 ratingsIPALCOIPLOutlookEffective or Affirmed
Fitch Ratings
BBB (a)
A (b)
StableNovember 2020
Moody's Investors Service
Baa3 (a)
A2 (b)
StableNovember 2018
S&P Global Ratings
BBB- (a)
A- (b)
StableNovember 2019
Credit ratingsIPALCOIPLOutlookEffective or Affirmed
Fitch RatingsBBB-BBB+StableNovember 2020
Moody's Investors Service—Baa1StableNovember 2018
S&P Global RatingsBBBBBBStableNovember 2019
Debt ratingsIPALCOIPLOutlookEffective or Affirmed
Fitch Ratings
BBB (a)
A (b)
StableNovember 2019
Moody's Investors Service
Baa3 (a)
A2 (b)
StableNovember 2018
S&P Global Ratings
BBB- (a)
A- (b)
StableNovember 2019
Credit ratingsIPALCOIPLOutlookEffective or Affirmed
Fitch RatingsBBB-BBB+StableNovember 2019
Moody's Investors Service—Baa1StableNovember 2018
S&P Global RatingsBBBBBBStableNovember 2019
(a)Ratings relate to IPALCO's Senior Secured Notes.
(b)Ratings relate to IPL's Senior Secured Bonds.
(a)Ratings relate to IPALCO's Senior Secured Notes.
(b)Ratings relate to IPL's 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.

Contractual Cash Obligations

Our non-contingent contractual obligations as of December 31, 20192020 are set forth below:
 Payment due
 TotalLess Than 1 Year1 – 3
Years		3 – 5
Years		More Than
5 Years
 (In Millions)
Short-term and long-term debt$2,758.8 $170.0 $— $445.0 $2,143.8 
Interest obligations1,930.6 119.5 232.8 211.7 1,366.6 
Purchase obligations     
Coal, gas, purchased power and     
         related transportation1,182.7 209.1 237.2 214.1 522.3 
Other188.4 172.0 5.4 2.8 8.2 
Total$6,060.5 $670.6 $475.4 $873.6 $4,040.9 
  Payment due
  Total Less Than 1 Year 
1 – 3
Years
 
3 – 5
Years
 
More Than
5 Years
  (In Millions)
Long-term debt $2,678.8
 $560.0
 $95.0
 $445.0
 $1,578.8
Interest obligations 1,848.3
 109.4
 193.0
 186.0
 1,359.9
Purchase obligations          
Coal, gas, purchased power and          
         related transportation 1,435.3
 249.4
 343.0
 212.1
 630.8
Other 81.4
 52.4
 11.4
 7.0
 10.6
Total $6,043.8
 $971.2
 $642.4
 $850.1
 $3,580.1
           


Long-termShort-term and long-term debt:

Our short-term and long-term debt at December 31, 20192020 consists of outstanding borrowings on the committed line of credit, IPL first mortgage bonds IPL unsecured debt and IPALCO long-term debt. These long-term debt amounts include current maturities but exclude unamortized debt discounts and deferred financing costs. See Note 7, "Debt" to the FinancialFinancial Statements of this Form 10-K.

Interest obligations:

Interest payment obligations are associated with the short-term and long-term debt described above. The interest payments relating to variable-rate debt are projected using the interest rates in effect at December 31, 2019.2020.


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Purchase obligations:

Purchase commitments for coal, gas, purchased power and related transportation:
Electricity purchase commitments
:

IPL enters into long-term contracts for the purchase of electricity.coal, gas, purchased power and related transportation. In general, these contracts are subject to variable quantities or prices and are terminable only in limited circumstances.



Purchase orders and other contractual obligations:

At December 31, 2019,2020, we had various other contractual obligations including contracts to purchase goods and services with various terms and expiration dates. Due to uncertainty regarding the timing and payment of future obligations to the Service Company, and our ability to terminate such obligations upon 90 days' notice, we have excluded such amounts in the contractual obligations table above. This table also does not include (i) regulatory liabilities (see Note 2, "Regulatory Matters"), (ii) derivatives and incentive compensation (see Note 5, "Derivative Instruments and Hedging Activities"), (iii) taxes (see Note 8, "Income Taxes"), (iv) pension and other postretirement employee benefit liabilities (see Note 9, "Benefit Plans") and (v) contingencies (see Note 10, "Commitments and Contingencies"). See the indicated notes to the Financial Statements of this Form 10-K for additional information on the items excluded.

Reserve for uncertain tax positions:

Due to the uncertainty regarding the timing of future cash outflows associated with our unrecognized tax benefits of $7.1$7.4 million at December 31, 2019,2020, we are unable to make a reliable estimate of the periods of cash settlement with the respective tax authorities and have not included such amounts in the contractual obligations table above.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in accordance with GAAP. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period presented. Therefore, the possibility exists for materially different reported amounts under different conditions or assumptions. Significant accounting policies used in the preparation of the consolidated financial statements are described in Note 1, “Overview and Summary of Significant Accounting Policies” to the Financial Statements. This section addresses only those accounting policies involving amounts material to our financial statements that require the most estimation, judgment or assumptions and should be read in conjunction with Note 1, “Overview and Summary of Significant Accounting Policies” to the Financial Statements.

Revenue Recognition

Revenues related to the sale of energy are generally recognized when service is rendered or energy is delivered to customers. However, the determination of the energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is accrued. In making our estimates of unbilled revenue, we use complex models that consider various factors including daily generation volumes; known amounts of energy usage by nearly all residential, small commercial and industrial customers; estimated line losses; and estimated customer rates based on prior period billings. Given the use of these models, and that customers are billed on a monthly cycle, we believe it is unlikely that materially different results will occur in future periods when revenue is billed. The effect on 20192020 revenues and ending unbilled revenues of a one percentage point change in estimated line losses for the month of December 20192020 is immaterial. An allowance for potential credit losses is maintained and amounts are written off when normal collection efforts have been exhausted.

Income Taxes

We are subject to federal and state income taxes. Our income tax provision requires significant judgment and is based on calculations and assumptions that are subject to examination by the U.S. Internal Revenue Service and other tax authorities. We regularly assess the potential outcome of tax examinations when determining the adequacy of our income tax provisions by considering the technical merits of the filing position, case law, and
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results of previous tax examinations. Accounting guidance for uncertainty in income taxes prescribes a more-likely-than-not recognition threshold and measurement requirements for financial statement reporting of our income tax positions. Tax reserves have been established, which we believe to be adequate in relation to the potential for additional assessments. Once established, reserves are adjusted only when there is more information available or when an event occurs necessitating a change to the reserves. While we believe that the amount of the tax reserves is reasonable, it is possible that the ultimate outcome of current or future examinations may be materially different than the reserve amounts.



Regulation

As a regulated utility, we apply the provisions of ASC 980 “Regulated Operations,” which gives recognition to the ratemaking and accounting practices of the IURC and the FERC. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds or future rate reductions to customers for previous overcollections or the deferral of revenues collected for costs that IPL expects to incur in the future. Specific regulatory assets and liabilities are disclosed in Note 2, “Regulatory Matters - Regulatory Assets and Liabilities” to the Financial Statements.  

The deferral of costs (as regulatory assets) is appropriate only when the future recovery of such costs is probable. In assessing probability, we consider such factors as specific orders from the IURC, regulatory precedent and the current regulatory environment. To the extent recovery of costs is no longer deemed probable, related regulatory assets would be required to be expensed in current period earnings. Our regulatory assets and liabilities have been created pursuant to specific orders of the IURC or established regulatory practices, such as other utilities under the jurisdiction of the IURC being granted recovery of similar costs. It is probable, but not certain, that these regulatory assets will be recoverable, subject to IURC approval.

AROs

In accordance with the provisions of GAAP relating to the accounting for AROs, legal obligations associated with the retirement of long-lived assets are required to be recognized at their fair value at the time those obligations are incurred. Upon initial recognition of a legal liability, costs are capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. These GAAP provisions also require that components of previously recorded depreciation related to the cost of removal of assets upon future retirement, whether legal AROs or not, must be removed from a company’s accumulated depreciation reserve and be reclassified as a regulatory liability. We make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities and expenses as they relate to AROs. These assumptions and estimates are based on historical experience and assumptions that we believe to be reasonable at the time. See Note 3, "Property, Plant and Equipment - ARO" to the Financial Statements for more information.

Pension Costs

We account for and disclose pension and postemployment benefits in accordance with the provisions of GAAP relating to the accounting for pension and other postemployment plans. These GAAP provisions require the use of assumptions, such as the discount rate for liabilities and long-term rate of return on assets, in determining the obligations, annual cost and funding requirements of the plans.
Contingencies
We accrue for loss contingencies when the amount of the loss is probable and estimable. We are subject to various environmental regulations and are involved in certain legal proceedings. If our actual environmental and/or legal obligations are different from our estimates, the recognition of the actual amounts may have a material impact on our results of operations, financial condition and cash flows; although that has not been the case during the periods covered by this report. Please see Note 10, “Commitments and Contingencies” to the Financial Statements for information about significant contingencies involving us.

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NEW ACCOUNTING STANDARDS

Please see Note 1, “Overview and Summary of Significant Accounting Policies” to the Financial Statements for a discussion of new accounting pronouncements and the potential impact to our results of operations, financial condition and cash flows.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

Overview

The primary market risks to which we are exposed are those associated with environmental regulation, debt and equity investments, fluctuations in interest rates and the prices of SO2 allowances and certain raw materials. We sometimes use financial instruments and other contracts to hedge against such fluctuations, including, on a limited basis, financial and commodity derivatives. We generally do not enter into derivative instruments for trading or speculative purposes. Our U.S. Risk Management Committee (U.S. RMC), comprised of members of senior management, is responsible for establishing risk management policies and the monitoring and reporting of risk exposures related to our operations. The U.S. RMC meets on a regular basis with the objective of identifying, assessing and quantifying material risk issues and developing strategies to manage these risks.

The disclosures presented in this section are based upon a number of assumptions; actual effects may differ. The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 shall apply to the disclosures contained in this section. For further information regarding market risk, see "Item 1A.—Risk Factors." Our businesses may incur substantial costs and liabilities and be exposed to price volatility as a result of risks associated with the electricity markets, which could have a material adverse effect on our financial performance; and we may not be adequately hedged against our exposure to changes in interest rates.

Wholesale Sales

We engage in wholesale power marketing activities that primarily involve the offering of utility-owned or contracted generation into the MISO day-ahead and real-time markets. Our ability to compete effectively in the wholesale market is dependent on a variety of factors, including our generating availability, the supply of wholesale power, the demand by load-serving entities, and the formation of IPL’s offers into the market. Our wholesale revenues are generated primarily from sales directly to the MISO energy market. The average price per MWh we sold in the wholesale market was $24.91, $25.19 and $31.26 in 2020, 2019 and $31.99 in 2019, 2018, and 2017, respectively. For the periods presented in the Financial Statements of this Form 10-K, a decline in wholesale prices could have had a negative impact on earnings, because most of our non-fuel costs are fixed in the short term and lower wholesale prices can result in lower wholesale volumes sold. However, after the implementation of the 2018 Base Rate Order in December 2018, the impact is limited as the order provides that annual wholesale margins earned above (or below) a benchmark of $16.3 million shall be passed back (or charged) to customer rates through a rate adjustment mechanism. Our wholesale revenues represented 2.2%2.6% of our total electric revenues over the past five years. As a result, we anticipate that a 10% change in the market price for wholesale electricity would not havehave a material impact onon our results of operations.

Fuel

We have limited exposure to commodity price risk for the purchase of coal and natural gas, the primary fuels used by us for the production of electricity. We manage this risk for coal by providing for alla significant portion of our current projected burn through 20202021 and approximately 57%28% of our current projected burn for the three-year period ending December 31, 2022,2023, under long-term contracts. Our current hedge percentage is lower than normal because we have delayed term purchases until the Spring of 2021 to manage our existing higher coal inventory levels. In addition, IPL has established physical natural gas hedges for firm gas supply of approximately 50%100% of the expected consumption at Eagle Valley during the 20202021 winter period.period, which price off the daily natural gas index for the respective physical hubs. Pricing provisions in some of our long-term contracts allow for price changes under certain circumstances. FuelExisting coal purchases made in 2020 have been and2021 are expected to continue to be made at prices that are slightly lowerhigher than our weighted average price in 2019.2020. New coal purchases transacted for 2021 are expected to be lower than the weighted average price of 2020. Our exposure to fluctuations in the price of fuel is limited because pursuant to Indiana law, we may apply to the IURC for a change in our fuel charge every three months to recover our estimated fuel costs, which may be above or below the levels included in our basic rates. We must present evidence in each FAC proceeding that we have made every reasonable effort to acquire fuel and generate or
52

purchase power or both so as to provide electricity to our retail customers at the lowest fuel cost reasonably possible.

Power Purchased

We depend on purchased power, in part, to meet our retail load obligations. As a result, we also have limited exposure to commodity price risk for the purchase of electric energy for our retail customers. Purchased power costs can be highly volatile. We are generally allowed to recover, through our FAC, the energy portion of purchased power costs incurred to meet jurisdictional retail load. In certain circumstances, we may not be allowed to recover a portion of purchased power costs incurred to meet our jurisdictional retail load. See Note 2, “Regulatory Matters - FAC and Authorized Annual Jurisdictional Net Operating Income” to the Financial Statements.

Equity MarketPrice Risk

Our Pension Plans are impacted significantly by the economy as a result of the Pension Plans being invested in common equity securities. The performance of the Pension Plans’ investments in such common equity securities and other instruments impacts our earnings as well as our funding liability. A hypothetical 10% decrease in prices


quoted by stock exchanges would result in a $21.4$32.3 million reduction in fair value as of December 31, 20192020 and approximately a $7.4$8.2 million increase to the 20202021 pension expense. Please see Note 9, “Benefit Plans” to the Financial Statements for additional Pension Plan information.

Interest Rate Risk

We use long-term debt as a significant source of capital in our business, which exposes us to interest rate risk. We do not enter into market risk sensitive instruments for trading purposes. We manage our exposure to interest rate risk through the use of fixed-rate debt and by refinancing existing long-term debt at times when it is deemed economic and prudent. In addition, IPL’s Credit Agreement and IPALCO's Term Loan bearbears interest at a variable ratesrate based either on the Prime interest rate or on the LIBOR. IPL’s Series 2015A and Series 2015B notes bear interest at variable rates based on the LIBOR. Fair values relating to financial instruments are dependent upon prevalent market rates of interest, primarily the LIBOR. At December 31, 2019,2020, we had approximately $2,523.8$2,683.8 million principal amount of fixed rate debt and $155.0$75.0 million principal amount of variable rate debt outstanding. In regard to our fixed rate debt, the interest rate risk with respect to long-term debt primarily relates to the potential impact a decrease in interest rates has on the fair value of our fixed-rate debt and not on our financial condition or results of operations.

Variable rate debt at December 31, 20192020 was comprised of $90.0$75.0 million under IPL's Series 2015A and Series 2015B notes and $65.0 million under IPALCO's Term Loan.Credit Agreement. Based on amounts outstanding as of December 31, 2019,2020, the effect of a 25 basis point change in the applicable rates on our variable-rate debt would change our annual interest expense and cash paid for interest by $0.4$0.2 million and $(0.40.2 million), respectively.

The following table shows our consolidated indebtedness (in millions) by maturity as of December 31, 2019:2020:
 20212022202320242025ThereafterTotalFair Value
Fixed-rate$95.0 $— $— $445.0 $— $2,143.8 $2,683.8 $3,295.6 
Variable-rate75.0 — — — — — 75.0 75.0 
Total Indebtedness$170.0 $— $— $445.0 $— $2,143.8 $2,758.8 $3,370.6 
Weighted Average Interest Rates by Maturity2.732%N/AN/A3.648%N/A4.673%4.388% 
  2020 2021 2022 2023 2024 Thereafter Total Fair Value
Fixed-rate $405.0
 $95.0
 $—
 $—
 $445.0
 $1,578.8
 $2,523.8
 $2,876.1
Variable-rate 155.0
 —
 —
 —
 —
 —
 155.0
 155.0
Total Indebtedness $560.0
 $95.0
 $—
 $—
 $445.0
 $1,578.8
 $2,678.8
 $3,031.1
Weighted Average Interest Rates by Maturity 3.144% 3.875% N/A N/A 3.648% 5.016% 4.357%  
                 

For further discussion of our fair value of our indebtedness and book value of our indebtedness please see Note 4, “Fair Value” and Note 7, “Debt” to the Financial Statements.

Retail Energy Market

The legislatures of several states have enacted laws that allow various forms of competition or that experiment with allowing some form of customer choice of electricity suppliers for retail sales of electric energy. Indiana has not done so. In Indiana, competition among electric energy providers for sales has focused primarily on the sale of bulk power to other public and municipal utilities. Indiana law provides for electricity suppliers to have exclusive retail
53

service areas. In order to increase sales, we work to attract new customers into our service territory. Although the retail sales of electric energy are regulated, we face competition from other energy sources. For example, customers have a choice of installing electric or natural gas home and hot water heating systems or installing qualified generation facilities on their premises.

Counterparty Credit Risk

At times, we may utilize forward purchase contracts to manage the risk associated with power purchases and could be exposed to counterparty credit risk in these contracts. We manage this exposure to counterparty credit risk by entering into contracts with companies that are expected to fully perform under the terms of the contract. Individual credit limits are generally implemented for each counterparty to further mitigate credit risk. We may also require a counterparty to provide collateral in the event certain financial benchmarks are not maintained, or certain credit ratings are not maintained. 



We are also exposed to counterparty credit risk related to our ability to collect electricity sales from our customers, which may be impacted by volatility in the financial markets and the economy. Historically, our write-offs of customer accounts have been immaterial, which is common for the electric utility industry. 

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51



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS
Page No.
IPALCO Enterprises, Inc. and Subsidiaries – Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – 2020, 2019 2018 and 20172018
5356
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 2018 and 20172018
5458
Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2020, 2019 2018 and 20172018
5559
Consolidated Balance Sheets as of December 31, 20192020 and 20182019
5660
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 2018 and 20172018
5761
Consolidated Statements of Common Shareholders’ Equity and Noncontrolling Interest
     for the Years ended December 31, 2020, 2019 2018 and 20172018
5862
Notes to Consolidated Financial Statements
5963
Indianapolis Power & Light Company and Subsidiary – Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – 2020, 2019 2018 and 20172018
95101
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 2018 and 20172018
96103
Consolidated Balance Sheets as of December 31, 20192020 and 20182019
97104
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 2018 and 20172018
98105
Consolidated Statements of Common Shareholder’s Equity for the Years Ended
     December 31, 2020, 2019 2018 and 20172018
99106
Notes to Consolidated Financial Statements
100107

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52



Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of IPALCO Enterprises, Inc.                                

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of IPALCO Enterprises, Inc. and subsidiaries (the Company) as of December 31, 20192020 and 2018,2019, the related consolidated statements of operations, comprehensive income / loss, common shareholders’ equity and noncontrolling interest, and cash flows for each of the three years in the period ended December 31, 2019,2020, and the related notes and financial statement schedules listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192020 in conformity with U.S. generally accepted accounting principles.

Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.



56

Regulatory Accounting


Regulatory Accounting
Description of the MatterAs described in Note 2 to the consolidated financial statements, the Company applies the provisions of FASC 980 “Regulated Operations”, which gives recognition to the ratemaking and accounting practices of the IURC and the FERC. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory assets can also represent performance incentives permitted by the regulator. Regulatory liabilities generally represent obligations to provide refunds or future rate reductions to customers for previous over collections or the deferral of revenues collected for costs that the Company expects to incur in the future. Accounting for the economics of rate regulation affects multiple financial statement line items, including property, plant, and equipment; regulatory assets and liabilities; operating revenues; and depreciation expense, and related disclosures in the Company’s consolidated financial statements.
Auditing the Company’s regulatory accounting was complex due to significant judgments made by management to support its assertions about the impact of future regulatory orders on the consolidated financial statements. In particular, there is subjectivity involved in assessing the impact of current and future regulatory orders on events that have occurred as of December 31, 2020, judgment required to evaluate the relevance and reliability of audit evidence to support impacted account balances and disclosures, and judgments involved in assessing the probability of recovery in future rates of incurred costs or refunds to customers. These assumptions have a significant effect on the regulatory assets and liabilities and related disclosures.
How We Addressed the Matter in Our AuditTo test the Company’s accounting for regulatory assets and liabilities, our audit procedures included, among others, reviewing relevant regulatory orders, statutes and interpretations; filings made by intervening parties; and other publicly available information, to assess the likelihood of recovery of regulatory assets in future rates or of a refund or future reduction in rates for regulatory liabilities based on precedents for the treatment of similar costs under similar circumstances. We evaluated the Company’s assertions regarding the probability of recovery of regulatory assets or refund or future reduction in rates for regulatory liabilities, to assess the Company’s assertion that amounts are probable of recovery or of a refund or future reduction in rates.




/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

Indianapolis, Indiana
February 27, 202024, 2021
 



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57


IPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of OperationsConsolidated Statements of OperationsConsolidated Statements of Operations
For the Years Ended December 31, 2019, 2018 and 2017
For the Years Ended December 31, 2020, 2019 and 2018For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)(In Thousands)(In Thousands)
 2019 2018 2017 202020192018
REVENUES $1,481,643
 $1,450,505
 $1,349,588
REVENUES$1,352,985 $1,481,643 $1,450,505 
      
OPERATING COSTS AND EXPENSES:      OPERATING COSTS AND EXPENSES:   
Fuel 340,466
 331,701
 281,542
Fuel247,105 340,466 331,701 
Power purchased 133,674
 164,542
 189,847
Power purchased135,767 133,674 164,542 
Operation and maintenance 428,201
 431,620
 385,906
Operation and maintenance416,169 428,201 431,620 
Depreciation and amortization 240,314
 232,332
 208,451
Depreciation and amortization246,896 240,314 232,332 
Taxes other than income taxes 42,236
 53,952
 44,644
Taxes other than income taxes44,516 42,236 53,952 
Total operating expenses 1,184,891
 1,214,147
 1,110,390
Total operating expenses1,090,453 1,184,891 1,214,147 
      
OPERATING INCOME 296,752
 236,358
 239,198
OPERATING INCOME262,532 296,752 236,358 
      
OTHER INCOME / (EXPENSE), NET:      OTHER INCOME / (EXPENSE), NET:   
Allowance for equity funds used during construction 3,486
 8,477
 25,798
Allowance for equity funds used during construction4,574 3,486 8,477 
Interest expense (121,771) (95,509) (101,130)Interest expense(129,493)(121,771)(95,509)
Loss on early extinguishment of debt —
 —
 (8,875)Loss on early extinguishment of debt(2,424)0 0 
Other income / (expense), net (10,546) (1,852) 2,753
Other income / (expense), net3,370 (10,546)(1,852)
Total other income / (expense), net (128,831) (88,884) (81,454)Total other income / (expense), net(123,973)(128,831)(88,884)
      
EARNINGS FROM OPERATIONS BEFORE INCOME TAX 167,921
 147,474
 157,744
EARNINGS FROM OPERATIONS BEFORE INCOME TAX138,559 167,921 147,474 
      
Less: income tax expense 35,528
 13,449
 48,951
Less: income tax expense28,592 35,528 13,449 
NET INCOME  132,393
 134,025
 108,793
NET INCOME 109,967 132,393 134,025 
      
Less: dividends on preferred stock 3,213
 3,213
 3,213
Less: dividends on preferred stock3,213 3,213 3,213 
NET INCOME APPLICABLE TO COMMON STOCK $129,180
 $130,812
 $105,580
NET INCOME APPLICABLE TO COMMON STOCK$106,754 $129,180 $130,812 
      
See notes to consolidated financial statements.


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58


IPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Comprehensive Income/(Loss)Consolidated Statements of Comprehensive Income/(Loss)Consolidated Statements of Comprehensive Income/(Loss)
For the Years Ended December 31, 2019, 2018 and 2017
For the Years Ended December 31, 2020, 2019 and 2018For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)(In Thousands)(In Thousands)
201920182017 202020192018
 
Net income applicable to common stock$129,180
$130,812
$105,580
Net income applicable to common stock$106,754 $129,180 $130,812 
 
Derivative activity: Derivative activity:
Change in derivative fair value, net of income tax benefit of $6,810, $0 and $0, for each respective period(19,750)—
—
Change in derivative fair value, net of income tax benefit of $8,876, $6,810 and $0, for each respective periodChange in derivative fair value, net of income tax benefit of $8,876, $6,810 and $0, for each respective period(27,779)(19,750)0 
Reclassification to earnings, net of income tax benefit of $1,313, $0 and $0, for each respective periodReclassification to earnings, net of income tax benefit of $1,313, $0 and $0, for each respective period4,109 0 0 
Net change in fair value of derivatives(19,750)—
—
 Net change in fair value of derivatives(23,670)(19,750)0 
 
Other comprehensive loss(19,750)—
—
Other comprehensive loss(23,670)(19,750)0 
 
Net comprehensive income$109,430
$130,812
$105,580
Net comprehensive income$83,084 $109,430 $130,812 
 
See notes to consolidated financial statements.


55
59


IPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Balance SheetsConsolidated Balance SheetsConsolidated Balance Sheets
(In Thousands)(In Thousands)(In Thousands)
 December 31, 2019 December 31, 2018 December 31, 2020December 31, 2019
ASSETS    ASSETS  
CURRENT ASSETS:    CURRENT ASSETS:
Cash and cash equivalents $48,152
 $33,199
 Cash and cash equivalents$20,502 $48,152 
Restricted cash 400
 400
 Restricted cash6,120 400 
Accounts receivable, net 161,090
 167,559
Accounts receivable, net of allowance for credit losses of $3,155 and $921, respectively Accounts receivable, net of allowance for credit losses of $3,155 and $921, respectively165,193 161,090 
Inventories 83,569
 99,668
 Inventories95,506 83,569 
Regulatory assets, current 37,398
 28,399
 Regulatory assets, current45,430 37,398 
Taxes receivable 23,670
 13,773
 Taxes receivable24,384 23,670 
Prepayments and other current assets 17,264
 15,573
 Prepayments and other current assets17,842 17,264 
Total current assets 371,543
 358,571
Total current assets374,977 371,543 
NON-CURRENT ASSETS:    NON-CURRENT ASSETS:  
Property, plant and equipment 6,398,612
 6,201,078
Property, plant and equipment6,530,395 6,398,612 
Less: Accumulated depreciation 2,414,652
 2,256,215
Less: Accumulated depreciation2,643,695 2,414,652 

 3,983,960
 3,944,863
3,886,700 3,983,960 
Construction work in progress 130,609
 111,723
 Construction work in progress209,584 130,609 
Total net property, plant and equipment 4,114,569
 4,056,586
Total net property, plant and equipment4,096,284 4,114,569 
OTHER NON-CURRENT ASSETS:  
  
OTHER NON-CURRENT ASSETS:  
Intangible assets - net 64,861
 40,848
 Intangible assets - net59,141 64,861 
Regulatory assets, non-current 355,614
 395,077
 Regulatory assets, non-current392,801 355,614 
Other non-current assets 22,082
 10,971
 Other non-current assets46,716 22,082 
Total other non-current assets 442,557
 446,896
Total other non-current assets498,658 442,557 
TOTAL ASSETS $4,928,669
 $4,862,053
TOTAL ASSETS$4,969,919 $4,928,669 
LIABILITIES AND SHAREHOLDERS' EQUITY    LIABILITIES AND SHAREHOLDERS' EQUITY  
CURRENT LIABILITIES:    CURRENT LIABILITIES:  
Short-term and current portion of long-term debt (Note 7) $559,199
 $—
Short-term debt and current portion of long-term debt (Note 7) Short-term debt and current portion of long-term debt (Note 7)$169,907 $559,199 
Accounts payable 128,521
 134,931
 Accounts payable127,089 128,521 
Accrued taxes 22,012
 21,325
 Accrued taxes26,620 22,012 
Accrued interest 35,334
 34,790
 Accrued interest31,733 35,334 
Customer deposits 34,635
 32,700
 Customer deposits27,929 34,635 
Regulatory liabilities, current 52,654
 51,024
 Regulatory liabilities, current30,036 52,654 
Derivative liabilities, current Derivative liabilities, current0 26,560 
Accrued and other current liabilities 49,860
 27,787
 Accrued and other current liabilities19,453 23,300 
Total current liabilities 882,215
 302,557
Total current liabilities432,767 882,215 
NON-CURRENT LIABILITIES:    NON-CURRENT LIABILITIES:  
Long-term debt (Note 7) 2,092,430
 2,649,064
 Long-term debt (Note 7)2,556,278 2,092,430 
Deferred income tax liabilities 272,861
 253,085
 Deferred income tax liabilities275,714 272,861 
Taxes payable 4,658
 4,658
 Taxes payable7,458 4,658 
Regulatory liabilities, non-current 846,430
 870,255
 Regulatory liabilities, non-current839,360 846,430 
Accrued pension and other postretirement benefits 19,344
 19,329
 Accrued pension and other postretirement benefits5,334 19,344 
Asset retirement obligations 204,219
 129,451
 Asset retirement obligations195,236 204,219 
Derivative liabilities, non-current Derivative liabilities, non-current63,215 0 
Other non-current liabilities 252
 604
 Other non-current liabilities13,785 252 
Total non-current liabilities 3,440,194
 3,926,446
Total non-current liabilities3,956,380 3,440,194 
Total liabilities 4,322,409
 4,229,003
 Total liabilities4,389,147 4,322,409 
COMMITMENTS AND CONTINGENCIES (Note 10)    
COMMITMENTS AND CONTINGENCIES (Note 10)
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:    SHAREHOLDERS' EQUITY:  
Paid in capital 590,784
 597,824
Paid in capital588,966 590,784 
Accumulated other comprehensive loss (19,750) —
Accumulated other comprehensive loss(43,420)(19,750)
Accumulated deficit (24,558) (24,558)Accumulated deficit(24,558)(24,558)
Total common shareholders' equity 546,476
 573,266
Total common shareholders' equity520,988 546,476 
Preferred stock of subsidiary 59,784
 59,784
Preferred stock of subsidiary59,784 59,784 
Total shareholders' equity 606,260
 633,050
Total shareholders' equity580,772 606,260 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,928,669
 $4,862,053
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$4,969,919 $4,928,669 
    
See notes to consolidated financial statements.

60
56


IPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Cash FlowsConsolidated Statements of Cash FlowsConsolidated Statements of Cash Flows
For the Years Ended December 31, 2019, 2018 and 2017
For the Years Ended December 31, 2020, 2019 and 2018For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)(In Thousands)(In Thousands)
 2019 2018 2017 202020192018
CASH FLOWS FROM OPERATING ACTIVITIES:      CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income $132,393
 $134,025
 $108,793
Net income$109,967 $132,393 $134,025 
Adjustments to reconcile net income to net cash provided by operating activities:      Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization 240,314
 232,332
 208,451
Depreciation and amortization246,896 240,314 232,332 
Amortization of deferred financing costs and debt premium 4,109
 3,975
 4,202
Amortization of deferred financing costs and debt discountsAmortization of deferred financing costs and debt discounts3,942 4,109 3,975 
Deferred income taxes and investment tax credit adjustments - net 15,277
 (15,735) (3,506)Deferred income taxes and investment tax credit adjustments - net2,854 15,277 (15,735)
Loss on early extinguishment of debt —
 —
 8,875
Loss on early extinguishment of debt2,424 0 0 
Allowance for equity funds used during construction (3,486) (8,477) (25,798)Allowance for equity funds used during construction(4,574)(3,486)(8,477)
Change in certain assets and liabilities:  
  
  
Change in certain assets and liabilities:   
Accounts receivable 6,469
 (9,944) (3,028)Accounts receivable(4,103)6,469 (9,944)
Inventories 13,574
 (3,652) (5,342)Inventories(15,240)13,574 (3,652)
Accounts payable 3,047
 3,675
 (12,917)Accounts payable(20,322)3,047 3,675 
Accrued and other current liabilities 4,413
 (10,532) 97
Accrued and other current liabilities(8,214)4,413 (10,532)
Accrued taxes payable/receivable (15,698) 3,180
 (785)Accrued taxes payable/receivable6,695 (15,698)3,180 
Accrued interest 544
 458
 1,791
Accrued interest(3,601)544 458 
Pension and other postretirement benefit expenses 5,414
 (30,740) (14,069)Pension and other postretirement benefit expenses(6,991)5,414 (30,740)
Short-term and long-term regulatory assets and liabilities 921
 76,647
 17,011
Short-term and long-term regulatory assets and liabilities(13,390)921 76,647 
Prepayments and other current assets (2,119) 4,711
 (553)Prepayments and other current assets(578)(2,119)4,711 
Other - net (7,357) 1,089
 2,038
Other - net(340)(7,357)1,089 
Net cash provided by operating activities 397,815
 381,012
 285,260
Net cash provided by operating activities295,425 397,815 381,012 
CASH FLOWS FROM INVESTING ACTIVITIES:      CASH FLOWS FROM INVESTING ACTIVITIES:   
Capital expenditures (213,619) (224,335) (218,224)Capital expenditures(235,700)(213,619)(224,335)
Project development costs (2,269) (1,127) (1,729)Project development costs(2,401)(2,269)(1,127)
Cost of removal and regulatory recoverable ARO payments (21,838) (29,543) (16,802)Cost of removal and regulatory recoverable ARO payments(37,786)(21,838)(29,543)
Other 278
 1,053
 323
Other118 278 1,053 
Net cash used in investing activities (237,448) (253,952) (236,432)Net cash used in investing activities(275,769)(237,448)(253,952)
CASH FLOWS FROM FINANCING ACTIVITIES:  
  
  
CASH FLOWS FROM FINANCING ACTIVITIES:   
Short-term debt borrowings 10,000
 100,000
 202,500
Short-term debt repayments (10,000) (248,000) (129,150)
Borrowings under revolving credit facilitiesBorrowings under revolving credit facilities115,000 10,000 100,000 
Repayments under revolving credit facilitiesRepayments under revolving credit facilities(40,000)(10,000)(248,000)
Long-term borrowings, net of discount —
 169,936
 404,633
Long-term borrowings, net of discount564,568 0 169,936 
Retirement of long-term debt, including early payment premium —
 —
 (408,152)Retirement of long-term debt, including early payment premium(562,135)0 0 
Distributions to shareholders (136,426) (130,179) (105,144)Distributions to shareholders(108,739)(136,426)(130,179)
Preferred dividends of subsidiary (3,213) (3,213) (3,213)Preferred dividends of subsidiary(3,213)(3,213)(3,213)
Deferred financing costs paid —
 (1,067) (3,709)Deferred financing costs paid(6,914)0 (1,067)
Payments for financed capital expenditures (5,623) (11,429) (10,637)Payments for financed capital expenditures(36)(5,623)(11,429)
Other (152) (190) (228)Other(117)(152)(190)
Net cash used in financing activities (145,414) (124,142) (53,100)Net cash used in financing activities(41,586)(145,414)(124,142)
Net change in cash, cash equivalents and restricted cash 14,953
 2,918
 (4,272)Net change in cash, cash equivalents and restricted cash(21,930)14,953 2,918 
Cash, cash equivalents and restricted cash at beginning of period 33,599
 30,681
 34,953
Cash, cash equivalents and restricted cash at beginning of period48,552 33,599 30,681 
Cash, cash equivalents and restricted cash at end of period $48,552
 $33,599
 $30,681
Cash, cash equivalents and restricted cash at end of period$26,622 $48,552 $33,599 
      
Supplemental disclosures of cash flow information:      Supplemental disclosures of cash flow information:   
Cash paid during the period for:      Cash paid during the period for:   
Interest (net of amount capitalized) $117,457
 $90,975
 $94,781
Interest (net of amount capitalized)$122,938 $117,457 $90,975 
Income taxes 29,600
 28,275
 65,050
Income taxes27,000 29,600 28,275 
Non-cash investing activities:      
Non-cash investing activities:   
Accruals for capital expenditures $35,471
 $47,553
 $45,322
Accruals for capital expenditures$54,360 $35,471 $47,553 
      
See notes to consolidated financial statements.

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IPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIES
Consolidated Statements of Common Shareholders' EquityConsolidated Statements of Common Shareholders' EquityConsolidated Statements of Common Shareholders' Equity
and Noncontrolling Interestand Noncontrolling Interestand Noncontrolling Interest
For the Years Ended December 31, 2019, 2018 and 2017
For the Years Ended December 31, 2020, 2019 and 2018For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)(In Thousands)(In Thousands)
 
Paid in
Capital
 Accumulated Other Comprehensive Loss 
Accumulated
Deficit
 Total Common Shareholders' Equity Cumulative Preferred Stock of Subsidiary Paid in
Capital		Accumulated Other Comprehensive LossAccumulated
Deficit		Total Common Shareholders' EquityCumulative Preferred Stock of Subsidiary
Balance at January 1, 2017 $596,810
 $—
 $(25,627) $571,183
 $59,784
Net income —
 —
 105,580
 105,580
 3,213
Preferred stock dividends —
 —
 —
 —
 (3,213)
Distributions to shareholders —
 —
 (105,144) (105,144) —
Other 657
 —
 —
 657
 —
Balance at December 31, 2017 597,467
 —
 (25,191) 572,276
 59,784
Balance at January 1, 2018Balance at January 1, 2018$597,467 $— $(25,191)$572,276 $59,784 
Net income —
 —
 130,812
 130,812
 3,213
Net income— — 130,812 130,812 3,213 
Preferred stock dividends —
 —
 —
 —
 (3,213)Preferred stock dividends— — — — (3,213)
Distributions to shareholders —
 —
 (130,179) (130,179) —
Distributions to shareholders— — (130,179)(130,179)— 
Other 357
 —
 —
 357
 —
Other357 — — 357 — 
Balance at December 31, 2018 597,824
 —
 (24,558) 573,266
 59,784
Balance at December 31, 2018597,824 — (24,558)573,266 59,784 
Net comprehensive income —
 (19,750) 129,180
 109,430
 3,213
Net comprehensive income— (19,750)129,180 109,430 3,213 
Preferred stock dividends —
 —
 —
 —
 (3,213)Preferred stock dividends— — — — (3,213)
Distributions to shareholders(1)
 (7,246) —
 (129,180) (136,426) —
Distributions to shareholders(1)
(7,246)— (129,180)(136,426)— 
Other 206
 —
 —
 206
 —
Other206 — — 206 — 
Balance at December 31, 2019 $590,784
 $(19,750) $(24,558) $546,476
 $59,784
Balance at December 31, 2019590,784 (19,750)(24,558)546,476 59,784 
Net comprehensive incomeNet comprehensive income— (23,670)106,754 83,084 3,213 
Preferred stock dividendsPreferred stock dividends— — — — (3,213)
Distributions to shareholders(1)
Distributions to shareholders(1)
(1,985)— (106,754)(108,739)— 
OtherOther167 — — 167 — 
Balance at December 31, 2020Balance at December 31, 2020$588,966 $(43,420)$(24,558)$520,988 $59,784 
          
1) IPALCO made return of capital payments of $7.2 million in 2019 for the portion of current year distributions to shareholders in excess of current year net income.
1) IPALCO made return of capital payments of $2.0 million, $7.2 million and $0.0 million in 2020, 2019 and 2018, respectively, for the portion of current year distributions to shareholders in excess of current year net income.
1) IPALCO made return of capital payments of $2.0 million, $7.2 million and $0.0 million in 2020, 2019 and 2018, respectively, for the portion of current year distributions to shareholders in excess of current year net income.
See notes to consolidated financial statements.


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62



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020, 2019 2018 and 20172018

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

IPALCO is a holding company incorporated under the laws of the state of Indiana. IPALCO, acquired by AES in March 2001, 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 500,000approximately 512,000 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 40 miles from Indianapolis. IPL has an exclusive right to provide electric service to those customers. IPL owns and operates 4 generating stations all within the state of Indiana. Our largest generating station, Petersburg, is coal-fired.coal-fired, and IPL has plans to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 in 2021 and 2023, respectively (for further discussion, see Note 2, "Regulatory Matters - IRP Filing"). 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 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 December 31, 2019,2020, IPL’s net electric generation capacity for winter is 3,705 MW and net summer capacity is 3,560 MW.

IPALCO’s other direct subsidiary is Mid-America. Mid-America is the holding company for IPALCO’s unregulated activities, which have not been material to the financial statements in the periods covered by this report. IPALCO’s regulated business is conducted through IPL. IPALCO has 2 business segments: utility and nonutility. The utility segment consists of the operations of IPL and everything else is included in the nonutility segment.

Principles of Consolidation

IPALCO’s consolidated financial statements are prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The consolidated financial statements include the accounts of IPALCO, its regulated utility subsidiary, IPL, and its unregulated subsidiary, Mid-America. All intercompany items have been eliminated in consolidation. Certain costs for shared resources amongst IPL and IPALCO, such as labor and benefits, are allocated to each entity based on allocation methodologies that management believes to be reasonable. We have evaluated subsequent events through the date this report is issued.

Financial Statement Presentation

During 2018, we adopted a change in presentation on our Consolidated Balance Sheets and Consolidated Statements of Operations from a utility format to a traditional format. These changes combined or revised the order of certain balance sheet and income statement line items and resulted in the movement of certain immaterial balances within the Consolidated Statements of Operations and Consolidated Balance Sheets, but did not result in any material changes to the classification of any such amounts or have any impact on net assets or net income.

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

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 management is required to make. Actual results may differ from those estimates.

Regulatory Accounting

The retail utility operations of IPL are subject to the jurisdiction of the IURC. IPL’s wholesale power transactions are subject to the jurisdiction of the FERC. These agencies regulate IPL’s utility business operations, tariffs, accounting, depreciation allowances, services, issuances of securities and the sale and acquisition of utility properties. The


financial statements of IPL are based on GAAP, including the provisions of FASB ASC 980 “Regulated Operations,” which gives recognition to the ratemaking and accounting practices of these agencies. See also Note 2, “Regulatory Matters - Regulatory Assets and Liabilities” for a discussion of specific regulatory assets and liabilities.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents are stated at cost, which approximates fair value. All highly liquid short-term investments with original maturities of three months or less are considered cash equivalents. Restricted cash includes cash
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which is restricted as to withdrawal or usage. The nature of the restrictions includes restrictions imposed by agreements related to deposits held as collateral. The following table provides a summary of cash, cash equivalents and restricted cash amounts as shown on the Consolidated Statements of Cash Flows:
 As of December 31,
 20202019
 (In Thousands)
Cash, cash equivalents and restricted cash
     Cash and cash equivalents$20,502 $48,152 
     Restricted cash6,120 400 
          Total cash, cash equivalents and restricted cash$26,622 $48,552 
  As of December 31,
  2019 2018
  (In Thousands)
Cash, cash equivalents and restricted cash    
     Cash and cash equivalents $48,152
 $33,199
     Restricted cash 400
 400
          Total cash, cash equivalents and restricted cash $48,552
 $33,599
     


Revenues and Accounts Receivable

Revenues related to the sale of energy are generally recognized when service is rendered or energy is delivered to customers. However, the determination of the energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to certain customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is accrued. In making its estimates of unbilled revenue, IPL uses complex models that consider various factors including daily generation volumes; known amounts of energy usage by nearly all residential, small commercial and industrial customers; estimated line losses; and estimated customer rates based on prior period billings. Given the use of these models, and that customers are billed on a monthly cycle, we believe it is unlikely that materially different results will occur in future periods when revenue is billed. An allowance for potential credit losses is maintained and amounts are written off when normal collection efforts have been exhausted. Our provision for doubtful accountsexpected credit losses included in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations was $5.5$4.8 million $6.0, $4.3 million and $5.9 million for the years ended December 31, 2020, 2019 2018 and 2017,2018, respectively.

IPL’s basic rates include a provision for fuel costs as established in IPL’s most recent rate proceeding, which last adjusted IPL’s rates in December 2018. IPL is permitted to recover actual costs of purchased power and fuel consumed, subject to certain restrictions. This is accomplished through quarterly FAC proceedings, in which IPL estimates the amount of fuel and purchased power costs in future periods. Through these proceedings, IPL is also permitted to recover, in future rates, underestimated fuel and purchased power costs from prior periods, subject to certain restrictions, and therefore the over or underestimated costs are deferred or accrued and amortized into fuel expense in the same period that IPL’s rates are adjusted. See also Note 2, “Regulatory Matters” for a discussion of other costs that IPL is permitted to recover through periodic rate adjustment proceedings and the status of current rate adjustment proceedings.

In addition, we are one of many transmission system owner members of MISO, a regional transmission organization which maintains functional control over the combined transmission systems of its members and manages one of the largest energy markets in the U.S. See Note 13, "Revenue" for additional information of MISO sales and other revenue streams.


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The following table summarizes our accounts receivable balances at December 31:
 As of December 31,
 20202019
 (In Thousands)
Accounts receivable, net
     Customer receivables$91,335 $90,747 
     Unbilled revenue72,334 65,822 
     Amounts due from related parties490 2,717 
     Other4,189 2,725 
     Provision for uncollectible accounts(3,155)(921)
           Total accounts receivable, net$165,193 $161,090 
  As of December 31,
  2019 2018
  (In Thousands)
Accounts receivable, net    
     Customer receivables $90,747
 $91,426
     Unbilled revenue 65,822
 68,893
     Amounts due from related parties 2,717
 5,720
     Other 3,857
 4,341
     Provision for uncollectible accounts (2,053) (2,821)
           Total accounts receivable, net $161,090
 $167,559
     

The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the year ended December 31, 2020 (in Thousands):
 Beginning Allowance Balance at January 1, 2020Current Period ProvisionWrite-offs Charged Against AllowancesRecoveries CollectedEnding Allowance Balance at
December 31, 2020
Allowance for credit losses$921 $5,861 $(5,473)$1,846 $3,155 

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 December 31, 2020. Amounts are written off when reasonable collections efforts have been exhausted. An Executive Order issued by the Governor of Indiana on March 19, 2020 and extended by the IURC prohibited electric utilities, including us, from discontinuing electric utility service to customers through August 14, 2020 due to the economic impacts of COVID-19. This order along with the economic impacts of COVID-19 has resulted in an increase in past due customer receivable balances, and thus the current period provision and the allowance for credit losses has increased during 2020. Please see additional discussion in Note 2, "Regulatory Matters - IURC COVID-19 Order” and Note 15, "Risks and Uncertainties - COVID-19 Pandemic."

