IPALCO ENTERPRISES, INC.

QUARTERLY REPORT ON FORM 10-Q

For Quarter Ended September 30, ~~2019~~2020

TABLE OF CONTENTS


Item No.		Page No.
	DEFINED TERMS	4

	FORWARD-LOOKING STATEMENTS	5

	PART I - FINANCIAL INFORMATION
1.	Financial Statements
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
	September 30, 2020 and 2019	7
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine
	Months Ended September 30, 2020 and 2019	8
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	9
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
	September 30, 2020 and 2019	10
	Unaudited Condensed Consolidated Statements of Common Shareholders' Equity and
	Noncontrolling Interest for the Three and Nine Months Ended September 30, 2020 and 2019	11
	Notes to Unaudited Condensed Consolidated Financial Statements	12
	Note 1 - Overview and Summary of Significant Accounting Policies	12
	Note 2 - Regulatory Matters	15
	Note 3 - Fair Value	16
	Note 4 - Derivative Instruments and Hedging Activities	18
	Note 5 - Debt	19
	Note 6 - Income Taxes	21
	Note 7 - Benefit Plans	21
	Note 8 - Commitments and Contingencies	22
	Note 9 - Business Segment Information	23
	Note 10 - Revenue	23
	Note 11 - Leases	25
	Note 12 - Risks and Uncertainties	26
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
3.	Quantitative and Qualitative Disclosure About Market Risk	43
4.	Controls and Procedures	43

	PART II - OTHER INFORMATION
1.	Legal Proceedings	44
1A.	Risk Factors	44
2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
3.	Defaults Upon Senior Securities	46
4.	Mine Safety Disclosures	46
5.	Other Information	46
6.	Exhibits	47

	SIGNATURES	48

Item No. Page No.
DEFINED TERMS
3

FORWARD-LOOKING STATEMENTS
4

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

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

SIGNATURES
41



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

~~2016 Base Rate Order~~		~~The order issued in March 2016 by the IURC authorizing IPL to, among other things, increase its basic rates and charges by $30.8 million annually~~
2018 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~~2019 Form 10-K		IPALCO’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as amended
2020 IPALCO Notes		$405 million of 3.45% Senior Secured Notes due July 15, 2020
2024 IPALCO Notes		$405 million of 3.70% Senior Secured Notes due September 1, 2024
~~AES~~2030 IPALCO Notes		$475 million of 4.25% Senior Secured Notes due May 1, 2030
AES		The AES Corporation
AES U.S. Investments		AES U.S. Investments, Inc.
AOCI		Accumulated Other Comprehensive Income
~~ARO~~AOCL		~~Asset Retirement Obligations~~Accumulated Other Comprehensive Loss
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~~Infrastructures Fund ~~GP,~~G.P., a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec
~~CERCLA~~CECL		~~Comprehensive Environmental Response, Compensation, and Liability Act~~Current Expected Credit Loss
CO₂		Carbon Dioxide
COVID-19		The disease caused by the novel coronavirus that caused a global pandemic in 2020.
CPP		Clean Power Plan
Credit Agreement		$250 million IPL Revolving Credit Facilities Amended and Restated Credit Agreement, dated as of June 19, 2019
~~CWA~~CSAPR		Cross-State Air Pollution Rule
Cumulative Deficiencies		Cumulative Net Operating Income Deficiencies. The Cumulative Deficiencies calculation provides that only five years' worth of historical earnings deficiencies or surpluses are included, unless it has been greater than five years since the most recent rate case.
CWA		U.S. Clean Water Act
~~DSM~~DOJ		~~Demand Side Management~~U.S. Department of Justice
~~EPA~~ECCRA		Environmental Compliance Cost Recovery Adjustment
EPA		U.S. Environmental Protection Agency
FAC		Fuel Adjustment Clause
FERC		Federal Energy Regulatory Commission
Financial Statements		Unaudited Condensed Consolidated Financial Statements of IPALCO in “Item 1. Financial Statements” included in Part I – Financial Information of this Form 10-Q
FTRs		Financial Transmission Rights
GAAP		Generally Accepted Accounting Principles in the United States
GHG		Greenhouse Gas
~~IPALCO~~IDEM		Indiana Department of Environmental Management
IPALCO		IPALCO Enterprises, Inc.
IPL		Indianapolis Power & Light Company
~~IURC~~IRP		Integrated Resource Plan
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~~NSR			~~National Pollutant Discharge Elimination System~~New Source Review
NWP 12			Nationwide Permit 12
OUCC			Indiana Office of Utility Consumer Counselor
Pension Plans			Employees’ Retirement Plan of Indianapolis Power & Light Company and Supplemental Retirement Plan of Indianapolis Power & Light Company
PSD			Prevention of Significant Deterioration
SEC			United States Securities and Exchange Commission
SIP			State Implementation Plan
SO₂			Sulfur Dioxide
T&D			Transmission & Distribution
Term Loan			$65 million IPALCO Term Loan Facility Credit Agreement, dated as of October 31, 2018


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

Throughout this document, the terms “the Company,” “we,” “us,” and “our” refer to IPALCO and its consolidated subsidiaries.

We encourage investors, the media, our customers and others interested in the Company to review the information we post at https://www.iplpower.com. None of the information on our website is incorporated into, or deemed to be a part of, this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any reference to our website is intended to be an inactive textual reference only.

~~FORWARD‑LOOKING~~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;

•weather-related damage to our electrical system;

•commodity and other input costs;

•performance of our suppliers;

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

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

•federal and state legislation and regulations;

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

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

•changes in financial or regulatory accounting policies;

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

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

•the availability of capital;

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

•level of creditworthiness of counterparties to contracts and transactions;

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

•facility or equipment maintenance, repairs and capital expenditures;

•significant delays or unanticipated cost increases associated with construction projects;

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

•local economic conditions;

•cyber-attacks and information security breaches;

•catastrophic events such as fires, explosions, terrorist acts, acts of war, pandemic events, including the outbreak of the novel coronavirus COVID-19, or natural disasters such as floods, earthquakes, tornadoes, severe winds, ice or snow storms, droughts, or other similar occurrences;

•costs and effects of legal and administrative proceedings, audits, settlements, investigations and claims and the ultimate disposition of litigation;

•industry restructuring, deregulation and competition;

•issues related to our participation in MISO, including the cost associated with membership, our continued ability to recover costs incurred, and the risk of default of other MISO participants;

•changes in tax laws and the effects of our tax strategies;

•the use of derivative contracts;

•product development, technology changes, and changes in prices of products and technologies; and

•the risks and other factors discussed in this report and other IPALCO filings with the SEC.

All of the above factors are difficult to predict, contain uncertainties that may materially affect actual results, and many are beyond our control. See “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in IPALCO’s ~~2018~~2019 Form 10-K for a more detailed discussion of the foregoing and certain other factors that could cause actual results to differ materially from those reflected in any forward-looking statements. These risks may also be specifically described in our Quarterly Reports on Form 10-Q in "Part II - Item 1A. Risk Factors", Current Reports on Form 8-K and other documents that we may file from time to time with the SEC. Except as required by the federal securities laws, we undertake no obligation to publicly update or review any forward-looking information, whether as a result of new information, future events or otherwise. If one or more forward-looking statements are updated, no inference should be drawn that additional updates will be made with respect to those or other forward-looking statements. Our SEC filings are available to the public from the SEC’s website at www.sec.gov.

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,
	2020		2019		2020		2019

REVENUES	$	356,088	$	398,456	$	1,024,973	$	1,121,634

OPERATING COSTS AND EXPENSES:
Fuel	73,901		93,217		186,040		254,233
Power purchased	26,987		31,840		105,536		101,483
Operation and maintenance	100,455		105,975		300,703		321,782
Depreciation and amortization	62,359		60,373		184,166		179,939
Taxes other than income taxes	10,399		12,943		34,063		33,909

Total operating costs and expenses	274,101		304,348		810,508		891,346

OPERATING INCOME	81,987		94,108		214,465		230,288

OTHER INCOME / (EXPENSE), NET:
Allowance for equity funds used during construction	1,099		810		3,116		2,538
Interest expense	(32,741)		(30,620)		(96,757)		(91,393)
Loss on early extinguishment of debt	0		0		(2,415)		0
Other income / (expense), net	935		(2,704)		2,914		(7,977)
Total other income / (expense), net	(30,707)		(32,514)		(93,142)		(96,832)

EARNINGS FROM OPERATIONS BEFORE INCOME TAX	51,280		61,594		121,323		133,456

Less: Income tax expense	10,981		13,088		25,918		28,252
NET INCOME	40,299		48,506		95,405		105,204

Less: Dividends on preferred stock	803		803		2,410		2,410
NET INCOME APPLICABLE TO COMMON STOCK	$	39,496	$	47,703	$	92,995	$	102,794

See notes to unaudited condensed consolidated financial statements.

IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In Thousands)
Three Months Ended 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	IPALCO ENTERPRISES, INC. and SUBSIDIARIES										IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss)	Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss)										Unaudited Condensed Consolidated Statements of Comprehensive Income/(Loss)
(In Thousands)	(In Thousands)										(In Thousands)
	Three Months Ended					Nine Months Ended						Three Months Ended				Nine Months Ended
	September 30,					September 30,						September 30,				September 30,
	2019			2018		2019			2018			2020		2019		2020		2019

Net income applicable to common stock	$	47,703		$	41,269	$	102,794		$	95,211	Net income applicable to common stock	$	39,496	$	47,703	$	92,995	$	102,794

Derivative activity:											Derivative activity:
Change in derivative fair value, net of income tax benefit of $4,322, $0, $10,188 and $0, for each respective period	(12,534		)	—		(29,722		)	—
Change in derivative fair value, net of income tax (charge)/benefit of $(1,278), $4,322, $12,632 and $10,188, for each respective period											Change in derivative fair value, net of income tax (charge)/benefit of $(1,278), $4,322, $12,632 and $10,188, for each respective period	3,707		(12,534)		(36,632)		(29,722)
Reclassification to earnings, net of income tax benefit of $463, $0, $926 and $0, for each respective period											Reclassification to earnings, net of income tax benefit of $463, $0, $926 and $0, for each respective period	1,344		0		2,688		0
Net change in fair value of derivatives	(12,534		)	—		(29,722		)	—		Net change in fair value of derivatives	5,051		(12,534)		(33,944)		(29,722)

Other comprehensive loss	(12,534		)	—		(29,722		)	—
Other comprehensive income / (loss)											Other comprehensive income / (loss)	5,051		(12,534)		(33,944)		(29,722)

Net comprehensive income	$	35,169		$	41,269	$	73,072		$	95,211	Net comprehensive income	$	44,547	$	35,169	$	59,051	$	73,072

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 Balance Sheets
(In Thousands)
	September 30,		December 31,
	2020		2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	38,815	$	48,152
Restricted cash	20,513		400
Accounts receivable, net of allowance for credit losses of $3,520 and $921, respectively	158,560		161,090
Inventories	95,652		83,569
Regulatory assets, current	41,663		37,398
Taxes receivable	22,203		23,670
Prepayments and other current assets	23,424		17,264
Total current assets	400,830		371,543
NON-CURRENT ASSETS:
Property, plant and equipment	6,490,135		6,398,612
Less: Accumulated depreciation	2,533,889		2,414,652
	3,956,246		3,983,960
Construction work in progress	179,330		130,609
Total net property, plant and equipment	4,135,576		4,114,569
OTHER NON-CURRENT ASSETS:
Intangible assets - net	58,099		64,861
Regulatory assets, non-current	341,066		355,614
Other non-current assets	22,729		22,082
Total other non-current assets	421,894		442,557
TOTAL ASSETS	$	4,958,300	$	4,928,669
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current portion of long-term debt (Note 5)	$	234,853	$	559,199
Accounts payable	118,392		128,521
Accrued taxes	27,231		22,012
Accrued interest	44,195		35,334
Customer deposits	27,747		34,635
Regulatory liabilities, current	46,871		52,654
Derivative liabilities, current	0		26,560
Accrued and other current liabilities	19,989		23,300
Total current liabilities	519,278		882,215
NON-CURRENT LIABILITIES:
Long-term debt (Note 5)	2,467,139		2,092,430
Deferred income tax liabilities	266,243		272,861
Taxes payable	7,875		4,658
Regulatory liabilities, non-current	836,976		846,430
Accrued pension and other postretirement benefits	14,166		19,344
Asset retirement obligations	199,130		204,219
Derivative liabilities, non-current	75,824		0
Other non-current liabilities	226		252
Total non-current liabilities	3,867,579		3,440,194
Total liabilities	4,386,857		4,322,409
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Paid in capital	589,911		590,784
Accumulated other comprehensive loss	(53,694)		(19,750)
Accumulated deficit	(24,558)		(24,558)
Total common shareholders' equity	511,659		546,476
Preferred stock of subsidiary	59,784		59,784
Total shareholders' equity	571,443		606,260
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	4,958,300	$	4,928,669

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 Cash Flows
(In Thousands)
	Nine Months Ended
	September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	95,405	$	105,204
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	184,166		179,939
Amortization of deferred financing costs and debt discounts	3,006		3,081
Deferred income taxes and investment tax credit adjustments - net	(2,001)		15,109
Allowance for equity funds used during construction	(3,116)		(2,538)
Loss on early extinguishment of debt	2,415		0
Change in certain assets and liabilities:
Accounts receivable	2,530		(5,117)
Inventories	(16,652)		7,688
Accounts payable	(24,228)		(46,063)
Accrued and other current liabilities	(9,041)		3,560
Accrued taxes payable/receivable	9,904		(9,670)
Accrued interest	8,861		2,965
Pension and other postretirement benefit expenses	(5,179)		4,082
Short-term and long-term regulatory assets and liabilities	828		2,213
Prepayments and other current assets	(6,159)		(3,576)
Other - net	421		2,895
Net cash provided by operating activities	241,160		259,772
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(149,369)		(126,066)
Project development costs	(1,848)		(1,268)
Cost of removal and regulatory recoverable ARO payments	(29,483)		(14,067)
Other	119		278
Net cash used in investing activities	(180,581)		(141,123)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities	80,000		10,000
Repayments under revolving credit facilities	(30,000)		(10,000)
Long-term borrowings, net of discount	474,568		0
Retirement of long-term debt, including early payment premium	(472,135)		0
Distributions to shareholders	(93,993)		(94,699)
Preferred dividends of subsidiary	(2,410)		(2,410)
Deferred financing costs paid	(5,664)		0
Payments for financed capital expenditures	(51)		(5,616)
Other	(118)		(710)
Net cash used in financing activities	(49,803)		(103,435)
Net change in cash, cash equivalents and restricted cash	10,776		15,214
Cash, cash equivalents and restricted cash at beginning of period	48,552		33,599
Cash, cash equivalents and restricted cash at end of period	$	59,328	$	48,813

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized)	$	81,073	$	85,602
Income taxes	27,000		23,600
Non-cash investing activities:
Accruals for capital expenditures	$	49,569	$	13,115

See notes to unaudited condensed consolidated financial statements.


