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‑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;

~~impacts of weather on retail sales and wholesale prices;~~

~~impacts of renewable energy generation, natural gas prices and other market factors on wholesale prices;~~

weather-related damage to our electrical system;

~~fuel,~~ commodity and other input costs;

performance of our suppliers;

~~generating unit availability and capacity;~~

transmission and distribution system reliability and capacity, including natural gas pipeline system and supply constraints;

~~purchased power costs~~regulatory actions and ~~availability;~~

~~availability and price of capacity;~~

~~regulatory actions,~~outcomes, including, but not limited to, the review and approval of our ~~basic~~ rates and charges by the IURC;

federal and state legislation and regulations;

changes in our credit ratings or the credit ratings of AES;

fluctuations in the value of pension plan assets, fluctuations in pension plan expenses and our ability to fund defined benefit pension plans;

changes in financial or regulatory accounting policies;

environmental matters, including costs of compliance with, and liabilities related to, current and future environmental laws and requirements;

interest rates and the use of interest rate hedges, inflation rates and other costs of capital;

the availability of capital;

the ability of subsidiaries to pay dividends or distributions to IPALCO;

level of creditworthiness of counterparties to contracts and transactions;

labor strikes or other workforce factors, including the ability to attract and retain key personnel;

facility or equipment maintenance, repairs and capital expenditures;

significant delays or unanticipated cost increases associated with construction projects;

the availability and cost of funds to finance working capital and capital needs, particularly during periods when the time lag between incurring costs and recovery is long and the costs are material;

local economic conditions;

cyber-attacks and information security breaches;

catastrophic events such as fires, explosions, terrorist acts, acts of war, pandemic events, 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, ~~allocation of costs, costs associated with transmission expansion, the recovery of~~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 ~~strategies to reduce~~ tax ~~payments;~~strategies;

the use of derivative contracts; ~~and~~

product development, technology changes, and changes in prices of products and ~~technologies.~~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 ~~2017~~2018 Form 10-K for a more detailed discussion of the foregoing and certain other factors that could cause actual results to differ materially from those reflected in any forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to publicly update or review any forward-looking information, whether as a result of new information, future events or otherwise. If one or more forward-looking statements are updated, no inference should be drawn that additional updates will be made with respect to those or other forward-looking statements.

PART I– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017

UTILITY OPERATING REVENUES $ 385,149
$ 355,314
$ 1,099,331
$ 1,014,048

UTILITY OPERATING EXPENSES:
Fuel 90,599
77,061
252,435
210,521
Other operating expenses 73,155
63,329
207,397
189,728
Power purchased 39,267
44,470
131,580
141,058
Maintenance 36,489
29,706
107,828
96,032
Depreciation and amortization 57,880
52,711
172,492
156,099
Taxes other than income taxes 12,781
11,804
42,036
33,640
Income taxes - net 13,538
23,049
29,620
53,189
Total utility operating expenses 323,709
302,130
943,388
880,267
UTILITY OPERATING INCOME 61,440
53,184
155,943
133,781

OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 459
6,628
7,839
19,576
Loss on early extinguishment of debt —
(8,875 ) —
(8,875 )
Miscellaneous income and (deductions) - net 124
368
(1,768 ) 712
Income tax benefit applicable to nonoperating income 2,966
8,308
6,072
15,492
Total other income and (deductions) - net 3,549
6,429
12,143
26,905

INTEREST AND OTHER CHARGES:
Interest on long-term debt 28,634
30,575
86,139
89,077
Other interest 461
466
1,410
1,263
Allowance for borrowed funds used during construction (7,155 ) (5,702 ) (20,032 ) (16,763 )
Amortization of redemption premiums and expense on debt 977
1,081
2,948
3,241
Total interest and other charges - net 22,917
26,420
70,465
76,818
NET INCOME 42,072
33,193
97,621
83,868

LESS: PREFERRED DIVIDENDS OF SUBSIDIARY 803
803
2,410
2,410
NET INCOME APPLICABLE TO COMMON STOCK $ 41,269
$ 32,390
$ 95,211
$ 81,458

See notes to unaudited condensed consolidated financial statements.



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In Thousands)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

REVENUES	$	398,456		$	385,149		$	1,121,634		$	1,099,331

OPERATING COSTS AND EXPENSES:
Fuel	93,217			90,599			254,233			252,435
Power purchased	31,840			39,267			101,483			131,580
Operation and maintenance	105,975			109,644			321,782			315,225
Depreciation and amortization	60,373			57,880			179,939			172,492
Taxes other than income taxes	12,943			12,781			33,909			42,036
Total operating costs and expenses	304,348			310,171			891,346			913,768

OPERATING INCOME	94,108			74,978			230,288			185,563

OTHER INCOME / (EXPENSE), NET:
Allowance for equity funds used during construction	810			459			2,538			7,839
Interest expense	(30,620		)	(22,917		)	(91,393		)	(70,465		)
Other income / (expense), net	(2,704		)	124			(7,977		)	(1,768		)
Total other income / (expense), net	(32,514		)	(22,334		)	(96,832		)	(64,394		)

EARNINGS FROM OPERATIONS BEFORE INCOME TAX	61,594			52,644			133,456			121,169

Less: Income tax expense - net	13,088			10,572			28,252			23,548
NET INCOME	48,506			42,072			105,204			97,621

Less: Dividends on preferred stock	803			803			2,410			2,410
NET INCOME APPLICABLE TO COMMON STOCK	$	47,703		$	41,269		$	102,794		$	95,211

See notes to unaudited condensed consolidated financial statements.

IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In Thousands)
September 30, December 31,
2018 2017
ASSETS
UTILITY PLANT:
Utility plant in service $ 6,154,285
$ 5,385,053
Less accumulated depreciation 2,213,760
2,129,617
Utility plant in service - net 3,940,525
3,255,436
Construction work in progress 81,535
711,396
Spare parts inventory 14,231
13,157
Property held for future use 1,002
1,002
Utility plant - net 4,037,293
3,980,991
OTHER ASSETS:

Nonutility property - at cost, less accumulated depreciation 417
502
Intangible assets - net 37,444
16,036
Other long-term assets 4,612
6,185
Other assets - net 42,473
22,723
CURRENT ASSETS:

Cash and cash equivalents 15,745
30,681
Accounts receivable and unbilled revenue (less allowance

for doubtful accounts of $2,769 and $2,830, respectively) 161,545
157,577
Fuel inventories - at average cost 27,157
32,393
Materials and supplies - at average cost 66,772
63,623
Regulatory assets 14,532
35,341
Prepayments and other current assets 33,483
34,094
Total current assets 319,234
353,709
DEFERRED DEBITS:

Regulatory assets 389,189
378,904
Miscellaneous 5,401
4,234
Total deferred debits 394,590
383,138
TOTAL $ 4,793,590
$ 4,740,561
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Paid in capital $ 597,736
$ 597,467
Accumulated deficit (15,169 ) (25,191 )
Total common shareholders' equity 582,567
572,276
Cumulative preferred stock of subsidiary 59,784
59,784
Long-term debt (Note 4) 2,480,080
2,477,538
Total capitalization 3,122,431
3,109,598
CURRENT LIABILITIES:
Short-term and current portion of long-term debt (Note 4) 104,000
148,000
Accounts payable 124,054
125,297
Accrued expenses 21,986
27,926
Accrued real estate and personal property taxes 26,707
18,145
Regulatory liabilities 22,406
2,532
Accrued income taxes 9,544
—
Accrued interest 35,369
34,332
Customer deposits 31,862
31,306
Other current liabilities 10,522
10,392
Total current liabilities 386,450
397,930
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Regulatory liabilities 895,225
851,754
Deferred income taxes - net 240,095
245,257
Non-current income tax liability 4,645
4,651
Unamortized investment tax credit 271
954
Accrued pension and other postretirement benefits 15,600
50,070
Asset retirement obligations 128,359
79,535
Miscellaneous 514
812
Total deferred credits and other long-term liabilities 1,284,709
1,233,033
COMMITMENTS AND CONTINGENCIES (Note 7)

TOTAL $ 4,793,590
$ 4,740,561

See notes to unaudited condensed consolidated financial statements.



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss)
(In Thousands)
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019			2018

Net income applicable to common stock	$	47,703		$	41,269	$	102,794		$	95,211

Derivative activity:
Change in derivative fair value, net of income tax benefit of $4,322, $0, $10,188 and $0, for each respective period	(12,534		)	—		(29,722		)	—
Net change in fair value of derivatives	(12,534		)	—		(29,722		)	—

Other comprehensive loss	(12,534		)	—		(29,722		)	—

Net comprehensive income	$	35,169		$	41,269	$	73,072		$	95,211

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,
2018 2017
CASH FLOWS FROM OPERATIONS:
Net income $ 97,621
$ 83,868
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 172,492
156,103
Amortization of deferred financing costs and debt premium 2,948
3,241
Deferred income taxes and investment tax credit adjustments - net (16,852 ) (14,546 )
Loss on early extinguishment of debt —
8,875
Allowance for equity funds used during construction (7,839 ) (19,576 )
Change in certain assets and liabilities:

Accounts receivable (3,968 ) 2,635
Fuel, materials and supplies 2,088
(4,626 )
Income taxes receivable or payable 24,226
5,143
Financial transmission rights (2,321 ) (788 )
Accounts payable and accrued expenses (7,560 ) (10,864 )
Accrued real estate and personal property taxes 8,561
3,020
Accrued interest 1,037
2,951
Accrued pension and other postretirement benefits
(34,469 ) (15,828 )
Short-term and long-term regulatory assets and liabilities 82,306
21,183
Prepaids and other current assets (11,750 ) 156
Other - net 1,186
(4,841 )
Net cash provided by operating activities 307,706
216,106
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - utility (161,830 ) (163,714 )
Project development costs (761 ) (1,315 )
Cost of removal and regulatory recoverable ARO payments (13,544 ) (7,523 )
Other (6,248 ) (2,957 )
Net cash used in investing activities (182,383 ) (175,509 )
CASH FLOWS FROM FINANCING ACTIVITIES:

Short-term debt borrowings 100,000
126,500
Short-term debt repayments (144,000 ) (80,650 )
Long-term borrowings, net of discount —
404,633
Retirement of long-term debt, including early payment premium —
(408,152 )
Dividends on common stock (85,189 ) (75,476 )
Preferred dividends of subsidiary (2,410 ) (2,410 )
Deferred financing costs paid —
(3,652 )
Payments for financed capital expenditures (8,469 ) (9,788 )
Other (191 ) (228 )
Net cash used in financing activities (140,259 ) (49,223 )
Net change in cash and cash equivalents (14,936 ) (8,626 )
Cash and cash equivalents at beginning of period 30,681
34,953
Cash and cash equivalents at end of period $ 15,745
$ 26,327

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 66,177
$ 70,395
Income taxes $ 15,800
$ 47,100
Non-cash investing activities:
Accruals for capital expenditures $ 41,109
$ 33,184

See notes to unaudited condensed consolidated financial statements.



