UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
IPALCO ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of incorporation)
1-8644
(Commission File Number)
35-1575582
(IRS Employer Identification No.)
One Monument Circle
Indianapolis, Indiana 46204
(Address of principal executive offices, including zip code)
317-261-8261
(Registrant's telephone number, including area code)
| | | | | | | | |
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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☑
(The registrant iswas a voluntary filer.filer during 2021 until its March 22, 2021 Registration Statement on Form S-4 filed with the Securities and Exchange Commission was declared effective on April 7, 2021. The registrant has filed all applicable reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months.)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company
| Emerging growth company |
☐ | ☐ | ☑ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
At AugustMay 5, 2020,2021, 108,907,318 shares of IPALCO Enterprises, Inc. common stock were outstanding, of which 89,685,177 shares were owned by AES U.S. Investments, Inc. and 19,222,141 shares were owned by CDP Infrastructures Fund G.P., a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec.
IPALCO ENTERPRISES, INC.
QUARTERLY REPORT ON FORM 10-Q
For Quarter Ended June 30, 2020March 31, 2021
TABLE OF CONTENTS
| Item No. | Item No. | | Page No. | Item No. | | Page No. |
| | DEFINED TERMS | | | DEFINED TERMS | |
| | | | |
| | FORWARD-LOOKING STATEMENTS | | | FORWARD-LOOKING STATEMENTS | |
| | | PART I - FINANCIAL INFORMATION | | | PART I - FINANCIAL INFORMATION | |
1. | 1. | Financial Statements | | 1. | Financial Statements | |
| | Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended | | | Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended | |
| | June 30, 2020 and 2019 | | | March 31, 2021 and 2020 | |
| | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six | | | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three | |
| | Months Ended June 30, 2020 and 2019 | | | Months Ended March 31, 2021 and 2020 | |
| | Unaudited Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 | | | Unaudited Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 | |
| | Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended | | | Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended | |
| | June 30, 2020 and 2019 | | | March 31, 2021 and 2020 | |
| | Unaudited Condensed Consolidated Statements of Common Shareholders' Equity (Deficit) and | | | Unaudited Condensed Consolidated Statements of Common Shareholders' Equity and | |
| | Noncontrolling Interest for the Three and Six Months Ended June 30, 2020 and 2019 | | | Noncontrolling Interest for the Three Months Ended March 31, 2021 and 2020 | |
| | Notes to Unaudited Condensed Consolidated Financial Statements | | | Notes to Unaudited Condensed Consolidated Financial Statements | |
| | Note 1 - Overview and Summary of Significant Accounting Policies | | | Note 1 - Overview and Summary of Significant Accounting Policies | |
| | Note 2 - Regulatory Matters | | | Note 2 - Regulatory Matters | |
| | Note 3 - Fair Value | | | Note 3 - Fair Value | |
| | Note 4 - Derivative Instruments and Hedging Activities | | | Note 4 - Derivative Instruments and Hedging Activities | |
| | Note 5 - Debt | | | Note 5 - Debt | |
| | Note 6 - Income Taxes | | | Note 6 - Income Taxes | |
| | Note 7 - Benefit Plans | | | Note 7 - Benefit Plans | |
| | Note 8 - Commitments and Contingencies | | | Note 8 - Commitments and Contingencies | |
| | Note 9 - Business Segment Information | | | Note 9 - Business Segment Information | |
| | Note 10 - Revenue | | | Note 10 - Revenue | |
| | Note 11 - Leases | | | Note 11 - Leases | |
| | Note 12 - Risks and Uncertainties | | | Note 12 - Risks and Uncertainties | |
2. | 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
3. | 3. | Quantitative and Qualitative Disclosure About Market Risk | | 3. | Quantitative and Qualitative Disclosure About Market Risk | |
4. | 4. | Controls and Procedures | | 4. | Controls and Procedures | |
| | | | | | |
| | PART II - OTHER INFORMATION | | | PART II - OTHER INFORMATION | |
1. | 1. | Legal Proceedings | | 1. | Legal Proceedings | |
1A. | 1A. | Risk Factors | | 1A. | Risk Factors | |
2. | 2. | Unregistered Sales of Equity Securities and Use of Proceeds | | 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
3. | 3. | Defaults Upon Senior Securities | | 3. | Defaults Upon Senior Securities | |
4. | 4. | Mine Safety Disclosures | | 4. | Mine Safety Disclosures | |
5. | 5. | Other Information | | 5. | Other Information | |
6. | 6. | Exhibits | | 6. | Exhibits | |
| | | | | | |
| | SIGNATURES | | | SIGNATURES | |
| | | | | |
DEFINED TERMS | |
The following is a list of frequently used abbreviations or acronyms that are found in this Form 10-Q: | |
| |
2018 Base Rate Order | The order issued in October 2018 by the IURC authorizing IPL to, among other things, increase its basic rates and charges by $43.9 million annually
|
20192020 Form 10-K | IPALCO’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, as amended |
2020 IPALCO Notes | $405 million of 3.45% Senior Secured Notes due July 15, 2020 |
2024 IPALCO Notes | $405 million of 3.70% Senior Secured Notes due September 1, 2024 |
2030 IPALCO Notes | $475 million of 4.25% Senior Secured Notes due May 1, 2030 |
AES | The AES Corporation |
AES Indiana | Indianapolis Power & Light Company, which does business as AES Indiana |
AES U.S. Investments | AES U.S. Investments, Inc. |
AOCI | Accumulated Other Comprehensive Income |
AOCL | 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 Infrastructures Fund G.P., a wholly-owned subsidiary of La Caisse de dépôt et placement du Québec |
CECL | Current Expected Credit Loss |
CO2 | Carbon Dioxide |
COVID-19 | The disease caused by the novel coronavirus that caused a global pandemic beginning in the first quarter2020.
|
CPCN | Certificate of 2020.
Public Convenience and Necessity
|
CPP | Clean Power Plan |
Credit Agreement | $250 million IPLAES Indiana Revolving Credit Facilities Amended and Restated Credit Agreement, dated as of June 19, 2019 |
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 |
ECCRADOJ | Environmental Compliance Cost Recovery AdjustmentU.S. Department of Justice |
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 |
IDEM | Indiana Department of Environmental Management |
IPALCO | IPALCO Enterprises, Inc. |
IPL | Indianapolis Power & Light Company, which does business as AES Indiana |
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 |
NOx
| Nitrogen Oxide |
NWP 12NSR | Nationwide Permit 12New Source Review |
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 | 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 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 20192020 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 | IPALCO ENTERPRISES, INC. and SUBSIDIARIES | | IPALCO ENTERPRISES, INC. and SUBSIDIARIES |
Unaudited Condensed Consolidated Statements of Operations | Unaudited Condensed Consolidated Statements of Operations | | Unaudited Condensed Consolidated Statements of Operations |
(In Thousands) | (In Thousands) | | (In Thousands) |
| | Three Months Ended | | | Six Months Ended | | | | Three Months Ended |
| | June 30, | | | June 30, | | | | March 31, |
| | 2020 | 2019 | | 2020 | 2019 | | | 2021 | 2020 |
| REVENUES | REVENUES | $ | 311,503 | | $ | 340,869 | | | $ | 668,885 | | $ | 723,178 | | REVENUES | | $ | 362,201 | | $ | 357,382 | |
| OPERATING COSTS AND EXPENSES: | OPERATING COSTS AND EXPENSES: | | OPERATING COSTS AND EXPENSES: | | |
Fuel | Fuel | 43,351 | | 72,217 | | | 112,139 | | 161,016 | | Fuel | | 84,731 | | 68,788 | |
Power purchased | Power purchased | 43,082 | | 36,719 | | | 78,549 | | 69,643 | | Power purchased | | 24,583 | | 35,467 | |
Operation and maintenance | Operation and maintenance | 94,659 | | 113,661 | | | 200,248 | | 215,807 | | Operation and maintenance | | 103,949 | | 105,590 | |
Depreciation and amortization | Depreciation and amortization | 61,099 | | 59,897 | | | 121,807 | | 119,566 | | Depreciation and amortization | | 63,089 | | 60,708 | |
Taxes other than income taxes | Taxes other than income taxes | 11,606 | | 6,983 | | | 23,664 | | 20,966 | | Taxes other than income taxes | | 12,951 | | 12,057 | |
| Total operating costs and expenses | Total operating costs and expenses | 253,797 | | 289,477 | | | 536,407 | | 586,998 | | Total operating costs and expenses | | 289,303 | | 282,610 | |
| OPERATING INCOME | OPERATING INCOME | 57,706 | | 51,392 | | | 132,478 | | 136,180 | | OPERATING INCOME | | 72,898 | | 74,772 | |
| OTHER INCOME / (EXPENSE), NET: | OTHER INCOME / (EXPENSE), NET: | | | | OTHER INCOME / (EXPENSE), NET: | | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | 1,160 | | 817 | | | 2,017 | | 1,728 | | Allowance for equity funds used during construction | | 1,374 | | 857 | |
Interest expense | Interest expense | (33,935) | | (30,291) | | | (64,016) | | (60,773) | | Interest expense | | (30,067) | | (30,081) | |
Loss on early extinguishment of debt | (2,415) | | — | | | (2,415) | | — | | |
| Other income / (expense), net | Other income / (expense), net | 1,772 | | (2,045) | | | 1,979 | | (5,273) | | Other income / (expense), net | | 4,614 | | 207 | |
Total other income / (expense), net | Total other income / (expense), net | (33,418) | | (31,519) | | | (62,435) | | (64,318) | | Total other income / (expense), net | | (24,079) | | (29,017) | |
| EARNINGS FROM OPERATIONS BEFORE INCOME TAX | EARNINGS FROM OPERATIONS BEFORE INCOME TAX | 24,288 | | 19,873 | | | 70,043 | | 71,862 | | EARNINGS FROM OPERATIONS BEFORE INCOME TAX | | 48,819 | | 45,755 | |
| | | | | | | |
Less: Income tax expense | Less: Income tax expense | 5,165 | | 4,960 | | | 14,937 | | 15,164 | | Less: Income tax expense | | 10,035 | | 9,772 | |
NET INCOME | NET INCOME | 19,123 | | 14,913 | | | 55,106 | | 56,698 | | NET INCOME | | 38,784 | | 35,983 | |
| | | | | | |
Less: Dividends on preferred stock | Less: Dividends on preferred stock | 804 | | 804 | | | 1,607 | | 1,607 | | Less: Dividends on preferred stock | | 803 | | 803 | |
NET INCOME APPLICABLE TO COMMON STOCK | NET INCOME APPLICABLE TO COMMON STOCK | $ | 18,319 | | $ | 14,109 | | | $ | 53,499 | | $ | 55,091 | | NET INCOME APPLICABLE TO COMMON STOCK | | $ | 37,981 | | $ | 35,180 | |
| See notes to unaudited condensed consolidated financial statements. | See notes to unaudited condensed consolidated financial statements. | | 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 | | | Six Months Ended | | | | Three Months Ended |
| | June 30, | | | June 30, | | | | March 31, |
| | 2020 | 2019 | | 2020 | 2019 | | | 2021 | 2020 |
| Net income applicable to common stock | Net income applicable to common stock | $ | 18,319 | | $ | 14,109 | | | $ | 53,499 | | $ | 55,091 | | Net income applicable to common stock | | $ | 37,981 | | $ | 35,180 | |
| Derivative activity: | Derivative activity: | | Derivative activity: | | |
Change in derivative fair value, net of income tax benefit of $1,388, $3,976, $13,910 and $5,866, for each respective period | (4,026) | | (11,649) | | | (40,339) | | (17,188) | | |
Reclassification to earnings, net of income tax benefit of $463, $0, $463 and $0, for each respective period | 1,344 | | — | | | 1,344 | | — | | |
Change in derivative fair value, net of income tax (expense)/benefit of $(9,655) and $12,522, for each respective period | | Change in derivative fair value, net of income tax (expense)/benefit of $(9,655) and $12,522, for each respective period | | 30,050 | | (36,313) | |
Reclassification to earnings, net of income tax expense of $146 and $0, for each respective period | | Reclassification to earnings, net of income tax expense of $146 and $0, for each respective period | | (456) | | 0 | |
Net change in fair value of derivatives | Net change in fair value of derivatives | (2,682) | | (11,649) | | | (38,995) | | (17,188) | | Net change in fair value of derivatives | | 29,594 | | (36,313) | |
| Other comprehensive loss | (2,682) | | (11,649) | | | (38,995) | | (17,188) | | |
Other comprehensive income / (loss) | | Other comprehensive income / (loss) | | 29,594 | | (36,313) | |
| Net comprehensive income | $ | 15,637 | | $ | 2,460 | | | $ | 14,504 | | $ | 37,903 | | |
Net comprehensive income / (loss) | | Net comprehensive income / (loss) | | $ | 67,575 | | $ | (1,133) | |
|
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 Balance Sheets | Unaudited Condensed Consolidated Balance Sheets | | Unaudited Condensed Consolidated Balance Sheets |
(In Thousands) | (In Thousands) | | (In Thousands) |
| | June 30, | December 31, | | March 31, | December 31, |
| | 2020 | 2019 | | 2021 | 2020 |
ASSETS | ASSETS | | ASSETS | |
CURRENT ASSETS: | CURRENT ASSETS: | | CURRENT ASSETS: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 33,491 | | $ | 48,152 | | Cash and cash equivalents | $ | 48,592 | | $ | 20,502 | |
Restricted cash | Restricted cash | 19,760 | | 400 | | Restricted cash | 5 | | 6,120 | |
Accounts receivable, net of allowance for credit losses of $4,053 and $921, respectively | 163,679 | | 161,090 | | |
Accounts receivable, net of allowance for credit losses of $1,966 and $3,155, respectively | | Accounts receivable, net of allowance for credit losses of $1,966 and $3,155, respectively | 160,735 | | 165,193 | |
Inventories | Inventories | 102,041 | | 83,569 | | Inventories | 80,610 | | 95,506 | |
Regulatory assets, current | Regulatory assets, current | 48,842 | | 37,398 | | Regulatory assets, current | 47,675 | | 45,430 | |
Taxes receivable | Taxes receivable | 21,046 | | 23,670 | | Taxes receivable | 15,270 | | 24,384 | |
Prepayments and other current assets | Prepayments and other current assets | 20,433 | | 17,264 | | Prepayments and other current assets | 41,441 | | 17,842 | |
Total current assets | Total current assets | 409,292 | | 371,543 | | Total current assets | 394,328 | | 374,977 | |
NON-CURRENT ASSETS: | NON-CURRENT ASSETS: | | NON-CURRENT ASSETS: | |
Property, plant and equipment | Property, plant and equipment | 6,460,208 | | 6,398,612 | | Property, plant and equipment | 6,559,864 | | 6,530,395 | |
Less: Accumulated depreciation | Less: Accumulated depreciation | 2,490,642 | | 2,414,652 | | Less: Accumulated depreciation | 2,690,636 | | 2,643,695 | |
| | 3,969,566 | | 3,983,960 | | | 3,869,228 | | 3,886,700 | |
Construction work in progress | Construction work in progress | 146,248 | | 130,609 | | Construction work in progress | 230,199 | | 209,584 | |
Total net property, plant and equipment | Total net property, plant and equipment | 4,115,814 | | 4,114,569 | | Total net property, plant and equipment | 4,099,427 | | 4,096,284 | |
OTHER NON-CURRENT ASSETS: | OTHER NON-CURRENT ASSETS: | | OTHER NON-CURRENT ASSETS: | |
Intangible assets - net | Intangible assets - net | 60,756 | | 64,861 | | Intangible assets - net | 56,713 | | 59,141 | |
Regulatory assets, non-current | Regulatory assets, non-current | 347,599 | | 355,614 | | Regulatory assets, non-current | 385,995 | | 392,801 | |
Other non-current assets | Other non-current assets | 19,896 | | 22,082 | | Other non-current assets | 48,792 | | 46,716 | |
Total other non-current assets | Total other non-current assets | 428,251 | | 442,557 | | Total other non-current assets | 491,500 | | 498,658 | |
TOTAL ASSETS | TOTAL ASSETS | $ | 4,953,357 | | $ | 4,928,669 | | TOTAL ASSETS | $ | 4,985,255 | | $ | 4,969,919 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | | LIABILITIES AND SHAREHOLDERS' EQUITY | |
CURRENT LIABILITIES: | CURRENT LIABILITIES: | | CURRENT LIABILITIES: | |
Short-term debt and current portion of long-term debt (Note 5) | Short-term debt and current portion of long-term debt (Note 5) | $ | 119,943 | | $ | 559,199 | | Short-term debt and current portion of long-term debt (Note 5) | $ | 184,945 | | $ | 169,907 | |
Accounts payable | Accounts payable | 112,272 | | 128,521 | | Accounts payable | 122,399 | | 127,089 | |
Accrued taxes | Accrued taxes | 38,960 | | 22,012 | | Accrued taxes | 37,831 | | 26,620 | |
Accrued interest | Accrued interest | 33,383 | | 35,334 | | Accrued interest | 42,914 | | 31,733 | |
Customer deposits | Customer deposits | 33,976 | | 34,635 | | Customer deposits | 26,685 | | 27,929 | |
Regulatory liabilities, current | Regulatory liabilities, current | 59,001 | | 52,654 | | Regulatory liabilities, current | 10,968 | | 30,036 | |
Derivative liabilities, current | — | | 26,560 | | |
| Accrued and other current liabilities | Accrued and other current liabilities | 18,904 | | 23,300 | | Accrued and other current liabilities | 14,426 | | 19,453 | |