Inventories

We maintain coal, fuel oil, materials and supplies inventories for use in the production of electricity. These inventories are accounted for at the lower of cost or net realizable value, using the average cost. The following table summarizes our inventories balances at December 31:
 As of December 31,
 20202019
 (In Thousands)
Inventories
     Fuel$36,953 $26,907 
     Materials and supplies, net58,553 56,662 
          Total inventories$95,506 $83,569 
  As of December 31,
  2019 2018
  (In Thousands)
Inventories    
     Fuel $26,907
 $32,457
     Materials and supplies 56,662
 67,211
          Total inventories $83,569
 $99,668
     


Property, Plant and Equipment

Property, plant and equipment is stated at original cost as defined for regulatory purposes. The cost of additions to property, plant and equipment and replacements of retirement units of property are charged to plant accounts. Units of property replaced or abandoned in the ordinary course of business are retired from the plant accounts at cost; such amounts, less salvage, are charged to accumulated depreciation. Depreciation is computed by the straight-line method based on functional rates approved by the IURC and averaged 3.7%, 4.2%3.7%, and 4.1%4.2% during 2020, 2019 2018
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and 2017,2018, respectively. Depreciation expense was $232.8 million, $228.2 million, $235.2 million, and $209.8$235.2 million for the years ended December 31, 2020, 2019 2018 and 2017,2018, respectively. "Depreciation and amortization" expense on the accompanying Consolidated Statements of Operations is presented net of regulatory deferrals of depreciation expense and also includes amortization of intangible assets and amortization of previously deferred regulatory costs.
 
Allowance For Funds Used During Construction

In accordance with the Uniform System of Accounts prescribed by FERC, IPL capitalizes an allowance for the net cost of funds (interest on borrowed funds and a reasonable rate of return on equity funds) used for construction purposes during the period of construction with a corresponding credit to income. IPL capitalized amounts using pretax composite rates of 6.9%, 6.9% and 6.4% during 2020, 2019 and 6.6% during 2019, 2018, and 2017, respectively.

Impairment of Long-lived Assets
 
GAAP requires that we test long-lived assets for impairment when indicators of impairment exist. If an asset is deemed to be impaired, we are required to write down the asset to its fair value with a charge to current earnings. The net book value of our property, plant, and equipment was $4.1 billion as of December 31, 20192020 and 2018. 2019. In December 2020, IPL reclassified net property, plant and equipment of $74.5 million associated with the probable Petersburg Unit 1 retirement to long-term regulatory assets (for further discussion, see Note 2, “Regulatory Matters - IRP Filing” and Note 3, "Property, Plant and Equipment"). We do not believe any of these assets are currently impaired. In making this assessment, we consider such factors as: the overall condition and generating and distribution capacity of the assets; the expected ability to recover additional


expenditures in the assets; the anticipated demand and relative pricing of retail electricity in our service territory and wholesale electricity in the region; and the cost of fuel.

Intangible Assets

Intangible assets primarily include capitalized software of $139.6$144.5 million and $129.7$139.6 million and its corresponding accumulated amortization of $74.7$85.3 million and $88.8$74.7 million, as of December 31, 20192020 and 2018,2019, respectively. Amortization expense was $10.6 million, $7.5 million $5.5 million and $4.3$5.5 million for the years ended December 31, 2020, 2019 2018 and 2017,2018, respectively. The estimated amortization expense of this capitalized software is approximately $50.0$59.0 million over the next 5 years ($10.0 million in 2020, $10.011.8 million in 2021, $10.0$11.8 million in 2022, $10.0$11.8 million in 2023, and $10.0$11.8 million in 2024)2024 and $11.8 million in 2025).

Implementation Costs Related to Software as a Service

IPALCO has recorded prepayments for implementation costs related to software as a service in support of utility customer services of $8.8 million as of December 31, 2020, which are recorded within "Other non-current assets" on the accompanying Consolidated Balance Sheets.

Contingencies

IPALCO accrues for loss contingencies when the amount of the loss is probable and estimable. We are subject to various environmental regulations and are involved in certain legal proceedings. If IPL’s actual environmental and/or legal obligations are different from our estimates, the recognition of the actual amounts may have a material impact on our results of operations, financial condition and cash flows; although that has not been the case during the periods covered by this report. As of December 31, 20192020 and 2018,2019, total loss contingencies accrued were $4.5$15.4 million and $4.6$4.5 million, respectively, which were included in “Accrued and Other Current Liabilities” and "Other Non-Current Liabilities", respectively, on the accompanying Consolidated Balance Sheets.  

Concentrations of Risk

Substantially all of IPL’s customers are located within the Indianapolis area. Approximately 69% of IPL’s employees are covered by collective bargaining agreements in two bargaining units: a physical unit and a clerical-technical unit. IPL’s contract with the physical unit expires on December 6, 2021,, and the contract with the clerical-technical unit expires February 13, 2023.2023. Additionally, IPL has long-term coal contracts with 42 suppliers, with about 33% of our existing coal under contract for the three-year period ending December 31, 2022 coming from one supplier. Substantiallyand substantially all of the coal is currently mined in the state of Indiana.

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Financial Derivatives

All derivatives are recognized as either assets or liabilities in the balance sheets and are measured at fair value. Changes in the fair value are recorded in earnings unless the derivative is designated as a cash flow hedge of a forecasted transaction or it qualifies for the normal purchases and sales exception.

IPL has contracts involving the physical delivery of energy and fuel. Because these contracts qualify for the normal purchases and normal sales scope exception in ASC 815, IPL has elected to account for them as accrual contracts, which are not adjusted for changes in fair value.

Additionally, we use interest rate hedges to manage the interest rate risk of our variable rate debt. We use cash flow hedge accounting when the hedge or a portion of the hedge is deemed to be highly effective, which results in changes in the fair value being recorded within accumulated other comprehensive income, a component of shareholders' equity. We have elected not to offset net derivative positions in the Financial Statements. Accordingly, we do not offset such derivative positions against the fair value of amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting agreements. See Note 5, “Derivative Instruments and Hedging Activities” for additional information.



Accumulated Other Comprehensive Income / (Loss)

The amounts reclassified out of Accumulated Other Comprehensive Loss by component during the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands):
Details about Accumulated Other Comprehensive Loss componentsAffected line item in the Condensed Consolidated Statements of OperationsFor the Years Ended December 31,
202020192018
Gains and losses on cash flow hedges (Note 5):Interest expense$(5,422)$0 $0 
Income tax expense1,313 0 0 
Total reclassifications for the period, net of income taxes$(4,109)$0$0

The changes in the components of Accumulated Other Comprehensive Income/(Loss) during the yearyears ended December 31, 2020, 2019, and 2018 are as follows:follows (in thousands):
For the Years Ended December 31,
 202020192018
Gains and losses on cash flow hedges (Note 5):
Balance at January 1$(19,750)$0 $0 
Other comprehensive loss before reclassifications(27,779)(19,750)0 
Amounts reclassified from AOCI to earnings4,109 0 0 
Balance at December 31$(43,420)$(19,750)$0 
  Gains and losses on cash flow hedges
  (In Thousands)
Balance at January 1, 2019 $—
Other comprehensive loss (19,750)
Balance at December 31, 2019 $(19,750)
   


Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of the existing assets and liabilities, and their respective income tax bases. The Company establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company’s tax positions are evaluated under a more likely than not recognition threshold and measurement analysis before they are recognized for financial statement reporting.
Uncertain tax positions have been classified as noncurrent income tax liabilities unless expected to be paid within one year. The Company’s policy for interest and penalties is to recognize interest and penalties as a component of the provision for income taxes in the Consolidated Statements of Operations.
Income tax assets or liabilities, which are included in allowable costs for ratemaking purposes in future years, are recorded as regulatory assets or liabilities with a corresponding deferred tax liability or asset. Investment tax credits that reduced federal income taxes in the years they arose have been deferred and are being amortized to income
67

over the useful lives of the properties in accordance with regulatory treatment. See Note 2, "Regulatory Matters" for additional information.

IPALCO and its subsidiaries file U.S. federal income tax returns as part of the consolidated U.S. income tax return filed by AES. The consolidated tax liability is allocated to each subsidiary based on the separate return method which is specified in our tax allocation agreement and which provides a consistent, systematic and rational approach. See Note 8, "Income Taxes" for additional information.

Pension and Postretirement Benefits

We recognize in our Consolidated Balance Sheets an asset or liability reflecting the funded status of pension and other postretirement plans with current-year changes in the funded status, that would otherwise be recognized in AOCI, recorded as a regulatory asset as this can be recovered through future rates. All plan assets are recorded at fair value. We follow the measurement date provisions of the accounting guidance, which require a year-end measurement date of plan assets and obligations for all defined benefit plans.

We account for and disclose pension and postretirement benefits in accordance with the provisions of GAAP relating to the accounting for pension and other postretirement plans. These GAAP provisions require the use of assumptions, such as the discount rate for liabilities and long-term rate of return on assets, in determining the obligations, annual cost and funding requirements of the plans. Consistent with the requirements of ASC 715, we apply a disaggregated discount rate approach for determining service cost and interest cost for our defined benefit pension plans and postretirement plans.
See Note 9, "Benefit Plans" for more information.
Repair and Maintenance Costs

Repair and maintenance costs are expensed as incurred.



Per Share Data

IPALCO is owned by AES U.S. Investments and CDPQ. IPALCO does not report earnings on a per-share basis.

New Accounting Pronouncements Adopted in 20192020

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 NameDescriptionDate of AdoptionEffect on the Financial Statements upon adoption
2017-12, Derivatives and Hedging2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03, Financial Instruments - Credit Losses (Topic 815)326): Targeted Improvements to Accounting for Hedging ActivitiesMeasurement of Credit Losses on Financial Instruments
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, 2019The adoption of this standard did not have a material impact on the Financial Statements.
2016-02, 2018-01, 2018-10, 2018-11, 2018-20, 2019-01, Leases (Topic 842)
See discussion of the ASUsASU below.


January 1, 20192020
See impact upon adoption of the standard below.


ASC 326 - Financial Instruments - Credit Losses

On January 1, 2019,2020, the Company adopted ASC 842326 LeasesFinancial Instruments - Credit Losses and its subsequent corresponding updates (“("ASC 842”326"). Under thisThe new standard lesseesupdates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to recognize assets and liabilitiesuse a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for most leasescredit losses. For available-for-sale debt securities with unrealized losses, entities measure credit losses as it was done under previous GAAP, except that unrealized losses due to credit-related factors are now recognized as an allowance on the balance sheet and recognize expenses inwith a manner similarcorresponding adjustment to the current accounting method. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance eliminates previous real estate-specific provisions.

Under ASC 842, fewer of our contracts contain a lease. However, due to the elimination of the real estate-specific guidance and changes to certain lessor classification criteria, more leases qualify as sales-type leases and direct financing leases. Under these two models, a lessor derecognizes the asset and recognizes a lease receivable. According to ASC 842, the net investmentearnings in the lease includes the fair value of residual interest in the asset after the contract period as well as the present value of the fixed lease payments, but does not include any variable payments under the lease. Therefore, the net investment in the lease could be significantly different than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized net investment in the lease and the carrying amount of the underlying asset is recognized as a gain/loss at lease commencement.

During the course of adopting ASC 842, the Company applied various practical expedients including:

The package of practical expedients (applied to all leases) that allowed lessees and lessors not to reassess:
a. whether any expired or existing contracts are or contain leases,
b. lease classification for any expired or existing leases, and
c. whether initial direct costs for any expired or existing leases qualify for capitalization under ASC 842.

The transition practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and

The transition practical expedient for lessees that allowed businesses to not separate lease and non-lease components. The Company applied the practical expedient to all classes of underlying assets when valuing


right-of-use assets and lease liabilities. Contracts where the Company is the lessor were separated between the lease and non-lease components.

income statement.

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The Company applied the modified retrospective method of adoption and elected to continue to apply the guidance infor ASC 840 Leases to the comparative periods presented in the year of adoption.326. Under this transition method, the Company applied the transition provisions starting at the date of adoption. The CECL model primarily impacts the calculation of the Company's expected credit losses in gross customer trade accounts receivable. The adoption of ASC 842326 and the application of CECL on our trade accounts receivable did not have a material impact on our 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 NameDescriptionDate of AdoptionEffect on the Financial Statements upon adoption
2019-12, Income Taxes2020-04 and 2021-01, Reference Rate Form (Topic 740)848): SimplifyingFacilitation of the Accounting For Income TaxesEffects of Reference Rate Reform on Financial Reporting
The standard removes certainamendments in these updates provide optional expedients and exceptions for recognizing deferred taxesapplying 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 investments, performing intra-period allocationcontract modifications and calculating income taxes in interim periods. It also adds guidancehedge accounting apply to reduce complexity in certain areas, including recognizing deferred taxesderivatives that are affected by the discounting transition. These amendments are effective for tax goodwill and allocating taxes to membersa limited period of a consolidated group.
time (March 12, 2020 - December 21, 2022).
Transition Method: various
January 1, 2021. Early adoption is permitted.March 12, 2020 - December 31, 2022
The Company is currently evaluating the impact of adopting the standard on the Financial Statements.
2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
See discussion of the ASU below.

January 1, 2020. Early adoption is permitted only as of January 1, 2019.The Company will adopt the standard on January 1, 2020; see below for the evaluation of the impact of the adoption on the standard on the Financial Statements.

ASU 2016-13 and its subsequent corresponding updates will update the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. 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, there will be no change to the measurement of credit losses, except that unrealized losses due to credit-related factors will be recognized as an allowance on the balance sheet with a corresponding adjustment to earnings in the income statement. There are various transition methods available upon adoption.

The Company is currently evaluating the impact of adopting the standard on its Financial Statements; however, it is expected that the new current expected credit loss model will primarily impact the calculation of the Company's expected credit losses on $163.1 million in gross trade accounts receivable. The Company does not expect a material impact to result from the application of CECL on our trade accounts receivable.

2. REGULATORY MATTERS

General

IPL is subject to regulation by the IURC as to its services and facilities, the valuation of property, the construction, purchase, or lease of electric generating facilities, the classification of accounts, rates of depreciation, retail rates and charges, the issuance of securities (other than evidences of indebtedness payable less than twelve months after the date of issue), the acquisition and sale of some public utility properties or securities and certain other matters.

In addition, IPL is subject to the jurisdiction of the FERC with respect to, among other things, short-term borrowings not regulated by the IURC, the sale of electricity at wholesale, the transmission of electric energy in interstate commerce, the classification of accounts, reliability standards, and the acquisition and sale of utility property in certain circumstances as provided by the Federal Power Act. As a regulated entity, IPL is required to use certain accounting methods prescribed by regulatory bodies which may differ from those accounting methods required to be used by unregulated entities.



IPL is also affected by the regulatory jurisdiction of the EPA at the federal level, and the IDEM at the state level. Other significant regulatory agencies affecting IPL include, but are not limited to, the NERC, the U.S. Department of Labor and the IOSHA.  

Basic Rates and Charges

Our basic rates and charges represent the largest component of our annual revenues. Our basic rates and charges are determined after giving consideration, on a pro-forma basis, to all allowable costs for ratemaking purposes including a fair return on the fair value of the utility property used and useful in providing service to customers. These basic rates and charges are set and approved by the IURC after public hearings. Such proceedings, which have occurred at irregular intervals, involve IPL, the IURC, the Indiana Office of Utility Consumer Counselor, and other interested stakeholders. Pursuant to statute, the IURC is to conduct a periodic review of the basic rates and charges of all Indiana utilities at least once every four years, but the IURC has the authority to review the rates of any Indiana utility at any time. Once set, the basic rates and charges authorized do not assure the realization of a fair return on the fair value of property.

Our declining block rate structure 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
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kWh decreases. Numerous factors including, but not limited to, weather, inflation, customer growth and usage, the level of actual operating and maintenance expenditures, fuel costs, generating unit availability, and capital expenditures including those required by environmental regulations can affect the return realized.

Base Rate Orders

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 Base Rate Order"). The 2018 Base 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 2016 Base Rate Order (See below).Order. New basic rates and charges became effective on December 5, 2018. The 2018 Base Rate Order also provides customers approximately $50 million in benefits, which are flowing to customers over the two-year period that began March 2019, via the ECCRA rate adjustment mechanism. This liability, less amounts returned to IPL's customers during 2020 and 2019, is recorded primarily in "Regulatory liabilities, current" with approximately $4.7($4.7 million inand $25.1 million as of December 31, 2020 and 2019, respectively) and "Regulatory liabilities, non-current" ($0.0 million and $4.7 million as of December 31, 2020 and 2019, respectively) on the accompanying Consolidated Balance Sheets. In addition, the 2018 Base Rate Order provides that annual wholesale margins earned above (or below) the benchmark of $16.3 million shall be passed back (or charged) to customer rates through a rate adjustment mechanism. Prior to the 2018 Base Rate Order, wholesale sales margins were shared with customers 50% above and below an established benchmark of $6.3 million. Similarly, the 2018 Base Rate Order provides that all capacity sales above (or below) a benchmark of $11.3 million shall be passed back (or charged) to customer rates through a rate adjustment mechanism. The 2018 Base Rate Order also approved changes to IPL's depreciation and amortization rates (including no longer deferring depreciation on the CCGT at Eagle Valley) which altogether represent a net expense increase of approximately $28.7 million annually.

In March 2016, the IURC issued the 2016 Base Rate Order authorizing IPL to increase its basic rates and charges by $30.8 million annually. IPL also received approval to implement three new rate riders for current recovery from customers ofongoing MISO costs and capacity costs, and for sharing with customers 50% of wholesale sales margins above and below the established benchmark of $6.3 million.

CCR

On April 26, 2017, the IURC approved IPL’s CCR compliance request to install a bottom ash dewatering system at its Petersburg generating station and to recover 80% of qualifying costs through a rate adjustment mechanism with the remainder recorded as a regulatory asset for recovery in a subsequent rate case. The approved capital cost of the CCR compliance plan was approximately $47 million. IPL’s bottom ash dewatering system at its Petersburg generating station went into service in September 2017.

NAAQS

On April 26, 2017, the IURC approved IPL’s request for NAAQS SO2 compliance at its Petersburg generation station with 80% of qualifying costs recovered through a rate adjustment mechanism and the remainder recorded


as a regulatory asset for recovery in a subsequent rate case. The approved capital cost of the NAAQS SO2 compliance plan was approximately $29 million. These projects went into service between August 2018 and August 2019.

Other

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. Nuclear and coal-fired generation plants would have been most likely to be able to meet the requirements. As proposed, the DOE would value resiliency through rates that recover “compensable costs” that were defined to include the recovery of operating and fuel expenses, debt service and a fair return on equity. On January 8, 2018, the FERC issued an order terminating this docket stating that it failed to satisfy the legal requirements of Section 206 of the Federal Power Act of 1935. The FERC initiated a new docket to take additional steps to explore resilience issues in RTOs/ISOs. The goal of this new proceeding is to: (1) develop a common understanding among the FERC, State Commissions, RTOs/ISOs, transmission owners, and others as to what resilience of the bulk power system means and requires; (2) understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) use this information to evaluate whether additional action regarding resilience is appropriate at this time. It is not possible to predict the impact of this proceeding on our business, financial condition and results of operations.

FAC and Authorized Annual Jurisdictional Net Operating Income

IPL may apply to the IURC for a change in IPL’s fuel charge every three months to recover IPL’s estimated fuel costs, including the energy portion of purchased power costs, which may be above or below the levels included in IPL’s basic rates and charges. IPL must present evidence in each FAC proceeding that it has made every reasonable effort to acquire fuel and generate or purchase power or both so as to provide electricity to its retail customers at the lowest fuel cost reasonably possible.

Independent of the IURC’s ability to review basic rates and charges, Indiana law requires electric utilities under the jurisdiction of the IURC to meet operating expense and income test requirements as a condition for approval of requested changes in the FAC. A utility may be unable to recover all of its fuel costs if its rolling twelve-month operating income, determined at quarterly measurement dates, exceeds its authorized annual jurisdictional net operating income and there are not sufficient applicable cumulative net operating income deficiencies (“Cumulative Deficiencies”) to offset it. The Cumulative Deficiencies calculation provides that only five years’ worth of historical earnings deficiencies or surpluses are included, unless it has been greater than five years since the most recent rate case.

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In each of the last three calendar years, IPL has reported earnings in excess of the authorized level for each of the four quarterly reporting periods in those years.years, however IPL was not required to reduce its fuel cost recovery because of its Cumulative Deficiencies. The historical periods whenDuring 2020, IPL's Cumulative Deficiencies dropped to zero and thus IPL earned less than the authorized level, which put IPL
recorded a reduction to revenue of $10.0 million in a Cumulative Deficiency position, all relate2020. IPL's regulatory liability attributed to earnings prior to IPL’s 2018 Base Rate Order and therefore each quarter one of those under-earning periods drops out of the Cumulative Deficiency calculation. Consequently, itDeficiencies calculation was $7.7 million as of December 31, 2020, which is likely that IPL’s Cumulative Deficiencies will drop to zero in 2020 and IPL may then be required to decrease its fuel factor if it continues to earn aboverecorded within "Regulatory liabilities, current" on the authorized level.accompanying Consolidated Balance Sheets.

ECCRA 

IPL may apply to the IURC for approval of a rate adjustment known as the ECCRA periodically to recover costs (including a return) to comply with certain environmental regulations applicable to IPL’s generating stations. The total amount of IPL’s equipment approved for ECCRA recovery as of December 31, 20192020 was $17.4$22.5 million. The jurisdictional revenue requirement approved by the IURC to be included in IPL’s rates for the twelve-month period ending February 20202021 was a net credit to customers of $28.4$31.2 million. This amount is significantly lower than prior ECCRA periods prior to 2019 as a result of (i) having the vast majority of the ECCRA projects rolled into IPL’s basic rates and charges effective December 5, 2018 as a result of the 2018 Base Rate Order and (ii) the approximately $50 million of customer benefits being flowed through the ECCRA as a result of the 2018 Base Rate Order, as described above. The only equipment still remaining in the ECCRA as of December 31, 20192020 are certain projects associated with NAAQS compliance.



DSM

Through various rate orders from the IURC, IPL has been able to recover its costs of implementing various DSM programs throughout the periods covered by this report. In 2020, 2019 and 2018, IPL also had the ability to receive performance incentives, dependent upon the level of success of the programs. Performance incentives included in revenues for the years ended December 31, 2020, 2019 and 2018 and 2017 were $6.0 million, $7.5 million $3.8and$3.8 million, and $0.0 million, respectively.

On February 7, 2018, the IURC approved a settlement agreement establishingapproving 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.

On December 29, 2020, the IURC approved a settlement agreement establishing a new three year DSM plan for IPL through 2023. 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.

Wind and Solar Power Purchase Agreements

We are committed under a power purchase agreement to purchase all wind-generated electricity through 2029 from a wind project in Indiana. We are also committed under another agreement to purchase all wind-generated electricity through 2031 from a project in Minnesota. The Indiana project has a maximum output capacity of approximately 100 MW and the Minnesota project has a maximum output capacity of approximately 200 MW. In addition, we have 96.4 MW of solar-generated electricity in our service territory under long-term contracts (these long-term contracts have expiration dates ranging from 2021 to 2033), of which 95.9 MW was in operation as of December 31, 2019.2020. We have authority from the IURC to recover the costs for all of these agreements through an adjustment mechanism administered within the FAC. If and when IPL sells the renewable energy attributes (in the form of renewable energy credits) generated from these facilities, the proceeds would pass back to benefit IPL’s retail customers through the FAC.

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
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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 Base Rate 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.

TDSIC

In 2013, Senate Enrolled Act 560, the Transmission, Distribution, and Storage System Improvement Charge ("TDSIC") statute, was signed into law.  The TDSIC statute was revised in 2019. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a plan of at least five years and not more than seven for eligible investments. The first 80 percent of eligible costs can be recovered using a periodic rate adjustment mechanism. The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include a return on, and of, the investment, including AFUDC, post-in-service carrying charges, operation and maintenance expenses, depreciation and property taxes. The remaining 20 percent of recoverable costs are to be deferred for future recovery in the public utility’s next base rate case. The periodic rate adjustment mechanism is capped at an annual increase of no more than 2 percent of total retail revenues.

On March 4, 2020, the IURC issued an order approving the projects in a seven-year TDSIC Plan for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027. On June 18, 2020, IPL filed its first annual TDSIC rate adjustment (TDSIC 1) for a return on and of investments through March 31, 2020. On October 14, 2020, the IURC issued an order approving this TDSIC rate adjustment, which was reflected in rates effective November 2020. On December 23, 2020, IPL filed its first annual TDSIC plan update filing (TDSIC 2), which was staggered by six months from TDSIC 1 as ordered by the IURC.

IRP Filing

In December 2019, IPL filed its IRP, which describes IPL's Preferred Resource Portfolio for meeting generation capacity needs for serving IPL's retail customers over the next several years. IPL's Preferred Resource Portfolio is its reasonable least cost option and provides a cleaner and more diverse generation mix for customers. IPL's Preferred Resource Portfolio includes the retirement of approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 in 2021 and 2023, respectively. Based on extensive modeling, IPL has determined that the cost of operating Petersburg Units 1 and 2 exceeds the value customers receive compared to alternative resources. Retirement of these units allows the company to cost-effectively diversify the portfolio and transition to lower cost and cleaner resources while maintaining a reliable system.

IPL issued an all-source Request for Proposal on December 20, 2019, in order to competitively procure replacement capacity by June 1, 2023, which is the first year IPL is expected to have a capacity shortfall. Our modeling indicated that a combination of wind, solar, storage, and energy efficiency would be the lowest reasonable cost option for the replacement capacity, but IPL continues to assess the type, size, and location of resources in the bids we received. As a result of the plans to retire Petersburg Units 1 and 2, IPL recorded a $6.2 million obsolescence loss in December 2019 for materials and supplies inventory IPL does not believe will be utilized by the planned retirement dates, which is recorded in "Operating expenses - Operation and maintenance" on the accompanying Consolidated Statements of Operations. In December 2020, IPL reclassified net property, plant and equipment of $74.5 million, associated with the probable Petersburg Unit 1 retirement, to long-term regulatory assets. On February 5, 2021, IPL announced an agreement to acquire a 195 MW solar project. Expected to be completed in 2023, the solar project will be located in Clinton County, Indiana and Invenergy will develop the project and manage construction. The acquisition agreement is subject to approval from the IURC. On February 12, 2021, IPL filed a petition and case-in-chief with the IURC seeking a CPCN for this solar project.


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IURC COVID-19 Orders

In its June 29, 2020 order, the IURC extended the disconnection moratorium for IURC-jurisdictional utilities through August 14, 2020, which has lapsed. Additionally, the IURC authorized Indiana utilities to use regulatory accounting for any impacts associated with prohibiting utility disconnections, waiver or exclusion of certain utility fees (i.e., late fees, convenience fees, deposits, and reconnection fees), and also required utilities to use expanded payment arrangements to aid customers. The IURC also authorized regulatory accounting treatment for COVID-19 related uncollectible and incremental bad debt expense.

On August 12, 2020, the IURC required all jurisdictional utilities to continue offering extended payment arrangements for a minimum of six months to all customers for an additional 60 days, until October 12, 2020, which the IURC again extended through December 31, 2020 for residential customers on October 27, 2020. The IURC also continued to suspend the collection of certain utility fees (late fees, deposits, and disconnection/reconnection fees) from residential customers for an additional 60 days, until October 12, 2020, after which utilities were allowed to resume charging convenience fees as set forth in the rate and charges established in their Commission-approved tariffs.

As a result of these orders, IPL has recorded a $6.4 million regulatory asset as of December 31, 2020. Additionally, IPL implemented and extended flexible payment assistance plans to customers during 2020.

Phase Two of the IURC investigation is expected to focus on longer-term issues related to COVID-19. Among other things, the issues may include consideration of appropriate methodology to review the reasonableness, necessity, and prudency of any COVID-19-related cost recovery requests in future rate cases. For further discussion on the COVID-19 pandemic, see Note 15, "Risks and Uncertainties - COVID-19 Pandemic".


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Regulatory Assets and Liabilities

Regulatory assets represent deferred costs or credits that have been included as allowable costs or credits for ratemaking purposes. IPL has recorded regulatory assets or liabilities relating to certain costs or credits as authorized by the IURC or established regulatory practices in accordance with ASC 980. IPL is amortizing non tax-related regulatory assets to expense over periods ranging from 1 to 45 years. Tax-related regulatory assets represent the net income tax costs to be considered in future regulatory proceedings generally as the tax-related amounts are paid.

The amounts of regulatory assets and regulatory liabilities at December 31 are as follows:
 20202019Recovery Period
 (In Thousands) 
Regulatory Assets   
Current:   
Undercollections of rate riders$31,569 $22,216 
Approximately 1 year(1)
Costs being recovered through basic rates and charges13,861 15,182 
Approximately 1 year(1)
Total current regulatory assets45,430 37,398  
Long-term:   
Unrecognized pension and other   
postretirement benefit plan costs149,374 176,646 
Various (2)
Deferred MISO costs61,267 74,660 
Through 2026(1)
Unamortized Petersburg Unit 4 carrying   
charges and certain other costs5,975 7,030 
Through 2026(1)(3)
Unamortized reacquisition premium on debt17,018 18,330 Over remaining life of debt
Environmental projects74,637 78,021 
Through 2046(1)(3)
COVID-196,391 0 To be determined
TDSIC projects2,747 0 
36.3 years(1)(3)
Petersburg Unit 1 retirement74,545 0 
Through 2035(3)(5)
Other miscellaneous847 927 
Various (4)
Total long-term regulatory assets392,801 355,614  
Total regulatory assets$438,231 $393,012  
Regulatory Liabilities   
Current:   
Overcollections and other credits being passed
       to customers through rate riders$29,493 $51,790 
Approximately 1 year(1)
FTRs543 864 
Approximately 1 year(1)
Total current regulatory liabilities30,036 52,654 
Long-term:   
ARO and accrued asset removal costs723,897 719,680 Not applicable
Deferred income taxes payable to customers through rates112,957 122,156 Various
Long-term portion of credits being passed to customers
       through rate riders0 3,337 Through 2020
Other miscellaneous2,506 1,257 To be determined
Total long-term regulatory liabilities839,360 846,430  
Total regulatory liabilities$869,396 $899,084  
(1)Recovered (credited) per specific rate orders
(2)IPL receives a return on its discretionary funding
(3)Recovered with a current return
(4) The majority of these costs are being recovered in basic rates and charges through 2026. For the remainder, recovery is probable, but the
timing is not yet determined.
(5) Recovered per regulatory precedent.
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Current Regulatory Assets and Liabilities

Current regulatory assets and liabilities primarily represent costs that are being recovered per specific rate order; recovery for the remaining costs is probable, but not certain. As current assets, this includes undercollection of adjustment mechanisms for: (i) DSM, (ii) Off System Sales Margin Sharing, (iii) Capacity Cost Recovery and (iv) TDSIC. It also includes the current portion of deferred MISO costs and environmental costs which are described in greater detail below. As current liabilities, this includes overcollection of green power costs, MISO rider costs, fuel costs (including the NOI liability) and ECCRA costs.

Deferred Fuel

Deferred fuel costs are a component of current regulatory assets or liabilities (which is a result of IPL charging either more or less for fuel than our actual costs to our jurisdictional customers) and are expected to be recovered through future FAC proceedings. IPL records deferred fuel in accordance with standards prescribed by the FERC. The deferred fuel adjustment is the result of variances between estimated fuel and purchased power costs in IPL’s FAC and actual fuel and purchased power costs. IPL is generally permitted to recover underestimated fuel and purchased power costs in future rates through the FAC proceedings and therefore the costs are deferred when incurred and amortized into fuel expense in the same period that IPL’s rates are adjusted to reflect these costs. 

Unrecognized Pension and Postretirement Benefit Plan Costs

In accordance with ASC 715 “Compensation – Retirement Benefits” and ASC 980, we recognize a regulatory asset equal to the unrecognized actuarial gains and losses and prior service costs. Pension expenses are recorded based on the benefit plan’s actuarially determined pension liability and associated level of annual expenses to be recognized. The other postretirement benefit plan’s deferred benefit cost is the excess of the other postretirement benefit liability over the amount previously recognized.

Deferred MISO Costs

These consist of administrative costs for transmission services, transmission expansion cost sharing, and certain other operational and administrative costs from the MISO market. These costs are being recovered per specific rate order.  

Unamortized Petersburg Unit 4 Carrying Charges and Certain Other Costs

These consist of deferred debt carrying costs, depreciation, and post-in-service Allowance for Funds Used During Construction ("AFUDC") on Petersburg Unit 4. These costs are being recovered per specific rate order.

Unamortized Reaquisition Premium on Debt

This regulatory asset represents losses on long-term debt reacquired or redeemed in prior periods that have been deferred. These deferred losses are being amortized over the lives of the original issues in accordance with the rules of the FERC and the IURC.

Environmental Costs

These consist of various costs incurred to comply with environmental regulations. These costs were approved for recovery either through IPL's ECCRA proceedings or in the 2018 Base Rate Order. Amortization periods vary, ranging from 3 to 45 years.

COVID-19 Costs

These consist of deferred fees (foregone late fees, reconnection fees and disconnection fees), as well as deferred convenience payments and incremental bad debt expense as the result of COVID-19. See "IURC COVID-19 Orders" above for additional discussion.

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TDSIC Costs

These consist of various costs incurred for IPL's approved TDSIC Plan. These costs were approved for recovery through IPL's TDSIC proceedings and amortization periods range from 3 to 31 years. See "TDSIC" above for additional discussion.

Petersburg Unit 1 Retirement Costs

These consist of the estimated remaining net book value of Petersburg Unit 1 at its anticipated date of retirement. It was determined that the Petersburg Unit 1 retirement became probable, in accordance with ASC 980, in the fourth quarter of 2020. As it is expected that the entire carrying value of the asset will be recoverable through future rates, no loss on abandonment was recorded and the asset was reclassified from net property, plant and equipment to a long-term regulatory asset. See "IRP Filing" above for additional discussion.

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. See Note 4, "Fair Value - Fair Value Hierarchy and Valuation Techniques - Financial Assets - FTRs" for additional information.

ARO and Accrued Asset Removal Costs

In accordance with ASC 410 and ASC 980, IPL recognizes the amount collected in customer rates for costs of removal that do not have an associated legal retirement obligation as a deferred regulatory liability. This amount is net of the portion of legal ARO costs that is also currently being recovered in rates.

Deferred Income Taxes Recoverable/Payable Through Rates

A deferred income tax asset or liability is created from a difference in timing of income recognition between tax laws and accounting methods. As a regulated utility, IPL includes in ratemaking the impacts of current income taxes and changes in deferred income tax liabilities or assets.

On December 22, 2017, the U.S. federal government enacted the TCJA, which, among other things, reduced the federal corporate income tax rate from 35% to 21%, beginning January 1, 2018. As required by GAAP, on December 31, 2017, IPL and IPALCO remeasured their deferred income tax assets and liabilities using the new tax rate. The impact of the reduction of the income tax rate on deferred income taxes was utilized in the 2018 Base Rate Order to reduce jurisdictional retail rates. Accordingly, we have a net regulatory deferred income tax liability of $113.0 million and $122.2 million as of December 31, 2020 and 2019, respectively.

3.  PROPERTY, PLANT AND EQUIPMENT

The original cost of property, plant and equipment segregated by functional classifications follows:
 As of December 31,
 20202019
 (In Thousands)
Production$4,191,223 $4,154,919 
Transmission408,380 398,903 
Distribution1,671,861 1,594,208 
General plant258,931 250,582 
Total property, plant and equipment$6,530,395 $6,398,612 

In December 2020, IPL reclassified net property, plant and equipment of $74.5 million associated with the Petersburg Unit 1 retirement to long-term regulatory assets by crediting accumulated depreciation (for further discussion, see Note 2, “Regulatory Matters - IRP Filing”).

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Substantially all of IPL’s property is subject to a $1,803.8 million direct first mortgage lien, as of December 31, 2020, securing IPL’s first mortgage bonds. Total non-contractually or legally required accrued removal costs of utility plant in service at December 31, 2020 and 2019 were $818.0 million and $788.3 million, respectively; and total contractually or legally required removal costs of property, plant and equipment at December 31, 2020 and 2019 were $195.2 million and $204.2 million, respectively. Please see “ARO” below for further information.

ARO

ASC 410 “Asset Retirement and Environmental Obligations” addresses financial accounting and reporting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation. A legal obligation for purposes of ASC 410 is an obligation that a party is required to settle as a result of an existing law, statute, ordinance, written or oral contract or the doctrine of promissory estoppel. 

IPL’s ARO relates primarily to environmental issues involving asbestos-containing materials, ash ponds, landfills and miscellaneous contaminants associated with its generating plants, transmission system and distribution system. The following is a roll forward of the ARO legal liability year end balances:
 20202019
 (In Thousands)
Balance as of January 1$204,219 $129,451 
Liabilities settled(18,302)(9,891)
Revisions to cash flow and timing estimates1,120 78,153 
Accretion expense8,199 6,506 
Balance as of December 31$195,236 $204,219 

IPL recorded adjustments to its ARO liabilities of $1.1 million and $78.2 million in 2020 and 2019, respectively, primarily to reflect increases to estimated ash pond closure costs, including groundwater remediation. As of December 31, 2020 and 2019, IPL did not have any assets that are legally restricted for settling its ARO liability.  

4. 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
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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.


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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 1Level 2Level 3
Fair value at December 31, 2020Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:
VEBA investments:
     Money market funds$16 $16 $0 $0 
     Mutual funds3,209 0 3,209 0 
          Total VEBA investments3,225 16 3,209 0 
Financial transmission rights543 0 0 543 
Total financial assets measured at fair value$3,768 $16 $3,209 $543 
Financial liabilities:    
Interest rate hedges$63,215 $0 $63,215 $0 
Total financial liabilities measured at fair value$63,215 $0 $63,215 $0 

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 1Level 2Level 3
Fair value at December 31, 2019Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:
VEBA investments:
     Money market funds$25 $25 $0 $0 
     Mutual funds2,854 0 2,854 0 
          Total VEBA investments2,879 25 2,854 0 
Financial transmission rights864 0 0 864 
Total financial assets measured at fair value$3,743 $25 $2,854 $864 
Financial liabilities:    
Interest rate hedges$26,560 $0 $26,560 $0 
Total financial liabilities measured at fair value$26,560 $0 $26,560 $0 


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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 earnings53 
Issuances2,846 
Settlements(5,081)
Balance at December 31, 2019$864 
Issuances1,889 
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, 2020December 31, 2019
 Face ValueFair ValueFace ValueFair Value
 (In Thousands)
Fixed-rate$2,683,800 $3,295,588 $2,523,800 $2,876,140 
Variable-rate75,000 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.

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We use derivatives principally to manage the interest rate risk associated with refinancing our long-term debt. The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. We monitor and value derivative positions monthly as part of our risk management processes. We use published sources for pricing, when possible, to mark positions to market. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under ASC 815 for accounting purposes.


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At December 31, 2020, IPL's outstanding derivative instruments were as follows:
Commodity
Accounting Treatment (a)
UnitPurchases
(in thousands)		Sales
(in thousands)		Net Purchases/(Sales)
(in thousands)
Interest rate hedgesDesignatedUSD$400,000 $0 $400,000 
FTRsNot DesignatedMWh3,168 0 3,168 
(a)    Refers to whether the derivative instruments have been designated as a cash flow hedge.

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 determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we are no longer required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument is now recorded in other comprehensive income and amounts deferred are reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.

In March 2019, we entered into 3 forward interest rate swaps to hedge the interest risk associated with refinancing the IPALCO 2020 maturities. The 3 interest rate swaps had a combined notional amount of $400.0 million. In April 2020, we de-designated the swaps as cash flow hedges and froze the AOCL of $72.3 million at the date of de-designation. The interest rate swaps were then amended and re-designated as cash flow hedges to hedge the interest rate risk associated with refinancing the 2024 IPALCO Notes. The amended interest rate swaps have a combined notional amount of $400.0 million and will be settled when the 2024 IPALCO Notes are refinanced. The $72.3 million of AOCL associated with the interest rate swaps through the date of the amendment will be amortized out of AOCL into interest expense over the remaining life of the 2030 IPALCO Notes, while any changes in fair value associated with the amended interest rate swaps will be recognized in AOCL going forward.

The following tables provide information on gains or losses recognized in AOCL for the cash flow hedges for the periods indicated:
Interest Rate Hedges for the Year Ended December 31,
$ in thousands (net of tax)202020192018
Beginning accumulated derivative gain / (loss) in AOCL$(19,750)$0 $0 
Net losses associated with current period hedging transactions(27,779)(19,750)0 
Net losses reclassified to interest expense, net of tax4,109 0 0 
Ending accumulated derivative loss in AOCL$(43,420)$(19,750)$0 
Loss expected to be reclassified to earnings in the next twelve months$(5,375)
Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months)45

Derivatives Not Designated as Hedge

FTRs do not qualify for hedge accounting or the normal purchases and sales exceptions under ASC 815. Accordingly, such contracts are recorded at fair value when acquired and subsequently amortized over the annual period as they are used. FTRs are initially recorded at fair value using the income approach.

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 mark to market accounting and are recognized in the 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
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received (a liability) under derivative agreements. As of December 31, 2020, IPALCO had $6.1 million of collateral in a broker margin account which offsets our loss positions on the interest rate hedges.

The following table summarizes the fair value, balance sheet classification and hedging designation of IPALCO's derivative instruments:
December 31,
CommodityHedging DesignationBalance sheet classification20202019
Financial transmission rightsNot a Cash Flow HedgePrepayments and other current assets$543 $864 
Interest rate hedgesCash Flow HedgeDerivative liabilities, current$0 $26,560 
Interest rate hedgesCash Flow HedgeDerivative liabilities, non-current$63,215 $0 

6. EQUITY

Dividend Restrictions

IPL’s mortgage and deed of trust and its amended articles of incorporation contain restrictions on IPL’s ability to issue certain securities or pay cash dividends. So long as any of the several series of bonds of IPL issued under its mortgage remains outstanding, and subject to certain exceptions, IPL is restricted in the declaration and payment of dividends, or other distribution on shares of its capital stock of any class, or in the purchase or redemption of such shares, to the aggregate of its net income, as defined in the mortgage, after December 31, 1939. In addition, pursuant to IPL’s articles, no dividends may be paid or accrued, and no other distribution may be made on IPL’s common stock unless dividends on all outstanding shares of IPL preferred stock have been paid or declared and set apart for payment. As of December 31, 2020, and as of the filing of this report, IPL was in compliance with these restrictions.

IPL is also restricted in its ability to pay dividends if it is in default under the terms of its Credit Agreement, which could happen if IPL fails to comply with certain covenants. These covenants, among other things, require IPL to maintain a ratio of total debt to total capitalization not in excess of 0.67 to 1. As of December 31, 2020. and as of the filing of this report, IPL was in compliance with all covenants and no event of default existed.

IPALCO’s Third Amended and Restated Articles of Incorporation contain provisions which state that IPALCO may not make a distribution to its shareholders or make a loan to any of its affiliates (other than its subsidiaries), unless: (a) there exists no event of default (as defined in the articles) and no such event of default would result from the making of the distribution or loan; and either (b)(i) at the time of, and/or as a result of, the distribution or loan, IPALCO’sleverage ratio does not exceed 0.67 to 1 and IPALCO’s interest coverage ratio is not less than 2.50 to 1 or, (b)(ii) if such ratios are not within the parameters, IPALCO’s senior long-term debt rating from one of the three major credit rating agencies is at least investment grade. As of December 31, 2020, and as of the filing of this report, IPALCO was in compliance with all covenants and no event of default existed.

During the years ended December 31, 2020, 2019 and 2018, IPALCO declared and paid distributions to its shareholders totaling $108.7 million, $136.4 million and $130.2 million, respectively.

Cumulative Preferred Stock

IPL has 5 separate series of cumulative preferred stock. Holders of preferred stock are entitled to receive dividends at rates per annum ranging from 4.0% to 5.65%. During each year ended December 31, 2020, 2019 and 2018, total preferred stock dividends declared were $3.2 million. Holders of preferred stock are entitled to 2 votes per share for IPL matters, and if four full quarterly dividends are in default on all shares of the preferred stock then outstanding, they are entitled to elect the smallest number of IPL directors to constitute a majority of IPL’s Board of Directors. Based on the preferred stockholders’ ability to elect a majority of IPL’s Board of Directors in this circumstance, the redemption of the preferred shares is considered to be not solely within the control of the issuer and the preferred stock was considered temporary equity and presented in the mezzanine level of the audited consolidated balance sheets in accordance with the relevant accounting guidance for non-controlling interests and redeemable securities. IPL has issued and outstanding 500,000 shares of 5.65% preferred stock, which are now redeemable at par value, subject to certain restrictions, in whole or in part. Additionally, IPL has 91,353 shares of
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preferred stock which are redeemable solely at the option of IPL and can be redeemed in whole or in part at any time at specific call prices.