IPALCO ENTERPRISES, INC. and SUBSIDIARIES	IPALCO ENTERPRISES, INC. and SUBSIDIARIES															IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Common Shareholders' Equity (Deficit)
Unaudited Condensed Consolidated Statements of Common Shareholders' Equity																Unaudited Condensed Consolidated Statements of Common Shareholders' Equity
and Noncontrolling Interest	and Noncontrolling Interest															and Noncontrolling Interest
For the Nine Months Ended September 30, 2019 and 2018
For the Three and Nine Months Ended September 30, 2020 and 2019																For the Three and Nine Months Ended September 30, 2020 and 2019
(In Thousands)	(In Thousands)															(In Thousands)
		Paid in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Common Shareholders' Equity			Cumulative Preferred Stock of Subsidiary				Paid in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Common Shareholders' Equity		Cumulative Preferred Stock of Subsidiary
2018
2020																2020
Beginning Balance		$	597,467	$	—		$	(25,191	)	$	572,276		$	59,784		Beginning Balance	$	590,784	$	(19,750)	$	(24,558)	$	546,476	$	59,784
Net income		—		—			31,500			31,500			803
Net comprehensive loss																Net comprehensive loss	—		(36,313)		35,180		(1,133)		803
Preferred stock dividends		—		—			—			—			(803		)	Preferred stock dividends	—		—		—		—		(803)
Distributions to shareholders		—		—			(25,328		)	(25,328		)	—			Distributions to shareholders	—		—		(26,631)		(26,631)		—
Other		125		—			—			125			—			Other	49		—		—		49		—
Balance at March 31, 2018		597,592		—			(19,019		)	578,573			59,784
Net income		—		—			22,442			22,442			804
Balance at March 31, 2020																Balance at March 31, 2020	590,833		(56,063)		(16,009)		518,761		59,784
Net comprehensive income																Net comprehensive income	—		(2,682)		18,319		15,637		804
Preferred stock dividends		—		—			—			—			(804		)	Preferred stock dividends	—		—		—		—		(804)
Distributions to shareholders		—		—			(25,939		)	(25,939		)	—			Distributions to shareholders	—		—		(26,596)		(26,596)		—
Other		79		—			—			79			—			Other	37		—		—		37		—
Balance at June 30, 2018		597,671		—			(22,516		)	575,155			59,784
Net income		—		—			41,269			41,269			803
Balance at June 30, 2020																Balance at June 30, 2020	$	590,870	$	(58,745)	$	(24,286)	$	507,839	$	59,784
Net comprehensive income																Net comprehensive income	—		5,051		39,496		44,547		803
Preferred stock dividends		—		—			—			—			(803		)	Preferred stock dividends	—		—		—		—		(803)
Distributions to shareholders		—		—			(33,922		)	(33,922		)	—
Distributions to shareholders(1)																Distributions to shareholders(1)	(998)		—		(39,768)		(40,766)		—
Other		65		—			—			65			—			Other	39		—		—		39		—
Balance at September 30, 2018		$	597,736	$	—		$	(15,169	)	$	582,567		$	59,784
Balance at September 30, 2020																Balance at September 30, 2020	$	589,911	$	(53,694)	$	(24,558)	$	511,659	$	59,784

2019																2019
Beginning Balance		$	597,824	$	—		$	(24,558	)	$	573,266		$	59,784		Beginning Balance	$	597,824	$	0	$	(24,558)	$	573,266	$	59,784
Net comprehensive income		—		(5,539		)	40,982			35,443			803			Net comprehensive income	—		(5,539)		40,982		35,443		803
Preferred stock dividends		—		—			—			—			(803		)	Preferred stock dividends	—		—		—		—		(803)
Distributions to shareholders		—		—			(31,590		)	(31,590		)	—			Distributions to shareholders	—		—		(31,590)		(31,590)		—
Other		34					—			34			—			Other	34		—		—		34		—
Balance at March 31, 2019		597,858		(5,539		)	(15,166		)	577,153			59,784			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			Net comprehensive income	—		(11,649)		14,109		2,460		804
Preferred stock dividends		—		—			—			—			(804		)	Preferred stock dividends	—		—		—		—		(804)
Distributions to shareholders		—		—			(28,345		)	(28,345		)	—			Distributions to shareholders	—		—		(28,345)		(28,345)		—
Other		59		—			—			59			—			Other	59		—		—		59		—
Balance at June 30, 2019		597,917		(17,188		)	(29,402		)	551,327			59,784			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			Net comprehensive income	—		(12,534)		47,703		35,169		803
Preferred stock dividends		—		—			—			—			(803		)	Preferred stock dividends	—		—		—		—		(803)
Distributions to shareholders		—		—			(34,764		)	(34,764		)	—			Distributions to shareholders	—		—		(34,764)		(34,764)		—
Other		54		—			—			54			—			Other	54		—		—		54		—
Balance at September 30, 2019		$	597,971	$	(29,722	)	$	(16,463	)	$	551,786		$	59,784		Balance at September 30, 2019	$	597,971	$	(29,722)	$	(16,463)	$	551,786	$	59,784

1) I (1) IPALCO made return of capital payments of $1.0 million during the three months ended September 30, 2020 for the portion of current year distributions to shareholders in excess of current year net income.																1) I (1) IPALCO made return of capital payments of $1.0 million during the three months ended September 30, 2020 for the portion of current year distributions to shareholders in excess of current year net income.



New Accounting Standards Adopted
ASU Number and Name			Description		Date of Adoption		Effect on the Financial Statements upon adoption
~~2017-12, Derivatives and Hedging~~2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03, Financial Instruments - Credit Losses (Topic ~~815)~~326): ~~Targeted Improvements to Accounting for Hedging Activities~~Measurement of Credit Losses on Financial Instruments			The standard updates the hedge accounting model to expand the ability to hedge nonfinancial and financial risk components, reduce complexity, and ease certain documentation and assessment requirements. When facts and circumstances are the same as at the previous quantitative test, a subsequent quantitative effectiveness test is not required. The standard also eliminates the requirement to separately measure and report hedge ineffectiveness. For cash flow hedges, this means that the entire change in the fair value of a hedging instrument will be recorded in other comprehensive income and amounts deferred will be reclassified to earnings in the same income statement line as the hedged item. Transition method: modified retrospective with the cumulative effect adjustment recorded to the opening balance of retained earnings as of the initial application date. Prospective for presentation and disclosures.		~~January 1, 2019~~	~~The adoption of this standard did not have a material impact on the Financial Statements.~~
~~2016-02, 2018-01, 2018-10, 2018-11, 2018-20, 2019-01, Leases (Topic 842)~~	See discussion of the ~~ASUs~~ASU below.	January 1, ~~2019~~2020		See impact upon adoption of the standard below.



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~~2020-04, Reference Rate Form (Topic ~~326)~~848): ~~Measurement~~Facilitation of ~~Credit Losses~~the Effects of Reference Rate Reform on Financial ~~Instruments~~ Reporting	~~See discussion~~The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform. This standard is effective for a limited period of ~~the ASU below.~~ time (March 12, 2020 - December 21, 2022).	~~January 1, 2020. Early adoption is permitted only as of January 1, 2019.~~March 12, 2020 - December 31, 2022	The Company ~~will adopt the standard on January 1, 2020; see below for the evaluation of~~is currently evaluating the impact of ~~the adoption on~~adopting the standard on the Financial Statements.

~~ASU 2016-13~~

2. REGULATORY MATTERS

TDSIC

On March 4, 2020, the IURC issued an order approving the projects in a seven-year TDSIC Plan for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027. On June 18, 2020, IPL filed its ~~subsequent corresponding updates will update~~first annual TDSIC rate adjustment for a return on and of investments through March 31, 2020. On October 14, 2020, 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, entitiesIURC issued an order approving this TDSIC rate adjustment, which will be reflected in rates effective November 2020.

FAC and Authorized Annual Jurisdictional Net Operating Income

As discussed in Note 2, "Regulatory Matters" of IPALCO's 2019 Form 10-K, in each of the last three calendar years IPL has reported earnings in excess of the authorized level for each of the four quarterly reporting periods in those years, however IPL was not required to reduce its fuel cost recovery because of its Cumulative Deficiencies. During 2020, IPL’s Cumulative Deficiencies were exhausted and thus IPL was required to accrue a regulatory liability of $7.3 million as of September 30, 2020. This is recorded within "Regulatory liabilities, current" on the accompanying Unaudited Condensed Consolidated Balance Sheets and as a reduction to revenue on the Unaudited Condensed Consolidated Statements of Operations.

IURC COVID-19 Orders

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

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

As a result of ~~allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit loses~~these orders, IPL has recorded a $5.4 million regulatory asset as ~~it is done today, except that~~of September 30, 2020. Additionally, IPL implemented and extended flexible payment assistance plans to customers during the ~~losses will be recognized as an allowance rather than a reduction in the amortized cost~~third quarter of 2020.

Phase Two 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~~IURC investigation is expected ~~that~~to focus on longer-term issues related to COVID-19. Among other things, the ~~new current expected credit loss model will primarily impact~~issues may include consideration of appropriate methodology to review the ~~calculation~~reasonableness, necessity, and prudency of any COVID-19-related cost recovery requests in future rate cases. For further discussion on the ~~Company's expected credit losses on $175.7 million in gross trade accounts receivable.~~COVID-19 pandemic, see Note 12, "Risks and Uncertainties - COVID-19 Pandemic".

3. FAIR VALUE

The fair value of financial assets and liabilities approximate their reported carrying amounts. The estimated fair values of the Company’s assets and liabilities have been determined using available market information. As these amounts are estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For further information on our valuation techniques and policies, see Note 4, "Fair Value" to IPALCO’s ~~2018~~2019 Form 10-K.

Financial Assets

VEBA Assets

~~IPL~~IPALCO has VEBA investments that are to be used to fund certain employee postretirement health care benefit plans. These assets are primarily comprised of open-ended mutual funds, which are valued using the net assets value per unit. These investments are recorded at fair value within "Other non-current assets" on the accompanying Unaudited Condensed Consolidated Balance Sheets and classified as equity securities. ~~ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities~~” was effective as of January 1, 2018. This ASU requires the change in the fair value of equity instruments to be recorded in income. Equity Instruments were defined to include all mutual funds, regardless of the underlying investments. Therefore, allAll changes to fair value on the VEBA investments are included in income in the period that the changes occur. These changes to fair value were not material for the periods covered by this report. Any unrealized gains or losses are recorded in "Other income / (expense), net" on our Unaudited Condensed Consolidated Statements of Operations.

FTRs

In connection with IPL’s participation in MISO, in the second quarter of each year IPL is granted financial instruments that can be converted into cash or FTRs based on IPL’s forecasted peak load for the period. FTRs are used in the MISO market to hedge IPL’s exposure to congestion charges, which result from constraints on the transmission system. IPL’s FTRs are valued at the cleared auction prices for FTRs in MISO’s annual auction. Because of the infrequent nature of this valuation, the fair value assigned to the FTRs is considered a Level 3 input under the fair value hierarchy required by ASC 820. An offsetting regulatory liability has been recorded as these revenues or costs will be flowed through to customers through the FAC. As such, there is no impact on our Unaudited Condensed Consolidated Statements of Operations.

Financial Liabilities

Interest Rate Hedges

In March 2019, we entered into forward interest rate hedges, ~~related to the 2020 IPALCO Notes and Term Loan that have maturities~~which were amended in ~~July~~April 2020. The interest rate hedges have a combined notional amount of $400.0 ~~million, which will settle when we refinance the debt.~~million. 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.~~AOCL. See also Note 3,4, "Derivative Instruments and Hedging Activities - Cash Flow Hedges" for further information.

