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

FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2020
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
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

At May 6,November 5, 2020, 108,907,318 shares of IPALCO Enterprises, Inc. common stock were outstanding, of which 89,685,177 shares were owned by AES U.S. Investments, Inc. and 19,222,141 shares were owned by CDP Infrastructures Fund G.P., a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec.




IPALCO ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q 
For Quarter Ended March 31,September 30, 2020
 
TABLE OF CONTENTS
Item No.Page No.
DEFINED TERMS
 
FORWARD-LOOKING STATEMENTS
PART I - FINANCIAL INFORMATION
1.Financial Statements 
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
     September 30, 2020 and 2019
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine
     Months Ended September 30, 2020 and 2019
 Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
     September 30, 2020 and 2019
Unaudited Condensed Consolidated Statements of Common Shareholders' Equity and
     Noncontrolling Interest for the Three and Nine Months Ended September 30, 2020 and 2019
 Notes to Unaudited Condensed Consolidated Financial Statements
     Note 1 - Overview and Summary of Significant Accounting Policies
     Note 2 - Regulatory Matters
     Note 3 - Fair Value
     Note 4 - Derivative Instruments and Hedging Activities
     Note 5 - Debt
     Note 6 - Income Taxes
     Note 7 - Benefit Plans
     Note 8 - Commitments and Contingencies
     Note 9 - Business Segment Information
     Note 10 - Revenue
     Note 11 - Leases
     Note 12 - Risks and Uncertainties
2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
3.Quantitative and Qualitative Disclosure About Market Risk
4.Controls and Procedures
   
PART II - OTHER INFORMATION
1.Legal Proceedings
1A.Risk Factors
2.Unregistered Sales of Equity Securities and Use of Proceeds
3.Defaults Upon Senior Securities
4.Mine Safety Disclosures
5.Other Information
6.Exhibits
   
SIGNATURES
3
Item No. Page No.
 DEFINED TERMS
   
 FORWARD-LOOKING STATEMENTS
   
 PART I - FINANCIAL INFORMATION 
1.Financial Statements 
 Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended 
      March 31, 2020 and 2019
 Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three 
      Months Ended March 31, 2020 and 2019
 Unaudited Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019
 Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended 
      March 31, 2020 and 2019
 Unaudited Condensed Consolidated Statements of Common Shareholders' Equity (Deficit) and 
      Noncontrolling Interest for the Three Months Ended March 31, 2020 and 2019
 Notes to Unaudited Condensed Consolidated Financial Statements
      Note 1 - Overview and Summary of Significant Accounting Policies
      Note 2 - Regulatory Matters
      Note 3 - Fair Value
      Note 4 - Derivative Instruments and Hedging Activities
      Note 5 - Debt
      Note 6 - Income Taxes
      Note 7 - Benefit Plans
      Note 8 - Commitments and Contingencies
      Note 9 - Business Segment Information
      Note 10 - Revenue
      Note 11 - Leases
      Note 12 - Risks and Uncertainties
2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
3.Quantitative and Qualitative Disclosure About Market Risk
4.Controls and Procedures
   
 PART II - OTHER INFORMATION 
1.Legal Proceedings
1A.Risk Factors
2.Unregistered Sales of Equity Securities and Use of Proceeds
3.Defaults Upon Senior Securities
4.Mine Safety Disclosures
5.Other Information
6.Exhibits
   
 SIGNATURES



DEFINED TERMS
The following is a list of frequently used abbreviations or acronyms that are found in this Form 10-Q:
2018 Base Rate Order
The order issued in October 2018 by the IURC authorizing IPL to, among other things, increase its basic rates and charges by $43.9 million annually
 
2019 Form 10-KIPALCO’s Annual Report on Form 10-K for the year ended December 31, 2019, as amended
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
2030 IPALCO Notes$475 million of 4.25% Senior Secured Notes due May 1, 2030
AESThe AES Corporation
AES U.S. InvestmentsAES U.S. Investments, Inc.
AOCIAccumulated Other Comprehensive Income
AOCLAccumulated Other Comprehensive Loss
AROASCAsset Retirement Obligations
ASCAccounting Standards Codification
ASUAccounting Standards Update
CAAU.S. Clean Air Act
CCGTCombined Cycle Gas Turbine
CCRCoal Combustion Residuals
CDPQ
CDP Infrastructures Fund G.P., a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec
 
CECLCurrent Expected Credit Loss
CO2
Carbon Dioxide
COVID-19
The disease caused by the novel coronavirus that caused a global pandemic in the first quarter of 2020.

CPPClean Power Plan
Credit Agreement
$250 million IPL Revolving Credit Facilities Amended and Restated Credit Agreement, dated as of June 19, 2019
 
CWACSAPRCross-State Air Pollution Rule
Cumulative Deficiencies
Cumulative 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
EPADOJU.S. Department of Justice
ECCRAEnvironmental Compliance Cost Recovery Adjustment
EPAU.S. Environmental Protection Agency
FACFuel Adjustment Clause
FERCFederal Energy Regulatory Commission
Financial Statements
Unaudited Condensed Consolidated Financial Statements of IPALCO in “Item 1. Financial Statements” included in Part I – Financial Information of this Form 10-Q
 
FTRsFinancial Transmission Rights
GAAPGenerally Accepted Accounting Principles in the United States
GHGGreenhouse Gas
IPALCOIDEMIndiana Department of Environmental Management
IPALCOIPALCO Enterprises, Inc.
IPLIndianapolis Power & Light Company
IRPIntegrated Resource Plan
IURCIndiana Utility Regulatory Commission
kWhKilowatt hours
LIBORLondon Interbank Offered Rate
MISOMidcontinent Independent System Operator, Inc.
MWMegawatts
MWhMegawatt hours
NAAQSNational Ambient Air Quality Standards
NOVNotice of Violation
NOx

Nitrogen Oxide
4


NSRNew Source Review
NWP 12Nationwide Permit 12
OUCCIndiana Office of Utility Consumer Counselor
Pension Plans
Employees’ Retirement Plan of Indianapolis Power & Light Company and Supplemental Retirement Plan of Indianapolis Power & Light Company
 
PSDPrevention of Significant Deterioration
SECUnited States Securities and Exchange Commission
SIPState Implementation Plan
SO2

Sulfur Dioxide

T&DTransmission & Distribution
Term Loan$65 million IPALCO Term Loan Facility Credit Agreement, dated as of October 31, 2018
TDSICTransmission, Distribution, and Storage System Improvement Charge
U.S.United States of America
USDUnited States Dollars
VEBAVoluntary Employees' Beneficiary Association

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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 including, in particular, the statements about our plans, strategies and prospects under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I – Financial Information of this Form 10-Q. Forward-looking statements express an expectation or belief and contain a projection, plan or assumption with regard to, among other things, our future revenues, income, expenses or capital structure. Such statements of future events or performance are not guarantees of future performance and involve estimates, assumptions and uncertainties. The words “could,” “may,” “predict,” “anticipate,” “would,” “believe,” “estimate,” “expect,” “forecast,” “project,” “objective,” “intend,” “continue,” “should,” “plan,” and similar expressions, or the negatives thereof, are intended to identify forward-looking statements unless the context requires otherwise.
 
Some important factors that could cause our actual results or outcomes to differ materially from those discussed in the forward-looking statements include, but are not limited to:
 
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;
5


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 recent 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;
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 IPALCO filings with the SEC.

All of the above factors are difficult to predict, contain uncertainties that may materially affect actual results, and many are beyond our control. See “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in IPALCO’s 2019 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. These risks may also be specifically described in our Quarterly Reports on Form 10-Q in "Part II - Item 1A. Risk Factors", Current Reports on Form 8-K and other documents that we may file from time to time with the SEC. 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. Our SEC filings are available to the public from the SEC’s website at www.sec.gov.


6


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS 

IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In Thousands)
 Three Months EndedNine Months Ended
 September 30,September 30,
 2020201920202019
REVENUES$356,088 $398,456 $1,024,973 $1,121,634 
OPERATING COSTS AND EXPENSES:
Fuel73,901 93,217 186,040 254,233 
Power purchased26,987 31,840 105,536 101,483 
Operation and maintenance100,455 105,975 300,703 321,782 
Depreciation and amortization62,359 60,373 184,166 179,939 
Taxes other than income taxes10,399 12,943 34,063 33,909 
Total operating costs and expenses274,101 304,348 810,508 891,346 
OPERATING INCOME81,987 94,108 214,465 230,288 
OTHER INCOME / (EXPENSE), NET:    
Allowance for equity funds used during construction1,099 810 3,116 2,538 
Interest expense(32,741)(30,620)(96,757)(91,393)
Loss on early extinguishment of debt(2,415)
Other income / (expense), net935 (2,704)2,914 (7,977)
Total other income / (expense), net(30,707)(32,514)(93,142)(96,832)
EARNINGS FROM OPERATIONS BEFORE INCOME TAX51,280 61,594 121,323 133,456 
Less: Income tax expense10,981 13,088 25,918 28,252 
NET INCOME 40,299 48,506 95,405 105,204 
Less: Dividends on preferred stock803 803 2,410 2,410 
NET INCOME APPLICABLE TO COMMON STOCK$39,496 $47,703 $92,995 $102,794 
See notes to unaudited condensed consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In Thousands)
 Three Months Ended
 March 31,
 20202019
   
REVENUES$357,382
$382,309
   
OPERATING COSTS AND EXPENSES:  
Fuel68,788
88,799
Power purchased35,467
32,924
Operation and maintenance105,590
102,146
Depreciation and amortization60,708
59,669
Taxes other than income taxes12,057
13,983
Total operating costs and expenses282,610
297,521
   
OPERATING INCOME74,772
84,788
   
OTHER INCOME / (EXPENSE), NET:  
Allowance for equity funds used during construction857
911
Interest expense(30,081)(30,482)
Other income / (expense), net207
(3,228)
Total other income / (expense), net(29,017)(32,799)
   
EARNINGS FROM OPERATIONS BEFORE INCOME TAX45,755
51,989
   
Less: Income tax expense9,772
10,204
NET INCOME 35,983
41,785
   
Less: Dividends on preferred stock803
803
NET INCOME APPLICABLE TO COMMON STOCK$35,180
$40,982
   
See notes to unaudited condensed consolidated financial statements.
7




IPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss)Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss)Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss)
(In Thousands)(In Thousands)(In Thousands)
Three Months Ended Three Months EndedNine Months Ended
March 31, September 30,September 30,
20202019 2020201920202019
 
Net income applicable to common stock$35,180
$40,982
Net income applicable to common stock$39,496 $47,703 $92,995 $102,794 
 
Derivative activity: Derivative activity:
Change in derivative fair value, net of income tax benefit of $12,522 and $1,890, for each respective period(36,313)(5,539)
Change in derivative fair value, net of income tax (charge)/benefit of $(1,278), $4,322, $12,632 and $10,188, for each respective periodChange in derivative fair value, net of income tax (charge)/benefit of $(1,278), $4,322, $12,632 and $10,188, for each respective period3,707 (12,534)(36,632)(29,722)
Reclassification to earnings, net of income tax benefit of $463, $0, $926 and $0, for each respective periodReclassification to earnings, net of income tax benefit of $463, $0, $926 and $0, for each respective period1,344 2,688 
Net change in fair value of derivatives(36,313)(5,539) Net change in fair value of derivatives5,051 (12,534)(33,944)(29,722)
 
Other comprehensive loss(36,313)(5,539)
Other comprehensive income / (loss)Other comprehensive income / (loss)5,051 (12,534)(33,944)(29,722)
 
Net comprehensive income$(1,133)$35,443
Net comprehensive income$44,547 $35,169 $59,051 $73,072 
 
See notes to unaudited condensed consolidated financial statements.