Total current liabilities | Total current liabilities | 416,439 | | 882,215 | | Total current liabilities | 440,168 | | 432,767 | |
NON-CURRENT LIABILITIES: | NON-CURRENT LIABILITIES: | | NON-CURRENT LIABILITIES: | |
Long-term debt (Note 5) | Long-term debt (Note 5) | 2,561,497 | | 2,092,430 | | Long-term debt (Note 5) | 2,556,848 | | 2,556,278 | |
Deferred income tax liabilities | Deferred income tax liabilities | 264,989 | | 272,861 | | Deferred income tax liabilities | 288,825 | | 275,714 | |
Taxes payable | Taxes payable | 6,229 | | 4,658 | | Taxes payable | 7,552 | | 7,458 | |
Regulatory liabilities, non-current | Regulatory liabilities, non-current | 838,187 | | 846,430 | | Regulatory liabilities, non-current | 835,269 | | 839,360 | |
Accrued pension and other postretirement benefits | Accrued pension and other postretirement benefits | 15,892 | | 19,344 | | Accrued pension and other postretirement benefits | 5,380 | | 5,334 | |
Asset retirement obligations | Asset retirement obligations | 201,494 | | 204,219 | | Asset retirement obligations | 195,704 | | 195,236 | |
Derivative liabilities, non-current | Derivative liabilities, non-current | 80,809 | | — | | Derivative liabilities, non-current | 23,511 | | 63,215 | |
Other non-current liabilities | Other non-current liabilities | 198 | | 252 | | Other non-current liabilities | 13,683 | | 13,785 | |
Total non-current liabilities | Total non-current liabilities | 3,969,295 | | 3,440,194 | | Total non-current liabilities | 3,926,772 | | 3,956,380 | |
Total liabilities | Total liabilities | 4,385,734 | | 4,322,409 | | Total liabilities | 4,366,940 | | 4,389,147 | |
COMMITMENTS AND CONTINGENCIES (Note 8) | COMMITMENTS AND CONTINGENCIES (Note 8) | | COMMITMENTS AND CONTINGENCIES (Note 8) | |
SHAREHOLDERS' EQUITY: | SHAREHOLDERS' EQUITY: | | SHAREHOLDERS' EQUITY: | |
Paid in capital | Paid in capital | 590,870 | | 590,784 | | Paid in capital | 589,007 | | 588,966 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (58,745) | | (19,750) | | Accumulated other comprehensive loss | (13,826) | | (43,420) | |
Accumulated deficit | Accumulated deficit | (24,286) | | (24,558) | | Accumulated deficit | (16,650) | | (24,558) | |
Total common shareholders' equity | Total common shareholders' equity | 507,839 | | 546,476 | | Total common shareholders' equity | 558,531 | | 520,988 | |
Preferred stock of subsidiary | Preferred stock of subsidiary | 59,784 | | 59,784 | | Preferred stock of subsidiary | 59,784 | | 59,784 | |
Total shareholders' equity | Total shareholders' equity | 567,623 | | 606,260 | | Total shareholders' equity | 618,315 | | 580,772 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 4,953,357 | | $ | 4,928,669 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 4,985,255 | | $ | 4,969,919 | |
| See notes to unaudited condensed consolidated financial statements. | See notes to unaudited condensed consolidated financial statements. | | 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 Cash Flows | Unaudited Condensed Consolidated Statements of Cash Flows | | Unaudited Condensed Consolidated Statements of Cash Flows |
(In Thousands) | (In Thousands) | | (In Thousands) |
| | Six Months Ended | | | Three Months Ended |
| | June 30, | | | March 31, |
| | 2020 | 2019 | | 2021 | 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | | CASH FLOWS FROM OPERATING ACTIVITIES: | |
Net income | Net income | $ | 55,106 | | $ | 56,698 | | Net income | $ | 38,784 | | $ | 35,983 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | Depreciation and amortization | 121,807 | | 119,566 | | Depreciation and amortization | 63,089 | | 60,708 | |
Amortization of deferred financing costs and debt premium | 2,087 | | 2,053 | | |
Amortization of deferred financing costs and debt discounts | | Amortization of deferred financing costs and debt discounts | 998 | | 1,100 | |
Deferred income taxes and investment tax credit adjustments - net | Deferred income taxes and investment tax credit adjustments - net | 860 | | 16,350 | | Deferred income taxes and investment tax credit adjustments - net | 922 | | 2,467 | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | (2,017) | | (1,728) | | Allowance for equity funds used during construction | (1,374) | | (857) | |
Loss on early extinguishment of debt | 2,415 | | — | | |
| Change in certain assets and liabilities: | Change in certain assets and liabilities: | | | Change in certain assets and liabilities: | | |
Accounts receivable | Accounts receivable | (2,589) | | 3,638 | | Accounts receivable | 4,458 | | 4,655 | |
Inventories | Inventories | (23,346) | | 3,416 | | Inventories | 12,568 | | (8,265) | |
Accounts payable | Accounts payable | (16,396) | | (23,261) | | Accounts payable | 3,610 | | (7,940) | |
Accrued and other current liabilities | Accrued and other current liabilities | (3,996) | | 778 | | Accrued and other current liabilities | (6,271) | | (2,514) | |
Accrued taxes payable/receivable | Accrued taxes payable/receivable | 21,144 | | (24,751) | | Accrued taxes payable/receivable | 20,419 | | 15,382 | |
Accrued interest | Accrued interest | (1,951) | | 347 | | Accrued interest | 11,181 | | 2,599 | |
Pension and other postretirement benefit expenses | Pension and other postretirement benefit expenses | (3,452) | | 2,721 | | Pension and other postretirement benefit expenses | 46 | | (1,726) | |
Short-term and long-term regulatory assets and liabilities | Short-term and long-term regulatory assets and liabilities | (799) | | 5,707 | | Short-term and long-term regulatory assets and liabilities | (14,905) | | (3,226) | |
Prepayments and other current assets | Prepayments and other current assets | (3,169) | | (6,758) | | Prepayments and other current assets | (23,599) | | (5,488) | |
Other - net | Other - net | 619 | | (3,898) | | Other - net | (2,038) | | 4,698 | |
Net cash provided by operating activities | Net cash provided by operating activities | 146,323 | | 150,878 | | Net cash provided by operating activities | 107,888 | | 97,576 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | | CASH FLOWS FROM INVESTING ACTIVITIES: | |
Capital expenditures | Capital expenditures | (92,848) | | (107,610) | | Capital expenditures | (62,792) | | (54,490) | |
Project development costs | Project development costs | (1,206) | | (955) | | Project development costs | (386) | | (751) | |
Cost of removal and regulatory recoverable ARO payments | Cost of removal and regulatory recoverable ARO payments | (19,488) | | (6,625) | | Cost of removal and regulatory recoverable ARO payments | (6,589) | | (7,962) | |
Other | 101 | | 278 | | |
| Net cash used in investing activities | Net cash used in investing activities | (113,441) | | (114,912) | | Net cash used in investing activities | (69,767) | | (63,203) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | | CASH FLOWS FROM FINANCING ACTIVITIES: | |
Short-term debt borrowings | 30,000 | | 10,000 | | |
Borrowings under revolving credit facilities | | Borrowings under revolving credit facilities | 60,000 | | 0 | |
Repayments under revolving credit facilities | | Repayments under revolving credit facilities | (45,000) | | 0 | |
| Long-term borrowings, net of discount | 474,568 | | — | | |
Retirement of long-term debt, including early payment premium | (472,135) | | — | | |
| Distributions to shareholders | Distributions to shareholders | (53,227) | | (59,935) | | Distributions to shareholders | (30,073) | | (26,631) | |
Preferred dividends of subsidiary | Preferred dividends of subsidiary | (1,607) | | (1,607) | | Preferred dividends of subsidiary | (803) | | (803) | |
Deferred financing costs paid | Deferred financing costs paid | (5,664) | | — | | Deferred financing costs paid | (270) | | 0 | |
Payments for financed capital expenditures | — | | (5,508) | | |
Other | (118) | | (710) | | |
| Net cash used in financing activities | Net cash used in financing activities | (28,183) | | (57,760) | | Net cash used in financing activities | (16,146) | | (27,434) | |
Net change in cash, cash equivalents and restricted cash | Net change in cash, cash equivalents and restricted cash | 4,699 | | (21,794) | | Net change in cash, cash equivalents and restricted cash | 21,975 | | 6,939 | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | 48,552 | | 33,599 | | Cash, cash equivalents and restricted cash at beginning of period | 26,622 | | 48,552 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | $ | 53,251 | | $ | 11,805 | | Cash, cash equivalents and restricted cash at end of period | $ | 48,597 | | $ | 55,491 | |
| Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: | | Supplemental disclosures of cash flow information: | |
Cash paid during the period for: | Cash paid during the period for: | | Cash paid during the period for: | |
Interest (net of amount capitalized) | Interest (net of amount capitalized) | $ | 62,167 | | $ | 58,542 | | Interest (net of amount capitalized) | $ | 18,512 | | $ | 26,438 | |
Income taxes | 12,000 | | 21,700 | | |
| Non-cash investing activities: | Non-cash investing activities: | | | Non-cash investing activities: | | |
Accruals for capital expenditures | Accruals for capital expenditures | $ | 35,617 | | $ | 60,618 | | Accruals for capital expenditures | $ | 46,060 | | $ | 28,184 | |
| See notes to unaudited condensed consolidated financial statements. | See notes to unaudited condensed consolidated financial statements. | | 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 Three and Six Months Ended June 30, 2020 and 2019 | | |
For the Three Months Ended March 31, 2021 and 2020 | | For the Three Months Ended March 31, 2021 and 2020 |
(In Thousands) | (In Thousands) | | (In Thousands) |
| | | | Paid in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Common Shareholders' Equity | | Cumulative Preferred Stock of Subsidiary |
2021 | | 2021 | |
Beginning Balance | | Beginning Balance | | $ | 588,966 | | | $ | (43,420) | | | $ | (24,558) | | | $ | 520,988 | | | $ | 59,784 | |
Net comprehensive income/(loss) | | Net comprehensive income/(loss) | | — | | | 29,594 | | | 37,981 | | | 67,575 | | | 803 | |
Preferred stock dividends | | Preferred stock dividends | | — | | | — | | | — | | | — | | | (803) | |
Distributions to shareholders | | Distributions to shareholders | | — | | | — | | | (30,073) | | | (30,073) | | | — | |
Other | | Other | | 41 | | | — | | | — | | | 41 | | | — | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | | $ | 589,007 | | | $ | (13,826) | | | $ | (16,650) | | | $ | 558,531 | | | $ | 59,784 | |
| | | | Paid in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total Common Shareholders' Equity | | Cumulative Preferred Stock of Subsidiary | |
2020 | 2020 | | | 2020 | |
Beginning Balance | Beginning Balance | | $ | 590,784 | | | $ | (19,750) | | | $ | (24,558) | | | $ | 546,476 | | | $ | 59,784 | | Beginning Balance | | $ | 590,784 | | | $ | (19,750) | | | $ | (24,558) | | | $ | 546,476 | | | $ | 59,784 | |
Net comprehensive loss | | — | | | (36,313) | | | 35,180 | | | (1,133) | | | 803 | | |
Net comprehensive income/(loss) | | Net comprehensive income/(loss) | | — | | | (36,313) | | | 35,180 | | | (1,133) | | | 803 | |
Preferred stock dividends | Preferred stock dividends | | — | | | — | | | — | | | — | | | (803) | | Preferred stock dividends | | — | | | — | | | — | | | — | | | (803) | |
Distributions to shareholders | Distributions to shareholders | | — | | | — | | | (26,631) | | | (26,631) | | | — | | Distributions to shareholders | | — | | | — | | | (26,631) | | | (26,631) | | | — | |
Other | Other | | 49 | | | — | | | — | | | 49 | | | — | | Other | | 49 | | | — | | | — | | | 49 | | | — | |
Balance at March 31, 2020 | Balance at March 31, 2020 | | 590,833 | | | (56,063) | | | (16,009) | | | 518,761 | | | 59,784 | | Balance at March 31, 2020 | | $ | 590,833 | | | $ | (56,063) | | | $ | (16,009) | | | $ | 518,761 | | | $ | 59,784 | |
Net comprehensive income | | — | | | (2,682) | | | 18,319 | | | 15,637 | | | 804 | | |
Preferred stock dividends | | — | | | — | | | — | | | — | | | (804) | | |
Distributions to shareholders | | — | | | — | | | (26,596) | | | (26,596) | | | — | | |
Other | | 37 | | | — | | | — | | | 37 | | | — | | |
Balance at June 30, 2020 | | $ | 590,870 | | | $ | (58,745) | | | $ | (24,286) | | | $ | 507,839 | | | $ | 59,784 | | |
| | | | | | | |
2019 | | | | |
Beginning Balance | | $ | 597,824 | | | $ | — | | | $ | (24,558) | | | $ | 573,266 | | | $ | 59,784 | | |
Net comprehensive income | | — | | | (5,539) | | | 40,982 | | | 35,443 | | | 803 | | |
Preferred stock dividends | | — | | | — | | | — | | | — | | | (803) | | |
Distributions to shareholders | | — | | | — | | | (31,590) | | | (31,590) | | | — | | |
Other | | 34 | | | — | | | — | | | 34 | | | — | | |
Balance at March 31, 2019 | | 597,858 | | | (5,539) | | | (15,166) | | | 577,153 | | | 59,784 | | |
Net comprehensive income | | — | | | (11,649) | | | 14,109 | | | 2,460 | | | 804 | | |
Preferred stock dividends | | — | | | — | | | — | | | — | | | (804) | | |
Distributions to shareholders | | — | | | — | | | (28,345) | | | (28,345) | | | — | | |
Other | | 59 | | | — | | | — | | | 59 | | | — | | |
Balance at June 30, 2019 | | $ | 597,917 | | | $ | (17,188) | | | $ | (29,402) | | | $ | 551,327 | | | $ | 59,784 | | |
| | | |
See notes to unaudited condensed consolidated financial statements.
IPALCO ENTERPRISES, INC. and SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IPALCO is a holding company incorporated under the laws of the state of Indiana. IPALCO is owned by AES U.S. InvestmentsInvestments (82.35%) and CDPQ (17.65%). AES U.S. Investments is owned by AES U.S. Holdings, LLC (85%) and CDPQ (15%). IPALCO owns all of the outstanding common stock of IPL.IPL, which does business as AES Indiana. Substantially all of IPALCO’s business consists of generating, transmitting, distributing and selling of electric energy conducted through its principal subsidiary, IPL. IPLAES Indiana. AES Indiana was incorporated under the laws of the state of Indiana in 1926. IPLAES Indiana has approximately 510,000 approximately 513,000 retail customers in the city of Indianapolis and neighboring cities, towns and communities, and adjacent rural areas all within the state of Indiana, with the most distant point being approximately forty miles from Indianapolis. IPLAES Indiana has an exclusive right to provide electric service to those customers. IPLAES Indiana owns and operates 4 generating stations, all within the state of Indiana. IPL’sAES Indiana’s largest generating station, Petersburg, is coal-fired.coal-fired, and AES Indiana has plans to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 in 2021 and 2023, respectively (for further discussion, see Note 2, "Regulatory Matters - IRP Filing and Replacement Generation"). The second largest station, Harding Street, uses natural gas and fuel oil to power combustion turbines. In addition, IPLAES Indiana operates a 20 MW battery energy storage unit at this location, which provides frequency response. The third station, Eagle Valley, is a CCGT natural gas plant. IPL took operational control and commenced commercial operations of this CCGT plant in April 2018. The fourth station, Georgetown, is a small peaking station that uses natural gas to power combustion turbines. As of June 30, 2020, IPL’sMarch 31, 2021, AES Indiana’s net electric generation capacity for winter is 3,705 MW and net summer capacity is 3,560 MW.
Principles of Consolidation
The accompanying Financial Statements include the accounts of IPALCO, IPLAES Indiana and Mid-America Capital Resources, Inc., a non-regulated wholly-owned subsidiary of IPALCO. All significant intercompany amounts have been eliminated. eliminated in consolidation.
Interim Financial Presentation
The accompanying Financial Statements are unaudited; however, they have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and in conjunction with the rules and regulationsArticle 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all of the disclosuresinformation and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation have been included.of the results of operations, financial position, comprehensive income, changes in equity, and cash flows. The electric utility business is affected by seasonal weather patterns throughout the year and, therefore, the operating revenues and associated operating expenses are not generated evenly by month during the year. These unaudited Financial Statements have been prepared in accordance with the accounting policies described in IPALCO’s 20192020 Form 10-K and should be read in conjunction therewith.