Recurring Fair Value Measurements

The fair value of assets and liabilities at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 measured on a recurring basis and the respective category within the fair value hierarchy for IPALCO was determined as follows:


Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at September 30, 2020		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
VEBA investments:
Money market funds	$	20	$	20	$	0	$	0
Mutual funds	3,069		0		3,069		0
Total VEBA investments	3,089		20		3,069		0
Financial transmission rights	1,132		0		0		1,132
Total financial assets measured at fair value	$	4,221	$	20	$	3,069	$	1,132
Financial liabilities:
Interest rate hedges	$	75,824	$	0	$	75,824	$	0

Total financial liabilities measured at fair value	$	75,824	$	0	$	75,824	$	0

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


Assets and Liabilities at Fair Value
			Level 1		Level 2		Level 3
	Fair value at December 31, 2019		Based on quoted market prices in active markets		Other observable inputs		Unobservable inputs
	(In Thousands)
Financial assets:
VEBA investments:
Money market funds	$	25	$	25	$	0	$	0
Mutual funds	2,854		0		2,854		0
Total VEBA investments	2,879		25		2,854		0
Financial transmission rights	864		0		0		864
Total financial assets measured at fair value	$	3,743	$	25	$	2,854	$	864
Financial liabilities:
Interest rate hedges	$	26,560	$	0	$	26,560	$	0
Total financial liabilities measured at fair value	$	26,560	$	0	$	26,560	$	0

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, 2020				December 31, 2019
	Face Value		Fair Value		Face Value		Fair Value
	(In Thousands)
Fixed-rate	$	2,593,800	$	3,187,023	$	2,523,800	$	2,876,140
Variable-rate	140,000		140,000		155,000		155,000
Total indebtedness	$	2,733,800	$	3,327,023	$	2,678,800	$	3,031,140

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

•unamortized deferred financing costs of ~~$21.3~~$25.1 million and ~~$23.0~~$20.7 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively; and

•unamortized discounts of ~~$6.5~~$6.7 million and ~~$6.7~~$6.5 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

3.4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

~~We use derivatives principally~~For further information on the Company’s derivative and hedge accounting policies, see Note 1, "Overview and Summary of Significant Accounting Policies - Financial Derivatives" and Note 5, "Derivative Instruments and Hedging Activities" to manage the interest rate risk associated with refinancing our long-term debt. The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. We monitor and value derivative positions monthly as part of our risk management processes. We use published sources for pricing, when possible, to mark positions to market. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under ASC 815 for accounting purposes.IPALCO’s 2019 Form 10-K.

At September 30, ~~2019~~2020, 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	$	0	$	400,000
FTRs	Not Designated	MWh	5,135		0		5,135

Commodity
Accounting Treatment ^(a)
Unit
Purchases
(in thousands)

Sales
(in thousands)

Net Purchases/(Sales)
(in thousands)
Interest rate hedges Designated USD $ 400,000
$ —
$ 400,000
FTRs Not Designated MWh 9,131
—
9,131
(a) Refers to whether the derivative instruments have been designated as a cash flow hedge.


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

Cash Flow Hedges

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

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

~~We use the income approach to~~2030 IPALCO Notes, while any changes in fair value the swaps, which consists of forecasting future cash flows based on contractual notional amounts and applicable and available market data as of the valuation date. The most common market data inputs used in the income approach include volatilities, spot and forward benchmark interest rates (LIBOR). Forward ratesassociated with the ~~same tenor as the derivative instrument being valued are generally obtained from published sources, with these forward rates being assessed quarterly at a portfolio-level for reasonableness versus~~amended interest rate swaps will be recognized in AOCL going forward.

~~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~~AOCL for the cash flow hedges for the ~~period~~periods 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


	Interest Rate Hedges for the Three Months Ended September 30,
$ in thousands (net of tax)	2020		2019
Beginning accumulated derivative loss in AOCL	$	(58,745)	$	(17,188)

Net gains / (losses) associated with current period hedging transactions	3,707		(12,534)
Net losses reclassified to interest expense, net of tax	1,344		—
Ending accumulated derivative loss in AOCL	$	(53,694)	$	(29,722)


	Interest Rate Hedges for the Nine Months Ended September 30,
$ in thousands (net of tax)	2020		2019
Beginning accumulated derivative loss in AOCL	$	(19,750)	$	0

Net losses associated with current period hedging transactions	(36,632)		(29,722)
Net losses reclassified to interest expense, net of tax	2,688		—
Ending accumulated derivative loss in AOCL	$	(53,694)	$	(29,722)

Loss expected to be reclassified to earnings in the next twelve months	$	(5,375)
Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months)	48

Derivatives Not Designated as Hedge

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

Certain qualifying derivative instruments have been designated as normal purchases or normal sales contracts, as provided under GAAP. Derivative contracts that have been designated as normal purchases or normal sales under GAAP are not subject to hedge or mark to market accounting and are recognized in the consolidated statements of operations on an accrual basis.

When applicable, IPALCO has elected not to offset derivative assets and liabilities and not to offset net derivative positions against the right to reclaim cash collateral pledged (an asset) or the obligation to return cash collateral received (a liability) under derivative agreements. As of September 30, ~~2019,~~2020, IPALCO did not have any offsetting positions.

The following table summarizes the fair value, balance sheet classification and hedging designation of IPALCO's derivative instruments:


Commodity	Hedging Designation	Balance sheet classification	September 30, 2020		December 31, 2019
Financial transmission rights	Not a Cash Flow Hedge	Prepayments and other current assets	$	1,132	$	864
Interest rate hedges	Cash Flow Hedge	Derivative liabilities, current	$	0	$	26,560
Interest rate hedges	Cash Flow Hedge	Derivative liabilities, non-current	$	75,824	$	0

4.5. DEBT

Long-Term Debt

The following table presents our long-term debt:


		September 30,		December 31,
Series	Due	2020		2019
		(In Thousands)
IPL first mortgage bonds:
3.875% (1)	August 2021	$	55,000	$	55,000
3.875% (1)	August 2021	40,000		40,000
3.125% (1)	December 2024	40,000		40,000
6.60%	January 2034	100,000		100,000
6.05%	October 2036	158,800		158,800
6.60%	June 2037	165,000		165,000
4.875%	November 2041	140,000		140,000
4.65%	June 2043	170,000		170,000
4.50%	June 2044	130,000		130,000
4.70%	September 2045	260,000		260,000
4.05%	May 2046	350,000		350,000
4.875%	November 2048	105,000		105,000
Unamortized discount – net		(6,042)		(6,156)
Deferred financing costs		(16,186)		(16,629)
Total IPL first mortgage bonds		1,691,572		1,691,015
IPL unsecured debt:
Variable - 1.047% (2)	December 2020	30,000		30,000
Variable - 1.047% (2)	December 2020	60,000		60,000
Deferred financing costs		(28)		(114)
Total IPL unsecured debt		89,972		89,886
Total Long-term Debt – IPL		1,781,544		1,780,901
Long-term Debt – IPALCO:
Term Loan	July 2020	0		65,000
3.45% Senior Secured Notes	July 2020	0		405,000
3.70% Senior Secured Notes	September 2024	405,000		405,000
4.25% Senior Secured Notes	May 2030	475,000		0
Unamortized discount – net		(649)		(313)
Deferred financing costs		(8,903)		(3,959)
Total Long-term Debt – IPALCO		870,448		870,728
Total Consolidated IPALCO Long-term Debt		2,651,992		2,651,629
Less: Current Portion of Long-term Debt		184,853		559,199
Net Consolidated IPALCO Long-term Debt		$	2,467,139	$	2,092,430

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

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

IPL First Mortgage Bonds

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

September 30, December 31,
Series Due 2019 2018
(In Thousands)
IPL first mortgage bonds:
3.875% (1) August 2021 $ 55,000
$ 55,000
3.875% (1) August 2021 40,000
40,000
3.125% (1) December 2024 40,000
40,000
6.60% January 2034 100,000
100,000
6.05% October 2036 158,800
158,800
6.60% June 2037 165,000
165,000
4.875% November 2041 140,000
140,000
4.65% June 2043 170,000
170,000
4.50% June 2044 130,000
130,000
4.70% September 2045 260,000
260,000
4.05% May 2046 350,000
350,000
4.875% November 2048 105,000
105,000
Unamortized discount – net
(6,189 ) (6,272 )
Deferred financing costs (16,769 ) (17,115 )
Total IPL first mortgage bonds 1,690,842
1,690,413
IPL unsecured debt:

Variable ⁽²⁾
December 2020 30,000
30,000
Variable ⁽²⁾
December 2020 60,000
60,000
Deferred financing costs
(143 ) (229 )
Total IPL unsecured debt 89,857
89,771
Total Long-term Debt – IPL 1,780,699
1,780,184
Long-term Debt – IPALCO:

Term Loan July 2020 65,000
65,000
3.45% Senior Secured Notes July 2020 405,000
405,000
3.70% Senior Secured Notes September 2024 405,000
405,000
Unamortized discount – net
(341 ) (424 )
Deferred financing costs (4,393 ) (5,696 )
Total Long-term Debt – IPALCO 870,266
868,880
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

IPL Unsecured Notes


~~(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.

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

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

IPALCO’s Senior Secured Notes and Term Loan

~~IPALCO has $405 million of 3.45% Senior Secured Notes due July 15, 2020 ("~~In April 2020, IPALCO ~~Notes")~~completed the sale of the $475 million aggregate principal amount of 4.25% 2030 IPALCO Notes pursuant to Rule 144A and aRegulation S under the Securities Act of 1933, as amended. The 2030 IPALCO Notes were issued pursuant to an Indenture dated April 14, 2020, by and between IPALCO and U.S. Bank, National Association, as trustee. The 2030 IPALCO Notes were priced to the public at 99.909% of the principal amount. Net proceeds to IPALCO were approximately $468.6 million after deducting transaction costs and estimated offering expenses. We used the net proceeds from this offering to retire the $65 million Term Loan ~~due July 1,~~on April 14, 2020. ~~Although current liquid funds are not sufficient~~The remaining net proceeds, together with cash on hand, were used to ~~pay the collective amounts due under~~redeem the 2020 IPALCO Notes on May 14, 2020, and ~~Term Loan at their maturities, we believe that we will be able~~ to ~~refinance~~pay certain related fees, expenses and make-whole premiums. A loss on early extinguishment of debt of $2.4 million for the 2020 IPALCO Notes is included as a separate line item within "Other Income/(Expense), Net" in the accompanying Unaudited Condensed Consolidated Statements of Operations.

The 2030 IPALCO Notes are secured by IPALCO’s pledge of all of the outstanding common stock of IPL. The lien on the pledged shares is shared equally and ~~Term Loan based on our conversations~~ratably 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~~IPALCO’s existing senior secured ~~notes in 2017, which served~~notes. IPALCO has also agreed to ~~refinance notes existing at~~register the ~~time. Should the capital markets not be accessible to us at the time of the maturity of the 2020~~2030 IPALCO Notes ~~and Term Loan, management believes that other financing options are at its disposal~~under the Securities Act by filing an exchange offer registration statement or, under specified circumstances, a shelf registration statement with the SEC pursuant to ~~meet the needs of the maturities.~~a Registration Rights Agreement dated April 14, 2020.

Line of Credit

~~IPL entered into an amendment~~As of September 30, 2020 and ~~restatement of its 5-year $250 million revolving credit facility (the "Credit Agreement") on June 19,~~December 31, 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 (iv) for general corporate purposes. This agreement matures on June 19, 2024, and bears interest at variable rates as described in the Credit Agreement. It includes an uncommitted $150 million accordion feature to provide IPL with an option to request an increase in the size of the facility at any time prior to June 19, 2023, subject to approval by the lenders. The Credit Agreement also includes two one-year extension options, allowing IPL to extend the maturity date subject to approval by the lenders. Prior to execution, IPL and IPALCO had existing general banking relationships with the parties to the Credit Agreement. IPL had no$50.0 million and $0.0 million in outstanding borrowings on the committed line of credit, ~~as of September 30, 2019 or December 31, 2018.~~respectively.

5.6. INCOME TAXES

Effective Tax Rate

IPALCO’s effective combined state and federal income tax rate was 21.4% and 21.4% for the three and nine months ended September 30, 2020, respectively, as compared to 21.2% and 21.2% for the three and nine months ended September 30, 2019, ~~respectively, as compared to 20.4%~~respectively. These rates are lower than the combined federal and ~~19.8% for the three and nine months ended September 30, 2018, respectively. The increases in the effective tax rates versus the comparable periods were~~state statutory rate of 25.3% primarily due to ~~decreases in~~the flowthrough of the net tax ~~benefits resulting from~~benefit related to the ~~lower~~reversal of excess deferred taxes of IPL, which was partially offset by the net tax expense related to the amortization of allowance for equity funds used during ~~construction versus the comparable periods.~~construction.

7. BENEFIT PLANS

~~The following table (in thousands) presents information for the nine months ended September 30, 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

~~(1)~~

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

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,
	2020		2019		2020		2019
	(In Thousands)				(In Thousands)
Components of net periodic benefit cost:
Service cost	$	2,068	$	1,853	$	6,204	$	5,558
Interest cost	5,538		6,836		16,614		20,508
Expected return on plan assets	(9,445)		(7,477)		(28,335)		(22,431)
Amortization of prior service cost	920		956		2,758		2,869
Amortization of actuarial loss	2,029		2,770		6,086		8,311
Net periodic benefit cost	$	1,110	$	4,938	$	3,327	$	14,815

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


~~(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.~~

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 ~~$7.1~~$6.7 million and ~~$6.7~~$6.4 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, were not material to the Financial Statements in the periods covered by this report.

7.8. COMMITMENTS AND CONTINGENCIES

Legal Loss Contingencies

IPALCO and IPL are involved in litigation arising in the normal course of business. While the results of such litigation cannot be predicted with certainty, management believes that the final outcome will not have a material adverse effect on IPALCO’s results of operations, financial condition and cash flows. Amounts accrued or expensed for legal or environmental contingencies collectively during the periods covered by this report have not been material to the Financial Statements.

Environmental Loss Contingencies

We are subject to various federal, state, regional and local environmental protection and health and safety laws and regulations governing, among other things, the generation, storage, handling, use, disposal and transportation of regulated materials, including ash; the use and discharge of water used in generation boilers and for cooling purposes; the emission and discharge of hazardous and other materials into the environment; and the health and safety of our employees. These laws and regulations often require a lengthy and complex process of obtaining and renewing permits and other governmental authorizations from federal, state and local agencies. Violation of these laws, regulations or permits can result in substantial fines, other sanctions, permit revocation and/or facility shutdowns. We cannot provide assurance that we have been or will be at all times in full compliance with such laws, regulations and permits.