At December 31, 2020, 2019 and 2018, preferred stock consisted of the following:
 December 31, 2020December 31,
 Shares
Outstanding		Call Price202020192018
 Par Value, plus premium, if applicable
  (In Thousands)
Cumulative $100 par value,     
authorized 2,000,000 shares     
4% Series47,611 $118.00 $5,410 $5,410 $5,410 
4.2% Series19,331 $103.00 1,933 1,933 1,933 
4.6% Series2,481 $103.00 248 248 248 
4.8% Series21,930 $101.00 2,193 2,193 2,193 
5.65% Series500,000 $100.00 50,000 50,000 50,000 
Total cumulative preferred stock591,353  $59,784 $59,784 $59,784 

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7.  DEBT

Long-Term Debt

The following table presents our long-term debt:
  December 31,
SeriesDue20202019
   (In Thousands)
IPL first mortgage bonds:  
3.875% (1)
August 2021$55,000 $55,000 
3.875% (1)
August 202140,000 40,000 
3.125% (1)
December 202440,000 40,000 
6.60%January 2034100,000 100,000 
6.05%October 2036158,800 158,800 
6.60%June 2037165,000 165,000 
4.875%November 2041140,000 140,000 
4.65%June 2043170,000 170,000 
4.50%June 2044130,000 130,000 
4.70%September 2045260,000 260,000 
4.05%May 2046350,000 350,000 
4.875%November 2048105,000 105,000 
0.75% (2)
April 202630,000 0 
0.95% (2)
April 202660,000 0 
Unamortized discount – net(6,006)(6,156)
Deferred financing costs  (17,384)(16,629)
Total IPL first mortgage bonds1,780,410 1,691,015 
IPL unsecured debt:
Variable (3)
December 20200 30,000 
Variable (3)
December 20200 60,000 
Deferred financing costs0 (114)
Total IPL unsecured debt0 89,886 
Total long-term debt – IPL1,780,410 1,780,901 
Long-term debt – IPALCO:  
Term LoanJuly 20200 65,000 
3.45% Senior Secured NotesJuly 20200 405,000 
3.70% Senior Secured NotesSeptember 2024405,000 405,000 
4.25% Senior Secured NotesMay 2030475,000 0 
Unamortized discount – net  (625)(313)
Deferred financing costs  (8,600)(3,959)
Total long-term debt – IPALCO870,775 870,728 
Total consolidated IPALCO long-term debt2,651,185 2,651,629 
Less: current portion of long-term debt94,907 559,199 
Net consolidated IPALCO long-term debt$2,556,278 $2,092,430 

(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 were subject to a mandatory put in December 2020.
(3)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. The notes have a final maturity date of December 2038, but are subject to a mandatory put in April 2026.
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Debt Maturities

Maturities on long-term indebtedness subsequent to December 31, 2020, are as follows:
YearAmount
 (In Thousands)
2021$95,000 
20220 
20230 
2024445,000 
20250 
Thereafter2,143,800 
Total$2,683,800 

Significant Transactions

IPL First Mortgage Bonds and Recent Indiana Finance Authority Bond Issuances

The mortgage and deed of trust of IPL, together with the supplemental indentures thereto, secure the first mortgage bonds issued by IPL. Pursuant to the terms of the mortgage, substantially all property owned by IPL is subject to a first mortgage lien securing indebtedness of $1,803.8 million as of December 31, 2020. The IPL first mortgage bonds require net earnings as calculated thereunder be at least two and one-half times the annual interest requirements before additional bonds can be authenticated on the basis of property additions. IPL was in compliance with such requirements as of December 31, 2020.

In December 2020, the Indiana Finance Authority issued on behalf of IPL an aggregate principal amount of $90 million of Environmental Facilities Refunding Revenue Bonds, Series 2020A&B due December 2038. IPL issued $90 million aggregate principal amount of first mortgage bonds to the Indiana Finance Authority in two series: $30 million Series 2020A notes at 0.75% and $60 million Series 2020B notes at 0.95% to secure the loan of proceeds from these bonds issued by the Indiana Finance Authority. These bonds are subject to a mandatory put date of April 1, 2026. Proceeds of the bonds were used to refund $90 million of Indiana Finance Authority Environmental Facilities Refunding Revenue Bonds Series 2015A&B.

IPL has $95 million of 3.875% IPL first mortgage bonds that are due August 1, 2021. Management plans to refinance these first mortgage bonds with new debt. In the event that we are unable to refinance these first mortgage bonds on acceptable terms, IPL has available borrowing capacity on its revolving credit facility that could be used to satisfy the obligation. 

IPALCO’s Senior Secured Notes and Term Loan

In April 2020, IPALCO completed the sale of the $475 million aggregate principal amount of 4.25% 2030 IPALCO Notes pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. We used the net proceeds from this offering to retire the $65 million Term Loan on April 14, 2020. The remaining net proceeds, together with cash on hand, were used to redeem the 2020 IPALCO Notes on May 14, 2020, and to pay certain related fees, expenses and make-whole premiums. A loss on early extinguishment of debt of $2.4 million for the 2020 IPALCO Notes is included as a separate line item within "Other Income/(Expense), Net" in the accompanying Consolidated Statements of Operations.

The 2030 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 has also agreed to register the 2030 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 dated April 14, 2020.


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Line of Credit

IPL entered into an amendment and restatement of its 5-year $250 million revolving credit facility on June 19, 2019 with a syndication of bank lenders. This Credit Agreement is an unsecured committed line of credit to be used: (i) to finance capital expenditures; (ii) to refinance certain existing indebtedness, (iii) to support working capital; and (iv) for general corporate purposes. This agreement matures on June 19, 2024, and bears interest at variable rates as described in the Credit Agreement. It includes an uncommitted $150 million accordion feature to provide IPL with an option to request an increase in the size of the facility at any time prior to June 19, 2023, subject to approval by the lenders. The Credit Agreement also includes two one-year extension options, allowing IPL to extend the maturity date subject to approval by the lenders. Prior to execution, IPL and IPALCO had existing general banking relationships with the parties to the Credit Agreement. As of December 31, 2020 and 2019, IPL had $75.0 million and $0.0 million in outstanding borrowings on the committed line of credit, respectively.

Restrictions on Issuance ofDebt 

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. IPL has approval from FERC to borrow up to $500 million of short-term indebtedness outstanding at any time through July 26, 2022. In December 2018, IPL received an order from the IURC granting IPL authority through December 31, 2021 to, among other things, issue up to $350 million in aggregate principal amount of long-term debt, all of which authority remains available as of December 31, 2020, and refinance up to $185 million in existing indebtedness, of which $95 million of authority remains available under the order as of December 31, 2020. This order also grants IPL authority to have up to $500 million of long-term credit agreements and liquidity facilities outstanding at any one time, of which $250.0 million remains available under the order as of December 31, 2020. 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 December 31, 2020. IPL also has 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. Under such restrictions, IPL is generally allowed to fully draw the amounts available on its Credit Agreement, refinance existing debt and issue new debt approved by the IURC and issue certain other indebtedness.

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 on IPL’s 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.

8. INCOME TAXES

IPALCO follows a policy of comprehensive interperiod income tax allocation. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property.

AES files federal and state income tax returns which consolidate IPALCO and its subsidiaries. Under a tax sharing agreement with AES, IPALCO is responsible for the income taxes associated with its own taxable income and records the provision for income taxes as if IPALCO and its subsidiaries each filed separate income tax returns. IPALCO is no longer subject to U.S. or state income tax examinations for tax years through March 27, 2001, but is open for all subsequent periods. IPALCO made tax sharing payments to AES of $27.0 million, $29.6 million and $28.3 million in 2020, 2019 and 2018, respectively.

On March 25, 2014, the state of Indiana amended Indiana Code 6-3-2-1 through Senate Bill 001, which phases in an additional 1.6% reduction to the state corporate income tax rate that was initially being reduced by 2%. While the statutory state income tax rate decreased to 5.375% for the calendar year 2020, the deferred tax balances were adjusted according to the anticipated reversal of temporary differences. The change in required deferred taxes on plant and plant-related temporary differences resulted in a reduction to the associated regulatory asset of $1.3 million. The change in required deferred taxes on non-property related temporary differences which are not probable to cause a reduction in future base customer rates resulted in a tax benefit of $0.1 million. The statutory state corporate income tax rate will be 5.075% for 2021.

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Income Tax Provision

Federal and state income taxes charged to income are as follows: 
 202020192018
 (In Thousands)
Components of income tax expense:   
Current income taxes:   
Federal$19,489 $17,229 $20,341 
State6,249 3,022 8,843 
Total current income taxes25,738 20,251 29,184 
Deferred income taxes:   
Federal323 7,547 (15,150)
State2,531 7,745 326 
Total deferred income taxes2,854 15,292 (14,824)
Net amortization of investment credit0 (15)(911)
Total income tax expense$28,592 $35,528 $13,449 

Effective and Statutory Rate Reconciliation

The provision for income taxes (including net investment tax credit adjustments) is different than the amount computed by applying the statutory tax rate to pretax income. The reasons for the difference, stated as a percentage of pretax income, are as follows: 
 202020192018
Federal statutory tax rate21.0 %21.0 %21.0 %
State income tax, net of federal tax benefit4.2 %4.4 %5.6 %
Research and development credit0 %0 %(1.9)%
Depreciation flow through and amortization(6.8)%(5.7)%(15.6)%
Additional funds used during construction - equity1.0 %0.2 %0.3 %
Other – net1.2 %1.3 %(0.3)%
Effective tax rate20.6 %21.2 %9.1 %


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Deferred Income Taxes

The significant items comprising IPALCO’s net accumulated deferred tax liability recognized on the audited Consolidated Balance Sheets as of December 31, 2020 and 2019, are as follows:
 20202019
 (In Thousands)
Deferred tax liabilities:  
Relating to utility property, net$408,291 $411,182 
Regulatory assets recoverable through future rates82,783 69,156 
Other5,485 6,192 
Total deferred tax liabilities496,559 486,530 
Deferred tax assets:  
Investment tax credit6 7 
Regulatory liabilities including ARO197,657 191,676 
Employee benefit plans3,866 8,545 
Other19,316 13,441 
Total deferred tax assets220,845 213,669 
Deferred income tax liability – net$275,714 $272,861 

Uncertain Tax Positions

The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018: 
 202020192018
 (In Thousands)
Unrecognized tax benefits at January 1$7,056 $7,056 $7,049 
Gross increases – current period tax positions312 0 0 
Gross decreases – prior period tax positions0 0 7 
Unrecognized tax benefits at December 31$7,368 $7,056 $7,056 

The unrecognized tax benefits at December 31, 2020 represent tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the timing of the deductions will not affect the annual effective tax rate but would accelerate the tax payments to an earlier period.

Tax-related interest expense and income is reported as part of the provision for federal and state income taxes. Penalties, if incurred, would also be recognized as a component of tax expense. There are no interest or penalties applicable to the periods contained in this report.
9. BENEFIT PLANS

Defined Contribution Plans

All of IPL’s employees are covered by one of two defined contribution plans, the Thrift Plan or the RSP:
The Thrift Plan
Approximately 80% of IPL’s active employees are covered by the Thrift Plan, a qualified defined contribution plan. All union new hires are covered under the Thrift Plan. Participants elect to make contributions to the Thrift Plan based on a percentage of their base compensation. Each participant’s contribution is matched up to certain thresholds of base compensation. The IBEW clerical-technical union new hires receive an annual lump sum
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company contribution into the Thrift Plan in addition to the company match. Employer contributions to the Thrift Plan were $3.4 million, $3.3 million and $3.3 million for 2020, 2019 and 2018, respectively.
The RSP
Approximately 20% of IPL’s active employees are covered by the RSP, a qualified defined contribution plan containing a match and nondiscretionary component. All non-union new hires are covered under the RSP. Participants elect to make contributions to the RSP based on a percentage of their eligible compensation. Each participant’s contribution is matched in amounts up to, but not exceeding, 5% of the participant’s eligible compensation. Starting in 2018, the RSP also includes a 4% nondiscretionary contribution based as a percentage of each participant's eligible compensation. Employer contributions (by IPL) relating to the RSP were $1.8 million, $1.6 million and $1.7 million for 2020, 2019 and 2018, respectively.

Defined Benefit Plans

Approximately 72% of IPL’s active employees are covered by the qualified Defined Benefit Pension Plan; while approximately 8% of active employees are IBEW clerical-technical unit employees who are only eligible for the Thrift Plan. The remaining 20% of active employees are covered by the RSP. All non-union new hires are covered under the RSP, while IBEW physical unit union new hires are covered under the Defined Benefit Pension Plan and Thrift Plan. The IBEW clerical-technical unit new hires are no longer covered under the Defined Benefit Pension Plan but do receive an annual lump sum company contribution into the Thrift Plan, in addition to the company match. The Defined Benefit Pension Plan is noncontributory and is funded by IPL through a trust. Benefits for non-union participants in the Defined Benefit Pension Plan are based on salary, years of service and accrued benefits at April 1, 2015. Benefits for eligible union participants are based on each individual employee's pension band and years of service as opposed to their compensation. Pension bands are based primarily on job duties and responsibilities.

Additionally, a small group of former officers and their surviving spouses are covered under a funded non-qualified Supplemental Retirement Plan. The total number of participants in the plan as of December 31, 2020 was 22. The plan is closed to new participants.

IPL also provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. Approximately 142 active employees and 16 retirees (including spouses) were receiving such benefits or entitled to future benefits as of January 1, 2020. The plan is unfunded. These postretirement health care benefits and the related unfunded obligation of $4.3 million and $6.4 million at December 31, 2020 and 2019, respectively, were not material to the consolidated financial statements in the periods covered by this report.
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The following table presents information relating to the Pension Plans: 
 Pension benefits
as of December 31,
 20202019
 (In Thousands)
Change in benefit obligation:  
Projected benefit obligation at January 1$782,795 $697,228 
Service cost8,272 7,412 
Interest cost22,151 27,343 
Actuarial loss/(gain)66,827 88,311 
Amendments (primarily increases in pension bands)967 0 
Benefits paid(38,487)(37,499)
Projected benefit obligation at December 31842,525 782,795 
Change in plan assets:  
Fair value of plan assets at January 1769,704 684,485 
Actual return on plan assets118,716 122,690 
Employer contributions87 28 
Benefits paid(38,487)(37,499)
Fair value of plan assets at December 31850,020 769,704 
Funded (unfunded) status$7,495 $(13,091)
Amounts recognized in the statement of financial position:  
Non-current assets$8,669 $0 
Non-current liabilities(1,174)(13,091)
Net amount recognized at end of year$7,495 $(13,091)
Sources of change in regulatory assets(1):
  
Prior service cost arising during period$967 $0 
Net (gain)/loss arising during period(14,110)(4,472)
Amortization of prior service cost(3,677)(3,823)
Amortization of loss(8,115)(11,084)
Total recognized in regulatory assets$(24,935)$(19,379)
Amounts included in regulatory assets:  
Net loss$145,526 $167,750 
Prior service cost11,613 14,323 
Total amounts included in regulatory assets$157,139 $182,073 
(1)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.

Information for Pension Plans with aprojectedbenefit obligation in excess of plan assets
 Pension benefits
as of December 31,
 20202019
 (In Thousands)
Benefit obligation$842,525 $782,795 
Plan assets850,020 769,704 
Benefit obligation in excess of plan assets$(7,495)$13,091 
IPL’s total plan assets in excess of projected benefit obligation was $7.5 million as of December 31, 2020 ($8.7 million Defined Benefit Pension Plan plan assets in excess of projected benefit obligation, partially offset by $1.2 million Supplemental Retirement Plan projected benefit obligation in excess of plan assets).
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Information for Pension Plans with an accumulated benefit obligation in excess of plan assets
 Pension benefits
as of December 31,
 20202019
 (In Thousands)
Accumulated benefit obligation$830,458 $771,592 
Plan assets850,020 769,704 
Accumulated benefit obligation in excess of plan assets$(19,562)$1,888 

IPL’s total plan assets in excess of accumulated benefit obligation was $19.6 million as of December 31, 2020 ($20.7 million Defined Benefit Pension Plan plan assets in excess of accumulated benefit obligation, partially offset by $1.1 million Supplemental Retirement Plan accumulated benefit obligation in excess of plan assets).

Significant Gains and Losses Related to Changes in the Benefit Obligation for the Period

As shown in the table above, an actuarial loss of $66.8 million increased the benefit obligation for the year ended December 31, 2020 and an actuarial loss of $88.3 million increased the benefit obligation for the year ended December 31, 2019. The actuarial losses in 2020 and 2019 were primarily due to decreases in the discount rate.

Pension Benefits and Expense

Reported expenses relevant to the Defined Benefit Pension Plan are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience, including the performance of plan assets and actual benefits paid out in future years. Pension costs associated with the Defined Benefit Pension Plan are impacted by the level of contributions made to the plan, earnings on plan assets, the adoption of new mortality tables, and employee demographics, including age, job responsibilities, salary and employment periods. Changes made to the provisions of the Defined Benefit Pension Plan may impact current and future pension costs. Pension costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the corporate bond discount rates, as well as, the adoption of a new mortality table used in determining the projected benefit obligation and pension costs.

The 2020 net actuarial gain of $14.1 million recognized in regulatory assets is comprised of two parts: (1) an $80.9 million pension asset actuarial gain primarily due to higher than expected return on assets; partially offset by (2) a $66.8 million pension liability actuarial loss primarily due to a decrease in the discount rate used to value pension liabilities. The unrecognized net loss of $145.5 million in the Pension Plans has accumulated over time primarily due to the long-term declining trend in corporate bond rates and the adoption of new mortality tables which increased the expected benefit obligation due to the longer expected lives of plan participants. During 2020, the accumulated net gain increased due to lower discount rates used to value pension liabilities, which was partially offset by a combination of higher than expected return on pension assets, as well as the year 2020 amortization of accumulated loss. The unrecognized net loss, to the extent that it exceeds 10% of the greater of the benefit obligation or the assets, will be amortized and included as a component of net periodic benefit cost in future years. The amortization period is approximately 10.84 years based on estimated demographic data as of December 31, 2020. The projected benefit obligation of $842.5 million less the fair value of assets of $850.0 million results in an overfunded status of $7.5 million at December 31, 2020.

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 Pension benefits for
years ended December 31,
 202020192018
 (In Thousands)
Components of net periodic benefit cost:   
Service cost$8,272 $7,412 $8,450 
Interest cost22,151 27,343 25,220 
Expected return on plan assets(37,779)(29,907)(40,801)
Amortization of prior service cost3,677 3,823 3,837 
Recognized actuarial loss8,115 11,084 11,403 
Recognized settlement loss0 0 1,230 
Total pension cost4,436 19,755 9,339 
Less: amounts capitalized372 1,237 1,223 
Amount charged to expense$4,064 $18,518 $8,116 
Rates relevant to each year’s expense calculations:   
Discount rate – defined benefit pension plan3.33 %4.36 %3.67 %
Discount rate – supplemental retirement plan3.05 %4.24 %3.60 %
Expected return on defined benefit pension plan assets5.05 %4.50 %5.45 %
Expected return on supplemental retirement plan assets4.45 %4.50 %5.45 %

Pension expense for the following year is determined as of the December 31 measurement date based on the fair value of the Pension Plans’ assets, the expected long-term rate of return on plan assets, a mortality table assumption that reflects the life expectancy of plan participants, and a discount rate used to determine the projected benefit obligation. For 2020, pension expense was determined using an assumed long-term rate of return on plan assets of 5.05% for the Defined Benefit Pension Plan and 4.45% for the Supplemental Retirement Plan. As of the December 31, 2020 measurement date, IPL decreased the discount rate from 3.33% to 2.46% for the Defined Benefit Pension Plan and from 3.05% to 2.31% for the Supplemental Retirement Plan. The discount rate assumptions affect the pension expense determined for 2021. In addition, IPL maintained the expected long-term rate of return on plan assets at 5.05% for the Defined Benefit Pension Plan and decreased the expected long-term rate of return for the Supplemental Retirement Plan from 4.45% to 3.60% for 2021. The expected long-term rate of return assumption affects the pension expense determined for 2021. The effect on 2021 total pension expense of a 25 basis point increase and decrease in the assumed discount rate is $(1.4) million and $1.3 million, respectively.

In determining the discount rate to use for valuing liabilities we use the market yield curve on high-quality fixed income investments as of December 31, 2020. We project the expected benefit payments under the plan based on participant data and based on certain assumptions concerning mortality, retirement rates, termination rates, etc. The expected benefit payments for each year are discounted back to the measurement date using the appropriate spot rate for each half-year from the yield curve, thereby obtaining a present value of all expected future benefit payments using the yield curve. Finally, an equivalent single discount rate is determined which produces a present value equal to the present value determined using the full yield curve.

Pension Plan Assets and Fair Value Measurements

Pension plan assets consist of investments in cash and cash equivalents, government debt securities, and mutual funds (equity and debt). Differences between actual portfolio returns and expected returns may result in increased or reduced pension costs in future periods. Pension costs are determined as of the plans' measurement date of December 31, 2020. Pension costs are determined for the following year based on the market value of pension plan assets, expected employer contributions, a discount rate used to determine the projected benefit obligation and the expected long-term rate of return on plan assets.

Fair value is defined under ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
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priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation includes the Pension Plans’ gains and losses on investments bought and sold, as well as held, during the year.

A description of the valuation methodologies used for each major class of assets and liabilities measured at fair value follows:

•The non-qualified Supplemental Retirement Plan investments have quoted market prices and are categorized as Level 1 in the fair value hierarchy.

•The qualified Defined Benefit Pension Plan investments in common collective trusts are valued based on the daily net asset value and are categorized as Level 2 in the fair value hierarchy except for cash and cash equivalents which are categorized as level 1.

The primary objective of the Pension Plans’ is to provide a source of retirement income for its participants and beneficiaries, while the primary financial objective is to improve the unfunded status of the Pension Plans. A secondary financial objective is, where possible, to minimize pension expense volatility. The objective is based on a long-term investment horizon, so that interim fluctuations should be viewed with appropriate perspective. There can be no assurance that these objectives will be met.

In establishing our expected long-term rate of return assumption, we utilize a methodology developed by the plan’s investment consultant who maintains a capital market assumption model that takes into consideration risk, return and correlation assumptions across asset classes. A combination of quantitative analysis of historical data and qualitative judgment is used to capture trends, structural changes and potential scenarios not reflected in historical data. 

The result of the analyses is a series of inputs that produce a picture of how the plan consultant believes portfolios are likely to behave through time. Capital market assumptions are intended to reflect the behavior of asset classes observed over several market cycles. Stress assumptions are also examined, since the characteristics of asset classes are constantly changing. A dynamic model is employed to manage the numerous assumptions required to estimate portfolio characteristics under different base currencies, time horizons and inflation expectations.
The Pension Plans’ consultant develops forward-looking, long-term capital market assumptions for risk, return and correlations for a variety of global asset classes, interest rates and inflation. These assumptions are created using a combination of historical analysis, current market environment assessment and by applying the consultant’s own judgment. The consultant then determines an equilibrium long-term rate of return. We then take into consideration the investment manager/consultant expenses, as well as any other expenses expected to be paid out of the Pension Plans’ trust. Finally, we have the Pension Plans’ actuary perform a tolerance test of the consultant’s equilibrium expected long-term rate of return. We use an expected long-term rate of return compatible with the actuary’s tolerance level.

The following table summarizes the Company’s target pension plan allocation for 2020:
Asset Category:Target Allocations
Equity Securities36%
Debt Securities64%
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 Fair Value Measurements at
December 31, 2020
(in thousands)
  Quoted Prices in Active Markets for Identical AssetsSignificant Observable Inputs 
Asset CategoryTotal(Level 1)(Level 2)%
Cash and cash equivalents$2,221 $2,221 $— 0 %
Government debt securities118,255 131 118,124 14 %
Mutual fund - equities323,253 2,839 320,414 38 %
Mutual fund - debt406,291 1,578 404,713 48 %
Total$850,020 $6,769 $843,251 100 %
 Fair Value Measurements at
December 31, 2019
(in thousands)
  Quoted Prices in Active Markets for Identical AssetsSignificant Observable Inputs 
Asset CategoryTotal(Level 1)(Level 2)%
Cash and cash equivalents$2,599 $2,599 $— 0 %
Government debt securities154,798 39 154,759 20 %
Mutual fund - equities214,369 2,744 211,625 28 %
Mutual fund - debt397,938 1,664 396,274 52 %
Total(1)
$769,704 $7,046 $762,658 100 %
(1) In 2019, the qualified Defined Benefit Pension Plan moved all investments except for cash and cash equivalents into collective trusts; therefore, the 2019 balances under the Government debt securities, Mutual fund - equities, and Mutual fund - debt categories shown above as level 2 represent investments through collective trusts. The Defined Benefit Pension Plan has chosen collective trusts for which the underlying investments are mutual funds, mutual funds categories for which debt securities are the primary underlying investment, or real estate in alignment with the target asset allocation.

Pension Funding

We contributed $0.1 million, $0.0 million, and $30.1 million to the Pension Plans in 2020, 2019 and 2018, respectively. Funding for the qualified Defined Benefit Pension Plan is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under ERISA, as amended by the Pension Protection Act of 2006, as well as targeted funding levels necessary to meet certain thresholds.
From an ERISA funding perspective, IPL’s funded target liability percentage was estimated to be 100%. In general, IPL must contribute the normal service cost earned by active participants during the plan year; however, this amount can be offset by any surplus or credit balance carried by the Pension Plan. The normal cost is expected to be approximately $6.1 million in 2021 (including $0.4 million for plan expenses), which is expected to be fully offset by the surplus amount. Each year thereafter, if the Pension Plans’ underfunding increases to more than the present value of the remaining annual installments, the excess is separately amortized over a seven-year period. IPL does not expect to make an employer contribution for the calendar year 2021. IPL’s funding policy for the Pension Plans is to contribute annually no less than the minimum required by applicable law, and no more than the maximum amount that can be deducted for federal income tax purposes. 


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Benefit payments made from the Pension Plans for the years ended December 31, 2020, 2019 and 2018 were $38.5 million, $37.5 million and $62.1 million, respectively. Expected benefit payments are expected to be paid out of the Pension Plans as follows:
YearPension Benefits
 (In Thousands)
2021$41,552 
202242,715 
202343,371 
202443,827 
202544,467 
2026 through 2030224,933 

10. COMMITMENTS AND CONTINGENCIES

Legal Loss Contingencies

IPALCO and IPL are involved in litigation arising in the normal course of business. We accrue for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. As of December 31, 2020 and 2019, total legal loss contingencies accrued were $13.4 million and $2.6 million, respectively, which were included in “Accrued and Other Current Liabilities” and "Other Non-Current Liabilities," respectively, on the accompanying Consolidated Balance Sheets. A significant portion of these accrued liabilities relate to a personal injury legal claim involving injuries to a contractor. We maintain an amount of insurance protection for such litigation that we believe is adequate. While the ultimate outcome of such litigation cannot be predicted with certainty, management believes that final outcomes will not have a material adverse effect on IPALCO’s results of operations, financial condition and cash flows.

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 regulated materials, including ash; the use and discharge of water used in generation boilers and for cooling purposes; 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 alleged violations of the CAA at IPL’s 3 primarily coal-fired electric generating facilities at the time, dating back to 1986. The alleged violations primarily pertain to the PSD and non-attainment New Source Review (NSR) 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 PSD, non-attainment NSR and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Generating Station. On August 31, 2020, IPL reached a settlement with the EPA, the DOJ and IDEM resolving the purported violations of the CAA with respect to IPL's four coal-fired generation units currently operating at IPL's Petersburg location. The settlement agreement, in the form of a proposed judicial consent decree, includes, among other items, the following requirements: annual caps on NOx and SO2 emissions and more stringent emissions limits than IPL's current Title V air permit; payment of civil penalties totaling $1.525 million; a $5 million environmental mitigation project consisting of the construction and operation of a new, non-emitting source of generation at the site; expenditure of $0.325 million on a state-only environmentally beneficial project to preserve local, ecologically-significant lands; and retirement of Units 1 and 2 prior to July 1, 2023. If IPL does not meet this retirement obligation, it must install a Selective Non-Catalytic
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Reduction System (SNCR) on Unit 4. The proposed Consent Decree is subject to final review and approval by the U.S. District Court for the Southern District of Indiana. On January 14, 2021, the U.S. and Indiana, on behalf of EPA and IDEM, respectively, filed a motion asking the court to enter the proposed Consent Decree, along with the U.S.' response to the adverse public comments on the proposed settlements. IPL has a contingent liability recorded related to these New Source Review and other CAA NOV matters.
11.  RELATED PARTY TRANSACTIONS

IPL participates in a property insurance program in which IPL buys insurance from AES Global Insurance Company, a wholly-owned subsidiary of AES. IPL is not self-insured on property insurance, but does take a $5 million per occurrence deductible. Except for IPL’s large substations, IPL does not carry insurance on transmission and distribution assets, which are considered to be outside the scope of property insurance. AES and other AES subsidiaries, including IPALCO, also participate in the AES global insurance program. IPL pays premiums for a policy that is written and administered by a third-party insurance company. The premiums paid to this third-party administrator by the participants are paid to AES Global Insurance Company and all claims are paid from a trust fund funded by and owned by AES Global Insurance Company, but controlled by the third-party administrator. IPL also has third-party insurance in which the premiums are paid directly to the third-party insurers. The cost to IPL of coverage under the property insurance program with AES Global Insurance Company was approximately $5.6 million, $4.3 million, and $3.1 million in 2020, 2019 and 2018, respectively, and is recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations. As of December 31, 2020 and 2019, we had prepaid approximately $2.3 million and $2.0 million, respectively, for coverage under these plans, which is recorded in "Prepayments and other current assets" on the accompanying Consolidated Balance Sheets. 
IPL participates in an agreement with Health and Welfare Benefit Plans LLC, an affiliate of AES, to participate in a group benefits program, including but not limited to, health, dental, vision and life benefits. Health and Welfare Benefit Plans LLC administers the financial aspects of the group insurance program, receives all premium payments from the participating affiliates, and makes all vendor payments. The cost of coverage under this program was approximately $21.0 million, $20.2 million, and $21.5 million in 2020, 2019 and 2018, respectively, and is recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations. We had no prepaids for coverage under this plan as of December 31, 2020 and 2019, respectively.

AES files federal and state income tax returns which consolidate IPALCO and its subsidiaries. Under a tax sharing agreement with AES, IPALCO is responsible for the income taxes associated with its own taxable income and records the provision for income taxes using a separate return method. IPALCO had a receivable balance under this agreement of $24.4 million and $23.7 million as of December 31, 2020 and 2019, respectively, which is recorded in “Taxes receivable” on the accompanying Consolidated Balance Sheets. See Note 8, "Income Taxes" for more information.

Long-term Compensation Plan

During 2020, 2019 and 2018, many of IPL’s non-union employees received benefits under the AES Long-term Compensation Plan, a deferred compensation program. This type of plan is a common employee retention tool used in our industry. Benefits under this plan are granted in the form of performance units payable in cash and AES restricted stock units. Restricted stock units vest ratably over a three-year period. The performance units payable in cash vest at the end of the three-year performance period and are subject to certain AES performance criteria. Total deferred compensation expense recorded during 2020, 2019 and 2018 was $0.3 million, $0.3 million and $0.5 million, respectively, and was included in “Operating expenses - Operation and maintenance” on IPALCO’s Consolidated Statements of Operations. The value of these benefits is being recognized over the 36 month vesting period and a portion is recorded as miscellaneous deferred credits with the remainder recorded as “Paid in capital” on IPALCO’s Consolidated Balance Sheets in accordance with ASC 718 “Compensation – Stock Compensation.”

See also Note 9, “Benefit Plans” to the Financial Statements for a description of benefits awarded to IPL employees by AES under the RSP.

ServiceCompany

Total costs incurred by the Service Company on behalf of IPALCO were $55.7 million, $42.0 million and $44.5 million during 2020, 2019 and 2018, respectively. Total costs incurred by IPALCO on behalf of the Service Company
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during 2020, 2019 and 2018 were $10.6 million, $9.7 million and $10.1 million, respectively, which are included as a reduction to charges from the Service Company. These costs were included in “Operating expenses - Operation and maintenance” on IPALCO’s Consolidated Statements of Operations. IPALCO had a payable balance with the Service Company of $4.5 million and $8.4 million as of December 31, 2020 and December 31, 2019, respectively, which is recorded in “Accounts payable” on the accompanying Consolidated Balance Sheets.

Other

A member of the AES Board of Directors is also a member of the Supervisory Board of a third party vendor that IPL engaged in 2014 for certain construction projects. As the transactions with this vendor related to capital projects, there was no direct impact on the Consolidated Statements of Operations for the periods presented. Over the life of the project, IPL had total net charges from this vendor of $474.9 million. This vendor completed its service in 2018.

Additionally, transactions with various other related parties were $6.5 million, $3.0 million and $5.7 million during 2020, 2019 and 2018, respectively. These expenses were primarily recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations.

12. 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 non-utility business activities aggregated separately. The "All Other" non-utility category primarily includes the 2024 IPALCO Notes and 2030 IPALCO Notes and related interest expense, balances associated with IPALCO's interest rate hedges, cash and other immaterial balances. 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):
 202020192018
 UtilityAll OtherTotalUtilityAll OtherTotalUtilityAll OtherTotal
Revenues$1,352,985 $— $1,352,985 $1,481,643 $— $1,481,643 $1,450,505 $— $1,450,505 
Depreciation and amortization$246,896 $0 $246,896 $240,314 $0 $240,314 $232,332 $0 $232,332 
Interest expense$87,281 $42,212 $129,493 $89,014 $32,757 $121,771 $64,472 $31,037 $95,509 
Earnings/(loss) from operations before income tax$184,174 $(45,615)$138,559 $200,707 $(32,786)$167,921 $178,953 $(31,479)$147,474 
Capital expenditures(1)
$235,736 $0 $235,736 $219,242 $0 $219,242 $235,764 $0 $235,764 
(1) Capital expenditures includes $0.0 million, $5.6 million and $11.4 million of payments for financed capital expenditures in 2020, 2019 and 2018, respectively.

As of December 31, 2020As of December 31, 2019As of December 31, 2018
Total assets$4,952,408 $17,511 $4,969,919 $4,918,408 $10,261 $4,928,669 $4,851,712 $10,341 $4,862,053 

13. 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.

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
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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 IPLis 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, though see Note 2, "Regulatory Matters - IURC COVID-19 Orders" for a discussion of the orders requiring expanded payment arrangements for customers.

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. Capacity revenues are also included in miscellaneous revenues, but these were not material for the period presented.

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 operator's allocation of the tariff rate (as approved by the regulator) charged to network participants.


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IPL’s revenue from contracts with customers was $1,326.6 million, $1,455.3 million and $1,440.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. The following table presents our revenue from contracts with customers and other revenue (in thousands):
For the Years Ended December 31,
202020192018
Retail Revenues
     Retail revenue from contracts with customers:
          Residential$566,668 $589,719 $588,031 
          Small commercial and industrial194,904 215,878 217,896 
          Large commercial and industrial484,230 548,551 565,720 
          Public lighting9,115 7,249 9,797 
          Other (1)
14,402 14,136 10,427 
               Total retail revenue from contracts with customers1,269,319 1,375,533 1,391,871 
     Alternative revenue programs24,781 23,841 4,594 
Wholesale Revenues
     Wholesale revenues from contracts with customers46,482 68,474 38,789 
Miscellaneous Revenues
     Transmission and other revenue from contracts with customers10,794 11,335 10,057 
     Other miscellaneous revenues (2)
1,609 2,460 5,194 
Total Revenues$1,352,985 $1,481,643 $1,450,505 
(1) Other retail revenue from contracts with customers includes miscellaneous charges to customers
(2) Other miscellaneous revenue includes lease and other miscellaneous revenues not accounted for under ASC 606

The balances of receivables from contracts with customers are $163.8 million and $155.0 million as of December 31, 2020 and December 31, 2019, respectively. Payment terms for all receivables from contracts with customers typically do not extend beyond 30 days, though see Note 2, "Regulatory Matters - IURC COVID-19 Order" for a discussion of orders requiring expanded payment arrangements for customers.

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.

Contract Balances — The timing of revenue recognition, billings, and cash collections results in accounts receivable and contract liabilities. The contract liabilities from contracts with customers were $0.5 million as of December 31, 2020. During the year ended December 31, 2020, we recognized revenue of $1.3 million related to this contract liability balance, respectively.

14. LEASES

LESSOR

The Company is the lessor under operating leases for land, office space and operating equipment. Minimum lease payments from such contracts are recognized as operating lease revenue on a straight-line basis over the lease term whereas contingent rentals are recognized when earned. Lease revenue included in the Consolidated Statements of Operations was $0.9 million and $1.0 million for the years ended December 31, 2020 and 2019, respectively. Underlying gross assets and accumulated depreciation of operating leases included in Total net property, plant and equipment on the Consolidated Balance Sheet were $4.3 million and $0.8 million, respectively, as of December 31, 2020 and $4.3 million and $0.7 million, respectively, as of December 31, 2019.

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The option to extend or terminate a lease is based on customary early termination provisions in the contract. The Company has not recognized any early terminations as of December 31, 2020.

The following table shows the future minimum lease receipts through 2025 and thereafter (in thousands):
Operating Leases
2021$886 
2022906 
2023906 
2024786 
2025544 
Thereafter2,074 
Total$6,102 


15. RISKS AND UNCERTAINTIES

COVID-19 Pandemic

The COVID-19 pandemic has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the U.S., have reacted by instituting quarantines, mandating business and school closures and social distancing measures as well as restricting travel. The State of Indiana implemented, among other things, stay-at-home and other social distancing measures to slow the spread of the virus, which has impacted energy demand within our service territory, though the stay-at-home restrictions have now been lifted in our service territory. Also, the Executive Order previously issued by the Governor of Indiana prohibiting electric utilities, including us, from discontinuing electric utility service to customers through August 14, 2020 has lapsed. We are taking a variety of measures in response to the spread of COVID-19 to ensure our ability to generate, transmit, distribute and sell electric energy, ensure the health and safety of our employees, contractors, customers and communities and provide essential services to the communities in which we operate. In addition to the impacts to demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, including those that relate to events outside of our control.

As the economic impact of the COVID-19 pandemic started to materialize in Indiana in the second half of March 2020 and continued for the duration of 2020, the COVID-19 pandemic primarily impacted our retail sales demand as shown by the changes in weather-normalized volumes of kWh sold compared to the weather-normalized volumes for the same periods in 2019:

Customer classFor the three months endedFor the year ended
March 31, 2020June 30, 2020September 30, 2020 December 31, 2020December 31, 2020
Residential1.6 %6.6 %3.9 %2.4 %3.4 %
Small commercial and industrial(1.8)%(10.3)%(4.2)%(5.3)%(5.2)%
Large commercial and industrial(2.8)%(11.0)%(7.9)%(5.7)%(6.9)%
As noted above, we also have incurred and expect to continue to incur expenses relating to COVID-19, however see Note 2, "Regulatory Matters - IURC COVID-19 Orders" for a discussion of regulatory measures which partially mitigate the impact of these expenses. We continued to experience COVID-19 impacts into 2021. The magnitude and duration of the COVID-19 pandemic is unknown at this time and may have material and adverse effects on our results of operations, financial condition and cash flows in future periods.



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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Indianapolis Power & Light Company                                

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Indianapolis Power & Light Company and subsidiary (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, common shareholder’s equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with U.S. generally accepted accounting principles.

Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.







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Regulatory Accounting


Regulatory Accounting
Description of the MatterAs described in Note 2 to the consolidated financial statements, the Company applies the provisions of FASC 980 “Regulated Operations”, which gives recognition to the ratemaking and accounting practices of the IURC and the FERC. Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory assets can also represent performance incentives permitted by the regulator. Regulatory liabilities generally represent obligations to provide refunds or future rate reductions to customers for previous over collections or the deferral of revenues collected for costs that the Company expects to incur in the future. Accounting for the economics of rate regulation affects multiple financial statement line items, including property, plant, and equipment; regulatory assets and liabilities; operating revenues; and depreciation expense, and related disclosures in the Company’s consolidated financial statements.
Auditing the Company’s regulatory accounting was complex due to significant judgments made by management to support its assertions about the impact of future regulatory orders on the consolidated financial statements. In particular, there is subjectivity involved in assessing the impact of current and future regulatory orders on events that have occurred as of December 31, 2020, judgment required to evaluate the relevance and reliability of audit evidence to support impacted account balances and disclosures, and judgments involved in assessing the probability of recovery in future rates of incurred costs or refunds to customers. These assumptions have a significant effect on the regulatory assets and liabilities and related disclosures.
How We Addressed the Matter in Our AuditTo test the Company’s accounting for regulatory assets and liabilities, our audit procedures included, among others, reviewing relevant regulatory orders, statutes and interpretations; filings made by intervening parties; and other publicly available information, to assess the likelihood of recovery of regulatory assets in future rates or of a refund or future reduction in rates for regulatory liabilities based on precedents for the treatment of similar costs under similar circumstances. We evaluated the Company’s assertions regarding the probability of recovery of regulatory assets or refund or future reduction in rates for regulatory liabilities, to assess the Company’s assertion that amounts are probable of recovery or of a refund or future reduction in rates.


/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

Indianapolis, Indiana
February 24, 2021


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INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)
 202020192018
REVENUES$1,352,985 $1,481,643 $1,450,505 
OPERATING COSTS AND EXPENSES:
Fuel247,105 340,466 331,701 
Power purchased135,767 133,674 164,542 
Operations and maintenance415,824 427,803 431,125 
Depreciation and amortization246,896 240,314 232,332 
Taxes other than income taxes44,516 42,229 53,941 
Total operating expenses1,090,108 1,184,486 1,213,641 
OPERATING INCOME262,877 297,157 236,864 
OTHER INCOME / (EXPENSE), NET:   
Allowance for equity funds used during construction4,574 3,486 8,477 
Interest expense(87,478)(89,014)(64,472)
Other income / (expense), net4,201 (10,922)(1,916)
Total other income / (expense), net(78,703)(96,450)(57,911)
EARNINGS FROM OPERATIONS BEFORE INCOME TAX184,174 200,707 178,953 
Less: income tax expense40,134 43,430 21,590 
NET INCOME144,040 157,277 157,363 
Less: dividends on preferred stock3,213 3,213 3,213 
NET INCOME APPLICABLE TO COMMON STOCK$140,827 $154,064 $154,150 
See notes to consolidated financial statements.

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INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Consolidated Balance Sheets
(In Thousands)
 December 31, 2020December 31, 2019
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$17,946 $42,189 
Restricted cash5 400 
Accounts receivable, net of allowance for credit losses of $3,155 and $921, respectively165,435 161,365 
Inventories95,506 83,569 
Regulatory assets, current45,430 37,398 
Taxes receivable12,531 23,134 
Prepayments and other current assets23,944 17,264 
Total current assets360,797 365,319 
NON-CURRENT ASSETS:  
Property, plant and equipment6,530,395 6,398,612 
Less: Accumulated depreciation2,643,695 2,414,652 
3,886,700 3,983,960 
Construction work in progress209,584 130,609 
Total net property, plant and equipment4,096,284 4,114,569 
OTHER NON-CURRENT ASSETS:  
Intangible assets - net59,141 64,861 
Regulatory assets, non-current392,801 355,614 
Other non-current assets43,386 18,045 
Total other non-current assets495,328 438,520 
TOTAL ASSETS$4,952,409 $4,918,408 
LIABILITIES AND SHAREHOLDER'S EQUITY  
CURRENT LIABILITIES:  
Short-term debt and current portion of long-term debt (Note 7)$169,907 $89,886 
Accounts payable126,772 128,504 
Accrued taxes26,620 22,012 
Accrued interest23,340 23,857 
Customer deposits27,929 34,635 
  Regulatory liabilities, current30,036 52,654 
Accrued and other current liabilities26,653 37,500 
Total current liabilities431,257 389,048 
NON-CURRENT LIABILITIES:  
Long-term debt (Note 7)1,685,503 1,691,015 
Deferred income tax liabilities289,799 279,159 
Taxes payable7,458 4,658 
Regulatory liabilities, non-current839,360 846,430 
Accrued pension and other postretirement benefits5,334 19,344 
Asset retirement obligations195,236 204,219 
Other non-current liabilities13,785 252 
Total non-current liabilities3,036,475 3,045,077 
          Total liabilities3,467,732 3,434,125 
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDER'S EQUITY:  
Common stock324,537 324,537 
Paid in capital664,886 664,719 
Retained earnings435,470 435,243 
     Total shareholder's equity1,424,893 1,424,499 
  Cumulative preferred stock59,784 59,784 
Total shareholder's equity1,484,677 1,484,283 
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY$4,952,409 $4,918,408 
See notes to consolidated financial statements.
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INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)
 202020192018
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$144,040 $157,277 $157,363 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization246,896 240,314 232,332 
Amortization of deferred financing costs and debt discounts2,335 2,262 2,011 
Deferred income taxes and investment tax credit adjustments - net3,078 15,120 (15,646)
Allowance for equity funds used during construction(4,574)(3,486)(8,477)
Change in certain assets and liabilities:   
Accounts receivable(4,071)6,504 (10,167)
Inventories(15,240)13,574 (3,652)
Accounts payable(20,621)2,816 4,080 
Accrued and other current liabilities(8,214)4,416 (9,655)
Accrued taxes payable/receivable18,012 (15,437)3,180 
Accrued interest(518)546 826 
Pension and other postretirement benefit expenses(6,991)5,414 (30,740)
Short-term and long-term regulatory assets and liabilities(13,390)921 76,647 
Prepayments and other current assets(569)(2,119)7,279 
Other - net(6,174)(7,053)582 
Net cash provided by operating activities333,999 421,069 405,963 
CASH FLOWS FROM INVESTING ACTIVITIES:   
Capital expenditures(235,700)(213,619)(224,335)
Project development costs(2,401)(2,269)(1,127)
Cost of removal and regulatory recoverable ARO payments(37,786)(21,838)(29,543)
Loans to parent(26,110)0 0 
Loan repayments from parent20,000 0 0 
Other118 0 0 
Net cash used in investing activities(281,879)(237,726)(255,005)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Borrowings under revolving credit facilities115,000 10,000 100,000 
Repayments under revolving credit facilities(40,000)(10,000)(248,000)
Long-term borrowings, net of discount90,000 0 104,936 
Retirement of long-term debt(90,000)0 0 
Dividends on common stock(147,600)(159,000)(142,250)
Dividends on preferred stock(3,213)(3,213)(3,213)
Deferred financing costs paid(792)0 0 
Equity contributions from IPALCO0 0 65,000 
Payments for financed capital expenditures(36)(5,623)(11,429)
Other(117)(152)(1,110)
Net cash used in financing activities(76,758)(167,988)(136,066)
Net change in cash, cash equivalents and restricted cash(24,638)15,355 14,892 
Cash, cash equivalents and restricted cash at beginning of period42,589 27,234 12,342 
Cash, cash equivalents and restricted cash at end of period$17,951 $42,589 $27,234 
Supplemental disclosures of cash flow information:   
Cash paid during the period for:   
Interest (net of amount capitalized)$84,869 $88,546 $61,310 
Income taxes27,000 37,400 33,750 
Non-cash investing activities:   
Accruals for capital expenditures$54,360 $35,471 $47,553 
See notes to consolidated financial statements.
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INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Consolidated Statements of Common Shareholder's Equity
For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)
 Common StockPaid in CapitalRetained EarningsTotal
Balance at January 1, 2018$324,537 $599,157 $442,779 $1,366,473 
Net income— — 157,363 157,363 
Preferred stock dividends— — (3,213)(3,213)
Cash dividends declared on common stock— — (156,750)(156,750)
Contributions from IPALCO— 65,000 — 65,000 
Other— 356 — 356 
Balance at December 31, 2018324,537 664,513 440,179 1,429,229 
Net income— — 157,277 157,277 
Preferred stock dividends— — (3,213)(3,213)
Cash dividends declared on common stock— — (159,000)(159,000)
Other— 206 — 206 
Balance at December 31, 2019324,537 664,719 435,243 1,424,499 
Net income— — 144,040 144,040 
Preferred stock dividends— — (3,213)(3,213)
Cash dividends declared on common stock— — (140,600)(140,600)
Other— 167 — 167 
Balance at December 31, 2020$324,537 $664,886 $435,470 $1,424,893 
See notes to consolidated financial statements.