8
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In Thousands)
 March 31,December 31,
 20202019
ASSETS  
CURRENT ASSETS: 
 
Cash and cash equivalents$45,351
$48,152
Restricted cash10,140
400
Accounts receivable, net of allowance for credit losses of $1,049 and $921, respectively156,435
161,090
Inventories90,305
83,569
Regulatory assets, current39,438
37,398
Taxes receivable15,817
23,670
Prepayments and other current assets22,753
17,264
Total current assets380,239
371,543
NON-CURRENT ASSETS:  
Property, plant and equipment6,427,163
6,398,612
Less: Accumulated depreciation2,453,606
2,414,652
 3,973,557
3,983,960
Construction work in progress139,945
130,609
Total net property, plant and equipment4,113,502
4,114,569
OTHER NON-CURRENT ASSETS: 
 
Intangible assets - net62,659
64,861
Regulatory assets, non-current350,436
355,614
Other non-current assets18,517
22,082
Total other non-current assets431,612
442,557
TOTAL ASSETS$4,925,353
$4,928,669
LIABILITIES AND SHAREHOLDERS' EQUITY  
CURRENT LIABILITIES:  
Short-term debt and current portion of long-term debt (Note 5)$89,915
$559,199
Accounts payable113,294
128,521
Accrued taxes29,541
22,012
Accrued interest37,933
35,334
Customer deposits34,218
34,635
Regulatory liabilities, current52,361
52,654
Derivative liabilities, current75,395
26,560
Accrued and other current liabilities21,133
23,300
Total current liabilities453,790
882,215
NON-CURRENT LIABILITIES:  
Long-term debt (Note 5)2,562,458
2,092,430
Deferred income tax liabilities265,119
272,861
Taxes payable4,658
4,658
Regulatory liabilities, non-current838,131
846,430
Accrued pension and other postretirement benefits17,618
19,344
Asset retirement obligations204,750
204,219
Other non-current liabilities284
252
Total non-current liabilities3,893,018
3,440,194
Total liabilities4,346,808
4,322,409
COMMITMENTS AND CONTINGENCIES (Note 8)  
SHAREHOLDERS' EQUITY:  
Paid in capital590,833
590,784
Accumulated other comprehensive loss(56,063)(19,750)
Accumulated deficit(16,009)(24,558)
Total common shareholders' equity518,761
546,476
Preferred stock of subsidiary59,784
59,784
Total shareholders' equity578,545
606,260
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$4,925,353
$4,928,669



See notes to unaudited condensed consolidated financial statements.




IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In Thousands)
 September 30,December 31,
 20202019
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$38,815 $48,152 
Restricted cash20,513 400 
Accounts receivable, net of allowance for credit losses of $3,520 and $921, respectively158,560 161,090 
Inventories95,652 83,569 
Regulatory assets, current41,663 37,398 
Taxes receivable22,203 23,670 
Prepayments and other current assets23,424 17,264 
Total current assets400,830 371,543 
NON-CURRENT ASSETS:  
Property, plant and equipment6,490,135 6,398,612 
Less: Accumulated depreciation2,533,889 2,414,652 
3,956,246 3,983,960 
Construction work in progress179,330 130,609 
Total net property, plant and equipment4,135,576 4,114,569 
OTHER NON-CURRENT ASSETS:  
Intangible assets - net58,099 64,861 
Regulatory assets, non-current341,066 355,614 
Other non-current assets22,729 22,082 
Total other non-current assets421,894 442,557 
TOTAL ASSETS$4,958,300 $4,928,669 
LIABILITIES AND SHAREHOLDERS' EQUITY  
CURRENT LIABILITIES:  
Short-term debt and current portion of long-term debt (Note 5)$234,853 $559,199 
Accounts payable118,392 128,521 
Accrued taxes27,231 22,012 
Accrued interest44,195 35,334 
Customer deposits27,747 34,635 
Regulatory liabilities, current46,871 52,654 
Derivative liabilities, current26,560 
Accrued and other current liabilities19,989 23,300 
Total current liabilities519,278 882,215 
NON-CURRENT LIABILITIES:  
Long-term debt (Note 5)2,467,139 2,092,430 
Deferred income tax liabilities266,243 272,861 
Taxes payable7,875 4,658 
Regulatory liabilities, non-current836,976 846,430 
Accrued pension and other postretirement benefits14,166 19,344 
Asset retirement obligations199,130 204,219 
Derivative liabilities, non-current75,824 
Other non-current liabilities226 252 
Total non-current liabilities3,867,579 3,440,194 
Total liabilities4,386,857 4,322,409 
COMMITMENTS AND CONTINGENCIES (Note 8)  
SHAREHOLDERS' EQUITY:
Paid in capital589,911 590,784 
Accumulated other comprehensive loss(53,694)(19,750)
Accumulated deficit(24,558)(24,558)
Total common shareholders' equity511,659 546,476 
Preferred stock of subsidiary59,784 59,784 
Total shareholders' equity571,443 606,260 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$4,958,300 $4,928,669 
See notes to unaudited condensed consolidated financial statements.
9
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
 Three Months Ended
 March 31,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$35,983
$41,785
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization60,708
59,669
Amortization of deferred financing costs and debt premium1,100
1,020
Deferred income taxes and investment tax credit adjustments - net2,467
17,982
Allowance for equity funds used during construction(857)(911)
Change in certain assets and liabilities: 
 
Accounts receivable4,655
(2,974)
Inventories(8,265)1,724
Accounts payable(7,940)(14,360)
Accrued and other current liabilities(2,514)2,318
Accrued taxes payable/receivable15,382
(2,141)
Accrued interest2,599
2,641
Pension and other postretirement benefit expenses
(1,726)1,361
Short-term and long-term regulatory assets and liabilities(3,226)1,572
Prepayments and other current assets(5,488)(1,120)
Other - net4,698
(1,106)
Net cash provided by operating activities97,576
107,460
CASH FLOWS FROM INVESTING ACTIVITIES:  
Capital expenditures(54,490)(70,929)
Project development costs(751)(574)
Cost of removal and regulatory recoverable ARO payments(7,962)(6,315)
Other
278
Net cash used in investing activities(63,203)(77,540)
CASH FLOWS FROM FINANCING ACTIVITIES: 
 
Distributions to shareholders(26,631)(31,590)
Preferred dividends of subsidiary(803)(803)
Payments for financed capital expenditures
(5,224)
Other
(152)
Net cash used in financing activities(27,434)(37,769)
Net change in cash, cash equivalents and restricted cash6,939
(7,849)
Cash, cash equivalents and restricted cash at beginning of period48,552
33,599
Cash, cash equivalents and restricted cash at end of period$55,491
$25,750



Supplemental disclosures of cash flow information:  
Cash paid during the period for:  
Interest (net of amount capitalized)$26,438
$26,682
Non-cash investing activities: 
Accruals for capital expenditures$28,184
$45,403



See notes to unaudited condensed consolidated financial statements.


IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In Thousands)
 Nine Months Ended
 September 30,
 20202019
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net income$95,405 $105,204 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization184,166 179,939 
Amortization of deferred financing costs and debt discounts3,006 3,081 
Deferred income taxes and investment tax credit adjustments - net(2,001)15,109 
Allowance for equity funds used during construction(3,116)(2,538)
Loss on early extinguishment of debt2,415 
Change in certain assets and liabilities: 
Accounts receivable2,530 (5,117)
Inventories(16,652)7,688 
Accounts payable(24,228)(46,063)
Accrued and other current liabilities(9,041)3,560 
Accrued taxes payable/receivable9,904 (9,670)
Accrued interest8,861 2,965 
Pension and other postretirement benefit expenses(5,179)4,082 
Short-term and long-term regulatory assets and liabilities828 2,213 
Prepayments and other current assets(6,159)(3,576)
Other - net421 2,895 
Net cash provided by operating activities241,160 259,772 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Capital expenditures(149,369)(126,066)
Project development costs(1,848)(1,268)
Cost of removal and regulatory recoverable ARO payments(29,483)(14,067)
Other119 278 
Net cash used in investing activities(180,581)(141,123)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Borrowings under revolving credit facilities80,000 10,000 
Repayments under revolving credit facilities(30,000)(10,000)
Long-term borrowings, net of discount474,568 
Retirement of long-term debt, including early payment premium(472,135)
Distributions to shareholders(93,993)(94,699)
Preferred dividends of subsidiary(2,410)(2,410)
Deferred financing costs paid(5,664)
Payments for financed capital expenditures(51)(5,616)
Other(118)(710)
Net cash used in financing activities(49,803)(103,435)
Net change in cash, cash equivalents and restricted cash10,776 15,214 
Cash, cash equivalents and restricted cash at beginning of period48,552 33,599 
Cash, cash equivalents and restricted cash at end of period$59,328 $48,813 
Supplemental disclosures of cash flow information:  
Cash paid during the period for:  
Interest (net of amount capitalized)$81,073 $85,602 
Income taxes27,000 23,600 
Non-cash investing activities: 
Accruals for capital expenditures$49,569 $13,115 
See notes to unaudited condensed consolidated financial statements.

10



IPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIESIPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Common Shareholders' Equity (Deficit)
Unaudited Condensed Consolidated Statements of Common Shareholders' EquityUnaudited Condensed Consolidated Statements of Common Shareholders' Equity
and Noncontrolling Interestand Noncontrolling Interestand Noncontrolling Interest
For the Three Months Ended March 31, 2020 and 2019
For the Three and Nine Months Ended September 30, 2020 and 2019For the Three and Nine Months Ended September 30, 2020 and 2019
(In Thousands)(In Thousands)(In Thousands)
Paid in
Capital
Accumulated
Other Comprehensive Loss
Accumulated
Deficit
Total Common Shareholders' EquityCumulative Preferred Stock of Subsidiary
20202020
Beginning BalanceBeginning Balance$590,784 $(19,750)$(24,558)$546,476 $59,784 
Net comprehensive lossNet comprehensive loss— (36,313)35,180 (1,133)803 
Preferred stock dividendsPreferred stock dividends— — — — (803)
Distributions to shareholdersDistributions to shareholders— — (26,631)(26,631)— 
OtherOther49 — — 49 — 
Balance at March 31, 2020Balance at March 31, 2020590,833 (56,063)(16,009)518,761 59,784 
Net comprehensive incomeNet comprehensive income— (2,682)18,319 15,637 804 
Preferred stock dividendsPreferred stock dividends— — — — (804)
Distributions to shareholdersDistributions to shareholders— — (26,596)(26,596)— 
OtherOther37 — — 37 — 
Balance at June 30, 2020Balance at June 30, 2020$590,870 $(58,745)$(24,286)$507,839 $59,784 
Net comprehensive incomeNet comprehensive income— 5,051 39,496 44,547 803 
Preferred stock dividendsPreferred stock dividends— — — — (803)
Distributions to shareholders(1)
Distributions to shareholders(1)
(998)— (39,768)(40,766)— 
OtherOther39 — — 39 — 
Balance at September 30, 2020Balance at September 30, 2020$589,911 $(53,694)$(24,558)$511,659 $59,784 
 
Paid in
Capital
 
Accumulated
Other Comprehensive Loss
 
Accumulated
Deficit
 Total Common Shareholders' Equity Cumulative Preferred Stock of Subsidiary
2019          2019
Beginning Balance $597,824
 $
 $(24,558) $573,266
 $59,784
Beginning Balance$597,824 $$(24,558)$573,266 $59,784 
Net comprehensive income 
 (5,539) 40,982
 35,443
 803
Net comprehensive income— (5,539)40,982 35,443 803 
Preferred stock dividends 
 
 
 
 (803)Preferred stock dividends— — — — (803)
Distributions to shareholders 
 
 (31,590) (31,590) 
Distributions to shareholders— — (31,590)(31,590)— 
Other 34
 
 
 34
 
Other34 — — 34 — 
Balance at March 31, 2019 $597,858
 $(5,539) $(15,166) $577,153
 $59,784
Balance at March 31, 2019597,858 (5,539)(15,166)577,153 59,784 
          
2020          
Beginning Balance $590,784
 $(19,750) $(24,558) $546,476
 $59,784
Net comprehensive income 
 (36,313) 35,180
 (1,133) 803
Net comprehensive income— (11,649)14,109 2,460 804 
Preferred stock dividends 
 
 
 
 (803)Preferred stock dividends— — — — (804)
Distributions to shareholders 
 
 (26,631) (26,631) 
Distributions to shareholders— — (28,345)(28,345)— 
Other 49
 
 
 49
 
Other59 — — 59 — 
Balance at March 31, 2020 $590,833
 $(56,063) $(16,009) $518,761
 $59,784
Balance at June 30, 2019Balance at June 30, 2019$597,917 $(17,188)$(29,402)$551,327 $59,784 
Net comprehensive incomeNet comprehensive income— (12,534)47,703 35,169 803 
Preferred stock dividendsPreferred stock dividends— — — — (803)
Distributions to shareholdersDistributions to shareholders— — (34,764)(34,764)— 
OtherOther54 — — 54 — 
Balance at September 30, 2019Balance at September 30, 2019$597,971 $(29,722)$(16,463)$551,786 $59,784 
1) I (1) IPALCO made return of capital payments of $1.0 million during the three months ended September 30, 2020 for the portion of current year distributions to shareholders in excess of current year net income.
1) I (1) IPALCO made return of capital payments of $1.0 million during the three months ended September 30, 2020 for the portion of current year distributions to shareholders in excess of current year net income.
See notes to unaudited condensed consolidated financial statements.