New Source Review and Other CAA NOVs

In October 2009, IPL received a NOV and Finding of Violation from the EPA pursuant to the CAA Section 113(a). The NOV ~~alleges~~alleged violations of the CAA at IPL’s 3 primarily coal-fired electric generating facilities at the time, dating back to 1986. The alleged violations primarily pertain to the PSD and ~~nonattainment~~non-attainment New Source Review (NSR) requirements under the CAA. In addition, on October 1, 2015, IPL received a NOV from the EPA pursuant to CAA Section 113(a) alleging violations of the CAA, the Indiana SIP, and the Title V operating permit related to alleged particulate matter and opacity violations at IPL Petersburg Unit 3. Also, on February 5, 2016, the EPA issued a NOV pursuant to CAA Section 113(a) alleging violations of ~~New Source Review~~PSD, non-attainment NSR and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Generating Station. ~~Since receiving the letters,~~On August 31, 2020, IPL ~~management has met~~reached a settlement with the EPA, ~~staff regarding possible resolutions~~the DOJ and IDEM resolving the purported violations of the ~~NOVs. Settlements~~CAA with respect to

IPL's four coal-fired generation units currently operating at IPL's Petersburg location. The settlement agreement includes, among other items, the following requirements: annual caps on NOx and ~~litigated outcomes~~SO2 emissions and more stringent emissions limits than IPL's current Title V air permit; payment of

~~similar New Source Review cases have required companies to pay~~ civil penalties totaling $1.525 million; a $5 million environmental mitigation project consisting of the construction and operation of a new, non-emitting source of generation at the site; expenditure of $0.325 million on a state-only environmentally beneficial project to preserve local, ecologically-significant lands; and retirement of Units 1 and 2 prior to July 1, 2023. If IPL does not meet this retirement obligation, it must install ~~additional pollution control technology~~a Selective Non-Catalytic Reduction System (SNCR) on Unit 4. The Settlement Agreement is subject to final review and approval by the U.S. District Court for the Southern District of Indiana, following a 30-day public comment period, which began upon publication in coal-fired electric generating units, retire existing generating units, and invest in additional environmental projects. A similar outcome in these cases could have a material impact on our business. At this time, we cannot determine whether these NOVs will have a material impact on our business, financial condition and results of operations. We would seek recovery of any operating or capital expenditures, but not fines or penalties, related to air pollution control technology to reduce regulated air emissions; however, there can be no assurances that we would be successful in recovering any operating or capital expenditures. the Federal Register. IPL has ~~recorded~~ a contingent liability recorded related to these New Source Review ~~cases~~ and other CAA NOV matters.

8.9. BUSINESS SEGMENT INFORMATION

Operating segments are components of an enterprise that engage in business activities from which it may earn revenues and incur expenses, for which separate financial information is available, and is evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources. Substantially all of our business consists of the generation, transmission, distribution and sale of electric energy conducted through IPL which is a vertically integrated electric utility. IPALCO’s reportable business segment is its utility segment, with all other nonutility business activities aggregated separately. The “All Other” nonutility category primarily includes the Term Loan, 2020 IPALCO Notes, 2024 IPALCO Notes and ~~2024~~2030 IPALCO Notes; approximately ~~$11.8~~$2.8 million and ~~$6.4~~$6.0 million of cash and cash equivalents as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively; restricted cash of $20.1 million and $0.0 million as of September 30, 2020 and December 31, 2019, respectively; long-term investments of ~~$2.7 million and $4.0~~$3.1 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively; long-term liabilities for interest rate hedges of ~~$39.9~~$75.8 million and $0$26.6 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively; and income taxes and interest related to those items. All other assets represented less than 1% of IPALCO’s total assets as of September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. The accounting policies of the identified segment are consistent with those policies and procedures described in the summary of significant accounting policies.

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

Three Months Ended Three Months Ended
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, 2020						September 30, 2019
	Utility		All Other		Total		Utility		All Other		Total
Revenues	$	356,088	$	0	$	356,088	$	398,456	$	0	$	398,456
Depreciation and amortization	$	62,359	$	0	$	62,359	$	60,373	$	0	$	60,373
Interest expense	$	21,725	$	11,016	$	32,741	$	22,244	$	8,376	$	30,620
Earnings/(loss) from operations before income tax	$	62,098	$	(10,818)	$	51,280	$	69,881	$	(8,287)	$	61,594

	Nine Months Ended						Nine Months Ended
	September 30, 2020						September 30, 2019
	Utility		All Other		Total		Utility		All Other		Total
Revenues	$	1,024,973	$	0	$	1,024,973	$	1,121,634	$	0	$	1,121,634
Depreciation and amortization	$	184,166	$	0	$	184,166	$	179,939	$	0	$	179,939
Interest expense	$	65,527	$	31,230	$	96,757	$	66,757	$	24,636	$	91,393
Earnings/(loss) from operations before income tax	$	155,835	$	(34,512)	$	121,323	$	158,153	$	(24,697)	$	133,456
Capital expenditures(1)	$	149,420	$	0	$	149,420	$	131,682	$	0	$	131,682

	As of September 30, 2020						As of December 31, 2019
	Utility		All Other		Total		Utility		All Other		Total
Total assets	$	4,942,923	$	15,377	$	4,958,300	$	4,918,408	$	10,261	$	4,928,669

⁽¹⁾Capital expenditures includes payments for financed capital expenditures of ~~$5.6~~$0.1 million and ~~$8.5~~$5.6 million for the nine months ended September 30, ~~2019~~2020 and September 30, ~~2018,~~2019, respectively.

9.10. REVENUE

Revenue is primarily earned from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities. Please see Note 13, “Revenue” to IPALCO’s ~~2018~~2019 Form 10-K for further discussion of our retail, wholesale and miscellaneous revenues.

IPL’s revenue from contracts with customers was $350.5 million for the three months ended September 30, 2020 and $391.5 million for the three months ended September 30, 2019, respectively, and ~~$379.5~~$1,004.8 million for the ~~three months ended September 30, 2018, respectively, and $1,100.4 million for the~~ nine months ended September 30, ~~2019~~2020 and ~~$1,083.2~~$1,100.4 million for the nine months ended September 30, ~~2018,~~2019, respectively. The following table presents our revenue from contracts with customers and other revenue (in thousands):


	For the Three Months Ended		For the Three Months Ended
	September 30, 2020		September 30, 2019
Retail Revenues
Retail revenue from contracts with customers:
Residential	$	145,407	$	155,670
Small commercial and industrial	50,023		56,192
Large commercial and industrial	127,884		151,816
Public lighting	2,268		2,403
Other (1)	3,875		3,864
Total retail revenue from contracts with customers	329,457		369,945
Alternative revenue programs	5,225		6,478
Wholesale Revenues
Wholesale revenue from contracts with customers:	17,667		18,426
Miscellaneous Revenues
Transmission and other revenue from contracts with customers	3,331		3,091
Other miscellaneous revenues (2)	408		516
Total Revenues	$	356,088	$	398,456

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

(1)Other retail revenue ~~represents alternative revenue programs not accounted for under ASC 606~~from contracts with customers includes miscellaneous charges to customers

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


	For the Nine Months Ended					For the Nine Months Ended
	September 30, 2019		September 30, 2018			September 30, 2020		September 30, 2019
Retail Revenues					Retail Revenues
Retail revenue from contracts with customers	$	1,056,438	$	1,045,286
Other retail revenues ⁽¹⁾	19,069		12,157
Retail revenue from contracts with customers:					Retail revenue from contracts with customers:
Residential					Residential	$	428,568	$	450,864
Small commercial and industrial					Small commercial and industrial	147,678		165,961
Large commercial and industrial					Large commercial and industrial	369,224		424,348
Public lighting					Public lighting	6,881		4,893
Other (1)					Other (1)	10,568		10,372
Total retail revenue from contracts with customers					Total retail revenue from contracts with customers	962,919		1,056,438
Alternative revenue programs					Alternative revenue programs	18,910		19,069
Wholesale Revenues	35,533		30,007		Wholesale Revenues
Wholesale revenue from contracts with customers:					Wholesale revenue from contracts with customers:	33,476		35,533
Miscellaneous Revenues					Miscellaneous Revenues
Transmission and other revenue from contracts with customers	8,474		7,906		Transmission and other revenue from contracts with customers	8,392		8,474
Other miscellaneous revenues ⁽²⁾	2,120		3,975		Other miscellaneous revenues (2)	1,276		2,120
Total Revenues	$	1,121,634	$	1,099,331	Total Revenues	$	1,024,973	$	1,121,634

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

Volume:

Net decrease in the volume of kWh sold primarily due to unfavorable weather in our service territory versus the comparable period and lower demand resulting from impacts of COVID-19

(21.2)

Price:

Net decrease in the weighted average price of retail kWh sold primarily due to lower fuel revenues, partially offset by favorable block rate(1) and other retail rate variances

(19.3)

~~(1)~~Other			~~The decrease in DSM program rate adjustment mechanism revenues are offset by a decrease in operating expenses.~~(1.2)


~~(2)~~Net decrease in retail revenues			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.$	(41.7)

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

Wholesale Revenues

The ~~increase~~decrease in wholesale revenues of ~~$7.6~~$0.8 million was primarily due to (i) a ~~$10.1~~$0.5 million ~~increase in the quantity of kWh sold (primarily due to increased unit availability as~~volume decrease and (ii) a ~~result of outages at the CCGT plant at Eagle Valley in the third quarter of 2018), partially offset by a $2.5~~$0.3 million decrease in the weighted average price per kWh sold. We sold 694.6 million kWh in the wholesale market during the third quarter of 2019 compared to 360.6 million kWh during the third quarter of 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 sales is impacted by our retail load requirements, generation capacity and unit availability. For the comparable period in 2018, 50% of IPL's annual wholesale margins above (or below) an established benchmark of $6.3 million were shared with customers through 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.~~

Operating Costs and Expenses

The following table illustrates our changes in Operating costs and expenses during the three months ended September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 (in thousands):


	Three Months Ended
	September 30,
	2020		2019		$ Change		% Change
Operating costs and expenses:
Fuel	$	73,901	$	93,217	$	(19,316)	(20.7)	%
Power purchased	26,987		31,840		(4,853)		(15.2)	%
Operation and maintenance	100,455		105,975		(5,520)		(5.2)	%
Depreciation and amortization	62,359		60,373		1,986		3.3	%
Taxes other than income taxes	10,399		12,943		(2,544)		(19.7)	%

Total operating costs and expenses	$	274,101	$	304,348	$	(30,247)	(9.9)	%

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 ~~increase~~decrease in fuel costs of ~~$2.6~~$19.3 million was primarily due to (i) ~~a $12.8~~an $8.9 million ~~increase in the quantity of fuel consumed versus the comparable period, (ii) a $6.4 million increase~~decrease from deferred fuel costs, ~~partially offset by (iii) a $10.8~~(ii) an $8.5 million decrease due to the lower price of natural gas we consumed versus the comparable period ~~and (iv)~~driven by decreased market prices, (iii) a ~~$5.9~~$1.2 million decrease due to the lower price of coal weconsumed versus the comparable period and (iv) a $0.5 million decrease in the quantity of fuel consumed versus the comparable period. We are generally permitted to recover underestimated fuel and purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into expense in the same period that our rates are adjusted to reflect these variances. For further discussion, please see Note 2, "Regulatory Matters - FAC and Authorized Annual Jurisdictional Net Operating Income” to the Financial Statements of this Form 10-Q. Additionally, fuel and purchased power costs incurred for wholesale energy sales are considered in the Off System Sales Margin ~~rider discussed above. As a result of the 100% sharing that began December 5, 2018, fluctuations in such costs will not have an impact on our earnings from operations before income taxes.~~rider.

Power Purchased

The decrease in purchased power costs of ~~$7.4~~$4.9 million was primarily due to (i) a ~~55%~~$10.4 million decrease in the market price of purchased power, partially offset by (ii) an 18% increase in the volume of power purchased during the period ($~~18.0~~4.4 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 $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 relative cost of producing power versus purchasing power in the market. The market price of purchased power is influenced primarily by changes in the market price of delivered fuel (primarily natural gas), the supply of and demand for electricity, and the time of day during which power is purchased.

Operation and Maintenance

The decrease in Operation and maintenance of ~~$3.7~~$5.5 million was mostly attributed to (i) ~~lower~~decreased maintenance expenses of $12.4 million primarily due to decreased outage costs, partially offset by (ii) higher transmission related expenses of $3.3 million and (iii) higher DSM program costs of ~~$7.9~~$2.6 million (these program costs are recoverable through customer rates and are offset by ~~a decrease~~an increase in DSM revenues)~~, partially offset by (ii) increased maintenance expenses of $5.7 million (primarily due to the timing and duration of outages, as well as increased tree trimming costs)~~.

~~Depreciation and Amortization~~

The increase in Depreciation and amortization expense of $2.5 million was mostly attributed to the impact of additional assets placed in service (primarily the newly constructed CCGT plant at Eagle Valley) and no longer deferring depreciation expense on the Eagle Valley CCGT (in accordance with the 2018 Base Rate Order).

Other Income / (Expense), Net

The following table illustrates our changes in Other income / (expense), net during the three months ended September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 (in thousands):


	Three Months Ended
	September 30,
	2020		2019		$ Change		% Change
Other income/(expense), net
Allowance for equity funds used during construction	$	1,099	$	810	$	289	35.7	%
Interest expense	(32,741)		(30,620)		(2,121)		6.9	%

Other income / (expense), net	935		(2,704)		3,639		(134.6)	%
Total other income/(expense), net	$	(30,707)	$	(32,514)	$	1,807	(5.6)	%

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

Other Income/(Expense), Net

The increase in Other income/(expense), net of $3.6 million was primarily due to a ~~$6.6 million~~ decrease in the allowance for borrowed funds used during construction, which IPL earned in the prior period on the Eagle Valley CCGT until the 2018 Base Rate Order was approved in December 2018, 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~~$4.0 million due to a ~~lower~~higher expected return on plan assets ~~in 2019~~ compared to ~~2018.~~prior year.