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INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2020, 2019 and 2018

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IPL was incorporated under the laws of the state of Indiana in 1926. All of the outstanding common stock of IPL is owned by IPALCO. IPALCO, acquired by AES in March 2001, is owned by AES U.S. Investments and CDPQ. AES U.S. Investments is owned by AES (85%) and CDPQ (15%). IPL is engaged primarily in generating, transmitting, distributing and selling of electric energy to approximately 512,000 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 40 miles from Indianapolis. IPL has an exclusive right to provide electric service to those customers. IPL owns and operates 4 generating stations all within the state of Indiana. Our largest generating station, Petersburg, is coal-fired, and IPL has plans to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 in 2021 and 2023, respectively (for further discussion, see Note 2, "Regulatory Matters - IRP Filing"). 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 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 December 31, 2020, IPL’s net electric generation capacity for winter is 3,705 MW and net summer capacity is 3,560 MW.

Principles of Consolidation

IPL’s consolidated financial statements are prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The consolidated financial statements include the accounts of IPL and its unregulated subsidiary, IPL Funding Corporation, which was dissolved in 2018 and was immaterial to the consolidated financial statements in the periods covered by this report. All intercompany items have been eliminated in consolidation. Certain costs for shared resources amongst IPL and IPALCO, such as labor and benefits, are allocated to each entity based on allocation methodologies that management believes to be reasonable. We have evaluated subsequent events through the date this report is issued.

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 management is required to make. Actual results may differ from those estimates.

Regulatory Accounting

The retail utility operations of IPL are subject to the jurisdiction of the IURC. IPL’s wholesale power transactions are subject to the jurisdiction of the FERC. These agencies regulate IPL’s utility business operations, tariffs, accounting, depreciation allowances, services, issuances of securities and the sale and acquisition of utility properties. The financial statements of IPL are based on GAAP, including the provisions of FASB ASC 980 “Regulated Operations,” which gives recognition to the ratemaking and accounting practices of these agencies. See also Note 2, “Regulatory Matters - Regulatory Assets and Liabilities” for a discussion of specific regulatory assets and liabilities.

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Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents are stated at cost, which approximates fair value. All highly liquid short-term investments with original maturities of three months or less are considered cash equivalents. Restricted cash includes cash which is restricted as to withdrawal or usage. The nature of the restrictions includes restrictions imposed by agreements related to deposits held as collateral. The following table provides a summary of cash, cash equivalents and restricted cash amounts as shown on the Consolidated Statements of Cash Flows:
 As of December 31,
 20202019
 (In Thousands)
Cash, cash equivalents and restricted cash
     Cash and cash equivalents$17,946 $42,189 
     Restricted cash5 400 
          Total cash, cash equivalents and restricted cash$17,951 $42,589 

Revenues and Accounts Receivable

Revenues related to the sale of energy are generally recognized when service is rendered or energy is delivered to customers. However, the determination of the energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to certain customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is accrued. In making its estimates of unbilled revenue, IPL uses complex models that consider various factors including daily generation volumes; known amounts of energy usage by nearly all residential, commercial and industrial customers; estimated line losses; and estimated customer rates based on prior period billings. Given the use of these models, and that customers are billed on a monthly cycle, we believe it is unlikely that materially different results will occur in future periods when revenue is billed. An allowance for potential credit losses is maintained and amounts are written off when normal collection efforts have been exhausted. IPL’s provision for expected credit losses included in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations was $4.8 million, $4.3 million and $5.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.
IPL’s basic rates include a provision for fuel costs as established in IPL’s most recent rate proceeding, which last adjusted IPL’s rates in December 2018. IPL is permitted to recover actual costs of purchased power and fuel consumed, subject to certain restrictions. This is accomplished through quarterly FAC proceedings, in which IPL estimates the amount of fuel and purchased power costs in future periods. Through these proceedings, IPL is also permitted to recover, in future rates, underestimated fuel and purchased power costs from prior periods, subject to certain restrictions, and therefore the over or underestimated costs are deferred or accrued and amortized into fuel expense in the same period that IPL’s rates are adjusted. See also Note 2, “RegulatoryMatters” for a discussion of other costs that IPL is permitted to recover through periodic rate adjustment proceedings and the status of current rate adjustment proceedings.
In addition, IPL is one of many transmission system owner members of MISO, a regional transmission organization which maintains functional control over the combined transmission systems of its members and manages one of the largest energy markets in the U.S. See Note 13, "Revenue" for additional information of MISO sales and other revenue streams.
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The following table summarizes our accounts receivable balances at December 31:
 As of December 31,
 20202019
 (In Thousands)
Accounts receivable, net
     Customer receivables$91,335 $90,747 
     Unbilled revenue72,334 65,822 
     Amounts due from related parties734 2,992 
     Other4,187 2,725 
     Provision for uncollectible accounts(3,155)(921)
           Total accounts receivable, net$165,435 $161,365 

The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the year ended December 31, 2020 (in Thousands):
 Beginning Allowance Balance at January 1, 2020Current Period ProvisionWrite-offs Charged Against AllowancesRecoveries CollectedEnding Allowance Balance at
December 31, 2020
Allowance for credit losses$921 $5,861 $(5,473)$1,846 $3,155 

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 December 31, 2020. Amounts are written off when reasonable collections efforts have been exhausted. An Executive Order issued by the Governor of Indiana on March 19, 2020 and extended by the IURC prohibited electric utilities, including us, from discontinuing electric utility service to customers through August 14, 2020 due to the economic impacts of COVID-19. This order along with the economic impacts of COVID-19 has resulted in an increase in past due customer receivable balances, and thus the current period provision and the allowance for credit losses has increased during 2020. Please see additional discussion in Note 2, "Regulatory Matters - IURC COVID-19 Order” and Note 15, "Risks and Uncertainties - COVID-19 Pandemic."

Inventories

IPL maintains coal, fuel oil, materials and supplies inventories for use in the production of electricity. These inventories are accounted for at the lower of cost or net realizable value, using the average cost. The following table summarizes our inventories balances at December 31:
 As of December 31,
 20202019
 (In Thousands)
Inventories
     Fuel$36,953 $26,907 
     Materials and supplies, net58,553 56,662 
          Total inventories$95,506 $83,569 

Property, Plant and Equipment
Property, plant and equipment is stated at original cost as defined for regulatory purposes. The cost of additions to property, plant and equipment and replacements of retirement units of property are charged to plant accounts. Units of property replaced or abandoned in the ordinary course of business are retired from the plant accounts at cost; such amounts, less salvage, are charged to accumulated depreciation. Depreciation is computed by the straight-line
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method based on functional rates approved by the IURC and averaged 3.7%, 3.7%, and 4.2% during 2020, 2019 and 2018, respectively. Depreciation expense was $232.8 million, $228.2 million, and $235.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. "Depreciation and amortization" expense on the accompanying Consolidated Statements of Operations is presented net of regulatory deferrals of depreciation expense and also includes amortization of intangible assets and amortization of previously deferred regulatory costs.

Allowance For Funds Used During Construction

In accordance with the Uniform System of Accounts prescribed by FERC, IPL capitalizes an allowance for the net cost of funds (interest on borrowed funds and a reasonable rate of return on equity funds) used for construction purposes during the period of construction with a corresponding credit to income. IPL capitalized amounts using pretax composite rates of 6.9%, 6.9% and 6.4% during 2020, 2019 and 2018, respectively.
Impairment of Long-lived Assets

GAAP requires that IPL test long-lived assets for impairment when indicators of impairment exist. If an asset is deemed to be impaired, IPL is required to write down the asset to its fair value with a charge to current earnings. The net book value of IPL’s property, plant, and equipment was $4.1 billion as of December 31, 2020 and 2019. In December 2020, IPL reclassified net property, plant and equipment of $74.5 million associated with the probable Petersburg Unit 1 retirement to long-term regulatory assets (for further discussion, see Note 2, “Regulatory Matters - IRP Filing” andNote 3, "Property, Plant and Equipment"). IPL does not believe any of these assets are currently impaired. In making this assessment, IPL considers such factors as: the overall condition and generating and distribution capacity of the assets; the expected ability to recover additional expenditures in the assets; the anticipated demand and relative pricing of retail electricity in its service territory and wholesale electricity in the region; and the cost of fuel.

Intangible Assets

Intangible assets primarily include capitalized software of $144.5 million and $139.6 million and its corresponding accumulated amortization of $85.3 million and $74.7 million, as of December 31, 2020 and 2019, respectively. Amortization expense was $10.6 million, $7.5 million and $5.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. The estimated amortization expense of this capitalized software is approximately $59.0 million over the next 5 years ($11.8 million in 2021, $11.8 million in 2022, $11.8 million in 2023, $11.8 million in 2024 and $11.8 million in 2025).

Implementation Costs Related to Software as a Service

IPL has recorded prepayments for implementation costs related to software as a service in support of utility customer services of $8.8 million as of December 31, 2020, which are recorded within "Other non-current assets" on the accompanying Consolidated Balance Sheets.

Contingencies

IPL accrues for loss contingencies when the amount of the loss is probable and estimable. IPL is subject to various environmental regulations and is involved in certain legal proceedings. If IPL’s actual environmental and/or legal obligations are different from our estimates, the recognition of the actual amounts may have a material impact on our results of operations, financial condition and cash flows; although that has not been the case during the periods covered by this report. As of December 31, 2020 and 2019, total loss contingencies accrued were $15.4 million and $4.5 million, respectively, which were included in “Accrued and Other Current Liabilities” and "Other Non-Current Liabilities", respectively, on the accompanying Consolidated Balance Sheets.

Concentrations of Risk
Substantially all of IPL’s customers are located within the Indianapolis area. Approximately 69% of IPL’s employees are covered by collective bargaining agreements in two bargaining units: a physical unit and a clerical-technical unit. IPL’s contract with the physical unit expires on December 6, 2021, and the contract with the clerical-technical unit expires February 13, 2023. Additionally, IPL has long-term coal contracts with 2 suppliers, and substantially all of the coal is currently mined in the state of Indiana.
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Financial Derivatives

All derivatives are recognized as either assets or liabilities in the balance sheets and are measured at fair value. Changes in the fair value are recorded in earnings unless the derivative is designated as a cash flow hedge of a forecasted transaction or it qualifies for the normal purchases and sales exception.

IPL has contracts involving the physical delivery of energy and fuel. Because these contracts qualify for the normal purchases and normal sales scope exception in ASC 815, IPL has elected to account for them as accrual contracts, which are not adjusted for changes in fair value.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of the existing assets and liabilities, and their respective income tax bases. IPL establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. IPL’s tax positions are evaluated under a more likely than not recognition threshold and measurement analysis before they are recognized for financial statement reporting.
Uncertain tax positions have been classified as noncurrent income tax liabilities unless expected to be paid within one year. IPL’s policy for interest and penalties is to recognize interest and penalties as a component of the provision for income taxes in the Consolidated Statements of Operations.
Income tax assets or liabilities which are included in allowable costs for ratemaking purposes in future years are recorded as regulatory assets or liabilities with a corresponding deferred tax liability or asset. Investment tax credits that reduced federal income taxes in the years they arose have been deferred and are being amortized to income over the useful lives of the properties in accordance with regulatory treatment. See Note 2, "Regulatory Matters" for additional information.

IPL and its subsidiary file U.S. federal income tax returns as part of the consolidated U.S. income tax return filed by AES. The consolidated tax liability is allocated to each subsidiary based on the separate return method which is specified in our tax allocation agreement and which provides a consistent, systematic and rational approach. See Note 8, "Income Taxes" for additional information.

Pension and Postretirement Benefits

IPL recognizes in its Consolidated Balance Sheets an asset or liability reflecting the funded status of pension and other postretirement plans with current-year changes in the funded status, that would otherwise be recognized in AOCI, recorded as a regulatory asset as this can be recovered through future rates. All plan assets are recorded at fair value. IPL follows the measurement date provisions of the accounting guidance, which require a year-end measurement date of plan assets and obligations for all defined benefit plans.

IPL accounts for and discloses pension and postretirement benefits in accordance with the provisions of GAAP relating to the accounting for pension and other postretirement plans. These GAAP provisions require the use of assumptions, such as the discount rate for liabilities and long-term rate of return on assets, in determining the obligations, annual cost and funding requirements of the plans. Consistent with the requirements of ASC 715, IPL applies a disaggregated discount rate approach for determining service cost and interest cost for its defined benefit pension plans and postretirement plans.
See Note 9, "Benefit Plans" for more information.
Repair and Maintenance Costs

Repair and maintenance costs are expensed as incurred.

Per Share Data

IPALCO owns all of the outstanding common stock of IPL. IPL does not report earnings on a per-share basis.

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New Accounting Pronouncements Adopted in 2020

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 NameDescriptionDate of AdoptionEffect on the Financial Statements upon adoption
2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsSee discussion of the ASU below.
January 1, 2020See impact upon adoption of the standard below.

ASC 326 - Financial Instruments - Credit Losses

On January 1, 2020, the Company adopted ASC 326 Financial Instruments - Credit Losses and its subsequent corresponding updates ("ASC 326"). The new standard updates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for credit losses. For available-for-sale debt securities with unrealized losses, entities measure credit losses as it was done under previous GAAP, except that unrealized losses due to credit-related factors are now recognized as an allowance on the balance sheet with a corresponding adjustment to earnings in the income statement.

The Company applied the modified retrospective method of adoption for ASC 326. Under this transition method, the Company applied the transition provisions starting at the date of adoption. The CECL model primarily impacts the calculation of the Company's expected credit losses in gross customer trade accounts receivable. The adoption of ASC 326 and the application of CECL on our trade accounts receivable did not have a material impact on IPL's 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 NameDescriptionDate of AdoptionEffect 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 ReportingThe 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.

2. REGULATORY MATTERS

General

IPL is subject to regulation by the IURC as to its services and facilities, the valuation of property, the construction, purchase, or lease of electric generating facilities, the classification of accounts, rates of depreciation, retail rates and charges, the issuance of securities (other than evidences of indebtedness payable less than twelve months
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after the date of issue), the acquisition and sale of some public utility properties or securities and certain other matters.

In addition, IPL is subject to the jurisdiction of the FERC with respect to, among other things, short-term borrowings not regulated by the IURC, the sale of electricity at wholesale, the transmission of electric energy in interstate commerce, the classification of accounts, reliability standards, and the acquisition and sale of utility property in certain circumstances as provided by the Federal Power Act. As a regulated entity, IPL is required to use certain accounting methods prescribed by regulatory bodies which may differ from those accounting methods required to be used by unregulated entities.

IPL is also affected by the regulatory jurisdiction of the EPA at the federal level, and the IDEM at the state level. Other significant regulatory agencies affecting IPL include, but are not limited to, the NERC, the U.S. Department of Labor and the IOSHA.

Basic Rates and Charges
IPL’s basic rates and charges represent the largest component of its annual revenues. IPL’s basic rates and charges are determined after giving consideration, on a pro-forma basis, to all allowable costs for ratemaking purposes including a fair return on the fair value of the utility property used and useful in providing service to customers. These basic rates and charges are set and approved by the IURC after public hearings. Such proceedings, which have occurred at irregular intervals, involve IPL, the IURC, the Indiana Office of Utility Consumer Counselor, and other interested stakeholders. Pursuant to statute, the IURC is to conduct a periodic review of the basic rates and charges of all Indiana utilities at least once every four years, but the IURC has the authority to review the rates of any Indiana utility at any time. Once set, the basic rates and charges authorized do not assure the realization of a fair return on the fair value of property.

IPL’s declining block rate structure 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. Numerous factors including, but not limited to, weather, inflation, customer growth and usage, the level of actual operating and maintenance expenditures, fuel costs, generating unit availability, and capital expenditures including those required by environmental regulations can affect the return realized.

Base Rate Orders

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 Base Rate Order"). The 2018 Base 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 2016 Base Rate Order. New basic rates and charges became effective on December 5, 2018. The 2018 Base Rate Order also provides customers approximately $50 million in benefits, which are flowing to customers over the two-year period that began March 2019, via the ECCRA rate adjustment mechanism. This liability, less amounts returned to IPL's customers during 2020 and 2019, is recorded primarily in "Regulatory liabilities, current" ($4.7 million and $25.1 million as of December 31, 2020 and 2019, respectively) and"Regulatory liabilities, non-current" ($0.0 million and $4.7 million as ofDecember 31, 2020 and 2019, respectively) on the accompanying Consolidated Balance Sheets. In addition, the 2018 Base Rate Order provides that annual wholesale margins earned above (or below) the benchmark of $16.3 million shall be passed back (or charged) to customer rates through a rate adjustment mechanism. Prior to the 2018 Base Rate Order, wholesale sales margins were shared with customers 50% above and below an established benchmark of $6.3 million. Similarly, the 2018 Base Rate Order provides that all capacity sales above (or below) a benchmark of $11.3 million shall be passed back (or charged) to customer rates through a rate adjustment mechanism. The 2018 Base Rate Order also approved changes to IPL's depreciation and amortization rates (including no longer deferring depreciation on the CCGT at Eagle Valley) which altogether represent a net expense increase of approximately $28.7 million annually.

Other

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. Nuclear and coal-fired generation plants would have been
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most likely to be able to meet the requirements. As proposed, the DOE would value resiliency through rates that recover “compensable costs” that were defined to include the recovery of operating and fuel expenses, debt service and a fair return on equity. On January 8, 2018, the FERC issued an order terminating this docket stating that it failed to satisfy the legal requirements of Section 206 of the Federal Power Act of 1935. The FERC initiated a new docket to take additional steps to explore resilience issues in RTOs/ISOs. The goal of this new proceeding is to: (1) develop a common understanding among the FERC, State Commissions, RTOs/ISOs, transmission owners, and others as to what resilience of the bulk power system means and requires; (2) understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) use this information to evaluate whether additional action regarding resilience is appropriate at this time. It is not possible to predict the impact of this proceeding on our business, financial condition and results of operations.

FACand Authorized Annual Jurisdictional Net Operating Income

IPL may apply to the IURC for a change in IPL’s fuel charge every three months to recover IPL’s estimated fuel costs, including the energy portion of purchased power costs, which may be above or below the levels included in IPL’s basic rates and charges. IPL must present evidence in each FAC proceeding that it has made every reasonable effort to acquire fuel and generate or purchase power or both so as to provide electricity to its retail customers at the lowest fuel cost reasonably possible.

Independent of the IURC’s ability to review basic rates and charges, Indiana law requires electric utilities under the jurisdiction of the IURC to meet operating expense and income test requirements as a condition for approval of requested changes in the FAC. A utility may be unable to recover all of its fuel costs if its rolling twelve-month operating income, determined at quarterly measurement dates, exceeds its authorized annual jurisdictional net operating income and there are not sufficient applicable cumulative net operating income deficiencies (“Cumulative Deficiencies”) to offset it. The Cumulative Deficiencies calculation provides that only five years’ worth of historical earnings deficiencies or surpluses are included, unless it has been greater than five years since the most recent rate case.

In each of the last three calendar years, IPL has reported earnings in excess of the authorized level for each of the four quarterly reporting periods in those years, however IPL was not required to reduce its fuel cost recovery because of its Cumulative Deficiencies. During 2020, IPL's Cumulative Deficiencies dropped to zero and thus IPL recorded a reduction to revenue of $10.0 million in 2020. IPL's regulatory liability attributed to the Cumulative Deficiencies calculation was $7.7 million as of December 31, 2020, which is recorded within "Regulatory liabilities, current" on the accompanying Consolidated Balance Sheets.

ECCRA 

IPL may apply to the IURC for approval of a rate adjustment known as the ECCRA periodically to recover costs (including a return) to comply with certain environmental regulations applicable to IPL’s generating stations. The total amount of IPL’s equipment approved for ECCRA recovery as of December 31, 2020 was $22.5 million. The jurisdictional revenue requirement approved by the IURC to be included in IPL’s rates for the twelve-month period ending February 2021 was a net credit to customers of $31.2 million. This amount is significantly lower than ECCRA periods prior to 2019 as a result of (i) having the vast majority of the ECCRA projects rolled into IPL’s basic rates and charges effective December 5, 2018 as a result of the 2018 Base Rate Order and (ii) the approximately $50 million of customer benefits being flowed through the ECCRA as a result of the 2018 Base Rate Order, as described above. The only equipment still remaining in the ECCRA as of December 31, 2020 are certain projects associated with NAAQS compliance.

DSM

Through various rate orders from the IURC, IPL has been able to recover its costs of implementing various DSM programs throughout the periods covered by this report. In 2020, 2019 and 2018, IPL also had the ability to receive performance incentives, dependent upon the level of success of the programs. Performance incentives included in revenues for the years ended December 31, 2020, 2019 and 2018 were $6.0 million, $7.5 millionand$3.8 million, respectively.

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

On December 29, 2020, the IURC approved a settlement agreement establishing a new three year DSM plan for IPL through 2023. 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.

Wind and Solar Power Purchase Agreements

IPL is committed under a power purchase agreement to purchase all wind-generated electricity through 2029 from a wind project in Indiana. IPL is also committed under another agreement to purchase all wind-generated electricity through 2031 from a project in Minnesota. The Indiana project has a maximum output capacity of approximately 100 MW and the Minnesota project has a maximum output capacity of approximately 200 MW. In addition, IPL has 96.4 MW of solar-generated electricity in its service territory under long-term contracts (these long-term contracts have expiration dates ranging from 2021 to 2033), of which 95.9 MW was in operation as of December 31, 2020. IPL has authority from the IURC to recover the costs for all of these agreements through an adjustment mechanism administered within the FAC. If and when IPL sells the renewable energy attributes (in the form of renewable energy credits) generated from these facilities, the proceeds would pass back to benefit IPL’s retail customers through the FAC.

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 Base Rate 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. See also Note 8, 
“Income Taxes - U.S. Tax Reform” for further information.

TDSIC
TDSIC Filing

In 2013, Senate Enrolled Act 560, the Transmission, Distribution, and Storage System Improvement Charge ("TDSIC") statute, was signed into law.  The TDSIC statute was revised in 2019. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a plan of at least five years and not more than seven for eligible investments. Once the plan is approved by the IURC,The first 80 percent of eligible costs can be recovered using a periodic rate adjustment mechanism. The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include a return on, and of, the investment, including AFUDC, post-in-service carrying charges, operation and maintenance expenses, depreciation and property taxes. The remaining 20 percent of recoverable costs are to be deferred for future recovery in the public utility’s next base rate case. The periodic rate adjustment mechanism is capped at an annual increase of no more than 2 percent of total retail revenues.



On July 24, 2019, IPL filed a petition withMarch 4, 2020, the IURC seeking approval ofissued an order approving the projects in a seven-year TDSIC Plan for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027. AnOn June 18, 2020, IPL filed its first annual TDSIC rate adjustment (TDSIC 1) for a return on and of investments through March 31, 2020. On October 14, 2020, the IURC issued an order is expectedapproving this TDSIC rate adjustment, which was reflected in rates effective November 2020. On December 23, 2020, IPL filed its first annual TDSIC plan update filing (TDSIC 2), which was staggered by six months from TDSIC 1 as ordered by the first quarter of 2020. There will be no revenues and/or cost recovery until approval of the TDSIC rider, which is not expected to occur until later in 2020.IURC.

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IRP Filing

In December 2019, IPL filed its IRP, which describes IPL's Preferred Resource Portfolio for meeting generation capacity needs for serving IPL's retail customers over the next several years. IPL's Preferred Resource Portfolio is IPL'sits reasonable least cost option and provides a cleaner and more diverse generation mix for customers. IPL's Preferred Resource Portfolio includes the retirement of approximately 630 MW of coal-fired generation by 2023.at Petersburg Units 1 and 2 in 2021 and 2023, respectively. Based on extensive modeling, IPL has determined that the cost of operating Petersburg Units 1 and 2 exceeds the value customers receive compared to alternative resources. Retirement of these units allows the company to cost-effectively diversify the portfolio and transition to lower cost and cleaner resources while maintaining a reliable system.

IPL issued an all-source Request for Proposal on December 20, 2019, in order to competitively procure replacement capacity by June 1, 2023, which is the first year IPL is expected to have a capacity shortfall. CurrentOur modeling indicatesindicated that a combination of wind, solar, storage, and energy efficiency would be the lowest reasonable cost option for the replacement capacity, but IPL willcontinues to assess the type, size, and location of resources afterin the bids arewe received. As a result of the decisionplans to retire Petersburg Units 1 and 2, IPL recorded a $6.2 million obsolescence loss in December 2019 for materials and supplies inventory IPL does not believe will be utilized by the planned retirement dates, which is recorded in "Operating expenses - Operation and maintenance" on the accompanying Consolidated Statements of Operations. In December 2020, IPL reclassified net property, plant and equipment of $74.5 million, associated with the probable Petersburg Unit 1 retirement, to long-term regulatory assets. On February 5, 2021, IPL announced an agreement to acquire a 195 MW solar project. Expected to be completed in 2023, the solar project will be located in Clinton County, Indiana and Invenergy will develop the project and manage construction. The acquisition agreement is subject to approval from the IURC. On February 12, 2021, IPL filed a petition and case-in-chief with the IURC seeking a CPCN for this solar project.


IURC COVID-19 Orders

In its June 29, 2020 order, the IURC extended the disconnection moratorium for IURC-jurisdictional utilities through August 14, 2020, which has lapsed. Additionally, the IURC authorized Indiana utilities to use regulatory accounting for any impacts associated with prohibiting utility disconnections, waiver or exclusion of certain utility fees (i.e., late fees, convenience fees, deposits, and reconnection fees), and also required utilities to use expanded payment arrangements to aid customers. The IURC also authorized regulatory accounting treatment for COVID-19 related uncollectible and incremental bad debt expense.

On August 12, 2020, the IURC required all jurisdictional utilities to continue offering extended payment arrangements for a minimum of six months to all customers for an additional 60 days, until October 12, 2020, which the IURC again extended through December 31, 2020 for residential customers on October 27, 2020. The IURC also continued to suspend the collection of certain utility fees (late fees, deposits, and disconnection/reconnection fees) from residential customers for an additional 60 days, until October 12, 2020, after which utilities were allowed to resume charging convenience fees as set forth in the rate and charges established in their Commission-approved tariffs.

As a result of these orders, IPL has recorded a $6.4 million regulatory asset as of December 31, 2020. Additionally, IPL implemented and extended flexible payment assistance plans to customers during 2020.

Phase Two of the IURC investigation is expected to focus on longer-term issues related to COVID-19. Among other things, the issues may include consideration of appropriate methodology to review the reasonableness, necessity, and prudency of any COVID-19-related cost recovery requests in future rate cases. For further discussion on the COVID-19 pandemic, see Note 15, "Risks and Uncertainties - COVID-19 Pandemic".


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Regulatory Assets and Liabilities

Regulatory assets represent deferred costs or credits that have been included as allowable costs or credits for ratemaking purposes. IPL has recorded regulatory assets or liabilities relating to certain costs or credits as authorized by the IURC or established regulatory practices in accordance with ASC 980. IPL is amortizing non tax-related regulatory assets to expense over periods ranging from 1 to 45 years. Tax-related regulatory assets represent the net income tax costs to be considered in future regulatory proceedings generally as the tax-related amounts are paid.

The amounts of regulatory assets and regulatory liabilities at December 31 are as follows:
 2019 2018 Recovery Period 20202019Recovery Period
 (In Thousands)   (In Thousands) 
Regulatory Assets      Regulatory Assets   
Current:      Current:   
Undercollections of rate riders $22,216
 $13,217
 
Approximately 1 year(1)
Undercollections of rate riders$31,569 $22,216 
Approximately 1 year(1)
Costs being recovered through basic rates and charges 15,182
 15,182
 
Approximately 1 year(1)
Costs being recovered through basic rates and charges13,861 15,182 
Approximately 1 year(1)
Total current regulatory assets 37,398
 28,399
  Total current regulatory assets45,430 37,398  
Long-term:      Long-term:   
Unrecognized pension and other      Unrecognized pension and other   
postretirement benefit plan costs 176,646
 195,559
 
Various (2)
postretirement benefit plan costs149,374 176,646 
Various(2)
Deferred MISO costs 74,660
 88,052
 
Through 2026(1)
Deferred MISO costs61,267 74,660 
Through 2026(1)
Unamortized Petersburg Unit 4 carrying      Unamortized Petersburg Unit 4 carrying   
charges and certain other costs 7,030
 8,084
 
Through 2026(1)(3)
charges and certain other costs5,975 7,030 
Through 2026(1)(3)
Unamortized reacquisition premium on debt 18,330
 19,714
 Over remaining life of debtUnamortized reacquisition premium on debt17,018 18,330 Over remaining life of debt
Environmental projects 78,021
 81,204
 
Through 2046(1)(3)
Environmental projects74,637 78,021 
Through 2046(1)(3)
COVID-19COVID-196,391 0 To be determined
TDSIC projectsTDSIC projects2,747 0 
36.3 years(1)(3)
Petersburg Unit 1 retirementPetersburg Unit 1 retirement74,545 0 
Through 2035(3)(5)
Other miscellaneous 927
 2,464
 
Various (4)
Other miscellaneous847 927 
Various(4)
Total long-term regulatory assets 355,614
 395,077
  Total long-term regulatory assets392,801 355,614  
Total regulatory assets $393,012
 $423,476
  Total regulatory assets$438,231 $393,012  
Regulatory Liabilities      Regulatory Liabilities   
Current:      Current:   
Overcollections and other credits being passed     Overcollections and other credits being passed
to customers through rate riders $51,790
 $47,925
 
Approximately 1 year(1)
 to customers through rate riders$29,493 $51,790 
Approximately 1 year(1)
FTRs 864
 3,099
 
Approximately 1 year(1)
FTRs543 864 
Approximately 1 year(1)
Total current regulatory liabilities 52,654
 51,024
 Total current regulatory liabilities30,036 52,654  
Long-term:      Long-term:   
ARO and accrued asset removal costs 719,680
 707,662
 Not applicableARO and accrued asset removal costs723,897 719,680 Not applicable
Income taxes payable to customers through rates 122,156
 141,058
 Various
Deferred income taxes payable to customers through ratesDeferred income taxes payable to customers through rates112,957 122,156 Various
Long-term portion of credits being passed to customers     Long-term portion of credits being passed to customers
through rate riders 3,337
 21,341
 Through 2021 through rate riders0 3,337 Through 2020
Other miscellaneous 1,257
 194
 To be determinedOther miscellaneous2,506 1,257 To be determined
Total long-term regulatory liabilities 846,430
 870,255
  Total long-term regulatory liabilities839,360 846,430  
Total regulatory liabilities $899,084
 $921,279
  Total regulatory liabilities$869,396 $899,084  
(1)Recovered (credited) per specific rate orders
(2)IPL receives a return on its discretionary funding
(3)Recovered with a current return
(1)Recovered (credited) per specific rate orders
(2)IPL receives a return on its discretionary funding
(3)Recovered with a current return
(4) The majority of these costs are being recovered in basic rates and charges through 2026. For the remainder, recovery is probable, but the
timing is not yet determined.

(5) Recovered per regulatory precedent.
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Current Regulatory Assets and Liabilities

Current regulatory assets and liabilities primarily represent costs that are being recovered per specific rate order; recovery for the remaining costs is probable, but not certain. As current assets, this includes undercollection of adjustment mechanisms for: (i) DSM, (ii) Off System Sales Margin Sharing, (iii) Capacity Cost Recovery and (iv) TDSIC. It also includes the current portion of deferred MISO costs and environmental costs which are described in greater detail below. As current liabilities, this includes overcollection of green power costs, MISO rider costs, fuel costs (including the NOI liability) and ECCRA costs.

Deferred Fuel

Deferred fuel costs are a component of current regulatory assets or liabilities (which is a result of IPL charging either more or less for fuel than our actual costs to our jurisdictional customers) and are expected to be recovered through future FAC proceedings. IPL records deferred fuel in accordance with standards prescribed by the FERC. The deferred fuel adjustment is the result of variances between estimated fuel and purchased power costs in IPL’s FAC and actual fuel and purchased power costs. IPL is generally permitted to recover underestimated fuel and purchased power costs in future rates through the FAC proceedings and therefore the costs are deferred when incurred and amortized into fuel expense in the same period that IPL’s rates are adjusted to reflect these costs.

Unrecognized Pension and Postretirement Benefit Plan Costs

In accordance with ASC 715 “Compensation – Retirement Benefits” and ASC 980, we recognizeIPL recognizes a regulatory asset equal to the unrecognized actuarial gains and losses and prior service costs. Pension expenses are recorded based on the benefit plan’s actuarially determined pension liability and associated level of annual expenses to be recognized. The other postretirement benefit plan’s deferred benefit cost is the excess of the other postretirement benefit liability over the amount previously recognized.

Deferred Income Taxes Recoverable/Payable Through Rates

A deferred income tax asset or liability is created from a difference in timing of income recognition between tax laws and accounting methods. As a regulated utility, IPL includes in ratemaking the impacts of current income taxes and changes in deferred income tax liabilities or assets.

On December 22, 2017, the U.S. federal government enacted the TCJA, which, among other things, reduced the federal corporate income tax rate from 35% to 21%, beginning January 1, 2018. As required by GAAP, on December 31, 2017, IPL and IPALCO remeasured their deferred income tax assets and liabilities using the new tax rate. The impact of the reduction of the income tax rate on deferred income taxes was utilized in the 2018 Base Rate Order to reduce jurisdictional retail rates. Accordingly, we have a net regulatory deferred income tax liability of $122.2 million and $141.1 million as of December 31, 2019 and 2018, respectively.

Deferred MISO Costs

These consist of administrative costs for transmission services, transmission expansion cost sharing, and certain other operational and administrative costs from the MISO market. These costs are being recovered per specific rate order.

Unamortized Petersburg Unit 4 Carrying Charges and Certain Other Costs

These consist of deferred debt carrying costs, depreciation, and post-in-service Allowance for Funds Used During Construction ("AFUDC") on Petersburg Unit 4. These costs are being recovered per specific rate order.

Unamortized Reaquisition Premium on Debt

This regulatory asset represents losses on long-term debt reacquired or redeemed in prior periods that have been deferred. These deferred losses are being amortized over the lives of the original issues in accordance with the rules of the FERC and the IURC.

Environmental Costs

These consist of various costs incurred to comply with environmental regulations. These costs were approved for recovery either through IPL's ECCRA proceedings or in the 2018 Base Rate Order. Amortization periods vary, but allranging from 3 to 45 years.

COVID-19 Costs

These consist of deferred fees (foregone late fees, reconnection fees and disconnection fees), as well as deferred convenience payments and incremental bad debt expense as the result of COVID-19. See "IURC COVID-19 Orders" above for additional discussion.

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TDSIC Costs

These consist of various costs shouldincurred for IPL's approved TDSIC Plan. These costs were approved for recovery through IPL's TDSIC proceedings and amortization periods range from 3 to 31 years. See "TDSIC" above for additional discussion.

Petersburg Unit 1 Retirement Costs

These consist of the estimated remaining net book value of Petersburg Unit 1 at its anticipated date of retirement. It was determined that the Petersburg Unit 1 retirement became probable, in accordance with ASC 980, in the fourth quarter of 2020. As it is expected that the entire carrying value of the asset will be recovered by 2064.recoverable through future rates, no loss on abandonment was recorded and the asset was reclassified from net property, plant and equipment to a long-term regulatory asset. See "IRP Filing" above for additional discussion.

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. See Note 4, "Fair Value - Fair Value Hierarchy and Valuation Techniques - Financial Assets - FTRs" for additional information.

ARO and Accrued Asset Removal Costs

In accordance with ASC 410 and ASC 980, IPL recognizes the amount collected in customer rates for costs of removal that do not have an associated legal retirement obligation as a deferred regulatory liability. This amount is net of the portion of legal ARO costs that is also currently being recovered in rates.


Deferred Income Taxes Recoverable/Payable Through Rates
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A deferred income tax asset or liability is created from a difference in timing of income recognition between tax laws and accounting methods. As a regulated utility, IPL includes in ratemaking the impacts of current income taxes and changes in deferred income tax liabilities or assets.

On December 22, 2017, the U.S. federal government enacted the TCJA, which, among other things, reduced the federal corporate income tax rate from 35% to 21%, beginning January 1, 2018. As required by GAAP, on December 31, 2017, IPL remeasured their deferred income tax assets and liabilities using the new tax rate. The impact of the reduction of the income tax rate on deferred income taxes was utilized in the 2018 Base Rate Order to reduce jurisdictional retail rates. Accordingly, IPL has a net regulatory deferred income tax liability of $113.0 million and $122.2 million as of December 31, 2020 and 2019, respectively.

3. PROPERTY, PLANT AND EQUIPMENT

The original cost of property, plant and equipment segregated by functional classifications follows:
 As of December 31, As of December 31,
 2019 2018 20202019
 (In Thousands) (In Thousands)
Production $4,154,919
 $3,927,847
Production$4,191,223 $4,154,919 
Transmission 398,903
 394,621
Transmission408,380 398,903 
Distribution 1,594,208
 1,533,828
Distribution1,671,861 1,594,208 
General plant 250,582
 344,782
General plant258,931 250,582 
Total property, plant and equipment $6,398,612
 $6,201,078
Total property, plant and equipment$6,530,395 $6,398,612 
    

In December 2020, IPL reclassified net property, plant and equipment of $74.5 million associated with the Petersburg Unit 1 retirement to long-term regulatory assets by crediting accumulated depreciation (for further discussion, see Note 2, “Regulatory Matters - IRP Filing”).


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Substantially all of IPL’s property is subject to a $1,713.8$1,803.8 million direct first mortgage lien, as of December 31, 2019,2020, securing IPL’s first mortgage bonds. Total non-contractually or legally required accrued removal costs of utility plant in service at December 31, 2020 and 2019 and 2018 were $788.3$818.0 million and $761.1$788.3 million, respectively; and total contractually or legally required removal costs of property, plant and equipment at December 31, 2020 and 2019 and 2018 were $204.2$195.2 million and $129.5$204.2 million, respectively. Please see “ARO” below for further information.

ARO

ASC 410 “Asset Retirement and Environmental Obligations” addresses financial accounting and reporting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation. A legal obligation for purposes of ASC 410 is an obligation that a party is required to settle as a result of an existing law, statute, ordinance, written or oral contract or the doctrine of promissory estoppel.

IPL’s ARO relates primarily to environmental issues involving asbestos-containing materials, ash ponds, landfills and miscellaneous contaminants associated with its generating plants, transmission system and distribution system. The following is a roll forward of the ARO legal liability year end balances:
 20202019
 (In Thousands)
Balance as of January 1$204,219 $129,451 
Liabilities settled(18,302)(9,891)
Revisions to cash flow and timing estimates1,120 78,153 
Accretion expense8,199 6,506 
Balance as of December 31$195,236 $204,219 
  2019 2018
  (In Thousands)
Balance as of January 1 $129,451
 $79,535
Liabilities settled (9,891) (8,932)
Revisions to cash flow and timing estimates 78,153
 54,811
Accretion expense 6,506
 4,037
Balance as of December 31 $204,219
 $129,451
     


In 2019, IPL recorded adjustments to its ARO liabilities of $1.1 million and $78.2 million in 2020 and 2019, respectively, primarily to reflect an increaseincreases to estimated ash pond closure costs, including groundwater remediation. In 2018, IPL recorded additional ARO liabilities of $54.8 million to reflect revisions to cash flow and timing estimates due to accelerated ash pond closure dates, revised estimated closure costs after review of updates to the CCR rule and revised estimated costs associated with our coal storage areas, landfills, and asbestos remediation. As of December 31, 20192020 and 2018,2019, IPL did not have any assets that are legally restricted for settling its ARO liability.    

4. FAIR VALUE

The fair value of financial assets and liabilities approximate their reported carrying amounts. The estimated fair values of the Company’sIPL’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 haveIPL has categorized ourits 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 ourIPL’s financial instruments. OurIPL’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
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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 weIPL 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

IPL 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. ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” was effective as of January 1, 2018. This ASU requires the change in the fair value of equity instruments to be recorded in income. Equity Instruments were defined to include all mutual funds, regardless of the underlying investments. Therefore, all changes to fair value on the VEBA investments will be included in income in the period that the changes occur. These changes to fair value were not material for the years ended December 31, 2019, 2018, or 2017. 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 ourIPL’s Consolidated Statements of Operations.

Financial Liabilities

Interest Rate Hedges

Summary
In March 2019, we entered into forward interest rate hedges related to the 2020 IPALCO Notes and Term Loan that have maturities in July 2020.
The interest rate hedges have a combined notional amount of $400.0 million, which will settle when we refinance the debt. All changes in the marketfair value of the interest rate hedges will be recorded in AOCI. See also Note 5, "Derivative Instrumentsassets and Hedging Activities - Cash Flow Hedges" for further information.



Other Financial Liabilities

As ofliabilities at December 31, 2018, IPALCO's other financial liabilities2020 measured at fair value on a recurring basis were considered Level 3, based onand the respective category within the fair value hierarchy.hierarchy for IPL was determined as follows:

Assets and Liabilities at Fair Value
Level 1Level 2Level 3
Fair value at December 31, 2020Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:
Financial transmission rights$543 $0 $0 $543 
Total financial assets measured at fair value$543 $0 $0 $543 
Summary

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 IPALCOIPL was determined as follows:
Assets and Liabilities at Fair Value
Level 1Level 2Level 3
Fair value at December 31, 2019Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:
Financial transmission rights$864 $0 $0 $864 
Total financial assets measured at fair value$864 $0 $0 $864 
Assets and Liabilities at Fair Value
  Level 1Level 2Level 3
 Fair value at December 31, 2019Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:    
VEBA investments:    
     Money market funds$25
$25
$—
$—
     Mutual funds2,854
—
2,854
—
          Total VEBA investments2,879
25
2,854
—
Financial transmission rights864
—
—
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 fair value of assets and liabilities at December 31, 2018 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 1Level 2Level 3
 Fair value at December 31, 2018Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:    
VEBA investments:    
     Money market funds$21
$21
$—
$—
     Mutual funds2,565
—
2,565
—
          Total VEBA investments2,586
21
2,565
—
Financial transmission rights3,099
—
—
3,099
Total financial assets measured at fair value$5,685
$21
$2,565
$3,099
Financial liabilities:    
Other derivative liabilities$53
$—
$—
$53
Total financial liabilities measured at fair value$53
$—
$—
$53
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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 earnings53 
Issuances2,846 
Settlements(5,081)
Balance at December 31, 2019$864 
Issuances1,889 
Settlements(2,210)
Balance at December 31, 2020$543 
 Reconciliation of Financial Instruments Classified as Level 3
 (In Thousands)
Balance at January 1, 2018$2,454
Unrealized gain recognized in earnings24
Issuances9,295
Settlements(8,727)
Balance at December 31, 2018$3,046
Unrealized gain recognized in earnings53
Issuances2,846
Settlements(5,081)
Balance at December 31, 2019$864
  


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

Debt

The fair value of ourIPL’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, 2020December 31, 2019
 Face ValueFair ValueFace ValueFair Value
 (In Thousands)
Fixed-rate$1,803,800 $2,302,973 $1,713,800 $2,049,758 
Variable-rate75,000 75,000 90,000 90,000 
Total indebtedness$1,878,800 $2,377,973 $1,803,800 $2,139,758 
  December 31, 2019 December 31, 2018
  Face Value Fair Value Face Value Fair Value
  (In Thousands)
Fixed-rate $2,523,800
 $2,876,140
 $2,523,800
 $2,649,265
Variable-rate 155,000
 155,000
 155,000
 155,000
Total indebtedness $2,678,800
 $3,031,140
 $2,678,800
 $2,804,265
         


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

•unamortized deferred financing costs of $20.7$17.4 million and $23.0$16.7 million at December 31, 20192020 and 2018,2019, respectively; and
•unamortized discounts of $6.5$6.0 million and $6.7$6.2 million at December 31, 2020 and 2019, and 2018, respectively.