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In Thousands)
	September 30,			December 31,
	2019			2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	48,413		$	33,199
Restricted cash	400			400
Accounts receivable, net	172,676			167,559
Inventories	91,980			99,668
Regulatory assets, current	32,027			28,399
Taxes receivable	24,480			13,773
Prepayments and other current assets	18,721			15,573
Total current assets	388,697			358,571
NON-CURRENT ASSETS:
Property, plant and equipment	6,387,269			6,201,078
Less: Accumulated depreciation	2,369,515			2,256,215
	4,017,754			3,944,863
Construction work in progress	102,823			111,723
Total net property, plant and equipment	4,120,577			4,056,586
OTHER NON-CURRENT ASSETS:
Intangible assets - net	71,325			40,848
Regulatory assets, non-current	372,433			395,077
Other non-current assets	15,276			10,971
Total other non-current assets	459,034			446,896
TOTAL ASSETS	$	4,968,308		$	4,862,053
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of long-term debt (Note 4)	$	469,017		$	—
Accounts payable	121,559			134,931
Accrued taxes	28,848			21,325
Accrued interest	37,755			34,790
Customer deposits	33,727			32,700
Regulatory liabilities, current	54,827			51,024
Accrued and other current liabilities	63,378			27,787
Total current liabilities	809,111			302,557
NON-CURRENT LIABILITIES:
Long-term debt (Note 4)	2,181,948			2,649,064
Deferred income tax liabilities	265,017			253,085
Taxes payable	4,658			4,658
Regulatory liabilities, non-current	864,442			870,255
Accrued pension and other postretirement benefits	23,411			19,329
Asset retirement obligations	207,912			129,451
Other non-current liabilities	239			604
Total non-current liabilities	3,547,627			3,926,446
Total liabilities	4,356,738			4,229,003
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Paid in capital	597,971			597,824
Accumulated other comprehensive loss	(29,722		)	—
Accumulated deficit	(16,463		)	(24,558		)
Total common shareholders' equity	551,786			573,266
Preferred stock of subsidiary	59,784			59,784
Total shareholders' equity	611,570			633,050
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	4,968,308		$	4,862,053

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,
	2019			2018
CASH FLOWS FROM OPERATIONS:
Net income	$	105,204		$	97,621
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	179,939			172,492
Amortization of deferred financing costs and debt premium	3,081			2,948
Deferred income taxes and investment tax credit adjustments - net	15,109			(16,852		)
Allowance for equity funds used during construction	(2,538		)	(7,839		)
Change in certain assets and liabilities:
Accounts receivable	(5,117		)	(7,361		)
Inventories	7,688			2,088
Accounts payable	(46,063		)	(1,620		)
Accrued and other current liabilities	3,560			(5,812		)
Accrued taxes payable/receivable	(9,670		)	32,787
Accrued interest	2,965			1,037
Pension and other postretirement benefit expenses	4,082			(34,469		)
Short-term and long-term regulatory assets and liabilities	2,213			82,306
Prepayments and other current assets	(3,576		)	(10,679		)
Other - net	2,895			1,059
Net cash provided by operating activities	259,772			307,706
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(126,066		)	(161,830		)
Project development costs	(1,268		)	(761		)
Cost of removal and regulatory recoverable ARO payments	(14,067		)	(20,845		)
Other	278			1,053
Net cash used in investing activities	(141,123		)	(182,383		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt borrowings	10,000			100,000
Short-term debt repayments	(10,000		)	(144,000		)
Dividends on common stock	(94,699		)	(85,189		)
Preferred dividends of subsidiary	(2,410		)	(2,410		)
Payments for financed capital expenditures	(5,616		)	(8,469		)
Other	(710		)	(191		)
Net cash used in financing activities	(103,435		)	(140,259		)
Net change in cash, cash equivalents and restricted cash	15,214			(14,936		)
Cash, cash equivalents and restricted cash at beginning of period	33,599			30,681
Cash, cash equivalents and restricted cash at end of period	$	48,813		$	15,745

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)	$	85,602		$	66,177
Income taxes	23,600			15,800
Non-cash investing activities:
Change in accruals for capital expenditures	$	13,115		$	41,109

See notes to unaudited condensed consolidated financial statements.



IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Common Shareholders' Equity (Deficit)
and Noncontrolling Interest
For the Nine Months Ended September 30, 2019 and 2018
(In Thousands)
	Paid in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Common Shareholders' Equity			Cumulative Preferred Stock of Subsidiary
2018
Beginning Balance	$	597,467	$	—		$	(25,191	)	$	572,276		$	59,784
Net income	—		—			31,500			31,500			803
Preferred stock dividends	—		—			—			—			(803		)
Distributions to shareholders	—		—			(25,328		)	(25,328		)	—
Other	125		—			—			125			—
Balance at March 31, 2018	597,592		—			(19,019		)	578,573			59,784
Net income	—		—			22,442			22,442			804
Preferred stock dividends	—		—			—			—			(804		)
Distributions to shareholders	—		—			(25,939		)	(25,939		)	—
Other	79		—			—			79			—
Balance at June 30, 2018	597,671		—			(22,516		)	575,155			59,784
Net income	—		—			41,269			41,269			803
Preferred stock dividends	—		—			—			—			(803		)
Distributions to shareholders	—		—			(33,922		)	(33,922		)	—
Other	65		—			—			65			—
Balance at September 30, 2018	$	597,736	$	—		$	(15,169	)	$	582,567		$	59,784

2019
Beginning Balance	$	597,824	$	—		$	(24,558	)	$	573,266		$	59,784
Net comprehensive income	—		(5,539		)	40,982			35,443			803
Preferred stock dividends	—		—			—			—			(803		)
Distributions to shareholders	—		—			(31,590		)	(31,590		)	—
Other	34					—			34			—
Balance at March 31, 2019	597,858		(5,539		)	(15,166		)	577,153			59,784
Net comprehensive income	—		(11,649		)	14,109			2,460			804
Preferred stock dividends	—		—			—			—			(804		)
Distributions to shareholders	—		—			(28,345		)	(28,345		)	—
Other	59		—			—			59			—
Balance at June 30, 2019	597,917		(17,188		)	(29,402		)	551,327			59,784
Net comprehensive income	—		(12,534		)	47,703			35,169			803
Preferred stock dividends	—		—			—			—			(803		)
Distributions to shareholders	—		—			(34,764		)	(34,764		)	—
Other	54		—			—			54			—
Balance at September 30, 2019	$	597,971	$	(29,722	)	$	(16,463	)	$	551,786		$	59,784

See notes to unaudited condensed consolidated financial statements.

IPALCO ENTERPRISES, INC. and SUBSIDIARIES

Notes toUnauditedCondensed 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 ~~490,000~~500,000 retail customers in the city of Indianapolis and neighboring cities, towns and communities, and adjacent rural areas all within the state of Indiana, with the most distant point being approximately ~~forty~~40 miles from Indianapolis. IPL has an exclusive right to provide electric service to those customers. IPL owns and operates ~~four~~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 ~~newly constructed 671 MW~~ 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 September 30, ~~2018,~~2019, IPL’s net electric generation capacity for winter is ~~3,667~~3,705 MW and net summer capacity is ~~3,552~~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 ~~2017~~2018 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.

Reclassifications

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

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,
	2019		2018
	(In Thousands)
Cash, cash equivalents and restricted cash
Cash and cash equivalents	$	48,413	$	33,199
Restricted cash	400		400
Total cash, cash equivalents and restricted cash	$	48,813	$	33,599

Accounts Receivable

The following table summarizes our accounts receivable balances at September 30, 2019 and December 31, 2018:



	September 30,			December 31,
	2019			2018
	(In Thousands)
Accounts receivable, net
Customer receivables	$	96,919		$	91,426
Unbilled revenue	66,670			68,893
Amounts due from related parties	4,949			5,720
Other	7,165			4,341
Provision for uncollectible accounts	(3,027		)	(2,821		)
Total accounts receivable, net	$	172,676		$	167,559

Inventories

The following table summarizes our inventories balances at September 30, 2019 and December 31, 2018:



	September 30,		December 31,
	2019		2018
	(In Thousands)
Inventories
Fuel	$	29,981	$	32,457
Materials and supplies	61,999		67,211
Total inventories	$	91,980	$	99,668

Financial Derivatives

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

We use interest rate hedges to manage the interest rate risk of our variable rate debt. We use cash flow hedge accounting when the hedge or a portion of the hedge is deemed to be highly effective, which results in changes in the fair value being recorded within accumulated other comprehensive income, a component of shareholders' equity. We have elected not to offset net derivative positions in the Financial Statements. Accordingly, we do not offset such derivative positions against the fair value of amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting agreements. See Note 3, “Derivative Instruments and Hedging Activities” for additional information.

ARO

~~In 2018,~~During the nine months ended September 30, 2019, IPL recorded ~~additional~~adjustments to its ARO liabilities of ~~$53.1~~$80.4 million primarily to reflect ~~revisions~~an increase to ~~cash flow and timing estimates due to accelerated~~estimated ash pond closure ~~dates and revised estimated closure~~ costs, ~~after review of updates to the CCR rule and revised estimated costs associated with our coal storage areas.~~including groundwater remediation. The following is a roll forward of the ARO legal liability for the nine months ended September 30, ~~2018~~2019 (in thousands):



Balance as of January 1, 2019	$	129,451
Revisions to cash flow and timing estimates	80,406
Liabilities settled	(8,373		)
Accretion expense	6,428
Balance as of September 30, 2019	$	207,912

Accumulated Other Comprehensive Income / (Loss)

The changes in the components of Accumulated Other Comprehensive Income/(Loss) during the nine months ended September 30, 2019 are as follows:

Balance as of January 1, 2018 $ 79,535
Revisions to cash flow and timing estimates 53,059
Liabilities settled (7,301 )
Accretion expense 3,066
Balance as of September 30, 2018 $ 128,359



	Gains and losses on cash flow hedges
	(In Thousands)
Balance at January 1, 2019	$	—
Other comprehensive loss	(29,722		)
Balance at September 30, 2019	$	(29,722	)

New Accounting Pronouncements Adopted in ~~2018~~2019

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 Name	Description	Date of Adoption	Effect on the ~~financial statements~~Financial Statements upon adoption
~~2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~	This standard changes the presentation of non-service costs associated with defined benefit plans and updates the guidance so that only the service cost component will be eligible for capitalization. Transition method: retrospective for presentation of non-service cost expense and prospective for the change in capitalization.	~~January 1, 2018~~	The adoption of this standard resulted in a $(1.4) million reclassification of non-service pension costs (credits) from Other operating expenses to Miscellaneous income and (deductions) - net for the nine months ended September 30, 2017.
~~2014-09, 2015-14, 2016-08,~~ ~~2016-10, 2016-12, 2016-20, 2017-10, 2017-13, Revenue from Contracts~~ ~~with Customers (Topic~~ ~~606)~~	~~See discussion of the ASUs below.~~	~~January 1, 2018~~	~~See impact upon adoption of the standard below.~~

~~Adoption of ASC Topic 606,~~ “~~Revenue from Contracts with Customers~~”

On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers”, and its subsequent corresponding updates (“ASC 606”). Under this standard, an entity shall recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applied the modified retrospective method of adoption to those contracts that were not completed as of January 1, 2018. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under the previous revenue recognition standard. For contracts that were modified before January 1, 2018, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.

~~There was no cumulative effect to our January 1, 2018 Condensed Consolidated Balance Sheet resulting from the adoption of ASC 606.~~

~~New Accounting Pronouncements Issued But Not Yet Effective~~

The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s Financial Statements once adopted. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on the Company’s Financial Statements.



~~New Accounting Standards Issued But Not Yet Effective~~
~~ASU Number and Name~~	~~Description~~	~~Date of Adoption~~	~~Effect on the financial statements upon adoption~~
~~2018-15, Intangibles—~~ ~~Goodwill and Other—~~ ~~Internal-Use Software~~ ~~(Subtopic 350-40):~~ ~~Customer’s Accounting for~~ ~~Implementation Costs~~ ~~Incurred in a Cloud~~ ~~Computing Arrangement~~ ~~That Is a Service Contract~~	This standard aligns the accounting for implementation costs incurred for a cloud computing arrangement that is a service with the requirement for capitalizing implementation costs associated with developing or obtaining internal-use software. Transition method: retrospective or prospective.	~~January 1, 2020. Early adoption is permitted.~~	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities	The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item. Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures.	January 1, ~~2019. Early adoption is permitted.~~2019	The ~~Company is currently evaluating~~adoption of this standard did not have a material impact on the ~~impact of adopting the standard on its consolidated financial statements.~~
~~2017-08, Receivables -~~ ~~Nonrefundable Fees and~~ ~~Other Costs (Subtopic~~ ~~310-20): Premium~~ ~~Amortization on~~ ~~Purchased Callable Debt~~ ~~Securities~~	~~This standard shortens the period of amortization for the premium on certain callable debt securities to the earliest call date. Transition method: modified retrospective.~~	~~January 1, 2019. Early adoption is permitted.~~	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~
~~2016-13,~~ Financial ~~Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~	The standard updates the impairment model for financial assets measured at amortized cost. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. ~~Transition method: various.~~	~~January 1, 2020 Early adoption is permitted only as of January 1, 2019.~~	~~The Company is currently evaluating the impact of adopting the standard on its consolidated financial statements.~~Statements.
2016-02, 2018-01, 2018-10, 2018-11, 2018-20, 2019-01, Leases (Topic 842)	See discussion of the ASUs below.	January 1, ~~2019. Early~~2019	See impact upon adoption ~~is permitted.~~	~~The Company will adopt~~of the standard ~~on January 1, 2019; see below for the evaluation of the impact of its adoption on its consolidated financial statements.~~below.