11


IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

IPALCO is a holding company incorporated under the laws of the state of Indiana. IPALCO is owned by AES U.S. Investments (82.35%) and CDPQ (17.65%). AES U.S. Investments is owned by AES U.S. Holdings, LLC (85%) and CDPQ (15%). IPALCO owns all of the outstanding common stock of IPL. Substantially all of IPALCO’s business consists of generating, transmitting, distributing and selling of electric energy conducted through its principal subsidiary, IPL. IPL was incorporated under the laws of the state of Indiana in 1926. IPL has more than 500,000approximately 510,000 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 40forty 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. IPL’s largest generating station, Petersburg, is coal-fired. The second largest station, Harding Street, uses natural gas and fuel oil to power combustion turbines. In addition, IPL operates a 20 MW battery energy storage unit at this location, which provides frequency response. The third station, Eagle Valley, is a 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 March 31,September 30, 2020, IPL’s net electric generation capacity for winter is 3,705 MW and net summer capacity is 3,560 MW.

Principles of Consolidation
 
The accompanying Financial Statements include the accounts of IPALCO, IPL and Mid-America Capital Resources, Inc., a non-regulated wholly-owned subsidiary of IPALCO. All significant intercompany amounts have been eliminated. The accompanying Financial Statements are unaudited; however, they have been prepared in accordance with GAAP for interim financial information and in conjunction with the rules and regulations of the SEC. Accordingly, they do not include all of the disclosures required by GAAP for annual fiscal reporting periods. In the opinion of management, all adjustments of a normal recurring nature necessary for fair presentation have been included. The electric utility business is affected by seasonal weather patterns throughout the year and, therefore, the operating revenues and associated operating expenses are not generated evenly by month during the year. These unaudited Financial Statements have been prepared in accordance with the accounting policies described in IPALCO’s 2019 Form 10-K and should be read in conjunction therewith.
 
Use of Management Estimates
 
The preparation of financial statements in conformity with GAAP requires that management make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may also be affected by the estimates and assumptions that management is required to make. Actual results may differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

The following table provides a summary of cash, cash equivalents and restricted cash amounts as shown on the Condensed Consolidated Statements of Cash Flows:
 September 30,December 31,
 20202019
 (In Thousands)
Cash, cash equivalents and restricted cash
     Cash and cash equivalents$38,815 $48,152 
     Restricted cash20,513 400 
          Total cash, cash equivalents and restricted cash$59,328 $48,552 
  March 31, December 31,
  2020 2019
  (In Thousands)
Cash, cash equivalents and restricted cash    
     Cash and cash equivalents $45,351
 $48,152
     Restricted cash 10,140
 400
          Total cash, cash equivalents and restricted cash $55,491
 $48,552
     



12


Accounts Receivable

The following table summarizes our accounts receivable balances at March 31,September 30, 2020 and December 31, 2019:
 September 30,December 31,
 20202019
 (In Thousands)
Accounts receivable, net
     Customer receivables$97,018 $90,747 
     Unbilled revenue54,829 65,822 
     Amounts due from related parties5,645 2,717 
     Other4,588 2,725 
     Allowance for credit losses(3,520)(921)
           Total accounts receivable, net$158,560 $161,090 
  March 31, December 31,
  2020 2019
  (In Thousands)
Accounts receivable, net    
     Customer receivables $88,989
 $90,747
     Unbilled revenue 59,959
 65,822
     Amounts due from related parties 4,473
 2,717
     Other 4,063
 2,725
     Allowance for credit losses (1,049) (921)
           Total accounts receivable, net $156,435
 $161,090
     


The following table is a roll forwardrollforward of our allowance for credit losses related to the accounts receivable balances for the threenine months ended March 31,September 30, 2020 (in Thousands):
 Beginning Allowance Balance at January 1, 2020Current Period ProvisionWrite-offs Charged Against AllowancesRecoveries CollectedEnding Allowance Balance at
September 30, 2020
Allowance for credit losses$921 $4,365 $(5,124)$3,358 $3,520 
  Beginning Allowance Balance at January 1, 2020 Current Period Provision Write-offs Charged Against Allowances Ending Allowance Balance at
March 31, 2020
Allowance for credit losses $921
 $773
 $(645) $1,049
         


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 wouldare expected to impact collectability, as applicable, including the economic impacts of the COVID-19 pandemic on our receivable balance as of March 31,September 30, 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 Orders” and Note 12, "Risks and Uncertainties - COVID-19 Pandemic."

Inventories

The following table summarizes our inventories balances at March 31,September 30, 2020 and December 31, 2019:

 March 31, December 31, September 30,December 31,
 2020 2019 20202019
 (In Thousands) (In Thousands)
Inventories    Inventories
Fuel $33,028
 $26,907
Fuel$36,154 $26,907 
Materials and supplies 57,277
 56,662
Materials and supplies59,498 56,662 
Total inventories $90,305
 $83,569
Total inventories$95,652 $83,569 
    


13


Accumulated Other Comprehensive Income / (Loss)

The amounts reclassified out of Accumulated Other Comprehensive Loss by component during the three and nine months ended September 30, 2020 and 2019 are as follows (in thousands):
Details about Accumulated Other Comprehensive Loss componentsAffected line item in the Condensed Consolidated Statements of OperationsThree Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Gains and losses on cash flow hedges (Note 4):
Interest expense$(1,807)$$(3,614)$
Income tax expense$463 $$926 $
Total reclassifications for the period, net of income taxes$(1,344)$$(2,688)$

The changes in the components of Accumulated Other Comprehensive Income/(Loss) during the threenine months ended March 31,September 30, 2020 and 2019 are as follows (in thousands):
Gains and losses on cash flow hedges (Note 4):Nine Months Ended September 30,
Balance at January 1$(19,750)
Other comprehensive loss before reclassifications$(36,632)
Amounts reclassified from AOCI to earnings$2,688 
Balance at September 30$(53,694)
  Three Months Ended March 31,
Gains and losses on cash flow hedges (Note 4): 20202019
Balance at January 1 $(19,750)$
Other comprehensive loss (36,313)(5,539)
Balance at March 31 $(56,063)$(5,539)
    




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 Instruments
See 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 on $148.9 million 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 our Financial Statements.


14


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, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
The standard provides 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. This standard is effective for a limited period of time (March 12, 2020 - December 21, 2022).

April 1,March 12, 2020 - December 31, 2022

The Company is currently evaluating the impact of adopting the standard on the Financial Statements.

2019-12, Income Taxes (Topic 740): Simplifying the Accounting For Income TaxesThe 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.January 1, 2021. Early adoption is permitted.The Company is currently evaluating the impact of adopting the standard on the Financial Statements.




2. REGULATORY MATTERS

TDSIC Filing

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. On June 18, 2020, IPL filed its first annual TDSIC rate adjustment for a return on and of investments through March 4,31, 2020. On October 14, 2020, the IURC issued an order approving the projects in this TDSIC Plan. Thererate adjustment, which will be no revenues and/orreflected in rates effective November 2020.

FAC and Authorized Annual Jurisdictional Net Operating Income

As discussed in Note 2, "Regulatory Matters" of IPALCO's 2019 Form 10-K, 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 were exhausted and thus IPL was required to accrue a regulatory liability of $7.3 million as of September 30, 2020. This is recorded within "Regulatory liabilities, current" on the accompanying Unaudited Condensed Consolidated Balance Sheets and as a reduction to revenue on the Unaudited Condensed Consolidated Statements of Operations.

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 approvalOctober 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, which has lapsed. 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 $5.4 million regulatory asset as of September 30, 2020. Additionally, IPL implemented and extended flexible payment assistance plans to customers during the third quarter of 2020.

Phase Two of the TDSIC rider, whichIURC investigation is not expected to occur until laterfocus 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 2020.future rate cases. For further discussion on the COVID-19 pandemic, see Note 12, "Risks and Uncertainties - COVID-19 Pandemic".

15



3. 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. For further information on our valuation techniques and policies, see Note 4, "Fair Value" to IPALCO’s 2019 Form 10-K.

Financial Assets

VEBA Assets

IPLIPALCO 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 Unaudited Condensed 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, allAll 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 periods covered by this report. Any unrealized gains or losses are recorded in "Other income / (expense), net" on our Unaudited Condensed 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 Unaudited Condensed 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 AOCI.AOCL. See also Note 4, "Derivative Instruments and Hedging Activities - Cash Flow Hedges" for further information.


16


Recurring Fair Value Measurements

The fair value of assets and liabilities at March 31,September 30, 2020 and 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 September 30, 2020Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:
VEBA investments:
     Money market funds$20 $20 $$
     Mutual funds3,069 3,069 
          Total VEBA investments3,089 20 3,069 
Financial transmission rights1,132 1,132 
Total financial assets measured at fair value$4,221 $20 $3,069 $1,132 
Financial liabilities:    
Interest rate hedges$75,824 $$75,824 $
Total financial liabilities measured at fair value$75,824 $$75,824 $
Assets and Liabilities at Fair Value
  Level 1Level 2Level 3
 Fair value at March 31, 2020Based on quoted market prices in active marketsOther observable inputsUnobservable inputs
 (In Thousands)
Financial assets:    
VEBA investments:    
     Money market funds$21
$21
$
$
     Mutual funds2,776

2,776

          Total VEBA investments2,797
21
2,776

Financial transmission rights83


83
Total financial assets measured at fair value$2,880
$21
$2,776
$83
Financial liabilities:    
Interest rate hedges$75,395
$
$75,395
$
Total financial liabilities measured at fair value$75,395
$
$75,395
$



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
$


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 $

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.


17


The following table shows the face value and the fair value of fixed-rate and variable-rate indebtedness (Level 2) for the periods ending:  
 March 31, 2020December 31, 2019
 Face ValueFair ValueFace ValueFair Value
 (In Thousands)
Fixed-rate$2,523,800
$2,879,494
$2,523,800
$2,876,140
Variable-rate155,000
155,000
155,000
155,000
Total indebtedness$2,678,800
$3,034,494
$2,678,800
$3,031,140

 September 30, 2020December 31, 2019
 Face ValueFair ValueFace ValueFair Value
 (In Thousands)
Fixed-rate$2,593,800 $3,187,023 $2,523,800 $2,876,140 
Variable-rate140,000 140,000 155,000 155,000 
Total indebtedness$2,733,800 $3,327,023 $2,678,800 $3,031,140 
 
The difference between the face value and the carrying value of this indebtedness consists of the following:

unamortized deferred financing costs of $20.0$25.1 million and $20.7 million at March 31,September 30, 2020 and December 31, 2019, respectively; and

unamortized discounts of $6.4$6.7 million and $6.5 million at March 31,September 30, 2020 and December 31, 2019, respectively.