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We use derivatives principally to manage the interest rate risk associated with refinancing our long-term debt. The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. We monitor and value derivative positions monthly as part of our risk management processes. We use published sources for pricing, when possible, to mark positions to market. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under ASC 815 for accounting purposes.


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At December 31, 20192020, IPL's outstanding derivative instruments were as follows:
Commodity
Accounting Treatment (a)
UnitPurchases
(in thousands)		Sales
(in thousands)		Net Purchases/(Sales)
(in thousands)
FTRsNot DesignatedMWh3,168 0 3,168 
Commodity 
Accounting Treatment (a)
 Unit 
Purchases
(in thousands)
 
Sales
(in thousands)
 
Net Purchases/(Sales)
(in thousands)
Interest rate hedges Designated USD $400,000
 $—
 $400,000
FTRs Not Designated MWh 5,707
 —
 5,707
(a)(a)    Refers to whether the derivative instruments have been designated as a cash flow hedge.

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 determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we are no longer required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument is now recorded in other comprehensive income and amounts deferred are reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.hedge.

In March 2019, we entered into 3 forward interest rate swaps to hedge the interest risk associated with refinancing future debt. The 3 interest rate swaps have a combined notional amount of $400.0 million and will be settled when the associated debt is refinanced. The AOCI associated with the interest rate swaps will be amortized out of AOCI into interest expense over the remaining life of the underlying debt.

We use the income approach to value the swaps, which consists of forecasting future cash flows based on contractual notional amounts and applicable and available market data as of the valuation date. The most common market data inputs used in the income approach include volatilities, spot and forward benchmark interest rates (LIBOR). Forward rates with the same tenor as the derivative instrument being valued are generally obtained from published sources, with these forward rates being assessed quarterly at a portfolio-level for reasonableness versus comparable published rates. We will reclassify gains and losses on the swaps out of AOCI and into earnings in those periods in which hedged interest payments occur.

The following tables provide information on gains or losses recognized in AOCI for the cash flow hedges for the period indicated:
  Interest Rate Hedges for the Year Ended December 31, 2019
$ in thousands (net of tax) 
Beginning accumulated derivative gain / (loss) in AOCI $—
   
Net losses associated with current period hedging transactions (19,750)
Ending accumulated derivative loss in AOCI $(19,750)
   
Portion expected to be reclassified to earnings in the next twelve months $—
Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) 7


Derivatives Not Designated as Hedge

FTRs do not qualify for hedge accounting or the normal purchases and sales exceptions under ASC 815. Accordingly, such contracts are recorded at fair value when acquired and subsequently amortized over the annual period as they are used. FTRs are initially recorded at fair value using the income approach.

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 mark to market accounting and are recognized in the consolidated statements of operations on an accrual basis.



When applicable, IPALCOIPL 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 December 31, 2019, IPALCO2020, IPL did not have any offsetting positions.

The following table summarizes the fair value, balance sheet classification and hedging designation of IPALCO'sIPL's derivative instruments:
December 31,
CommodityHedging DesignationBalance sheet classification20202019
Financial transmission rightsNot a Cash Flow HedgePrepayments and other current assets$543 $864 
     December 31,
CommodityHedging Designation Balance sheet classification 2019 2018
Financial transmission rightsNot a Cash Flow Hedge Prepayments and other current assets $864
 $3,099
Interest rate hedgesCash Flow Hedge Accrued and other current liabilities $26,560
 $—


6. EQUITY

Paid In Capital and Capital Stock

IPL had capital contributions from IPALCO of $0.0 million, $0.0 million and $65.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

All of the outstanding common stock of IPL is owned by IPALCO. IPL’s common stock is pledged under the 2024 IPALCO Notes and 2030 IPALCO Notes. There have been no changes in the capital stock of IPL during the three years ended December 31, 2020.

Dividend Restrictions

IPL’s mortgage and deed of trust and its amended articles of incorporation contain restrictions on IPL’s ability to issue certain securities or pay cash dividends. So long as any of the several series of bonds of IPL issued under its mortgage remains outstanding, and subject to certain exceptions, IPL is restricted in the declaration and payment of dividends, or other distribution on shares of its capital stock of any class, or in the purchase or redemption of such shares, to the aggregate of its net income, as defined in the mortgage, after December 31, 1939. In addition, pursuant to IPL’s articles, no dividends may be paid or accrued, and no other distribution may be made on IPL’s common stock unless dividends on all outstanding shares of IPL preferred stock have been paid or declared and set apart for payment. As of December 31, 2019,2020, and as of the filing of this report, IPL was in compliance with these restrictions.

IPL is also restricted in its ability to pay dividends if it is in default under the terms of its Credit Agreement, and its unsecured notes, which could happen if IPL fails to comply with certain covenants. These covenants, among other things, require IPL to maintain a ratio of total debt to total capitalization not in excess of 0.650.67 to 1. As of December 31, 2019.2020, and as of the filing of this report, IPL was in compliance with all covenants and no event of default existed.
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IPALCO’s Third Amended and Restated Articles of Incorporation contain provisions which state that IPALCO may not make a distribution to its shareholders or make a loan to any of its affiliates (other than its subsidiaries), unless: (a) there exists no event of default (as defined in the articles) and no such event of default would result from the making of the distribution or loan; and either (b)(i) at the time of, and/or as a result of, the distribution or loan, IPALCO’s
leverage ratio does not exceed 0.67 to 1 and IPALCO’s interest coverage ratio is not less than 2.50 to 1 or, (b)(ii) if such ratios are not within the parameters, IPALCO’s senior long-term debt rating from one of the three major credit rating agencies is at least investment grade. As of December 31, 2019, and as of the filing of this report, IPALCO was in compliance with all covenants and no event of default existed.

IPALCO is also restricted in its ability to pay dividends if it is in default under the terms of its Term Loan, which could happen if IPALCO fails to comply with certain covenants. These covenants, among other things, require IPALCO to maintain a ratio of total debt to total capitalization not in excess of 0.67 to 1. As of December 31, 2019, and as of the filing of this report, IPALCO was in compliance with all covenants and no event of default existed.

During the years ended December 31, 2020, 2019 and 2018, and 2017, IPALCO paid distributionsIPL declared dividends to its shareholdersshareholder totaling $136.4$140.6 million, $130.2$159.0 million, and $105.1$156.8 million, respectively.

Cumulative Preferred Stock

IPL has 5 separate series of cumulative preferred stock. Holders of preferred stock are entitled to receive dividends at rates per annum ranging from 4.0% to 5.65%. During each year ended December 31, 2019, 2018 and 2017, total preferred stock dividends declared were $3.2 million. Holders of preferred stock are entitled to 2 votes per share for IPL matters, and if four full quarterly dividends are in default on all shares of the preferred stock then outstanding, they are entitled to elect the smallest number of IPL directors to constitute a majority of IPL’s Board of


Directors. Based on the preferred stockholders’ ability to elect a majority of IPL’s Board of Directors in this circumstance, the redemption of the preferred shares is considered to be not solely within the control of the issuer and the preferred stock was considered temporary equity and presented in the mezzanine level of the audited consolidated balance sheets in accordance with the relevant accounting guidance for non-controlling interests and redeemable securities. IPL has issued and outstanding 500,000 shares of 5.65% preferred stock, which are now redeemable at par value, subject to certain restrictions, in whole or in part. Additionally, IPL has 91,353 shares of preferred stock which are redeemable solely at the option of IPL and can be redeemed in whole or in part at any time at specific call prices.

At December 31, 2019, 2018 and 2017, preferred stock consisted of the following:
  December 31, 2019 December 31,
  Shares
Outstanding		 Call Price 2019 2018 2017
    Par Value, plus premium, if applicable
    (In Thousands)
Cumulative $100 par value,          
authorized 2,000,000 shares          
4% Series 47,611
 $118.00
 $5,410
 $5,410
 $5,410
4.2% Series 19,331
 $103.00
 1,933
 1,933
 1,933
4.6% Series 2,481
 $103.00
 248
 248
 248
4.8% Series 21,930
 $101.00
 2,193
 2,193
 2,193
5.65% Series 500,000
 $100.00
 50,000
 50,000
 50,000
Total cumulative preferred stock 591,353
  
 $59,784
 $59,784
 $59,784
           


7.  DEBT

Long-Term Debt

The following table presents our long-term debt:
    December 31,
Series Due 2019 2018
    (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
4.875% November 2048 105,000
 105,000
Unamortized discount – net   (6,156) (6,272)
Deferred financing costs   (16,629) (17,115)
Total IPL first mortgage bonds 1,691,015
 1,690,413
IPL unsecured debt:    
Variable (2)
 December 2020 30,000
 30,000
Variable (2)
 December 2020 60,000
 60,000
Deferred financing costs   (114) (229)
Total IPL unsecured debt 89,886
 89,771
Total long-term debt – IPL 1,780,901
 1,780,184
Long-term debt – IPALCO:  
  
Term Loan July 2020 65,000
 65,000
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   (313) (424)
Deferred financing costs   (3,959) (5,696)
Total long-term debt – IPALCO 870,728
 868,880
Total consolidated IPALCO long-term debt 2,651,629
 2,649,064
Less: current portion of long-term debt 559,199
 —
Net consolidated IPALCO long-term debt $2,092,430
 $2,649,064
 


(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.


Debt Maturities

Maturities on long-term indebtedness subsequent to December 31, 2019, are as follows:
YearAmount
 (In Thousands)
2020$560,000
202195,000
2022—
2023—
2024445,000
Thereafter1,578,800
Total$2,678,800
  


Significant Transactions

IPL First Mortgage Bonds and Recent Indiana Finance Authority Bond Issuances

The mortgage and deed of trust of IPL, together with the supplemental indentures thereto, secure the first mortgage bonds issued by IPL. Pursuant to the terms of the mortgage, substantially all property owned by IPL is subject to a first mortgage lien securing indebtedness of $1,713.8 million as of December 31, 2019. The IPL first mortgage bonds require net earnings as calculated thereunder be at least two and one-half times the annual interest requirements before additional bonds can be authenticated on the basis of property additions. IPL was in compliance with such requirements as of December 31, 2019.

In November 2018, IPL issued $105 million aggregate principal amount of first mortgage bonds, 4.875% Series, due November 2048, pursuant to Rule 144A and Regulation S under the Securities Act. Net proceeds from this offering were approximately $103.5 million, after deducting the initial purchasers’ discounts and fees and expenses for the offering. The net proceeds from this offering were used to repay amounts due under IPL's Credit Agreement and for general corporate purposes.

In August 2017, IPL repaid $24.7 million in outstanding borrowings of 5.40% IPL first mortgage bonds that were due in August 2017.

IPL Unsecured Notes

In December 2015, the Indiana Finance Authority issued on behalf of IPL an aggregate principal amount of $90 million of Environmental Facilities Refunding Revenue Notes due December 2038 (Indianapolis Power & Light Company Project). These unsecured notes were issued in two series: $30 million Series 2015A notes and $60 million 2015B notes. These notes were initially purchased by a syndication of banks who will hold the notes until the mandatory put date of December 22, 2020.

IPL has classified its outstanding $90 million aggregate principal amount of these unsecured notes as short-term indebtedness as they are due December 2020. Management plans to refinance these unsecured notes with new debt. In the event that we are unable to refinance these unsecured notes on acceptable terms, IPL has available borrowing capacity on its revolving credit facility that could be used to satisfy the obligation. 

IPALCO’s Senior Secured Notes and Term Loan

IPALCO has $405 million of 3.45% Senior Secured Notes due July 15, 2020, ("2020 IPALCO Notes") and a $65 million Term Loan due July 1, 2020. Although current liquid funds are not sufficient to pay the collective amounts due under the 2020 IPALCO Notes and Term Loan at their maturities, we believe that we will be able to refinance the 2020 IPALCO Notes and Term Loan based on our conversations with investment bankers, which currently indicate more than adequate demand for new IPALCO debt at our current credit ratings, and our previous successful issuance of our $405 million IPALCO senior secured notes in 2017, which served to refinance notes existing at the time. Should the capital markets not be accessible to us at the time of the maturity of the 2020


IPALCO Notes and Term Loan, management believes that other financing options are at its disposal to meet the needs of the maturities.

IPALCO Term Loan

On October 31, 2018, IPALCO closed on a new Term Loan consisting of a $65 million credit facility 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 repay amounts under IPL's Credit Agreement 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 the $400 million 2018 IPALCO Notes 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 the 2018 IPALCO Notes is included as a separate line item within “Other Income/(Expense), Net” in the accompanying 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 Term Loan. 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

IPL entered into an amendment and restatement of its 5-year $250 million revolving credit facility on June 19, 2019 with a syndication of bank lenders. This Credit Agreement is an unsecured committed line of credit to be used: (i) to finance capital expenditures; (ii) to refinance certain existing indebtedness, (iii) to support working capital; and (iv) for general corporate purposes. This agreement matures on June 19, 2024, and bears interest at variable rates as described in the Credit Agreement. It includes an uncommitted $150 million accordion feature to provide IPL with an option to request an increase in the size of the facility at any time prior to June 19, 2023, subject to approval by the lenders. The Credit Agreement also includes two one-year extension options, allowing IPL to extend the maturity date subject to approval by the lenders. Prior to execution, IPL and IPALCO had existing general banking relationships with the parties to the Credit Agreement. IPL had no outstanding borrowings on the committed line of credit as of December 31, 2019 and 2018, respectively.

Restrictions on Issuance ofDebt 

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. IPL has approval from FERC to borrow up to $500 million of short-term indebtedness outstanding at any time through July 26, 2020. In December 2018, IPL received an order from the IURC granting IPL authority through December 31, 2021 to, among other things, issue up to $350 million in aggregate principal amount of long-term debt and refinance up to $185.0 million in existing indebtedness, all of which authority remains available under the order as of December 31, 2019. This order also grants IPL authority to have up to $500 million of long-term credit agreements and liquidity facilities outstanding at any one time, of which $250.0 million remains available under the order as of December 31, 2019. 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 December 31, 2019. IPL also has 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. Under such restrictions, IPL is generally allowed to fully draw the amounts available on its Credit Agreement, refinance existing debt and issue new debt approved by the IURC and issue certain other indebtedness.



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 on IPL’s Credit Agreement and other unsecured notes 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.

8. INCOME TAXES

IPALCO follows a policy of comprehensive interperiod income tax allocation. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property.

AES files federal and state income tax returns which consolidate IPALCO and its subsidiaries. Under a tax sharing agreement with AES, IPALCO is responsible for the income taxes associated with its own taxable income and records the provision for income taxes as if IPALCO and its subsidiaries each filed separate income tax returns. IPALCO is no longer subject to U.S. or state income tax examinations for tax years through March 27, 2001, but is open for all subsequent periods. IPALCO made tax sharing payments to AES of $29.6 million, $28.3 million and $65.1 million in 2019, 2018 and 2017 respectively.

On March 25, 2014, the state of Indiana amended Indiana Code 6-3-2-1 through Senate Bill 001, which phases in an additional 1.6% reduction to the state corporate income tax rate that was initially being reduced by 2%. While the statutory state income tax rate decreased to 5.625% for the calendar year 2019, the deferred tax balances were adjusted according to the anticipated reversal of temporary differences. The change in required deferred taxes on plant and plant-related temporary differences resulted in a reduction to the associated regulatory asset of $1.3 million. The change in required deferred taxes on non-property related temporary differences which are not probable to cause a reduction in future base customer rates resulted in a tax benefit of $0.1 million. The statutory state corporate income tax rate will be 5.375% for 2020.

In tax years prior to 2018, Internal Revenue Code Section 199 permitted taxpayers to claim a deduction from taxable income attributable to certain domestic production activities. IPL’s electric production activities qualify for this deduction. Beginning in 2010 and through the 2017 tax year, the deduction is equal to 9% of the taxable income attributable to qualifying production activity. The tax benefit associated with the Internal Revenue Code Section 199 domestic production deduction for the tax year 2017 was $3.9 million. Due to the enactment of TCJA (as described below), the 2017 tax year was the final year for this deduction.

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.

In 2017, the Company recognized the income tax effects of the TCJA in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”) which provides SEC guidance on the application of ASC 740, Income Taxes, in the reporting period in which the TCJA was signed into law. Accordingly, the Company’s financial statements reflected the income tax effects of U.S. tax reform for which the accounting was complete and provisional amounts for those impacts for which the accounting under ASC 740 was incomplete, but a reasonable estimate could be determined.

The Company completed its calculation of the impact of the TCJA in its income tax provision during the year ended December 31, 2018in accordance with its understanding of the TCJA and guidance available as of that date, and as a result recognized $0.0 million and $0.2 million of discrete tax expense in the fourth quarters of 2018 and 2017, respectively. This total results from the remeasurement of certain deferred tax assets and liabilities from 35% to 21%. The most material deferred taxes to be remeasured related to property, plant and equipment. The remeasurement of deferred tax assets and liabilities related to regulated utility property of $7.7 million and $215.5 million in 2018 and 2017, respectively, was recorded as a regulatory liability, which was a non-cash adjustment.



Income Tax Provision

Federal and state income taxes charged to income are as follows: 
  2019 2018 2017
  (In Thousands)
Components of income tax expense:      
Current income taxes:      
Federal $17,229
 $20,341
 $42,542
State 3,022
 8,843
 9,916
Total current income taxes 20,251
 29,184
 52,458
Deferred income taxes:  
  
  
Federal 7,547
 (15,150) (1,720)
State 7,745
 326
 (332)
Total deferred income taxes 15,292
 (14,824) (2,052)
Net amortization of investment credit (15) (911) (1,455)
Total income tax expense $35,528
 $13,449
 $48,951
       


Effective and Statutory Rate Reconciliation

The provision for income taxes (including net investment tax credit adjustments) is different than the amount computed by applying the statutory tax rate to pretax income. The reasons for the difference, stated as a percentage of pretax income, are as follows: 
  2019 2018 2017
Federal statutory tax rate 21.0 % 21.0 % 35.0 %
State income tax, net of federal tax benefit 4.4 % 5.6 % 4.1 %
Research and development credit — % (1.9)% — %
Depreciation flow through and amortization (5.7)% (15.6)% (0.1)%
Additional funds used during construction - equity 0.2 % 0.3 % (4.1)%
Manufacturers’ Production Deduction (Sec. 199) — % — % (2.5)%
Other – net 1.3 % (0.3)% (1.4)%
Effective tax rate 21.2 % 9.1 % 31.0 %
       




Deferred Income Taxes

The significant items comprising IPALCO’s net accumulated deferred tax liability recognized on the audited Consolidated Balance Sheets as of December 31, 2019 and 2018, are as follows:
  2019 2018
  (In Thousands)
Deferred tax liabilities:    
Relating to utility property, net $406,605
 $378,460
Regulatory assets recoverable through future rates 61,984
 67,721
Other 17,996
 12,161
Total deferred tax liabilities 486,585
 458,342
Deferred tax assets:  
  
Investment tax credit 7
 11
Regulatory liabilities including ARO 191,676
 184,413
Employee benefit plans 8,556
 8,335
Other 13,485
 12,498
Total deferred tax assets 213,724
 205,257
Deferred income tax liability – net $272,861
 $253,085
     


Uncertain Tax Positions

The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2019, 2018 and 2017: 
  2019 2018 2017
  (In Thousands)
Unrecognized tax benefits at January 1 $7,056
 $7,049
 $6,634
Gross increases – current period tax positions —
 —
 470
Gross decreases – prior period tax positions —
 7
 (55)
Unrecognized tax benefits at December 31 $7,056
 $7,056
 $7,049
       


The unrecognized tax benefits at December 31, 2019 represent tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the timing of the deductions will not affect the annual effective tax rate but would accelerate the tax payments to an earlier period.

Tax-related interest expense and income is reported as part of the provision for federal and state income taxes. Penalties, if incurred, would also be recognized as a component of tax expense. There are no interest or penalties applicable to the periods contained in this report.

83


9. BENEFIT PLANS

Defined Contribution Plans

All of IPL’s employees are covered by one of two defined contribution plans, the Thrift Plan or the RSP:
The Thrift Plan
Approximately 82% of IPL’s active employees are covered by the Thrift Plan, a qualified defined contribution plan. All union new hires are covered under the Thrift Plan. Participants elect to make contributions to the Thrift Plan based on a percentage of their base compensation. Each participant’s contribution is matched up to certain thresholds of base compensation. The IBEW clerical-technical union new hires receive an annual lump sum company contribution into the Thrift Plan in addition to the company match. Employer contributions to the Thrift Plan were $3.3 million, $3.3 million and $3.4 million for 2019, 2018 and 2017, respectively.
The RSP
Approximately 18% of IPL’s active employees are covered by the RSP, a qualified defined contribution plan containing a match, nondiscretionary and profit sharing component. All non-union new hires are covered under the RSP. Participants elect to make contributions to the RSP based on a percentage of their eligible compensation. Each participant’s contribution is matched in amounts up to, but not exceeding, 5% of the participant’s eligible compensation. Starting in 2018, the RSP also includes a 4% nondiscretionary contribution based as a percentage of each participant's eligible compensation. Finally, the RSP included a profit sharing component through 2017 whereby IPL contributed a percentage of each employee’s annual salary into the plan on a pre-tax basis. The profit sharing percentage was determined by the AES Board of Directors on an annual basis. Employer contributions (by IPL) relating to the RSP were $1.6 million, $1.7 million and $1.8 million for 2019, 2018 and 2017, respectively.

Defined Benefit Plans

Approximately 76% of IPL’s active employees are covered by the qualified Defined Benefit Pension Plan; while approximately 6% of active employees are IBEW clerical-technical unit employees who are only eligible for the Thrift Plan. The remaining 18% of active employees are covered by the RSP. All non-union new hires are covered under the RSP, while IBEW physical unit union new hires are covered under the Defined Benefit Pension Plan and Thrift Plan. The IBEW clerical-technical unit new hires are no longer covered under the Defined Benefit Pension Plan but do receive an annual lump sum company contribution into the Thrift Plan, in addition to the company match. The Defined Benefit Pension Plan is noncontributory and is funded by IPL through a trust. Benefits for non-union participants in the Defined Benefit Pension Plan are based on salary, years of service and accrued benefits at April 1, 2015. Benefits for eligible union participants are based on each individual employee's pension band and years of service as opposed to their compensation. Pension bands are based primarily on job duties and responsibilities.

Additionally, a small group of former officers and their surviving spouses are covered under a funded non-qualified Supplemental Retirement Plan. The total number of participants in the plan as of December 31, 2019 was 22. The plan is closed to new participants.

IPL also provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. Approximately 147 active employees and 17 retirees (including spouses) were receiving such benefits or entitled to future benefits as of January 1, 2019. The plan is unfunded. These postretirement health care benefits and the related unfunded obligation of $6.4 million and $6.7 million at December 31, 2019 and 2018, respectively, were not material to the consolidated financial statements in the periods covered by this report.


The following table presents information relating to the Pension Plans: 
  Pension benefits
as of December 31,
  2019 2018
  (In Thousands)
Change in benefit obligation:    
Projected benefit obligation at January 1 $697,228
 $782,108
Service cost 7,412
 8,450
Interest cost 27,343
 25,220
Actuarial loss/(gain) 88,311
 (62,303)
Amendments (primarily increases in pension bands) —
 5,446
Curtailments(1)
 —
 450
Benefits paid (37,499) (62,143)
Projected benefit obligation at December 31 782,795
 697,228
Change in plan assets:  
  
Fair value of plan assets at January 1 684,485
 738,947
Actual return on plan assets 122,690
 (22,404)
Employer contributions 28
 30,085
Benefits paid (37,499) (62,143)
Fair value of plan assets at December 31 769,704
 684,485
Unfunded status $(13,091) $(12,743)
Amounts recognized in the statement of financial position:  
  
Noncurrent liabilities $(13,091) $(12,743)
Net amount recognized at end of year $(13,091) $(12,743)
Sources of change in regulatory assets(2):
  
  
Prior service cost arising during period $—
 $5,446
Net (gain)/loss arising during period (4,472) 902
Amortization of prior service cost (3,823) (4,618)
Amortization of loss (11,084) (11,403)
Total recognized in regulatory assets $(19,379) $(9,673)
Amounts included in regulatory assets:  
  
Net loss $167,750
 $183,306
Prior service cost 14,323
 18,146
Total amounts included in regulatory assets $182,073
 $201,452
     

(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.

Information for Pension Plans with aprojectedbenefit obligation in excess of plan assets
  Pension benefits
as of December 31,
  2019 2018
  (In Thousands)
Benefit obligation $782,795
 $697,228
Plan assets 769,704
 684,485
Benefit obligation in excess of plan assets $13,091
 $12,743
     



IPL’s total benefit obligation in excess of plan assets was $13.1 million as of December 31, 2019 ($12.0 million Defined Benefit Pension Plan and $1.1 million Supplemental Retirement Plan).

Information for Pension Plans with an accumulated benefit obligation in excess of plan assets
  Pension benefits
as of December 31,
  2019 2018
  (In Thousands)
Accumulated benefit obligation $771,592
 $687,136
Plan assets 769,704
 684,485
Accumulated benefit obligation in excess of plan assets $1,888
 $2,651
     


IPL’s total accumulated benefit obligation in excess of plan assets was $1.9 million as of December 31, 2019 ($0.8 million Defined Benefit Pension Plan and $1.1 million Supplemental Retirement Plan).

Significant Gains and Losses Related to Changes in the Benefit Obligation for the Period

As shown in the table above, an actuarial loss of $88.3 million increased the benefit obligation for the year ended December 31, 2019 and an actuarial gain of $62.3 million reduced the benefit obligation for the year ended December 31, 2018. The actuarial loss in 2019 was primarily due to a decrease in the discount rate, while the actuarial gain in 2018 was primarily due to an increase in the discount rate.

Pension Benefits and Expense

Reported expenses relevant to the Defined Benefit Pension Plan are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience, including the performance of plan assets and actual benefits paid out in future years. Pension costs associated with the Defined Benefit Pension Plan are impacted by the level of contributions made to the plan, earnings on plan assets, the adoption of new mortality tables, and employee demographics, including age, job responsibilities, salary and employment periods. Changes made to the provisions of the Defined Benefit Pension Plan may impact current and future pension costs. Pension costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the corporate bond discount rates, as well as, the adoption of a new mortality table used in determining the projected benefit obligation and pension costs.

The 2019 net actuarial gain of $4.5 million recognized in regulatory assets is comprised of two parts: (1) a $92.8 million pension asset actuarial gain primarily due to higher than expected return on assets; partially offset by (2) an $88.3 million pension liability actuarial loss primarily due to a decrease in the discount rate used to value pension liabilities. The unrecognized net loss of $167.8 million in the Pension Plans has accumulated over time primarily due to the long-term declining trend in corporate bond rates and the adoption of new mortality tables which increased the expected benefit obligation due to the longer expected lives of plan participants. During 2019, the accumulated net gain increased due to lower discount rates used to value pension liabilities; which was partially offset by a combination of higher than expected return on pension assets, as well as the year 2019 amortization of accumulated loss. The unrecognized net loss, to the extent that it exceeds 10% of the greater of the benefit obligation or the assets, will be amortized and included as a component of net periodic benefit cost in future years. The amortization period is approximately 10.96 years based on estimated demographic data as of December 31, 2019. The projected benefit obligation of $782.8 million less the fair value of assets of $769.7 million results in an unfunded status of $13.1 million at December 31, 2019.




  Pension benefits for
years ended December 31,
  2019 2018 2017
  (In Thousands)
Components of net periodic benefit cost:      
Service cost $7,412
 $8,450
 $7,344
Interest cost 27,343
 25,220
 25,305
Expected return on plan assets (29,907) (40,801) (44,672)
Amortization of prior service cost 3,823
 3,837
 4,240
Recognized actuarial loss 11,084
 11,403
 13,195
Recognized settlement loss —
 1,230

146
Total pension cost 19,755
 9,339
 5,558
Less: amounts capitalized 1,237
 1,223
 845
Amount charged to expense $18,518
 $8,116
 $4,713
Rates relevant to each year’s expense calculations:      
Discount rate – defined benefit pension plan 4.36% 3.67% 4.29%
Discount rate – supplemental retirement plan 4.24% 3.60% 4.00%
Expected return on defined benefit pension plan assets 4.50% 5.45% 6.75%
Expected return on supplemental retirement plan assets 4.50% 5.45% 6.75%
       


Pension expense for the following year is determined as of the December 31 measurement date based on the fair value of the Pension Plans’ assets, the expected long-term rate of return on plan assets, a mortality table assumption that reflects the life expectancy of plan participants, and a discount rate used to determine the projected benefit obligation. For 2019, pension expense was determined using an assumed long-term rate of return on plan assets of 4.50%. As of the December 31, 2019 measurement date, IPL decreased the discount rate from 4.36% to 3.33% for the Defined Benefit Pension Plan and decreased the discount rate from 4.24% to 3.05% for the Supplemental Retirement Plan. The discount rate assumptions affect the pension expense determined for 2020. In addition, IPL increased the expected long-term rate of return on plan assets from 4.50% to 5.05% effective January 1, 2020. The expected long-term rate of return assumption affects the pension expense determined for 2020. The effect on 2020 total pension expense of a 25 basis point increase and decrease in the assumed discount rate is $(1.2) million and $1.1 million, respectively.

In determining the discount rate to use for valuing liabilities we use the market yield curve on high-quality fixed income investments as of December 31, 2019. We project the expected benefit payments under the plan based on participant data and based on certain assumptions concerning mortality, retirement rates, termination rates, etc. The expected benefit payments for each year are discounted back to the measurement date using the appropriate spot rate for each half-year from the yield curve, thereby obtaining a present value of all expected future benefit payments using the yield curve. Finally, an equivalent single discount rate is determined which produces a present value equal to the present value determined using the full yield curve.

Pension Plan Assets and Fair Value Measurements

Pension plan assets consist of investments in cash and cash equivalents, government debt securities, and mutual funds (equity and debt). Differences between actual portfolio returns and expected returns may result in increased or reduced pension costs in future periods. Pension costs are determined as of the plans' measurement date of December 31, 2019. Pension costs are determined for the following year based on the market value of pension plan assets, expected employer contributions, a discount rate used to determine the projected benefit obligation and the expected long-term rate of return on plan assets.

Fair value is defined under ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).



Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation includes the Pension Plans’ gains and losses on investments bought and sold, as well as held, during the year.

A description of the valuation methodologies used for each major class of assets and liabilities measured at fair value follows:

For 2019, the non-qualified Supplemental Retirement Plan investments have quoted market prices and are categorized as Level 1 in the fair value hierarchy.

For 2019, the qualified Defined Benefit Pension Plan investments in common collective trusts are valued based on the daily net asset value and are categorized as Level 2 in the fair value hierarchy except for cash and cash equivalents which are categorized as level 1.

For 2018, all the Pension Plans’ investments have quoted market prices and are categorized as Level 1 in the fair value hierarchy. The investments in U.S. government agency fixed income securities are valued from third-party pricing sources, but they generally do not represent transaction prices for the identical security in an active market nor does it represent data obtained from an exchange.

The primary objective of the Pension Plans’ is to provide a source of retirement income for its participants and beneficiaries, while the primary financial objective is to improve the unfunded status of the Pension Plans. A secondary financial objective is, where possible, to minimize pension expense volatility. The objective is based on a long-term investment horizon, so that interim fluctuations should be viewed with appropriate perspective. There can be no assurance that these objectives will be met.

In establishing our expected long-term rate of return assumption, we utilize a methodology developed by the plan’s investment consultant who maintains a capital market assumption model that takes into consideration risk, return and correlation assumptions across asset classes. A combination of quantitative analysis of historical data and qualitative judgment is used to capture trends, structural changes and potential scenarios not reflected in historical data. 

The result of the analyses is a series of inputs that produce a picture of how the plan consultant believes portfolios are likely to behave through time. Capital market assumptions are intended to reflect the behavior of asset classes observed over several market cycles. Stress assumptions are also examined, since the characteristics of asset classes are constantly changing. A dynamic model is employed to manage the numerous assumptions required to estimate portfolio characteristics under different base currencies, time horizons and inflation expectations.
The Pension Plans’ consultant develops forward-looking, long-term capital market assumptions for risk, return and correlations for a variety of global asset classes, interest rates and inflation. These assumptions are created using a combination of historical analysis, current market environment assessment and by applying the consultant’s own judgment. The consultant then determines an equilibrium long-term rate of return. We then take into consideration the investment manager/consultant expenses, as well as any other expenses expected to be paid out of the Pension Plans’ trust. Finally, we have the Pension Plans’ actuary perform a tolerance test of the consultant’s equilibrium expected long-term rate of return. We use an expected long-term rate of return compatible with the actuary’s tolerance level.

The following table summarizes the Company’s target pension plan allocation for 2019:
Asset Category:Target Allocations
Equity Securities27%
Debt Securities73%




  Fair Value Measurements at
  December 31, 2019
  (in thousands)
    Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs  
Asset Category Total (Level 1) (Level 2) %
Cash and cash equivalents $2,599
 $2,599
 $—
 —%
Government debt securities 154,798
 39
 154,759
 20%
Mutual fund - equities 214,369
 2,744
 211,625
 28%
Mutual fund - debt 397,938
 1,664
 396,274
 52%
Total(1)
 $769,704
 $7,046
 $762,658
 100%
         
(1)In 2019, the qualified Defined Benefit Pension Plan moved all investments except for cash and cash equivalents into collective trusts; therefore, the 2019 balances under the Government debt securities, Mutual fund - equities, and Mutual fund - debt categories shown above as level 2 represent investments through collective trusts. The Defined Benefit Pension Plan has chosen collective trusts for which the underlying investments are mutual funds, mutual funds categories for which debt securities are the primary underlying investment, or real estate in alignment with the target asset allocation.
  Fair Value Measurements at
  December 31, 2018
  (in thousands)
    Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs  
Asset Category Total (Level 1) (Level 2) %
Short-term investments $3,597
 $3,597
 $—
 1%
Mutual funds:        
U.S. equities 1,906
 1,906
 —
 —%
International equities 52,354
 52,354
 —
 8%
Fixed income 497,323
 497,323
 —
 72%
Fixed income securities:        
U.S. Treasury securities 129,305
 129,305
 —
 19%
Total $684,485
 $684,485
 $—
 100%
         


Pension Funding

We contributed $0.0 million, $30.1 million, and $7.2 million to the Pension Plans in 2019, 2018 and 2017, respectively. Funding for the qualified Defined Benefit Pension Plan is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under ERISA, as amended by the Pension Protection Act of 2006, as well as targeted funding levels necessary to meet certain thresholds.
From an ERISA funding perspective, IPL’s funded target liability percentage was estimated to be 101%. In general, IPL must contribute the normal service cost earned by active participants during the plan year; however, this amount can be offset by any surplus or credit balance carried by the Pension Plan. The normal cost is expected to be approximately $7.6 million in 2020 (including $2.3 million for plan expenses), which is expected to be fully offset by the surplus amount. Each year thereafter, if the Pension Plans’ underfunding increases to more than the present value of the remaining annual installments, the excess is separately amortized over a seven-year period. IPL does not expect to make an employer contribution for the calendar year 2020. IPL’s funding policy for the Pension Plans is to contribute annually no less than the minimum required by applicable law, and no more than the maximum amount that can be deducted for federal income tax purposes. 


Benefit payments made from the Pension Plans for the years ended December 31, 2019, 2018 and 2017 were $37.5 million, $62.1 million and $35.5 million, respectively. Expected benefit payments are expected to be paid out of the Pension Plans as follows:

YearPension Benefits
 (In Thousands)
2020$42,215
202143,552
202244,606
202345,095
202445,362
2024 through 2028231,475
  


10. 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 regulated materials, including ash; the use and discharge of water used in generation boilers and for cooling purposes; 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 3 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 been working 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 and 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 recovering any operating or capital expenditures. IPL has recorded a contingent liability related to these New Source Review cases and other CAA NOV matters.

90


11.  RELATED PARTY TRANSACTIONS

IPL participates in a property insurance program in which IPL buys insurance from AES Global Insurance Company, a wholly-owned subsidiary of AES. IPL is not self-insured on property insurance, but does take a $5 million per occurrence deductible. Except for IPL’s large substations, IPL does not carry insurance on transmission and distribution assets, which are considered to be outside the scope of property insurance. AES and other AES subsidiaries, including IPALCO, also participate in the AES global insurance program. IPL pays premiums for a policy that is written and administered by a third-party insurance company. The premiums paid to this third-party administrator by the participants are paid to AES Global Insurance Company and all claims are paid from a trust fund funded by and owned by AES Global Insurance Company, but controlled by the third-party administrator. IPL also has third-party insurance in which the premiums are paid directly to the third-party insurers. The cost to IPL of coverage under this program with AES Global Insurance Company was approximately $4.3 million, $3.1 million, and $3.1 million in 2019, 2018 and 2017, respectively, and is recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations. As of December 31, 2019 and 2018, we had prepaid approximately $2.0 million and $1.6 million, respectively, which is recorded in “Prepayments and other current assets” on the accompanying Consolidated Balance Sheets.

IPL participates in an agreement with Health and Welfare Benefit Plans LLC, an affiliate of AES, to participate in a group benefits program, including but not limited to, health, dental, vision and life benefits. Health and Welfare Benefit Plans LLC administers the financial aspects of the group insurance program, receives all premium payments from the participating affiliates, and makes all vendor payments. The cost of coverage under this program was approximately $20.2 million, $21.5 million, and $24.9 million in 2019, 2018 and 2017, respectively, and is recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations. We had no prepaids for coverage under this plan as of December 31, 2019 and 2018, respectively.

AES files federal and state income tax returns which consolidate IPALCO and its subsidiaries. Under a tax sharing agreement with AES, IPALCO is responsible for the income taxes associated with its own taxable income and records the provision for income taxes using a separate return method. IPALCO had a receivable balance under this agreement of $23.7 million and $13.8 million as of December 31, 2019 and 2018, respectively, which is recorded in “Prepayments and other current assets” on the accompanying Consolidated Balance Sheets.

Long-term Compensation Plan

During 2019, 2018 and 2017, many of IPL’s non-union employees received benefits under the AES Long-term Compensation Plan, a deferred compensation program. This type of plan is a common employee retention tool used in our industry. Benefits under this plan are granted in the form of performance units payable in cash and AES restricted stock units. Restricted stock units vest ratably over a three-year period. The performance units payable in cash vest at the end of the three-year performance period and are subject to certain AES performance criteria. Total deferred compensation expense recorded during 2019, 2018 and 2017 was $0.3 million, $0.5 million and $0.8 million, respectively, and was included in “Operating expenses - Operation and maintenance” on IPALCO’s Consolidated Statements of Operations. The value of these benefits is being recognized over the 36 month vesting period and a portion is recorded as miscellaneous deferred credits with the remainder recorded as “Paid in capital” on IPALCO’s Consolidated Balance Sheets in accordance with ASC 718 “Compensation – Stock Compensation.”

See also Note 9, “Benefit Plans” to the Financial Statements for a description of benefits awarded to IPL employees by AES under the RSP.

ServiceCompany

Total costs incurred by the Service Company on behalf of IPALCO were $42.0 million, $44.5 million and $34.4 million during 2019, 2018 and 2017, respectively. Total costs incurred by IPALCO on behalf of the Service Company during 2019, 2018 and 2017 were $9.7 million, $10.1 million and $10.7 million, respectively, which are included as a reduction to charges from the Service Company. These costs were included in “Operating expenses - Operation and maintenance” on IPALCO’s Consolidated Statements of Operations. IPALCO had a payable balance with the Service Company of $8.4 million and $3.8 million as of December 31, 2019 and December 31, 2018, respectively, which is recorded in “Accounts payable” on the accompanying Consolidated Balance Sheets.



Other

A member of the AES Board of Directors is also a member of the Supervisory Board of a third party vendor that IPL engaged in 2014 for certain construction projects. As the transactions with this vendor related to capital projects, there was no direct impact on the Consolidated Statements of Operations for the periods presented. Over the life of the project, IPL had total net charges from this vendor of $474.9 million. This vendor completed its service in 2018.

Additionally, transactions with various other related parties were $3.0 million, $5.7 million and $2.4 million during 2019, 2018 and 2017, respectively. These expenses were primarily recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations.

12. 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 non-utility business activities aggregated separately. The "All Other" non-utility category primarily includes the Term Loan, 2020 IPALCO Notes and 2024 IPALCO Notes; approximately $6.0 million and $6.4 million of cash and cash equivalents, as of December 31, 2019 and 2018, respectively; long-term investments of $2.8 million and $4.0 million as of December 31, 2019 and 2018, respectively; long-term liabilities for interest rate hedges of $26.6 million and $0 million as of December 31, 2019 and December 31, 2018, respectively; and income taxes and interest related to those items. All other assets represented less than 1% of IPALCO’s total assets as of December 31, 2019 and 2018. 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):
  2019 2018 2017
  Utility All Other Total Utility All Other Total Utility All Other Total
Revenues $1,481,643
 $—
 $1,481,643
 $1,450,505
 $—
 $1,450,505
 $1,349,588
 $—
 $1,349,588
Depreciation and amortization $240,314
 $—
 $240,314
 $232,332
 $—
 $232,332
 $208,451
 $—
 $208,451
Interest expense $89,014
 $32,757
 $121,771
 $64,472
 $31,037
 $95,509
 $65,340
 $35,790
 $101,130
Earnings/(loss) from operations before income tax $200,707
 $(32,786) $167,921
 $178,953
 $(31,479) $147,474
 $202,106
 $(44,362) $157,744
Capital expenditures(1)
 $219,242
 $—
 $219,242
 $235,764
 $—
 $235,764
 $228,861
 $—
 $228,861
(1) Capital expenditures includes $5.6 million, $11.4 million and $10.6 million of payments for financed capital expenditures in 2019, 2018 and 2017, respectively.

                   
  As of December 31, 2019 As of December 31, 2018 As of December 31, 2017
Total assets $4,918,408
 $10,261
 $4,928,669
 $4,851,712
 $10,341
 $4,862,053
 $4,719,547
 $21,014
 $4,740,561
                   


13. 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.

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 IPLis 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. Capacity revenues are also included in miscellaneous revenues, but these were not material for the period presented.

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 operator's allocation of the tariff rate (as approved by the regulator) charged to network participants.

IPL’s revenue from contracts with customers was $1,455.3 million and $1,428.9 million for the years ended December 31, 2019 and 2018, respectively. The following table presents our revenue from contracts with customers and other revenue (in thousands):
 For the Year Ended,For the Year Ended,
 December 31, 2019December 31, 2018
Retail Revenues  
     Retail revenue from contracts with customers$1,375,533
$1,380,042
     Other retail revenues (1)
23,841
16,423
Wholesale Revenues68,474
38,789
Miscellaneous Revenues  
     Transmission and other revenue from contracts with customers11,335
10,057
     Other miscellaneous revenues (2)
2,460
5,194
Total Revenues$1,481,643
$1,450,505

(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

The balances of receivables from contracts with customers are $155.0 million and $160.8 million as of December 31, 2019 and December 31, 2018, respectively. Payment terms for all receivables from contracts with customers typically do not extend beyond 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.

14. LEASES

LESSEE

The Company enters into long-term non-cancelable lease arrangements which are classified as either operating or finance leases; however, lease balances were not material to the Financial Statements in the periods covered by this report.

LESSOR

The Company is the lessor under operating leases for land, office space and operating equipment. Minimum lease payments from such contracts are recognized as operating lease revenue on a straight-line basis over the lease term whereas contingent rentals are recognized when earned. Lease revenue included in the Consolidated Statements of Operations was $1.0 million for the year ended December 31, 2019. Underlying gross assets and accumulated depreciation of operating leases included in Total net property, plant and equipment on the Consolidated Balance Sheet were $4.3 million and $0.7 million, respectively, as of December 31, 2019.

The option to extend or terminate a lease is based on customary early termination provisions in the contract. The Company has not recognized any early terminations as of December 31, 2019.

The following table shows the future minimum lease receipts through 2024 and thereafter (in thousands):
 Operating Leases
2020$941
2021994
2022906
2023906
2024786
Thereafter2,628
Total$7,161







94


Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Indianapolis Power & Light Company                                
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Indianapolis Power & Light Company and subsidiary (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, common shareholder’s equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and schedules (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with U.S. generally accepted accounting principles.

Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

Indianapolis, Indiana
February 27, 2020



95


INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended December 31, 2019, 2018 and 2017
(In Thousands)
  2019 2018 2017
REVENUES $1,481,643
 $1,450,505
 $1,349,588
       
OPERATING COSTS AND EXPENSES:      
Fuel 340,466
 331,701
 281,542
Power purchased 133,674
 164,542
 189,847
Operations and maintenance 427,803
 431,125
 385,338
Depreciation and amortization 240,314
 232,332
 208,451
Taxes other than income taxes 42,229
 53,941
 44,628
Total operating expenses 1,184,486
 1,213,641
 1,109,806
       
OPERATING INCOME 297,157
 236,864
 239,782
       
OTHER INCOME/(EXPENSE), NET:      
Allowance for equity funds used during construction 3,486
 8,477
 25,798
Interest expense (89,014) (64,472) (65,340)
Other income/(expense), net (10,922) (1,916) 1,866
Total other income/(expense), net (96,450) (57,911) (37,676)
       
EARNINGS FROM OPERATIONS BEFORE INCOME TAX 200,707
 178,953
 202,106
       
Less: income tax expense 43,430
 21,590
 65,591
NET INCOME 157,277
 157,363
 136,515
       
LESS: PREFERRED DIVIDEND REQUIREMENTS 3,213
 3,213
 3,213
NET INCOME APPLICABLE TO COMMON STOCK $154,064
 $154,150
 $133,302
       
See notes to consolidated financial statements.