~~ASU 2016-02~~On January 1, 2019, the Company adopted ASC 842 Leases and its subsequent corresponding updates ~~require~~(“ASC 842”). Under this standard, lessees are required to recognize assets and liabilities for most leases ~~but~~on the balance sheet, and recognize expenses in a manner similar to the current accounting ~~methods.~~method. For lessors, the guidance modifies the lease classification criteria and the accounting for sales-type and direct financing leases. The guidance ~~also~~ eliminates ~~the current~~previous real estate-specific provisions.

~~The standard must be adopted using~~

Under ASC 842, fewer of our contracts contain a ~~modified retrospective approach at~~lease. However, due to the ~~beginning~~elimination of the ~~earliest~~real estate-specific guidance and changes to certain lessor classification criteria, more leases qualify as sales-type leases and direct financing leases. Under these two models, a lessor derecognizes the asset and recognizes a lease receivable. According to ASC 842, the lease receivable includes the fair value of the asset after the contract period, but does not include variable payments such as margin on the sale of energy. Therefore, the lease receivable could be significantly different than the carrying amount of the underlying asset at lease commencement. In such circumstances, the difference between the initially recognized lease receivable and the carrying amount of the underlying asset is recognized as a gain/loss at lease commencement.

~~comparative period presented in~~

During the ~~financial statements (January 1, 2017). The FASB amended~~course of adopting ASC 842, the ~~standard to~~Company applied various practical expedients including:

~~add an optional transition method that allows entities to continue to apply the guidance in ASC 840 Leases in the~~

~~comparative periods presented in the year they adopt the new lease standard. Under this transition method, the~~

~~Company will apply the transition provisions on January 1, 2019. At transition, lessees and lessors are permitted~~

~~to make an election to apply a~~The package of practical expedients (applied to all leases) that ~~allow them~~allowed lessees and lessors not to reassess: ~~(1)~~

a. whether any

expired or existing contracts are or contain leases, ~~(2)~~

b. lease classification for any expired or existing leases, and ~~(3)~~

c. whether initial direct costs for any expired or existing leases qualify for capitalization under ASC 842. ~~These three~~

The transition practical ~~expedients must be elected as a package~~expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements, and ~~must be consistently~~

The transition practical expedient for lessees that allowed businesses to not separate lease and non-lease components. The Company applied the practical expedient to all ~~leases. Furthermore,~~

~~entities are also permitted to make an election to use hindsight~~classes of underlying assets when ~~determining~~valuing right-of-use assets and lease ~~term and lessees can elect~~

~~to use hindsight when assessing the impairment of right-of-use assets.~~

The Company has established a task force focused on the identification of contracts that would be under the scope of the new standard and on the assessment and measurement of the right-of-use asset and related liability. Additionally, the implementation team has been working on the configuration of a lease accounting tool that will support the implementation and the subsequent accounting. The implementation of this tool is the latest phase and it is expected to be completed by the effective date. The implementation team is also in the process of evaluating changes to our business processes, systems and controls to support recognition and disclosure under the new standard.

As the Company has preliminarily concluded that at transition it would be using the package of practical expedients, the main impact expected as of the effective date is the recognition of the right-of-use asset and the related liability in the financial statements for all those contracts that contain a lease and for whichliabilities. Contracts where the Company is the ~~lessee. However, income statement presentation~~lessor were separated between the lease and non-lease components.

The Company applied the ~~expense recognition pattern~~modified retrospective method of adoption and elected to continue to apply the guidance in ASC 840 Leases to the comparative periods presented in the year of adoption. Under this transition method, the Company applied the transition provisions starting at the date of adoption. The adoption of ASC 842 did not have a material impact on our Financial Statements.

New Accounting Pronouncements Issued But Not Yet Effective

The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s Financial Statements once adopted. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are ~~not~~ expected to ~~change.~~have no material impact on the Company’s Financial Statements.



New Accounting Standards Issued But Not Yet Effective
ASU Number and Name	Description	Date of Adoption	Effect on the Financial Statements upon adoption
2016-13, 2018-19, 2019-04, 2019-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	See discussion of the ASU below.	January 1, 2020. Early adoption is permitted only as of January 1, 2019.	The Company will adopt the standard on January 1, 2020; see below for the evaluation of the impact of the adoption on the standard on the Financial Statements.

~~Under ASC 842,~~

ASU 2016-13 and its subsequent corresponding updates will update the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit loses as it is done today, except that the losses will be recognized as an allowance rather than a reduction in the amortized cost of the securities. There are various transition methods available upon adoption.

The Company is currently evaluating the impact of adopting the standard on its Financial Statements; however, it is expected that ~~fewer contracts will contain a lease. Under~~ the new ~~rules, all operating leases~~current expected credit loss model will ~~be recorded as right-of-use assets with an off-setting lease liability.~~

primarily impact the calculation of the Company's expected credit losses on $175.7 million in gross trade accounts receivable.

2. ~~REGULATORY MATTERS~~FAIR VALUE

~~Basic Rates~~The fair value of financial assets and ~~Charges~~

On October 31, 2018, the IURC issued an order approving an uncontested settlement agreement previously filed with the IURC by IPL for a $43.9 million, or 3.2%, increase to annual revenues (the "2018 Rate Order").liabilities approximate their reported carrying amounts. The ~~2018 Rate Order includes recovery through rates~~estimated fair values of the ~~CCGT at Eagle Valley completed in the first half of 2018, as well as other construction projects~~Company’s assets and ~~changes~~liabilities have been determined using available market information. As these amounts are estimates and based on hypothetical transactions to operating income since the previous base rate order. New base rates and charges are expected to be effective on December 5, 2018. The 2018 Rate Order also provides customers approximately $50 million in benefits, to be flowed to customers over a two-year period via the ECCRA rate adjustment mechanism beginning in March 2019. These benefits to date are recorded in ~~long-term regulatory~~sell assets or transfer liabilities, ~~as of~~September 30, 2018. In addition, the 2018 Rate Order provides that annual wholesale margins earned above the benchmark of $16.3 million shall be passed back to customers through a rate adjustment mechanism. Conversely, any wholesale margin below the benchmark will be charged to customers through the same rate adjustment mechanism. Similarly, the 2018 Rate Order provides that all capacity sales above (or below) a benchmark of $11.3 million shall be passed back (or charged to) customers through a rate adjustment mechanism.

~~DSM~~

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

~~Taxes~~

On January 3, 2018, the IURC opened a generic investigation to review and consider the impacts from the TCJA and how any resulting benefits should be realized by customers. The IURC’s order opening this investigation directed Indiana utilities to apply regulatory accounting treatment, such as the use of ~~regulatory~~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 2018 Form 10-K.

VEBA Assets

IPL has VEBA investments that are to be used to fund certain employee postretirement health care benefit plans. These assets are primarily comprised of open-ended mutual funds, which are valued using the net assets value per unit. These investments are recorded at fair value within "Other non-current assets" on the accompanying Unaudited Condensed Consolidated Balance Sheets and ~~regulatory liabilities, for~~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 ~~estimated impacts resulting from the TCJA. On February 16, 2018, the IURC issued an order establishing two phases~~mutual funds, regardless of the investigation. The first phase (“Phase I”) directed respondent utilities (including IPL) to make a filing to remove from respondents’ rates and charges for service, the impact of a lower federal income tax rate. The second phase (“Phase II”) was established to address remaining issues from the TCJA, including treatment of deferred taxes and how these benefits will be realized by customers. On August 29, 2018, the IURC approved a settlement agreement filed by IPL and various other parties to resolve the Phase I issues of the TCJA tax expense via a credit through the ECCRA rate adjustment mechanism of $9.5 million. The 2018 Rate

~~Order described above resolved the Phase II and~~underlying investments. Therefore, all other issues regarding the TCJA impact on IPL's rates and includes an additional credit of $14.3 million to be paid by IPL to its customers through the ECCRA rate adjustment mechanism over two years beginning in March 2019.

~~3. FAIR VALUE~~

~~Fair Value Hierarchy~~

~~As of September 30, 2018 and December 31, 2017, all of IPALCO’s financial assets or liabilities adjusted~~changes to fair value on ~~a recurring basis (excluding pension assets – see Note 6, “Benefit Plans”) were considered Level 3, based on~~ the VEBA investments are included in income in the period that the changes occur. These changes to fair value hierarchy. These primarily consisted of FTRs, which are used to offset MISO congestion charges. Because the benefit associated with FTRs is a flow-through to IPL’s customers, IPL records a regulatory liability matching the value of the FTRs. These financial assets and liabilities were not material ~~to the Financial Statements in~~for the periods covered by this ~~report, individually~~report. Any unrealized gains or losses are recorded in our Unaudited Condensed Consolidated Statements of Operations.

FTRs

In connection with IPL’s participation in MISO, in the ~~aggregate.~~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.

Interest Rate Hedges

In March 2019, we entered into forward interest rate hedges related to the 2020 IPALCO Notes and Term Loan that have maturities in July 2020. The interest rate hedges have a combined notional amount of $400.0 million, which will settle when we refinance the debt. All changes in the market value of the interest rate hedges are recorded in AOCI. The AOCI associated with the final settlement will be amortized out of AOCI into interest expense over the remaining life of the underlying debt. See also Note 5, ~~“Regulatory Assets~~3, "Derivative Instruments and ~~Liabilities”~~ ~~in IPALCO’s 2017 Form 10-K~~Hedging Activities - Cash Flow Hedges" for ~~more~~further information.

~~Non-Recurring~~

Recurring Fair Value Measurements

~~IPL’s ARO~~The fair value of assets and liabilities ~~relate primarily to environmental issues involving asbestos-containing materials, ash ponds, landfills~~at September 30, 2019 and ~~miscellaneous contaminants associated with its generating plants, transmission system~~December 31, 2018 measured on a recurring basis and ~~distribution system. We use~~ the ~~cost approach to determine~~respective category within the fair value of IPL’s ARO liabilities, which is estimated by discounting expected cash outflows to their present value using market-based rates at the initial recording of the liabilities. Cash outflows are based on the approximate future disposal costshierarchy for IPALCO was determined as determined by market information, historical information or other management estimates. These inputs to the fair value of the ARO liabilities would be considered Level 3 inputs under the fair value hierarchy. In 2018, IPL recorded additional ARO liabilities of $53.1 million to reflect revisions to cash flow and timing estimates due to accelerated ash pond closure dates and revised estimated closure costs after review of updates to the CCR rule and revised estimated costs associated with our coal storage areas. As of September 30, 2018 and December 31, 2017, ARO liabilities were $128.4 million and $79.5 million, respectively. follows:



Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at September 30, 2019		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
VEBA investments:
Money market funds	$	20	$	20	$	—	$	—
Mutual funds	2,752		—		2,752		—
Total VEBA investments	2,772		20		2,752		—
Financial transmission rights	1,668		—		—		1,668
Total financial assets measured at fair value	$	4,440	$	20	$	2,752	$	1,668
Financial liabilities:
Interest rate hedges	$	39,909	$	—	$	39,909	$	—
Total financial liabilities measured at fair value	$	39,909	$	—	$	39,909	$	—



Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2018		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
VEBA investments:
Money market funds	$	21	$	21	$	—	$	—
Mutual funds	2,565		—		2,565		—
Total VEBA investments	2,586		21		2,565		—
Financial transmission rights	3,099		—		—		3,099
Total financial assets measured at fair value	$	5,685	$	21	$	2,565	$	3,099
Financial liabilities:
Other derivative liabilities	$	53	$	—	$	—	$	53
Total financial liabilities measured at fair value	$	53	$	—	$	—	$	53

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

Debt

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

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



	September 30, 2019				December 31, 2018
	Face Value		Fair Value		Face Value		Fair Value
	(In Thousands)
Fixed-rate	$	2,523,800	$	2,891,692	$	2,523,800	$	2,649,265
Variable-rate	155,000		155,000		155,000		155,000
Total indebtedness	$	2,678,800	$	3,046,692	$	2,678,800	$	2,804,265

September 30, 2018 December 31, 2017
Face Value Fair Value Face Value Fair Value
(In Thousands)
Fixed-rate $ 2,418,800
$ 2,515,484
$ 2,418,800
$ 2,655,000
Variable-rate 194,000
194,000
238,000
238,000
Total indebtedness $ 2,612,800
$ 2,709,484
$ 2,656,800
$ 2,893,000

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

unamortized deferred financing costs of ~~$22.0~~$21.3 million and ~~$24.4~~$23.0 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively; and

unamortized discounts of ~~$6.7~~$6.5 million and ~~$6.9~~$6.7 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

At September 30, 2019, IPL's outstanding derivative instruments were as follows:



Commodity	Accounting Treatment ^(a)	Unit	Purchases (in thousands)		Sales (in thousands)		Net Purchases/(Sales) (in thousands)
Interest rate hedges	Designated	USD	$	400,000	$	—	$	400,000
FTRs	Not Designated	MWh	9,131		—		9,131


(a)	Refers to whether the derivative instruments have been designated as a cash flow hedge.