Use of Management Estimates
The preparation of financial statements in conformity with GAAP requires that management make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may also be affected by the estimates and assumptions that management is required to make. Actual results may differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
The following table provides a summary of cash, cash equivalents and restricted cash amounts as shown on the Condensed Consolidated Statements of Cash Flows:
| | | | June 30, | | December 31, | | | March 31, | | December 31, |
| | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (In Thousands) | | | | (In Thousands) |
Cash, cash equivalents and restricted cash | Cash, cash equivalents and restricted cash | | Cash, cash equivalents and restricted cash | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 33,491 | | | $ | 48,152 | | Cash and cash equivalents | | $ | 48,592 | | | $ | 20,502 | |
Restricted cash | Restricted cash | | 19,760 | | | 400 | | Restricted cash | | 5 | | | 6,120 | |
Total cash, cash equivalents and restricted cash | Total cash, cash equivalents and restricted cash | | $ | 53,251 | | | $ | 48,552 | | Total cash, cash equivalents and restricted cash | | $ | 48,597 | | | $ | 26,622 | |
|
Accounts Receivable
The following table summarizes our accounts receivable balances at June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | June 30, | | December 31, | | | March 31, | | December 31, |
| | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (In Thousands) | | | | (In Thousands) |
Accounts receivable, net | Accounts receivable, net | | Accounts receivable, net | |
Customer receivables | Customer receivables | | $ | 89,257 | | | $ | 90,747 | | Customer receivables | | $ | 97,231 | | | $ | 91,335 | |
Unbilled revenue | Unbilled revenue | | 65,190 | | | 65,822 | | Unbilled revenue | | 57,578 | | | 72,334 | |
Amounts due from related parties | Amounts due from related parties | | 5,657 | | | 2,717 | | Amounts due from related parties | | 375 | | | 490 | |
Other | Other | | 7,628 | | | 2,725 | | Other | | 7,517 | | | 4,189 | |
Allowance for credit losses | Allowance for credit losses | | (4,053) | | | (921) | | Allowance for credit losses | | (1,966) | | | (3,155) | |
Total accounts receivable, net | Total accounts receivable, net | | $ | 163,679 | | | $ | 161,090 | | Total accounts receivable, net | | $ | 160,735 | | | $ | 165,193 | |
|
The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the six months ended June 30, 2020periods indicated (in Thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Beginning Allowance Balance at January 1, 2020 | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance at June 30, 2020 |
Allowance for credit losses | | $ | 921 | | | $ | 4,312 | | | $ | (3,697) | | | $ | 2,517 | | | $ | 4,053 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 | | Beginning Allowance Balance at January 1, 2021 | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance at March 31, 2021 |
Allowance for credit losses | | $ | 3,155 | | | $ | 124 | | | $ | (1,885) | | | $ | 572 | | | $ | 1,966 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2020 | | Beginning Allowance Balance at January 1, 2020 | | Current Period Provision | | Write-offs Charged Against Allowances | | Recoveries Collected | | Ending Allowance Balance at March 31, 2020 |
Allowance for credit losses | | $ | 921 | | | $ | 773 | | | $ | (1,114) | | | $ | 469 | | | $ | 1,049 | |
| | | | | | | | | | |
The allowance for credit losses primarily relates to utility customer receivables, including unbilled amounts. Expected credit loss estimates are developed by disaggregating customers into those with similar credit risk characteristics and using historical credit loss experience. In addition, we also consider how current and future economic conditions are expected to impact collectability, as applicable, including the economic impacts of the COVID-19 pandemic on our receivable balance as of June 30, 2020.March 31, 2021. Amounts are written off when reasonable collections efforts have been exhausted. On March 19, 2020, the Governor of Indiana issued an Executive Order prohibiting electric utilities, including us, from discontinuing electric utility service to customers due to the economic impacts of the COVID-19 pandemic. The IURC extended this order through August 14, 2020. This order along with the economic impacts of COVID-19 has resulted in an increase in past due customer receivable balances, and thusDuring 2021, the current period provision and the allowance for credit losses has increased during the second quarter of 2020. Please see additional discussion in Note 2, "Regulatory Matters - IURC COVID-19 Order” and Note 12, "Risks and Uncertainties."have decreased due to lower past due customer receivable balances.
Inventories
The following table summarizes our inventories balances at June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | June 30, | | December 31, | | | March 31, | | December 31, |
| | | 2020 | | 2019 | | | 2021 | | 2020 |
| | | (In Thousands) | | | | (In Thousands) |
Inventories | Inventories | | Inventories | |
Fuel | Fuel | | $ | 43,462 | | | $ | 26,907 | | Fuel | | $ | 20,215 | | | $ | 36,953 | |
Materials and supplies | | 58,579 | | | 56,662 | | |
Materials and supplies, net | | Materials and supplies, net | | 60,395 | | | 58,553 | |
Total inventories | Total inventories | | $ | 102,041 | | | $ | 83,569 | | Total inventories | | $ | 80,610 | | | $ | 95,506 | |
|
Accumulated Other Comprehensive Income / (Loss)
The amounts reclassified out of Accumulated Other Comprehensive LossIncome/(Loss) by component during the three and six months ended June 30,March 31, 2021 and 2020 and 2019 are as follows (in thousands):
| Details about Accumulated Other Comprehensive Loss components | Details about Accumulated Other Comprehensive Loss components | Affected line item in the Condensed Consolidated Statements of Operations | | Three Months Ended June 30, | | Six Months Ended June 30, | | Details about Accumulated Other Comprehensive Loss components | Affected line item in the Condensed Consolidated Statements of Operations | | | Three Months Ended March 31, |
| | 2020 | 2019 | 2020 | 2019 | | | 2021 | 2020 |
Gains and losses on cash flow hedges (Note 4):
| Gains and losses on cash flow hedges (Note 4):
| Interest expense | | $ | (1,807) | | $ | — | | $ | (1,807) | | $ | — | | Gains and losses on cash flow hedges (Note 4): | Interest expense | | | $ | (602) | | $ | 0 | |
| | Income tax expense | | $ | 463 | | $ | — | | $ | 463 | | $ | — | | | Income tax expense | | | 146 | | 0 | |
Total reclassifications for the period, net of income taxes | Total reclassifications for the period, net of income taxes | | | $ | (1,344) | | $ | — | | $ | (1,344) | | $ | — | | Total reclassifications for the period, net of income taxes | | | $ | (456) | | $ | 0 | |
|
The changes in the components of Accumulated Other Comprehensive Income/(Loss) during the sixthree months ended June 30,March 31, 2021 and 2020 are as follows (in thousands):
| | | | | | | | |
Gains and losses on cash flow hedges (Note 4): | | Six Months Ended June 30, 2020 |
Balance at January 1 | | $ | (19,750) | |
Other comprehensive loss before reclassifications | | $ | (40,339) | |
Amounts reclassified from AOCI to earnings | | $ | 1,344 | |
Balance at June 30 | | $ | (58,745) | |
| | |
| | | | | | | | | | | |
| | Three Months Ended March 31, |
Gains and losses on cash flow hedges (Note 4): | | 2021 | 2020 |
Balance at January 1 | | $ | (43,420) | | $ | (19,750) | |
Other comprehensive gain (loss) before reclassifications | | 30,050 | | (36,313) | |
Amounts reclassified from AOCI to earnings | | (456) | | 0 | |
Balance at March 31 | | $ | (13,826) | | $ | (56,063) | |
| | | |
New Accounting Pronouncements Adopted in 2020
The following table provides a brief description of recent accounting pronouncements that had an impact on the Company’s Financial Statements. Accounting pronouncements not listed below were assessed and determined to be either not applicable or did not have a material impact on the Company’s Financial Statements.
| | | | | | | | | | | |
New Accounting Standards Adopted | | | |
ASU Number and Name | Description | Date of Adoption | Effect on the Financial Statements upon adoption |
2016-13, 2018-19, 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, 2020-03, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments | See discussion of the ASU below.
| January 1, 2020 | See impact upon adoption of the standard below. |
ASC 326 - Financial Instruments - Credit Losses
On January 1, 2020, the Company adopted ASC 326 Financial Instruments - Credit Losses and its subsequent corresponding updates ("ASC 326"). The new standard updates the impairment model for financial assets measured at amortized cost, known as the Current Expected Credit Loss ("CECL") model. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities are required to use a new forward-looking "expected loss" model that generally results in the earlier recognition of an allowance for credit losses. For available-for-sale debt securities with unrealized losses, entities measure credit losses as it was done under previous GAAP, except that unrealized losses due to credit-related factors are now recognized as an allowance on the balance sheet with a corresponding adjustment to earnings in the income statement.
The Company applied the modified retrospective method of adoption for ASC 326. Under this transition method, the Company applied the transition provisions starting at the date of adoption. The CECL model primarily impacts the calculation of the Company's expected credit losses in gross customer trade accounts receivable. The adoption of ASC 326 and the application of CECL on our trade accounts receivable did not have a material impact on our Financial Statements.
New Accounting Pronouncements Issued But Not Yet Effective
The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s Financial Statements once adopted. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on the Company’s Financial Statements.
| | | | | | | | | | | |
New Accounting Standards Issued But Not Yet Effective | | | |
ASU Number and Name | Description | Date of Adoption | Effect on the Financial Statements upon adoption |
2020-04, Reference Rate Form (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference to LIBOR or another reference rate expected to be discontinued by reference rate reform. This standard is effective for a limited period of time (March 12, 2020 - December 21, 2022).
| March 12, 2020 - December 31, 2022
| The Company is currently evaluating the impact of adopting the standard on the Financial Statements.
|
2019-12, Income Taxes (Topic 740): Simplifying the Accounting For Income Taxes | The standard removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation and calculating income taxes in interim periods. It also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group.
Transition Method: various | January 1, 2021. Early adoption is permitted. | The Company is currently evaluating the impact of adopting the standard on the Financial Statements. |
2. REGULATORY MATTERS
TDSICIRP Filing and Replacement Generation
On February 5, 2021, AES Indiana announced an agreement to acquire a 195 MW solar project. Expected to be completed in 2023, the solar project will be located in Clinton County, Indiana and Invenergy will develop the project and manage construction. On February 12, 2021, AES Indiana filed a petition and case-in-chief with the IURC seeking a CPCN for this solar project.
On February 26, 2021, as a result of the plans to retire approximately 630 MW of coal-fired generation at Petersburg Units 1 and 2 in 2021 and 2023, respectively, AES Indiana filed a petition with the IURC for approvals and cost recovery associated with these retirements, including: (1) approval of AES Indiana's creation of regulatory assets for the net book value of Petersburg units 1 and 2 upon retirement; (2) amortization of the regulatory assets based upon the Company’s depreciation rates; and (3) recovery of the regulatory assets through inclusion in AES Indiana’s rate base and ongoing amortization in AES Indiana’s future rate cases.
Excess Distributed Generation Rates
On March 4, 2020,1, 2021, AES Indiana filed a petition with the IURC issued an order approvingfor approval of its proposed rate for the projects in a seven-year TDSIC Plan for eligible transmission, distributionprocurement of excess distributed generation ("EDG") and storage system improvements totaling $1.2 billion from 2020 through 2027. On June 18, 2020, IPL filed its first annual TDSICrelated consumer EDG credit issues. The EDG rate adjustment for a return onwill replace the current net metering program and of investments through March 31, 2020. An orderwill be offered beginning July 2022, when net metering is expected in October 2020.no longer available to new customers.
FAC and Authorized Annual Jurisdictional Net Operating IncomeElectric Vehicle Portfolio Program
As discussedOn March 2, 2021, AES Indiana filed with the IURC a request to approve its Electric Vehicle (EV) portfolio and associated accounting and ratemaking treatment. The EV portfolio aims to accelerate electric car adoption by reducing friction in Note 2, "Regulatory Matters" of IPALCO's 2019 Form 10-K,the car buying process, and by providing customers incentives to optimize electric car charging during off-peak periods. The EV portfolio is designed to produce net benefits for all customers through new retail margins and grid optimization. The projected costs to successfully implement the services proposed in each of the last three calendar years IPL has reported earnings in excess ofEV portfolio are estimated at $5.1 million over the authorized level for each of the four quarterly reporting periods in those years, however IPL was not required3 year period. AES Indiana requested approval 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 accruedefer as a regulatory liability of $5.4 million duringasset and recover in future base rates the quarter ended June 30, 2020. This is recorded within "Regulatory liabilities, current" oncost necessary to implement the accompanying Unaudited Condensed Consolidated Balance Sheets and as a reduction to revenue on the Unaudited Condensed Consolidated Statements of Operations.EV portfolio, including carrying charges.
IURC COVID-19 Order
In its June 29, 2020 order, the IURC denied a request from 10 utilities to recover lost revenues due to declining sales. It also extended the disconnection moratorium for IURC-jurisdictional utilities through August 14, 2020. 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). The IURC 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. IPL recorded a $4.6 million regulatory asset as of June 30, 2020 as a result of this order.
Phase Two of the IURC investigation is expected to focus on longer-term issues related to COVID-19. Among other things, the issues may include consideration of appropriate methodology to review the reasonableness, necessity, and prudency of any COVID-19-related cost recovery requests in future rate cases. For further discussion on the COVID-19 pandemic, see Note 12, "Risks and Uncertainties".
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 20192020 Form 10-K.
Financial Assets
VEBA Assets
IPLIPALCO has VEBA investments that are to be used to fund certain employee postretirement health care benefit plans. These assets are primarily comprised of open-ended mutual funds, which are valued using the net assets value per unit. These investments are recorded at fair value within "Other non-current assets" on the accompanying Unaudited Condensed Consolidated Balance Sheets and classified as equity securities. ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities” was effective as of January 1, 2018. This ASU requires the change in the fair value of equity instruments to be recorded in income. Equity Instruments were defined to include all mutual funds, regardless of the underlying investments. Therefore, allAll changes to fair value on the VEBA investments are included in income in the period that the changes occur. These changes to fair value were not material for the periods covered by this report. Any unrealized gains or losses are recorded in "Other income / (expense), net" on ourthe accompanying Unaudited Condensed Consolidated Statements of Operations.
FTRs
In connection with IPL’sAES Indiana’s participation in MISO, in the second quarter of each year IPLAES Indiana is granted financial instruments that can be converted into cash or FTRs based on IPL’sAES Indiana’s forecasted peak load for the period. FTRs are used in the MISO market to hedge IPL’sAES Indiana’s exposure to congestion charges, which result
from constraints on the transmission system. IPL’sAES Indiana’s FTRs are valued at the cleared auction prices for FTRs in MISO’s annual auction. Because of the infrequent nature of this valuation, the fair value assigned to the FTRs is considered a Level 3 input under the fair value hierarchy required by ASC 820. An offsetting regulatory liability has been recorded as these revenues or costs will be flowed through to customers through the FAC. As such, there is no impact on our Unaudited Condensed Consolidated Statements of Operations.
Financial Liabilities
Interest Rate Hedges
In March 2019, we entered into forward interest rate hedges, which were amended in April 2020. The interest rate hedges have a combined notional amount of $400.0 million. All changes in the market value of the interest rate hedges are recorded in AOCL. See also Note 4, "Derivative Instruments and Hedging Activities - Cash Flow Hedges" for further information.