Income Tax Expense - Net

The following table illustrates our changes in income tax expense - net during the three months ended September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 (in thousands):


	Three Months Ended
	September 30,
	2020	2019	$ Change		% Change
Income tax expense - net	10,981	13,088	$	(2,107)	(16.1)	%

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

The ~~increase~~decrease in Income tax expense - net of ~~$2.5~~$2.1 million was primarily due to ~~higher~~lower pretax income versus the comparable period.

Comparison of nine months ended September 30, ~~2019~~2020 and nine months ended September 30, ~~2018~~2019

Revenues

Revenues during the nine months ended September 30, ~~2019 increased $22.3~~2020 decreased $96.7 million compared to the same period in ~~2018,~~2019, which resulted from the following changes (dollars in thousands):


	Nine Months Ended									Nine Months Ended
	September 30,							Percentage		September 30,						Percentage
	2019		2018		Change			Change		2020		2019		Change
Revenues:									Revenues:
Retail revenues	$	1,075,507	$	1,057,443	$	18,064		1.7%	Retail revenues	$	981,828	$	1,075,507	$	(93,679)	(8.7)%
Wholesale revenues	35,533		30,007		5,526			18.4%	Wholesale revenues	33,477		35,533		(2,056)		(5.8)%
Miscellaneous revenues	10,594		11,881		(1,287		)	(10.8)%	Miscellaneous revenues	9,668		10,594		(926)		(8.7)%
Total revenues	$	1,121,634	$	1,099,331	$	22,303		2.0%	Total revenues	$	1,024,973	$	1,121,634	$	(96,661)	(8.6)%

Heating degree days:									Heating degree days:
Actual	3,306		3,370		(64		)	(1.9)%	Actual	3,119		3,306		(187)		(5.7)%
30-year average	3,365		3,367						30-year average	3,360		3,365

Cooling degree days:									Cooling degree days:
Actual	1,281		1,539		(258		)	(16.8)%	Actual	1,169		1,281		(112)		(8.7)%
30-year average	1,061		1,053						30-year average	1,062		1,061

Retail Revenues

The ~~increase~~decrease in retail revenues of ~~$18.1~~$93.7 million was primarily due to the following (in millions):

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

Volume:

Net decrease in the volume of kWh sold, primarily due to milder weather in our service territory versus the comparable period and lower demand resulting from impacts of COVID-19

(54.4)

Price:

Net decrease in the weighted average price of retail kWh sold, primarily due to lower fuel revenues, including a $7.3 million reduction due to excess earnings under FAC provisions (see Note 2, "Regulatory Matters - FAC and Authorized Annual Jurisdictional Net Operating Income" to the Financial Statements for more information), partially offset by favorable block rate(1) and other retail rate variances

(39.3)

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


~~(2)~~			~~The~~Net decrease in ~~DSM program rate adjustment mechanism~~retail revenues ~~are offset by a decrease in operating expenses.~~	$	(93.7)

Wholesale Revenues

The ~~increase~~decrease in wholesale revenues of ~~$5.5~~$2.1 million was primarily due to a $12.8 million 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 as well as increased unit availability as a result of outages at the CCGT plant at Eagle Valley in the third quarter of 2018, partially offset by a $7.3$1.9 million decrease in the weighted average price per kWh ~~sold.~~sold and a $0.2 million volume decrease. We sold ~~1,360.0~~1,351.7 million kWh in the wholesale market during the first nine months of ~~2019~~2020 compared to ~~953.5~~1,360.0 million kWh during the first nine months of ~~2018.~~2019. Our ability to be dispatched in the MISO market is primarily driven by the locational marginal price of electricity and variable generation costs. The amount of electricity available for wholesale sales is impacted by our retail load requirements, generation capacity and unit availability. ~~For the comparable period in 2018, 50% of IPL's annual wholesale margins above (or below) an established benchmark of $6.3 million were shared with customers through 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.

Operating Costs and Expenses

The following table illustrates our changes in Operating costs and expenses during the nine months ended September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 (in thousands):


	Nine Months Ended
	September 30,
	2020		2019		$ Change		% Change
Operating costs and expenses:
Fuel	$	186,040	$	254,233	$	(68,193)	(26.8)	%
Power purchased	105,536		101,483		4,053		4.0	%
Operation and maintenance	300,703		321,782		(21,079)		(6.6)	%
Depreciation and amortization	184,166		179,939		4,227		2.3	%
Taxes other than income taxes	34,063		33,909		154		0.5	%

Total operating costs and expenses	$	810,508	$	891,346	$	(80,838)	(9.1)	%

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Operating costs and expenses:
Fuel $ 254,233
$ 252,435
$ 1,798
0.7 %
Power purchased 101,483
131,580
(30,097 ) (22.9 )%
Operation and maintenance 321,782
315,225
6,557
2.1 %
Depreciation and amortization 179,939
172,492
7,447
4.3 %
Taxes other than income taxes 33,909
42,036
(8,127 ) (19.3 )%
Total operating costs and expenses $ 891,346
$ 913,768
$ (22,422 ) (2.5 )%

Fuel

The ~~increase~~decrease in fuel costs of ~~$1.8~~$68.2 million was primarily due to (i) a ~~$9.6~~$37.3 million ~~increase~~decrease due to the lower price of natural gas consumed versus the comparable period driven by decreased market prices, (ii) a $16.7 million decrease in the quantity of fuel consumed versus the comparable period, and (ii) a ~~$10.7 million increase from deferred fuel costs, partially offset by (iii) a $15.1~~$9.5 million decrease due to the lower price of ~~natural gas we~~coal consumed versus the comparable period and (iv) a $4.3 million decrease ~~due to the lower price of coal we consumed versus the comparable period.~~from deferred fuel costs. We are generally permitted to recover underestimated fuel and purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into expense in the same period that our rates are adjusted to reflect these variances. For further discussion, please see Note 2, "Regulatory Matters - FAC and Authorized Annual Jurisdictional Net Operating Income” to the Financial Statements of this Form 10-Q. Additionally, fuel and purchased power costs incurred for wholesale energy sales are considered in the Off System Sales Margin ~~rider discussed above. As a result of the 100% sharing that began December 5, 2018, fluctuations in such costs will not have an impact on our earnings from operations before income taxes.~~rider.

Power Purchased

The ~~decrease~~increase in purchased power costs of ~~$30.1~~$4.1 million was primarily due to (i) a ~~43% decrease~~55% increase in the volume of power purchased during the period ($~~46.2~~45.5 million) and (ii) capacity expense (including deferrals) decreased by $3.6 million versus the prior period primarily due to the CCGT plant at Eagle Valley commencing commercial operations in April 2018 (as discussed above), partially offset by ~~(iii)~~(ii) a ~~$19.8~~$42.0 million ~~increase~~decrease in the market price of purchased power. The volume of power purchased each period is primarily influenced by retail demand, generating unit capacity and outages, and the relative cost of producing power versus purchasing power in the market. The primary driver for the ~~$46.2~~$45.5 million volume ~~decrease~~increase was due to IPL's generation units running less frequently during 2020 due to lower ~~demand and the commencement~~market prices of ~~commercial operations of the CCGT plant at Eagle Valley in April 2018, as well as outages at the CCGT plant at Eagle Valley in the third quarter of 2018 (as discussed above).~~purchased power. The market price of purchased power is influenced primarily by changes in the market price of delivered fuel (primarily natural gas), the supply of and demand for electricity, and the time of day during which power is purchased.

Operation and Maintenance

The ~~increase~~decrease in Operation and maintenance of ~~$6.6~~$21.1 million was mostly attributed to (i) ~~increased~~decreased maintenance expenses of ~~$14.3~~$20.6 million ~~(primarily~~primarily due to ~~the timing~~decreased outage costs, (ii) decreased litigation settlement expense of $2.2 million, and ~~duration~~(iii) lower meter reading and bill collection costs of ~~outages, as well as increased tree trimming costs),~~$2.3 million, partially offset by ~~(ii) lower~~(iv) higher DSM program costs of ~~$7.3~~$3.1 million (these program costs are recoverable through customer rates and are offset by ~~a decrease~~an increase in DSM revenues).

~~Depreciation and Amortization~~

The increase in Depreciation and amortization expense of $7.4 million was mostly attributed to the impact of additional assets placed in service (primarily the newly constructed CCGT plant at Eagle Valley) and no longer deferring depreciation expense on the Eagle Valley CCGT (in accordance with the 2018 Base Rate Order).

~~Taxes Other Than Income Taxes~~

~~The decrease in Taxes other than income taxes of $8.1 million was mostly attributed to lower property taxes of $7.5 million primarily as a result of lower assessed values and a prior period true-up.~~

Other Income / (Expense), Net

The following table illustrates our changes in Other income / (expense), net during the nine months ended September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 (in thousands):


	Nine Months Ended
	September 30,
	2020		2019		$ Change		% Change
Other income/(expense), net
Allowance for equity funds used during construction	$	3,116	$	2,538	$	578	22.8	%
Interest expense	(96,757)		(91,393)		(5,364)		5.9	%
Loss on early extinguishment of debt	(2,415)		—		(2,415)		100.0	%
Other income / (expense), net	2,914		(7,977)		10,891		(136.5)	%
Total other income/(expense), net	$	(93,142)	$	(96,832)	$	3,690	(3.8)	%

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Other income/(expense), net
Allowance for equity funds used during construction $ 2,538
$ 7,839
$ (5,301 ) (67.6 )%
Interest expense (91,393 ) (70,465 ) (20,928 ) 29.7 %
Other income / (expense), net (7,977 ) (1,768 ) (6,209 ) 351.2 %
Total other income/(expense), net $ (96,832 ) $ (64,394 ) $ (32,438 ) 50.4 %

~~Allowance for Equity Funds Used During Construction~~

The decrease in Allowance for equity funds used during construction of $5.3 million was primarily due to a lower average construction work in progress balance compared to the first nine months of 2018 (due to the commencement of commercial operations at the Eagle Valley CCGT in April 2018).

Interest Expense

The increase in Interest expense of ~~$20.9~~$5.4 million was primarily due to ~~an $18.3~~(i) amortization of unrealized losses on interest rate hedges of $3.6 million ~~decrease~~beginning in ~~the allowance for borrowed funds used during construction, which IPL earned in the prior period on the Eagle Valley CCGT until the 2018 Base Rate Order was approved in December 2018,~~April 2020 and (ii) higher interest expense on long-term debt of ~~$2.3 million.~~$2.1 million due to higher rates and a higher average debt balance.

Loss on Early Extinguishment of Debt

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

Other Income/(Expense), Net

The ~~decrease~~increase in Other income/(expense), net of ~~$6.2~~$10.9 million was primarily due to ~~an increase~~a decrease in defined benefit plan costs of ~~$8.3~~$12.1 million due to a ~~lower~~higher expected return on plan assets ~~in 2019~~ compared to ~~2018.~~prior year.

Income Tax Expense - Net

The following table illustrates our changes in income tax expense - net during the nine months ended September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 (in thousands):


	Nine Months Ended
	September 30,
	2020	2019	$ Change		% Change
Income tax expense - net	25,918	28,252	$	(2,334)	(8.3)	%

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Income tax expense - net $ 28,252
$ 23,548
$ 4,704
20.0 %

The ~~increase~~decrease in Income tax expense - net of ~~$4.7~~$2.3 million was primarily due to ~~(i) higher~~lower pretax income versus the comparable period and (ii) an increase in the effective tax rate versus the comparable period primarily due to a decrease in the tax benefits associated with the allowance for equity funds used during construction.period.

KEY TRENDS AND UNCERTAINTIES

During the remainder of ~~2019~~2020 and beyond, we expect that our financial results will be driven primarily by retail demand, weather and ~~outage~~maintenance costs. In addition, our financial results will likely be driven by many other factors including, but not limited to:

•regulatory ~~outcomes;~~outcomes and impacts;

•the passage of new legislation, implementation of regulations or other changes in regulation; and

•timely recovery of capital expenditures.

If favorable outcomes related to these factors do not occur, or if the challenges described below and elsewhere in this Quarterly Report impact us more significantly than we currently anticipate, ~~or if commodities move unfavorably,~~ then these adverse factors, or other adverse factors unknown to us, may ~~have a material~~ impact on our operating margin, net income and cash flows. We continue to monitor our operations and address challenges as they arise. For a discussion of the risks related to our business, see “Item 1. Business” and “Item 1A. Risk Factors” as described in IPALCO’s ~~2018~~2019 Form 10-K and "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q.

COVID-19 Pandemic

Since December 2019, the COVID-19 pandemic has impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. In response to the COVID-19 pandemic, the Governor of Indiana also issued an Executive Order prohibiting electric utilities, including us, from discontinuing electric utility service to customers through August 14, 2020, which has lapsed.

In addition to the impacts to demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control. For the quarter ending September 30, 2020, we continued to experience impacts from the pandemic and expect to continue to experience impacts for the remainder of 2020, and any such impacts during that time or in other future periods could have material and adverse effects on our results of operations, financial condition and cash flows. The following discussion highlights our assessment of the impacts of the COVID-19 pandemic on our current financial and operating status, and our financial and operational outlook based on information known as of this filing. Also see "Part II, Item 1A - Risk Factors" of this Form 10-Q.

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

Demand - The economic impact of the COVID-19 pandemic started to materialize in Indiana in the second half of March and more so into the second and third quarters of 2020. See Note 12, "Risks and Uncertainties - COVID-19 Pandemic" for further discussion of how the COVID-19 pandemic has impacted our sales demand and Note 10, "Revenue" to the Financial Statements for a disaggregation of retail revenues by customer class. The declines for small and large commercial and industrial customers were more severe in April and May, and partially recovered starting in June and into the third quarter as stay-at-home orders were lifted. While we cannot predict the length and magnitude of the COVID-19 pandemic or how it could ultimately impact global or local economic conditions, continuous and/or further declines in future demand would adversely impact our financial results for 2020 and beyond.