Cash Flow Hedges

As part of our risk management processes, we identify the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. The fair values of cash flow hedges determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we are no longer required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument is now recorded in other comprehensive income and amounts deferred are reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.

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

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

comparable published rates. We will reclassify gains and losses on the swaps out of AOCI and into earnings in those periods in which hedged interest payments occur.

The following tables provide information on gains or losses recognized in AOCI for the cash flow hedges for the period indicated:



	Interest Rate Hedges for the Nine Months Ended September 30, 2019
$ in thousands (net of tax)
Beginning accumulated derivative gain / (loss) in AOCI	$	—

Net losses associated with current period hedging transactions	(29,722		)
Ending accumulated derivative loss in AOCI	$	(29,722	)

Portion expected to be reclassified to earnings in the next twelve months	$	—
Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months)	10

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.

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 September 30, 2019, IPALCO did not have any offsetting positions.

4. DEBT

Long-Term Debt

The following table presents our long-term debt:


		September 30,			December 31,				September 30,			December 31,
Series	Due	2018			2017			Due	2019			2018
		(In Thousands)							(In Thousands)
IPL first mortgage bonds:	IPL first mortgage bonds:							IPL first mortgage bonds:
3.875% ⁽¹⁾	August 2021	$	55,000		$	55,000		August 2021	$	55,000		$	55,000
3.875% ⁽¹⁾	August 2021	40,000			40,000			August 2021	40,000			40,000
3.125% ⁽¹⁾	December 2024	40,000			40,000			December 2024	40,000			40,000
6.60%	January 2034	100,000			100,000			January 2034	100,000			100,000
6.05%	October 2036	158,800			158,800			October 2036	158,800			158,800
6.60%	June 2037	165,000			165,000			June 2037	165,000			165,000
4.875%	November 2041	140,000			140,000			November 2041	140,000			140,000
4.65%	June 2043	170,000			170,000			June 2043	170,000			170,000
4.50%	June 2044	130,000			130,000			June 2044	130,000			130,000
4.70%	September 2045	260,000			260,000			September 2045	260,000			260,000
4.05%	May 2046	350,000			350,000			May 2046	350,000			350,000
4.875%								November 2048	105,000			105,000
Unamortized discount – net		(6,256		)	(6,353		)		(6,189		)	(6,272		)
Deferred financing costs		(15,782		)	(16,168		)		(16,769		)	(17,115		)
Total IPL first mortgage bonds	Total IPL first mortgage bonds	1,586,762			1,586,279			Total IPL first mortgage bonds	1,690,842			1,690,413
IPL unsecured debt:	IPL unsecured debt:							IPL unsecured debt:
Variable ⁽²⁾	December 2020	30,000			30,000			December 2020	30,000			30,000
Variable ⁽²⁾	December 2020	60,000			60,000			December 2020	60,000			60,000
Deferred financing costs		(258		)	(344		)		(143		)	(229		)
Total IPL unsecured debt		89,742			89,656				89,857			89,771
Total Long-term Debt – IPL	Total Long-term Debt – IPL	1,676,504			1,675,935			Total Long-term Debt – IPL	1,780,699			1,780,184
Long-term Debt – IPALCO:	Long-term Debt – IPALCO:							Long-term Debt – IPALCO:
Term Loan								July 2020	65,000			65,000
3.45% Senior Secured Notes	July 2020	405,000			405,000			July 2020	405,000			405,000
3.70% Senior Secured Notes	September 2024	405,000			405,000			September 2024	405,000			405,000
Unamortized discount – net		(451		)	(534		)		(341		)	(424		)
Deferred financing costs		(5,973		)	(7,863		)		(4,393		)	(5,696		)
Total Long-term Debt – IPALCO	Total Long-term Debt – IPALCO	803,576			801,603			Total Long-term Debt – IPALCO	870,266			868,880
Total Consolidated IPALCO Long-term Debt	Total Consolidated IPALCO Long-term Debt	$	2,480,080		$	2,477,538		Total Consolidated IPALCO Long-term Debt	2,650,965			2,649,064
Less: Current Portion of Long-term Debt									469,017			—
Net Consolidated IPALCO Long-term Debt									$	2,181,948		$	2,649,064


(1)	First mortgage bonds issued to the Indiana Finance Authority to secure the loan of proceeds from tax-exempt bonds issued by the Indiana Finance Authority.


(2)	Unsecured notes issued to the Indiana Finance Authority by IPL to facilitate the loan of proceeds from various tax-exempt notes issued by the Indiana Finance Authority. The notes have a final maturity date of December 2038, but are subject to a mandatory put in December 2020.

~~IPALCO Term Loan~~

On October 31, 2018, IPALCO closed on a new credit facility consisting of a $65 million term loan maturing July 1, 2020. The term loan is variable rate and is secured by IPALCO’s pledge of all the outstanding common stock of IPL. The lien on the pledged shares is shared equally and ratably with IPALCO’ existing senior secured notes. The term loan proceeds were used to pay down outstanding borrowings under IPL’s line of credit and for general corporate purposes.

IPALCO’s Senior Secured Notes and Term Loan

~~In August 2017,~~ IPALCO ~~completed the sale of the~~has $405 million ~~2024 IPALCO Notes pursuant to Rule 144A and Regulation S under the Securities Act~~ of 1933, as amended. The 2024 IPALCO Notes were issued pursuant to an Indenture dated August 22, 2017, by and between IPALCO and U.S. Bank, National Association, as trustee. The 2024 IPALCO Notes were priced to the public at 99.901% of the principal amount. Net proceeds to IPALCO were approximately $399.3 million after deducting underwriting costs and estimated offering expenses. These costs are being amortized to the maturity date using the effective interest method. We used the net proceeds from this offering, together with cash on hand, to redeem IPALCO's outstanding $400 million 5.00%3.45% Senior Secured Notes due ~~2018 on September 21, 2017,~~July 15, 2020 ("2020 IPALCO Notes") and a $65 million Term Loan due July 1, 2020. Although current liquid funds are not sufficient to pay ~~certain related fees, expenses and make-whole premiums. A loss on early extinguishment of debt of $8.9 million for IPALCO's 5.00% Senior Secured Notes~~the collective amounts due ~~2018 is included as a separate line item within “Other Income and (Deductions)” in~~under the ~~accompanying Unaudited Condensed Consolidated Statements of Operations.~~

~~The~~ 2020 IPALCO Notes and ~~2024~~Term Loan at their maturities, we believe that we will be able to refinance the 2020 IPALCO Notes ~~are~~and Term Loan based on our conversations with investment bankers, which currently indicate more than adequate demand for new IPALCO debt at our current credit ratings, and our previous successful issuance of our $405 million IPALCO senior secured ~~by IPALCO’s pledge of all~~notes in 2017, which served to refinance notes existing at the time. Should the capital markets not be accessible to us at the time of the ~~outstanding common stock~~maturity of ~~IPL. The lien on~~ the ~~pledged shares is shared equally and ratably with IPALCO’s existing senior secured notes. IPALCO also agreed to register the 2024~~2020 IPALCO Notes ~~under~~and Term Loan, management believes that other financing options are at its disposal to meet 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 that IPALCO entered into with Morgan Stanley & Co. LLC and PNC Capital Markets LLC, as representativesneeds of the initial purchasers of the 2024 IPALCO Notes, dated August 22, 2017. IPALCO filed its registration statement on Form S-4 with respect to the 2024 IPALCO Notes with the SEC on November 13, 2017, and this registration statement was declared effective on December 5, 2017. The exchange offer was completed on January 12, 2018.maturities.

Line of Credit

AsIPL entered into an amendment and restatement of ~~September 30, 2018~~its 5-year $250 million revolving credit facility (the "Credit Agreement") on June 19, 2019 with a syndication of bank lenders. This Credit Agreement is an unsecured committed line of credit to be used: (i) to finance capital expenditures; (ii) to refinance certain existing indebtedness under the existing Credit Agreement, (iii) to support working capital; and ~~December 31, 2017,~~(iv) for general corporate purposes. This agreement matures on June 19, 2024, and bears interest at variable rates as described in the Credit Agreement. It includes an uncommitted $150 million accordion feature to provide IPL with an option to request an increase in the size of the facility at any time prior to June 19, 2023, subject to approval by the lenders. The Credit Agreement also includes two one-year extension options, allowing IPL to extend the maturity date subject to approval by the lenders. Prior to execution, IPL and IPALCO had existing general banking relationships with the parties to the Credit Agreement. IPL had ~~$104.0 million and $148.0 million in~~no outstanding borrowings on the committed line of credit ~~respectively.~~as of September 30, 2019 or December 31, 2018.

5. INCOME TAXES

~~U.S. Tax Reform~~

On December 22, 2017, the U.S. federal government enacted the TCJA. The TCJA significantly changes U.S. corporate income tax law. Notable items impacting the effective tax rate for the 2018 tax year related to the TCJA include a rate reduction in the corporate tax rate to 21% from 35% and an increase in the estimated flow-through depreciation partially offset by the repeal of the manufacturer’s production deduction.

Effective Tax Rate

IPALCO’s effective combined state and federal income tax ~~rates were~~rate was 21.2% and 21.2% for the three and nine months ended September 30, 2019, respectively, as compared to 20.4% and 19.8% for the three and nine months ended September 30, 2018, ~~respectively, as compared to 31.3% and 31.6% for the three and nine months ended September 30, 2017,~~ respectively. The ~~decreases~~increases in the effective tax rates versus the comparable periods were primarily due to ~~the impact of the TCJA (as explained above). Partially offsetting the~~ decreases ~~to the effective~~in tax ~~rates were increases caused by~~benefits resulting from the lower allowance for equity funds used during construction ~~in 2018.~~versus the comparable periods.