96


INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Consolidated Balance Sheets
(In Thousands)
  December 31, 2019 December 31, 2018
ASSETS    
CURRENT ASSETS:  
  
Cash and cash equivalents $42,189
 $26,834
Restricted cash 400
 400
Accounts receivable, net 161,365
 167,869
Inventories 83,569
 99,669
Regulatory assets, current 37,398
 28,399
Taxes receivable 23,134
 13,498
Prepayments and other current assets 17,264
 15,573
Total current assets 365,319
 352,242
NON-CURRENT ASSETS:    
Property, plant and equipment 6,398,612
 6,201,078
Less: Accumulated depreciation 2,414,652
 2,256,215

 3,983,960
 3,944,863
Construction work in progress 130,609
 111,723
Total net property, plant and equipment 4,114,569
 4,056,586
OTHER NON-CURRENT ASSETS:  
  
Intangible assets - net 64,861
 40,848
Regulatory assets, non-current 355,614
 395,077
Other non-current assets 18,045
 6,959
Total other non-current assets 438,520
 442,884
TOTAL ASSETS $4,918,408
 $4,851,712
LIABILITIES AND SHAREHOLDER'S EQUITY    
CURRENT LIABILITIES:    
Short-term and current portion of long-term debt (Note 7) $89,886
 $—
Accounts payable 128,504
 135,144
Accrued taxes 22,012
 21,325
Accrued interest 23,857
 23,312
Customer deposits 34,635
 32,700
  Regulatory liabilities, current 52,654
 51,024
Accrued and other current liabilities 37,500
 41,984
Total current liabilities 389,048
 305,489
NON-CURRENT LIABILITIES:    
Long-term debt (Note 7) 1,691,015
 1,780,184
Deferred income tax liabilities 279,159
 252,729
Taxes payable 4,658
 4,658
Regulatory liabilities, non-current 846,430
 870,255
Accrued pension and other postretirement benefits 19,344
 19,329
Asset retirement obligations 204,219
 129,451
Other non-current liabilities 252
 604
Total non-current liabilities 3,045,077
 3,057,210
          Total liabilities 3,434,125
 3,362,699
COMMITMENTS AND CONTINGENCIES (Note 10)    
SHAREHOLDER'S EQUITY:    
Common stock 324,537
 324,537
Paid in capital 664,719
 664,513
Retained earnings 435,243
 440,179
     Total shareholder's equity 1,424,499
 1,429,229
  Cumulative preferred stock 59,784
 59,784
Total shareholder's equity 1,484,283
 1,489,013
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $4,918,408
 $4,851,712
     
See notes to consolidated financial statements.

97


INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2019, 2018 and 2017
(In Thousands)
  2019 2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $157,277
 $157,363
 $136,515
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 240,314
 232,332
 208,451
Amortization of deferred financing costs and debt premium 2,262
 2,011
 2,199
Deferred income taxes and investment tax credit adjustments - net 15,120
 (15,646) (3,441)
Allowance for equity funds used during construction (3,486) (8,477) (25,798)
Change in certain assets and liabilities:  
  
  
Accounts receivable 6,504
 (10,167) (3,031)
Inventories 13,574
 (3,652) (5,342)
Accounts payable 2,816
 4,080
 (5,048)
Accrued and other current liabilities 4,416
 (9,655) (7,771)
Accrued taxes payable/receivable (15,437) 3,180
 (785)
Accrued interest 546
 826
 (245)
Pension and other postretirement benefit expenses 5,414
 (30,740) (14,069)
Short-term and long-term regulatory assets and liabilities 921
 76,647
 17,011
Prepayments and other current assets (2,119) 7,279
 (4,938)
Other - net (7,053) 582
 2,257
Net cash provided by operating activities 421,069
 405,963
 295,965
CASH FLOWS FROM INVESTING ACTIVITIES:      
Capital expenditures (213,619) (224,335) (218,224)
Project development costs (2,269) (1,127) (1,729)
Cost of removal and regulatory recoverable ARO payments (21,838) (29,543) (16,802)
Other —
 —
 (123)
Net cash used in investing activities (237,726) (255,005) (236,878)
CASH FLOWS FROM FINANCING ACTIVITIES:  
  
  
Short-term debt borrowings 10,000
 100,000
 202,500
Short-term debt repayments (10,000) (248,000) (129,150)
Long-term borrowings, net of discount —
 104,936
 —
Dividends on common stock (159,000) (142,250) (132,516)
Dividends on preferred stock (3,213) (3,213) (3,213)
Equity contributions from IPALCO —
 65,000
 —
Payments for financed capital expenditures (5,623) (11,429) (10,637)
Other (152) (1,110) (336)
Net cash used in financing activities (167,988) (136,066) (73,352)
Net change in cash, cash equivalents and restricted cash 15,355
 14,892
 (14,265)
Cash, cash equivalents and restricted cash at beginning of period 27,234
 12,342
 26,607
Cash, cash equivalents and restricted cash at end of period $42,589
 $27,234
 $12,342
       
Supplemental disclosures of cash flow information:      
Cash paid during the period for:      
Interest (net of amount capitalized) $88,546
 $61,310
 $63,031
Income taxes 37,400
 33,750
 87,000
Non-cash investing activities:      
Accruals for capital expenditures $35,471
 $47,553
 $45,322
       
See notes to consolidated financial statements.

98


INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Consolidated Statements of Common Shareholder's Equity
For the Years Ended December 31, 2019, 2018 and 2017
(In Thousands)
  Common Stock Paid in Capital Retained Earnings Total
Balance at January 1, 2017 $324,537
 $598,500
 $434,993
 $1,358,030
Net income —
 —
 136,515
 136,515
Preferred stock dividends —
 —
 (3,213) (3,213)
Cash dividends declared on common stock —
 —
 (125,516) (125,516)
Other   657
   657
Balance at December 31, 2017 324,537
 599,157
 442,779
 1,366,473
Net income —
 —
 157,363
 157,363
Preferred stock dividends —
 —
 (3,213) (3,213)
Cash dividends declared on common stock —
 —
 (156,750) (156,750)
Contributions from IPALCO —
 65,000
 —
 65,000
Other  
 356
  
 356
Balance at December 31, 2018 324,537
 664,513
 440,179
 1,429,229
Net income —
 —
 157,277
 157,277
Preferred stock dividends —
 —
 (3,213) (3,213)
Cash dividends declared on common stock —
 —
 (159,000) (159,000)
Other —
 206
 —
 206
Balance at December 31, 2019 $324,537
 $664,719
 $435,243
 $1,424,499
         
See notes to consolidated financial statements.


99


INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2019, 2018 and 2017

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IPL was incorporated under the laws of the state of Indiana in 1926. All of the outstanding common stock of IPL is owned by IPALCO. IPALCO, acquired by AES in March 2001, is owned by AES U.S. Investments and CDPQ. AES U.S. Investments is owned by AES (85%) and CDPQ (15%). IPL is engaged primarily in generating, transmitting, distributing and selling of electric energy to more than 500,000 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 40 miles from Indianapolis. IPL has an exclusive right to provide electric service to those customers. IPL owns and operates 4 generating stations all within the state of Indiana. Our 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 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 December 31, 2019, IPL’s net electric generation capacity for winter is 3,705 MW and net summer capacity is 3,560 MW.

Principles of Consolidation

IPL’s consolidated financial statements are prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The consolidated financial statements include the accounts of IPL and its unregulated subsidiary, IPL Funding Corporation, which was dissolved in 2018 and was immaterial to the consolidated financial statements in the periods covered by this report. All intercompany items have been eliminated in consolidation. Certain costs for shared resources amongst IPL and IPALCO, such as labor and benefits, are allocated to each entity based on allocation methodologies that management believes to be reasonable. We have evaluated subsequent events through the date this report is issued.

Financial Statement Presentation

During 2018, IPL adopted a change in presentation on its Consolidated Balance Sheets and Consolidated Statements of Operations from a utility format to a traditional format. These changes revised the order of certain balance sheet line items and resulted in the movement of certain balances within the Consolidated Statements of Operations and Consolidated Balance Sheets, but did not result in any material changes to the classification of any such amounts between line items or have any impact on net assets or net income.

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

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 management is required to make. Actual results may differ from those estimates.

Regulatory Accounting

The retail utility operations of IPL are subject to the jurisdiction of the IURC. IPL’s wholesale power transactions are subject to the jurisdiction of the FERC. These agencies regulate IPL’s utility business operations, tariffs, accounting, depreciation allowances, services, issuances of securities and the sale and acquisition of utility properties. The financial statements of IPL are based on GAAP, including the provisions of FASB ASC 980 “Regulated Operations,” which gives recognition to the ratemaking and accounting practices of these agencies. See also Note 2, “Regulatory Matters - Regulatory Assets and Liabilities” for a discussion of specific regulatory assets and liabilities.



Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents are stated at cost, which approximates fair value. All highly liquid short-term investments with original maturities of three months or less are considered cash equivalents. Restricted cash includes cash which is restricted as to withdrawal or usage. The nature of the restrictions includes restrictions imposed by agreements related to deposits held as collateral. The following table provides a summary of cash, cash equivalents and restricted cash amounts as shown on the Consolidated Statements of Cash Flows:
  As of December 31,
  2019 2018
  (In Thousands)
Cash, cash equivalents and restricted cash    
     Cash and cash equivalents $42,189
 $26,834
     Restricted cash 400
 400
          Total cash, cash equivalents and restricted cash $42,589
 $27,234
     


Revenues and Accounts Receivable

Revenues related to the sale of energy are generally recognized when service is rendered or energy is delivered to customers. However, the determination of the energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, amounts of energy delivered to certain customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is accrued. In making its estimates of unbilled revenue, IPL uses complex models that consider various factors including daily generation volumes; known amounts of energy usage by nearly all residential, small commercial and industrial customers; estimated line losses; and estimated customer rates based on prior period billings. Given the use of these models, and that customers are billed on a monthly cycle, we believe it is unlikely that materially different results will occur in future periods when revenue is billed. An allowance for potential credit losses is maintained and amounts are written off when normal collection efforts have been exhausted. IPL’s provision for doubtful accounts included in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations was $5.5 million, $6.0 million and $5.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.
IPL’s basic rates include a provision for fuel costs as established in IPL’s most recent rate proceeding, which last adjusted IPL’s rates in December 2018. IPL is permitted to recover actual costs of purchased power and fuel consumed, subject to certain restrictions. This is accomplished through quarterly FAC proceedings, in which IPL estimates the amount of fuel and purchased power costs in future periods. Through these proceedings, IPL is also permitted to recover, in future rates, underestimated fuel and purchased power costs from prior periods, subject to certain restrictions, and therefore the over or underestimated costs are deferred or accrued and amortized into fuel expense in the same period that IPL’s rates are adjusted. See also Note 2, “RegulatoryMatters” for a discussion of other costs that IPL is permitted to recover through periodic rate adjustment proceedings and the status of current rate adjustment proceedings.
In addition, IPL is one of many transmission system owner members of MISO, a regional transmission organization which maintains functional control over the combined transmission systems of its members and manages one of the largest energy markets in the U.S. See Note 13, "Revenue" for additional information of MISO sales and other revenue streams.


The following table summarizes our accounts receivable balances at December 31:
  As of December 31,
  2019 2018
  (In Thousands)
Accounts receivable, net    
     Customer receivables $90,747
 $91,426
     Unbilled revenue 65,822
 68,893
     Amounts due from related parties 2,992
 6,030
     Other 3,857
 4,341
     Provision for uncollectible accounts (2,053) (2,821)
           Total accounts receivable, net $161,365
 $167,869
     


Inventories

IPL maintains coal, fuel oil, materials and supplies inventories for use in the production of electricity. These inventories are accounted for at the lower of cost or net realizable value, using the average cost. The following table summarizes our inventories balances at December 31:
  As of December 31,
  2019 2018
  (In Thousands)
Inventories    
     Fuel $26,907
 $32,457
     Materials and supplies 56,662
 67,212
          Total inventories $83,569
 $99,669
     


Property, Plant and Equipment
Property, plant and equipment is stated at original cost as defined for regulatory purposes. The cost of additions to property, plant and equipment and replacements of retirement units of property are charged to plant accounts. Units of property replaced or abandoned in the ordinary course of business are retired from the plant accounts at cost; such amounts, less salvage, are charged to accumulated depreciation. Depreciation is computed by the straight-line method based on functional rates approved by the IURC and averaged 3.7%, 4.2%, and 4.1% during 2019, 2018 and 2017, respectively. Depreciation expense was $228.2 million, $235.2 million, and $209.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. "Depreciation and amortization" expense on the accompanying Consolidated Statements of Operations is presented net of regulatory deferrals of depreciation expense and also includes amortization of intangible assets and amortization of previously deferred regulatory costs.

Allowance For Funds Used During Construction

In accordance with the Uniform System of Accounts prescribed by FERC, IPL capitalizes an allowance for the net cost of funds (interest on borrowed funds and a reasonable rate of return on equity funds) used for construction purposes during the period of construction with a corresponding credit to income. IPL capitalized amounts using pretax composite rates of 6.9%, 6.4% and 6.6% during 2019, 2018 and 2017, respectively.
Impairment of Long-lived Assets

GAAP requires that IPL test long-lived assets for impairment when indicators of impairment exist. If an asset is deemed to be impaired, IPL is required to write down the asset to its fair value with a charge to current earnings. The net book value of IPL’s property, plant, and equipment was $4.1 billion as of December 31, 2019 and 2018. IPL does not believe any of these assets are currently impaired. In making this assessment, IPL considers such factors as: the overall condition and generating and distribution capacity of the assets; the expected ability to recover


additional expenditures in the assets; the anticipated demand and relative pricing of retail electricity in its service territory and wholesale electricity in the region; and the cost of fuel.

Intangible Assets

Intangible assets primarily include capitalized software of $139.6 million and $129.7 million and its corresponding accumulated amortization of $74.7 million and $88.8 million, as of December 31, 2019 and 2018, respectively. Amortization expense was $7.5 million, $5.5 million and $4.3 million for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated amortization expense of this capitalized software is approximately $50.0 million over the next 5 years ($10.0 million in 2020, $10.0 million in 2021, $10.0 million in 2022, $10.0 million in 2023 and $10.0 million in 2024).

Contingencies

IPL accrues for loss contingencies when the amount of the loss is probable and estimable. IPL is subject to various environmental regulations and is involved in certain legal proceedings. If IPL’s actual environmental and/or legal obligations are different from our estimates, the recognition of the actual amounts may have a material impact on our results of operations, financial condition and cash flows; although that has not been the case during the periods covered by this report. As of December 31, 2019 and 2018, total loss contingencies accrued were $4.5 million and $4.6 million, respectively, which were included in “Accrued and Other Current Liabilities” on the accompanying Consolidated Balance Sheets.

Concentrations of Risk
Substantially all of IPL’s customers are located within the Indianapolis area. Approximately 69% of IPL’s employees are covered by collective bargaining agreements in two bargaining units: a physical unit and a clerical-technical unit. IPL’s contract with the physical unit expires on December 6, 2021, and the contract with the clerical-technical unit expires February 13, 2023. Additionally, IPL has long-term coal contracts with 4 suppliers, with about 33% of our existing coal under contract for the three-year period ending December 31, 2022 coming from one supplier. Substantially all of the coal is currently mined in the state of Indiana.

Financial Derivatives

All derivatives are recognized as either assets or liabilities in the balance sheets and are measured at fair value. Changes in the fair value are recorded in earnings unless the derivative is designated as a cash flow hedge of a forecasted transaction or it qualifies for the normal purchases and sales exception.

IPL has contracts involving the physical delivery of energy and fuel. Because these contracts qualify for the normal purchases and normal sales scope exception in ASC 815, IPL has elected to account for them as accrual contracts, which are not adjusted for changes in fair value.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of the existing assets and liabilities, and their respective income tax bases. IPL establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset will not be realized. IPL’s tax positions are evaluated under a more likely than not recognition threshold and measurement analysis before they are recognized for financial statement reporting.
Uncertain tax positions have been classified as noncurrent income tax liabilities unless expected to be paid within one year. IPL’s policy for interest and penalties is to recognize interest and penalties as a component of the provision for income taxes in the Consolidated Statements of Operations.
Income tax assets or liabilities which are included in allowable costs for ratemaking purposes in future years are recorded as regulatory assets or liabilities with a corresponding deferred tax liability or asset. Investment tax credits that reduced federal income taxes in the years they arose have been deferred and are being amortized to income over the useful lives of the properties in accordance with regulatory treatment. See Note 2, "Regulatory Matters" for additional information.



IPL and its subsidiary file U.S. federal income tax returns as part of the consolidated U.S. income tax return filed by AES. The consolidated tax liability is allocated to each subsidiary based on the separate return method which is specified in our tax allocation agreement and which provides a consistent, systematic and rational approach. See Note 8, "Income Taxes" for additional information.

Pension and Postretirement Benefits

IPL recognizes in its Consolidated Balance Sheets an asset or liability reflecting the funded status of pension and other postretirement plans with current-year changes in the funded status, that would otherwise be recognized in AOCI, recorded as a regulatory asset as this can be recovered through future rates. All plan assets are recorded at fair value. IPL follows the measurement date provisions of the accounting guidance, which require a year-end measurement date of plan assets and obligations for all defined benefit plans.

IPL accounts for and discloses pension and postretirement benefits in accordance with the provisions of GAAP relating to the accounting for pension and other postretirement plans. These GAAP provisions require the use of assumptions, such as the discount rate for liabilities and long-term rate of return on assets, in determining the obligations, annual cost and funding requirements of the plans. Consistent with the requirements of ASC 715, IPL applies a disaggregated discount rate approach for determining service cost and interest cost for its defined benefit pension plans and postretirement plans.
See Note 9, "Benefit Plans" for more information.
Repair and Maintenance Costs

Repair and maintenance costs are expensed as incurred.

Per Share Data

IPALCO owns all of the outstanding common stock of IPL. IPL does not report earnings on a per-share basis.

New Accounting Pronouncements Adopted in 2019

The following table provides a brief description of recent accounting pronouncements that had an impact on IPL's consolidated financial statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on IPL's consolidated financial statements.
New Accounting Standards Adopted
ASU Number and NameDescriptionDate of AdoptionEffect on the Financial Statements upon adoption
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, 2019The adoption of this standard did not have a material impact on IPL's consolidated financial statements.
2016-02, 2018-01, 2018-10, 2018-11, 2018-20, 2019-01, Leases (Topic 842)
See discussion of the ASUs below.


January 1, 2019
See impact upon adoption of the standard below.


On January 1, 2019, IPL adopted ASC 842 Leases and its subsequent corresponding updates (“ASC 842”). Under this standard, lessees are required to recognize assets and liabilities for most leases on the balance sheet, and recognize expenses in a manner similar to the current accounting method. For lessors, the guidance modifies the


lease classification criteria and the accounting for sales-type and direct financing leases. The guidance eliminates previous real estate-specific provisions.

Under ASC 842, fewer of IPL's contracts contain a lease. However, due to the elimination of the real estate-specific guidance and changes to certain lessor classification criteria, more leases qualify as sales-type leases and direct financing leases. Under these two models, a lessor derecognizes the asset and recognizes a lease receivable. According to ASC 842, the net investment in the lease includes the fair value of residual interest in the asset after the contract period as well as the present value of the fixed lease payments, but does not include any variable payments under the lease. Therefore, the net investment in the lease could be significantly different than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized net investment in the lease and the carrying amount of the underlying asset is recognized as a gain/loss at lease commencement.

During the course of adopting ASC 842, IPL applied various practical expedients including:

The package of practical expedients (applied to all leases) that allowed lessees and lessors not to reassess:
a. whether any expired or existing contracts are or contain leases,
b. lease classification for any expired or existing leases, and
c. whether initial direct costs for any expired or existing leases qualify for capitalization under ASC 842.

The transition practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and

The transition practical expedient for lessees that allowed businesses to not separate lease and non-lease components. IPL applied the practical expedient to all classes of underlying assets when valuing right-of-use assets and lease liabilities. Contracts where IPL is the lessor were separated between the lease and non-lease components.

IPL applied the modified retrospective method of adoption and elected to continue to apply the guidance in ASC 840 Leases to the comparative periods presented in the year of adoption. Under this transition method, IPL applied the transition provisions starting at the date of adoption. The adoption of ASC 842 did not have a material impact on IPL'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 IPL's consolidated 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 IPL's consolidated financial statements.
New Accounting Standards Issued But Not Yet Effective
ASU Number and NameDescriptionDate of AdoptionEffect on the Financial Statements upon adoption
2019-12, Income Taxes (Topic 740): Simplifying the Accounting For Income Taxes
The standard removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.

Transition Method: various
January 1, 2021. Early adoption is permitted.IPL is currently evaluating the impact of adopting the standard on IPL's consolidated financial statements.
2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

See discussion of the ASU below.

January 1, 2020. Early adoption is permitted only as of January 1, 2019.IPL will adopt the standard on January 1, 2020; see below for the evaluation of the impact of the adoption on the standard on IPL's consolidated financial statements.

ASU 2016-13 and its subsequent corresponding updates will update the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. 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, there will be no change to the measurement of credit losses, except that unrealized losses due to credit-related factors will be recognized as an allowance on the balance sheet with a corresponding adjustment to earnings in the income statement. There are various transition methods available upon adoption.

IPL is currently evaluating the impact of adopting the standard on its financial statements; however, it is expected that the new current expected credit loss model will primarily impact the calculation of IPL's expected credit losses on $163.4 million in gross trade accounts receivable. IPL does not expect a material impact to result from the application of CECL on our trade accounts receivable.

2. REGULATORY MATTERS

General

IPL is subject to regulation by the IURC as to its services and facilities, the valuation of property, the construction, purchase, or lease of electric generating facilities, the classification of accounts, rates of depreciation, retail rates and charges, the issuance of securities (other than evidences of indebtedness payable less than twelve months after the date of issue), the acquisition and sale of some public utility properties or securities and certain other matters.

In addition, IPL is subject to the jurisdiction of the FERC with respect to, among other things, short-term borrowings not regulated by the IURC, the sale of electricity at wholesale, the transmission of electric energy in interstate commerce, the classification of accounts, reliability standards, and the acquisition and sale of utility property in certain circumstances as provided by the Federal Power Act. As a regulated entity, IPL is required to use certain accounting methods prescribed by regulatory bodies which may differ from those accounting methods required to be used by unregulated entities.

IPL is also affected by the regulatory jurisdiction of the EPA at the federal level, and the IDEM at the state level. Other significant regulatory agencies affecting IPL include, but are not limited to, the NERC, the U.S. Department of Labor and the IOSHA.

Basic Rates and Charges
IPL’s basic rates and charges represent the largest component of its annual revenues. IPL’s basic rates and charges are determined after giving consideration, on a pro-forma basis, to all allowable costs for ratemaking purposes including a fair return on the fair value of the utility property used and useful in providing service to customers. These basic rates and charges are set and approved by the IURC after public hearings. Such proceedings, which have occurred at irregular intervals, involve IPL, the IURC, the Indiana Office of Utility Consumer Counselor, and other interested stakeholders. Pursuant to statute, the IURC is to conduct a periodic review of the basic rates and charges of all Indiana utilities at least once every four years, but the IURC has the authority to review the rates of any Indiana utility at any time. Once set, the basic rates and charges authorized do not assure the realization of a fair return on the fair value of property.

IPL’s declining block rate structure 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. Numerous factors including, but not limited to, weather, inflation, customer growth and usage, the level of actual operating and maintenance expenditures, fuel costs, generating unit availability, and capital expenditures including those required by environmental regulations can affect the return realized.

Base Rate Orders

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 Base Rate Order"). The 2018 Base 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 2016 Base Rate Order (See below). New basic rates and charges became effective on December 5, 2018. The 2018 Base Rate Order also provides customers approximately $50 million in benefits, which are flowing to customers over the two-year period that began March 2019, via the ECCRA rate adjustment mechanism. This liability, less amounts returned to IPL's


customers during 2019, is recorded primarily in "Regulatory liabilities, current" with approximately $4.7 million in "Regulatory liabilities, non-current" as ofDecember 31, 2019 on the accompanying Consolidated Balance Sheets. In addition, the 2018 Base Rate Order provides that annual wholesale margins earned above (or below) the benchmark of $16.3 million shall be passed back (or charged) to customer rates through a rate adjustment mechanism. Similarly, the 2018 Base Rate Order provides that all capacity sales above (or below) a benchmark of $11.3 million shall be passed back (or charged) to customer rates through a rate adjustment mechanism. The 2018 Base Rate Order also approved changes to IPL's depreciation and amortization rates (including no longer deferring depreciation on the CCGT at Eagle Valley) which altogether represent a net expense increase of approximately $28.7 million annually.

In March 2016, the IURC issued the 2016 Base Rate Order authorizing IPL to increase its basic rates and charges by $30.8 million annually. IPL also received approval to implement three new rate riders for current recovery from customers ofongoing MISO costs and capacity costs, and for sharing with customers 50% of wholesale sales margins above and below the established benchmark of $6.3 million.

CCR

On April 26, 2017, the IURC approved IPL’s CCR compliance request to install a bottom ash dewatering system at its Petersburg generating station and to recover 80% of qualifying costs through a rate adjustment mechanism with the remainder recorded as a regulatory asset for recovery in a subsequent rate case. The approved capital cost of the CCR compliance plan was approximately $47 million. IPL’s bottom ash dewatering system at its Petersburg generating station went into service in September 2017.

NAAQS

On April 26, 2017, the IURC approved IPL’s request for NAAQS SO2 compliance at its Petersburg generation station with 80% of qualifying costs recovered through a rate adjustment mechanism and the remainder recorded as a regulatory asset for recovery in a subsequent rate case. The approved capital cost of the NAAQS SO2 compliance plan was approximately $29 million. This project went into service between August 2018 and August 2019.

Other

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. Nuclear and coal-fired generation plants would have been most likely to be able to meet the requirements. As proposed, the DOE would value resiliency through rates that recover “compensable costs” that were defined to include the recovery of operating and fuel expenses, debt service and a fair return on equity. On January 8, 2018, the FERC issued an order terminating this docket stating that it failed to satisfy the legal requirements of Section 206 of the Federal Power Act of 1935. The FERC initiated a new docket to take additional steps to explore resilience issues in RTOs/ISOs. The goal of this new proceeding is to: (1) develop a common understanding among the FERC, State Commissions, RTOs/ISOs, transmission owners, and others as to what resilience of the bulk power system means and requires; (2) understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) use this information to evaluate whether additional action regarding resilience is appropriate at this time. It is not possible to predict the impact of this proceeding on our business, financial condition and results of operations.

FACand Authorized Annual Jurisdictional Net Operating Income

IPL may apply to the IURC for a change in IPL’s fuel charge every three months to recover IPL’s estimated fuel costs, including the energy portion of purchased power costs, which may be above or below the levels included in IPL’s basic rates and charges. IPL must present evidence in each FAC proceeding that it has made every reasonable effort to acquire fuel and generate or purchase power or both so as to provide electricity to its retail customers at the lowest fuel cost reasonably possible.

Independent of the IURC’s ability to review basic rates and charges, Indiana law requires electric utilities under the jurisdiction of the IURC to meet operating expense and income test requirements as a condition for approval of requested changes in the FAC. A utility may be unable to recover all of its fuel costs if its rolling twelve-month


operating income, determined at quarterly measurement dates, exceeds its authorized annual jurisdictional net operating income and there are not sufficient applicable cumulative net operating income deficiencies (“Cumulative Deficiencies”) to offset it. The Cumulative Deficiencies calculation provides that only five years’ worth of historical earnings deficiencies or surpluses are included, unless it has been greater than five years since the most recent rate case.

In each of the last three calendar years, IPL has reported earnings in excess of the authorized level for each of the four quarterly reporting periods in those years. IPL was not required to reduce its fuel cost recovery, because of its Cumulative Deficiencies. The historical periods when IPL earned less than the authorized level, which put IPL in a Cumulative Deficiency position, all relate to earnings prior to IPL’s 2018 Base Rate Order and therefore each quarter one of those underearning periods drops out of the Cumulative Deficiency calculation. Consequently, it is likely that IPL’s Cumulative Deficiencies will drop to zero in 2020 and IPL may then be required to decrease its fuel factor if it continues to earn above the authorized level.

ECCRA 

IPL may apply to the IURC for approval of a rate adjustment known as the ECCRA periodically to recover costs (including a return) to comply with certain environmental regulations applicable to IPL’s generating stations. The total amount of IPL’s equipment approved for ECCRA recovery as of December 31, 2019 was $17.4 million. The jurisdictional revenue requirement approved by the IURC to be included in IPL’s rates for the twelve-month period ending February 2020 was a net credit to customers of $28.4 million. This amount is significantly lower than prior ECCRA periods as a result of (i) having the vast majority of the ECCRA projects rolled into IPL’s basic rates and charges effective December 5, 2018 as a result of the 2018 Base Rate Order and (ii) the approximately $50 million
of customer benefits being flowed through the ECCRA as a result of the 2018 Base Rate Order, as described above. The only equipment still remaining in the ECCRA as of December 31, 2019 are certain projects associated with NAAQS compliance.

DSM

Through various rate orders from the IURC, IPL has been able to recover its costs of implementing various DSM programs throughout the periods covered by this report. In 2019 and 2018, IPL also had the ability to receive performance incentives, dependent upon the level of success of the programs. Performance incentives included in revenues for the years ended December 31, 2019, 2018 and 2017 were $7.5 million, $3.8 million and $0.0 million, respectively.

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.

Wind and Solar Power Purchase Agreements

IPL is committed under a power purchase agreement to purchase all wind-generated electricity through 2029 from a wind project in Indiana. IPL is also committed under another agreement to purchase all wind-generated electricity through 2031 from a project in Minnesota. The Indiana project has a maximum output capacity of approximately 100 MW and the Minnesota project has a maximum output capacity of approximately 200 MW. In addition, IPL has 96.4 MW of solar-generated electricity in its service territory under long-term contracts (these long-term contracts have expiration dates ranging from 2021 to 2033), of which 95.9 MW was in operation as of December 31, 2019. IPL has authority from the IURC to recover the costs for all of these agreements through an adjustment mechanism administered within the FAC. If and when IPL sells the renewable energy attributes (in the form of renewable energy credits) generated from these facilities, the proceeds would pass back to benefit IPL’s retail customers through the FAC.

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 Base Rate 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. See also Note 8, “Income Taxes - U.S. Tax Reform” for further information.

TDSIC Filing

In 2013, Senate Enrolled Act 560, the Transmission, Distribution, and Storage System Improvement Charge ("TDSIC") statute, was signed into law.  The TDSIC statute was revised in 2019. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a plan of at least five years and not more than seven for eligible investments. Once the plan is approved by the IURC, 80 percent of eligible costs can be recovered using a periodic rate adjustment mechanism. The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include a return on, and of, the investment, including AFUDC, post-in-service carrying charges, operation and maintenance expenses, depreciation and property taxes. The remaining 20 percent of recoverable costs are to be deferred for future recovery in the public utility’s next base rate case. The periodic rate adjustment mechanism is capped at an annual increase of no more than 2 percent of total retail revenues.

On July 24, 2019, IPL filed a petition with the IURC seeking approval of a seven-year TDSIC Plan for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027. An IURC order is expected in the first quarter of 2020. There will be no revenues and/or cost recovery until approval of the TDSIC rider, which is not expected to occur until later in 2020.

IRP Filing

In December 2019, IPL filed its IRP, which describes IPL's Preferred Resource Portfolio for meeting generation capacity needs for serving IPL's retail customers over the next several years. IPL's Preferred Resource Portfolio is its reasonable least cost option and provides a cleaner and more diverse generation mix for customers. IPL's Preferred Resource Portfolio includes the retirement of 630 MW of coal-fired generation by 2023. Based on extensive modeling, IPL has determined that the cost of operating Petersburg Units 1 and 2 exceeds the value customers receive compared to alternative resources. Retirement of these units allows the company to cost-effectively diversify the portfolio and transition to lower cost and cleaner resources while maintaining a reliable system.

IPL issued an all-source Request for Proposal on December 20, 2019, in order to competitively procure replacement capacity by June 1, 2023, which is the first year IPL is expected to have a capacity shortfall. Current modeling indicates that a combination of wind, solar, storage, and energy efficiency would be the lowest reasonable cost option for the replacement capacity, but IPL will assess the type, size, and location of resources after bids are received. As a result of the decision to retire Petersburg Units 1 and 2, IPL recorded a $6.2 million obsolescence loss in December 2019 for materials and supplies inventory IPL does not believe will be utilized by the planned retirement dates, which is recorded in "Operating expenses - Operation and maintenance" on the accompanying Consolidated Statements of Operations.




Regulatory Assets and Liabilities

Regulatory assets represent deferred costs or credits that have been included as allowable costs or credits for ratemaking purposes. IPL has recorded regulatory assets or liabilities relating to certain costs or credits as authorized by the IURC or established regulatory practices in accordance with ASC 980. IPL is amortizing non tax-related regulatory assets to expense over periods ranging from 1 to 45 years. Tax-related regulatory assets represent the net income tax costs to be considered in future regulatory proceedings generally as the tax-related amounts are paid.

The amounts of regulatory assets and regulatory liabilities at December 31 are as follows:
  2019 2018 Recovery Period
  (In Thousands)  
Regulatory Assets      
Current:      
Undercollections of rate riders $22,216
 $13,217
 
Approximately 1 year(1)
Costs being recovered through basic rates and charges 15,182
 15,182
 
Approximately 1 year(1)
Total current regulatory assets 37,398
 28,399
  
Long-term:      
Unrecognized pension and other      
postretirement benefit plan costs 176,646
 195,559
 
Various(2)
Deferred MISO costs 74,660
 88,052
 
Through 2026(1)
Unamortized Petersburg Unit 4 carrying      
charges and certain other costs 7,030
 8,084
 
Through 2026(1)(3)
Unamortized reacquisition premium on debt 18,330
 19,714
 Over remaining life of debt
Environmental projects 78,021
 81,204
 
Through 2046(1)(3)
Other miscellaneous 927
 2,464
 
Various(4)
Total long-term regulatory assets 355,614
 395,077
  
Total regulatory assets $393,012
 $423,476
  
Regulatory Liabilities      
Current:      
Overcollection or rate riders and other credits being passed      
       to customers through rate riders $51,790
 $47,925
 
Approximately 1 year(1)
FTRs 864
 3,099
 
Approximately 1 year(1)
Total current regulatory liabilities 52,654
 51,024
  
Long-term:      
ARO and accrued asset removal costs 719,680
 707,662
 Not applicable
Deferred income taxes payable through rates 122,156
 141,058
 Various
Long-term portion or credits being passed to customers      
      through rate riders 3,337
 21,341
 Through 2021
Other miscellaneous 1,257
 194
 To be determined
Total long-term regulatory liabilities 846,430
 870,255
  
Total regulatory liabilities $899,084
 $921,279
  
 
(1)Recovered (credited) per specific rate orders
(2)IPL receives a return on its discretionary funding
(3)Recovered with a current return
(4) The majority of these costs are being recovered in basic rates and charges through 2026. For the remainder, recovery is probable, but the
timing is not yet determined.



Deferred Fuel

Deferred fuel costs are a component of current regulatory assets or liabilities (which is a result of IPL charging either more or less for fuel than our actual costs to our jurisdictional customers) and are expected to be recovered through future FAC proceedings. IPL records deferred fuel in accordance with standards prescribed by the FERC. The deferred fuel adjustment is the result of variances between estimated fuel and purchased power costs in IPL’s FAC and actual fuel and purchased power costs. IPL is generally permitted to recover underestimated fuel and purchased power costs in future rates through the FAC proceedings and therefore the costs are deferred when incurred and amortized into fuel expense in the same period that IPL’s rates are adjusted to reflect these costs.

Unrecognized Pension and Postretirement Benefit Plan Costs

In accordance with ASC 715 “Compensation – Retirement Benefits” and ASC 980, IPL recognizes a regulatory asset equal to the unrecognized actuarial gains and losses and prior service costs. Pension expenses are recorded based on the benefit plan’s actuarially determined pension liability and associated level of annual expenses to be recognized. The other postretirement benefit plan’s deferred benefit cost is the excess of the other postretirement benefit liability over the amount previously recognized.

Deferred Income Taxes Recoverable/Payable Through Rates

A deferred income tax asset or liability is created from a difference in timing of income recognition between tax laws and accounting methods. As a regulated utility, IPL includes in ratemaking the impacts of current income taxes and changes in deferred income tax liabilities or assets.

On December 22, 2017, the U.S. federal government enacted the TCJA, which includes a provision to, among other things, reduce the federal corporate income tax rate from 35% to 21%, beginning January 1, 2018. As required by GAAP, on December 31, 2017, IPL remeasured their deferred income tax assets and liabilities using the new tax rate. The impact of the reduction of the income tax rate on deferred income taxes will be used in future ratemaking to reduce jurisdictional retail rates. Accordingly, IPL has a net regulatory deferred income tax liability of $122.2 million and $141.1 million as of December 31, 2019 and 2018, respectively.

Deferred MISO Costs

These consist of administrative costs for transmission services, transmission expansion cost sharing, and certain other operational and administrative costs from the MISO market. These costs are being recovered per specific rate order.

Environmental Costs

These consist of various costs incurred to comply with environmental regulations. These costs were approved for recovery either through IPL's ECCRA proceedings or in the 2018 Base Rate Order. Amortization periods vary, but all costs should be recovered by 2064.

ARO and Accrued Asset Removal Costs

In accordance with ASC 410 and ASC 980, IPL recognizes the amount collected in customer rates for costs of removal that do not have an associated legal retirement obligation as a deferred regulatory liability. This amount is net of the portion of legal ARO costs that is also currently being recovered in rates.



111


3. PROPERTY, PLANT AND EQUIPMENT

The original cost of property, plant and equipment segregated by functional classifications follows:
  As of December 31,
  2019 2018
  (In Thousands)
Production $4,154,919
 $3,927,847
Transmission 398,903
 394,621
Distribution 1,594,208
 1,533,828
General plant 250,582
 344,782
Total property, plant and equipment $6,398,612
 $6,201,078
     

Substantially all of IPL’s property is subject to a $1,713.8 million direct first mortgage lien, as of December 31, 2019, securing IPL’s first mortgage bonds. Total non-contractually or legally required removal costs of utility plant in service at December 31, 2019 and 2018 were $788.3 million and $761.1 million, respectively; and total contractually or legally required removal costs of property, plant and equipment at December 31, 2019 and 2018 were $204.2 million and $129.5 million, respectively. Please see “ARO” below for further information.

ARO

ASC 410 “Asset Retirement and Environmental Obligations” addresses financial accounting and reporting for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation. A legal obligation for purposes of ASC 410 is an obligation that a party is required to settle as a result of an existing law, statute, ordinance, written or oral contract or the doctrine of promissory estoppel.

IPL’s ARO relates primarily to environmental issues involving asbestos-containing materials, ash ponds, landfills and miscellaneous contaminants associated with its generating plants, transmission system and distribution system. The following is a roll forward of the ARO legal liability year end balances:
  2019 2018
  (In Thousands)
Balance as of January 1 $129,451
 $79,535
Liabilities settled (9,891) (8,932)
Revisions to cash flow and timing estimates 78,153
 54,811
Accretion expense 6,506
 4,037
Balance as of December 31 $204,219
 $129,451
     


In 2019, IPL recorded adjustments to its ARO liabilities of $78.2 million primarily to reflect an increase to estimated ash pond closure costs, including groundwater remediation. In 2018, IPL recorded additional ARO liabilities of $54.8 million to reflect revisions to cash flow and timing estimates due to accelerated ash pond closure dates, revised estimated closure costs after review of updates to the CCR rule and revised estimated costs associated with our coal storage areas, landfills, and asbestos remediation. As of December 31, 2019 and 2018, IPL did not have any assets that are legally restricted for settling its ARO liability.    

4. 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

VEBA Assets

IPL 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. ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” was effective as of January 1, 2018. This ASU requires the change in the fair value of equity instruments to be recorded in income. Equity Instruments were defined to include all mutual funds, regardless of the underlying investments. Therefore, all changes to fair value on the VEBA investments will be included in income in the period that the changes occur. These changes to fair value were not material for the years ended December 31, 2019, 2018, or 2017. 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 IPL’s Consolidated Statements of Operations.

Financial Liabilities

Other Financial Liabilities

As of December 31, 2018, IPL's other financial liabilities measured at fair value on a recurring basis were considered Level 3, based on the fair value hierarchy.


Summary

The fair value of assets and liabilities at December 31, 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 1Level 2Level 3
 Fair value at December 31, 2019Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:    
VEBA investments:    
     Money market funds$25
$25
$—
$—
     Mutual funds2,854
—
2,854
—
          Total VEBA investments2,879
25
2,854
—
Financial transmission rights864
—
—
864
Total financial assets measured at fair value$3,743
$25
$2,854
$864

The fair value of assets and liabilities at December 31, 2018 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 1Level 2Level 3
 Fair value at December 31, 2018Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:    
VEBA investments:    
     Money market funds$21
$21
$—
$—
     Mutual funds2,565
—
2,565
—
          Total VEBA investments2,586
21
2,565
—
Financial transmission rights3,099
—
—
3,099
Total financial assets measured at fair value$5,685
$21
$2,565
$3,099
Financial liabilities:    
Other derivative liabilities$53
$—
$—
$53
Total financial liabilities measured at fair value$53
$—
$—
$53




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, 2018$2,454
Unrealized gain recognized in earnings24
Issuances9,295
Settlements(8,727)
Balance at December 31, 20183,046
Unrealized gain recognized in earnings53
Issuances2,846
Settlements(5,081)
Balance at December 31, 2019$864
  


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, 2019 December 31, 2018
  Face Value Fair Value Face Value Fair Value
  (In Thousands)
Fixed-rate $1,713,800
 $2,049,758
 $1,713,800
 $1,846,916
Variable-rate 90,000
 90,000
 90,000
 90,000
Total indebtedness $1,803,800
 $2,139,758
 $1,803,800
 $1,936,916
         


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

unamortized deferred financing costs of $16.7 million and $17.3 million at December 31, 2019 and 2018, respectively; and
unamortized discounts of $6.2 million and $6.3 million at December 31, 2019 and 2018, respectively.

5. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We use derivatives principally to manage the interest rate risk associated with refinancing our long-term debt. The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. We monitor and value derivative positions monthly as part of our risk management processes. We use published sources for pricing, when possible, to mark positions to market. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under ASC 815 for accounting purposes.



At December 31, 2019, IPL's outstanding derivative instruments were as follows:
Commodity 
Accounting Treatment (a)
 Unit 
Purchases
(in thousands)
 
Sales
(in thousands)
 
Net Purchases/(Sales)
(in thousands)
FTRs Not Designated MWh 5,707
 —
 5,707
(a)Refers to whether the derivative instruments have been designated as a cash flow hedge.

Derivatives Not Designated as Hedge

FTRs do not qualify for hedge accounting or the normal purchases and sales exceptions under ASC 815. Accordingly, such contracts are recorded at fair value when acquired and subsequently amortized over the annual period as they are used. FTRs are initially recorded at fair value using the income approach.

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 mark to market accounting and are recognized in the consolidated statements of operations on an accrual basis.

When applicable, IPL 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 December 31, 2019, IPL did not have any offsetting positions.

The following table summarizes the fair value, balance sheet classification and hedging designation of IPL's derivative instruments:
     December 31,
CommodityHedging Designation Balance sheet classification 2019 2018
Financial transmission rightsNot a Cash Flow Hedge Prepayments and other current assets $864
 $3,099


6. EQUITY

Paid In Capital and Capital Stock

On October 31, 2018, IPALCO closed on a new Term Loan consisting of a $65 million credit facility 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 repay amounts under IPL's Credit Agreement and for general corporate purposes.

IPL had capital contributions from IPALCO of $0.0 million, $65.0 million and $0.0 million for the years ended December 31, 2019, 2018 and 2017, respectively.

All of the outstanding common stock of IPL is owned by IPALCO. IPL’s common stock is pledged under the Term Loan, 2020 IPALCO Notes and 2024 IPALCO Notes. There have been no changes in the capital stock of IPL during the three years ended December 31, 2019.

Dividend Restrictions

IPL’s mortgage and deed of trust and its amended articles of incorporation contain restrictions on IPL’s ability to issue certain securities or pay cash dividends. So long as any of the several series of bonds of IPL issued under its mortgage remains outstanding, and subject to certain exceptions, IPL is restricted in the declaration and payment of dividends, or other distribution on shares of its capital stock of any class, or in the purchase or redemption of such shares, to the aggregate of its net income, as defined in the mortgage, after December 31, 1939. In addition, pursuant to IPL’s articles, no dividends may be paid or accrued, and no other distribution may be made on IPL’s common stock unless dividends on all outstanding shares of IPL preferred stock have been paid or declared and


set apart for payment. As of December 31, 2019, and as of the filing of this report, IPL was in compliance with these restrictions.

IPL is also restricted in its ability to pay dividends if it is in default under the terms of its Credit Agreement and its unsecured notes, which could happen if IPL fails to comply with certain covenants. These covenants, among other things, require IPL to maintain a ratio of total debt to total capitalization not in excess of 0.65 to 1. As of December 31, 2019, and as of the filing of this report, IPL was in compliance with all covenants and no event of default existed.

During the years ended December 31, 2019, 2018 and 2017, IPL declared dividends to its shareholder totaling $159.0 million, $156.8 million, and $125.5 million, respectively.