Recurring Fair Value Measurements
The fair value of assets and liabilities at June 30, 2020March 31, 2021 and December 31, 20192020 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 | Assets and Liabilities at Fair Value | | Assets and Liabilities at Fair Value |
| | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 |
| | Fair value at June 30, 2020 | Based on quoted market prices in active markets | Other observable inputs | Unobservable inputs | | Fair value at March 31, 2021 | Based on quoted market prices in active markets | Other observable inputs | Unobservable inputs |
| | (In Thousands) | | | (In Thousands) |
Financial assets: | Financial assets: | | Financial assets: | |
VEBA investments: | VEBA investments: | | VEBA investments: | |
Money market funds | Money market funds | $ | 16 | | $ | 16 | | $ | — | | $ | — | | Money market funds | $ | 14 | | $ | 14 | | $ | 0 | | $ | 0 | |
Mutual funds | Mutual funds | 2,801 | | — | | 2,801 | | — | | Mutual funds | 3,335 | | 0 | | 3,335 | | 0 | |
Total VEBA investments | Total VEBA investments | 2,817 | | 16 | | 2,801 | | — | | Total VEBA investments | 3,349 | | 14 | | 3,335 | | 0 | |
Financial transmission rights | Financial transmission rights | 1,707 | | — | | — | | 1,707 | | Financial transmission rights | 139 | | 0 | | 0 | | 139 | |
Total financial assets measured at fair value | Total financial assets measured at fair value | $ | 4,524 | | $ | 16 | | $ | 2,801 | | $ | 1,707 | | Total financial assets measured at fair value | $ | 3,488 | | $ | 14 | | $ | 3,335 | | $ | 139 | |
Financial liabilities: | Financial liabilities: | | Financial liabilities: | |
Interest rate hedges | Interest rate hedges | $ | 80,809 | | $ | — | | $ | 80,809 | | $ | — | | Interest rate hedges | $ | 23,511 | | $ | 0 | | $ | 23,511 | | $ | 0 | |
| Total financial liabilities measured at fair value | Total financial liabilities measured at fair value | $ | 80,809 | | $ | — | | $ | 80,809 | | $ | — | | Total financial liabilities measured at fair value | $ | 23,511 | | $ | 0 | | $ | 23,511 | | $ | 0 | |
| | | | | | | | | | | | | | |
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 | | $ | — | | $ | — | |
Mutual funds | 2,854 | | — | | 2,854 | | — | |
Total VEBA investments | 2,879 | | 25 | | 2,854 | | — | |
Financial transmission rights | 864 | | — | | — | | 864 | |
Total financial assets measured at fair value | $ | 3,743 | | $ | 25 | | $ | 2,854 | | $ | 864 | |
Financial liabilities: | | | | |
Interest rate hedges | $ | 26,560 | | $ | — | | $ | 26,560 | | $ | — | |
Total financial liabilities measured at fair value | $ | 26,560 | | $ | — | | $ | 26,560 | | $ | — | |
| | | | | | | | | | | | | | |
Assets and Liabilities at Fair Value |
| | Level 1 | Level 2 | Level 3 |
| Fair value at December 31, 2020 | Based on quoted market prices in active markets | Other observable inputs | Unobservable inputs |
| (In Thousands) |
Financial assets: | | | | |
VEBA investments: | | | | |
Money market funds | $ | 16 | | $ | 16 | | $ | 0 | | $ | 0 | |
Mutual funds | 3,209 | | 0 | | 3,209 | | 0 | |
Total VEBA investments | 3,225 | | 16 | | 3,209 | | 0 | |
Financial transmission rights | 543 | | 0 | | 0 | | 543 | |
Total financial assets measured at fair value | $ | 3,768 | | $ | 16 | | $ | 3,209 | | $ | 543 | |
Financial liabilities: | | | | |
Interest rate hedges | $ | 63,215 | | $ | 0 | | $ | 63,215 | | $ | 0 | |
Total financial liabilities measured at fair value | $ | 63,215 | | $ | 0 | | $ | 63,215 | | $ | 0 | |
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:
| | | June 30, 2020 | | December 31, 2019 | | | March 31, 2021 | December 31, 2020 |
| | Face Value | Fair Value | Face Value | Fair Value | | Face Value | Fair Value | Face Value | Fair Value |
| | (In Thousands) | | | (In Thousands) |
Fixed-rate | Fixed-rate | $ | 2,593,800 | | $ | 3,159,770 | | $ | 2,523,800 | | $ | 2,876,140 | | Fixed-rate | $ | 2,683,800 | | $ | 3,057,958 | | $ | 2,683,800 | | $ | 3,295,588 | |
Variable-rate | Variable-rate | 120,000 | | 120,000 | | 155,000 | | 155,000 | | Variable-rate | 90,000 | | 90,000 | | 75,000 | | 75,000 | |
Total indebtedness | Total indebtedness | $ | 2,713,800 | | $ | 3,279,770 | | $ | 2,678,800 | | $ | 3,031,140 | | Total indebtedness | $ | 2,773,800 | | $ | 3,147,958 | | $ | 2,758,800 | | $ | 3,370,588 | |
The difference between the face value and the carrying value of this indebtedness consists of the following:
•unamortized deferred financing costs of $25.6$25.4 million and $20.7$26.0 million at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively; and
•unamortized discounts of $6.8$6.6 million and $6.5$6.6 million at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We use derivatives principallyFor further information on the Company’s derivative and hedge accounting policies, see Note 1, "Overview and Summary of Significant Accounting Policies - Financial Derivatives" and Note 5, "Derivative Instruments and Hedging Activities" to manage the interest rate risk associated with refinancing our long-term debt. The derivatives that we use to economically hedge these risks are governed by our risk management policies for forward and futures contracts. Our net positions are continually assessed within our structured hedging programs to determine whether new or offsetting transactions are required. We monitor and value derivative positions monthly as part of our risk management processes. We use published sources for pricing, when possible, to mark positions to market. All of our derivative instruments are used for risk management purposes and are designated as cash flow hedges if they qualify under ASC 815 for accounting purposes.IPALCO’s 2020 Form 10-K.
At June 30, 2020March 31, 2021, IPL's outstandingAES Indiana's outstanding derivative instruments were as follows:
| Commodity | Commodity | | Accounting Treatment (a) | | Unit | | Purchases (in thousands) | | Sales (in thousands) | | Net Purchases/(Sales) (in thousands) | Commodity | | Accounting Treatment (a) | | Unit | | Purchases (in thousands) | | Sales (in thousands) | | Net Purchases/(Sales) (in thousands) |
Interest rate hedges | Interest rate hedges | | Designated | | USD | | $ | 400,000 | | | $ | — | | | $ | 400,000 | | Interest rate hedges | | Designated | | USD | | $ | 400,000 | | | $ | 0 | | | $ | 400,000 | |
FTRs | FTRs | | Not Designated | | MWh | | 7,528 | | | — | | | 7,528 | | FTRs | | Not Designated | | MWh | | 1,046 | | | 0 | | | 1,046 | |
(a) Refers to whether the derivative instruments have been designated as a cash flow hedge.
Cash Flow Hedges
As part of our risk management processes, we identify the relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. The fair values of cash flow hedges determined by current public market prices will continue to fluctuate with changes in market prices up to contract expiration. With the adoption of ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted improvements to Accounting for Hedging Activities effective January 1, 2019, we are no longer required to calculate effectiveness and thus the entire change in the fair value of a hedging instrument is now recorded in other comprehensive income and amounts deferred are reclassified to earnings in the same income statement line as the hedged item in the period in which it settles.
In March 2019, we entered into three forward interest rate swaps to hedge the interest rate risk associated with refinancing the IPALCO 2020 maturities. The 3 interest rate swaps had a combined notional amount of $400.0 million. In April 2020, we de-designated the swaps as cash flow hedges and froze the AOCL of $72.3 million at the date of de-designation. The interest rate swaps were then amended and re-designated as cash flow hedges to hedge the interest rate risk associated with refinancing the 2024 IPALCO Notes. The amended interest rate swaps have a combined notional amount of $400.0 million and will be settled when the 2024 IPALCO Notes are refinanced. The $72.3 million of AOCL associated with the interest rate swaps through the date of the amendment will be amortized out of AOCL into interest expense over the remaining life of the 2030 IPALCO Notes, while any changes in fair value associated with the amended interest rate swaps will be recognized in AOCL going forward.
The following tables provide information on gains or losses recognized in AOCL for the cash flow hedges for the periods indicated:
| | | | | | | | | | | |
| | Interest Rate Hedges for the Three Months Ended June 30, | |
$ in thousands (net of tax) | | 2020 | 2019 |
Beginning accumulated derivative loss in AOCL | | $ | (56,063) | | $ | (5,539) | |
| | | |
Net losses associated with current period hedging transactions | | (4,026) | | (11,649) | |
Net losses reclassified to interest expense, net of tax | | 1,344 | | — | |
Ending accumulated derivative loss in AOCL | | $ | (58,745) | | $ | (17,188) | |
| | | |
| | | Interest Rate Hedges for the Six Months Ended June 30, | | | Interest Rate Hedges for the Three Months Ended March 31, |
$ in thousands (net of tax) | $ in thousands (net of tax) | | 2020 | 2019 | $ in thousands (net of tax) | | 2021 | 2020 |
Beginning accumulated derivative loss in AOCL | Beginning accumulated derivative loss in AOCL | | $ | (19,750) | | $ | — | | Beginning accumulated derivative loss in AOCL | | $ | (43,420) | | $ | (19,750) | |
| Net losses associated with current period hedging transactions | | (40,339) | | (17,188) | | |
Net losses reclassified to interest expense, net of tax | | 1,344 | | — | | |
Net gains / (losses) associated with current period hedging transactions | | Net gains / (losses) associated with current period hedging transactions | | 30,050 | | (36,313) | |
Net (gains) / losses reclassified to interest expense, net of tax | | Net (gains) / losses reclassified to interest expense, net of tax | | (456) | | 0 | |
Ending accumulated derivative loss in AOCL | Ending accumulated derivative loss in AOCL | | $ | (58,745) | | $ | (17,188) | | Ending accumulated derivative loss in AOCL | | $ | (13,826) | | $ | (56,063) | |
| Loss expected to be reclassified to earnings in the next twelve months | Loss expected to be reclassified to earnings in the next twelve months | | $ | (7.228) | | $ | — | | 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) | Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | | 51 | 13 | Maximum length of time that we are hedging our exposure to variability in future cash flows related to forecasted transactions (in months) | | 42 | |
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 June 30, 2020,March 31, 2021, 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 | Commodity | Hedging Designation | | Balance sheet classification | | June 30, 2020 | | December 31, 2019 | Commodity | Hedging Designation | | Balance sheet classification | | March 31, 2021 | | December 31, 2020 |
Financial transmission rights | Financial transmission rights | Not a Cash Flow Hedge | | Prepayments and other current assets | | $ | 1,707 | | | $ | 864 | | Financial transmission rights | Not a Cash Flow Hedge | | Prepayments and other current assets | | $ | 139 | | | $ | 543 | |
| Interest rate hedges | Interest rate hedges | Cash Flow Hedge | | Derivative liabilities, current | | $ | — | | | $ | 26,560 | | Interest rate hedges | Cash Flow Hedge | | Derivative liabilities, non-current | | $ | 23,511 | | | $ | 63,215 | |
Interest rate hedges | Cash Flow Hedge | | Derivative liabilities, non-current | | $ | 80,809 | | | $ | — | | |
5. DEBT
Long-Term Debt
The following table presents our long-term debt:
| | | | June 30, | December 31, | | | March 31, | December 31, |
Series | Series | Due | 2020 | 2019 | Series | Due | 2021 | 2020 |
| | | (In Thousands) | | | | (In Thousands) |
IPL first mortgage bonds: | | | |
AES Indiana first mortgage bonds: | | AES Indiana first mortgage bonds: | |
3.875% (1) | 3.875% (1) | August 2021 | $ | 55,000 | | $ | 55,000 | | 3.875% (1) | August 2021 | $ | 55,000 | | $ | 55,000 | |
3.875% (1) | 3.875% (1) | August 2021 | 40,000 | | 40,000 | | 3.875% (1) | August 2021 | 40,000 | | 40,000 | |
3.125% (1) | 3.125% (1) | December 2024 | 40,000 | | 40,000 | | 3.125% (1) | December 2024 | 40,000 | | 40,000 | |
6.60% | 6.60% | January 2034 | 100,000 | | 100,000 | | 6.60% | January 2034 | 100,000 | | 100,000 | |
6.05% | 6.05% | October 2036 | 158,800 | | 158,800 | | 6.05% | October 2036 | 158,800 | | 158,800 | |
6.60% | 6.60% | June 2037 | 165,000 | | 165,000 | | 6.60% | June 2037 | 165,000 | | 165,000 | |
4.875% | 4.875% | November 2041 | 140,000 | | 140,000 | | 4.875% | November 2041 | 140,000 | | 140,000 | |
4.65% | 4.65% | June 2043 | 170,000 | | 170,000 | | 4.65% | June 2043 | 170,000 | | 170,000 | |
4.50% | 4.50% | June 2044 | 130,000 | | 130,000 | | 4.50% | June 2044 | 130,000 | | 130,000 | |
4.70% | 4.70% | September 2045 | 260,000 | | 260,000 | | 4.70% | September 2045 | 260,000 | | 260,000 | |
4.05% | 4.05% | May 2046 | 350,000 | | 350,000 | | 4.05% | May 2046 | 350,000 | | 350,000 | |
4.875% | 4.875% | November 2048 | 105,000 | | 105,000 | | 4.875% | November 2048 | 105,000 | | 105,000 | |
0.75% (2) | | 0.75% (2) | April 2026 | 30,000 | | 30,000 | |
0.95% (2) | | 0.95% (2) | April 2026 | 60,000 | | 60,000 | |
Unamortized discount – net | Unamortized discount – net | | (6,078) | | (6,156) | | Unamortized discount – net | | (5,968) | | (6,006) | |
Deferred financing costs | Deferred financing costs | | (16,333) | | (16,629) | | Deferred financing costs | | (17,159) | | (17,384) | |
Total IPL first mortgage bonds | | 1,691,389 | | 1,691,015 | | |
IPL unsecured debt: | | | |
Variable - 1.063% (2) | December 2020 | 30,000 | | 30,000 | | |
Variable - 1.063% (2) | December 2020 | 60,000 | | 60,000 | | |
Deferred financing costs | | (57) | | (114) | | |
Total IPL unsecured debt | | 89,943 | | 89,886 | | |
Total Long-term Debt – IPL | | 1,781,332 | | 1,780,901 | | |
Total AES Indiana first mortgage bonds | | Total AES Indiana first mortgage bonds | 1,780,673 | | 1,780,410 | |
Total Long-term Debt – AES Indiana | | Total Long-term Debt – AES Indiana | 1,780,673 | | 1,780,410 | |
Long-term Debt – IPALCO: | Long-term Debt – IPALCO: | | | Long-term Debt – IPALCO: | |
Term Loan | July 2020 | — | | 65,000 | | |
3.45% Senior Secured Notes | July 2020 | — | | 405,000 | | |
3.70% Senior Secured Notes | 3.70% Senior Secured Notes | September 2024 | 405,000 | | 405,000 | | 3.70% Senior Secured Notes | September 2024 | 405,000 | | 405,000 | |
4.25% Senior Secured Notes | 4.25% Senior Secured Notes | May 2030 | 475,000 | | — | | 4.25% Senior Secured Notes | May 2030 | 475,000 | | 475,000 | |
Unamortized discount – net | Unamortized discount – net | | (672) | | (313) | | Unamortized discount – net | | (600) | | (625) | |
Deferred financing costs | Deferred financing costs | | (9,220) | | (3,959) | | Deferred financing costs | | (8,280) | | (8,600) | |
Total Long-term Debt – IPALCO | Total Long-term Debt – IPALCO | | 870,108 | | 870,728 | | Total Long-term Debt – IPALCO | 871,120 | | 870,775 | |
Total Consolidated IPALCO Long-term Debt | Total Consolidated IPALCO Long-term Debt | | 2,651,440 | | 2,651,629 | | Total Consolidated IPALCO Long-term Debt | 2,651,793 | | 2,651,185 | |
Less: Current Portion of Long-term Debt | Less: Current Portion of Long-term Debt | | 89,943 | | 559,199 | | Less: Current Portion of Long-term Debt | | 94,945 | | 94,907 | |
Net Consolidated IPALCO Long-term Debt | Net Consolidated IPALCO Long-term Debt | | $ | 2,561,497 | | $ | 2,092,430 | | Net Consolidated IPALCO Long-term Debt | | $ | 2,556,848 | | $ | 2,556,278 | |
|
(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 notesFirst mortgage bonds issued to the Indiana Finance Authority, by IPL to facilitatesecure the loan of proceeds from various tax-exempt notesbonds issued by the Indiana Finance Authority. The notes have a final maturity date of December 31, 2038, but are subject to a mandatory put in December 2020.April 2026.
IPLAES Indiana First Mortgage Bonds
IPLAES Indiana 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.
IPL Unsecured Notes
In December 2015, theAES Indiana Finance Authority issued on behalf of IPL an aggregate principal amount of $90 million of Environmental Facilities Refunding Revenue Notes due December 2038 (Indianapolis Power & Light Company Project). These unsecured notes were issued in two series: $30 million Series 2015A notes and $60 million 2015B notes. These notes were initially purchased by a syndication of banks who will hold the notes until the mandatory put date of December 22, 2020.
IPL has classified its outstanding $90 million aggregate principal amount of these unsecured notes as short-term indebtedness as they are due December 2020. Management plans to refinance these unsecured notes with new debt. In the event that we are unable to refinance these unsecured notes on acceptable terms, IPL has available borrowing capacity on its revolving credit facility that could be used to satisfy the obligation.
IPALCO’s Senior Secured Notes and Term Loan
In April 2020, IPALCO completed the sale of the $475 million aggregate principal amount of 4.25% 2030 IPALCO Notes pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 2030 IPALCO Notes were issued pursuant to an Indenture dated April 14, 2020, by and between IPALCO and U.S. Bank, National Association, as trustee. The 2030 IPALCO Notes were priced to the public at 99.909% of the principal amount. Net proceeds to IPALCO were approximately $468.6 million after deducting transaction costs and estimated offering expenses. We used the net proceeds from this offering to retire the $65 million Term Loan on April 14, 2020. The remaining net proceeds, together with cash on hand, were used to redeem the 2020 IPALCO Notes on May 14, 2020, and to pay certain related fees, expenses and make-whole premiums. A loss on early extinguishment of debt of $2.4 million for the 2020 IPALCO Notes is included as a separate line item within "Other Income/(Expense), Net" in the accompanying 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 ratably with IPALCO’s existing senior secured notes. IPALCO has also agreed to register the 2030 IPALCO Notes under the Securities Act by filing an exchange offer registration statement or, under specified circumstances, a shelf registration statement with the SEC pursuant to a Registration Rights Agreement dated April 14, 2020. IPALCO filed its registration statement on Form S-4 with respect to the 2030 IPALCO Notes with the SEC on March 22, 2021, and this registration statement was declared effective on April 7, 2021.