6. BENEFIT PLANS

The following table (in thousands) presents information for the nine months ended September 30, ~~2018,~~2019, relating to the Pension Plans:



Net unfunded status of plans:
Net unfunded status at December 31, 2018	$	(12,743	)
Net benefit cost components reflected in net unfunded status during first quarter:
Service cost	(1,853		)
Interest cost	(6,836		)
Expected return on assets	7,477
Net unfunded status at March 31, 2019	$	(13,955	)
Net benefit cost components reflected in net unfunded status during second quarter:
Service cost	(1,852		)
Interest cost	(6,836		)
Expected return on assets	7,477
Net unfunded status at June 30, 2019	$	(15,166	)
Net benefit cost components reflected in net unfunded status during third quarter:
Service cost	(1,853		)
Interest cost	(6,836		)
Expected return on assets	7,477
Net unfunded status at September 30, 2019	$	(16,378	)

Regulatory assets related to pensions⁽¹⁾:
Regulatory assets at December 31, 2018	$	201,452
Amount reclassified through net benefit cost:
Amortization of prior service cost	(956		)
Amortization of net actuarial loss	(2,771		)
Regulatory assets at March 31, 2019	$	197,725
Amount reclassified through net benefit cost:
Amortization of prior service cost	(957		)
Amortization of net actuarial loss	(2,770		)
Regulatory assets at June 30, 2019	$	193,998
Amount reclassified through net benefit cost:
Amortization of prior service cost	(956		)
Amortization of net actuarial loss	(2,770		)
Regulatory assets at September 30, 2019	$	190,272

Net unfunded status of plans:
Net unfunded status at December 31, 2017 $ (43,161 )
Net benefit cost components reflected in net unfunded status during first quarter:
   Service cost (2,113 )
   Interest cost (6,305 )
   Expected return on assets 10,200
   Curtailment⁽¹⁾
(449 )
   Employer contributions 30,000
Net unfunded status at March 31, 2018 $ (11,828 )
Net benefit cost components reflected in net unfunded status during second quarter:
   Service cost (2,113 )
   Interest cost (6,305 )
   Expected return on assets 10,200
Net unfunded status at June 30, 2018 $ (10,046 )
Net benefit cost components reflected in net unfunded status during third quarter:
   Service cost (2,112 )
   Interest cost (6,305 )
   Expected return on assets 10,200
   Employer contributions 26
Net unfunded status at September 30, 2018 $ (8,237 )

Regulatory assets related to pensions⁽²⁾:

Regulatory assets at December 31, 2017 $ 211,125
Amount reclassified through net benefit cost:
   Amortization of prior service cost (959 )
   Amortization of net actuarial loss (2,851 )
   Curtailment⁽¹⁾
(781 )
Regulatory assets at March 31, 2018 $ 206,534
Amount reclassified through net benefit cost:
   Amortization of prior service cost (960 )
   Amortization of net actuarial loss (2,850 )
Regulatory assets at June 30, 2018 $ 202,724
Amount reclassified through net benefit cost:
   Amortization of prior service cost (959 )
   Amortization of net actuarial loss (2,851 )
Regulatory assets at September 30, 2018 $ 198,914


(1)	~~As a result of the announced AES restructuring in the first quarter of 2018, we recognized a plan curtailment of $1.2 million in the first quarter of 2018.~~

~~(2)~~

Amounts that would otherwise be charged/credited to Accumulated Other Comprehensive Income or Loss upon application of ASC 715, “Compensation – Retirement Benefits,” are recorded as a regulatory asset or liability because IPL has historically recovered and currently recovers pension and other postretirement benefit expenses in rates. These are unrecognized amounts not yet recognized as components of net periodic benefit costs.

Pension Expense

The following table presents net periodic benefit cost information relating to the Pension Plans combined:



	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
	(In Thousands)						(In Thousands)
Components of net periodic benefit cost:
Service cost	$	1,853		$	2,112		$	5,558		$	6,338
Interest cost	6,836			6,305			20,508			18,915
Expected return on plan assets	(7,477		)	(10,200		)	(22,431		)	(30,600		)
Amortization of prior service cost	956			959			2,869			2,878
Amortization of actuarial loss	2,770			2,851			8,311			8,552
Curtailments⁽¹⁾	—			—			—			1,230
Net periodic benefit cost	$	4,938		$	2,027		$	14,815		$	7,313

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
(In Thousands) (In Thousands)
Components of net periodic benefit cost:
Service cost $ 2,112
$ 1,836
$ 6,338
$ 5,508
Interest cost 6,305
6,326
18,915
18,979
Expected return on plan assets (10,200 ) (11,168 ) (30,600 ) (33,503 )
Amortization of prior service cost 959
1,060
2,878
3,180
Amortization of actuarial loss 2,851
3,298
8,552
9,897
Curtailments and settlements⁽¹⁾
—
—
1,230
146
Net periodic benefit cost $ 2,027
$ 1,352
$ 7,313
$ 4,207


(1)	As a result of the announced AES restructuring in the first quarter of 2018, we recognized a plan curtailment of $1.2 million for the nine months ended September 30, 2018. ~~The settlement loss of $0.1 million for the nine months ended September 30, 2017 was the result of a lump sum distribution paid out of the Supplemental Retirement Plan.~~

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 ~~$7.4~~$7.1 million and ~~$7.0~~$6.7 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, were not material to the Financial Statements in the periods covered by this report.

7. 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 ~~hazardous materials;~~regulated materials, including ash; the use and discharge of water used in generation boilers and for cooling purposes; the emission and discharge of hazardous and other materials into the environment; and the health and safety of our employees. These laws and regulations often require a lengthy and complex process of obtaining and renewing permits and other governmental authorizations from federal, state and local agencies. Violation of these laws, regulations or permits can result in substantial fines, other sanctions, permit revocation and/or facility shutdowns. We cannot ~~assure~~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 alleges violations of the CAA at IPL’s ~~three~~3 primarily coal-fired electric generating facilities at the time, dating back to 1986. The alleged violations primarily pertain to the PSD and nonattainment New Source Review requirements under the CAA. In addition, on October 1, 2015, IPL received a NOV from the EPA pursuant to CAA Section 113(a) alleging violations of the CAA, the Indiana SIP, and the Title V operating permit related to alleged particulate matter and opacity violations at IPL Petersburg Unit 3. Also, on February 5, 2016, the EPA issued a NOV pursuant to CAA Section 113(a) alleging violations of New Source Review and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Generating Station. Since receiving the letters, IPL management

has met with the EPA staff regarding possible resolutions of the NOVs. Settlements and litigated outcomes of

similar New Source Review cases have required companies to pay civil penalties, install additional pollution control technology onin coal-fired electric generating units, retire existing generating units, and invest in additional environmental projects. A similar outcome in these cases could have a material impact on our business. At this time, we cannot determine whether these NOVs ~~could~~will have a material impact on our business, financial condition orand 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 ~~this regard.~~recovering any operating or capital expenditures. IPL has recorded a contingent liability related to these New Source Review cases and other CAA NOV matters.

8. 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 and ~~the~~ 2024 IPALCO Notes; approximately ~~$4.6~~$11.8 million and ~~$18.3~~$6.4 million of cash and cash equivalents as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively; long-term investments of ~~$4.1~~$2.7 million and ~~$5.1~~$4.0 million at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively; long-term liabilities for interest rate hedges of $39.9 million and $0 million as of September 30, 2019 and December 31, 2018, respectively; and income taxes and interest related to those items. All other assets represented less than 1% of IPALCO’s total assets as of September 30, ~~2018~~2019 and December 31, ~~2017.~~2018. The accounting policies of the identified segment are consistent with those policies and procedures described in the summary of significant accounting policies.

The following table provides information about IPALCO’s business segments (in thousands):



	Three Months Ended							Three Months Ended
	September 30, 2019							September 30, 2018
	Utility		All Other			Total		Utility		All Other			Total
Revenues	$	398,456	$	—		$	398,456	$	385,149	$	—		$	385,149
Depreciation and amortization	$	60,373	$	—		$	60,373	$	57,880	$	—		$	57,880
Interest expense	$	22,244	$	8,376		$	30,620	$	15,255	$	7,662		$	22,917
Earnings/(loss) from operations before income tax	$	69,881	$	(8,287	)	$	61,594	$	60,347	$	(7,703	)	$	52,644

	Nine Months Ended							Nine Months Ended
	September 30, 2019							September 30, 2018
	Utility		All Other			Total		Utility		All Other			Total
Revenues	$	1,121,634	$	—		$	1,121,634	$	1,099,331	$	—		$	1,099,331
Depreciation and amortization	$	179,939	$	—		$	179,939	$	172,492	$	—		$	172,492
Interest expense	$	66,757	$	24,636		$	91,393	$	47,461	$	23,004		$	70,465
Earnings/(loss) from operations before income tax	$	158,153	$	(24,697	)	$	133,456	$	144,416	$	(23,247	)	$	121,169
Capital expenditures⁽¹⁾	$	131,682	$	—		$	131,682	$	170,299	$	—		$	170,299

	As of September 30, 2019							As of December 31, 2018
	Utility		All Other			Total		Utility		All Other			Total
Total assets	$	4,952,080	$	16,228		$	4,968,308	$	4,851,712	$	10,341		$	4,862,053

Three Months Ended Three Months Ended
September 30, 2018 September 30, 2017
Utility All Other Total Utility All Other Total
Operating revenues $ 385,149
$ —
$ 385,149
$ 355,314
$ —
$ 355,314
Income taxes $ 13,560
$ (2,988 ) $ 10,572
$ 22,940
$ (8,199 ) $ 14,741
Interest and other charges - net $ 15,255
$ 7,662
$ 22,917
$ 16,330
$ 10,090
$ 26,420
Net income $ 46,785
$ (4,713 ) $ 42,072
$ 43,816
$ (10,623 ) $ 33,193

Nine Months Ended Nine Months Ended
September 30, 2018 September 30, 2017
Utility All Other Total Utility All Other Total
Operating revenues $ 1,099,331
$ —
$ 1,099,331
$ 1,014,048
$ —
$ 1,014,048
Income taxes $ 29,569
$ (6,021 ) $ 23,548
$ 52,826
$ (15,129 ) $ 37,697
Interest and other charges - net $ 47,461
$ 23,004
$ 70,465
$ 48,704
$ 28,114
$ 76,818
Net income $ 114,846
$ (17,225 ) $ 97,621
$ 105,468
$ (21,600 ) $ 83,868

As of September 30, 2018 As of December 31, 2017
Utility All Other Total Utility All Other Total
Total assets $ 4,785,124
$ 8,466
$ 4,793,590
$ 4,719,547
$ 21,014
$ 4,740,561
⁽¹⁾Capital expenditures includes payments for financed capital expenditures of $5.6 million and $8.5 million for the nine months ended September 30, 2019 and September 30, 2018, respectively.

9. REVENUE

Revenue is primarily earned from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities.

~~Retail revenues~~ ~~- IPL energy sales~~ Please see Note 13, “Revenue” to utility customers are based on the reading of meters at the customer’s location that occurs on a systematic basis throughout the month. IPL sells electricity directly to end-users, such as homes and businesses, and bills customers directly. Retail revenues have a single performance obligation, as the promise to transfer energy and other distribution and/or transmission services are not separately identifiable from other promises in the contracts and, therefore, are not distinct. Additionally, as the performance obligation is satisfied over time as energy is delivered, and the same method is used to measure progress, the performance obligation meets the criteria to be considered a series.

~~In exchange~~IPALCO’s 2018 Form 10-K for the exclusive right to sell or distribute electricity in our service area, IPL is subject to rate regulation by federal and state regulators. This regulation sets the framework for the prices (“tariffs”) that IPLis allowed to charge customers for electric services. Since tariffs are approved by the regulator, the price that IPL has the right to bill corresponds directly with the value to the customer of IPL’s performance completed in each period. Therefore, revenue under these contracts is recognized using an output method measured by the MWhs delivered each month at the approved tariff. Customer payments are typically due on a monthly basis.

~~Wholesale revenues~~ ~~- Power produced at the generation stations in excess~~further discussion of our retail, ~~load is sold into the MISO market. Such sales are made at either the day-ahead or real-time hourly market price,~~wholesale and ~~these sales are classified as wholesale~~miscellaneous revenues. ~~We sell to and purchase power from MISO, and such sales and purchases are settled and accounted for on a net hourly basis.~~

In the MISO market, wholesale revenue is recorded at the spot price based on the quantities of MWh delivered in each hour during each month. As a member of MISO, we are obligated to declare the availability of our energy production into the wholesale energy market, but we are not obligated to commit our previously declared availability. As such, contract terms end as the energy for each day is delivered to the market in the case of the day-ahead market and for each hour in the case of the real-time market.

~~Miscellaneous revenues~~ - Miscellaneous revenues are mainly comprised of MISO transmission revenues. MISO transmission revenues are earned when IPL’s power lines are used in transmission of energy by power producers other than IPL. As IPL owns and operates transmission lines in central and southern Indiana, demand charges collected from network customers by MISO are allocated to the appropriate transmission owners (including IPL) and recognized as transmission revenues.

Transmission revenues have a single performance obligation, as transmission services represent a distinct service. Additionally, as the performance obligation is satisfied over time and the same method is used to measure progress, the performance obligation meets the criteria to be considered a series. The price that the transmission operator has the right to bill corresponds directly with the value to the customer of IPL’s performance completed in each period as the price paid is the transmission operators allocation of the tariff rate (as approved by the regulator) charged to network participants.