Liquidity - We anticipate having sufficient liquidity to make all required payments, including payments for salaries and wages owed to our employees, during the COVID-19 pandemic. We do not foresee a significant impact to our access to capital or our liquidity position as a result of the COVID-19 pandemic. During the second quarter of 2020, IPALCO accessed the capital markets to issue $475 million in principal amount of 4.25%, ten-year notes, which has been used to repay IPALCO debt due to mature in 2020. For further discussion of our financial condition, liquidity, and capital requirements, see "Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity" of this Form 10-Q.

Credit Exposures - We continue to monitor and manage our credit exposures in a prudent manner. During the three and nine months ended September 2020, we experienced credit-related impacts from utility customers due to the prohibition of electric utilities, including us, from discontinuing electric utility service to customers and due to the economic impacts of the COVID-19 pandemic. This has resulted in an increase in past due customer receivable balances, and our allowance for credit losses has increased $2.6 million during the nine months ended September 30, 2020. See Note 1, "Overview and Summary of Significant Accounting Policies - Accounts Receivable" for further discussion of our allowance for credit losses. We expect significant economic disruptions from the COVID-19 pandemic potentially for the remainder of 2020 and beyond. If these disruptions occur, further deterioration in our credit exposures and customer collections could result. See Note 2, "Regulatory Matters" for a discussion of regulatory measures which mitigate this impact.

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

Capital Projects - During the COVID-19 pandemic, our construction projects are proceeding without material delays. For further discussion of our capital requirements, see "Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources and Liquidity" of this Form 10-Q.

CARES Act - The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by the U.S. Congress and signed into law on March 27, 2020. While we currently expect a limited impact from this legislation on our business, certain elements, primarily the deferral of payroll taxes, may provide some cash benefits in the near term.

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

Operational

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

Regulatory and Environmental

Please see Note 2, "Regulatory Matters” to the Financial Statements of this Form 10-Q and Note 2, “Regulatory Matters” to IPALCO’s ~~2018~~2019 Form 10-K for a discussion of regulatory matters. We also are subject to numerous environmental laws and regulations in the jurisdictions in which we operate. We face certain risks and uncertainties related to these environmental laws and regulations, including existing and potential GHG legislation or regulations, and actual or potential laws and regulations pertaining to water discharges, waste management (including disposal or beneficial reuse of CCR) and certain air emissions, such as SO₂, NO_x, particulate matter and mercury. Such risks and uncertainties could result in increased capital expenditures or other compliance costs which could have a material adverse effect on our consolidated results of operations. Please see Note 7,8, “Commitments and Contingencies” to the Financial Statements of this Form 10-Q for a description of certain environmental matters. In addition, the following discussion of the impact of environmental laws and regulations on the Company updates the discussion provided in “Item 1. Business - Regulatory Matters” and “Item 1. Business - Environmental Matters” in IPALCO’s ~~2018~~2019 Form 10-K.

TDSIC ~~Filing~~

In 2013, Senate Enrolled Act 560, the Transmission, Distribution, and Storage System Improvement Charge ("TDSIC") statute, was signed into law. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a seven-year plan of eligible investments. Once the plan is approved byOn March 4, 2020, the IURC ~~eighty percent of eligible costs can be recovered using a periodic~~issued an order approving the projects in IPL's TDSIC Plan. On June 18, 2020, IPL filed its first annual TDSIC rate adjustment ~~mechanism. The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include~~for a return on and of the investment, including AFUDC, post-in-service carrying charges, operation and maintenance expenses, depreciation and property taxes. The remaining twenty percent of recoverable costs are to be deferred for future recovery in the public utility’s next base rate case. The periodic rate adjustment mechanism is capped at an annual increase of no more than two percent of total retail revenues.

investments through March 31, 2020. On ~~July 24, 2019, IPL filed a petition with~~October 14, 2020, the IURC ~~seeking approval of~~issued an order approving this TDSIC rate adjustment. For further discussion, please see Note 2, "Regulatory Matters - TDSIC” to the Financial Statements.

Waste Management and CCR

The EPA's final CCR rule became effective in October 2015 (the "CCR Rule"). Generally, the CCR Rule regulates CCR as nonhazardous solid waste and establishes national minimum criteria for existing and new CCR landfills and existing and new CCR ash ponds, including location restrictions, design and operating criteria, groundwater monitoring, corrective action and closure requirements and post-closure care. The EPA has indicated that they will implement a ~~seven-year TDSIC Plan for eligible transmission, distribution and storage system improvements totaling $1.2 billion from~~phased approach to amending the CCR Rule. On March 3, 2020, ~~through 2027. An IURC order is expected in the first quarter of 2020.~~

~~Environmental Wastewater Requirements~~

~~In November 2015,~~ the EPA published ~~its~~proposed amendments to the CCR Rule titled “A Holistic Approach to Closure Part B” ("Part B Rule"), which would address the beneficial use of CCR for closure of ash ponds that are subject to forced closure per the CCR Rule. On October 16, 2020, EPA released a pre-publication final ~~ELG~~Part B rule, indicating that EPA has decided to address this issue of beneficial use of CCR for closure of ash ponds that are subject to forced closure in a separate and future rulemaking. This future rulemaking could impact IPL's Petersburg plant's ability to use CCR for closure of ash ponds. In addition, on February 20, 2020, the US EPA published a proposed rule to ~~reduce toxic pollutants discharged into waterways by power plants. The wastewater treatment technologies installed and operated for compliance with other requirements meet the requirements of the~~establish a federal CCR permit program that would operate in states without approved CCR permit programs. On August 28, 2020, EPA published final ~~ELG rule. On November 4, 2019, EPA signed proposed revisions~~amendments to the ~~2015 ELG rule. On April 12, 2019,~~CCR Rule titled "A Holistic Approach to Closure Part A: Deadline to Initiate Closure," which amends certain regulatory provisions that govern coal combustion residuals. The CCR Rule, current or proposed amendments to the ~~U.S. Court~~CCR Rule, the results of ~~Appeals for~~groundwater monitoring data or the ~~Fifth Circuit vacated and remanded portions of EPA’s 2015 ELG Rule related to legacy wastewaters and combustion residual leachate. It is too early to determine whether any~~ outcome of ~~this decision or current or future revisions to the ELG rule might~~CCR-related litigation could have a material impact on our business, financial condition and results of operations. We would seek recovery of any resulting expenditures; however, there is no guarantee we would be successful in this regard. See Note 3, “Property, Plant and Equipment - ARO” to the Financial Statements in IPALCO's 2019 Form 10-K for further information.

~~"Waters of the U.S." Rule~~

~~In June 2015, the EPA and the U.S. Army Corps of Engineers published a rule defining federal jurisdiction over~~

~~waters of the U.S., known as the "Waters of the U.S." rule. This rule, which initially became effective in August~~

~~2015, could expand or otherwise change the number and types of waters or features subject to CWA permitting.~~

~~However, on February 6, 2018, EPA published a final rule to delay the original effective date of the 2015 “Waters of~~

~~the U.S.” rule to February 6, 2020, allowing the EPA to create a new rule in the interim period without the 2015~~

~~rule taking effect. In connection with this effort to create a new rule, in July 2017, the EPA proposed a rule that~~

~~would rescind the “Waters of the U.S.” rule and re-codify the definition of “Waters of the U.S.” that existed prior to~~

the 2015 rule. On July 12, 2018, the EPA and the U.S. Army Corps of Engineers finalized a supplemental notice of proposed rulemaking clarifying that the proposal is to permanently repeal the 2015 rule, and on February 14, 2019 the EPA and the U.S. Army Corps of Engineers published a proposed rule to revise the definition of the "Waters of the U.S." On October 22, 2019, the EPA and the U.S. Army Corps of Engineers published a final rule repealing the 2015 “Waters of the U.S.” rule. It is too early to determine whether it might have a material impact on our business, financial condition and results of operations. In addition, we cannot predict the outcome of the judicial or regulatory process.

Climate Change Legislation and Regulation

~~On October 23, 2015, the EPA finalized CO~~₂~~emission rules for existing power plants under CAA Section 111(d) (called the CPP). The CPP provided for interim emissions performance rates that must be achieved beginning in~~

2022 and final emissions performance rates that must be achieved starting in 2030. In addition, on February 9, 2016, the U.S. Supreme Court issued orders staying implementation of the CPP pending resolution of challenges to the rule. Challenges to the CPP are being held in abeyance at this time. On October 16, 2017, the EPA published in the Federal Register a proposed rule that would rescind the CPP. On July 8, 2019, EPA published a final rule to repeal the CPP.

On August 31, 2018, the EPA published in the Federal Register proposed Emission Guidelines for Greenhouse Gas Emissions from Existing Electric Utility Generating Units, known as the ~~Affordable Clean Energy (ACE)~~ACE Rule. On July 8, 2019, the EPA published the final ACE Rule along with associated revisions to implementing regulations. The final ACE Rule replaces the CPP and determines that heat rate improvement measures are the Best System of Emissions Reductions for existing coal-fired electric generating units. The final rule requires the State of Indiana to develop a State Plan to establish CO₂emission limits for designated facilities, including IPL ~~Petersburg’s~~Petersburg's coal-fired electric generating units. States have three years to develop their plans under the rule. On February 19, 2020, Indiana published a First Notice for the Indiana ACE Rule indicating that IDEM intends to determine the best system of emissions reductions and CO2 standards for affected units. Impacts remain largely uncertain because Indiana's State Plan has not yet been developed.

~~Due~~CSAPR

CSAPR, which became effective in January 2015, addresses the "good neighbor" provision of the CAA, which prohibits sources within each state from emitting any air pollutant in an amount which will contribute significantly to any other state’s nonattainment, or interference with maintenance of, any NAAQS. The CSAPR is implemented, in part, through a market-based program under which compliance may be achievable through the acquisition and use of emissions allowances created by the EPA. In October 2016, the EPA published a final rule to update the CSAPR to address the 2008 ozone NAAQS (“CSAPR Update Rule”). The CSAPR Update Rule found that NOx ozone season emissions in 22 states (including Indiana) affect the ability of downwind states to attain and maintain the 2008 ozone NAAQS, and accordingly, the EPA issued federal implementation plans that both generally provide updated CSAPR NOx ozone season emission budgets for electric generating units within these states and that implement these budgets through modifications to the ~~uncertainty~~CSAPR NOx ozone season allowance trading program. Implementation began in the 2017 ozone season (May through September 2017). Affected facilities receive fewer ozone season NOx allowances in 2017 and later, possibly resulting in the need to purchase additional allowances. Additionally, on September 13, 2019, the D.C. Circuit remanded a portion of the October 2016 CSAPR Update Rule to the EPA. In December 2018, EPA determined that the 2016 CSAPR Update Rule fully satisfied 20 states (including Indiana) good neighbor obligations with respect to the 2008 Ozone NAAQS (“CSAPR Close-Out Rule”), obviating the need for EPA to promulgate Federal Implementation Plans (FIPs) in these states. In October 2019, the D.C. Circuit vacated and remanded the CSAPR Close-Out Rule. On July 28, 2020, the D.C. Circuit ordered EPA to issue FIPs addressing seven states’ (including Indiana) outstanding 2008 NAAQS “good neighbor” obligations by March 15, 2021. On October 15, 2020, EPA released a pre-publication proposed rule addressing 21 states', including Indiana's, outstanding "good neighbor" obligations with respect to the 2008 ozone NAAQS and we are currently reviewing the proposed rule.

At this time we cannot predict what the impact of these ~~regulations,~~standards and ~~existing and potential associated litigation, it is too early to determine the potential~~requirements will be in future years, or if there will be an impact resulting from future rulemakings or legal outcomes, but any ~~rule~~such impact could ~~have a~~be material ~~impact on~~to our business, financial condition ~~and~~or results of ~~operations.~~operation.

NAAQS

SO2. In 2010, a new one-hour SO2 primary NAAQS became effective. In 2013, the EPA published in the Federal Register its final designations, which include portions of Marion, Morgan, and Pike counties as nonattainment with respect to the one-hour SO2 standard. In 2015, IDEM published its final rule establishing reduced SO2 limits for IPL facilities in accordance with the new one-hour standard, for the areas in which IPL’s Harding Street, Petersburg, and Eagle Valley generating stations operate, with compliance required by January 1, 2017. Improvements to the existing FGD systems at Petersburg station were required to meet the emission limits imposed by the rule. The rule has not impacted IPL’s Eagle Valley or Harding Street generating stations as these facilities ceased coal combustion in advance of the compliance date.

On August 15, 2018, the EPA proposed to approve Indiana's State Implementation Plan (SIP) addressing attainment of the 2010 SO2 standard for certain locations including those of IPL's Harding Street and Petersburg Generating Stations. On March 22, 2019, the EPA finalized approval of Indiana's attainment plan for the area that includes Harding Street. On May 21, 2020, the EPA finalized the redesignation of Marion County to attainment of the SO2 NAAQS. On July 14, 2020, the EPA proposed redesignation of Morgan County to attainment of the SO2 NAAQS. IDEM has imposed additional SO2 limits on Petersburg through a Commissioner's Order issued July 31, 2019. On September 18, 2019, IDEM requested EPA approval of those limits as part of the SIP. On August 17, 2020, EPA approved those limits as part of a SIP revision concluding that Indiana has appropriately demonstrated that the plan provides for attainment of the 2010 SO2 NAAQS.

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

In March 2018, the state of New York submitted a petition to the EPA pursuant to Section 126 of the CAA requesting new limitations on NOx emissions from dozens of upwind generating stations, including IPL's Petersburg, Harding Street, and Eagle Valley stations on the basis that they are contributing significantly to New York’s ability to meet the 2008 ozone NAAQS. On October 18, 2019, the EPA published final denial of the petition. On July 14, 2020, the D.C. Circuit Court vacated and remanded EPA’s denial of the petition. EPA must now issue a new decision based on the Court’s decision. If the Section 126 petition is ultimately granted, our units could be subject to additional requirements, which could be material. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be ~~successful~~successful.