Line of Credit
As of June 30, 2020March 31, 2021 and December 31, 2019, IPL2020, AES Indiana had $30.0$90.0 million and $0.0$75.0 million in outstanding borrowings on the committed line of credit, respectively.
6. INCOME TAXES
Effective Tax Rate
IPALCO’s effective combined state and federal income tax rate was 21.3% and 21.3%20.6% for the three and six months ended June 30, 2020, respectively,March 31, 2021, as compared to 25.0% and 21.1%21.4% for the three and six months ended June 30, 2019, respectively.March 31, 2020. The decrease in the effective tax rate for the three months ended June 30, 2020 versus the comparable period was primarily due to the impact of the reversal of excess deferred income taxes as a percentage of pre-tax income. The rate for the three months ended March 31, 2021 is lower than the combined federal and state statutory rate of 25.01% primarily due to the flowthrough of the net tax benefit related to the reversal of excess deferred taxes of AES Indiana, which was partially offset by the net tax expense related to the amortization of allowance for equity funds used during construction.
7. BENEFIT PLANS
Pension Expense
The following table presents net periodic benefit (credit) / cost information relating to the Pension Plans combined:
| | | For the Three Months Ended | | For the Six Months Ended | | | | For the Three Months Ended |
| | June 30, | | June 30, | | | | March 31, |
| | 2020 | 2019 | 2020 | 2019 | | | 2021 | 2020 |
| | (In Thousands) | | (In Thousands) | | | | (In Thousands) |
Components of net periodic benefit cost: | | |
Components of net periodic benefit (credit) / cost: | | Components of net periodic benefit (credit) / cost: | | |
Service cost | Service cost | $ | 2,068 | | $ | 1,852 | | $ | 4,136 | | $ | 3,705 | | Service cost | | $ | 2,334 | | $ | 2,068 | |
Interest cost | Interest cost | 5,538 | | 6,836 | | 11,076 | | 13,672 | | Interest cost | | 3,915 | | 5,538 | |
Expected return on plan assets | Expected return on plan assets | (9,445) | | (7,477) | | (18,890) | | (14,954) | | Expected return on plan assets | | (10,454) | | (9,445) | |
Amortization of prior service cost | Amortization of prior service cost | 919 | | 957 | | 1,838 | | 1,913 | | Amortization of prior service cost | | 736 | | 919 | |
Amortization of actuarial loss | Amortization of actuarial loss | 2,028 | | 2,770 | | 4,057 | | 5,541 | | Amortization of actuarial loss | | 1,382 | | 2,029 | |
Net periodic benefit cost | $ | 1,108 | | $ | 4,938 | | $ | 2,217 | | $ | 9,877 | | |
Net periodic benefit (credit) / cost | | Net periodic benefit (credit) / cost | | $ | (2,087) | | $ | 1,109 | |
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In addition, IPLAES Indiana provides postretirement health care benefits to certain active or retired employees and the spouses of certain active or retired employees. These postretirement health care benefits and the related unfunded obligation of $6.6 million and $6.4$4.3 million at June 30, 2020March 31, 2021 and December 31, 2019, respectively,2020, were not material to the Financial Statements in the periods covered by this report.
8. COMMITMENTS AND CONTINGENCIES
Legal Loss Contingencies
IPALCO and IPLAES Indiana are involved in litigation arising in the normal course of business. We accrue for litigation and claims when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. As of March 31, 2021 and December 31, 2020, total legal loss contingencies accrued were $13.4 million and $13.4 million, respectively, which were included in "Other Non-Current Liabilities," on the accompanying Unaudited Condensed Consolidated Balance Sheets. A significant portion of these accrued liabilities relate to a personal injury legal claim involving injuries to a contractor. We maintain an amount of insurance protection for such litigation that we believe is adequate. While the resultsultimate outcome of such litigation cannot be predicted with certainty, management believes that the final outcomeoutcomes will not have a material adverse effect on 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 assuranceassure 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, IPLAES Indiana received a NOV and Finding of Violation from the EPA pursuant to the CAA Section 113(a). The NOV allegesalleged violations of the CAA at IPL’sAES Indiana’s 3 primarily coal-fired electric generating facilities at the time, dating back to 1986. The alleged violations primarily pertain to the PSD and nonattainmentnon-attainment New Source Review (NSR) requirements under the CAA. In addition, on October 1, 2015, IPLAES Indiana 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 IPLAES Indiana Petersburg Unit 3. Also, on February 5, 2016, the EPA issued a NOV pursuant to CAA Section 113(a) alleging violations of New Source ReviewPSD, non-attainment NSR and other CAA regulations, the Indiana SIP, and the Title V operating permit at Petersburg Generating Station. Since receiving the letters, IPL management has been workingOn August 31, 2020, AES Indiana reached a settlement with the EPA, staff regarding possible resolutionsthe DOJ and IDEM resolving the purported violations of the NOVs. SettlementsCAA with respect to AES Indiana's four coal-fired generation units currently operating at AES Indiana's Petersburg location. The settlement agreement, in the form of a proposed judicial consent decree, was approved and litigated outcomes
entered by the U.S. District Court for the Southern District of similar New Source Review cases have required companies to payIndiana on March 23, 2021, and includes, among other items, the following requirements: annual caps on NOx and SO2 emissions and more stringent emissions limits than AES Indiana's current Title V air permit; payment of civil penalties totaling $1.525 million (which payment was satisfied by AES Indiana in April 2021); 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 AES Indiana does not meet this retirement obligation, it must install additional pollution control technology 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 impactSelective Non-Catalytic Reduction System (SNCR) 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. IPL has recordedUnit 4. AES Indiana had a contingent liability recorded related to these New Source Review cases and other CAA NOV matters.
9. BUSINESS SEGMENT INFORMATION
Operating segments are components of an enterprise that engage in business activities from which it may earn revenues and incur expenses, for which separate financial information is available, and is evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources. Substantially all of our business consists of the generation, transmission, distribution and sale of electric energy conducted through IPL which is a vertically integrated electric utility. IPALCO’s reportable business segment is its utility segment, with all other nonutility business activities aggregated separately. The “All Other” nonutility category primarily includes the Term Loan, 2020 IPALCO Notes, 2024 IPALCO Notes and 2030 IPALCO Notes; approximately $4.1 millionNotes and $6.0 million of cash and cash equivalents as of June 30, 2020 and December 31, 2019, respectively; restricted cash of $19.4 million and $0.0 million as of June 30, 2020 and December 31, 2019, respectively; long-term investments of $2.8 million at June 30, 2020 and December 31, 2019, respectively; long-term liabilities forrelated interest expense, balance associated with IPALCO's interest rate hedges, of $80.8 millioncash and $26.6 million as of June 30, 2020 and December 31, 2019, respectively; and income taxes and interest related to those items. All other assets represented less than 1% of IPALCO’s total assets as of June 30, 2020 and December 31, 2019.immaterial balances. The accounting policies of the identified segment are consistent with those policies and procedures described in the summary of significant accounting policies.
The following table provides information about IPALCO’s business segments (in thousands):
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| | Three Months Ended | | | | | | Three Months Ended | | | | |
| | June 30, 2020 | | | | | | June 30, 2019 | | | | |
| | Utility | | All Other | | Total | | Utility | | All Other | | Total |
Revenues | | $ | 311,503 | | | $ | — | | | $ | 311,503 | | | $ | 340,869 | | | $ | — | | | $ | 340,869 | |
Depreciation and amortization | | $ | 61,099 | | | $ | — | | | $ | 61,099 | | | $ | 59,897 | | | $ | — | | | $ | 59,897 | |
Interest expense | | $ | 21,882 | | | $ | 12,053 | | | $ | 33,935 | | | $ | 22,252 | | | $ | 8,039 | | | $ | 30,291 | |
Earnings/(loss) from operations before income tax | | $ | 38,770 | | | $ | (14,482) | | | $ | 24,288 | | | $ | 28,044 | | | $ | (8,171) | | | $ | 19,873 | |
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| | Six Months Ended | | | | | | Six Months Ended | | | | |
| | June 30, 2020 | | | | | | June 30, 2019 | | | | |
| | Utility | | All Other | | Total | | Utility | | All Other | | Total |
Revenues | | $ | 668,885 | | | $ | — | | | $ | 668,885 | | | $ | 723,178 | | | $ | — | | | $ | 723,178 | |
Depreciation and amortization | | $ | 121,807 | | | $ | — | | | $ | 121,807 | | | $ | 119,566 | | | $ | — | | | $ | 119,566 | |
Interest expense | | $ | 43,802 | | | $ | 20,214 | | | $ | 64,016 | | | $ | 44,513 | | | $ | 16,260 | | | $ | 60,773 | |
Earnings/(loss) from operations before income tax | | $ | 93,737 | | | $ | (23,694) | | | $ | 70,043 | | | $ | 88,272 | | | $ | (16,410) | | | $ | 71,862 | |
Capital expenditures(1) | | $ | 92,848 | | | $ | — | | | $ | 92,848 | | | $ | 113,118 | | | $ | — | | | $ | 113,118 | |
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| | As of June 30, 2020 | | | | | | As of December 31, 2019 | | | | |
| | Utility | | All Other | | Total | | Utility | | All Other | | Total |
Total assets | | $ | 4,940,338 | | | $ | 13,019 | | | $ | 4,953,357 | | | $ | 4,918,408 | | | $ | 10,261 | | | $ | 4,928,669 | |
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(1) Capital expenditures includes payments for financed capital expenditures of $0.0 million and $5.5 million for the six months ended June 30, 2020 and June 30, 2019, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | Three Months Ended | | Three Months Ended |
| | March 31, 2021 | | March 31, 2020 |
| | Utility | | All Other | | Total | | Utility | | All Other | | Total |
Revenues | | $ | 362,201 | | | $ | 0 | | | $ | 362,201 | | | $ | 357,382 | | | $ | 0 | | | $ | 357,382 | |
Depreciation and amortization | | $ | 63,089 | | | $ | 0 | | | $ | 63,089 | | | $ | 60,708 | | | $ | 0 | | | $ | 60,708 | |
Interest expense | | $ | 21,521 | | | $ | 8,546 | | | $ | 30,067 | | | $ | 21,920 | | | $ | 8,161 | | | $ | 30,081 | |
Earnings/(loss) from operations before income tax | | $ | 57,295 | | | $ | (8,476) | | | $ | 48,819 | | | $ | 54,967 | | | $ | (9,212) | | | $ | 45,755 | |
Capital expenditures | | $ | 62,792 | | | $ | 0 | | | $ | 62,792 | | | $ | 54,490 | | | $ | 0 | | | $ | 54,490 | |
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| | As of March 31, 2021 | | As of December 31, 2020 |
| | Utility | | All Other | | Total | | Utility | | All Other | | Total |
Total assets | | $ | 4,966,065 | | | $ | 19,190 | | | $ | 4,985,255 | | | $ | 4,952,408 | | | $ | 17,511 | | | $ | 4,969,919 | |
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10. REVENUE
Revenue is primarily earned from retail and wholesale electricity sales and electricity transmission and distribution delivery services. Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recorded net of any taxes assessed on and collected from customers, which are remitted to the governmental authorities. Please see Note 13, “Revenue” to IPALCO’s 20192020 Form 10-K for further discussion of our retail, wholesale and miscellaneous revenues.
IPL’sAES Indiana’s revenue from contracts with customers was $302.4$353.6 million and $351.9 million for the three months ended June 30,March 31, 2021 and 2020, and $332.9 million for the three months ended June 30, 2019, respectively, and $654.3 million for the six months ended June 30, 2020 and $709.0 million for the six months ended June 30, 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 |
| | June 30, 2020 | June 30, 2019 | | March 31, 2021 | March 31, 2020 |
Retail Revenues | Retail Revenues | | Retail Revenues | |
Retail revenue from contracts with customers: | Retail revenue from contracts with customers: | | Retail revenue from contracts with customers: | |
Residential | Residential | $ | 127,752 | | $ | 124,654 | | Residential | $ | 160,503 | | $ | 155,408 | |
Small commercial and industrial | Small commercial and industrial | 43,402 | | 48,864 | | Small commercial and industrial | 54,517 | | 54,253 | |
Large commercial and industrial | Large commercial and industrial | 119,302 | | 140,258 | | Large commercial and industrial | 113,440 | | 122,038 | |
Public lighting | Public lighting | 2,309 | | 2,490 | | Public lighting | 2,186 | | 2,305 | |
Other (1) | Other (1) | 2,805 | | 3,725 | | Other (1) | 4,191 | | 3,888 | |
Total retail revenue from contracts with customers | Total retail revenue from contracts with customers | 295,570 | | 319,991 | | Total retail revenue from contracts with customers | 334,837 | | 337,892 | |
Alternative revenue programs | Alternative revenue programs | 8,789 | | 7,697 | | Alternative revenue programs | 7,595 | | 4,896 | |
Wholesale Revenues | Wholesale Revenues | | Wholesale Revenues | |
Wholesale revenue from contracts with customers: | 4,501 | | 10,006 | | |
Wholesale revenues from contracts with customers: | | Wholesale revenues from contracts with customers: | 16,109 | | 11,308 | |
Miscellaneous Revenues | Miscellaneous Revenues | | Miscellaneous Revenues | |
Transmission and other revenue from contracts with customers | Transmission and other revenue from contracts with customers | 2,329 | | 2,898 | | Transmission and other revenue from contracts with customers | 2,681 | | 2,732 | |
Other miscellaneous revenues (2) | Other miscellaneous revenues (2) | 314 | | 277 | | Other miscellaneous revenues (2) | 979 | | 554 | |
Total Revenues | Total Revenues | $ | 311,503 | | $ | 340,869 | | Total Revenues | $ | 362,201 | | $ | 357,382 | |
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(1)Other retail revenue from contracts with customers includes miscellaneous charges to customers
(2)Other miscellaneous revenue includes lease and other miscellaneous revenues not accounted for under ASC 606
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| For the Six Months Ended | For the Six Months Ended |
| June 30, 2020 | June 30, 2019 |
Retail Revenues | | |
Retail revenue from contracts with customers: | | |
Residential | $ | 283,161 | | $ | 295,194 | |
Small commercial and industrial | 97,655 | | 109,770 | |
Large commercial and industrial | 241,340 | | 272,532 | |
Public lighting | 4,614 | | 2,490 | |
Other (1) | 6,693 | | 6,508 | |
Total retail revenue from contracts with customers | 633,463 | | 686,494 | |
Alternative revenue programs | 13,684 | | 12,590 | |
Wholesale Revenues | | |
Wholesale revenue from contracts with customers: | 15,809 | | 17,107 | |
Miscellaneous Revenues | | |
Transmission and other revenue from contracts with customers | 5,061 | | 5,383 | |
Other miscellaneous revenues (2) | 868 | | 1,604 | |
Total Revenues | $ | 668,885 | | $ | 723,178 | |
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(1)Other retail revenue from contracts with customers includes miscellaneous charges to customers
(2)Other miscellaneous revenue includes lease and other miscellaneous revenues not accounted for under ASC 606
The balances of receivables from contracts with customers were $154.3$152.8 million and $155.0$163.8 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. Payment terms for all receivables from contracts with customers typically do not extend beyond 30 days, though see Note 2, days.
"Regulatory Matters - IURC COVID-19 Order"
for a discussion of the June 29, 2020 IURC order requiring expanded payment arrangements for customers.
Contract Balances — The timing of revenue recognition, billings, and cash collections results in accounts receivable and contract liabilities. The contract liabilities from contracts with customers were $1.1$0.2 million and $0.5 million as of June 30, 2020.March 31, 2021 and December 31, 2020, respectively. During the three and six months ended June 30,March 31, 2021 and 2020, we recognized revenue of $0.3 million and $0.7$0.4 million related to this contract liability balance, respectively.
11. LEASES
LESSEE
The Company enters into long-term non-cancelable lease arrangements which are classified as either operating or finance leases; however, lease balances were not material to the Financial Statements in the periods covered by this report.
LESSOR
The Company is the lessor under operating leases for land, office space and operating equipment. Minimum lease payments from such contracts are recognized as operating lease revenue on a straight-line basis over the lease term whereas contingent rentals are recognized when earned. Lease revenue included in the Unaudited Condensed Consolidated Statements of Operations was $0.2 million and $0.3 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and was $0.5 millionfor the six months ended June 30, 2020 and 2019, respectively. Underlying gross assets and accumulated depreciation of operating leases included in Total net property, plant and equipment on the Unaudited Condensed Consolidated Balance Sheet were $4.4$4.6 million and $0.7$1.0 million, respectively,respectively, as of June 30,March 31, 2021 and $4.3 million and $0.8 million, respectively, as of December 31, 2020.