IPL’s revenue from contracts with customers was $391.5 million for the three months ended September 30, 2019 and $379.5 million for the three months ended September 30, 2018, respectively, and $1,100.4 million for the nine months ended September 30, 2019 and $1,083.2 million for the nine months ended September 30, 2018, respectively. The following table presents our revenue from contracts with customers and other revenue (in thousands):


	For the Three Months Ended,		For the Nine Months Ended,		For the Three Months Ended
	September 30, 2018				September 30, 2019		September 30, 2018
Retail Revenues
Retail revenue from contracts with customers	$	366,030	$	1,045,286	$	369,945	$	366,030
Other retail revenues ⁽¹⁾	4,293		12,157		6,478		4,293
Wholesale Revenues	10,844		30,007		18,426		10,844
Miscellaneous Revenues
Transmission and other revenue from contracts with customers	2,631		7,906		3,091		2,631
Other miscellaneous revenues ⁽²⁾	1,351		3,975		516		1,351
Total Revenues	$	385,149	$	1,099,331	$	398,456	$	385,149

(1) Other retail revenue represents alternative revenue programs not accounted for under ASC 606

(2) Other miscellaneous revenue includes lease and other miscellaneous revenues not accounted for under ASC 606



	For the Nine Months Ended		For the Nine Months Ended
	September 30, 2019		September 30, 2018
Retail Revenues
Retail revenue from contracts with customers	$	1,056,438	$	1,045,286
Other retail revenues ⁽¹⁾	19,069		12,157
Wholesale Revenues	35,533		30,007
Miscellaneous Revenues
Transmission and other revenue from contracts with customers	8,474		7,906
Other miscellaneous revenues ⁽²⁾	2,120		3,975
Total Revenues	$	1,121,634	$	1,099,331

(1) Other retail revenue represents alternative revenue programs not accounted for under ASC 606

(2) Other miscellaneous revenue includes lease and other miscellaneous revenues not accounted for under ASC 606

The balances of receivables from contracts with customers were ~~$159.4~~$165.7 million and ~~$155.7~~$160.8 million as of September 30, ~~2018~~2019 and ~~January 1,~~December 31, 2018, respectively. Payment terms for all receivables from contracts with customers ~~are~~ typically ~~within~~do not extend beyond 30 days.

10. LEASES

LESSEE

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

LESSOR

The Company is the lessor under ~~ASC 606. Therefore,~~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 $0.2 million and $0.7 million for the three and nine months ended September 30, 2019, respectively. Underlying gross assets and accumulated depreciation of operating leases included in Total net property, plant and equipment on the Condensed Consolidated Balance Sheet were $4.2 million and $0.7 million, respectively, as of September 30, 2019.

The option to extend or terminate a lease is based on customary early termination provisions in the contract. The Company has not ~~included disclosure pertaining to revenue expected to be~~ recognized in any early terminations as of September 30, 2019.

The following table shows the future ~~year related to remaining performance obligations,~~minimum lease receipts as ~~we exclude contracts with an original length~~ of ~~one year or less, contracts~~September 30, 2019 for ~~which we recognize revenue based on~~ the ~~amount we have the right to invoice for services performed,~~remainder of 2019 through 2023 and contracts with variable consideration allocated entirely to a wholly unsatisfied performance obligation when the consideration relates specifically to our efforts to satisfy the performance obligation and depicts the amount to which we expect to be entitled.thereafter (in thousands):



	Operating Leases
2019	$	254
2020	941
2021	994
2022	906
2023	906
Thereafter	3,414
Total	$	7,415

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 ~~2017~~2018 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 ~~factors~~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 ~~2017~~2018 Form 10-K.

~~RECENT BUSINESS DEVELOPMENTS~~

In September 2018, Lisa Krueger was named President of the AES U.S. region, which encompasses IPALCO and IPL and their Ohio sister companies, DPL Inc. and The Dayton Power and Light Company, and other conventional power plants in the U.S. outside of AES’ Distributed Energy and sPower businesses. In addition, on November 2, 2018, AES announced that Gustavo Pimenta, AES’ Senior Vice President and Deputy Chief Financial officer who currently holds the positions of director and/or Chief Financial Officer at AES U.S. subsidiary level businesses, including IPALCO and IPL, was appointed Executive Vice President and Chief Financial Officer of AES, effective January 1, 2019. As a result, we anticipate that there will be management and director changes at the AES U.S. subsidiary level businesses, including IPALCO and IPL.

EXECUTIVE SUMMARY

Compared with ~~the three and nine months ended of~~ the prior year, the results for the three ~~and nine~~ months ended September 30, ~~2018~~2019 reflect higher ~~net~~earnings from operations before income tax of ~~$8.9~~$9.0 million, or ~~27%~~17.0%, ~~and $13.8 million, or 16%, respectively,~~ primarily due to factors including, but not limited to:

increased retail ~~margins~~rates due to ~~favorable weather~~the 2018 Base Rate Order, which approved a $43.9 million, or 3.2%, increase in ~~our service territory;~~annual revenues and also increased the benchmark for recovery of wholesale margins; and

increased wholesale margins due to higher unit availability at the ~~commencement of commercial operations of the newly constructed~~ CCGT plant at Eagle Valley ~~in April 2018.~~versus the comparable period.

These were partially offset by:

~~higher~~increased maintenance expense primarily driven by higher scheduled plant outage costs; and

lower allowance for borrowed funds used during construction following the 2018 Base Rate Order (resulting in higher interest expense).

Compared with the prior year, the results for the nine months ended September 30, 2019 reflect higher earnings from operations before income tax of $12.3 million, or 10.1%, primarily due to factors including, but not limited to:

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

This was partially offset by:

a net decrease in the volume of retail kWh sold mostly due to milder weather;

increased maintenance expense primarily driven by higher scheduled plant ~~outages; and~~outage costs;

lower allowance for equity funds used during construction as a result of ~~decreased~~placing the CCGT plant at Eagle Valley into service in April 2018; and

lower allowance for borrowed funds used during construction ~~activity.~~following the 2018 Base Rate Order (resulting in higher interest expense).

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 Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018

REVENUES	$	398,456		$	385,149		$	1,121,634		$	1,099,331

OPERATING COSTS AND EXPENSES:
Fuel	93,217			90,599			254,233			252,435
Power purchased	31,840			39,267			101,483			131,580
Operation and maintenance	105,975			109,644			321,782			315,225
Depreciation and amortization	60,373			57,880			179,939			172,492
Taxes other than income taxes	12,943			12,781			33,909			42,036
Total operating costs and expenses	304,348			310,171			891,346			913,768

OPERATING INCOME	94,108			74,978			230,288			185,563

OTHER INCOME / (EXPENSE), NET:
Allowance for equity funds used during construction	810			459			2,538			7,839
Interest expense	(30,620		)	(22,917		)	(91,393		)	(70,465		)
Other income / (expense), net	(2,704		)	124			(7,977		)	(1,768		)
Total other income / (expense), net	(32,514		)	(22,334		)	(96,832		)	(64,394		)

EARNINGS FROM OPERATIONS BEFORE INCOME TAX	61,594			52,644			133,456			121,169

Less: Income tax expense - net	13,088			10,572			28,252			23,548
NET INCOME	48,506			42,072			105,204			97,621

Less: Dividends on preferred stock	803			803			2,410			2,410
NET INCOME APPLICABLE TO COMMON STOCK	$	47,703		$	41,269		$	102,794		$	95,211

Comparison of three months ended September 30, ~~2018~~2019 and three months ended September 30, ~~2017~~2018

~~Utility Operating~~ Revenues

~~Utility operating revenues~~Revenues during the three months ended September 30, ~~2018~~2019 increased ~~by $29.8~~$13.3 million compared to the same period in ~~2017,~~2018, which resulted from the following changes (dollars in thousands):


	Three Months Ended								Three Months Ended
	September 30,							Percentage	September 30,							Percentage
	2018		2017			Change		Change	2019		2018		Change			Change
Utility operating revenues:
Revenues:
Retail revenues	$	370,323	$	350,320	⁽¹⁾	$	20,003	5.7%	$	376,423	$	370,323	$	6,100		1.6%
Wholesale revenues	10,844		1,530			9,314		608.8%	18,426		10,844		7,582			69.9%
Miscellaneous revenues	3,982		3,464		⁽¹⁾	518		15.0%	3,607		3,982		(375		)	(9.4)%
Total utility operating revenues	$	385,149	$	355,314		$	29,835	8.4%

⁽¹⁾Prior period amounts have been reclassified to conform to the current year presentation
Total revenues									$	398,456	$	385,149	$	13,307		3.5%

Heating degree days:
Actual	33		31			2		6.5%	—		33		(33		)	(100.0)%
30-year average	70		67						68		70

Cooling degree days:
Actual	959		772			187		24.2%	969		959		10			1.0%
30-year average	744		761						752		744

Retail Revenues

The increase in retail revenues of ~~$20.0~~$6.1 million was primarily due to the following (in millions):



Volume:
Net increase in the volume of kWh sold	$	1.3
Price:
Net increase in the weighted average price of retail kWh sold, primarily due to new basic rates and charges that were effective on December 5, 2018 as a result of implementing the 2018 Base Rate Order, partially offset by a decrease in DSM program rate adjustment mechanism revenues⁽¹⁾, unfavorable block rate⁽²⁾ and other retail rate variances.	2.6
Increase in other retail revenues primarily due to updated estimates of 2018 DSM lost revenues and other recoverable items recorded in the third quarter of 2019.	2.2
Net increase in price	$	4.8

Net increase in retail revenues	$	6.1


(1)	The decrease in DSM program rate adjustment mechanism revenues are offset by a decrease in operating expenses.


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

Wholesale Revenues

The increase in wholesale revenues of $7.6 million was primarily due to a 3%$10.1 million increase in the ~~volume~~quantity of kWh sold ~~($7.2 million) and~~(primarily due to increased unit availability as a ~~net increase~~result of outages at the CCGT plant at Eagle Valley in the third quarter of 2018), partially offset by a $2.5 million decrease in the weighted average price per kWh ~~sold ($12.8 million) as follows (in millions):~~

Volume:
Increase in the volume of kWh sold was primarily due to favorable weather in our service territory during the third quarter of 2018 versus the comparable period (as demonstrated by the 24% increase in cooling degree days, as shown above)

$ 7.2
Price:
Increase in DSM program rate adjustment mechanism revenues

11.6
Increase in environmental rate adjustment mechanism revenues 11.4
Increase in fuel revenues 2.2
Decrease due to the deferral of revenue as a regulatory liability to adjust for the impacts of the TCJA on customer rates and charges for service in 2018 (5.9 )
Decrease in MISO, Capacity and Off System Sales rider revenues (1.5 )
Unfavorable block rate and other retail rate variances, primarily attributable to our declining block rate structure, which generally provides for residential and commercial customers to be charged a lower per kWh rate at higher consumption levels. Therefore, as volumes increase, the weighted average price per kWh decreases. (5.0 )
Net increase in the weighted average price of retail kWh sold $ 12.8

Net increase in retail revenues $ 20.0

~~Wholesale Revenues~~

The increase in wholesale revenues of $9.3 million was primarily due to an increase in the quantity of kWh sold primarily due to increased generation capacity as a result of the commencement of commercial operations of the newly constructed CCGT plant at Eagle Valley in April 2018.sold. We sold ~~360.6~~694.6 million kWh in the wholesale market during the third quarter of ~~2018~~2019 compared to ~~only 38.2~~360.6 million kWh during the third quarter of ~~2017.~~2018. 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 ~~revenues~~sales is impacted by our retail load requirements, generation capacity and unit availability. ~~Currently,~~For the comparable period in 2018, 50% of ~~IPL’s~~IPL's annual wholesale margins above ~~and below~~(or below) an established ~~annual~~ benchmark of $6.3 million ~~are~~were shared with ~~our retail~~ customers through ~~a rate~~the Off System Sales Margin rider (in accordance with the 2016 Base Rate Order). Effective on December 5, 2018, with the implementation of the 2018 Base Rate Order, 100% of annual wholesale

margins earned above (or below) the benchmark of $16.3 million are passed back (or charged) to customers through the Off System Sales Margin rider.