CWA - Regulation of Water Discharge

IPL and other utilities at times apply the Nationwide Permit 12 (NWP 12) issued by the U.S. Army Corps of Engineers (Corps) in ~~this regard.~~

~~Waste Management and CCR~~

~~In the course of operations, our facilities generate solid and liquid waste materials requiring eventual disposal or processing. Waste materials generated at our electric power~~completing transmission and distribution ~~facilities include asbestos, CCR, oil, scrap metal, rubbish, small quantities~~projects that may involve waters of ~~industrial hazardous wastes such as spent solvents, tree-and-land-clearing wastes~~the U.S. NWP 12 is the nationwide permit for Utility Line Activities, specifically activities required for construction and polychlorinated biphenyl contaminated liquids and solids. We endeavor to ensure that all our solid and liquid wastes are disposed of in accordance with applicable national, regional, state and local regulations. Withmaintenance, provided the ~~exception of CCR, we do~~activity does not usually physically dispose of waste materials on our property. Instead, they are usually shipped off-site for final disposal, treatment or recycling. Some of our CCRs are beneficially used on-site and off site, including as a raw material for production of wallboard, concrete or cement and as agricultural soil amendment, and some are disposed off-site in permitted disposal facilities. A small amount of CCR, which consists of bottom ash, fly ash and air pollution control wastes, is disposed of at our Petersburg coal-fired power generation plant using engineered, permitted landfills.

The EPA's final CCR rule became effective in October 2015. Generally, the rule regulates CCR as nonhazardous solid waste and establishes national minimum criteria for existing and new CCR landfills and existing and new CCR ash ponds, including location restrictions, design and operating criteria, groundwater monitoring, corrective action

and closure requirements and post-closure care. On December 16, 2016, President Obama signed into law the Water Infrastructure Improvements for the Nation Act ("WIIN Act"), which includes provisions to implement the CCR rule through a state permitting program, or if the state chooses not to participate, a possible federal permit program. The EPA has indicated that they will implement a phased approach to amending the CCR rule. In July 2018, the

~~EPA published final CCR Rule Amendments (Phase One, Part One)~~result in the ~~Federal Register. In August 2018,~~loss of greater than ½-acre of waters of the U.S. ~~Court~~for each single and complete project.

On April 15, 2020, in a proceeding involving the construction of ~~Appeals~~the Keystone XL pipeline, the U.S. District Court for the District of ~~Columbia~~Montana (Montana District Court) vacated NWP 12 and enjoined its application. On April 27, 2020, the Corps moved for the Montana District Court to stay pending appeal those portions of the April 15, 2020 order that vacate NWP 12 and enjoin its application. In the alternative, the Corps asked the Montana District Court to stay its vacatur and injunction as they relate to anything other than the Keystone XL pipeline. On May 11, 2020, following request from the Corps, the Montana District Court amended its order to vacate NWP 12 only for oil and gas pipeline construction projects, allowing electric utility T&D projects to continue. On May 13, the Corps appealed the Montana District Court decision with the Ninth Circuit Court and requested a stay. On May 28, 2020, the Ninth Circuit denied a motion to stay. On June 16, 2020, the Solicitor General, on behalf of the U.S. Army Corps of

Engineers, filed an application with the U.S. Supreme Court asking the Court to stay the district court order that vacated and enjoined the Corps from issuing authorizations under NWP 12 as it relates to the construction of new oil and gas pipelines. On July 6, 2020, the U.S. Supreme Court stayed the district court order, allowing the use of NWP 12 for oil and gas pipeline projects except for Keystone XL. It is too early to determine whether future outcomes or decisions related to this matter may have a material impact on our business, financial condition or results of operations.

On April 23, 2020, the U.S. Supreme Court issued a decision in ~~certain CCR~~the Hawaii Wildlife Fund v. County of Maui case related to whether a CWA permit is required when pollutants originate from a point source but are conveyed to navigable waters through a nonpoint source such as groundwater. The Court held that discharges to groundwater require a permit if the addition of the pollutants through groundwater is the functional equivalent of a direct discharge from the point source into navigable waters. It is too early to determine whether this decision may have a material impact on our business, financial condition or results of operations.

In November 2015, the EPA published its final effluent limitations guidelines (ELG) rule to reduce toxic pollutants discharged into waterways by steam-electric power plants through technology-based ELG applications. Wastewater treatment technologies installed and operated at Petersburg meet the requirements of the final ELG rule. That rule was subject to legal challenge and the agency received two petitions for administrative reconsideration. In response, EPA reconsidered the ELGs for flue gas desulfurization wastewater (FGD WW) and bottom ash transport water (BATW). On October 13, 2020, EPA published a final rule title “Steam Electric Reconsideration Rule” revising the 2015 ELG guidelines for flue gas desulfurization wastewater and bottom ash transport water. IPL facilities do not discharge flue gas desulfurization wastewater and bottom ash transport water.However, it is too early to determine whether any outcome of litigation ~~matters, which may result in additional~~or future revisions to the ~~CCR rule. In October 2018, some environmental groups filed a petition for review challenging EPA's final CCR~~2015 ELG rule amendments (Phase One, Part One) which have since been remanded without vacatur to EPA. On August 14, 2019, EPA published the amendments to the CCR rule; the amendments relate to the CCR rule's criteria for determining beneficial use and the regulation of CCR piles, among other revisions. On November 4, 2019, EPA signed additional amendments to the CCR rule titled "~~A Holistic Approach to Closure Part A: Deadline to Initiate Closure~~."

~~The CCR rule, current or proposed amendments to the CCR rule, the results of groundwater monitoring data~~ or the ~~outcome of CCR-related litigation could~~Steam Electric Reconsideration Rule might have a material impact on our business, financial condition and results of operations. ~~We would seek recovery of any resulting expenditures; however, there is no guarantee we would be successful in this regard.~~

On July 29, 2019, EPA published its proposed rule that would codify that financial responsibility demonstrations are not required for Electric Power Generation, Transmission and Distribution entities under CERCLA. Under Section 108(b) of CERCLA, EPA must impose regulations on classes of facilities to ensure that such entities establish and maintain evidence of financial responsibility consistent with the degree and duration of risk associated with the production, transportation, treatment and storage of hazardous substances. The level of financial responsibility required is determined by the President, in his discretion. Some constituents of the CCR wastewater leachate detected through the CCR rule could, theoretically be classified as hazardous substances. The proposed rule, if finalized, would maintain the status quo in the Electric Power Generation, Transmission and Distribution industry that such financial responsibility demonstrations are not required. If, however additional financial responsibility requirements are imposed as a result of this rulemaking or associated litigation (if any), it could have a material impact on our business, financial condition and results of operations.

Macroeconomic and Political

Reference Rate Reform

~~United States Tax Law Reform~~

As discussed in "—Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties" of IPALCO's 2019 Form 10-K, in July 2017, the UK Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In ~~light~~the U.S., the Alternative Reference Rate Committee at the Federal Reserve identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for LIBOR; alternative reference rates in other key markets are under development. While IPALCO maintains financial instruments referencing LIBOR as an interest rate benchmark, we have not yet executed any technical amendments or other contractual alternatives to address this matter. Although the full impact of the ~~significant changes~~reform remains unknown, we have begun to ~~the U.S. tax system enacted in 2017,~~

~~the U.S. Treasury Department~~engage with IPALCO and ~~Internal Revenue Service have issued numerous regulations. While certain~~

~~regulations are now final, there are many regulations that are proposed and still others anticipated~~IPL counterparties to discuss specific action items to be ~~issued~~undertaken in order to prepare for amendments when such contracts become due.

~~in proposed form. The final version of any regulations may vary from the proposed form. When final, these~~

~~regulations may materially impact our effective tax rate. Certain of the proposed regulations, when final, may~~

~~have retroactive effect to January 1, 2018 or January 1, 2019.~~

CAPITAL RESOURCES AND LIQUIDITY

Overview

As of September 30, ~~2019,~~2020, we had unrestricted cash and cash equivalents of ~~$48.4~~$38.8 million and available borrowing capacity of ~~$250~~$200 million under our unsecured revolving Credit Agreement. All of IPL’s long-term borrowings must first be approved by the IURC and the aggregate amount of IPL’s short-term indebtedness must be approved by the FERC. We have approval from the FERC to borrow up to $500 million of short-term indebtedness outstanding at any time through July 26, ~~2020.~~2022. In December 2018, we received an order from the IURC granting us authority through December 31, 2021 to, among other things, issue up to $350 million in aggregate principal amount of long-term debt and refinance up to $185 million in existing indebtedness, all of which authority remains available under the order as of September 30, ~~2019.~~2020. This order also grants us authority to have up to $500 million of long-term credit agreements and liquidity facilities outstanding at any one time, of which $250 million remains available under the order as of September 30, ~~2019.~~2020. As an alternative to the sale of all or a portion of $65 million in principal of the long-term debt, ~~mentioned above,~~ we have the authority to issue up to $65 million of new preferred stock, all of which authority remains available under the order as of September 30, ~~2019.~~2020. We also have restrictions on the amount of new debt that may be issued due to contractual obligations of AES and by financial covenant restrictions under our existing debt obligations. We do not believe such restrictions will be a limiting factor in our ability to issue debt in the ordinary course of prudent business operations.

We believe that existing cash balances, cash generated from operating activities, and borrowing capacity on our committed Credit Agreement will be adequate for the foreseeable future to meet anticipated operating expenses, interest expense on outstanding indebtedness, recurring capital expenditures, and to pay dividends to AES U.S. Investments and CDPQ. Sources for principal payments on outstanding indebtedness and nonrecurring capital expenditures are expected to be obtained from: (i) existing cash balances; (ii) cash generated from operating activities; (iii) borrowing capacity on our committed Credit Agreement; ~~and~~ (iv) additional debt ~~financing.~~financing; and (v) equity capital contributions. From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management believes such repurchases are favorable to make. The amounts involved in any such repurchases may be material.

IPL First Mortgage Bonds

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

IPL Unsecured Notes

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

IPL Unsecured Notes.”

IPALCO’s Senior Secured Notes and Term Loan

In April 2020, IPALCO ~~has $405~~completed the sale of the $475 million ~~of 3.45% Senior Secured~~2030 IPALCO Notes ~~due July 15,~~priced at 4.25%, with the net proceeds from this offering used to retire the Term Loan on April 14, 2020. The remaining net proceeds, together with cash on hand, were used to redeem the 2020 IPALCO Notes on May 14, 2020, and ~~a $65 million Term Loan due July 1, 2020.~~to pay certain related fees, expenses and make-whole premiums. For further discussion, please see Note 4,5, “Debt - IPALCO's Senior Secured Notes and Term Loan.”

Cash Flows

The following table provides a summary of our cash flows (in thousands):


	Nine Months Ended September 30,										Nine Months Ended September 30,
	2019			2018			$ Change				2020		2019		$ Change
Net cash provided by operating activities	$	259,772		$	307,706		$	(47,934	)	Net cash provided by operating activities	$	241,160	$	259,772	$	(18,612)
Net cash used in investing activities	(141,123		)	(182,383		)	41,260			Net cash used in investing activities	(180,581)		(141,123)		(39,458)
Net cash used in financing activities	(103,435		)	(140,259		)	36,824			Net cash used in financing activities	(49,803)		(103,435)		53,632
Net change in cash and cash equivalents	15,214			(14,936		)	30,150			Net change in cash and cash equivalents	10,776		15,214		(4,438)
Cash, cash equivalents and restricted cash at beginning of period	33,599			30,681			2,918			Cash, cash equivalents and restricted cash at beginning of period	48,552		33,599		14,953
Cash, cash equivalents and restricted cash at end of period	$	48,813		$	15,745		$	33,068		Cash, cash equivalents and restricted cash at end of period	$	59,328	$	48,813	$	10,515

Operating Activities

The following table summarizes the key components of our consolidated operating cash flows (in ~~thousands~~

thousands):

Nine Months Ended September 30,
2019 2018 $ Change
Net income $ 105,204
$ 97,621
$ 7,583
Depreciation and amortization 179,939
172,492
7,447
Deferred income taxes and investment tax credit adjustments - net 15,109
(16,852 ) 31,961
Other adjustments to net income 543
(4,891 ) 5,434
Net income, adjusted for non-cash items 300,795
248,370
52,425
Net change in operating assets and liabilities⁽¹⁾
(41,023 ) 59,336
(100,359 )
Net cash provided by operating activities $ 259,772
$ 307,706
$ (47,934 )

⁽¹⁾Refer to the table below for explanations of the variance in operating assets and liabilities.


	Nine Months Ended September 30,
	2020		2019		$ Change
Net income	$	95,405	$	105,204	$	(9,799)
Depreciation and amortization	184,166		179,939		4,227
Deferred income taxes and investment tax credit adjustments - net	(2,001)		15,109		(17,110)
Other adjustments to net income	2,305		543		1,762
Net income, adjusted for non-cash items	279,875		300,795		(20,920)
Net change in operating assets and liabilities(1)	(38,715)		(41,023)		2,308
Net cash provided by operating activities	$	241,160	$	259,772	$	(18,612)

(1) Refer to the table below for explanations of the variance in operating assets and liabilities.