Cumulative Preferred Stock

IPL has 5 separate series of cumulative preferred stock. Holders of preferred stock are entitled to receive dividends at rates per annum ranging from 4.0% to 5.65%. During each year ended December 31, 2019, 2018 and 2017, total preferred stock dividends declared were $3.2 million. Holders of preferred stock are entitled to 2 votes per share for IPL matters, and if four full quarterly dividends are in default on all shares of the preferred stock then outstanding, they are entitled to elect the smallest number of IPL directors to constitute a majority of IPL’s Board of Directors. Based on the preferred stockholders’ ability to elect a majority of IPL’s Board of Directors in this circumstance, the redemption of the preferred shares is considered to be not solely within the control of the issuer and the preferred stock was considered temporary equity and presented in the mezzanine level of the audited consolidated balance sheets in accordance with the relevant accounting guidance for non-controlling interests and redeemable securities. IPL has issued and outstanding 500,000 shares of 5.65% preferred stock, which are now redeemable at par value, subject to certain restrictions, in whole or in part. Additionally, IPL has 91,353 shares of preferred stock which are redeemable solely at the option of IPL and can be redeemed in whole or in part at any time at specific call prices.

At December 31, 2020, 2019 2018 and 2017,2018, preferred stock consisted of the following:
 December 31, 2020December 31,
 Shares
Outstanding		Call Price202020192018
 Par Value, plus premium, if applicable
  (In Thousands)
Cumulative $100 par value,     
authorized 2,000,000 shares     
4% Series47,611 $118.00 $5,410 $5,410 $5,410 
4.2% Series19,331 $103.00 1,933 1,933 1,933 
4.6% Series2,481 $103.00 248 248 248 
4.8% Series21,930 $101.00 2,193 2,193 2,193 
5.65% Series500,000 $100.00 50,000 50,000 50,000 
Total cumulative preferred stock591,353  $59,784 $59,784 $59,784 
  December 31, 2019 December 31,
  Shares
Outstanding		 Call Price 2019 2018 2017
    Par Value, plus premium, if applicable
    (In Thousands)
Cumulative $100 par value,          
authorized 2,000,000 shares          
4% Series 47,611
 $118.00
 $5,410
 $5,410
 $5,410
4.2% Series 19,331
 $103.00
 1,933
 1,933
 1,933
4.6% Series 2,481
 $103.00
 248
 248
 248
4.8% Series 21,930
 $101.00
 2,193
 2,193
 2,193
5.65% Series 500,000
 $100.00
 50,000
 50,000
 50,000
Total cumulative preferred stock 591,353
  
 $59,784
 $59,784
 $59,784
           
124

7. DEBT

Long-Term Debt

The following table presents IPL’s long-term debt:
  December 31,
SeriesDue20202019
  (In Thousands)
IPL first mortgage bonds:  
3.875% (1)
August 2021$55,000 $55,000 
3.875% (1)
August 202140,000 40,000 
3.125% (1)
December 202440,000 40,000 
6.60%January 2034100,000 100,000 
6.05%October 2036158,800 158,800 
6.60%June 2037165,000 165,000 
4.875%November 2041140,000 140,000 
4.65%June 2043170,000 170,000 
4.50%June 2044130,000 130,000 
4.70%September 2045260,000 260,000 
4.05%May 2046350,000 350,000 
4.875%November 2048105,000 105,000 
0.75% (2)
April 202630,000 0 
0.95% (2)
April 202660,000 0 
Unamortized discount – net(6,006)(6,156)
Deferred financing costs (17,384)(16,629)
Total IPL first mortgage bonds1,780,410 1,691,015 
IPL unsecured debt:
Variable (3)
December 20200 30,000 
Variable (3)
December 20200 60,000 
Deferred financing costs0 (114)
Total IPL unsecured debt0 89,886 
Total consolidated IPL long-term debt1,780,410 1,780,901 
Less: current portion of long-term debt94,907 89,886 
Net consolidated IPL long-term debt$1,685,503 $1,691,015 
    December 31,
Series Due 2019 2018
    (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
4.875% November 2048 105,000
 105,000
Unamortized discount – net   (6,156) (6,272)
Deferred financing costs   (16,629) (17,115)
Total IPL first mortgage bonds 1,691,015
 1,690,413
IPL unsecured debt:    
Variable (2)
 December 2020 30,000
 30,000
Variable (2)
 December 2020 60,000
 60,000
Deferred financing costs   (114) (229)
Total IPL unsecured debt 89,886
 89,771
Total consolidated IPL long-term debt 1,780,901
 1,780,184
Less: current portion of long-term debt 89,886
 —
Net consolidated IPL long-term debt $1,691,015
 $1,780,184
 


(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.

(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 were subject to a mandatory put in December 2020.
(3)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. The notes have a final maturity date of December 2038, but are subject to a mandatory put in April 2026.

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Debt Maturities

Maturities on long-term indebtedness subsequent to December 31, 2019,2020, are as follows:
YearAmount
 (In Thousands)
2021$95,000 
20220 
20230 
202440,000 
20250 
Thereafter1,668,800 
Total$1,803,800 
YearAmount
 (In Thousands)
2020$90,000
202195,000
2022—
2023—
202440,000
Thereafter1,578,800
Total$1,803,800
  


Significant Transactions

IPL First Mortgage Bonds and Recent Indiana Finance Authority Bond Issuances

The mortgage and deed of trust of IPL, together with the supplemental indentures thereto, secure the first mortgage bonds issued by IPL. Pursuant to the terms of the mortgage, substantially all property owned by IPL is subject to a first mortgage lien securing indebtedness of $1,713.8$1,803.8 million as of December 31, 2019.2020. The IPL first mortgage bonds require net earnings as calculated thereunder be at least two and one-half times the annual interest requirements before additional bonds can be authenticated on the basis of property additions. IPL was in compliance with such requirements as of December 31, 2019.2020.

In November 2018, IPL issued $105 million aggregate principal amount of first mortgage bonds, 4.875% Series, due November 2048, pursuant to Rule 144A and Regulation S under the Securities Act. Net proceeds from this offering were approximately $103.5 million, after deducting the initial purchasers’ discounts and fees and expenses for the offering. The net proceeds from this offering were used to repay amounts due under IPL's Credit Agreement and for general corporate purposes.

In August 2017, IPL repaid $24.7 million in outstanding borrowings of 5.40% IPL first mortgage bonds that were due in August 2017.

IPL Unsecured Notes

In December 2015,2020, the Indiana Finance Authority issued on behalf of IPL an aggregate principal amount of $90 million of Environmental Facilities Refunding Revenue NotesBonds, Series 2020A&B due December 2038 (Indianapolis Power & Light Company Project). These unsecured notes were2038. IPL issued $90 million aggregate principal amount of first mortgage bonds to the Indiana Finance Authority in two series: $30 million Series 2015A2020A notes at 0.75% and $60 million 2015B notes.Series 2020B notes at 0.95% to secure the loan of proceeds from these bonds issued by the Indiana Finance Authority. These notes were initially purchased bybonds are subject to a syndication of banks who will hold the notes until the mandatory put date of December 22, 2020.April 1, 2026. Proceeds of the bonds were used to refund $90 million of Indiana Finance Authority Environmental Facilities Refunding Revenue Bonds Series 2015A&B.

IPL has classified its outstanding $90$95 million aggregate principal amount of these unsecured notes as short-term indebtedness as they3.875% IPL first mortgage bonds that are due December 2020.August 1, 2021. Management plans to refinance these unsecured notesfirst mortgage bonds with new debt. In the event that we are unable to refinance these unsecured notesfirst mortgage bonds on acceptable terms, IPL has available borrowing capacity on its revolving credit facility that could be used to satisfy the obligation. 

Line of Credit

IPL entered into an amendment and restatement of its 5-year $250 million revolving credit facility on June 19, 2019 with a syndication of bank lenders. This Credit Agreement is an unsecured committed line of credit to be used: (i) to finance capital expenditures; (ii) to refinance certain existing indebtedness, (iii) to support working capital; and (iv) for general corporate purposes. This agreement matures on June 19, 2024, and bears interest at variable rates as described in the Credit Agreement. It includes an uncommitted $150 million accordion feature to provide IPL with an option to request an increase in the size of the facility at any time prior to June 19, 2023, subject to approval by the lenders. The Credit Agreement also includes two one-year extension options, allowing IPL to extend the maturity


dates date subject to approval by the lenders. Prior to execution, IPL had existing general banking relationships with the parties to the Credit Agreement. As of December 31, 2020 and 2019, IPL had no$75.0 million and $0.0 million in outstanding borrowings on the committed line of credit, as of December 31, 2019 and 2018, respectively.

Restrictions on Issuance of Debt

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. IPL has approval from FERC to borrow up to $500 million of short-term indebtedness outstanding at any time through July 26, 2020.2022. In December 2018, IPL received an order from
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the IURC granting IPL authority through December 31, 2021 to, among other things, issue up to $350 million in aggregate principal amount of long-term debt, all of which authority remains available as of December 31, 2020, and refinance up to $185.0$185 million in existing indebtedness, all of which $95 million of authority remains available under the order as of December 31, 2019.2020. This order also grants IPL authority to have up to $500 million of long-term credit agreements and liquidity facilities outstanding at any one time, of which $250.0 million remains available under the order as of December 31, 2019.2020. 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 December 31, 2019.2020. IPL also has 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. Under such restrictions, IPL is generally allowed to fully draw the amounts available on its Credit Agreement, refinance existing debt and issue new debt approved by the IURC and issue certain other indebtedness.

Credit Ratings

IPL’s ability to borrow money or to refinance existing indebtedness and the interest rates at which IPL can borrow money or refinance existing indebtedness are affected by IPL’s credit ratings. In addition, the applicable interest rates on IPL’s Credit Agreement and other unsecured notes are dependent upon the credit ratings of IPL. Downgrades in the credit ratings of AES and/or IPALCO could result in IPL’s credit ratings being downgraded.

8. INCOME TAXES

IPL follows a policy of comprehensive interperiod income tax allocation. Investment tax credits related to utility property have been deferred and are being amortized over the estimated useful lives of the related property.

AES files federal and state income tax returns which consolidate IPALCO and IPL. Under a tax sharing agreement with IPALCO, IPL is responsible for the income taxes associated with its own taxable income and records the provision for income taxes as if IPL filed separate income tax returns. IPL is no longer subject to U.S. or state income tax examinations for tax years through March 27, 2001, but is open for all subsequent periods. IPL made tax sharing payments to IPALCO of $27.0 million, $37.4 million and $33.8 million in 2020, 2019 and $87.0 million in 2019, 2018, and 2017 respectively.

On March 25, 2014, the state of Indiana amended Indiana Code 6-3-2-1 through Senate Bill 001, which phases in an additional 1.6% reduction to the state corporate income tax rate that was initially being reduced by 2%. While the statutory state income tax rate decreased to 5.625%5.375% for the calendar year 2019,2020, the deferred tax balances were adjusted according to the anticipated reversal of temporary differences. The change in required deferred taxes on plant and plant-related temporary differences resulted in a reduction to the associated regulatory asset of $1.3 million. The change in required deferred taxes on non-property related temporary differences which are not probable to cause a reduction in future base customer rates resulted in a tax benefit of $0.1 million. The statutory state corporate income tax rate will be 5.375%5.075% for 2020.

In tax years prior to 2018, Internal Revenue Code Section 199 permitted taxpayers to claim a deduction from taxable income attributable to certain domestic production activities. IPL’s electric production activities qualify for this deduction. Beginning in 2010 and through the 2017 tax year, the deduction is equal to 9% of the taxable income attributable to qualifying production activity. The tax benefit associated with the Internal Revenue Code Section 199 domestic production deduction for 2017 was $4.8 million. Due to the enactment of TCJA (as described below), the 2017 tax year was the final year for this deduction.



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.

In 2017, IPL recognized the income tax effects of the TCJA in accordance with Staff Accounting Bulletin No. 118 (“SAB 118”) which provides SEC guidance on the application of ASC 740, Income Taxes, in the reporting period in which the TCJA was signed into law. Accordingly, IPL’s financial statements reflected the income tax effects of U.S. tax reform for which the accounting was complete and provisional amounts for those impacts for which the accounting under ASC 740 was incomplete, but a reasonable estimate could be determined.

2021.
IPL completed its calculation of the impact of the TCJA in its income tax provision during the year ended December 31, 2018in accordance with its understanding of the TCJA and guidance available as of that date, and as a result recognized $0.0 million and $0.2 million of discrete tax expense in the fourth quarters of 2018 and 2017, respectively. This total results from the remeasurement of certain deferred tax assets and liabilities from 35% to 21%. The most material deferred taxes to be remeasured related to property, plant and equipment. The remeasurement of deferred tax assets and liabilities related to regulated utility property of $7.7 million and $215.5 million in 2018 and 2017, respectively, was recorded as a regulatory liability, which was a non-cash adjustment.

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Income Tax Provision

Federal and state income taxes charged to income are as follows:
  2019 2018 2017
  (In Thousands)
Components of income tax expense:      
Current income taxes:      
Federal $23,941
 $26,021
 $56,377
State 4,370
 11,215
 12,656
Total current income taxes 28,311
 37,236
 69,033
Deferred income taxes:  
  
  
Federal 7,578
 (15,080) (1,634)
State 7,556
 345
 (353)
Total deferred income taxes 15,134
 (14,735) (1,987)
Net amortization of investment credit (15) (911) (1,455)
Total income tax expense $43,430
 $21,590
 $65,591
       

 202020192018
 (In Thousands)
Components of income tax expense:   
Current income taxes:   
Federal$28,395 $23,941 $26,021 
State8,661 4,370 11,215 
Total current income taxes37,056 28,311 37,236 
Deferred income taxes:   
Federal503 7,578 (15,080)
State2,576 7,556 345 
Total deferred income taxes3,079 15,134 (14,735)
Net amortization of investment credit0 (15)(911)
Total income tax expense$40,135 $43,430 $21,590 
 


Effective and Statutory Rate Reconciliation

The provision for income taxes (including net investment tax credit adjustments) is different than the amount computed by applying the statutory tax rate to pretax income. The reasons for the difference, stated as a percentage of pretax income, are as follows:
 202020192018
Federal statutory tax rate21.0 %21.0 %21.0 %
State income tax, net of federal tax benefit4.2 %4.4 %5.6 %
Amortization of investment tax credits0 %0 %(0.5)%
Research and development credit0 %0 %(1.6)%
Depreciation flow through and amortization(5.1)%(4.7)%(12.6)%
Additional funds used during construction - equity0.7 %0.2 %0.3 %
Other – net1.0 %0.8 %(0.1)%
Effective tax rate21.8 %21.7 %12.1 %
  2019 2018 2017
Federal statutory tax rate 21.0 % 21.0 % 35.0 %
State income tax, net of federal tax benefit 4.4 % 5.6 % 4.0 %
Amortization of investment tax credits — % (0.5)% (0.7)%
Research and development credit — % (1.6)% — %
Depreciation flow through and amortization (4.7)% (12.6)% (0.1)%
Additional funds used during construction - equity 0.2 % 0.3 % (3.1)%
Manufacturers’ Production Deduction (Sec. 199) — % — % (2.4)%
Other – net 0.8 % (0.1)% (0.2)%
Effective tax rate 21.7 % 12.1 % 32.5 %
       


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Deferred Income Taxes

The significant items comprising IPL’s net accumulated deferred tax liability recognized on the audited Consolidated Balance Sheets as of December 31, 20192020 and 2018,2019, are as follows: 
  2019 2018
  (In Thousands)
Deferred tax liabilities:    
Relating to utility property, net $406,538
 $378,527
Regulatory assets recoverable through future rates 62,051
 67,653
Other 17,547
 11,812
Total deferred tax liabilities 486,136
 457,992
Deferred tax assets:  
  
Investment tax credit 7
 11
Regulatory liabilities including ARO 191,676
 184,413
Employee benefit plans 8,556
 8,335
Other 6,738
 12,504
Total deferred tax assets 206,977
 205,263
Deferred income tax liability – net $279,159
 $252,729
     

 20202019
 (In Thousands)
Deferred tax liabilities:  
Relating to utility property, net$408,291 $411,182 
Regulatory assets recoverable through future rates82,783 69,156 
Other5,323 5,742 
Total deferred tax liabilities496,397 486,080 
Deferred tax assets:  
Investment tax credit6 7 
Regulatory liabilities including ARO197,657 191,676 
Employee benefit plans3,866 8,556 
Other5,069 6,682 
Total deferred tax assets206,598 206,921 
Deferred income tax liability – net$289,799 $279,159 
 
Uncertain Tax Positions

The following is a reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2020, 2019 2018 and 2017:2018:
 202020192018
 (In Thousands)
Unrecognized tax benefits at January 1$7,056 $7,056 $7,049 
Gross increases – current period tax positions312 0 0 
Gross decreases – prior period tax positions0 0 7 
Unrecognized tax benefits at December 31$7,368 $7,056 $7,056 
  2019 2018 2017
  (In Thousands)
Unrecognized tax benefits at January 1 $7,056
 $7,049
 $6,634
Gross increases – current period tax positions —
 —
 470
Gross decreases – prior period tax positions —
 7
 (55)
Unrecognized tax benefits at December 31 $7,056
 $7,056
 $7,049
       


The unrecognized tax benefits at December 31, 20192020 represent tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of


deferred tax accounting, other than interest and penalties, the timing of the deductions will not affect the annual effective tax rate but would accelerate the tax payments to an earlier period.

Tax-related interest expense and income is reported as part of the provision for federal and state income taxes. Penalties, if incurred, would also be recognized as a component of tax expense. There are no interest or penalties applicable to the periods contained in this report.

9. BENEFIT PLANS

Defined Contribution Plans

All of IPL’s employees are covered by one of two defined contribution plans, the Thrift Plan or the RSP:

The Thrift Plan

Approximately 82%80% of IPL’s active employees are covered by the Thrift Plan, a qualified defined contribution plan. All union new hires are covered under the Thrift Plan. Participants elect to make contributions to the Thrift Plan based on a percentage of their base compensation. Each participant’s contribution is matched up to certain thresholds of base compensation. The IBEW clerical-technical union new hires receive an annual lump sum
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company contribution into the Thrift Plan in addition to the company match. Employer contributions to the Thrift Plan were $3.3$3.4 million, $3.3 million and $3.4$3.3 million for 2020, 2019 2018 and 2017,2018, respectively. 

The RSP

Approximately 18%20% of IPL’s active employees are covered by the RSP, a qualified defined contribution plan containing a match and nondiscretionary and profit sharing component. All non-union new hires are covered under the RSP. Participants elect to make contributions to the RSP based on a percentage of their eligible compensation. Each participant’s contribution is matched in amounts up to, but not exceeding, 5% of the participant’s eligible compensation. Starting in 2018, the RSP also includes a 4% nondiscretionary contribution based as a percentage of each participant's eligible compensation. Finally, the RSP included a profit sharing component through 2017 whereby IPL contributed a percentage of each employee’s annual salary into the plan on a pre-tax basis. The profit sharing percentage was determined by the AES Board of Directors on an annual basis. Employer contributions (by IPL) relating to the RSP were $1.8 million, $1.6 million and $1.7 million for 2020, 2019 and $1.8 million for 2019, 2018, and 2017, respectively.

Defined Benefit Plans

Approximately 76%72% of IPL’s active employees are covered by the qualified Defined Benefit Pension Plan; while approximately 6%8% of active employees are IBEW clerical-technical unit employees who are only eligible for the Thrift Plan. The remaining 18%20% of active employees are covered by the RSP. All non-union new hires are covered under the RSP, while IBEW physical unit union new hires are covered under the Defined Benefit Pension Plan and Thrift Plan. The IBEW clerical-technical unit new hires are no longer covered under the Defined Benefit Pension Plan but do receive an annual lump sum company contribution into the Thrift Plan, in addition to the company match. The Defined Benefit Pension Plan is noncontributory and is funded by IPL through a trust. Benefits for non-union participants in the Defined Benefit Pension Plan are based on salary, years of service and accrued benefits at April 1, 2015. Benefits for eligible union participants are based on each individual employee's pension band and years of service as opposed to their compensation. Pension bands are based primarily on job duties and responsibilities.

Additionally, a small group of former officers and their surviving spouses are covered under a funded non-qualified Supplemental Retirement Plan. The total number of participants in the plan as of December 31, 20192020 was 22. The plan is closed to new participants.

IPL also provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. Approximately 147142 active employees and 1716 retirees (including spouses) were receiving such benefits or entitled to future benefits as of January 1, 2019.2020. The plan is unfunded. These postretirement health care benefits and the related unfunded obligation of $6.4$4.3 million and $6.7$6.4 million at December 31, 20192020 and 2018,2019, respectively, were not material to the consolidated financial statements in the periods covered by this report.


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The following table presents information relating to the Pension Plans:
 Pension benefits
as of December 31,
 20202019
 (In Thousands)
Change in benefit obligation:  
Projected benefit obligation at January 1$782,795 $697,228 
Service cost8,272 7,412 
Interest cost22,151 27,343 
Actuarial loss/(gain)66,827 88,311 
Amendments (primarily increases in pension bands)967 0 
Benefits paid(38,487)(37,499)
Projected benefit obligation at December 31842,525 782,795 
Change in plan assets:  
Fair value of plan assets at January 1769,704 684,485 
Actual return on plan assets118,716 122,690 
Employer contributions87 28 
Benefits paid(38,487)(37,499)
Fair value of plan assets at December 31850,020 769,704 
Funded (unfunded) status$7,495 $(13,091)
Amounts recognized in the statement of financial position:  
Non-current assets$8,669 $0 
Non-current liabilities(1,174)(13,091)
Net amount recognized at end of year$7,495 $(13,091)
Sources of change in regulatory assets(1):
  
Prior service cost arising during period$967 $0 
Net (gain)/loss arising during period(14,110)(4,472)
Amortization of prior service cost(3,677)(3,823)
Amortization of loss(8,115)(11,084)
Total recognized in regulatory assets$(24,935)$(19,379)
Amounts included in regulatory assets:  
Net loss$145,526 $167,750 
Prior service cost11,613 14,323 
Total amounts included in regulatory assets$157,139 $182,073 
  Pension benefits
as of December 31,
  2019 2018
  (In Thousands)
Change in benefit obligation:    
Projected benefit obligation at January 1 $697,228
 $782,108
Service cost 7,412
 8,450
Interest cost 27,343
 25,220
Actuarial loss/(gain) 88,311
 (62,303)
Amendments (primarily increases in pension bands) —
 5,446
Curtailments(1)
 —
 450
Benefits paid (37,499) (62,143)
Projected benefit obligation at December 31 782,795
 697,228
Change in plan assets:  
  
Fair value of plan assets at January 1 684,485
 738,947
Actual return on plan assets 122,690
 (22,404)
Employer contributions 28
 30,085
Benefits paid (37,499) (62,143)
Fair value of plan assets at December 31 769,704
 684,485
Unfunded status $(13,091) $(12,743)
Amounts recognized in the statement of financial position:  
  
Noncurrent liabilities $(13,091) $(12,743)
Net amount recognized at end of year $(13,091) $(12,743)
Sources of change in regulatory assets(2):
  
  
Prior service cost arising during period $—
 $5,446
Net (gain)/loss arising during period (4,472) 902
Amortization of prior service cost (3,823) (4,618)
Amortization of loss (11,084) (11,403)
Total recognized in regulatory assets $(19,379) $(9,673)
Amounts included in regulatory assets:  
  
Net loss $167,750
 $183,306
Prior service cost 14,323
 18,146
Total amounts included in regulatory assets $182,073
 $201,452
     
(1)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.

(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.



Information for Pension Plans with a projected benefit obligation in excess of plan assets
  Pension benefits
as of December 31,
  2019 2018
  (In Thousands)
Benefit obligation $782,795
 $697,228
Plan assets 769,704
 684,485
Benefit obligation in excess of plan assets $13,091
 $12,743
     

 Pension benefits
as of December 31,
 20202019
 (In Thousands)
Benefit obligation$842,525 $782,795 
Plan assets850,020 769,704 
Benefit obligation in excess of plan assets$(7,495)$13,091 
IPL’s total plan assets in excess of projected benefit obligation was $7.5 million as of December 31, 2020 ($8.7 million Defined Benefit Pension Plan plan assets in excess of projected benefit obligation, partially offset by $1.2 million Supplemental Retirement Plan projected benefit obligation in excess of plan assets was $13.1 million as of December 31, 2019 ($12.0 million Defined Benefit Pension Plan and $1.1 million Supplemental Retirement Plan)assets).
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Information for Pension Plans with an accumulated benefit obligation in excess of plan assets
 Pension benefits
as of December 31,
 20202019
 (In Thousands)
Accumulated benefit obligation$830,458 $771,592 
Plan assets850,020 769,704 
Accumulated benefit obligation in excess of plan assets$(19,562)$1,888 
  Pension benefits
as of December 31,
  2019 2018
  (In Thousands)
Accumulated benefit obligation $771,592
 $687,136
Plan assets 769,704
 684,485
Accumulated benefit obligation in excess of plan assets $1,888
 $2,651
     


IPL’s total plan assets in excess of accumulated benefit obligation was $19.6 million as of December 31, 2020 ($20.7 million Defined Benefit Pension Plan plan assets in excess of accumulated benefit obligation, partially offset by $1.1 million Supplemental Retirement Plan accumulated benefit obligation in excess of plan assets was $1.9 million as of December 31, 2019 ($0.8 million Defined Benefit Pension Plan and $1.1 million Supplemental Retirement Plan)assets).

Significant Gains and Losses Related to Changes in the Benefit Obligation for the Period

As shown in the table above, an actuarial loss of $66.8 million increased the benefit obligation for the year ended December 31, 2020 and an actuarial loss of $88.3 million increased the benefit obligation for the year ended December 31, 2019 and an actuarial gain of $62.3 million reduced the benefit obligation for the year ended December 31, 2018.2019. The actuarial losslosses in 2020 and 2019 waswere primarily due to a decrease in the discount rate, while the actuarial gain in 2018 was primarily due to an increasedecreases in the discount rate.

Pension Benefits and Expense

Reported expenses relevant to the Defined Benefit Pension Plan are dependent upon numerous factors resulting from actual plan experience and assumptions of future experience, including the performance of plan assets and actual benefits paid out in future years. Pension costs associated with the Defined Benefit Pension Plan are impacted by the level of contributions made to the plan, earnings on plan assets, the adoption of new mortality tables, and employee demographics, including age, job responsibilities, salary and employment periods. Changes made to the provisions of the Defined Benefit Pension Plan may impact current and future pension costs. Pension costs may also be significantly affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the corporate bond discount rates, as well as, the adoption of a new mortality table used in determining the projected benefit obligation and pension costs.

The 20192020 net actuarial gain of $4.5$14.1 million recognized in regulatory assets is comprised of two parts: (1) a $92.8an $80.9 million pension asset actuarial gain primarily due to higher than expected return on assets; partially offset by (2) an $88.3a $66.8 million pension liability actuarial loss primarily due to a decrease in the discount rate used to value pension liabilities. The unrecognized net loss of $167.8$145.5 million in the Pension Plans has accumulated over time primarily due to the long-term declining trend in corporate bond rates and the adoption of new mortality tables which increased the expected benefit obligation due to the longer expected lives of plan participants. During 2019,2020, the accumulated net gain increased due to lower discount rates used to value pension liabilities, which was partially offset by a combination of higher than expected return on pension assets, as well as the year 20192020 amortization of accumulated loss. The unrecognized net loss, to the extent that it exceeds 10% of the greater of the benefit obligation or the assets, will be amortized and included as a component of net periodic benefit cost in future years. The amortization period is approximately 10.9610.84 years based on estimated demographic data as of December 31,


2019. 2020. The projected benefit obligation of $782.8$842.5 million less the fair value of assets of $769.7$850.0 million results in an unfundedoverfunded status of $13.1$7.5 million at December 31, 2019.

2020.
  Pension benefits for
years ended December 31,
  2019 2018 2017
  (In Thousands)
Components of net periodic benefit cost:      
Service cost $7,412
 $8,450
 $7,344
Interest cost 27,343
 25,220
 25,305
Expected return on plan assets (29,907) (40,801) (44,672)
Amortization of prior service cost 3,823
 3,837
 4,240
Recognized actuarial loss 11,084
 11,403
 13,195
Recognized settlement loss —
 1,230
 146
Total pension cost 19,755
 9,339
 5,558
Less: amounts capitalized 1,237
 1,223
 845
Amount charged to expense $18,518
 $8,116
 $4,713
Rates relevant to each year’s expense calculations:      
Discount rate – defined benefit pension plan 4.36% 3.67% 4.29%
Discount rate – supplemental retirement plan 4.24% 3.60% 4.00%
Expected return on defined benefit pension plan assets 4.50% 5.45% 6.75%
Expected return on supplemental retirement plan assets 4.50% 5.45% 6.75%
       
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 Pension benefits for
years ended December 31,
 202020192018
 (In Thousands)
Components of net periodic benefit cost:   
Service cost$8,272 $7,412 $8,450 
Interest cost22,151 27,343 25,220 
Expected return on plan assets(37,779)(29,907)(40,801)
Amortization of prior service cost3,677 3,823 3,837 
Recognized actuarial loss8,115 11,084 11,403 
Recognized settlement loss0 0 1,230 
Total pension cost4,436 19,755 9,339 
Less: amounts capitalized372 1,237 1,223 
Amount charged to expense$4,064 $18,518 $8,116 
Rates relevant to each year’s expense calculations:   
Discount rate – defined benefit pension plan3.33 %4.36 %3.67 %
Discount rate – supplemental retirement plan3.05 %4.24 %3.60 %
Expected return on defined benefit pension plan assets5.05 %4.50 %5.45 %
Expected return on supplemental retirement plan assets4.45 %4.50 %5.45 %
 
Pension expense for the following year is determined as of the December 31 measurement date based on the fair value of the Pension Plans’ assets, the expected long-term rate of return on plan assets, a mortality table assumption that reflects the life expectancy of plan participants, and a discount rate used to determine the projected benefit obligation. For 2019,2020, pension expense was determined using an assumed long-term rate of return on plan assets of 4.50%.5.05% for the Defined Benefit Pension Plan and 4.45% for the Supplemental Retirement Plan. As of the December 31, 20192020 measurement date, IPL decreased the discount rate from 4.36%3.33% to 3.33%2.46% for the Defined Benefit Pension Plan and decreased the discount rate from 4.24%3.05% to 3.05%2.31% for the Supplemental Retirement Plan. The discount rate assumptions affect the pension expense determined for 2020.2021. In addition, IPL increasedmaintained the expected long-term rate of return on plan assets at 5.05% for the Defined Benefit Pension Plan and decreased the expected long-term rate of return for the Supplemental Retirement Plan from 4.50%4.45% to 5.05% effective January 1, 2020.3.60% for 2021. The expected long-term rate of return assumption affects the pension expense determined for 2020.2021. The effect on 20202021 total pension expense of a 25 basis point increase and decrease in the assumed discount rate is $(1.2)$(1.4) million and $1.1$1.3 million, respectively.

In determining the discount rate to use for valuing liabilities we use the market yield curve on high-quality fixed income investments as of December 31, 2019.2020. We project the expected benefit payments under the plan based on participant data and based on certain assumptions concerning mortality, retirement rates, termination rates, etc. The expected benefit payments for each year are discounted back to the measurement date using the appropriate spot rate for each half-year from the yield curve, thereby obtaining a present value of all expected future benefit payments using the yield curve. Finally, an equivalent single discount rate is determined which produces a present value equal to the present value determined using the full yield curve.

Pension Plan Assets and Fair Value Measurements

Pension plan assets consist of investments in cash and cash equivalents, government debt securities, and mutual funds (equity and debt). Differences between actual portfolio returns and expected returns may result in increased or reduced pension costs in future periods. Pension costs are determined as of the plans' measurement date of December 31, 2019.2020. Pension costs are determined for the following year based on the market value of pension plan assets, expected employer contributions, a discount rate used to determine the projected benefit obligation and the expected long-term rate of return on plan assets.

Fair value is defined under ASC 820 as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair value


hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
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priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation includes the Pension Plans’ gains and losses on investments bought and sold, as well as held, during the year.
 
A description of the valuation methodologies used for each major class of assets and liabilities measured at fair value follows:
For 2019, the•The non-qualified Supplemental Retirement Plan investments have quoted market prices and are categorized as Level 1 in the fair value hierarchy.

For 2019, the•The qualified Defined Benefit Pension Plan investments in common collective trusts are valued based on the daily net asset value and are categorized as Level 2 in the fair value hierarchy except for cash and cash equivalents which are categorized as level 1.

For 2018, all the Pension Plans’ investments have quoted market prices and are categorized as Level 1 in the fair value hierarchy. The investments in U.S. government agency fixed income securities are valued from third-party pricing sources, but they generally do not represent transaction prices for the identical security in an active market nor does it represent data obtained from an exchange.

The primary objective of the Pension Plans’ is to provide a source of retirement income for its participants and beneficiaries, while the primary financial objective is to improve the unfunded status of the Pension Plans. A secondary financial objective is, where possible, to minimize pension expense volatility. The objective is based on a long-term investment horizon, so that interim fluctuations should be viewed with appropriate perspective. There can be no assurance that these objectives will be met.

In establishing IPL’s expected long-term rate of return assumption, we utilize a methodology developed by the plan’s investment consultant who maintains a capital market assumption model that takes into consideration risk, return and correlation assumptions across asset classes. A combination of quantitative analysis of historical data and qualitative judgment is used to capture trends, structural changes and potential scenarios not reflected in historical data. 

The result of the analyses is a series of inputs that produce a picture of how the plan consultant believes portfolios are likely to behave through time. Capital market assumptions are intended to reflect the behavior of asset classes observed over several market cycles. Stress assumptions are also examined, since the characteristics of asset classes are constantly changing. A dynamic model is employed to manage the numerous assumptions required to estimate portfolio characteristics under different base currencies, time horizons and inflation expectations. 

The Pension Plans’ consultant develops forward-looking, long-term capital market assumptions for risk, return and correlations for a variety of global asset classes, interest rates and inflation. These assumptions are created using a combination of historical analysis, current market environment assessment and by applying the consultant’s own judgment. The consultant then determines an equilibrium long-term rate of return. IPL then takes into consideration the investment manager/consultant expenses, as well as any other expenses expected to be paid out of the Pension Plans’ trust. Finally, IPL has the Pension Plans’ actuary perform a tolerance test of the consultant’s equilibrium expected long-term rate of return. IPL uses an expected long-term rate of return compatible with the actuary’s tolerance level.
 
The following table summarizes IPL’s target pension plan allocation for 2019:2020: 
Asset Category:Target Allocations
Equity Securities27%36%
Debt Securities73%64%
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 Fair Value Measurements at
December 31, 2020
(in thousands)
  Quoted Prices in Active Markets for Identical AssetsSignificant Observable Inputs 
Asset CategoryTotal(Level 1)(Level 2)%
Cash and cash equivalents$2,221 $2,221 $— 0 %
Government debt securities118,255 131 118,124 14 %
Mutual fund - equities323,253 2,839 320,414 38 %
Mutual fund - debt406,291 1,578 404,713 48 %
Total$850,020 $6,769 $843,251 100 %

 Fair Value Measurements at
December 31, 2019
(in thousands)
  Quoted Prices in Active Markets for Identical AssetsSignificant Observable Inputs 
Asset CategoryTotal(Level 1)(Level 2)%
Cash and cash equivalents$2,599 $2,599 $— 0 %
Government debt securities154,798 39 154,759 20 %
Mutual fund - equities214,369 2,744 211,625 28 %
Mutual fund - debt397,938 1,664 396,274 52 %
Total(1)
$769,704 $7,046 $762,658 100 %
(1) In 2019, the qualified Defined Benefit Pension Plan moved all investments except for cash and cash equivalents into collective trusts; therefore, the 2019 balances under the Government debt securities, Mutual fund - equities, and Mutual fund - debt categories shown above as level 2 represent investments through collective trusts. The Defined Benefit Pension Plan has chosen collective trusts for which the underlying investments are mutual funds, mutual funds categories for which debt securities are the primary underlying investment, or real estate in alignment with the target asset allocation.
  Fair Value Measurements at
  December 31, 2019
  (in thousands)
    Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs  
Asset Category Total (Level 1) (Level 2) %
Cash and cash equivalents $2,599
 $2,599
 $—
 —%
Government debt securities 154,798
 39
 154,759
 20%
Mutual fund - equities 214,369
 2,744
 211,625
 28%
Mutual fund - debt 397,938
 1,664
 396,274
 52%
Total(1)
 $769,704
 $7,046
 $762,658
 100%
         
(1)In 2019, the qualified Defined Benefit Pension Plan moved all investments except for cash and cash equivalents into collective trusts; therefore, the 2019 balances under the Government debt securities, Mutual fund - equities, and Mutual fund - debt categories shown above as level 2 represent investments through collective trusts. The Defined Benefit Pension Plan has chosen collective trusts for which the underlying investments are mutual funds, mutual funds categories for which debt securities are the primary underlying investment, or real estate in alignment with the target asset allocation.

  Fair Value Measurements at
  December 31, 2018
  (in thousands)
    Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs  
Asset Category Total (Level 1) (Level 2) %
Short-term investments $3,597
 $3,597
 $—
 1%
Mutual funds:        
U.S. equities 1,906
 1,906
 —
 —%
International equities 52,354
 52,354
 —
 8%
Fixed income 497,323
 497,323
 —
 72%
Fixed income securities:        
U.S. Treasury securities 129,305
 129,305
 —
 19%
Total $684,485
 $684,485
 $—
 100%
         


Pension Funding

IPL contributed $0.1 million, $0.0 million, $30.1 million, and $7.2$30.1 million to the Pension Plans in 2020, 2019 2018 and 2017,2018, respectively. Funding for the qualified Defined Benefit Pension Plan is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under ERISA, as amended by the Pension Protection Act of 2006, as well as targeted funding levels necessary to meet certain thresholds.

From an ERISA funding perspective, IPL’s funded target liability percentage was estimated to be 101%100%. In general, IPL must contribute the normal service cost earned by active participants during the plan year; however, this amount can be offset by any surplus or credit balance carried by the Pension Plan. The normal cost is expected to be approximately $7.6$6.1 million in 20202021 (including $2.3$0.4 million for plan expenses), which is expected to be fully offset by the surplus amount. Each year thereafter, if the Pension Plans' underfunding increases to more than the present value of the remaining annual installments, the excess is separately amortized over a seven-year period. IPL does not expect to make an employer contribution for the calendar year 2020.2021. IPL’s funding policy for the Pension Plans is to contribute annually no less than the minimum required by applicable law, and no more than the maximum amount that can be deducted for federal income tax purposes. 



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Benefit payments made from the Pension Plans for the years ended December 31, 2020, 2019 and 2018 and 2017 were $38.5 million, $37.5 million $62.1 million and $35.5$62.1 million, respectively. Expected benefit payments are expected to be paid out of the Pension Plans as follows: 
YearPension Benefits
 (In Thousands)
2021$41,552 
202242,715 
202343,371 
202443,827 
202544,467 
2026 through 2030224,933 
YearPension Benefits
 (In Thousands)
2020$42,215
202143,552
202244,606
202345,095
202445,362
2024 through 2028231,475
  


10. COMMITMENTS AND CONTINGENCIES

Legal Loss Contingencies

IPL is involved in litigation arising in the normal course of business. We accrue for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. As of December 31, 2020 and 2019, total legal loss contingencies accrued were $13.4 million and $2.6 million, respectively, which were included in “Accrued and Other Current Liabilities” and "Other Non-Current Liabilities," respectively, on the accompanying Consolidated Balance Sheets. A significant portion of these accrued liabilities relate to a personal injury legal claim involving injuries to a contractor. We maintain an amount of insurance protection for such litigation that we believe is adequate. While the resultsultimate outcome of such litigation cannot be predicted with certainty, management believes that the final outcomeoutcomes will not have a material adverse effect on IPL’sIPL'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 IPL’s audited consolidated financial statements. 

Environmental Loss Contingencies

IPL is 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 regulated materials, including ash; the use and discharge of water used in generation boilers and for cooling purposes; 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. IPL cannot assure that it has 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 allegesalleged violations of the CAA at IPL’s 3 primarily coal-fired electric generating facilities at the time, dating back to 1986. The alleged violations primarily pertain to the PSD and nonattainmentnon-attainment New Source Review (NSR) 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 ReviewPSD, non-attainment NSR and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Generating Station. Since receiving the letters,On August 31, 2020, IPL management has been workingreached a settlement with the EPA, staff regarding possible resolutionsthe DOJ and IDEM resolving the purported violations of the NOVs. SettlementsCAA with respect to IPL's four coal-fired generation units currently operating at IPL's Petersburg location. The settlement agreement, in the form of a proposed judicial consent decree, includes, among other items, the following requirements: annual caps on NOx and litigated outcomesSO2 emissions and more stringent emissions limits than IPL's current Title V air permit; payment of similar New Source Review cases have required companies to pay civil penalties totaling $1.525 million; a $5 million environmental mitigation project consisting of the construction and operation of a new, non-emitting source of generation at the site; expenditure of $0.325 million on a state-only environmentally beneficial project to preserve local, ecologically-significant lands; and retirement of Units 1 and 2
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prior to July 1, 2023. If IPL does not meet this retirement obligation, it must install additional pollution control technologya Selective Non-Catalytic Reduction System (SNCR) on coal-fired electric generating units, retire existing generating units,Unit 4. The proposed Consent Decree is subject to final review and invest in additional environmental projects. A similar outcome in these cases could haveapproval by the U.S. District Court for the Southern District of Indiana. On January 14, 2021, the U.S. and Indiana, on behalf of EPA and IDEM, respectively, filed a material impactmotion asking the court to enter the proposed Consent Decree, along with the U.S.' response to the adverse public comments on our business. At this time, IPL cannot determine whether these NOVs could have a material impact on its business, financial condition and results of operations. IPL 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 IPL would be successful in recovering any operating or capital expenditures.the proposed settlements. IPL has recorded a contingent liability recorded related to these New Source Review cases and other CAA NOV matters.


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11. RELATED PARTY TRANSACTIONS

IPL participates in a property insurance program in which IPL buys insurance from AES Global Insurance Company, a wholly-owned subsidiary of AES. IPL is not self-insured on property insurance, but does take a $5 million per occurrence deductible. Except for IPL’s large substations, IPL does not carry insurance on transmission and distribution assets, which are considered to be outside the scope of property insurance. AES and other AES subsidiaries, including IPL, also participate in the AES global insurance program. IPL pays premiums for a policy that is written and administered by a third-party insurance company. The premiums paid to this third-party administrator by the participants are paid to AES Global Insurance Company and all claims are paid from a trust fund funded by and owned by AES Global Insurance Company, but controlled by the third-party administrator. IPL also has third-party insurance in which the premiums are paid directly to the third-party insurers. The cost to IPL of coverage under thisthe property insurance program with AES Global Insurance Company was approximately $4.3$5.6 million, $3.1$4.3 million, and $3.1 million in 2020, 2019 2018 and 2017,2018, respectively, and is recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations. As of December 31, 20192020 and 2018,2019, IPL had prepaid approximately of $2.3 million and $2.0 million, and $1.6 million, respectively, for coverage under these plans, which is recorded in “"Prepayments and other current assets”assets" on the accompanying Consolidated Balance Sheets.

IPL participates in an agreement with Health and Welfare Benefit Plans LLC, an affiliate of AES, to participate in a group benefits program, including but not limited to, health, dental, vision and life benefits. Health and Welfare Benefit Plans LLC administers the financial aspects of the group insurance program, receives all premium payments from the participating affiliates, and makes all vendor payments. The cost of coverage under this program was approximately $21.0 million, $20.2 million, and $21.5 million in 2020, 2019 and $24.9 million in 2019, 2018, and 2017, respectively, and is recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations. IPL had no prepaids for coverage under this plan as of December 31, 20192020 and 2018,2019, respectively. 

AES files federal and state income tax returns which consolidate IPALCO and its subsidiaries, including IPL. Under a tax sharing agreement with IPALCO, IPL is responsible for the income taxes associated with its own taxable income and records the provision for income taxes using a separate return method. IPL had a receivable balance under this agreement of $23.1$12.5 million and $13.5$23.1 million as of December 31, 20192020 and 2018,2019, respectively, which is recorded in “Prepayments and other current assets”Taxes receivable” on the accompanying Consolidated Balance Sheets. See Note 8, "Income Taxes" for more information.

Long-term Compensation Plan

During 2020, 2019 2018 and 2017,2018, many of IPL’s non-union employees received benefits under the AES Long-term Compensation Plan, a deferred compensation program. This type of plan is a common employee retention tool used in our industry. Benefits under this plan are granted in the form of performance units payable in cash and AES restricted stock units. Restricted stock units vest ratably over a three-year period. The performance units payable in cash vest at the end of the three-year performance period and are subject to certain AES performance criteria. Total deferred compensation expense recorded during 2020, 2019 2018 and 20172018 was $0.3 million, $0.5$0.3 million and $0.8$0.5 million, respectively, and was included in “Operating expenses - Operation and maintenance” on IPL’s Consolidated Statements of Operations. The value of these benefits is being recognized over the 36 month vesting period and a portion is recorded as miscellaneous deferred credits with the remainder recorded as “Paid in capital” on IPL’s Consolidated Balance Sheets in accordance with ASC 718 “Compensation – Stock Compensation.”
 
See also Note 9, “Benefit Plans” to the audited consolidated financial statements of IPL for a description of benefits awarded to IPL employees by AES under the RSP.


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Service Company

Total costs incurred by the Service Company on behalf of IPL were $55.5 million, $41.8 million and $44.1 million during 2020, 2019 and $34.1 million during 2019, 2018, and 2017, respectively. Total costs incurred by IPL on behalf of the Service Company during 2020, 2019 and 2018 and 2017 were $10.6 million, $9.7 million $10.1 million and $10.7$10.1 million, respectively, which are included as a reduction to charges from the Service Company. These costs were included in “Operating expenses - Operation and maintenance” on IPL’s Consolidated Statements of Operations. IPL had a payable balance with the Service Company of $8.4$4.5 million and $3.8$8.4 million as of December 31, 20192020 and December 31, 2018,2019, respectively, which is recorded in “Accounts payable” on the accompanying Consolidated Balance Sheets.