~~Utility~~ Operating Costs and Expenses

The following table illustrates our changes in ~~operating~~Operating costs and expenses during the three months ended September 30, ~~2018~~2019 compared to the same period in ~~2017 (dollars in~~2018 (in thousands):

Three Months Ended
September 30,
2018 2017 $ Change
% Change
Utility operating expenses:
   Fuel $ 90,599
$ 77,061
$ 13,538
17.6 %
   Other operating expenses 73,155
63,329
9,826
15.5 %
   Power purchased 39,267
44,470
(5,203 ) (11.7 )%
   Maintenance 36,489
29,706
6,783
22.8 %
   Depreciation and amortization 57,880
52,711
5,169
9.8 %
   Taxes other than income taxes 12,781
11,804
977
8.3 %
   Income taxes - net 13,538
23,049
(9,511 ) (41.3 )%
      Total utility operating expenses $ 323,709
$ 302,130
$ 21,579
7.1 %



	Three Months Ended
	September 30,
	2019		2018		$ Change			% Change
Operating costs and expenses:
Fuel	$	93,217	$	90,599	$	2,618		2.9	%
Power purchased	31,840		39,267		(7,427		)	(18.9	)%
Operation and maintenance	105,975		109,644		(3,669		)	(3.3	)%
Depreciation and amortization	60,373		57,880		2,493			4.3	%
Taxes other than income taxes	12,943		12,781		162			1.3	%
Total operating costs and expenses	$	304,348	$	310,171	$	(5,823	)	(1.9	)%

Fuel

The ~~$13.5 million~~ increase in fuel ~~expense~~costs of $2.6 million was primarily due to (i) a ~~$14.1~~$12.8 million increase in the quantity of fuel consumed versus the comparable period, ~~primarily due to increased generation capacity as a result of the commencement of commercial operations of the newly constructed CCGT plant at Eagle Valley in April 2018 and~~ (ii) a ~~$0.9~~$6.4 million increase ~~due to the higher price of coal we consumed versus the comparable period;~~from deferred fuel costs, partially offset by (iii) a ~~$1.4 million decrease in deferred fuel costs and (iv) a $1.1~~$10.8 million decrease due to the lower price of natural gas we consumed versus the comparable period and (iv) a $5.9 million decrease due to the lower price of coal we 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.

~~The $9.8 million increase~~ Additionally, fuel and purchased power costs incurred for wholesale energy sales are considered in ~~other operating expenses was primarily due to higher DSM program costs of $9.6 million mostly as~~the Off System Sales Margin rider discussed above. As a result of ~~differences~~the 100% sharing that began December 5, 2018, fluctuations in ~~spending patterns and increased amortization of previously deferred~~such costs ~~due to the implementation of new rates beginning in July 2018 (these program costs are recoverable through customer rates and are offset by~~will not have an ~~increase in DSM revenues).~~impact on our earnings from operations before income taxes.

Power Purchased

The ~~$5.2 million~~ decrease in purchased power costs of $7.4 million was primarily due to (i) a ~~29%~~55% decrease in the volume of power purchased during the period ($~~10.5~~18.0 million); primarily due to increased unit availability of the CCGT plant at Eagle Valley in the third quarter of 2019 (as discussed above), partially offset by (ii) a ~~$7.0~~$10.5 million increase 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 ~~fact that at times it is less expensive to buy~~relative cost of producing power versus purchasing power in the market than to produce it. The $10.5 million volume decrease is primarily attributable to commenced commercial operations of the CCGT plant at Eagle Valley in April 2018 (as discussed above), which is generally called upon by MISO whenever it is available due to its relatively lost cost to produce electricity.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. ~~We are generally permitted to defer~~

Operation and recover underestimated purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into fuel expense in the same period that our rates are adjusted to reflect these variances.Maintenance

The ~~$6.8~~decrease in Operation and maintenance of $3.7 million ~~increase~~was mostly attributed to (i) lower DSM program costs of $7.9 million (these program costs are recoverable through customer rates and are offset by a decrease in DSM revenues), partially offset by (ii) increased maintenance expenses ~~was primarily~~of $5.7 million (primarily due to the timing and duration of outages, ~~(including an extended scheduled outage at our 535 MW Petersburg Generating Station Unit 3 that began in September of 2018; partially offset by outages in the prior period)~~as well as increased tree trimming costs).

Depreciation and Amortization

The ~~$5.2 million~~ increase in ~~depreciation~~Depreciation and amortization ~~costs~~expense of $2.5 million was ~~primarily related~~mostly attributed to the impact of additional assets placed in service ~~excluding~~(primarily the newly constructed CCGT plant at Eagle Valley) and no longer deferring depreciation expense on the Eagle Valley ~~CCGT. IPL is permitted to defer depreciation on~~CCGT (in accordance with the ~~CCGT until the unit is included in our basic rates and charges.~~2018 Base Rate Order).

The $9.5 million decrease in income taxes - net was primarily due to the decrease in the federal corporate income tax rate to 21% from 35% as a result of the passage of the TCJA, which was signed into law in December 2017.

Other Income ~~and Deductions~~/ (Expense), Net

The following table illustrates our changes in Other income ~~and deductions decreased $2.9 million, from income of $6.4 million for~~/ (expense), net during the three months ended September 30, ~~2017,~~2019 compared to ~~income of $3.5 million for~~ the same period in 2018 ~~reflecting a 45% decrease. This decrease was primarily due to (i) a $6.2~~(in thousands):



	Three Months Ended
	September 30,
	2019			2018			$ Change			% Change
Other income/(expense), net
Allowance for equity funds used during construction	$	810		$	459		$	351		76.5	%
Interest expense	(30,620		)	(22,917		)	(7,703		)	33.6	%
Other income / (expense), net	(2,704		)	124			(2,828		)	(2,280.6	)%
Total other income/(expense), net	$	(32,514	)	$	(22,334	)	$	(10,180	)	45.6	%

Interest Expense

The increase in Interest expense of $7.7 million decrease in the allowance for equity funds used during construction as a result of decreased construction activity (primarily the Eagle Valley CCGT) and (ii) a decrease in the income tax benefit of $5.3 million, which was primarily due to a ~~lower tax rate due to the passage of the TCJA (as discussed above) as well as the change in pretax nonoperating income during the comparable periods; partially offset by (iii) an $8.9~~$6.6 million ~~loss on early extinguishment of debt from the redemption of IPALCO's $400 million 5.00% Senior Secured Notes due 2018 during the third quarter of 2017.~~

~~Interest and Other Charges~~

~~Interest and other charges decreased $3.5 million, or 13%, primarily due to (i) lower interest on long-term debt of $1.9 million and (ii) a $1.5 million increase~~decrease in the allowance for borrowed funds used during construction, ~~primarily due to~~which IPL earned in the ~~CCGT unit at Eagle Valley. IPL is permitted to continue recognizing allowance for borrowed funds used during construction~~prior period on the Eagle Valley CCGT until ~~it is included~~the 2018 Base Rate Order was approved in December 2018, and higher interest on long-term debt of $1.0 million.

Other income/(expense), net

The decrease in Other income/(expense), net of $2.8 million was primarily due to an increase in defined benefit plan costs of $3.2 million due to a lower expected return on plan assets in 2019 compared to 2018.

Income Tax Expense - Net

The following table illustrates our ~~basic rates and charges.~~changes in income tax expense - net during the three months ended September 30, 2019 compared to the same period in 2018 (in thousands):



	Three Months Ended
	September 30,
	2019		2018		$ Change		% Change
Income tax expense - net	$	13,088	$	10,572	$	2,516	23.8	%

The increase in Income tax expense - net of $2.5 million was primarily due to higher pretax income versus the comparable period.

Comparison of nine months ended September 30, ~~2018~~2019 and nine months ended September 30, ~~2017~~2018

~~Utility Operating~~ Revenues

~~Utility operating revenues~~Revenues during the nine months ended September 30, ~~2018~~2019 increased ~~by $85.3~~$22.3 million compared to the same period in ~~2017,~~2018, which resulted from the following changes (dollars in thousands):


	Nine Months Ended								Nine Months Ended
	September 30,							Percentage	September 30,							Percentage
	2018		2017			Change		Change	2019		2018		Change			Change
Utility operating revenues:
Revenues:
Retail revenues	$	1,057,443	$	998,147	⁽¹⁾	$	59,296	5.9%	$	1,075,507	$	1,057,443	$	18,064		1.7%
Wholesale revenues	30,007		5,904			24,103		408.2%	35,533		30,007		5,526			18.4%
Miscellaneous revenues	11,881		9,997		⁽¹⁾	1,884		18.8%	10,594		11,881		(1,287		)	(10.8)%
Total utility operating revenues	$	1,099,331	$	1,014,048		$	85,283	8.4%

⁽¹⁾Prior period amounts have been reclassified to conform to the current year presentation
Total revenues									$	1,121,634	$	1,099,331	$	22,303		2.0%

Heating degree days:
Actual	3,370		2,590			780		30.1%	3,306		3,370		(64		)	(1.9)%
30-year average	3,367		3,350						3,365		3,367

Cooling degree days:
Actual	1,539		1,088			451		41.5%	1,281		1,539		(258		)	(16.8)%
30-year average	1,053		1,096						1,061		1,053



Indiana		35-1575582
(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 Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
N/A	N/A	N/A



Large accelerated filer¨	Accelerated filer¨	Non-accelerated filerþ	Smaller reporting company¨	Emerging growth company¨



DEFINED TERMS
The following is a list of frequently used abbreviations or acronyms that are found in this Form 10-Q:

~~2017 Form 10-K~~2016 Base Rate Order	~~IPALCO’s Annual Report on Form 10-K for~~ The order issued in March 2016 by the ~~year ended December 31, 2017, as amended~~IURC authorizing IPL to, among other things, increase its basic rates and charges by $30.8 million annually
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
2018 Form 10-K	IPALCO’s Annual Report on Form 10-K for the year ended December 31, 2018, 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
AES	The AES Corporation
AES U.S. Investments	AES U.S. Investments, Inc.
AOCI	Accumulated Other Comprehensive Income
ARO	Asset Retirement Obligations
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
CAA	U.S. Clean Air Act
CCGT	Combined Cycle Gas Turbine
CCR	Coal Combustion Residuals
CDPQ	CDP Infrastructure Fund GP, a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec
CERCLA	Comprehensive Environmental Response, Compensation, and Liability Act
CO₂	Carbon Dioxide
CPP	Clean Power Plan
Credit Agreement	$250 million IPL Revolving Credit Facilities Amended and Restated Credit Agreement, dated as of ~~October 16, 2015~~June 19, 2019
CWA	U.S. Clean Water Act
~~DOE~~	~~U.S. Department of Energy~~
DSM	Demand Side Management
~~ECCRA~~	~~Environmental Compliance Cost Recovery Adjustment~~
EPA	U.S. Environmental Protection Agency
FAC	Fuel Adjustment Clause
~~FASB~~	~~Financial Accounting Standards Board~~
FERC	Federal Energy Regulatory Commission
Financial Statements	Unaudited Condensed Consolidated Financial Statements of IPALCOin “Item 1. Financial Statements” included in Part I – Financial Information of this Form 10-Q
FTRs	Financial Transmission Rights
GAAP	Generally Accepted Accounting Principles in the United States
GHG	Greenhouse Gas
~~IDEM~~	~~Indiana Department of Environmental Management~~
IPALCO	IPALCO Enterprises, Inc.
IPL	Indianapolis Power & Light Company
IURC	Indiana Utility Regulatory Commission
kWh	Kilowatt hours
LIBOR	London Interbank Offered Rate
MISO	Midcontinent Independent System Operator, Inc.
MW	Megawatts
MWh	Megawatt hours
NAAQS	National Ambient Air Quality Standards
NOV	Notice of Violation
NO_x	Nitrogen Oxide
NPDES	National Pollutant Discharge Elimination System
Pension Plans	Employees’ Retirement Plan of Indianapolis Power & Light Company and Supplemental Retirement Plan of Indianapolis Power & Light Company
PSD	Prevention of Significant Deterioration
~~RTO~~	~~Regional Transmission Organization~~
SEC	United States Securities and Exchange Commission
SIP	State Implementation Plan
~~SO2~~SO₂	Sulfur Dioxide
~~TCJA~~Term Loan	~~Tax Cuts~~$65 million IPALCO Term Loan Facility Credit Agreement, dated as of October 31, 2018



TDSIC	Transmission, Distribution, and ~~Jobs Act~~Storage System Improvement Charge
U.S.	United States of America
USD	United States Dollars
VEBA	Voluntary Employees' Beneficiary Association