4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We use derivatives principallyFor further information on the Company’s derivative and hedge accounting policies, see Note 1, "Overview and Summary of Significant Accounting Policies - Financial Derivatives" and Note 5, "Derivative Instruments and Hedging Activities" to 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.IPALCO’s 2019 Form 10-K.

At March 31,September 30, 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 $$400,000 
FTRsNot DesignatedMWh5,135 5,135 
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 2,194
 
 2,194
(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, weIPALCO entered into 3three forward interest rate swaps to hedge the interest rate 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 OCIAOCL 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 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 2030 IPALCO Notes, while any changes in fair value associated with the amended interest rate swaps will be recognized in AOCIAOCL going forward.

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.
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The following tables provide information on gains or losses recognized in AOCIAOCL for the cash flow hedges for the periods indicated:
  Interest Rate Hedges for the Three Months Ended March 31,
$ in thousands (net of tax) 20202019
Beginning accumulated derivative gain / (loss) in AOCL $(19,750)$
    
Net losses associated with current period hedging transactions (36,313)(5,539)
Ending accumulated derivative loss in AOCL $(56,063)$(5,539)
    
Loss expected to be reclassified to earnings in the next twelve months $(7,356)$
Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) 54
16

Interest Rate Hedges for the Three Months Ended September 30,
$ in thousands (net of tax)20202019
Beginning accumulated derivative loss in AOCL$(58,745)$(17,188)
Net gains / (losses) associated with current period hedging transactions3,707 (12,534)
Net losses reclassified to interest expense, net of tax1,344 — 
Ending accumulated derivative loss in AOCL$(53,694)$(29,722)

Interest Rate Hedges for the Nine Months Ended September 30,
$ in thousands (net of tax)20202019
Beginning accumulated derivative loss in AOCL$(19,750)$
Net losses associated with current period hedging transactions(36,632)(29,722)
Net losses reclassified to interest expense, net of tax2,688 — 
Ending accumulated derivative loss in AOCL$(53,694)$(29,722)
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)48

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 received (a liability) under derivative agreements. As of March 31,September 30, 2020, IPALCO did not have any offsetting positions.

The following table summarizes the fair value, balance sheet classification and hedging designation of IPALCO's derivative instruments:
CommodityHedging DesignationBalance sheet classificationSeptember 30, 2020December 31, 2019
Financial transmission rightsNot a Cash Flow HedgePrepayments and other current assets$1,132 $864 
Interest rate hedgesCash Flow HedgeDerivative liabilities, current$$26,560 
Interest rate hedgesCash Flow HedgeDerivative liabilities, non-current$75,824 $
CommodityHedging Designation Balance sheet classification March 31, 2020 December 31, 2019
Financial transmission rightsNot a Cash Flow Hedge Prepayments and other current assets $83
 $864
Interest rate hedgesCash Flow Hedge Accrued and other current liabilities $75,395
 $26,560



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5. DEBT
 
Long-Term Debt
 
The following table presents our long-term debt:
  September 30,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 
Unamortized discount – net(6,042)(6,156)
Deferred financing costs (16,186)(16,629)
Total IPL first mortgage bonds1,691,572 1,691,015 
IPL unsecured debt:
Variable - 1.047% (2)
December 202030,000 30,000 
Variable - 1.047% (2)
December 202060,000 60,000 
Deferred financing costs(28)(114)
Total IPL unsecured debt 89,972 89,886 
Total Long-term Debt – IPL1,781,544 1,780,901 
Long-term Debt – IPALCO:  
Term LoanJuly 202065,000 
3.45% Senior Secured NotesJuly 2020405,000 
3.70% Senior Secured NotesSeptember 2024405,000 405,000 
4.25% Senior Secured NotesMay 2030475,000 
Unamortized discount – net(649)(313)
Deferred financing costs (8,903)(3,959)
Total Long-term Debt – IPALCO870,448 870,728 
Total Consolidated IPALCO Long-term Debt2,651,992 2,651,629 
Less: Current Portion of Long-term Debt184,853 559,199 
Net Consolidated IPALCO Long-term Debt$2,467,139 $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 are subject to a mandatory put in December 2020.

IPL First Mortgage Bonds

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. 


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  March 31,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
Unamortized discount – net
(6,114)(6,156)
Deferred financing costs (16,481)(16,629)
Total IPL first mortgage bonds1,691,205
1,691,015
IPL unsecured debt:



Variable (2)
December 202030,000
30,000
Variable (2)
December 202060,000
60,000
Deferred financing costs
(85)(114)
Total IPL unsecured debt 89,915
89,886
Total Long-term Debt – IPL1,781,120
1,780,901
Long-term Debt – IPALCO: 
 
Term LoanJuly 202065,000
65,000
3.45% Senior Secured NotesJuly 2020405,000
405,000
3.70% Senior Secured NotesSeptember 2024405,000
405,000
Unamortized discount – net
(282)(313)
Deferred financing costs (3,465)(3,959)
Total Long-term Debt – IPALCO871,253
870,728
Total Consolidated IPALCO Long-term Debt2,652,373
2,651,629
Less: Current Portion of Long-term Debt 89,915
559,199
Net Consolidated IPALCO Long-term Debt $2,562,458
$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 are subject to a mandatory put in December 2020.

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

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. The 2030 IPALCO Notes were issued pursuant to an Indenture dated April 14, 2020, by and between IPALCO and U.S. Bank, National Association, as trustee. The 2030 IPALCO Notes were priced to the public at 99.909% of the principal amount. Net proceeds to IPALCO were approximately $468.6 million after deducting transaction costs and estimated offering expenses. 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, will bewere used to redeem the 2020 IPALCO Notes on May 14, 2020, and to pay certain related fees, expenses and make-whole premiums. As a resultA loss on early extinguishment of this refinancing, the Term Loan anddebt of $2.4 million for the 2020 IPALCO Notes are presentedis included as long-term debt asa separate line item within "Other Income/(Expense), Net" in the accompanying Unaudited Condensed Consolidated Statements of March 31, 2020.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.

Line of Credit

As of September 30, 2020 and December 31, 2019, IPL had no$50.0 million and $0.0 million in outstanding borrowings on the committed line of credit, as of March 31, 2020 or December 31, 2019.respectively. 

6. INCOME TAXES
 
Effective Tax Rate

IPALCO’s effective combined state and federal income tax rate was 21.4% and 21.4% for the three and nine months ended March 31,September 30, 2020, respectively, as compared to 19.6%21.2% and 21.2% for the three and nine months ended March 31, 2019. The increase inSeptember 30, 2019, respectively. These rates are lower than the effective taxcombined federal and state statutory rate versus the comparable period wasof 25.3% primarily due to the impactflowthrough of the net tax benefit related to the reversal of excess deferred income taxes as a percentage of pre-tax income.IPL, which was partially offset by the net tax expense related to the amortization of allowance for equity funds used during construction.
 

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7. BENEFIT PLANS
 
Pension Expense
 
The following table presents net periodic benefit cost information relating to the Pension Plans combined:
 For the Three Months EndedFor the Nine Months Ended
 September 30,September 30,
 2020201920202019
 (In Thousands)(In Thousands)
Components of net periodic benefit cost:    
Service cost$2,068 $1,853 $6,204 $5,558 
Interest cost5,538 6,836 16,614 20,508 
Expected return on plan assets(9,445)(7,477)(28,335)(22,431)
Amortization of prior service cost920 956 2,758 2,869 
Amortization of actuarial loss2,029 2,770 6,086 8,311 
Net periodic benefit cost$1,110 $4,938 $3,327 $14,815 
 For the Three Months Ended
 March 31,
 20202019
 (In Thousands)
Components of net periodic benefit cost:  
Service cost$2,068
$1,853
Interest cost5,538
6,836
Expected return on plan assets(9,445)(7,477)
Amortization of prior service cost919
956
Amortization of actuarial loss2,029
2,771
Net periodic benefit cost$1,109
$4,939
   


In addition, IPL provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. These postretirement health care benefits and the related unfunded obligation of $6.5$6.7 million and $6.4 million at March 31,September 30, 2020 and December 31, 2019, respectively, were not material to the Financial Statements in the periods covered by this report.



8. 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 provide assurance 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 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
22


IPL's four coal-fired generation units currently operating at IPL's Petersburg location. The settlement agreement 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 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 Unit 4. The Settlement Agreement is subject to final review and approval by the U.S. District Court for the Southern District of Indiana, following a 30-day public comment period, which began upon publication in 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 will 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. the Federal Register. IPL has recorded a contingent liability recorded related to these New Source Review cases and other CAA NOV matters.


9. BUSINESS SEGMENT INFORMATION
 
Operating segments are components of an enterprise that engage in business activities from which it may earn revenues and incur expenses, for which separate financial information is available, and is evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources. Substantially all of our business consists of the generation, transmission, distribution and sale of electric energy conducted through IPL which is a vertically integrated electric utility. IPALCO’s reportable business segment is its utility segment, with all other nonutility business activities aggregated separately. The “All Other” nonutility category primarily includes the Term Loan, 2020 IPALCO Notes, 2024 IPALCO Notes and 20242030 IPALCO Notes; approximately $2.8 million and $6.0 million of cash and cash equivalents as of MarchSeptember 30, 2020 and December 31, 2019, respectively; restricted cash of $20.1 million and $0.0 million as of September 30, 2020 and December 31, 2019, respectively; long-term investments of $2.8$3.1 million at March 31,September 30, 2020 and December 31, 2019, respectively; long-term liabilities for interest rate hedges of $75.4$75.8 million and $26.6 million as of March 31,September 30, 2020 and December 31, 2019, respectively; and income taxes and interest related to those items. All other assets represented less than 1% of IPALCO’s total assets as of March 31,September 30, 2020 and December 31, 2019. The accounting policies of the identified segment are consistent with those policies and procedures described in the summary of significant accounting policies.



The following table provides information about IPALCO’s business segments (in thousands):
   Three Months Ended Three Months Ended
  March 31, 2020 March 30, 2019
  Utility All Other Total Utility All Other Total
Revenues $357,382
 $
 $357,382
 $382,309
 $
 $382,309
Depreciation and amortization $60,708
 $
 $60,708
 $59,669
 $
 $59,669
Interest expense $21,920
 $8,161
 $30,081
 $22,260
 $8,222
 $30,482
Earnings/(loss) from operations before income tax $54,967
 $(9,212) $45,755
 $60,228
 $(8,239) $51,989
Capital expenditures(1)
 $54,490
 $
 $54,490
 $76,153
 $
 $76,153
             
  As of March 31, 2020 As of December 31, 2019
  Utility All Other Total Utility All Other Total
Total assets $4,913,875
 $11,478
 $4,925,353
 $4,918,408
 $10,261
 $4,928,669
             

Three Months EndedThree Months Ended
 September 30, 2020September 30, 2019
 UtilityAll OtherTotalUtilityAll OtherTotal
Revenues$356,088 $$356,088 $398,456 $$398,456 
Depreciation and amortization$62,359 $$62,359 $60,373 $$60,373 
Interest expense$21,725 $11,016 $32,741 $22,244 $8,376 $30,620 
Earnings/(loss) from operations before income tax$62,098 $(10,818)$51,280 $69,881 $(8,287)$61,594 
Nine Months EndedNine Months Ended
 September 30, 2020September 30, 2019
 UtilityAll OtherTotalUtilityAll OtherTotal
Revenues$1,024,973 $$1,024,973 $1,121,634 $$1,121,634 
Depreciation and amortization$184,166 $$184,166 $179,939 $$179,939 
Interest expense$65,527 $31,230 $96,757 $66,757 $24,636 $91,393 
Earnings/(loss) from operations before income tax$155,835 $(34,512)$121,323 $158,153 $(24,697)$133,456 
Capital expenditures(1)
$149,420 $$149,420 $131,682 $$131,682 
As of September 30, 2020As of December 31, 2019
UtilityAll OtherTotalUtilityAll OtherTotal
Total assets$4,942,923 $15,377 $4,958,300 $4,918,408 $10,261 $4,928,669 
(1) Capital expenditures includes payments for financed capital expenditures of $0.0$0.1 million and $5.2$5.6 million for the threenine months ended March 31,September 30, 2020 and March 31,September 30, 2019, respectively.