The net change in operating assets and liabilities for the nine months ended September 30, ~~2019~~2020 compared to the nine months ended September 30, ~~2018~~2019 was driven by changes in the following (in thousands):

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 )


Increase from accounts payable is primarily due to timing of payments	$	21,835
Increase from accrued taxes payable/receivable primarily due to higher current portion income tax expense in the current year	19,574
Decrease from inventories is primarily due to higher inventory balances as IPL's generation units ran less frequently during 2020	$	(24,340)
Decrease from accrued and other current liabilities primarily due to a decrease in customer deposits as IPL credited back and did not collect customer deposits during a portion of 2020 per the IURC COVID-19 order	(12,601)
Other	(2,160)
Net change in operating assets and liabilities	$	2,308

Investing Activities

~~During~~

Net cash used in investing activities increased $39.5 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, ~~net~~which was primarily driven by (in thousands):


Higher cash outflows for capital expenditures due to higher growth related capital expenditures primarily from TDSIC Plan investments	$	(23,303)
Higher cash outflows on cost of removal and regulatory recoverable ARO payments primarily due to timing of such payments	(15,416)
Other	(739)
Net change in investing activities	$	(39,458)

Financing Activities

Net cash used in ~~investing~~financing activities was primarily related to capital expenditures of $126.1 million. In addition, Cost of removal and regulatory recoverable ARO payments were $14.1 million. The primary drivers of the capital expenditures includes $101.4decreased $53.6 million ~~of expenditures on maintenance projects and $19.9 million of expenditures on transmission and distribution projects.~~

~~During~~for the nine months ended September 30, ~~2018, net cash used in investing activities was primarily related~~2020 compared to capital expenditures of $161.8 million. In addition, Cost of removal and regulatory recoverable ARO payments were $20.8 million. The primary drivers of the capital expenditures include $92.7 million of expenditures on maintenance projects, $32.5 million of expenditures on transmission and distribution projects, $10.6 million of expenditures on NPDES compliance, $10.3 million of expenditures on NAAQS compliance, and $10.6 million of expenditures on the Eagle Valley CCGT plant.

~~Financing Activities~~

~~During~~ the nine months ended September 30, 2019, ~~net cash used in financing activities~~which was primarily ~~relates to dividends paid to shareholders of $94.7 million, short-term debt repayments of $10.0 million and payments for financed capital expenditures of $5.6 million, partially offset~~driven by ~~net borrowings of $10.0 million.~~(in thousands):


Increase from long-term borrowings, net of discount due primarily to the April 2020 issuance of the $475.0 million 4.25% 2030 senior secured notes	$	474,568
Increase from borrowings under revolving credit facilities due to higher draws on IPL's line of credit in 2020	70,000
Decrease from retirement of long-term debt, including early payment premium primarily due to the April 2020 retirement of a $65.0 million Term Loan, and the May 2020 retirement of the $405.0 million 3.45% Senior Secured Notes	(472,135)
Decrease from repayments under revolving credit facilities due to higher repayments on IPL's revolving line of credit in 2020	(20,000)
Other	1,199
Net change in financing activities	$	53,632

During the nine months ended September 30, 2018, net cash used in financing activities primarily relates to dividends paid to shareholders of $85.2 million, net short-term debt repayments of $44.0 million and payments for financed capital expenditures of $8.5 million.

Capital Requirements

Capital Expenditures

Our capital expenditure program, including development and permitting costs, for the three-year period from ~~2019~~2020 through ~~2021~~2022 (including amounts already expended in the first nine months of ~~2019)~~2020) is currently estimated to cost approximately ~~$771 million~~$1.1 billion (excluding environmental compliance), and includes estimates as follows (amounts in millions):


							For the three-year period
	2020		2021		2022		from 2020 through 2022
Transmission and distribution related additions, improvements and extensions	$	208	$	277	$	307	$	792	(1)
Power plant related projects	61		59		70		190
Other miscellaneous equipment	31		42		41		114
Total estimated costs of capital expenditure program	$	300	$	378	$	418	$	1,096

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

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

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

Additionally, ~~IPL plans to spend $40 million~~estimated capital expenditure spending on environmental compliance costs for the three-year period from ~~2019~~2020 through ~~2021~~2022 includes the following (amounts in millions):


	Total Estimated Costs		Total Costs Expended		Remaining Costs
	of Project		Through September 30, 2020		of Project
NAAQS SO2 (1)	$	27	$	26	$	1
Cooling water intake regulations (2)	$	8	$	2	$	6

(1) Includes spending for projects underway related to environmental compliance for NAAQS SO2.
(2) Includes spending for studies related to cooling water intake requirements in section 316(b) of the CWA.

Total Estimated Costs Total Costs Expended Remaining Costs

of Project ⁽¹⁾

Through September 30, 2019 ⁽¹⁾
of Project
NAAQS Ozone $ 25
$ —
$ 25

NAAQS SO₂ ⁽²⁾
$ 29
$ 26
$ 3

Cooling water intake regulations ⁽³⁾
$ 8
$ —
$ 8

⁽¹⁾Reflects total costs from project inception.
⁽²⁾IPL plans to spend a total of $29 million through 2019 for projects underway related to environmental compliance for NAAQS SO₂.
⁽³⁾Includes spending for studies related to cooling water intake requirements in section 316(b) of the CWA.

Please see “Item 1. Business - Environmental Matters" in IPALCO’s ~~2018~~2019 Form 10-K for additional details on each of these projects.

~~In addition, we expect that the estimated~~The amounts described in the capital expenditure program above ~~will likely increase, as IPL filed a~~include spending under IPL's TDSIC plan ~~with~~approved by the IURC on ~~July 24, 2019~~March 4, 2020 for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027. ~~An IURC order is expected in the first quarter of 2020.~~

Credit Ratings

Our ability to borrow money or to refinance existing indebtedness and the interest rates at which we can borrow money or refinance existing indebtedness are affected by our credit ratings. In addition, the applicable interest rates on IPL’s Credit Agreement and other unsecured notes (and the amount of certain other fees in the Credit

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

The following table presents the debt ratings and credit ratings (issuer/corporate rating) and outlook for IPALCO and IPL, along with the dates each rating was effective or affirmed.

Debt ratings

IPALCO

IPL

Outlook

Effective or Affirmed

Fitch Ratings

BBB (a)

A (b)

Stable

November 2020

Moody’s Investors Service

Baa3 (a)

A2 (b)

Stable

November 2018

S&P Global Ratings

BBB- (a)

A- (b)

Stable

November 2019

~~Debt~~Credit ratings

IPALCO

IPL

Outlook

Effective or Affirmed

Fitch Ratings

~~BBB~~ BBB-^(a)

ABBB+^(b)

Stable

November ~~2018~~2020

Moody’s Investors Service

~~Baa3~~—^(a)

A2Baa1^(b)

Stable

November 2018

S&P Global Ratings

~~BBB-~~BBB^(a)

A-BBB^(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~~

~~November 2018~~

~~S&P Global Ratings~~

~~BBB~~

~~Stable~~

~~March 2018~~2019


~~(a)~~	(a)Ratings relate to IPALCO’s Senior Secured Notes (b)Ratings relate to IPL’s Senior Secured Bonds. ’~~s Senior Secured Notes~~


~~(b)~~	~~Ratings relate to IPL~~’~~s Senior Secured Bonds.~~

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

Dividend Distributions

All of IPALCO’s outstanding common stock is held by AES U.S. Investments and CDPQ. During the first nine months of ~~2019~~2020 and ~~2018,~~2019, IPALCO paid ~~$94.7~~$94.0 million and ~~$85.2~~$94.7 million, respectively, in dividends and returns of capital to its shareholders. Future distributions to our shareholders will be determined at the discretion of our Board of Directors and will depend primarily on dividends received from IPL. Dividends from IPL are affected by IPL’s actual results of operations, financial condition, cash flows, capital requirements, regulatory considerations, and such other factors as IPL’s Board of Directors deems relevant.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no material changes to our quantitative and qualitative disclosure about market risk as previously disclosed in the ~~2018~~2019 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures — The Company, under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of its “disclosure controls and procedures,” as such term is defined in

Rule 13a-15(e) under the ~~Securities~~Exchange Act, ~~of 1934, as amended (the “Exchange Act”),~~ as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of September 30, ~~2019,~~2020, to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Controls over Financial Reporting — We periodically review our internal controls over financial reporting as part of our efforts to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we routinely review our system of internal controls over financial reporting to identify potential changes to our processes and systems that may improve controls and increase efficiency, while ensuring that we maintain an effective internal controls environment. Changes may include such activities as implementing new, more efficient systems, migrating certain processes to our shared services organizations, formalizing policies and procedures, improving segregation of duties and increasing monitoring controls. During the second quarter of 2019, we implemented a new core enterprise resource planning (ERP) system, which we expect to enhance our system of internal controls over financial reporting. As a result of this implementation, we modified certain existing internal controls as well as implemented new controls and procedures related to the new ERP. We continued to evaluate the design and operating effectiveness of these internal controls during the third quarter of 2019.

~~Except with respect to the implementation of the ERP, there~~There were no changes ~~in our internal controls over financial reporting~~ that occurred induring the ~~third~~fiscal quarter ~~of 2019~~covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal ~~controls~~control over financial reporting. We ~~will continue~~have not experienced any material impact to ~~monitor the~~our internal ~~control structure~~controls over financial reporting despite the fact that most of our employees are working remotely due to ~~ensure that~~the

COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design ~~is proper~~ and operating ~~effectively.~~effectiveness.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

~~Please see Note 7,~~ ~~“Commitments and Contingencies”~~ ~~to the Financial Statements included in Part I - Financial Information of this Form 10-Q for a summary of certain legal proceedings involving us. In addition, our~~Our Form 10-K for the fiscal year ended December 31, ~~2018 and Forms 10-Q for the quarters ended March 31, 2019 and June 30,~~ 2019 and the Notes to ~~the~~IPALCO's Consolidated Financial Statements included therein contain descriptions of certain legal proceedings in which we are or were involved. The information ~~included~~ in or incorporated by reference into this Item 1 to Part II is limited to certain recent developments concerning our legal proceedings and new legal proceedings, since the filing of such Form 10-K, and should be read in conjunction with such Form ~~10-K~~10-K.

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

ITEM 1A. RISK FACTORS

~~There have~~A listing of the risk factors that we consider to be the most significant to a decision to invest in our securities is provided in our Form 10-K for the fiscal year ended December 31, 2019, as supplemented in our Form 10-Qs for the three months ended March 31, 2020 and June 30, 2020. Except as described below, there has been no material ~~changes to the~~change in our risk factors as previously disclosed in ~~the 2018~~our 2019 Form 10-K. If any of the events described in our risk factors occur, it could have a material adverse effect on our results of operations, financial condition and cash flows.

The risks and uncertainties described in our risk factors are not the only ones we face. In addition, new risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our business or financial performance. Our risk factors should be read in conjunction with the other detailed information concerning the Company set forth in the Notes to the Company’s Financial Statements found in Part I, Item 1, and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections included in our filings.

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

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

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

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

•further decline in customer demand as a result of general decline in business activity;

•further destabilization of the markets and decline in business activity negatively impacting our customer growth or the number of customers in our service territory as well as our customers’ ability to pay for our services when due (or at all);

•delay or inability in obtaining regulatory actions and outcomes that could be material to our business, including for recovery of COVID-19 related expenses and losses, such as uncollectible customer amounts, and the review and approval of our applications, rates and charges by the IURC;

•difficulty accessing the capital and credit markets on favorable terms, or at all, and a severe disruption and instability in the global financial markets, or deteriorations in credit and financing conditions which could affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis;

•negative impacts on the health of our essential personnel, especially if a significant number of them are affected, and on our operations as a result of implementing stay-at-home, quarantine and other social distancing measures;

•a deterioration in our ability to ensure business continuity during a disruption, including increased cybersecurity attacks related to the work-from-home environment;

•delays or inability to access, transport and deliver fuel or other materials to our facilities due to restrictions on business operations or other factors affecting us and our third-party suppliers;

•the inability to hedge the entire exposure of our operations from availability and cost of fuel and other commodities that experience significant volatility;

•delays or inability to access equipment or the availability of personnel to perform planned and unplanned maintenance, which can, in turn, lead to disruption in operations;

•delays or inability in achieving our financial goals, growth strategy and digital transformation; and

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

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

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

To the extent COVID-19 adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk Factors’’ section, such as those relating to our level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



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)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

IPALCO ENTERPRISES, INC.

Date:

~~IPALCO ENTERPRISES, INC.~~

~~Date:~~

November 5, ~~2019~~2020

/s/ Gustavo Garavaglia

Gustavo Garavaglia

Chief Financial Officer

(Principal Financial Officer)

Date:

November 5, ~~2019~~2020

/s/ Karin M. Nyhuis

Karin M. Nyhuis

Controller

(Principal Accounting Officer)

4148



~~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


	September 30,		December 31,
	2020		2019
	(In Thousands)
Accounts receivable, net
Customer receivables	$	97,018	$	90,747
Unbilled revenue	54,829		65,822
Amounts due from related parties	5,645		2,717
Other	4,588		2,725
Allowance for credit losses	(3,520)		(921)
Total accounts receivable, net	$	158,560	$	161,090



	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


	Beginning Allowance Balance at January 1, 2020		Current Period Provision		Write-offs Charged Against Allowances		Recoveries Collected		Ending Allowance Balance at September 30, 2020
Allowance for credit losses	$	921	$	4,365	$	(5,124)	$	3,358	$	3,520



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


Details about Accumulated Other Comprehensive Loss components	Affected line item in the Condensed Consolidated Statements of Operations	Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019
Gains and losses on cash flow hedges (Note 4):	Interest expense	$	(1,807)	$	0	$	(3,614)	$	0
	Income tax expense	$	463	$	0	$	926	$	0
Total reclassifications for the period, net of income taxes		$	(1,344)	$	0	$	(2,688)	$	0


Gains and losses on cash flow hedges (Note 4):	Nine Months Ended September 30,
Balance at January 1	$	(19,750)
Other comprehensive loss before reclassifications	$	(36,632)
Amounts reclassified from AOCI to earnings	$	2,688
Balance at September 30	$	(53,694)



	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	)



	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



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



	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



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


	Operating Leases
2020	$	222
2021	886
2022	906
2023	906
2024	786
Thereafter	2,628
Total	$	6,334


Customer class	For the three months ended September 30, 2020 compared to the same period in 2019		For the six months ended September 30, 2020 compared to the same period in 2019(1)		For the nine months ended September 30, 2020 compared to the same period in 2019
Residential	3.9	%	5.1	%	3.7	%
Small commercial and industrial	(4.2)	%	(7.0)	%	(5.1)	%
Large commercial and industrial	(7.9)	%	(9.3)	%	(7.3)	%



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