Item No.		Page No.		Page No.
	DEFINED TERMS	3	DEFINED TERMS	3

	FORWARD-LOOKING STATEMENTS	4	FORWARD-LOOKING STATEMENTS	4

	PART I - FINANCIAL INFORMATION		PART I - FINANCIAL INFORMATION
1.	Financial Statements		Financial Statements
			Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
			September 30, 2019 and 2018	6
			Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine
			Months Ended September 30, 2019 and 2018	7
			Unaudited Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	8
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months ended		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
	September 30, 2018 and 2017	6	September 30, 2019 and 2018	9
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	7	Unaudited Condensed Consolidated Statements of Common Shareholders' Equity (Deficit) and
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months ended		Noncontrolling Interest for the Nine Months Ended September 30, 2019 and 2018	10
	September 30, 2018 and 2017	8	Notes to Unaudited Condensed Consolidated Financial Statements	11
	Notes to Unaudited Condensed Consolidated Financial Statements	9	Note 1 - Overview and Summary of Significant Accounting Policies	11
	Note 1 - Overview and Summary of Significant Accounting Policies	9	Note 2 - Fair Value	15
	Note 2 - Regulatory Matters	12	Note 3 - Derivative Instruments and Hedging Activities	17
	Note 3 - Fair Value	13	Note 4 - Debt	19
	Note 4 - Debt	14	Note 5 - Income Taxes	20
	Note 5 - Income Taxes	15	Note 6 - Benefit Plans	21
	Note 6 - Benefit Plans	16	Note 7 - Commitments and Contingencies	22
	Note 7 - Commitments and Contingencies	17	Note 8 - Business Segment Information	23
	Note 8 - Business Segment Information	17	Note 9 - Revenue	24
	Note 9 - Revenue	17	Note 10 - Leases	25
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
3.	Quantitative and Qualitative Disclosure About Market Risk	31	Quantitative and Qualitative Disclosure About Market Risk	39
4.	Controls and Procedures	31	Controls and Procedures	39

	PART II - OTHER INFORMATION		PART II - OTHER INFORMATION
1.	Legal Proceedings	32	Legal Proceedings	39
1A.	Risk Factors	32	Risk Factors	39
2.	Unregistered Sales of Equity Securities and Use of Proceeds	32	Unregistered Sales of Equity Securities and Use of Proceeds	39
3.	Defaults Upon Senior Securities	32	Defaults Upon Senior Securities	39
4.	Mine Safety Disclosures	32	Mine Safety Disclosures	39
5.	Other Information	32	Other Information	39
6.	Exhibits	33	Exhibits	40

	SIGNATURES	34	SIGNATURES	41



Balance as of January 1, 2018	$	79,535
Revisions to cash flow and timing estimates	53,059
Liabilities settled	(7,301		)
Accretion expense	3,066
Balance as of September 30, 2018	$	128,359



	September 30, 2018				December 31, 2017
	Face Value		Fair Value		Face Value		Fair Value
	(In Thousands)
Fixed-rate	$	2,418,800	$	2,515,484	$	2,418,800	$	2,655,000
Variable-rate	194,000		194,000		238,000		238,000
Total indebtedness	$	2,612,800	$	2,709,484	$	2,656,800	$	2,893,000



Net unfunded status of plans:
Net unfunded status at December 31, 2017	$	(43,161	)
Net benefit cost components reflected in net unfunded status during first quarter:
Service cost	(2,113		)
Interest cost	(6,305		)
Expected return on assets	10,200
Curtailment⁽¹⁾	(449		)
Employer contributions	30,000
Net unfunded status at March 31, 2018	$	(11,828	)
Net benefit cost components reflected in net unfunded status during second quarter:
Service cost	(2,113		)
Interest cost	(6,305		)
Expected return on assets	10,200
Net unfunded status at June 30, 2018	$	(10,046	)
Net benefit cost components reflected in net unfunded status during third quarter:
Service cost	(2,112		)
Interest cost	(6,305		)
Expected return on assets	10,200
Employer contributions	26
Net unfunded status at September 30, 2018	$	(8,237	)

Regulatory assets related to pensions⁽²⁾:
Regulatory assets at December 31, 2017	$	211,125
Amount reclassified through net benefit cost:
Amortization of prior service cost	(959		)
Amortization of net actuarial loss	(2,851		)
Curtailment⁽¹⁾	(781		)
Regulatory assets at March 31, 2018	$	206,534
Amount reclassified through net benefit cost:
Amortization of prior service cost	(960		)
Amortization of net actuarial loss	(2,850		)
Regulatory assets at June 30, 2018	$	202,724
Amount reclassified through net benefit cost:
Amortization of prior service cost	(959		)
Amortization of net actuarial loss	(2,851		)
Regulatory assets at September 30, 2018	$	198,914



Volume:
Increase in the volume of kWh sold was primarily due to favorable weather in our service territory during the third quarter of 2018 versus the comparable period (as demonstrated by the 24% increase in cooling degree days, as shown above)	$	7.2
Price:
Increase in DSM program rate adjustment mechanism revenues	11.6
Increase in environmental rate adjustment mechanism revenues	11.4
Increase in fuel revenues	2.2
Decrease due to the deferral of revenue as a regulatory liability to adjust for the impacts of the TCJA on customer rates and charges for service in 2018	(5.9		)
Decrease in MISO, Capacity and Off System Sales rider revenues	(1.5		)
Unfavorable block rate and other retail rate variances, primarily attributable to our declining block rate structure, which generally provides for residential and commercial customers to be charged a lower per kWh rate at higher consumption levels. Therefore, as volumes increase, the weighted average price per kWh decreases.	(5.0		)
Net increase in the weighted average price of retail kWh sold	$	12.8

Net increase in retail revenues	$	20.0



Volume:
Increase in the volume of kWh sold was primarily due to favorable weather in our service territory during the first nine months of 2018 versus the comparable period (as demonstrated by the 30% increase in heating degree days and 41% increase in cooling degree days, as shown above)	$	41.7
Price:
Increase in environmental rate adjustment mechanism revenues	29.6
Increase in fuel revenues	15.9
Increase in DSM program rate adjustment mechanism revenues	13.1
Decrease in MISO, Capacity and Off System Sales rider revenues	0.4
Decrease due to the deferral of revenue as a regulatory liability to adjust for the impacts of the TCJA on customer rates and charges for service in 2018	(16.9		)
Unfavorable block rate and other retail rate variances, primarily attributable to our declining block rate structure, which generally provides for residential and commercial customers to be charged a lower per kWh rate at higher consumption levels. Therefore, as volumes increase, the weighted average price per kWh decreases.	(24.5		)
Net increase in the weighted average price of retail kWh sold	$	17.6

Net increase in retail revenues	$	59.3



Volume:
Net decrease in the volume of kWh sold, primarily due to unfavorable weather in our service territory versus the comparable period in the prior year	$	(34.5	)
Price:
Net increase in the weighted average price of retail kWh sold, primarily due to new basic rates and charges that were effective on December 5, 2018 as a result of implementing the 2018 Base Rate Order and favorable block rate⁽¹⁾ and other retail rate variances, partially offset by a decrease in DSM program rate adjustment mechanism revenues⁽²⁾.	45.7
Increase in other retail revenues primarily due to updated estimates of 2018 DSM shared savings and lost revenues recorded in 2019.	6.9
Net increase in price	$	52.6

Net increase in retail revenues	$	18.1


	Nine Months Ended September 30,									Nine Months Ended September 30,
	2018			2017			$ Change			2019			2018			$ Change
Net cash provided by operating activities	$	307,706		$	216,106		$	91,600		$	259,772		$	307,706		$	(47,934	)
Net cash used in investing activities	(182,383		)	(175,509		)	(6,874		)	(141,123		)	(182,383		)	41,260
Net cash used in financing activities	(140,259		)	(49,223		)	(91,036		)	(103,435		)	(140,259		)	36,824
Net change in cash and cash equivalents	(14,936		)	(8,626		)	(6,310		)	15,214			(14,936		)	30,150
Cash and cash equivalents at beginning of period	30,681			34,953			(4,272		)
Cash and cash equivalents at end of period	$	15,745		$	26,327		$	(10,582	)
Cash, cash equivalents and restricted cash at beginning of period										33,599			30,681			2,918
Cash, cash equivalents and restricted cash at end of period										$	48,813		$	15,745		$	33,068



Increase from short-term and long-term regulatory assets and liabilities primarily due to proceeds IPL received pursuant to a settlement agreement and an increase to regulatory liabilities to record the impacts of the TCJA on customer rates	$	61,123
Increase from income taxes receivable or payable due to lower tax sharing payments	19,083
Decrease from accrued pension and other postretirement benefits due to higher employer contributions	(18,641		)
Other - net	(370		)
Net change in operating assets and liabilities	$	61,195



Decrease from short-term and long-term regulatory assets and liabilities primarily due to proceeds IPL received in the prior year pursuant to a settlement agreement and a prior year increase to regulatory liabilities to record the impacts of the TCJA on customer rates. IPL has been passing both of these benefits on to customers in 2019.	$	(80,093	)
Decrease from accounts payable, primarily due to timing of payments	(44,443		)
Decrease from accrued taxes payable/receivable primarily due to a higher current portion of income tax expense in the prior year, and increased tax sharing payments in the current year	(42,457		)
Increase from pension and other postretirement benefit expenses due to lower employer contributions	38,551
Increase from accrued and other current liabilities and prepayments and other current assets primarily due to timing of payments	16,475
Other	11,608
Net change in operating assets and liabilities	$	(100,359	)


		For the Three-Year Period			For the Three-Year Period
		from 2018 through 2020			from 2019 through 2021
Additions, improvements and extensions ⁽¹⁾		$	330
Transmission and distribution related additions, improvements and extensions ⁽¹⁾					$	486
Power plant-related projects		194			214
Other miscellaneous equipment		90			71
Total estimated costs of capital expenditure program		$	614		$	771

⁽¹⁾Additions, improvements and extensions to transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers and street lighting facilities	⁽¹⁾Additions, improvements and extensions to transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers and street lighting facilities			⁽¹⁾Additions, improvements and extensions to transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers and street lighting facilities



	Total Estimated Costs		Total Costs Expended		Remaining Costs
	of Project ⁽¹⁾		Through September 30, 2018 ⁽¹⁾		of Project
Replacement generation ⁽²⁾	$	642	$	640	$	2
NPDES ⁽³⁾	224		221		3
CCR and NAAQS SO2 ⁽⁴⁾	76		66		10
Cooling water intake regulations ⁽⁵⁾	$	68	$	—	$	68

⁽¹⁾Reflects total costs from project inception.
⁽²⁾IPL plans to spend a total of $642 million on replacement generation costs through 2018 as a result of the retirement of existing facilities not equipped with advanced environmental control technologies required to comply with existing and expended regulations.
⁽³⁾Includes costs for compliance with the NPDES permit program under the CWA. With $221 million spent through September 2018, the remaining $3 million is expected to be expended during the remainder of 2018.
⁽⁴⁾IPL plans to spend a total of $76 million through 2018 for projects underway related to environmental compliance for CCR and NAAQS SO2.
⁽⁵⁾Includes spending for studies related to cooling water intake requirements in sections 316(a) and 316(b) of the CWA, NAAQS Ozone and Office of Surface Mining for the remainder of 2018 through 2020.



Debt ratings	IPALCO	IPL	Outlook	Effective or Affirmed
Fitch Ratings	BBB ^(a)	A^(b)	Stable	November 2018
Moody’s Investors Service	Baa3^(a)	A2^(b)	Stable	~~October 2016~~November 2018
S&P Global Ratings	BBB-^(a)	A-^(b)	Stable	March 2018

Credit ratings	IPALCO	IPL	Outlook	Effective or Affirmed
Fitch Ratings	BBB-	BBB+	Stable	November 2018
Moody’s Investors Service	—	Baa1	Stable	~~October 2016~~November 2018
S&P Global Ratings	BBB	BBB	Stable	March 2018



Exhibit No.	Document

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.SCH	XBRL Taxonomy Extension Schema Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith as provided in Rule 406T of Regulation S-T)



		IPALCO ENTERPRISES, INC.

Date:	November 5, ~~2018~~2019	/s/ Gustavo ~~Pimenta~~Garavaglia
		Gustavo ~~Pimenta~~Garavaglia
		Chief Financial Officer
		(PrincipalFinancialOfficer)

Date:	November 5, ~~2018~~2019	/s/ Karin M. Nyhuis
		Karin M. Nyhuis
		Controller
		(PrincipalAccountingOfficer)