The option to extend or terminate a lease is based on customary early termination provisions in the contract. The Company has not recognized any early terminations as of June 30, 2020.March 31, 2021.
The following table shows the future minimum lease receipts as of June 30, 2020March 31, 2021 for the remainder of 20202021 through 20242025 and thereafter (in thousands):
| | | Operating Leases | | Operating Leases |
2020 | $ | 443 | | |
2021 | 2021 | 886 | | 2021 | $ | 665 | |
2022 | 2022 | 906 | | 2022 | 903 | |
2023 | 2023 | 906 | | 2023 | 906 | |
2024 | 2024 | 786 | | 2024 | 786 | |
2025 | | 2025 | 553 | |
Thereafter | Thereafter | 2,628 | | Thereafter | 2,113 | |
Total | Total | $ | 6,555 | | Total | $ | 5,926 | |
12. RISKS AND UNCERTAINTIES
COVID-19 Pandemic
The COVID-19 pandemic has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the U.S., have reacted by instituting quarantines, mandating business and school closures and social distancing measures as well as restricting travel. TheResponses to the COVID-19 pandemic by the State of Indiana implemented, among other things, stay-at-homeand its residents and businesses, in particular, continue to evolve, including with respect to business and school closures and limitations and other social distancing measures and the effectiveness and timing of vaccine availability and distribution efforts. Social distancing measures designed to slow the spread of the virus, which has resulted in decreasedsuch as business closures and operations limitations, impact energy demand within our service territory, though these stay-at-home restrictions have now been lifted in our service territory. On March 19, 2020, the Governor of Indiana also issued an Executive Order prohibiting electric utilities, including us, from discontinuing electric utility service to customers, which the IURC extended through August 14, 2020. We are taking a variety of measures in response to the spread of COVID-19 to ensure our ability to generate, transmit, distribute and sell electric energy, ensure the health and safety of our employees, contractors, customers and communities and provide essential services to the communities in which we operate. In addition to reduced revenues and lower margins resulting from decreased energythe 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 includeincluding those that relate to events outside of our control.
For the three and six months ending June 30, 2020, the COVID-19 pandemic primarily impacted our retail sales demand, as the economic impact of the pandemic started to materialize in Indiana in the second half of March and more so in the second quarter of 2020. For small commercial and industrial and large commercial and industrial customers, weather-normalized volumes of kWh sold decreased by 10.3% and 11.0%, respectively, for the three months ended June 30, 2020 as compared to the same period in the prior year. For residential customers, weather-normalized volumes of kWh sold increased by 6.6% for the three months ended June 30, 2020 as compared to the same period in the prior year. We also have incurred and expect to continue to incur expenses relating to COVID-19, however see Note 2, "Regulatory Matters - IURC COVID-19 Order" for a discussion of regulatory measures which partially mitigate the impact of these expenses. The ultimate magnitude and duration of the COVID-19 pandemic is unknown at this time and may have material and adverse effects on our results of operations, financial condition and cash flows in future periods.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Financial Statements and the notes thereto included in “Item 1. Financial Statements” included in Part I – Financial Information of this Form 10-Q.
FORWARD-LOOKING INFORMATION
The following discussion may contain forward-looking statements regarding us, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those described in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in IPALCO’s 20192020 Form 10-K and subsequent filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that advise of the risks and uncertainties that may affect our business.
OVERVIEW OF OUR BUSINESS
IPALCO is a holding company incorporated under the laws of the state of Indiana. Our principal subsidiary is IPL,AES Indiana, a regulated electric utility operating in the state of Indiana. Substantially all of our business consists of the generation, transmission, distribution and sale of electric energy conducted through IPL.AES Indiana. Our business segments are “utility” and “all other.” For additional information regarding our business, see "Item 1. Business” of our 20192020 Form 10-K.
EXECUTIVE SUMMARY
Compared with the same periodperiods in the prior year, the results for the three months ended June 30, 2020March 31, 2021 reflect higher earnings from operations before income tax of $4.4$3.1 million, or 22.2%6.7%, respectively, primarily due to factors including, but not limited to:
•a net increase in margin due to higher volumes of retail kWh sold mostly due to favorable weather;
•a decrease in maintenance expenses; and
•lower pension costs.
These were partially offset by:
•a net decrease in the volume of retail kWh sold (mostly due to lower demand resulting from large and small commercial and industrial customers; partially offset by higher demand from residential customers);impacts of the COVID-19 pandemic and
•a reduction in revenues in 2021 due to an accrued regulatory liability for excess earnings under the FAC provisions.
Compared with the same period in the prior year, the results for the six months ended June 30, 2020 reflect lower earnings from operations before income tax of $1.8 million, or 2.5%, primarily due to factors including, but not limited to:
•a net decrease in the volume of retail kWh sold mostly due to milder weather and lower demand; and
•a reduction in revenues due to an accrued regulatory liability for excess earnings under FAC provisions.
These were partially offset by:
•a decrease in maintenance expenses; and
•lower pension costs.
RESULTS OF OPERATIONS
The electric utility business is affected by seasonal weather patterns throughout the year and, therefore, operating revenues and associated expenses are not generated evenly by month during the year.
Statements of Operations Highlights
| | | Three Months Ended | | | Six Months Ended | | | | Three Months Ended |
| | June 30, | | | June 30, | | | | March 31, |
| | 2020 | 2019 | | 2020 | 2019 | | | 2021 | 2020 | $ change | % change |
| REVENUES | REVENUES | $ | 311,503 | | $ | 340,869 | | | $ | 668,885 | | $ | 723,178 | | REVENUES | | $ | 362,201 | | $ | 357,382 | | $ | 4,819 | | 1.3 | % |
| OPERATING COSTS AND EXPENSES: | OPERATING COSTS AND EXPENSES: | | OPERATING COSTS AND EXPENSES: | | |
Fuel | Fuel | 43,351 | | 72,217 | | | 112,139 | | 161,016 | | Fuel | | 84,731 | | 68,788 | | 15,943 | | 23.2 | % |
Power purchased | Power purchased | 43,082 | | 36,719 | | | 78,549 | | 69,643 | | Power purchased | | 24,583 | | 35,467 | | (10,884) | | (30.7) | % |
Operation and maintenance | Operation and maintenance | 94,659 | | 113,661 | | | 200,248 | | 215,807 | | Operation and maintenance | | 103,949 | | 105,590 | | (1,641) | | (1.6) | % |
Depreciation and amortization | Depreciation and amortization | 61,099 | | 59,897 | | | 121,807 | | 119,566 | | Depreciation and amortization | | 63,089 | | 60,708 | | 2,381 | | 3.9 | % |
Taxes other than income taxes | Taxes other than income taxes | 11,606 | | 6,983 | | | 23,664 | | 20,966 | | Taxes other than income taxes | | 12,951 | | 12,057 | | 894 | | 7.4 | % |
| Total operating costs and expenses | Total operating costs and expenses | 253,797 | | 289,477 | | | 536,407 | | 586,998 | | Total operating costs and expenses | | 289,303 | | 282,610 | | 6,693 | | 2.4 | % |
| OPERATING INCOME | OPERATING INCOME | 57,706 | | 51,392 | | | 132,478 | | 136,180 | | OPERATING INCOME | | 72,898 | | 74,772 | | (1,874) | | (2.5) | % |
| OTHER INCOME / (EXPENSE), NET: | OTHER INCOME / (EXPENSE), NET: | | | | OTHER INCOME / (EXPENSE), NET: | | | |
Allowance for equity funds used during construction | Allowance for equity funds used during construction | 1,160 | | 817 | | | 2,017 | | 1,728 | | Allowance for equity funds used during construction | | 1,374 | | 857 | | 517 | | 60.3 | % |
Interest expense | Interest expense | (33,935) | | (30,291) | | | (64,016) | | (60,773) | | Interest expense | | (30,067) | | (30,081) | | 14 | | — | % |
Loss on early extinguishment of debt | (2,415) | | — | | | (2,415) | | — | | |
| Other income / (expense), net | Other income / (expense), net | 1,772 | | (2,045) | | | 1,979 | | (5,273) | | Other income / (expense), net | | 4,614 | | 207 | | 4,407 | | 2129.0 | % |
Total other income / (expense), net | Total other income / (expense), net | (33,418) | | (31,519) | | | (62,435) | | (64,318) | | Total other income / (expense), net | | (24,079) | | (29,017) | | 4,938 | | (17.0) | % |
| EARNINGS FROM OPERATIONS BEFORE INCOME TAX | EARNINGS FROM OPERATIONS BEFORE INCOME TAX | 24,288 | | 19,873 | | | 70,043 | | 71,862 | | EARNINGS FROM OPERATIONS BEFORE INCOME TAX | | 48,819 | | 45,755 | | 3,064 | | 6.7 | % |
| Less: Income tax expense | Less: Income tax expense | 5,165 | | 4,960 | | | 14,937 | | 15,164 | | Less: Income tax expense | | 10,035 | | 9,772 | | 263 | | 2.7 | % |
NET INCOME | NET INCOME | 19,123 | | 14,913 | | | 55,106 | | 56,698 | | NET INCOME | | 38,784 | | 35,983 | | 2,801 | | 7.8 | % |
| Less: Dividends on preferred stock | Less: Dividends on preferred stock | 804 | | 804 | | | 1,607 | | 1,607 | | Less: Dividends on preferred stock | | 803 | | 803 | | — | | — | % |
NET INCOME APPLICABLE TO COMMON STOCK | NET INCOME APPLICABLE TO COMMON STOCK | $ | 18,319 | | $ | 14,109 | | | $ | 53,499 | | $ | 55,091 | | NET INCOME APPLICABLE TO COMMON STOCK | | $ | 37,981 | | $ | 35,180 | | $ | 2,801 | | 8.0 | % |
|
Comparison of three months ended June 30, 2020March 31, 2021 and three months ended June 30, 2019March 31, 2020
Revenues
Revenues during the three months ended June 30, 2020 decreased $29.4March 31, 2021 increased $4.8 million compared to the same period in 2019,2020, which resulted from the following changes (dollars in thousands):
| | | Three Months Ended | | | | | Three Months Ended | | |
| | June 30, | | | | Percentage | | March 31, | | | Percentage |
| | 2020 | 2019 | | Change | | 2021 | 2020 | | Change |
Revenues: | Revenues: | | | | Revenues: | | | |
Retail revenues | Retail revenues | 304,359 | | 327,688 | | | $ | (23,329) | | (7.1)% | Retail revenues | $ | 342,432 | | $ | 342,788 | | | $ | (356) | | (0.1)% |
Wholesale revenues | Wholesale revenues | 4,501 | | 10,006 | | | (5,505) | | (55.0)% | Wholesale revenues | 16,109 | | 11,308 | | | 4,801 | | 42.5% |
Miscellaneous revenues | Miscellaneous revenues | 2,643 | | 3,175 | | | (532) | | (16.8)% | Miscellaneous revenues | 3,660 | | 3,286 | | | 374 | | 11.4% |
Total revenues | Total revenues | $ | 311,503 | | $ | 340,869 | | | $ | (29,366) | | (8.6)% | Total revenues | $ | 362,201 | | $ | 357,382 | | | $ | 4,819 | | 1.3% |
| Heating degree days: | Heating degree days: | | Heating degree days: | |
Actual | Actual | 640 | | 457 | | | 183 | | 40.0% | Actual | 2,704 | | 2,434 | | | 270 | | 11.1% |
30-year average | 30-year average | 531 | | 527 | | | | 30-year average | 2,749 | | 2,780 | | | |
| Cooling degree days: | | |
Actual | 342 | | 312 | | | 30 | | 9.6% | |
30-year average | 310 | | 309 | | | | |
|
The following table presents additional data on kWh sold:
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2021 | | 2020 | kWh Change | % Change |
kWh Sales (In Millions): | | | | | | |
Residential | | 1,529 | | | 1,422 | | 107 | | 7.5 | % |
Small commercial and industrial | | 483 | | | 476 | | 7 | | 1.5 | % |
Large commercial and industrial | | 1,389 | | | 1,437 | | (48) | | (3.3) | % |
Public lighting | | 6 | | | 10 | | (4) | | (40.0) | % |
Sales – retail customers | | 3,407 | | | 3,345 | | 62 | | 1.9 | % |
Wholesale | | 647 | | | 485 | | 162 | | 33.4 | % |
Total kWh sold | | 4,054 | | | 3,830 | | 224 | | 5.8 | % |
| | | | | | |
The following graph shows the percentage changes in weather-normalized and actual retail electric sales volumes by customer class for the three months ended March 31, 2021 as compared to the same period in the prior year:
Retail Revenues
The decrease in retail revenues of $23.3$0.4 million was primarily due to the following (in millions):
| | | | | |
Volume: | |
Net decreaseincrease in the volume of kWh sold, primarily due to lower demand resulting from impacts of COVID-19, partially offset by favorable weather in our service territory versus the comparable period, partially offset by lower weather normalized demand primarily due to the impacts of the COVID-19 pandemic | $ | (7.1)7.6 | |
Price: | |
Net decrease in the weighted average price of retail kWh sold, primarily due to lower fuel revenues, including a $5.4$3.6 million reduction due to excess earnings under FAC provisions, (see Note 2, "and unfavorable block rateRegulatory Matters - FAC(1) and Authorized Annual Jurisdictional Net Operating Income" to the Financial Statements for more information)other retail rate variances | (16.4)(11.0) | |
| |
Other | 0.23.0 | |
| |
Net decrease in retail revenues | $ | (23.3)(0.4) | |
(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 lower per kWh rate at higher consumption levels. Therefore, as volumes increase, the weighted average price per kWh decreases and vice versa.
Wholesale Revenues
The decreaseincrease in wholesale revenues of $5.5$4.8 million was primarily due to (i) a $5.2$3.8 million volume decrease primarily due to decreased unit availability versus the comparable period mostly due to IPL's generation units running less frequently during the second quarter of 2020 due to lower natural gas prices driving lower market prices of purchased powerincrease and decreased demand and (ii) a $0.3$1.0 million decreaseincrease in the weighted average price per kWh sold. We sold 189.3646.8 million kWh in the wholesale market during the second quarterfirst three months of 20202021 compared to 397.1485.0 million kWh during the second quarterfirst three months of 2019.2020. 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.
Operating Costs and Expenses
The following table illustrates our changes in Operating costs and expenses during the three months ended June 30, 2020March 31, 2021 compared to the same period in 20192020 (in thousands):
| | | Three Months Ended | | | | Three Months Ended | |
| | June 30, | | | | March 31, | |
| | 2020 | 2019 | $ Change | % Change | | 2021 | 2020 | $ Change | % Change |
Operating costs and expenses: | Operating costs and expenses: | | Operating costs and expenses: | |
Fuel | Fuel | $ | 43,351 | | $ | 72,217 | | $ | (28,866) | | (40.0) | % | Fuel | $ | 84,731 | | $ | 68,788 | | $ | 15,943 | | 23.2 | % |
Power purchased | Power purchased | 43,082 | | 36,719 | | 6,363 | | 17.3 | % | Power purchased | 24,583 | | 35,467 | | (10,884) | | (30.7) | % |
Operation and maintenance | Operation and maintenance | 94,659 | | 113,661 | | (19,002) | | (16.7) | % | Operation and maintenance | 103,949 | | 105,590 | | (1,641) | | (1.6) | % |
Depreciation and amortization | Depreciation and amortization | 61,099 | | 59,897 | | 1,202 | | 2.0 | % | Depreciation and amortization | 63,089 | | 60,708 | | 2,381 | | 3.9 | % |
Taxes other than income taxes | Taxes other than income taxes | 11,606 | | 6,983 | | 4,623 | | 66.2 | % | Taxes other than income taxes | 12,951 | | 12,057 | | 894 | | 7.4 | % |
| Total operating costs and expenses | Total operating costs and expenses | $ | 253,797 | | $ | 289,477 | | $ | (35,680) | | (12.3) | % | Total operating costs and expenses | $ | 289,303 | | $ | 282,610 | | $ | 6,693 | | 2.4 | % |
Fuel
The decreaseincrease in fuel costs of $28.9$15.9 million was primarily due to (i) a $17.3the following:
•an $18.1 million decrease in the quantity of fuel consumed versus the comparable period, (ii) a $12.3 million decreaseincrease due to the lowerhigher price of natural gas consumed versus the comparable period driven by decreasedincreased market prices,prices;
•a $14.3 million increase in the quantity of fuel consumed versus the comparable period;
•a $14.5 million decrease from deferred fuel costs; and (iii)
•a $1.8$1.7 million decrease due to the lower price of coal consumed versus the comparable period, partially offset by (iv) a $3.0 million increase from deferred fuel costs. 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.