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10. 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. Please see Note 13, “Revenue” to IPALCO’s 2019 Form 10-K for further discussion of our retail, wholesale and miscellaneous revenues.

IPL’s revenue from contracts with customers was $351.9$350.5 million for the three months ended March 31,September 30, 2020 and $376.1$391.5 million for the three months ended March 31,September 30, 2019, respectively, and $1,004.8 million for the nine months ended September 30, 2020 and $1,100.4 million for the nine months ended September 30, 2019, respectively. The following table presents our revenue from contracts with customers and other revenue (in thousands):
For the Three Months EndedFor the Three Months Ended
September 30, 2020September 30, 2019
Retail Revenues
     Retail revenue from contracts with customers:
          Residential$145,407 $155,670 
          Small commercial and industrial50,023 56,192 
          Large commercial and industrial127,884 151,816 
          Public lighting2,268 2,403 
          Other (1)
3,875 3,864 
                    Total retail revenue from contracts with customers329,457 369,945 
     Alternative revenue programs5,225 6,478 
Wholesale Revenues
     Wholesale revenue from contracts with customers:17,667 18,426 
Miscellaneous Revenues
     Transmission and other revenue from contracts with customers3,331 3,091 
     Other miscellaneous revenues (2)
408 516 
Total Revenues$356,088 $398,456 
 For the Three Months EndedFor the Three Months Ended
 March 31, 2020March 31, 2019
Retail Revenues  
     Retail revenue from contracts with customers$337,892
$366,502
     Other retail revenues (1)
4,896
4,894
Wholesale Revenues11,308
7,101
Miscellaneous Revenues  
     Transmission and other revenue from contracts with customers2,732
2,485
     Other miscellaneous revenues (2)
554
1,327
Total Revenues$357,382
$382,309
   
(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


24


For the Nine Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019
Retail Revenues
     Retail revenue from contracts with customers:
          Residential$428,568 $450,864 
          Small commercial and industrial147,678 165,961 
          Large commercial and industrial369,224 424,348 
          Public lighting6,881 4,893 
          Other (1)
10,568 10,372 
                    Total retail revenue from contracts with customers962,919 1,056,438 
     Alternative revenue programs18,910 19,069 
Wholesale Revenues
     Wholesale revenue from contracts with customers:33,476 35,533 
Miscellaneous Revenues
     Transmission and other revenue from contracts with customers8,392 8,474 
     Other miscellaneous revenues (2)
1,276 2,120 
Total Revenues$1,024,973 $1,121,634 
(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 were $147.5$151.7 million and $155.0 million as of March 31,September 30, 2020 and December 31, 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 Orders" for a discussion of the June 29, 2020 and August 12, 2020 IURC orders requiring expanded payment arrangements for customers.
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 $1.4$0.8 million as of March 31,September 30, 2020. During the three and nine months ended March 31,September 30, 2020, we recognized revenue of $0.4$0.3 million and $1.0 million related to this contract liability balance.balance, respectively.



11. 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 Unaudited Condensed Consolidated Statements of Operations was $0.3 million and $0.2 million for the three months ended March 31,September 30, 2020 and 2019, respectively, and was $0.7 millionfor the nine months ended September 30, 2020 and 2019, respectively. Underlying gross assets and accumulated depreciation of operating leases included in Total net property, plant and equipment on the Unaudited Condensed Consolidated Balance Sheetwere $4.4 million and $0.8 million, respectively, as of September 30, 2020 and $4.3 million and $0.7 million, respectively, as of MarchDecember 31, 2020.2019.

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 March 31,September 30, 2020.


25


The following table shows the future minimum lease receipts as of March 31,September 30, 2020 for the remainder of 2020 through 2024 and thereafter (in thousands):
Operating Leases
2020$222 
2021886 
2022906 
2023906 
2024786 
Thereafter2,628 
Total$6,334 
 Operating Leases
2020$687
2021886
2022906
2023906
2024786
Thereafter2,628
Total$6,799


12. 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 United States,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 has implemented, among other things, stay-at-home and other social distancing measures to slow the spread of the virus, which has resulted in decreasedimpacted energy demand within our service territory, though the stay-at-home restrictions have now been lifted in our service territory. On March 19, 2020,Also, the Executive Order previously issued by the Governor of Indiana also issued an Executive Order prohibiting electric utilities, including us, from discontinuing electric utility service to customers.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 reduced revenues and potential lower margins resulting from decreased energythe impacts to demand within our service territory, we also willhave 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.

For the quarter ending March 31, 2020, COVID-19 had a limited impact on the financial results and operations of the Company, as the full extent ofAs the economic impact of the COVID-19 pandemic only started to materialize in Indiana in the second half of March 2020.and continued in the second and third quarters of 2020, the COVID-19 pandemic primarily impacted our retail sales demand as shown by the changes in weather-normalized volumes of kWh sold:

Customer classFor the three months ended September 30, 2020 compared to the same period in 2019
For the six months ended September 30, 2020 compared to the same period in 2019(1)
For the nine months ended September 30, 2020 compared to the same period in 2019
Residential3.9 %5.1 %3.7 %
Small commercial and industrial(4.2)%(7.0)%(5.1)%
Large commercial and industrial(7.9)%(9.3)%(7.3)%
1) This period most closely approximates the duration of the economic impact on our sales demand as a result of the COVID-19 pandemic.

We also have incurred and expect to continue to incur expenses relating to COVID-19, however see Note 2, "Regulatory Matters - IURC COVID-19 Order" for a discussion of regulatory measures which partially mitigate the impact of these expenses. 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. We are also currently exploring regulatory measures to take which we believe could partially mitigate the impact of COVID-19 on our financial results.
26


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with the Financial Statements and the notes thereto included in “Item 1. Financial Statements” included in Part I – Financial Information of this Form 10-Q.

FORWARD-LOOKING INFORMATION

The following discussion may contain forward-looking statements regarding us, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in IPALCO’s 2019 Form 10-K and subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and uncertainties that may affect our business.

OVERVIEW OF OUR BUSINESS

IPALCO is a holding company incorporated under the laws of the state of Indiana. Our principal subsidiary is IPL, a regulated electric utility operating in the state of Indiana. Substantially all of our business consists of the generation, transmission, distribution and sale of electric energy conducted through IPL. Our business segments are “utility” and “all other.” For additional information regarding our business, see "Item 1. Business” of our 2019 Form 10-K.

EXECUTIVE SUMMARY

Compared with the same periodperiods in the prior year, the results for the three and nine months ended March 31,September 30, 2020 reflect lower earnings from operations before income tax of $6.2$10.3 million, or 12.0%16.7% and $12.1 million, or 9.1%, respectively, primarily due to factors including, but not limited to:

a net decrease in the volume of retail kWh sold mostly due to milder weather and lower demand due to the impact of COVID-19; and
a lesser extent, lower demand; andreduction in revenues due to an accrued regulatory liability for excess earnings under FAC provisions.
an increase in maintenance expenses.

These were partially offset by:

a decrease in maintenance expenses; and
lower pension costs.


27


RESULTS OF OPERATIONS
 
The electric utility business is affected by seasonal weather patterns throughout the year and, therefore, operating revenues and associated expenses are not generated evenly by month during the year. 

Statements of Operations Highlights
 Three Months EndedNine Months Ended
 September 30,September 30,
 2020201920202019
REVENUES$356,088 $398,456 $1,024,973 $1,121,634 
OPERATING COSTS AND EXPENSES:
Fuel73,901 93,217 186,040 254,233 
Power purchased26,987 31,840 105,536 101,483 
Operation and maintenance100,455 105,975 300,703 321,782 
Depreciation and amortization62,359 60,373 184,166 179,939 
Taxes other than income taxes10,399 12,943 34,063 33,909 
Total operating costs and expenses274,101 304,348 810,508 891,346 
OPERATING INCOME81,987 94,108 214,465 230,288 
OTHER INCOME / (EXPENSE), NET:    
Allowance for equity funds used during construction1,099 810 3,116 2,538 
Interest expense(32,741)(30,620)(96,757)(91,393)
Loss on early extinguishment of debt— — (2,415)— 
Other income / (expense), net935 (2,704)2,914 (7,977)
Total other income / (expense), net(30,707)(32,514)(93,142)(96,832)
EARNINGS FROM OPERATIONS BEFORE INCOME TAX51,280 61,594 121,323 133,456 
Less: Income tax expense10,981 13,088 25,918 28,252 
NET INCOME 40,299 48,506 95,405 105,204 
Less: Dividends on preferred stock803 803 2,410 2,410 
NET INCOME APPLICABLE TO COMMON STOCK$39,496 $47,703 $92,995 $102,794 
 Three Months Ended
 March 31,
 20202019
   
REVENUES$357,382
$382,309
   
OPERATING COSTS AND EXPENSES:  
Fuel68,788
88,799
Power purchased35,467
32,924
Operation and maintenance105,590
102,146
Depreciation and amortization60,708
59,669
Taxes other than income taxes12,057
13,983
Total operating costs and expenses282,610
297,521
   
OPERATING INCOME74,772
84,788
   
OTHER INCOME / (EXPENSE), NET:  
Allowance for equity funds used during construction857
911
Interest expense(30,081)(30,482)
Other income / (expense), net207
(3,228)
Total other income / (expense), net(29,017)(32,799)
   
EARNINGS FROM OPERATIONS BEFORE INCOME TAX45,755
51,989
   
Less: Income tax expense9,772
10,204
NET INCOME 35,983
41,785
   
Less: Dividends on preferred stock803
803
NET INCOME APPLICABLE TO COMMON STOCK$35,180
$40,982
   



 


























28


Comparison of three months ended March 31,September 30, 2020 and three months ended March 31,September 30, 2019

Revenues
 
Revenues during the three months ended March 31,September 30, 2020 decreased $24.9$42.4 million compared to the same period in 2019, which resulted from the following changes (dollars in thousands):
Three Months Ended    Three Months Ended 
March 31,  Percentage September 30, Percentage
20202019 ChangeChange 20202019Change
Revenues:    Revenues:  
Retail revenues$342,788
$371,396
 $(28,608)(7.7)%Retail revenues334,681 376,423 $(41,742)(11.1)%
Wholesale revenues11,308
7,101
 4,207
59.2%Wholesale revenues17,668 18,426 (758)(4.1)%
Miscellaneous revenues3,286
3,812
 (526)(13.8)%Miscellaneous revenues3,739 3,607 132 3.7%
Total revenues$357,382
$382,309
 $(24,927)(6.5)%Total revenues$356,088 $398,456 $(42,368)(10.6)%
    
Heating degree days:    Heating degree days:
Actual2,434
2,849
 (415)(14.6)%Actual45 — 45 100.0%
30-year average2,780
2,773
   30-year average70 68  
Cooling degree days:Cooling degree days:
ActualActual827 969 (142)(14.7)%
30-year average30-year average752 752  
 
Retail Revenues

The decrease in retail revenues of $28.6$41.7 million was primarily due to the following (in millions):
Volume: 
Net decrease in the volume of kWh sold, primarily due to milder weather in our service territory versus the comparable period and, to a lesser extent, lower demand$(24.3)
Price: 
Net decrease in the weighted average price of retail kWh sold, primarily due to lower fuel revenues, partially offset by favorable block rate(1) and other retail rate variances
(5.4)
  