Other

A member of the AES Board of Directors is also a member of the Supervisory Board of a third party vendor that IPL engaged in 2014 for certain construction projects. As the transactions with this vendor related to capital projects, there was no direct impact on the Consolidated Statements of Operations for the periods presented. Over the life of the project, IPL had total net charges from this vendor of $474.9 million. This vendor completed its service in 2018.

IPL made loans to IPALCO, net of repayments, of $6.1 million during the year ended December 31, 2020. IPL has a loan receivable in the same amount recorded in “Prepayments and other current assets” on the accompanying Consolidated Balance Sheets as of December 31, 2020.

Additionally, transactions with various other related parties were $6.5 million, $3.0 million and $5.7 million during 2020, 2019 and $2.4 million during 2019, 2018, and 2017, respectively. These expenses were primarily recorded in “Operating expenses - Operation and maintenance” on the accompanying Consolidated Statements of Operations.

12. 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. All of IPL’s current business consists of the generation, transmission, distribution and sale of electric energy, and therefore IPL had only 1 reportable segment.

13. 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.

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.basis, though see Note 2, "Regulatory Matters - IURC COVID-19 Orders" for a discussion of the orders requiring expanded payment arrangements for customers.

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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. Capacity revenues are also included in miscellaneous revenues, but these were not material for the period presented.



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 operator's allocation of the tariff rate (as approved by the regulator) charged to network participants.

IPL’s revenue from contracts with customers was $1,455.3$1,326.6 million, $1,455.3 million and $1,428.9$1,440.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. The following table presents IPL's revenue from contracts with customers and other revenue (in thousands):
For the Year Ended,For the Years Ended December 31,
December 31, 2019December 31, 2018202020192018
Retail Revenues Retail Revenues
Retail revenue from contracts with customers$1,375,533
$1,380,042
Other retail revenues (1)
23,841
16,423
Retail revenue from contracts with customers: Retail revenue from contracts with customers:
Residential Residential$566,668 $589,719 $588,031 
Small commercial and industrial Small commercial and industrial194,904 215,878 217,896 
Large commercial and industrial Large commercial and industrial484,230 548,551 565,720 
Public lighting Public lighting9,115 7,249 9,797 
Other (1)
Other (1)
14,402 14,136 10,427 
Total retail revenue from contracts with customers Total retail revenue from contracts with customers1,269,319 1,375,533 1,391,871 
Alternative revenue programs Alternative revenue programs24,781 23,841 4,594 
Wholesale Revenues68,474
38,789
Wholesale Revenues
Wholesale revenues from contracts with customers Wholesale revenues from contracts with customers46,482 68,474 38,789 
Miscellaneous Revenues Miscellaneous Revenues
Transmission and other revenue from contracts with customers11,335
10,057
 Transmission and other revenue from contracts with customers10,794 11,335 10,057 
Other miscellaneous revenues (2)
2,460
5,194
Other miscellaneous revenues (2)
1,609 2,460 5,194 
Total Revenues$1,481,643
$1,450,505
Total Revenues$1,352,985 $1,481,643 $1,450,505 
    
(1) Other retail revenue represents alternative revenue programs not accounted for under ASC 606from contracts with customers includes miscellaneous charges to customers
(2) Other miscellaneous revenue includes lease and other miscellaneous revenues not accounted for under ASC 606

The balances of receivables from contracts with customers are $155.0$163.8 million and $160.8$155.0 million as of December 31, 20192020 and December 31, 2018,2019, respectively. Payment terms for all receivables from contracts with customers typically do not extend beyond 30 days.days, though see Note 2, "Regulatory Matters - IURC COVID-19 Order" for a discussion of orders requiring expanded payment arrangements for customers.

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IPL has elected to apply the optional disclosure exemptions under ASC 606. Therefore, IPL 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 IPL expects to be entitled.

Contract Balances — The timing of revenue recognition, billings, and cash collections results in accounts receivable and contract liabilities. The contract liabilities from contracts with customers were $0.5 million as of December 31, 2020. During the year ended December 31, 2020, we recognized revenue of $1.3 million related to this contract liability balance, respectively.

14. LEASES

LESSEE

The Company enters into long-term non-cancelable lease arrangements which are classified as either operating or finance leases; however, lease balances were not material to the Financial Statements in the periods covered by this report.

LESSOR

The Company is the lessor under operating leases for land, office space and operating equipment. Minimum lease payments from such contracts are recognized as operating lease revenue on a straight-line basis over the lease term whereas contingent rentals are recognized when earned. Lease revenue included in the Consolidated Statements of Operations was $0.9 million and $1.0 million for the yearyears ended December 31, 2019.2020 and 2019, respectively. Underlying gross assets and accumulated depreciation of operating leases included in Total net property, plant and equipment on the Consolidated Balance Sheet were $4.3 million and $0.8 million, respectively, as of December 31, 2020 and $4.3 million and $0.7 million, respectively, as of December 31, 2019.

The option to extend or terminate a lease is based on customary early termination provisions in the contract. The Company has not recognized any early terminations as of December 31, 2019.2020.



The following table shows the future minimum lease receipts through 20242025 and thereafter (in thousands):
Operating Leases
2021$886 
2022906 
2023906 
2024786 
2025544 
Thereafter2,074 
Total$6,102 


 Operating Leases
2020$941
2021994
2022906
2023906
2024786
Thereafter2,628
Total$7,161
15. RISKS AND UNCERTAINTIES

COVID-19 Pandemic


The COVID-19 pandemic has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the U.S., have reacted by instituting quarantines, mandating business and school closures and social distancing measures as well as restricting travel. The State of Indiana implemented, among other things, stay-at-home and other social distancing measures to slow the spread of the virus, which has impacted energy demand within our service territory, though the stay-at-home restrictions have now been lifted in our service territory. Also, the Executive Order previously issued by the Governor of Indiana prohibiting electric utilities, including us, from discontinuing electric utility service to customers through August 14, 2020 has lapsed. We are taking a variety of measures in response to the spread of COVID-19 to ensure our ability to generate, transmit, distribute and sell electric energy, ensure the health and safety of our employees, contractors, customers and communities and provide essential services to the communities in which we operate. In addition to the impacts to demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, including those that relate to events outside of our control.

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As the economic impact of the COVID-19 pandemic started to materialize in Indiana in the second half of March 2020 and continued for the duration of 2020, the COVID-19 pandemic primarily impacted our retail sales demand as shown by the changes in weather-normalized volumes of kWh sold compared to the weather-normalized volumes for the same periods in 2019:

Customer classFor the three months endedFor the year ended
March 31, 2020June 30, 2020September 30, 2020 December 31, 2020December 31, 2020
Residential1.6 %6.6 %3.9 %2.4 %3.4 %
Small commercial and industrial(1.8)%(10.3)%(4.2)%(5.3)%(5.2)%
Large commercial and industrial(2.8)%(11.0)%(7.9)%(5.7)%(6.9)%
As noted above, we also have incurred and expect to continue to incur expenses relating to COVID-19, however see Note 2, "Regulatory Matters - IURC COVID-19 Orders" for a discussion of regulatory measures which partially mitigate the impact of these expenses. We continued to experience COVID-19 impacts into 2021. The magnitude and duration of the COVID-19 pandemic is unknown at this time and may have material and adverse effects on our results of operations, financial condition and cash flows in future periods.




141

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

The Company carried out the evaluation required by Rules 13a-15(b) and 15d-15(b), under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of our “disclosure controls and procedures” (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon this evaluation, the CEO and CFO concluded that as of December 31, 2019,2020, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

•pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•provide reasonable assurance that unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements are prevented or detected timely.

Management, including our CEO and CFO, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. In addition, any evaluation of the effectiveness of controls is subject to risks that those internal controls may become inadequate in future periods because of changes in business conditions, or that the degree of compliance with the policies or procedures deteriorates.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019.2020. In
making this assessment, management used the criteria established in Internal Control – Integrated Framework issued by the COSO in 2013. Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2019.2020.

Changes in Internal Control Over Financial Reporting:

During the second quarter of 2019, we implemented a new core enterprise resource planning (ERP) system, which we expect to enhance our system of internal controls over financial reporting. As a result of this implementation, we modified certain existing internal controls as well as implemented new controls and procedures related to the new ERP. We continued to evaluate the design and operating effectiveness of these internal controls during the fourth quarter of 2019.



Except with respect to the implementation of the ERP, thereThere were no changes in our internal controls over financial reporting that occurred induring the quarter endingended December 31, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.
142


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required to be furnished pursuant to this item with respect to Directors and Executive Officers of IPALCO will be set forth under the captions “Directors” and “Executive Officers” in IPALCO’s Proxy Statement to be furnished to shareholders in connection with the solicitation of proxies by our Board of Directors, which information is incorporated herein by reference.

The information required to be furnished pursuant to this item for IPALCO with respect to the identification of the Audit Committee, the Audit Committee financial expert and the registrant’s code of ethics will be set forth under the caption “Corporate Governance” in the Proxy Statement, which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required to be furnished pursuant to this item for IPALCO will be set forth under the caption “Executive Compensation” in the Proxy Statement, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required to be furnished pursuant to this item for IPALCO will be set forth under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in the Proxy Statement, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required to be furnished pursuant to this item for IPALCO will be set forth under the caption “Certain Relationships and Related Transactions and Director Independence” in the Proxy Statement, which information is incorporated herein by reference.


134
143



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The Financial Audit Committee of AES pre-approves the audit and non-audit services provided by the independent auditors for itself and its subsidiaries, including IPALCO and its subsidiaries. The AES Financial Audit Committee maintained its policy established in 2002 within which to judge if the independent auditor may be eligible to provide certain services outside of its main role as outside auditor. Services within the established framework include audit and related services and certain tax services. Services outside of the framework require AES Financial Audit Committee approval prior to the performance of the service. The Sarbanes-Oxley Act of 2002 addresses auditor independence and this framework is consistent with the provisions of the Act. No services performed by the independent auditor with respect to IPALCO and its subsidiaries were approved after the fact by the AES Financial Audit Committee other than those that were considered to be de minimis and approved in accordance with Regulation 2-01(c)(7)(i)(C) to Regulation S-X of the Exchange Act.

In addition to the pre-approval policies of the AES Financial Audit Committee, the IPALCO Board of Directors has established a pre-approval policy for audit, audit related, and certain tax and other non-audit services. The Board of Directors will specifically approve the annual audit services engagement letter, including terms and fees, with the independent auditor. Other audit, audit related and tax consultation services are specifically identified in the pre-approval policy and the policy is subject to review at least annually. This pre-approval allows management to request the specified services on an as-needed basis during the year. Any such services are reviewed with the Board of Directors on a timely basis. Any audit or non-audit services that involve a service not listed on the pre-approval list must be specifically approved by the Board of Directors prior to commencement of such work. No services were approved after the fact by the IPALCO Board of Directors other than those that were considered to be de minimis and approved in accordance with Regulation 2-01 (c)(7)(i)(c) to Regulation S-X of the Exchange Act. 

Audit fees are fees billed or expected to be billed by our principal accountant for professional services for the audit of the Financial Statements, included in IPALCO’s annual report on Form 10-K and review of financial statements included in IPALCO’s quarterly reports on Form 10-Q, services that are normally provided by our principal accountants in connection with statutory, regulatory or other filings or engagements or any other service performed to comply with generally accepted auditing standards and include comfort and consent letters in connection with SEC filings and financing transactions.

The following table lists fees billed to IPALCO for products and services provided by our principal accountants:
 Years Ended December 31,
 20202019
Audit Fees$855,233 $1,021,700 
Audit Related Fees:  
Fees for the audit of IPL’s employee benefit plans61,200 61,200 
Assurance services for debt offering documents116,525 — 
Fees for tax services— — 
Other8,500 8,500 
Total Principal Accounting Fees and Services$1,041,458 $1,091,400 

144
  Years Ended December 31,
  2019 2018
Audit Fees $1,021,700
 $929,600
Audit Related Fees:    
Fees for the audit of IPL’s employee benefit plans 61,200
 60,000
Assurance services for debt offering documents —
 68,000
Fees for tax services —
 —
Other 8,500
 17,000
Total Principal Accounting Fees and Services $1,091,400
 $1,074,600
     


135



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
 
(a) Index to the financial statements, supplementary data and financial statement schedules
IPALCO Enterprises, Inc. and Subsidiaries – Consolidated Financial StatementsPage
Report of Independent Registered Public Accounting Firm – 2020, 2019 2018 and 20172018
5356
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 2018 and 20172018
5458
Consolidated Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2020, 2019, 2018 and 2017

2018
5559
Consolidated Balance Sheets as of December 31, 20192020 and 20182019
5660
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 2018 and 20172018
5761
Consolidated Statements of Common Shareholders’ Equity for the Years Ended December 31, 2020, 2019 2018 and 20172018
5862
Notes to Consolidated Financial Statements
5963
Schedule I – Condensed Financial Information of Registrant
140148
Schedule II – Valuation and Qualifying Accounts and Reserves
148158
Indianapolis Power & Light Company and Subsidiary – Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – 2020, 2019 2018 and 20172018
95101
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 2018 and 20172018
96103
Consolidated Balance Sheets as of December 31, 20192020 and 20182019
97104
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 2018 and 20172018
98105
Consolidated Statements of Common Shareholder’s Equity for the Years Ended December 31, 2020, 2019 2018 and 20172018
99106
Notes to Consolidated Financial Statements
100107
Schedule II – Valuation and Qualifying Accounts and Reserves
148158


136
145


(b) Exhibits
(b) ExhibitsExhibit No.Document
Exhibit No.Document
3.1
3.2
4.1
4.2
4.3
The following supplemental indentures to the Mortgage and Deed of Trust referenced in 4.2 above:
Third Supplemental Indenture, dated as of April 1, 1949 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on October 11, 2011)
Tenth Supplemental Indenture, dated as of October 1, 1960 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on October 11, 2011)
Eighteenth Supplemental Indenture, dated as of February 15, 1974 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on October 11, 2011)
Forty-Eighth Supplemental Indenture, dated as of January 1, 2004 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on October 11, 2011)
Fifty-Third Supplemental Indenture, dated as of October 1, 2006 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on October 11, 2011)
Fifty-Fourth Supplemental Indenture, dated as of June 1, 2007 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on October 11, 2011)
Fifty-Eighth Supplemental Indenture, dated as of August 1, 2011 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on October 11, 2011)
Fifty-Ninth Supplemental Indenture, dated as of August 1, 2011 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on October 11, 2011)
Sixtieth Supplemental Indenture, dated as of November 1, 2011 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s December 31, 2011 Form 10-K)
Sixty-First Supplemental Indenture, dated as of June 1, 2013 (Incorporated by reference to Exhibit No. 4.1 to IPALCO’s June 30, 2013 Form 10-Q)
Sixty-Second Supplemental Indenture, dated as of June 1, 2014 (Incorporated by reference to Exhibit No. 4.1 to IPALCO’s June 30, 2014 Form 10-Q)
Sixty-Third Supplemental Indenture, dated as of September 1, 2015 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s Registration Statement on Form S-4 filed with the SEC on September 28, 2015)
Sixty-Fourth Supplemental Indenture, dated as of May 1, 2016 (Incorporated by reference to Exhibit No. 4.1 to IPALCO’s June 30, 2016 Form 10-Q)
Sixty-Fifth Supplemental Indenture, dated as of December 1, 2016 (Incorporated by reference to Exhibit No. 4.3 to IPALCO’s December 31, 2016 Form 10-K)
Sixty-Sixth Supplemental Indenture, dated as of November 1, 2018 (Incorporated by reference to Exhibit No. 4.3 to IPALCO's December 31, 2018 Form 10-K)
4.5
Sixty-Seventh Supplemental Indenture, between IPALCO Enterprises, Inc. and U.S. Bank, National Association,dated as Trustee, dated June 25, 2015 for IPALCO’s 3.45% Senior Secured Notes dueof December 1, 2020 (Incorporated by reference to Exhibit 4.1 to IPALCO’s Current Report on Form 8-K filed with the SEC on June 25, 2015)
4.6
Sixty-Eighth Supplemental Indenture, dated as of December 1, 2020
4.4
4.74.5
4.84.6
10.14.7
4.8
4.9
146

10.1
10.2


10.3
10.4
10.5

10.6
10.7
10.8

10.9
Loan Agreement between Indiana Financing Authority and Indianapolis Power & Light Company relating to $30,000,000 Environmental Facilities Refunding Revenue Notes, Series 2015A (Indianapolis Power & Light Company Project) and $60,000,000 Environmental Facilities Refunding Revenue Notes, Series 2015B (Indianapolis Power & Light Company Project) dated as of December 1, 2015 (Incorporated by reference to Exhibit 10.10 to IPALCO’s December 31, 2015 10-K)

10.10
Note Purchase and Covenants Agreement by and among Indianapolis Power & Light Company the Lenders Party Hereto and PNC Bank, National Association, as administrative agent relating to $30,000,000 Indiana Finance Authority Environmental Facilities Refunding Revenue Notes, Series 2015A (Indianapolis Power & Light Company Project) and $60,000,000 Indiana Finance Authority Environmental Facilities Refunding Revenue Notes, Series 2015B (Indianapolis Power & Light Company Project) dated as of December 22, 2015 (Incorporated by reference to Exhibit 10.11 to IPALCO’s December 31, 2015 10-K)

10.11
Second Amendment dated as of April 22, 2016 to Credit Agreement by and among IPL, the Lenders party thereto, Fifth Third Bank, as syndication agent, BMO Harris Bank N.A., as document agent and PNC Bank, National Association, as administrative agent, dated as of May 6, 2014, as amended by First Amendment thereto dated as of October 16, 2015 (Incorporated by reference to Exhibit No. 10.1 to IPALCO’s June 30, 2016 10-Q)

10.12
First Amendment dated as of April 29, 2016 to Note Purchase and Covenants Agreement by and among IPL, the Lenders party thereto and PNC Bank, National Association, as administrative agent relating to $30,000,000 Indiana Finance Authority Environmental Facilities Refunding Revenue Notes, Series 2015A (Indianapolis Power & Light Company Project) and $60,000,000 Indiana Finance Authority Environmental Facilities Refunding Revenue Notes, Series 2015B (Indianapolis Power & Light Company Project) dated as of December 22, 2015 (Incorporated by reference to Exhibit No. 10.3 to IPALCO’s June 30, 2016 10-Q)
10.13
The AES Corporation 2003 Long Term Compensation Plan, as amended and restated, dated April 23, 2015 (Incorporated by reference to Exhibit 99.1 of The AES Corporation’s Form 8-K filed on April 23, 2015)
10.1410.9
10.1510.10
10.1610.11
The AES Corporation Restoration Supplemental Retirement Plan, as amended and restated, effective January 1, 2017 (Incorporated by reference to Exhibit 4.1 of The AES Corporation’s Form S-8 filed on August 6, 2019)


10.1710.12
10.1810.13
10.1910.14
10.2010.15
10.2110.16
21
31.1
31.2
32.1
32.2


101.INS
101.INSXBRL Instance Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.SCHXBRL Taxonomy Extension Schema Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.CALXBRL Taxonomy Extension Calculation Linkbase Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.DEFXBRL Taxonomy Extension Definition Linkbase Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.LABXBRL Taxonomy Extension Label Linkbase Document (furnished herewith as provided in Rule 406T of Regulation S-T)
101.PREXBRL Taxonomy Extension Presentation Linkbase Document (furnished herewith as provided in Rule 406T of Regulation S-T)


139
147



(c) Financial Statement Schedules
 
Schedules other than those listed below are omitted as the information is either not applicable, not required, or has been furnished in the financial statements or notes thereto included in Item 8 hereof.

SCHEDULE I – CONDENSED FINANCIAL INFORMATION OF REGISTRANT

IPALCO ENTERPRISES, INC.
Schedule I – Condensed Financial Information of Registrant
Unconsolidated Balance Sheets
(In Thousands)
 December 31,
 20202019
ASSETS
CURRENT ASSETS:  
Cash and cash equivalents$302 $3,709 
Restricted cash6,115 0 
Taxes receivable11,862 541 
Prepayments and other current assets7,508 14,500 
Total current assets25,787 18,750 
OTHER NON-CURRENT ASSETS:  
Investment in subsidiaries1,426,739 1,427,141 
Deferred tax asset – long term14,289 6,764 
Other non-current assets3,194 2,843 
Total other non-current assets1,444,222 1,436,748 
            TOTAL ASSETS
$1,470,009 $1,455,498 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:  
Short-term and current portion of long-term debt$0 $469,313 
Loans payable to subsidiary6,110 0 
Accounts payable365 292 
Accrued interest8,556 11,442 
Derivative liabilities, current0 26,560 
Total current liabilities15,031 507,607 
NON-CURRENT LIABILITIES:
Long-term debt870,775 401,415 
Derivative liabilities, non-current63,215 0 
Total non-current liabilities933,990 401,415 
           Total liabilities949,021 909,022 
SHAREHOLDERS' EQUITY  
Paid in capital588,966 590,784 
Accumulated other comprehensive loss(43,420)(19,750)
Accumulated deficit(24,558)(24,558)
           Total shareholders' equity520,988 546,476 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$1,470,009 $1,455,498 
IPALCO ENTERPRISES, INC.
Schedule I – Condensed Financial Information of Registrant
Unconsolidated Balance Sheets
(In Thousands)
  December 31,
  2019 2018
ASSETS  
CURRENT ASSETS:    
Cash and cash equivalents $3,709
 $4,409
Prepayments and other current assets 15,041
 15,246
Total current assets 18,750
 19,655
OTHER NON-CURRENT ASSETS:  
  
Investment in subsidiaries 1,427,141
 1,431,856
Deferred tax asset – long term 6,764
 112
Other non-current assets 2,843
 2,539
Total other non-current assets 1,436,748
 1,434,507
            TOTAL ASSETS
 $1,455,498
 $1,454,162
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:  
  
Short-term and current portion of long-term debt $469,313
 $—
Accounts payable 292
 326
Accrued taxes —
 243
Accrued interest 11,442
 11,444
Accrued and other current liabilities 26,560
 3
Total current liabilities 507,607
 12,016
NON-CURRENT LIABILITIES:    
Long-term debt 401,415
 868,880
Other non-current liabilities —
 —
Total non-current liabilities 401,415
 868,880
           Total liabilities 909,022
 880,896
SHAREHOLDERS' EQUITY  
  
Paid in capital 590,784
 597,824
Accumulated other comprehensive loss (19,750) —
Accumulated deficit (24,558) (24,558)
           Total shareholders' equity 546,476
 573,266
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,455,498
 $1,454,162
     

See notes to Schedule I.


140
148


IPALCO ENTERPRISES, INC.IPALCO ENTERPRISES, INC.IPALCO ENTERPRISES, INC.
Schedule I – Condensed Financial Information of RegistrantSchedule I – Condensed Financial Information of RegistrantSchedule I – Condensed Financial Information of Registrant
Unconsolidated Statements of OperationsUnconsolidated Statements of OperationsUnconsolidated Statements of Operations
(In Thousands)(In Thousands)(In Thousands)
 2019 2018 2017 202020192018
OTHER INCOME / (EXPENSE), NET:      OTHER INCOME / (EXPENSE), NET:
Equity in earnings of subsidiaries $154,078
 $154,150
 $133,725
Equity in earnings of subsidiaries$140,030 $154,078 $154,150 
Interest expense (32,761) (31,038) (35,791)Interest expense(42,212)(32,761)(31,038)
Loss on early extinguishment of debt —
 —
 (8,875)Loss on early extinguishment of debt(2,415)0 0 
Other income / (expense), net (46) (443) 26
Other income / (expense), net73 (46)(443)
Total other income / (expense), net 121,271
 122,669
 89,085
 Total other income / (expense), net95,476 121,271 122,669 
EARNINGS FROM OPERATIONS BEFORE INCOME TAX 121,271
 122,669
 89,085
EARNINGS FROM OPERATIONS BEFORE INCOME TAX95,476 121,271 122,669 
Less: income tax expense / (benefit) (7,909) (8,143) (16,495)Less: income tax expense / (benefit)(11,278)(7,909)(8,143)
NET INCOME $129,180
 $130,812
 $105,580
NET INCOME$106,754 $129,180 $130,812 
      
 
See notes to Schedule I.

149
141


IPALCO ENTERPRISES, INC.
Schedule I - Condensed Financial Information of Registrant
Unconsolidated Statements of Comprehensive Income/(Loss)
(In Thousands)
 202020192018
Net income$106,754 $129,180 $130,812 
Derivative activity:
Change in derivative fair value, net of income tax benefit of $8,876, $6,810 and $0, for each respective period(27,779)(19,750)0 
Reclassification to earnings, net of income tax benefit of $1,313, $0 and $0, for each respective period4,109 0 0 
      Net change in fair value of derivatives(23,670)(19,750)0 
Other comprehensive loss(23,670)(19,750)0 
Net comprehensive income$83,084 $109,430 $130,812 

IPALCO ENTERPRISES, INC.
Schedule I - Condensed Financial Information of Registrant
Unconsolidated Statements of Comprehensive Income/(Loss)
(In Thousands)
 201920182017
    
Net income$129,180
$130,812
$105,580
    
Derivative activity:   
Change in derivative fair value, net of income tax benefit of $6,810, $0 and $0, for each respective period(19,750)—
—
      Net change in fair value of derivatives(19,750)—
—
    
Other comprehensive loss(19,750)—
—
    
Net comprehensive income$109,430
$130,812
$105,580
    

See notes to Schedule I.


142
150


IPALCO ENTERPRISES, INC.
Schedule I – Condensed Financial Information of Registrant
Unconsolidated Statements of Cash Flows
(In Thousands)
 202020192018
CASH FLOWS FROM OPERATIONS:   
Net income$106,754 $129,180 $130,812 
Adjustments to reconcile net income to net cash   
provided by operating activities:   
Equity in earnings of subsidiaries(140,030)(154,078)(154,150)
Cash dividends received from subsidiary companies147,600 159,000 142,250 
Amortization of deferred financing costs and debt premium1,607 1,847 1,964 
Deferred income taxes – net(224)157 (89)
Charges related to early extinguishment of debt2,415 0 0 
Change in certain assets and liabilities:   
Accounts payable299 231 (405)
Accrued and other current liabilities0 (3)(876)
Accrued taxes payable/receivable(11,317)(261)0 
Accrued interest(3,083)(2)(368)
Other – net5,005 (623)(1,838)
Net cash provided by operating activities109,026 135,448 117,300 
CASH FLOWS FROM INVESTING ACTIVITIES:   
Investment in subsidiaries0 0 (65,000)
Other0 278 1,053 
Net cash provided by (used in) investing activities0 278 (63,947)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Long-term borrowings, net of discount474,568 0 65,000 
Retirement of long-term debt and early tender premium(472,135)0 0 
Loans from subsidiary26,110 0 0 
Repayments of loans to subsidiary(20,000)0 0 
Distributions to shareholders(108,739)(136,426)(130,179)
Deferred financing costs paid(6,122)0 (148)
Net cash used in financing activities(106,318)(136,426)(65,327)
Net change in cash and cash equivalents2,708 (700)(11,974)
Cash, cash equivalents and restricted cash at beginning of period3,709 4,409 16,383 
Cash, cash equivalents and restricted cash at end of period$6,417 $3,709 $4,409 
Supplemental disclosures of cash flow information:
Cash paid during the period for:
   Interest (net of amount capitalized)$38,069 $28,911 $29,665 
   Income taxes27,000 29,600 28,275 
IPALCO ENTERPRISES, INC.
Schedule I – Condensed Financial Information of Registrant
Unconsolidated Statements of Cash Flows
(In Thousands)
  2019 2018 2017
CASH FLOWS FROM OPERATIONS:      
Net income $129,180
 $130,812
 $105,580
Adjustments to reconcile net income to net cash  
  
  
provided by operating activities:  
  
  
Equity in earnings of subsidiaries (154,078) (154,150) (133,725)
Cash dividends received from subsidiary companies 159,000
 142,250
 132,516
Amortization of deferred financing costs and debt premium 1,847
 1,964
 2,003
Deferred income taxes – net 157
 (89) 78
Charges related to early extinguishment of debt —
 —
 8,875
Change in certain assets and liabilities:  
  
  
Accounts payable 231
 (405) (1,833)
Accrued and other current liabilities (3) (1,244) 7,413
Other – net (886) (1,838) 370
Net cash provided by operating activities 135,448
 117,300
 121,277
CASH FLOWS FROM INVESTING ACTIVITIES:  
  
  
Investment in subsidiaries —
 (65,000) —
Other 278
 1,053
 —
Net cash provided by (used in) investing activities 278
 (63,947) —
CASH FLOWS FROM FINANCING ACTIVITIES:  
  
  
Long-term borrowings, net of discount —
 65,000
 404,633
Retirement of long-term debt and early tender premium —
 —
 (408,152)
Distributions to shareholders (136,426) (130,179) (105,144)
Other —
 (148) (3,601)
Net cash used in financing activities (136,426) (65,327) (112,264)
Net change in cash and cash equivalents (700) (11,974) 9,013
Cash and cash equivalents at beginning of period 4,409
 16,383
 7,370
Cash and cash equivalents at end of period $3,709
 $4,409
 $16,383
       
Supplemental disclosures of cash flow information:      
Cash paid during the period for:      
   Interest (net of amount capitalized) $28,911
 $29,665
 $31,750
   Income taxes 29,600
 28,275
 65,050
       

See notes to Schedule I.

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143


IPALCO ENTERPRISES, INC.
Schedule I - Condensed Financial Information of Registrant
Unconsolidated Statements of Common Shareholders' Equity (Deficit)
(In Thousands)
 Paid in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal
Balance at January 1, 2018$597,467 $— $(25,191)$572,276 
Net comprehensive income— — 130,812 130,812 
Distributions to shareholders— — (130,179)(130,179)
Other357 — — 357 
Balance at December 31, 2018597,824 — (24,558)573,266 
Net comprehensive income— (19,750)129,180 109,430 
Distributions to shareholders(1)
(7,246)— (129,180)(136,426)
Other206 — — 206 
Balance at December 31, 2019590,784 (19,750)(24,558)546,476 
Net comprehensive income— (23,670)106,754 83,084 
Distributions to shareholders(1)
(1,985)— (106,754)(108,739)
Other167 — — 167 
Balance at December 31, 2020$588,966 $(43,420)$(24,558)$520,988 
1) IPALCO made return of capital payments of $2.0 million, $7.2 million and $0.0 million in 2020, 2019 and 2018, respectively, for the portion of current year distributions to shareholders in excess of current year net income.

IPALCO ENTERPRISES, INC.
Schedule I - Condensed Financial Information of Registrant
Unconsolidated Statements of Common Shareholders' Equity (Deficit)
(In Thousands)
  Paid in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total
Balance at January 1, 2017 $596,810
 $—
 $(25,627) $571,183
Net income —
 —
 105,580
 105,580
Distributions to shareholders —
 —
 (105,144) (105,144)
Other 657
 —
 —
 657
Balance at December 31, 2017 597,467
 —
 (25,191) 572,276
Net income —
 —
 130,812
 130,812
Distributions to shareholders —
 —
 (130,179) (130,179)
Other 357
 —
 —
 357
Balance at December 31, 2018 597,824
 —
 (24,558) 573,266
Net comprehensive income —
 (19,750) 129,180
 109,430
Distributions to shareholders (7,246) —
 (129,180) (136,426)
Other 206
 —
 —
 206
Balance at December 31, 2019 $590,784
 $(19,750) $(24,558) $546,476
         
1) IPALCO made return of capital payments of $7.2 million in 2019 for the portion of current year distributions to shareholders in excess of current year net income.

         

See notes to Schedule I.


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152



IPALCO ENTERPRISES, INC.
Schedule I – Condensed Financial Information of Registrant
Notes to Schedule I

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting for Subsidiaries and Affiliates – IPALCO has accounted for the earnings of its subsidiaries on the equity method in the unconsolidated condensed financial information.

2. 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 Unconsolidated Statements of Operations.


153

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 3, "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 1Level 2Level 3
Fair value at December 31, 2020Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:
VEBA investments:
     Money market funds$16 $16 $0 $0 
     Mutual funds3,209 0 3,209 0 
          Total VEBA investments3,225 16 3,209 0 
Total financial assets measured at fair value$3,225 $16 $3,209 $0 
Financial liabilities:    
Interest rate hedges$63,215 $0 $63,215 $0 
Total financial liabilities measured at fair value$63,215 $0 $63,215 $0 

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 1Level 2Level 3
Fair value at December 31, 2019Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:
VEBA investments:
     Money market funds$25 $25 $0 $0 
     Mutual funds2,854 0 2,854 0 
          Total VEBA investments2,879 25 2,854 0 
Total financial assets measured at fair value$2,879 $25 $2,854 $0 
Financial liabilities:    
Interest rate hedges$26,560 $0 $26,560 $0 
Total financial liabilities measured at fair value$26,560 $0 $26,560 $0 


154

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, 2020December 31, 2019
 Face ValueFair ValueFace ValueFair Value
 (In Thousands)
Fixed-rate$880,000 $992,615 $810,000 $826,382 
Variable-rate0 0 65,000 65,000 
Total indebtedness$880,000 $992,615 $875,000 $891,382 

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

•unamortized deferred financing costs of $8.6 million and $4.0 million at December 31, 2020 and 2019, respectively; and
•unamortized discounts of $0.6 million and $0.3 million at December 31, 2020 and 2019, respectively.

3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We use derivatives principally to manage the interest rate risk associated with refinancing our long-term debt. The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. We monitor and value derivative positions monthly as part of our risk management processes. We use published sources for pricing, when possible, to mark positions to market. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under ASC 815 for accounting purposes.

At December 31, 20192020, IPALCO's outstanding derivative instruments were as follows:
Commodity
Accounting Treatment (a)
UnitPurchases
(in thousands)		Sales
(in thousands)		Net Purchases/(Sales)
(in thousands)
Interest rate hedgesDesignatedUSD$400,000 $0 $400,000 
Commodity 
Accounting Treatment (a)
 Unit 
Purchases
(in thousands)
 
Sales
(in thousands)
 
Net Purchases/(Sales)
(in thousands)
Interest rate hedges Designated USD $400,000
 $—
 $400,000
(a)    Refers to whether the derivative instruments have been designated as a cash flow hedge.
(a)Refers to whether the derivative instruments have been designated as a cash flow hedge.

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 determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we are no longer required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument is now recorded in other comprehensive income and amounts deferred are reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.

In March 2019, we entered into 3 forward interest rate swaps to hedge the interest risk associated with refinancing future debt. The 3 interest rate swaps have a combined notional amount of $400.0 million. In April 2020, we de-designated the swaps as cash flow hedges and froze the AOCL of $72.3 million at the date of de-
155

designation. The interest rate swaps were then amended and re-designated as cash flow hedges to hedge the interest rate risk associated with refinancing the 2024 IPALCO Notes. The amended interest rate swaps have a combined notional amount of $400.0 million and will be settled when the associated debt is2024 IPALCO Notes are refinanced. The AOCI$72.3 million of AOCL associated with the interest rate swaps through the date of the amendment will be amortized out of AOCIAOCL into interest expense over the remaining life of the underlying debt.

We use the income approach to2030 IPALCO Notes, while any changes in fair value the swaps, which consists of forecasting future cash flows based on contractual notional amounts and applicable and available market data as of the valuation date. The most common market data inputs used in the income approach include volatilities, spot and forward benchmark interest rates (LIBOR). Forward ratesassociated with the same tenor as the derivative instrument being valued are generally obtained from published sources, with these forward rates being assessed quarterly at a portfolio-level for reasonableness versus comparable published rates. Weamended interest rate swaps will reclassify gains and losses on the swaps out of AOCI and into earningsbe recognized in those periods in which hedged interest payments occur.AOCL going forward.



The following tables provide information on gains or losses recognized in AOCIAOCL for the cash flow hedges for the period indicated:

 Interest Rate Hedges for the Year Ended December 31, 2019Interest Rate Hedges for the Year Ended December 31,
$ in thousands (net of tax) $ in thousands (net of tax)202020192018
Beginning accumulated derivative gain / (loss) in AOCI $—
Beginning accumulated derivative gain / (loss) in AOCLBeginning accumulated derivative gain / (loss) in AOCL$(19,750)$0 $0 
  
Net losses associated with current period hedging transactions (19,750)Net losses associated with current period hedging transactions(27,779)(19,750)0 
Ending accumulated derivative loss in AOCI $(19,750)
Net losses reclassified to interest expense, net of taxNet losses reclassified to interest expense, net of tax4,109 0 0 
Ending accumulated derivative loss in AOCLEnding accumulated derivative loss in AOCL$(43,420)$(19,750)$0 
  
Portion expected to be reclassified to earnings in the next twelve months $—
Loss expected to be reclassified to earnings in the next twelve monthsLoss expected to be reclassified to earnings in the next twelve months$(5,375)
Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) 7
Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months)45

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 December 31, 2019,2020, IPALCO did not have any offsetting positions.had $6.1 million of collateral in a broker margin account which offsets our loss positions on the interest rate hedges.

The following table summarizes the fair value, balance sheet classification and hedging designation of IPALCO's derivative instruments:
December 31,
CommodityHedging DesignationBalance sheet classification20202019
Interest rate hedgesCash Flow HedgeAccrued and other current liabilities$0 $26,560 
Interest rate hedgesCash Flow HedgeDerivative liabilities, non-current$63,215 $0 
     December 31,
CommodityHedging Designation Balance sheet classification 2019 2018
Interest rate hedgesCash Flow Hedge Accrued and other current liabilities $26,560
 $—



3.4. DEBT

The following table presents IPALCO’s long-term indebtedness:
  December 31,
SeriesDue20202019
  (In Thousands)
Long-Term Debt  
Term LoanJuly 2020$0 $65,000 
3.45% Senior Secured NotesJuly 2020— 0 405,000 
3.70% Senior Secured NotesSeptember 2024— 405,000 405,000 
4.25% Senior Secured NotesMay 2030475,000 0 
Unamortized discount – net(625)(313)
   Deferred financing costs – net(8,600)(3,959)
Total long-term debt870,775 870,728 
Less: current portion of long-term debt0 469,313 
Net long-term debt$870,775 $401,415 

156

    December 31,
Series Due 2019 2018
    (In Thousands)
Long-Term Debt    
Term Loan July 2020 $65,000
 $65,000
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 (313) (424)
   Deferred financing costs – net (3,959) (5,696)
Total long-term debt 870,728
 868,880
Less: current portion of long-term debt 469,313
 —
Net long-term debt $401,415
 $868,880
 


IPALCO Term Loan

On October 31, 2018, IPALCO closed on a new Term Loan consisting of a $65 million credit facility 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’s existing senior secured notes. The Term Loan proceeds were used to repay amounts due under IPL's Credit Agreement and for general corporate purposes.



IPALCO’s Senior Secured Notes and Term Loan

In August 2017,April 2020, IPALCO completed the sale of the $405$475 million 2024aggregate principal amount of 4.25% 2030 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 to retire the $65 million Term Loan on April 14, 2020. The remaining net proceeds, together with cash on hand, were used to redeem the $400 million 20182020 IPALCO Notes on September 21, 2017,May 14, 2020, and to pay certain related fees, expenses and make-whole premiums. A loss on early extinguishment of debt of $8.9$2.4 million for the 20182020 IPALCO Notes is included as a separate line item within "Other Income/(Expense), Net" in the accompanying Unconsolidated Statements of Operations.

The 2020 IPALCO Notes and 20242030 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 Term Loan.existing senior secured notes. IPALCO filed itshas also agreed to register the 2030 IPALCO Notes under the Securities Act by filing an exchange offer registration statement on Form S-4 with respect to the 2024 IPALCO Notesor, under specified circumstances, a shelf registration statement 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.pursuant to a Registration Rights Agreement dated April 14, 2020.




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157



SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 2019, 2018 and 2017
(In Thousands)
Column A – Description Column B Column C – Additions Column D – Deductions Column E
  Balance at Beginning
of Period		 Charged to
Income		 Charged to Other
Accounts		 Net
Write-offs		 Balance at
End of Period
Year ended December 31, 2019          
Accumulated Provisions Deducted from          
Assets – Doubtful Accounts $2,821
 $4,760
 $—
 $5,528
 $2,053
Year ended December 31, 2018  
  
  
  
  
Accumulated Provisions Deducted from          
Assets – Doubtful Accounts $2,830
 $6,008
 $—
 $6,017
 $2,821
Year ended December 31, 2017  
  
  
  
  
Accumulated Provisions Deducted from          
Assets – Doubtful Accounts $2,365
 $5,854
 $—
 $5,389
 $2,830
           


IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)
Column A – DescriptionColumn BColumn C – AdditionsColumn D – DeductionsColumn E
 Balance at Beginning
of Period		Charged to
Income		Charged to Other
Accounts		Net
Write-offs		Balance at
End of Period
Year ended December 31, 2020     
Accumulated Provisions Deducted from     
Assets – Doubtful Accounts$2,053 $5,861 $(1,132)$3,627 $3,155 
Deducted from Inventories
Valuation Allowance for Materials and Supplies$6,204 $0 $0 $71 $6,133 
Year ended December 31, 2019    
Accumulated Provisions Deducted from     
Assets – Doubtful Accounts$2,821 $4,760 $0 $5,528 $2,053 
Deducted from Inventories
Valuation Allowance for Materials and Supplies$0 $6,204 $0 $0 $6,204 
Year ended December 31, 2018     
Accumulated Provisions Deducted from     
Assets – Doubtful Accounts$2,830 $6,008 $0 $6,017 $2,821 
INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 2019, 2018 and 2017
(In Thousands)
Column A – Description Column B Column C – Additions Column D – Deductions Column E
  Balance at Beginning
of Period		 Charged to
Income		 Charged to Other
Accounts		 Net
Write-offs		 Balance at
End of Period
Year ended December 31, 2019          
Accumulated Provisions Deducted from          
Assets – Doubtful Accounts $2,821
 $4,760
 $—
 $5,528
 $2,053
Year ended December 31, 2018  
  
  
  
  
Accumulated Provisions Deducted from          
Assets – Doubtful Accounts $2,830
 $6,008
 $—
 $6,017
 $2,821
Year ended December 31, 2017  
  
  
  
  
Accumulated Provisions Deducted from          
Assets – Doubtful Accounts $2,365
 $5,854
 $—
 $5,389
 $2,830
           


INDIANAPOLIS POWER & LIGHT COMPANY and SUBSIDIARY
Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 2020, 2019 and 2018
(In Thousands)
Column A – DescriptionColumn BColumn C – AdditionsColumn D – DeductionsColumn E
 Balance at Beginning
of Period		Charged to
Income		Charged to Other
Accounts		Net
Write-offs		Balance at
End of Period
Year ended December 31, 2020     
Accumulated Provisions Deducted from     
Assets – Doubtful Accounts$2,053 $5,861 $(1,132)$3,627 $3,155 
Deducted from Inventories
Valuation Allowance for Materials and Supplies$6,204 00$71 $6,133 
Year ended December 31, 2019     
Accumulated Provisions Deducted from     
Assets – Doubtful Accounts$2,821 $4,760 $0 $5,528 $2,053 
Deducted from Inventories
Valuation Allowance for Materials and Supplies$0 $6,204 $0 $0 $6,204 
Year ended December 31, 2018     
Accumulated Provisions Deducted from     
Assets – Doubtful Accounts$2,830 $6,008 $0 $6,017 $2,821 

ITEM 16. FORM 10-K SUMMARY

None.

158
148



SIGNATURES
 
Pursuant to the requirements of Section 13 or 15 (d) 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. 
(Registrant)

Date:    February 27, 202024, 2021                /s/ Barry J. BentleyKristina Lund
Barry J. Bentley                    Kristina Lund
Interim                            President and Chief Executive Officer 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
SignatureCapacityDate
/s/ Barry J. BentleyKristina LundInterim President and Chief Executive Officer, and Director (Principal Executive Officer)February 27, 202024, 2021
Barry J. BentleyKristina Lund
/s/ Lisa KruegerDirector and Executive ChairmanFebruary 24, 2021
Lisa Krueger
/s/ Kenneth J. ZagzebskiDirector and ChairmanFebruary 27, 202024, 2021
Kenneth J. Zagzebski
/s/ Sanjeev AddalaBernerd Da SantosDirectorFebruary 27, 202024, 2021
Sanjeev AddalaBernerd Da Santos
/s/ Paul L. FreedmanDirectorFebruary 27, 202024, 2021
Paul L. Freedman
/s/ Mark E. MillerSusan HarcourtDirectorFebruary 27, 202024, 2021
Mark E. MillerSusan Harcourt
/s/ Marc MichaelDirectorFebruary 27, 202024, 2021
Marc Michael

/s/ Gustavo PimentaDirectorFebruary 27, 202024, 2021
Gustavo Pimenta
/s/ Lisa KruegerBarry J. BentleyDirectorFebruary 27, 202024, 2021
Lisa Krueger

Barry J. Bentley
/s/ Vincent ParisiDirectorFebruary 27, 2020
Vincent Parisi

/s/ Frédéric LesageDirectorFebruary 27, 202024, 2021
Frédéric Lesage

/s/ Antoine RezeFady MansourDirectorFebruary 27, 202024, 2021
Antoine RezeFady Mansour
/s/ Gustavo GaravagliaChief Financial Officer (Principal Financial Officer)February 27, 202024, 2021
Gustavo Garavaglia
/s/ Karin M. NyhuisController (Principal Accounting Officer)February 27, 202024, 2021
Karin M. Nyhuis

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15 (d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act
 
No annual report or proxy material has been sent to security holders.

149159