Power Purchased
The increasedecrease in purchased power costs of $6.4$10.9 million was primarily due to (i) the following:
•a 85% increase$19.2 million decrease due to a 65% decrease in the volume of power purchased during the period ($25.2 million),period; partially offset by (ii) a $19.0
•an $8.7 million decreaseincrease 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 $25.2$19.2 million volume increasedecrease was due to IPL'sAES Indiana's generation units running lessmore frequently during 2021, as well as the second quartertiming and duration of 2020 due to lower market prices of purchased power.outages during these respective periods. The market price of purchased power is influenced primarily by changes in the market price of delivered fuel (primarily natural gas), the supply of and demand for electricity, and the time of day during which power is purchased.
Operation and Maintenance
The decrease in Operation and maintenance of $19.0$1.6 million was mostly attributedprimarily due to (i) the following:
•decreased maintenance expenses of $11.2$4.5 million primarily due to decreased outage costs, (ii) lower healthpartially offset by
•higher insurance costsexpense of $1.7$1.1 million.
Depreciation and Amortization
The increase in Depreciation and amortization expense of $2.4 million (iii) lower steam power expenseswas mostly attributed to the impact of $1.2 million (mostly due to IPL's generation units running less frequentlyadditional assets placed in the second quarter of 2020), (iv) lower meter reading and bill collection expenses of $1.0 million, and (v) lower transmission related charges of $0.8 million.service.
Taxes Other Than Income Taxes
The increase in Taxes other than income taxes of $4.6$0.9 million was mostly attributed to higher property taxes of $1.4$1.0 million primarily as a result of higher assessed values.
Other Income / (Expense), Net
The following table illustrates our changes in Other income / (expense), net during the three months ended June 30, 2020March 31, 2021 compared to the same period in 20192020 (in thousands):
| | | | | | | | | | | | | | |
| Three Months Ended | | | |
| June 30, | | | |
| 2020 | 2019 | $ Change | % Change |
Other income/(expense), net | | | | |
Allowance for equity funds used during construction | $ | 1,160 | | $ | 817 | | $ | 343 | | 42.0 | % |
Interest expense | (33,935) | | (30,291) | | (3,644) | | 12.0 | % |
Loss on early extinguishment of debt | (2,415) | | — | | (2,415) | | 100.0 | % |
Other income / (expense), net | 1,772 | | (2,045) | | 3,817 | | (186.7) | % |
Total other income/(expense), net | $ | (33,418) | | $ | (31,519) | | $ | (1,899) | | 6.0 | % |
Interest Expense
The increase in Interest expense of $3.6 million was primarily due to (i) amortization of unrealized losses on interest rate hedges of $1.8 million beginning in April 2020 and (ii) higher interest expense on long-term debt of $1.9 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. | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2021 | 2020 | $ Change | % Change |
Other income/(expense), net | | | | |
Allowance for equity funds used during construction | $ | 1,374 | | $ | 857 | | $ | 517 | | 60.3 | % |
Interest expense | (30,067) | | (30,081) | | 14 | | — | % |
| | | | |
Other income / (expense), net | 4,614 | | 207 | | 4,407 | | 2,129.0 | % |
Total other income/(expense), net | $ | (24,079) | | $ | (29,017) | | $ | 4,938 | | (17.0) | % |
Other Income/(Expense), Net
The increase in Other income/(expense), net of $3.8$4.4 million was primarily due to a decrease in defined benefit plan costs of $4.0$3.7 million due to a higher expected return on plan assets and lower interest cost compared to the prior year due to higher plan asset balances from 2019 market performance and changes to investment mix.
year.
Comparison of six months ended June 30, 2020 and six months ended June 30, 2019
Revenues
Revenues during the six months ended June 30, 2020 decreased $54.3 million compared to the same period in 2019, which resulted from the following changes (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Six Months Ended | | | | |
| June 30, | | | | Percentage |
| 2020 | 2019 | | Change | Change |
Revenues: | | | | | |
Retail revenues | $ | 647,147 | | $ | 699,084 | | | $ | (51,937) | | (7.4)% |
Wholesale revenues | 15,809 | | 17,107 | | | (1,298) | | (7.6)% |
Miscellaneous revenues | 5,929 | | 6,987 | | | (1,058) | | (15.1)% |
Total revenues | $ | 668,885 | | $ | 723,178 | | | $ | (54,293) | | (7.5)% |
| | | | | |
Heating degree days: | | | | | |
Actual | 3,074 | | 3,306 | | | (232) | | (7.0)% |
30-year average | 3,290 | | 3,297 | | | | |
| | | | | |
Cooling degree days: | | | | | |
Actual | 342 | | 312 | | | 30 | | 9.6% |
30-year average | 310 | | 309 | | | | |
Retail Revenues
The decrease in retail revenues of $51.9 million was primarily due to the following (in millions):
| | | | | |
Volume: | |
Net decrease in the volume of kWh sold, primarily due to milder weather in our service territory and lower demand resulting from impacts of COVID-19 | $ | (33.2) | |
Price: | |
Net decrease in the weighted average price of retail kWh sold, primarily due to lower fuel revenues, including a $5.4 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
| (20.0) | |
| |
Other | 1.3 | |
| |
Net decrease in retail revenues | $ | (51.9) | |
(1)Block rate variances are primarily attributable to our declining block rate structure, which generally provides for residential and commercial customers to be charged a higher per kWh rate at lower consumption levels. Therefore, as volumes decrease, the weighted average price per kWh increases and vice versa.
Wholesale Revenues
The decrease in wholesale revenues of $1.3 million was primarily due to a $1.5 million decrease in the weighted average price per kWh sold; partially offset by a $0.2 million volume increase. We sold 674.2 million kWh in the wholesale market during the first half of 2020 compared to 665.4 million kWh during the first half of 2019. Our ability to be dispatched in the MISO market is primarily driven by the locational marginal price of electricity and variable generation costs. The amount of electricity available for wholesale sales is impacted by our retail load requirements, generation capacity and unit availability.
Operating Costs and Expenses
The following table illustrates our changes in Operating costs and expenses during the six months ended June 30, 2020 compared to the same period in 2019 (in thousands):
| | | | | | | | | | | | | | |
| Six Months Ended | | | |
| June 30, | | | |
| 2020 | 2019 | $ Change | % Change |
Operating costs and expenses: | | | | |
Fuel | $ | 112,139 | | $ | 161,016 | | $ | (48,877) | | (30.4) | % |
Power purchased | 78,549 | | 69,643 | | 8,906 | | 12.8 | % |
Operation and maintenance | 200,248 | | 215,807 | | (15,559) | | (7.2) | % |
Depreciation and amortization | 121,807 | | 119,566 | | 2,241 | | 1.9 | % |
Taxes other than income taxes | 23,664 | | 20,966 | | 2,698 | | 12.9 | % |
| | | | |
Total operating costs and expenses | $ | 536,407 | | $ | 586,998 | | $ | (50,591) | | (8.6) | % |
Fuel
The decrease in fuel costs of $48.9 million was primarily due to (i) a $30.1 million decrease due to the lower price of natural gas consumed versus the comparable period driven by decreased market prices, (ii) a $16.3 million decrease in the quantity of fuel consumed versus the comparable period, and (ii) a $7.0 million decrease due to the lower price of coal consumed versus the comparable period, partially offset by (iv) a $4.5 million increase from deferred fuel costs. We are generally permitted to recover underestimated fuel and purchased power costs to serve our retail customers in future rates through quarterly FAC proceedings. These variances are deferred when incurred and amortized into expense in the same period that our rates are adjusted to reflect these variances. For further discussion, please see Note 2, "Regulatory Matters - FAC and Authorized Annual Jurisdictional Net Operating Income” to the Financial Statements of this Form 10-Q. Additionally, fuel and purchased power costs incurred for wholesale energy sales are considered in the Off System Sales Margin rider.
Power Purchased
The increase in purchased power costs of $8.9 million was primarily due to (i) a 66% increase in the volume of power purchased during the period ($38.1 million), partially offset by (ii) a $28.6 million decrease in the market price of purchased power. The volume of power purchased each period is primarily influenced by retail demand, generating unit capacity and outages, and the relative cost of producing power versus purchasing power in the market. The primary driver for the $38.1 million volume increase was due to IPL's generation units running less frequently during the second quarter of 2020 due to lower market prices of 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 decrease in Operation and maintenance of $15.6 million was mostly attributed to (i) decreased maintenance expenses of $8.3 million primarily due to decreased outage costs, (ii) lower steam power expenses of $2.7 million, (iii) lower meter reading and bill collection costs of $1.2 million, and (iv) lower transmission related charges of $0.6 million.
Other Income / (Expense), Net
The following table illustrates our changes in Other income / (expense), net during the six months ended June 30, 2020 compared to the same period in 2019 (in thousands):
| | | | | | | | | | | | | | |
| Six Months Ended | | | |
| June 30, | | | |
| 2020 | 2019 | $ Change | % Change |
Other income/(expense), net | | | | |
Allowance for equity funds used during construction | $ | 2,017 | | $ | 1,728 | | $ | 289 | | 16.7 | % |
Interest expense | (64,016) | | (60,773) | | (3,243) | | 5.3 | % |
Loss on early extinguishment of debt | (2,415) | | — | | (2,415) | | 100.0 | % |
Other income / (expense), net | 1,979 | | (5,273) | | 7,252 | | (137.5) | % |
Total other income/(expense), net | $ | (62,435) | | $ | (64,318) | | $ | 1,883 | | (2.9) | % |
Interest Expense
The increase in Interest expense of $3.2 million was primarily due to (i) amortization of unrealized losses on interest rate hedges of $1.8 million beginning in April 2020 and (ii) higher interest expense on long-term debt of $1.5 million due to higher rates and a higher average debt balance.
Loss on Early Extinguishment of Debt
The increase in Loss on Early Extinguishment of Debt of $2.4 million was primarily due to a make-whole premium and write-off of deferred financing costs due to the redemption of $405 million of 2020 IPALCO Notes and $65 million IPALCO Term Loan in the second quarter of 2020.
Other Income/(Expense), Net
The increase in Other income/(expense), net of $7.3 million was primarily due to a decrease in defined benefit plan costs of $8.0 million due to a higher expected return on plan assets compared to prior year due to higher plan asset balances from 2019 market performance and changes to investment mix.
KEY TRENDS AND UNCERTAINTIES
During the remainder of 20202021 and beyond, we expect that our financial results will be driven primarily by retail demand, weather and maintenance costs. In addition, our financial results will likely be driven by many other factors including, but not limited to:
•regulatory outcomes and impacts;
•the passage of new legislation, implementation of regulations or other changes in regulation; and
•timely recovery of capital expenditures.
If favorable outcomes related to these factors do not occur, or if the challenges described below and elsewhere in this Quarterly Report impact us more significantly than we currently anticipate, then these adverse factors, or other adverse factors unknown to us, may impact our operating margin, net income and cash flows. We continue to monitor our operations and address challenges as they arise. For a discussion of the risks related to our business, see “Item 1. Business” and “Item 1A. Risk Factors” as described in IPALCO’s 20192020 Form 10-K and "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q.10-K.
COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China.The COVID-19 has since spread to over 180 countries, including every state in the U.S. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic and on March 13, 2020 the U.S. declared a national emergency with respect to COVID-19. On March 19, 2020, the Governor of Indiana issued an Executive Order prohibiting electric utilities, including us, from discontinuing electric utility service to customers, which has been extended through August 14, 2020.
The outbreak of COVID-19 has severely impacted global economic activity, including electricity and energy consumption, and caused significant volatility and negative pressure in financial marketsmarkets. Responses to the COVID-19 pandemic by the State of Indiana and reduced the demand for energyits residents and businesses, in our service territory. The global impact of the outbreak has been rapidly evolving and many countries,particular, continue to evolve, including the U.S., have reacted by instituting quarantines, mandatingwith respect to business and school closures and restricting travel.limitations and other social distancing measures and the effectiveness and timing of vaccine availability and distribution efforts.
Social distancing measures designed to slow the spread of the virus, such as business closures and operations limitations, impact energy demand within our service industry. In addition to reduced revenues and lower margins resulting from decreased energythe impacts to demand within our service territory, we also have incurred and expect to continue to incur expenses relating to COVID-19, and such expenses may include those that relate to events outside of our control. We experienced impacts from the pandemic in 2020 and into 2021 and expect to continue to experience impacts for the remainder of 2020,2021, and any such impacts during that time or in other future periods could have material and adverse effects on our results of operations, financial condition and cash flows. The following discussion highlights our assessment of the impacts of the COVID-19 pandemic on our current financial and operating status, and our financial and operational outlook based on information known as of this filing. Also see "Part II, Item 1A -1A. Risk Factors" of thisto IPALCO’s 2020 Form 10-Q.10-K.
Business Continuity - AsDuring the COVID-19 pandemic, progresses, we are taking a variety of measures to ensure our ability to generate, transmit, distribute and sell electric energy, to ensure the health and safety of our employees, contractors, customers and communities and to provide essential services to the communities in which we operate. We continue to respond to this global crisis through comprehensive measures to protect our employees and others while fulfilling our vital role in providing our customers with electric energy. While there have been stay-at-home restrictions in place in Indiana, our operations are considered essential and have not been significantly disrupted. Stay-at-home restrictions have been lifted in our service territory, and non-essential employees are beginning to return to work at our locations in stages. Mostmost 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 - TheAs the economic impact of the COVID-19 pandemic started to materialize in Indiana in the second half of March 2020 and more so incontinued for the second quarterduration of 2020. For the three2020 and six months ending June 30, 2020,into 2021, the COVID-19 pandemic primarily impacted our retail sales demand. For small commercial and industrial and large commercial and industrial customers,demand, including for the quarter ended March 31, 2021, as shown by the changes in weather-normalized volumes of kWh sold decreased by 10.3%customer class as follows:
| | | | | | |
Customer Class | | For the three months ended March 31, 2021 compared to the same period in 2020 |
Residential | | (0.9) | % |
Small commercial and industrial | | (1.8) | % |
Large commercial and industrial | | (4.1) | % |
| | |
As noted above, we also have incurred and 11.0%, respectively, for the three months ended June 30,expect to continue to incur expenses relating to COVID-19, however see Note 2, “Regulatory Matters - IURC COVID-19 Orders” to IPALCO’s 2020 as compared to the same period in the prior year. For residential customers, weather-normalized volumes of kWh sold increased by 6.6% for the three months ended June 30, 2020 as compared to the same period in the prior year. See Note 10, "Revenue" to the Financial StatementsForm 10-K for a disaggregationdiscussion of retail revenues by customer class.regulatory measures which partially mitigate the impact of these expenses. We have continued to experience COVID-19 impacts into 2021. The declines for smallultimate magnitude and large commercial and industrialduration of the COVID-19 pandemic is unknown at this
customers were more severe in Apriltime and May,may have material and partially recovered in June as stay-at-home orders were lifted, while the increase for residential stayed consistent. While we cannot predict the lengthadverse effects on our results of operations, financial condition and magnitude of the pandemic or how it could ultimately impact global or local economic conditions, continuous and/or further declinescash flows in future demand would adversely impact our financial results for 2020 and beyond.periods.
Liquidity - We anticipate havingcontinuing to have sufficient liquidity to make all required payments, including payments for salaries and wages owed to our employees, during the COVID-19 pandemic. We doalso continue to not foresee a significant impact to our access to capital or our liquidity position as a result of the COVID-19 pandemic. During the three months ended June 30, 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 monthsyear ended June 30,December 31, 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 (prohibition ended August 14, 2020), and due to the economic impacts of the COVID-19 pandemic. This has resultedpandemic, which began to improve in an increase in past due customer receivable balances,2021. See Note 1, "Overview and Summary of Significant Accounting Policies - Accounts Receivable" for further discussion of our allowance for credit losses has increased $3.0 million during the second quarter of 2020. We expect significant economic disruptionslosses. If these credit-related impacts from the COVID-19 pandemic potentially for the remainder of 2020 and beyond. If these disruptions occur,continue into 2021 or beyond, further deterioration in our credit exposures and customer collections couldmay result. See Note 2, "“Regulatory Matters"Matters - IURC COVID-19 Orders” to IPALCO’s 2020 Form 10-K 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, primarilywe have deferred the deferralpayment of federal payroll taxes may provide some cash benefits in accordance with the near term.
Income Taxes - The demands placed onprovisions of this act. At March 31, 2021, the U.S. Government to respond to the pandemic may cause delays to the expected issuance of regulations pursuant to the Tax Cuts and Jobs Act (“TCJA”) enacted in 2017. Our interpretation of the TCJA may change as the U.S. Treasury and the Internal Revenue Service issue additional guidance. Such changes may be material.total deferral was approximately $5.0 million.