Other1.1
  
Net decrease in retail revenues$(28.6)
Volume:
Net decrease in the volume of kWh sold primarily due to unfavorable weather in our service territory versus the comparable period and lower demand resulting from impacts of COVID-19$(21.2)
Price:
Net decrease in the weighted average price of retail kWh sold primarily due to lower fuel revenues, partially offset by favorable block rate(1) and other retail rate variances
(19.3)
(1)OtherBlock 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(1.2)
Net decrease the weighted average price per kWh increases and vice versa.in retail revenues$(41.7)
(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 $4.2$0.8 million was primarily due to (i) a $5.7$0.5 million volume increase primarily due to increased unit availability asdecrease and (ii) a result of the timing of outages versus the comparable period, partially offset by a $1.5$0.3 million decrease in the weighted average price per kWh sold. We sold 485.0 million kWh in the wholesale market during the first quarter of 2020 compared to 268.3 million kWh during the first quarter of 2019. 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. 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 customers through the Off System Sales Margin rider.
29


Operating Costs and Expenses

The following table illustrates our changes in Operating costs and expenses during the three months ended March 31,September 30, 2020 compared to the same period in 2019 (in thousands):
Three Months Ended
September 30,
20202019$ Change% Change
Operating costs and expenses:
Fuel$73,901 $93,217 $(19,316)(20.7)%
Power purchased26,987 31,840 (4,853)(15.2)%
Operation and maintenance100,455 105,975 (5,520)(5.2)%
Depreciation and amortization62,359 60,373 1,986 3.3 %
Taxes other than income taxes10,399 12,943 (2,544)(19.7)%
      Total operating costs and expenses$274,101 $304,348 $(30,247)(9.9)%
 Three Months Ended  
 March 31,  
 20202019$ Change% Change
Operating costs and expenses:    
Fuel$68,788
$88,799
$(20,011)(22.5)%
Power purchased35,467
32,924
2,543
7.7 %
Operation and maintenance105,590
102,146
3,444
3.4 %
Depreciation and amortization60,708
59,669
1,039
1.7 %
Taxes other than income taxes12,057
13,983
(1,926)(13.8)%
      Total operating costs and expenses$282,610
$297,521
$(14,911)(5.0)%

Fuel

The decrease in fuel costs of $20.0$19.3 million was primarily due to (i) a $17.0an $8.9 million decrease from deferred fuel costs, (ii) an $8.5 million decrease due to the lower price of natural gas consumed versus the comparable period driven by decreased market prices, and (ii)(iii) a $5.1$1.2 million decrease due to the lower price of coal consumed versus the comparable period partially offset by (iii) a $1.5 million increase from deferred fuel costs and (iv) a $0.3$0.5 million increasedecrease in the quantity of fuel 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-Q. Additionally, fuel and purchased power costs incurred for wholesale energy sales are considered in the Off System Sales Margin rider. 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.

Power Purchased

The increasedecrease in purchased power costs of $2.5$4.9 million was primarily due to (i) a 45%$10.4 million decrease in the market price of purchased power, partially offset by (ii) an 18% increase in the volume of power purchased during the period ($12.64.4 million). 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 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.

Operation and Maintenance

The decrease in Operation and maintenance of $5.5 million was mostly attributed to (i) decreased maintenance expenses of $12.4 million primarily due to decreased outage costs, partially offset by (ii) higher transmission related expenses of $3.3 million and (iii) higher DSM program costs of $2.6 million (these program costs are recoverable through customer rates and are offset by an increase in DSM revenues).





30


Other Income / (Expense), Net

The following table illustrates our changes in Other income / (expense), net during the three months ended September 30, 2020 compared to the same period in 2019 (in thousands):
Three Months Ended
September 30,
20202019$ Change% Change
Other income/(expense), net
Allowance for equity funds used during construction$1,099 $810 $289 35.7 %
Interest expense(32,741)(30,620)(2,121)6.9 %
Other income / (expense), net935 (2,704)3,639 (134.6)%
      Total other income/(expense), net$(30,707)$(32,514)$1,807 (5.6)%

Interest Expense

The increase in Interest expense of $2.1 million was primarily due to amortization of unrealized losses on interest rate hedges of $1.8 million beginning in April 2020.

Other Income/(Expense), Net

The increase in Other income/(expense), net of $3.6 million was primarily due to a decrease in defined benefit plan costs of $4.0 million due to a higher expected return on plan assets compared to prior year.

Income Tax Expense - Net

The following table illustrates our changes in income tax expense - net during the three months ended September 30, 2020 compared to the same period in 2019 (in thousands):
Three Months Ended
September 30,
20202019$ Change% Change
Income tax expense - net10,981 13,088 $(2,107)(16.1)%
The decrease in Income tax expense - net of $2.1 million was primarily due to lower pretax income versus the comparable period.


31


Comparison of nine months ended September 30, 2020 and nine months ended September 30, 2019

Revenues
Revenues during the nine months ended September 30, 2020 decreased $96.7 million compared to the same period in 2019, which resulted from the following changes (dollars in thousands):
 Nine Months Ended  
 September 30, Percentage
 20202019ChangeChange
Revenues:    
Retail revenues$981,828 $1,075,507 $(93,679)(8.7)%
Wholesale revenues33,477 35,533 (2,056)(5.8)%
Miscellaneous revenues9,668 10,594 (926)(8.7)%
Total revenues$1,024,973 $1,121,634 $(96,661)(8.6)%
Heating degree days:
Actual3,119 3,306 (187)(5.7)%
30-year average3,360 3,365   
Cooling degree days:
Actual1,169 1,281 (112)(8.7)%
30-year average1,062 1,061   
Retail Revenues

The decrease in retail revenues of $93.7 million was primarily due to the following (in millions):
Volume:
Net decrease in the volume of kWh sold, primarily due to milder weather in our service territory versus the comparable period and lower demand resulting from impacts of COVID-19$(54.4)
Price:
Net decrease in the weighted average price of retail kWh sold, primarily due to lower fuel revenues, including a $7.3 million reduction due to excess earnings under FAC provisions (see Note 2, "Regulatory Matters - FAC and Authorized Annual Jurisdictional Net Operating Income" to the Financial Statements for more information), partially offset by favorable block rate(1) and other retail rate variances
(39.3)
Net decrease in retail revenues$(93.7)
(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 decrease in wholesale revenues of $2.1 million was primarily due to a $1.9 million decrease in the weighted average price per kWh sold and a $0.2 million volume decrease. We sold 1,351.7 million kWh in the wholesale market during the first nine months of 2020 compared to 1,360.0 million kWh during the first nine months of 2019. 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.
32


Operating Costs and Expenses

The following table illustrates our changes in Operating costs and expenses during the nine months ended September 30, 2020 compared to the same period in 2019 (in thousands):
Nine Months Ended
September 30,
20202019$ Change% Change
Operating costs and expenses:
Fuel$186,040 $254,233 $(68,193)(26.8)%
Power purchased105,536 101,483 4,053 4.0 %
Operation and maintenance300,703 321,782 (21,079)(6.6)%
Depreciation and amortization184,166 179,939 4,227 2.3 %
Taxes other than income taxes34,063 33,909 154 0.5 %
      Total operating costs and expenses$810,508 $891,346 $(80,838)(9.1)%

Fuel

The decrease in fuel costs of $68.2 million was primarily due to (i) a $37.3 million decrease due to the lower price of natural gas consumed versus the comparable period driven by decreased market prices, (ii) a $16.7 million decrease in the quantity of fuel consumed versus the comparable period, and (ii) a $9.5 million decrease due to the lower price of coal consumed versus the comparable period and (iv) a $4.3 million decrease from deferred fuel costs. We are generally permitted to recover underestimated fuel and purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into expense in the same period that our rates are adjusted to reflect these variances. 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-Q. Additionally, fuel and purchased power costs incurred for wholesale energy sales are considered in the Off System Sales Margin rider.

Power Purchased

The increase in purchased power costs of $4.1 million was primarily due to (i) a 55% increase in the volume of power purchased during the period ($45.5 million), partially offset by (ii) a $9.4$42.0 million decrease 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 $12.6$45.5 million volume increase was the timing and durationdue to IPL's generation units running less frequently during 2020 due to lower market prices of outages during these respective periods.purchased power. 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.

Operation and Maintenance

The increasedecrease in Operation and maintenance of $3.4$21.1 million was mostly attributed to increased(i) decreased maintenance expenses of $2.9$20.6 million primarily due to increaseddecreased outage costs.

Depreciationcosts, (ii) decreased litigation settlement expense of $2.2 million, and Amortization

The(iii) lower meter reading and bill collection costs of $2.3 million, partially offset by (iv) higher DSM program costs of $3.1 million (these program costs are recoverable through customer rates and are offset by an increase in Depreciation and amortization expense of $1.0 million was mostly attributed to higher software amortization costs of $1.3 million due to additional capitalized software.DSM revenues).

Taxes Other Than Income Taxes
33


The decrease in Taxes other than income taxes of $1.9 million was mostly attributed to lower property taxes of $1.6 million primarily as a result of lower assessed values.


Other Income / (Expense), Net

The following table illustrates our changes in Other income / (expense), net during the threenine months ended March 31,September 30, 2020 compared to the same period in 2019 (in thousands):
Nine Months Ended
September 30,
20202019$ Change% Change
Other income/(expense), net
Allowance for equity funds used during construction$3,116 $2,538 $578 22.8 %
Interest expense(96,757)(91,393)(5,364)5.9 %
Loss on early extinguishment of debt(2,415)— (2,415)100.0 %
Other income / (expense), net2,914 (7,977)10,891 (136.5)%
      Total other income/(expense), net$(93,142)$(96,832)$3,690 (3.8)%
 Three Months Ended  
 March 31,  
 20202019$ Change% Change
Other income/(expense), net    
Allowance for equity funds used during construction$857
$911
$(54)(5.9)%
Interest expense(30,081)(30,482)401
(1.3)%
Other income / (expense), net207
(3,228)3,435
(106.4)%
      Total other income/(expense), net$(29,017)$(32,799)$3,782
(11.5)%

Interest Expense

The increase in Interest expense of $5.4 million was primarily due to (i) amortization of unrealized losses on interest rate hedges of $3.6 million beginning in April 2020 and (ii) higher interest expense on long-term debt of $2.1 million due to higher rates and a higher average debt balance.

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 increase in Other income/(expense), net of $3.4$10.9 million was primarily due to a decrease in defined benefit plan costs of $4.0$12.1 million due to a higher expected return on plan assets compared to prior year due to higher plan asset balances from 2019 market performance and changes to investment mix.year.

Income Tax Expense - Net

The following table illustrates our changes in income tax expense - net during the threenine months ended March 31,September 30, 2020 compared to the same period in 2019 (in thousands):
Nine Months Ended
September 30,
20202019$ Change% Change
Income tax expense - net25,918 28,252 $(2,334)(8.3)%
 Three Months Ended  
 March 31,  
 20202019$ Change% Change
Income tax expense$9,772
$10,204
$(432)(4.2)%

The decrease in Income tax expense - net of $0.4$2.3 million was primarily due to lower pretax income versus the comparable period; partially offset by a higher effective tax rate. See Note 6, "period.
Income Taxes” to the Financial Statements of this Form 10-Q for further discussion of the effective tax rate.

34


KEY TRENDS AND UNCERTAINTIES

During the remainder of 2020 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.

If favorable outcomes related to these factors do not occur, or if the challenges described below and elsewhere in this Quarterly 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” as described in IPALCO’s 2019 Form 10-K and "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q.

COVID-19 Pandemic

InSince December 2019, a novel strain of coronavirus (COVID-19) was reportedthe 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 have surfaced in Wuhan, China.the COVID-19 has since spread to over 180 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. On March 19, 2020, the Governor of Indiana also issued an Executive Order prohibiting electric utilities, including us, from discontinuing electric utility service to customers.customers through August 14, 2020, which has lapsed.

The outbreak of COVID-19 has severely impacted global economic activity, caused significant volatility and negative pressure in financial markets and reduced the demand for energy in our service territory. 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 restricting travel.

In addition to reduced revenues and lower margins resulting from decreased energythe impacts to demand within our service territory, we also willhave 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. For the quarter ending March 31,September 30, 2020, COVID-19 had a limited impact on the financial results and operations of the Company, as the full extent of the economic impact ofwe continued to experience impacts from the pandemic only startedand expect to materialize in Indiana incontinue to experience impacts for the second half of March. We expect further impacts in the second quarterremainder of 2020, and any such impacts during the second quarterthat 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 "Part II, Item 1A - Risk Factors" of this Form 10-Q.

Business Continuity - As the COVID-19 pandemic progresses, 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 there are stay-at-home restrictions have been lifted in place in Indiana, our operations are considered essential and have not been significantly disrupted. Mostservice 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 only started to materialize in Indiana in the second half of March. Our business experiencedMarch and more so into the second and third quarters of 2020. See Note 12, "Risks and Uncertainties - COVID-19 Pandemic" for further discussion of how the COVID-19 pandemic has impacted our sales demand and Note 10, "Revenue" to the Financial Statements for a slight decrease in demand toward the enddisaggregation of March, which increased with respect to ourretail revenues by customer class. The declines for small and large commercial and industrial customers were more severe in April but wasand May, and partially offset by an increaserecovered starting in residential demandJune and into the third quarter as stay-at-home orders began to take effect. For the quarter ended March 31, 2020, commercial and industrial revenues were approximately 51% of IPALCO’s total retail revenues, while residential revenues were approximately 45%.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 2020.2020 and beyond.

Liquidity - Subsequent to the three months ended March 31, 2020, IPALCO accessed the capital markets to issue $475 million in principal amount of 4.25%, ten-year notes, which will or has been used to repay all of IPALCO's debt due to mature in 2020. Further, weWe anticipate having sufficient liquidity to make all required payments, including payments for salaries and wages owed to our employees, during the COVID-19 pandemic. We do 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. For further discussion of our financial condition, liquidity, and capital requirements, see "Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity" of this Form 10-Q.
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Credit Exposures - We continue to monitor and manage our credit exposures in a prudent manner. WeDuring the three and nine months ended September 2020, we experienced only minor 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 $2.6 million during the first quarternine months ended September 30, 2020. See Note 1, "Overview and Summary of 2020 butSignificant Accounting Policies - Accounts Receivable" for further discussion of our allowance for credit losses. We expect significant economic disruptions from the COVID-19 in the second quarter of 2020 and extending,pandemic potentially for the remainder of 2020 and beyond. If these disruptions occur, further deterioration in our credit exposures and customer collections could 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 "Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity" of this Form 10-Q.

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, certain elements, primarily the deferral of payroll taxes, may provide some cash benefits in the near term.


Income Taxes - The demands placed on the U.S. Government to respond to the pandemic may cause delays to the expected issuance of regulations pursuant to the Tax Cuts and Jobs Act (“TCJA”) enacted in 2017. 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.

See Note 12, "Risks and Uncertainties" to the Financial Statements and "Part II - Item 1A. Risk Factors" of this Form 10-Q for more information.

Operational

As part of IPL's December 2019 Integrated Resource Plan filing, it was determined that 630 MW of coal-fired generation would be retired at Petersburg Units 1 and 2. IPL issued an all-source request for proposal to competitively procure replacement capacity by June 1, 2023, which is the first year IPL is expected to have a capacity shortfall. Proposals were received through February 28, 2020 and are currently being evaluated. For further discussion, see Note 2, "Regulatory Matters - IRP Filing" in IPALCO’s 2019 Form 10-K.
Regulatory and Environmental

Please see Note 2, "Regulatory Matters” to the Financial Statements of this Form 10-Q and Note 2, “Regulatory Matters” to IPALCO’s 2019 Form 10-K for a discussion of regulatory matters. We also are subject to numerous environmental laws and regulations in the jurisdictions in which we operate. We face certain risks and uncertainties related to these environmental laws and regulations, including existing and potential GHG legislation or regulations, and actual or potential laws and regulations pertaining to water discharges, waste management (including disposal or beneficial reuse of CCR) and certain air emissions, such as SO2, NOx, particulate matter and mercury. Such risks and uncertainties could result in increased capital expenditures or other compliance costs which could have a material adverse effect on our consolidated results of operations. Please see Note 8, “Commitments and Contingencies” to the Financial Statements of this Form 10-Q for a description of certain environmental matters. In addition, the following discussion of the impact of environmental laws and regulations on the Company updates the discussion provided in “Item 1. Business - Regulatory Matters” and “Item 1. Business - Environmental Matters” in IPALCO’s 2019 Form 10-K.

TDSIC Filing

On March 4, 2020, the IURC issued an order approving the projects in IPL's TDSIC Plan. On June 18, 2020, IPL filed its first annual TDSIC rate adjustment 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. For further discussion, please see Note 2, "Regulatory Matters”Matters - TDSIC” to the Financial Statements.

U.S. Executive Order Regarding Power Equipment

On May 1, 2020, President Trump issued an executive order banning transactions involving the acquisition, importation, transfer, or installation of certain equipment to be used in connection with the operation of the U.S. interconnected transmission network and electric generation facilities needed to maintain transmission reliability.  The ban would apply if such equipment is designed, manufactured or supplied by any company that is subject to, or controlled by, the jurisdiction of a country considered by the United States to be a foreign adversary and such transaction would pose an unacceptable risk to the national security of the United States (the “Executive Order”). We are reviewing the Executive Order and will consider the rules and regulations to be issued pursuant to this Executive Order when they become available, including rules and regulations that may define foreign adversaries, such as China, under the Executive Order or identify equipment or vendors that are exempt from any restrictions under the Executive Order.  At this time, the impact of this Executive Order on our business is uncertain.  
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Waste Management and CCR

The EPA's final CCR rule became effective in October 2015.2015 (the "CCR Rule"). Generally, the ruleCCR 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. The EPA has indicated that they will implement a phased approach to amending the CCR rule.Rule. On March 3, 2020, the EPA published proposed amendments to the CCR ruleRule titled “A Holistic Approach to Closure Part B” ("Part B Rule"), which would address the beneficial use of CCR for closure of ash ponds that are subject to forced closure per the CCR Rule. On October 16, 2020, EPA released a pre-publication final Part B rule, indicating that EPA has decided to address this issue of beneficial use of CCR for closure of ash ponds that are subject to forced closure in a separate and future rulemaking. This future rulemaking could impact IPL's Petersburg plant's ability to use CCR for

closure of ash ponds. In addition, on February 20, 2020, the US EPA published a proposed rule to establish a federal CCR permit program that would operate in states without approved CCR permit programs. On August 28, 2020, EPA published final amendments to the CCR Rule titled "A Holistic Approach to Closure Part A: Deadline to Initiate Closure," which amends certain regulatory provisions that govern coal combustion residuals. 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 in IPALCO's 2019 Form 10-K for further information.

Climate Change Legislation and Regulation

On August 31, 2018, the EPA published in the Federal Register proposed Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units, known as the ACE Rule. On July 8, 2019, the EPA published the final ACE Rule along with associated revisions to implementing regulations. The final ACE Rule replaces the CPP and determines 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 CO2 emission limits for designated facilities, including IPL Petersburg'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.

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. 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 NOx ozone 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 NOx ozone season emission budgets for electric generating units within these states and that implement these budgets through modifications to the CSAPR NOx ozone 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. In 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 states. In October 2019, the D.C. Circuit vacated and remanded 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 15, 2020, EPA released a pre-publication proposed rule addressing 21 states', including Indiana's, outstanding "good neighbor" obligations with respect to the 2008 ozone NAAQS and we are currently reviewing the proposed rule.

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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 any such impact could be material to our business, financial condition or results of operation.

NAAQS

SO2. In 2010, a new one-hour SO2 primary NAAQS became effective. In 2013, the EPA published in the Federal Register its final designation,designations, which include portions of Marion, Morgan, and Pike counties as nonattainment with respect to the one-hour SO2 standard. In 2015, IDEM published its final rule establishing reduced SO2 limits 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, the EPA proposed to approve Indiana's State Implementation Plan (SIP) addressing 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. TheHarding Street. On May 21, 2020, the EPA has not approvedfinalized the redesignation of Marion County to attainment plan forof the area that includes Petersburg. InsteadSO2 NAAQS. On July 14, 2020, the EPA proposed redesignation of Morgan County to attainment of the SO2 NAAQS. 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. On February 24,August 17, 2020, EPA proposed to approveapproved those limits. Once the limits are approved as part of a SIP revision concluding that Indiana has appropriately demonstrated that the SIP, IDEM can resubmitplan provides for attainment of the attainment plan for EPA approval for the area that includes Petersburg.2010 SO2 NAAQS.

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," 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.

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, the EPA published final denial of the petition. On July 14, 2020, the D.C. Circuit Court vacated and remanded EPA’s denial of the petition. EPA must now issue a new decision based on the 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.

CWA - Regulation of Water Discharge

IPL and other utilities at times apply the Nationwide Permit 12 (NWP 12) issued by the U.S. Army Corps of Engineers (Corps) in completing transmission and distribution projects that may involve waters of the U.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 has asked the Montana District Court to

stay its vacatur and injunction as they relate to anything other than the Keystone XL pipeline. In addition,On May 11, 2020, following request from the Corps, moved to expedite consideration of its Motion to Stay and requested a ruling no later than May 11, 2020. On April 28, 2020, the Montana District Court grantedamended its order to vacate NWP 12 only for oil and gas pipeline construction projects, allowing electric utility T&D projects to continue. On May 13, the requestCorps 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 expedite onlystay. On June 16, 2020, the briefing scheduleSolicitor General, on behalf of the U.S. Army Corps of
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Engineers, filed an application with the U.S. Supreme Court asking the Court to be completed by May 8,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, but denied the requestU.S. Supreme Court stayed the district court order, allowing the use of NWP 12 for an administrative stay while the court considers the Corps' Motion to Stay.oil and gas pipeline projects except for Keystone XL. It is too early to determine whether future outcomes or decisions related to this decisionmatter 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. We are still reviewing this decision and itIt is too early to determine whether this decision may have a material impact on our business, financial condition or results of operations. 

In November 2015, the EPA published its final effluent limitations guidelines (ELG) rule to reduce toxic pollutants discharged into waterways by steam-electric power plants through technology-based ELG applications. Wastewater treatment technologies installed and operated at Petersburg meet the requirements of the final ELG rule. That rule was subject to legal challenge and the agency received two petitions for administrative reconsideration. In response, EPA reconsidered the ELGs for flue gas desulfurization wastewater (FGD WW) and bottom ash transport water (BATW). On October 13, 2020, EPA published a final rule title “Steam Electric Reconsideration Rule” revising the 2015 ELG guidelines for flue gas desulfurization wastewater and bottom ash transport water. IPL facilities do not discharge flue gas desulfurization wastewater and bottom ash transport water.However, it is too early to determine whether any outcome of litigation or future revisions to the 2015 ELG rule or the Steam Electric Reconsideration Rule might have a material impact on our business, financial condition and results of operations.

Macroeconomic and Political

Reference Rate Reform

As discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties" of IPALCO's 2019 Form 10-K, 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 maintains financial instruments referencing LIBOR as an interest rate benchmark, we have not yet executed any technical amendments or other contractual alternatives to address this matter. Although the full impact of the reform remains unknown, we have begun to engage with IPALCO and IPL counterparties to discuss specific action items to be undertaken in order to prepare for amendments when such contracts become due.


CAPITAL RESOURCES AND LIQUIDITY
 
Overview

As of March 31,September 30, 2020, we had unrestricted cash and cash equivalents of $45.4$38.8 million and available borrowing capacity of $250$200 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 March 31,September 30, 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 March 31,September 30, 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 March 31,September 30, 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.
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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 First Mortgage Bonds

IPL has $95 million of 3.875% IPL first mortgage bonds that are due August 1, 2021. For further discussion, please see Note 5, “Debt - IPL First Mortgage Bonds.

IPL Unsecured Notes

IPL has $90 million of unsecured notes due December 22, 2020. For further discussion, please see Note 5, “Debt -
IPL Unsecured Notes.

IPALCO’s Senior Secured Notes and Term Loan

In April 2020, IPALCO completed the sale of the $475 million 2030 IPALCO Notes 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, will bewere used to redeem the 2020 IPALCO Notes on May 14, 2020, and to pay certain related fees, expenses and make-whole premiums. For further discussion, please see Note 5, “Debt - IPALCO's Senior Secured Notes and Term Loan.


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Cash Flows

The following table provides a summary of our cash flows (in thousands):
 Three Months Ended March 31,  Nine Months Ended September 30,
 2020 2019 $ Change20202019$ Change
Net cash provided by operating activities $97,576
 $107,460
 $(9,884)Net cash provided by operating activities$241,160 $259,772 $(18,612)
Net cash used in investing activities (63,203) (77,540) 14,337
Net cash used in investing activities(180,581)(141,123)(39,458)
Net cash used in financing activities (27,434) (37,769) 10,335
Net cash used in financing activities(49,803)(103,435)53,632 
Net change in cash and cash equivalents 6,939
 (7,849) 14,788
Net change in cash and cash equivalents10,776 15,214 (4,438)
Cash, cash equivalents and restricted cash at beginning of period 48,552
 33,599
 14,953
Cash, cash equivalents and restricted cash at beginning of period48,552 33,599 14,953 
Cash, cash equivalents and restricted cash at end of period $55,491
 $25,750
 $29,741
Cash, cash equivalents and restricted cash at end of period$59,328 $48,813 $10,515 

Operating Activities

The following table summarizes the key components of our consolidated operating cash flows (in thousands):
  Three Months Ended March 31,  
  2020 2019 $ Change
Net income $35,983
 $41,785
 $(5,802)
Depreciation and amortization 60,708
 59,669
 1,039
Deferred income taxes and investment tax credit adjustments - net 2,467
 17,982
 (15,515)
Other adjustments to net income 243
 109
 134
     Net income, adjusted for non-cash items 99,401
 119,545
 (20,144)
Net change in operating assets and liabilities(1)
 (1,185) (12,085) 10,900
Net cash provided by operating activities $98,216
 $107,460
 $(9,244)
       
(1) Refer to the table below for explanations of the variance in operating assets and liabilities.


Nine Months Ended September 30,
20202019$ Change
Net income$95,405 $105,204 $(9,799)
Depreciation and amortization184,166 179,939 4,227 
Deferred income taxes and investment tax credit adjustments - net(2,001)15,109 (17,110)
Other adjustments to net income2,305 543 1,762 
     Net income, adjusted for non-cash items279,875 300,795 (20,920)
Net change in operating assets and liabilities(1)
(38,715)(41,023)2,308 
Net cash provided by operating activities$241,160 $259,772 $(18,612)
(1) Refer to the table below for explanations of the variance in operating assets and liabilities.

The net change in operating assets and liabilities for the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019 was driven by changes in the following (in thousands):
Increase from accrued taxes payable/receivable primarily due to current year income tax expense18,750
Other(7,850)
Net change in operating assets and liabilities$10,900
Increase from accounts payable is primarily due to timing of payments$21,835 
Increase from accrued taxes payable/receivable primarily due to higher current portion income tax expense in the current year19,574 
Decrease from inventories is primarily due to higher inventory balances as IPL's generation units ran less frequently during 2020$(24,340)
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(12,601)
Other(2,160)
Net change in operating assets and liabilities$2,308


Investing Activities

Net cash used in investing activities decreased $14.3increased $39.5 million for the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 2019, which was primarily driven by (in thousands):
Higher cash outflows for capital expenditures due to higher growth related capital expenditures primarily from TDSIC Plan investments$(23,303)
Higher cash outflows on cost of removal and regulatory recoverable ARO payments primarily due to timing of such payments(15,416)
Other(739)
Net change in investing activities$(39,458)


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Lower cash outflows for capital expenditures due to lower growth and maintenance related capital expenditures, partially offset by higher environmental related capital expenditures $16,439
Other (2,102)
Net change in investing activities $14,337


Financing Activities

Net cash used in financing activities decreased $10.3$53.6 million for the threenine months ended March 31,September 30, 2020 compared to the threenine months ended March 31,September 30, 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 $475.0 million 4.25% 2030 senior secured notes$474,568 
Increase from borrowings under revolving credit facilities due to higher draws on IPL's line of credit in 202070,000 
Decrease from retirement of long-term debt, including early payment premium primarily due to the April 2020 retirement of a $65.0 million Term Loan, and the May 2020 retirement of the $405.0 million 3.45% Senior Secured Notes(472,135)
Decrease from repayments under revolving credit facilities due to higher repayments on IPL's revolving line of credit in 2020(20,000)
Other1,199 
Net change in financing activities$53,632
Lower payments for financed capital expenditures $5,224
Lower distributions to shareholders 4,959
Other 152
Net change in financing activities $10,335

Capital Requirements
 
Capital Expenditures
 
Our capital expenditure program, including development and permitting costs, for the three-year period from 2020 through 2022 (including amounts already expended in the first threenine months of 2020) is currently estimated to cost approximately $1.1 billion (excluding environmental compliance), and includes estimates as follows (amounts in millions):
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 projects61 59 70 190 
Other miscellaneous equipment31 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
     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, estimated capital expenditure spending on environmental compliance costs for the three-year period from 2020 through 2022 includes the following (amounts in millions):
Total Estimated CostsTotal Costs ExpendedRemaining Costs
of ProjectThrough September 30, 2020of Project
NAAQS SO2 (1)
$27 $26 $
Cooling water intake regulations (2)
$$$
(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 Through March 31, 2020 of Project 
NAAQS SO2 (1)
 $27
 $26
 $1
 
Cooling water intake regulations (2)
 $8
 $1
 $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.

Please see “Item 1. Business - Environmental Matters" in IPALCO’s 2019 Form 10-K for additional details on each of these projects.

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.


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 (and the amount of certain other fees in the Credit
42


Agreement) are dependent upon the credit ratings of IPL. Downgrades in the credit ratings of AES could result in IPL’s and/or IPALCO’s credit ratings being downgraded. Any reduction in our debt or credit ratings may adversely affect the trading price of our outstanding debt securities.

The following table presents the debt ratings and credit ratings (issuer/corporate rating) and outlook for IPALCO and IPL, along with the dates each rating was effective or affirmed.
Debt 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
DebtCredit ratingsIPALCOIPLOutlookEffective or Affirmed
Fitch Ratings
BBB BBB-(a)
ABBB+ (b)
StableNovember 20192020
Moody’s Investors Service
Baa3 (a)
A2Baa1 (b)
StableNovember 2018
S&P Global Ratings
BBB-BBB (a)
A-BBB (b)
StableNovember 2019
Credit ratingsIPALCOIPLOutlookEffective or Affirmed
Fitch RatingsBBB-BBB+StableNovember 2019
Moody’s Investors ServiceBaa1StableNovember 2018
S&P Global RatingsBBBBBBStableNovember 2019
(a)
(a)Ratings relate to IPALCOs Senior Secured Notes
(b)Ratings relate to IPLs Senior Secured Bonds.

s Senior Secured Notes
(b)
Ratings relate to IPLs Senior Secured Bonds.

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

Dividend Distributions
 
All of IPALCO’s outstanding common stock is held by AES U.S. Investments and CDPQ. During the first threenine months of 2020 and 2019, IPALCO paid $26.6$94.0 million and $31.6$94.7 million, respectively, in dividends and returns of capital to its shareholders. Future distributions to our shareholders will be determined at the discretion of our Board of Directors and will depend primarily on dividends received from IPL. Dividends from IPL are affected by IPL’s actual results of operations, financial condition, cash flows, capital requirements, regulatory considerations, and such other factors as IPL’s Board of Directors deems relevant.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 
 
There have been no material changes to our quantitative and qualitative disclosure about market risk as previously disclosed in the 2019 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures — The Company, under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of its “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of March 31,September 30, 2020, to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.


Changes in Internal Controls over Financial Reporting — There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the
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COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.



PART II – OTHER INFORMATION

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

Our Form 10-K for the fiscal year ended December 31, 2019 and the Notes to IPALCO's Consolidated Financial Statements included therein contain descriptions of certain legal proceedings in which we are or were involved. The information in or incorporated by reference into this Item 1 to Part II is limited to certain recent developments concerning our legal proceedings and new legal proceedings, since the filing of such Form 10-K, and should be read in conjunction with such Form 10-K.

The following information is incorporated by reference into this Item: information about the legal proceedings contained in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part I, Item 1, Note 2, "Regulatory Matters", and Note 8, "Commitments and Contingencies" and Note 12, "Risks and Uncertainties" to IPALCO's Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

ITEM 1A.  RISK FACTORS
 
A listing of the risk factors that we consider to be the most significant to a decision to invest in our securities is provided in our Form 10-K for the fiscal year ended December 31, 2019.2019, as supplemented in our Form 10-Qs for the three months ended March 31, 2020 and June 30, 2020. Except as described below, there has been no material change in our risk factors as previously disclosed in our 2019 Form 10-K. If any of the events described in our risk factors occur, it could have a material adverse effect on our results of operations, financial condition and cash flows.

The risks and uncertainties described in our risk factors are not the only ones we face. In addition, 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. Our risk factors should be read in conjunction with the other detailed information concerning the Company set forth in the Notes to the Company’s Financial Statements found in Part I, Item 1, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections included in our filings.

On April 8, 2020, we filed a Current Report on Form 8-K (the “April 8, 2020 8-K”) that, among other things, revised, clarified and supplemented our risk factors, including those contained in our 2019 Form 10-K.

As part of the filing of this Quarterly Report Form on Form 10-Q, we are further revising, clarifying and supplementing our risk factors, including those contained in the 2019 Form 10-K and the April 8, 2020 8-K.factors. The risk factor below amends and supersedes the risk factor that we filed in connection with our 2020 first quarter and second quarter Form 10-Qs and should be considered together with the other risk factors described in the 2019 Form 10-K and amends and supersedes the risk factor that we filed in connection with the April 8, 2020 8-K.10-K.



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 severe 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.

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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 United States.U.S. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United StatesU.S. declared a national emergency with respect to COVID-19. On March 19, 2020, the Governor of Indiana issued an Executive Order prohibiting electric utilities, including us, from discontinuing electric utility service to customers.

The outbreak of COVID-19 has severely 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 will incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control. The global impact of the outbreak has been rapidly evolving and many countries, including the United States,U.S., have reacted by instituting quarantines, mandating business and school closures andas well as restricting travel. Many experts predict that the outbreak will trigger 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 generation 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, including with respect to the TCJA.


delays in the implementation of expected rules and regulations, including with respect to the TCJA.

We will 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.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty which could materially and adversely affect our generation facilities, transmission and distribution systems, results of operations, financial condition and cash flows.

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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.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None. 
 
ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 
ITEM 5.  OTHER INFORMATION

None.
 

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ITEM 6. EXHIBITS
Exhibit No.Document
4.131.1
4.2
4.3
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.SCHXBRL Taxonomy Extension Schema Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.CALXBRL Taxonomy Extension Calculation Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.DEFXBRL Taxonomy Extension Definition Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.LABXBRL Taxonomy Extension Label Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.PREXBRL Taxonomy Extension Presentation Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
IPALCO ENTERPRISES, INC.
Date:November 5, 2020IPALCO ENTERPRISES, INC.
Date:May 6, 2020/s/ Gustavo Garavaglia
Gustavo Garavaglia
Chief Financial Officer
(Principal Financial Officer) 
Date:May 6,November 5, 2020/s/ Karin M. Nyhuis
Karin M. Nyhuis
Controller
(Principal Accounting Officer)

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