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'sAES Indiana's December 2019 Integrated Resource Plan filing, it was determined thatAES Indiana has plans to retire 630 MW of coal-fired generation would be retired at Petersburg Units 1 and 2. IPLAES Indiana issued an all-source request for proposal to competitively procure replacement capacity by June 1, 2023, which is the first year IPLAES Indiana is expected to have a capacity shortfall. Proposals were received through February 28, 2020 and are currently being evaluated. On February 5, 2021, AES Indiana announced an agreement to acquire a 195 MW solar project, subject to approval from the IURC. For further discussion, see Note 2, "Regulatory Matters - IRP Filing" in IPALCO’s 20192020 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 20192020 Form 10-K for a discussion of regulatory matters. We also are subject to numerous environmental laws and regulations in the jurisdictions in which we operate. We face certain risks and uncertainties related to these environmental laws and regulations, including existing and potential GHG legislation or regulations, and actual or potential laws and regulations pertaining to water discharges, waste management (including disposal or beneficial reuse of CCR) and certain air emissions, such as SO2, NOx, particulate matter and mercury. Such risks and uncertainties could result in increased capital expenditures or other compliance costs which could have a material adverse effect on our consolidated results of operations. Please see Note 8, “Commitments and
Contingencies” to the Financial Statements of this Form 10-Q for a description of certain environmental matters. In addition, the following discussion of the impact of environmental laws and regulations on the Company updates the discussion provided in “Item 1. Business - Regulatory Matters” and “Item 1. Business - Environmental Matters” in IPALCO’s 20192020 Form 10-K.
TDSIC
On March 4, 2020, the IURC issued an order approving the projects in IPL's TDSIC Plan. For further discussion, please see Note 2, "Regulatory Matters” to the Financial Statements.
U.S. Executive Order Regarding Power Equipment
On May 1, 2020, President Trump issued an executive order banning transactions involving the acquisition, importation, transfer, or installation of certain equipment to be used in connection with the operation of the U.S. interconnected transmission network and electric generation facilities needed to maintain transmission reliability. The ban would apply if such equipment is designed, manufactured or supplied by any company that is subject to, or controlled by, the jurisdiction of a country considered by the U.S. to be a foreign adversary and such transaction would pose an unacceptable risk to the national security of the U.S. (the “Executive Order”). We are reviewing the Executive Order and will consider the rules and regulations to be issued pursuant to this Executive Order when they become available, including rules and regulations that may define foreign adversaries, such as China, under the Executive Order or identify equipment or vendors that are exempt from any restrictions under the Executive Order. At this time, the impact of this Executive Order on our business is uncertain.
Waste Management and CCR
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. The EPA has indicated that they will implement a phased approach to amending the CCR rule. On March 3, 2020, the EPA published proposed amendments to the CCR rule titled “A Holistic Approach to Closure Part B” which would address the beneficial use of CCR for closure of ash ponds subject to forced closure per the CCR Rule. This could impact IPL's Petersburg plant's ability to use CCR for closure of ash ponds. On February 20, 2020, the US EPA published a proposed rule to establish a federal CCR permit program that would operate in states without approved CCR permit programs. On July 29, 2020, EPA released a pre-publication version of final amendments to the CCR rule title “A Holistic Approach to Closure Part A: Deadline to Initiate Closure,” which we are still reviewing. 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 have a material impact on our business, financial condition and results of operations. We would seek recovery of any resulting expenditures; however, there is no guarantee we would be successful in this regard. See Note 3, “Property, Plant and Equipment - ARO” to the Financial Statements in IPALCO's 2019 Form 10-K for further information.
Climate Change Legislation and Regulation
On August 31, 2018, the EPA published in the Federal Register proposed Emission Guidelines for Greenhouse Gas
Emissions from Existing Electric Utility Generating Units, known as the ACE Rule. On July 8, 2019, the EPA
published the final ACE Rule along with associated revisions to implementing regulations. The final ACE Rule replaces
established CO2 emission rules for existing power plants under CAA Section 111(d) and replaced the CPP and determinesEPA's 2015
CPP. In accordance with the ACE rule, the EPA determined that heat rate improvement measures are the Best
System of Emissions Reductions for existing coal-fired electric generating units. The final rule requiresrequired the State of
Indiana to develop a State Plan to establish CO2emission limits for designated facilities, including IPLAES Indiana Petersburg's coal-fired electric generating units. States havehad three years to develop their plans under the rule. However, on January 19, 2021, the D.C. Circuit vacated and remanded to EPA the ACE Rule, but withheld issuance of the mandate that would effectuate its decision. On February 19, 2020, Indiana published22, 2021, the D.C. Circuit granted EPA’s unopposed motion for a First Notice forpartial stay of the Indianaissuance of the mandate on vacating the repeal of the CPP. On March 5, 2021, the D.C. Circuit issued the partial mandate effectuating the vacatur of the ACE Rule indicating that IDEM intendsRule. In effect, the CPP will not take effect while EPA is addressing the remand of the ACE rule by promulgating a new Section 111(d) rule to determine the best systemregulate greenhouse gases from existing electric generating units. The impact of such future greenhouse gas emissions reductions and CO2 standards for affected units. Impacts remain largelyregulations remains uncertain, because Indiana's State Plan has not yet been developed.but it could be material.
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 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 NOx ozone season emission budgets for electric generating units within these states and that
implement these budgets through modifications to the CSAPR NOx 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. OnIn December 2018, EPA determined that the 2016 CSAPR Update Rule fully satisfied 20 states (including
(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 April 30, 2021, EPA published a final rule to address the 2020 D.C. Circuit decision. EPA is issuing new or amended federal implementation plans for 12 states, including Indiana, with revised CSAPR NOx ozone season emission budgets for electric generating units within these states via a new CSAPR NOx Ozone Season Group 3 Trading Program. Implementation is expected to begin during the 2021 ozone season (May through September 2021) with an effective date 60 days following publication in the Federal Register of the final rule. AES Indiana facilities will receive fewer ozone season NOx allowances for future NOx Ozone Seasons beginning in 2021 and later, possibly resulting in the need to purchase additional allowances.
With respect to these standards and requirements, there has not been a significant impact to date.However at this time we cannot predict what the impact will be in future years or if there will be an impact resulting from future rulemakings or legal outcomes, but it could be material.
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. Effective 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. The EPA has not approved the attainment plan for the area that includes Petersburg. Instead IDEM has imposed additional SO2 limits on Petersburg through a Commissioner's Order issued July 31, 2019. On September 18, 2019, IDEM requested EPA approval of those limits as part of the SIP. On February 24, 2020, EPA proposed to approve those limits. Once the limits are approved as part of the SIP, IDEM can resubmit the attainment plan for EPA approval for the area that includes Petersburg.
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 toof these new ambient standards,rule revisions or potential future legal outcomes, but itany such impact could be material.
In March 2018, the state of New York submitted a petitionmaterial to the EPA pursuant to Section 126 of the CAA requesting new limitations on NOx emissions from dozens of upwind generating stations, including IPL's Petersburg, Harding Street, and Eagle Valley stations on the basis that they are contributing significantly to New York’s ability to meet the 2008 ozone NAAQS. On October 18, 2019, the EPA published final denial of the petition. On July 14, 2020, the D.C. Circuit Court vacated and remanded EPA’s denial of the petition. EPA must now issue a new decision based on the Court’s decision. If the Section 126 petition is ultimately granted, our units could be subject to additional requirements, which could be material. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful.
CWA - Regulation of Water Discharge
IPL and other utilities at times apply the Nationwide Permit 12 (NWP 12) issued by the U.S. Army Corps of Engineers (Corps) in completing transmission and distribution projects that may involve waters of the U.S. NWP 12 is the nationwide permit for Utility Line Activities, specifically activities required for construction and maintenance, provided the activity does not result in the loss of greater than ½-acre of waters of the U.S. for each single and complete project.
On April 15, 2020, in a proceeding involving the construction of the Keystone XL pipeline, the U.S. District Court for the District of Montana (Montana District Court) vacated NWP 12 and enjoined its application. On April 27, 2020, the Corps moved for the Montana District Court to stay pending appeal those portions of the April 15, 2020 order that vacate NWP 12 and enjoin its application. In the alternative, the Corps 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 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. operation.
Macroeconomic and Political
Reference Rate Reform
As discussed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties" of IPALCO's 20192020 Form 10-K, in July 2017, the UK Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. In the U.S., the Alternative Reference Rate Committee at the Federal Reserve identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for LIBOR; alternative reference rates in other key markets are under development. While IPALCO maintainsOn November
30, 2020, the ICE Benchmark Association ("IBA") announced it had begun consultation on its intention to cease publication of two specific LIBOR rates by December 31, 2021, while extending the timeline for the overnight, one-month, three-month, six-month, and 12-month USD LIBOR rates through June 30, 2023. On March 5, 2021, IBA published a feedback statement for the consultation, announcing its intention to cease the publication of these rates on the specified dates. We maintain financial instruments referencingthat use LIBOR as an interest rate benchmark, we have not yet executed any technical amendments or other contractual alternatives to address this matter.benchmark. Although the full impact of the reform remains unknown, we have begun to engage with IPALCO and IPLour counterparties to discuss specific action items to be undertaken in order to prepare for amendments when such contractsthey become due.
CAPITAL RESOURCES AND LIQUIDITY
Overview
As of June 30, 2020,March 31, 2021, we had unrestricted cash and cash equivalents of $33.5$48.6 million and available borrowing capacity of $220$160 million under our unsecured revolving Credit Agreement. All of IPL’sAES Indiana’s long-term borrowings must first be approved by the IURC and the aggregate amount of IPL’sAES Indiana’s short-term indebtedness must be approved by the FERC. We have approval from the FERC to borrow upup to $500 million of short-term indebtedness outstanding at any time throughthrough July 26, 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,debt, all of which authority remains available under the order as of June 30, 2020.March 31, 2021, and refinance up to $185 million in existing indebtedness, of which $95 million of authority remains available under the order as of March 31, 2021. 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 June 30, 2020.March 31, 2021. As an alternative to the sale of all or a portion of $65 million in principal of the long-term debt, we have the authority to issue up to $65 million of new preferred stock, all of which authority remains available under the order as of June 30, 2020.March 31, 2021. 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 existingexisting debt obligations. We do not believe such restrictions will be a limiting factor in our ability to issue debt in the ordinary course of prudent business operations.
We believe that existing cash balances, cash generated from operating activities, and borrowing capacity on our committed Credit Agreement will be adequate for the foreseeable future to meet anticipated operating expenses, interest expense on outstanding indebtedness, recurring capital expenditures, and to pay dividends to AES U.S. Investments and CDPQ. Sources for principal payments on outstanding indebtedness and nonrecurring capital expenditures are expected to be obtained from: (i) existing cash balances; (ii) cash generated from operating activities; (iii) borrowing capacity on our committed Credit Agreement; (iv) additional debt financing; and (v) equity capital contributions. From time to time, we may elect to repurchase our outstanding debt through cash purchases, privately negotiated transactions or otherwise when management believes such repurchases are favorable to make. The amounts involved in any such repurchases may be material.
IPLAES Indiana First Mortgage Bonds
IPLAES Indiana has $95 million of 3.875% IPLAES Indiana first mortgage bonds that are due August 1, 2021. For further discussion, please see Note 5, “Debt - IPLAES Indiana First Mortgage Bonds.”
IPL Unsecured Notes
IPL has $90 million of unsecured notes due December 22, 2020. For further discussion, please see Note 5, “Debt -
IPL Unsecured Notes.”
IPALCO’s Senior Secured Notes and Term Loan
In April 2020, IPALCO completed the sale of the $475 million 2030 IPALCO Notes priced at 4.25%, with the net proceeds from this offering used to retire the Term Loan on April 14, 2020. The remaining net proceeds, together with cash on hand, were used to redeem the 2020 IPALCO Notes on May 14, 2020, and to pay certain related fees, expenses and make-whole premiums. For further discussion, please see Note 5, “Debt - IPALCO's Senior Secured Notes and Term Loan.”
Cash Flows
The following table provides a summary of our cash flows (in thousands):
| | | Six Months Ended June 30, | | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | $ Change | | 2021 | | 2020 | | $ Change |
Net cash provided by operating activities | Net cash provided by operating activities | | $ | 146,323 | | | $ | 150,878 | | | $ | (4,555) | | Net cash provided by operating activities | | $ | 107,888 | | | $ | 97,576 | | | $ | 10,312 | |
Net cash used in investing activities | Net cash used in investing activities | | (113,441) | | | (114,912) | | | 1,471 | | Net cash used in investing activities | | (69,767) | | | (63,203) | | | (6,564) | |
Net cash used in financing activities | Net cash used in financing activities | | (28,183) | | | (57,760) | | | 29,577 | | Net cash used in financing activities | | (16,146) | | | (27,434) | | | 11,288 | |
Net change in cash and cash equivalents | Net change in cash and cash equivalents | | 4,699 | | | (21,794) | | | 26,493 | | Net change in cash and cash equivalents | | 21,975 | | | 6,939 | | | 15,036 | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | | 48,552 | | | 33,599 | | | 14,953 | | Cash, cash equivalents and restricted cash at beginning of period | | 26,622 | | | 48,552 | | | (21,930) | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | | $ | 53,251 | | | $ | 11,805 | | | $ | 41,446 | | Cash, cash equivalents and restricted cash at end of period | | $ | 48,597 | | | $ | 55,491 | | | $ | (6,894) | |
Operating Activities
The following table summarizes the key components of our consolidated operating cash flows (in thousands):
| | | Six Months Ended June 30, | | | | Three Months Ended March 31, | |
| | 2020 | | 2019 | | $ Change | | 2021 | | 2020 | | $ Change |
Net income | Net income | | $ | 55,106 | | | $ | 56,698 | | | $ | (1,592) | | Net income | | $ | 38,784 | | | $ | 35,983 | | | $ | 2,801 | |
Depreciation and amortization | Depreciation and amortization | | 121,807 | | | 119,566 | | | 2,241 | | Depreciation and amortization | | 63,089 | | | 60,708 | | | 2,381 | |
Deferred income taxes and investment tax credit adjustments - net | Deferred income taxes and investment tax credit adjustments - net | | 860 | | | 16,350 | | | (15,490) | | Deferred income taxes and investment tax credit adjustments - net | | 922 | | | 2,467 | | | (1,545) | |
Other adjustments to net income | Other adjustments to net income | | 2,485 | | | 325 | | | 2,160 | | Other adjustments to net income | | (376) | | | 243 | | | (619) | |
Net income, adjusted for non-cash items | Net income, adjusted for non-cash items | | 180,258 | | | 192,939 | | | (12,681) | | Net income, adjusted for non-cash items | | 102,419 | | | 99,401 | | | 3,018 | |
Net change in operating assets and liabilities(1) | Net change in operating assets and liabilities(1) | | (33,935) | | | (42,061) | | | 8,126 | | Net change in operating assets and liabilities(1) | | 5,469 | | | (1,825) | | | 7,294 | |
Net cash provided by operating activities | Net cash provided by operating activities | | $ | 146,323 | | | $ | 150,878 | | | $ | (4,555) | | Net cash provided by operating activities | | $ | 107,888 | | | $ | 97,576 | | | $ | 10,312 | |
| (1) Refer to the table below for explanations of the variance in operating assets and liabilities. | (1) Refer to the table below for explanations of the variance in operating assets and liabilities. | | (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 sixthree months ended June 30, 2020March 31, 2021 compared to the sixthree months ended June 30, 2019March 31, 2020 was driven by changes in the following (in thousands):
| | | | | |
Increase from accrued taxes payable/receivableinventories is primarily due to lower tax sharing payments and higher current tax expenseconsumption in the current year2021 | $ | 45,89520,833 | |
Decrease from inventories primarily due to higher inventory balances as IPL's generation units ran less frequently during the second quarter of 2020 | (26,762) | |
Increase from accounts payable is primarily due to timing of payments | 6,86511,550 | |
Increase from accrued interest is due to timing of interest payments | 8,582 | |
Decrease from prepayments and other current assets is primarily due to increased funding with the Service Company in 2021 | (18,111) | |
Decrease from short-term and long-term regulatory assets and liabilities is primarily due to a decreasehigher deferred fuel expense in the ECCRA regulatory liability as we return certain benefits to customers2021 | (6,506)(11,679) | |
Decrease from accounts receivable is primarily due to timing of collections | (6,227) | |
Decrease from pension and other postretirement benefit obligations is primarily due to higher expected return on plan assets | (6,173) | |
Other | 1,034 (3,881) | |
Net change in operating assets and liabilities | $ | 8,1267,294 | |
Investing Activities
Net cash used in investing activities decreased $1.5increased $6.6 million for the sixthree months ended June 30, 2020March 31, 2021 compared to the sixthree months ended June 30, 2019,March 31, 2020, which was primarily driven by (in thousands):
| | | | | | | | |
LowerHigher cash outflows for capital expenditures due to higher growth related capital expenditures primarily tofrom TDSIC Plan investments, partially offset by lower maintenance and growthenvironmental related capital expenditures | | $ | 14,762 (8,302) | |
Higher cash outflows on cost of removal and regulatory recoverable ARO payments primarily due to timing of such payments | | (12,863) | |
Other | | (428)1,738 | |
Net change in investing activities | | $ | 1,471 (6,564) | |
Financing Activities
Net cash used in financing activities decreased $29.6$11.3 million for the sixthree months ended June 30, 2020March 31, 2021 compared to the sixthree months ended June 30, 2019,March 31, 2020, which was primarily driven by (in thousands):
| | | | | | | | |
Increase from long-termnet borrowings under revolving credit facilities due to higher net draws on AES Indiana's line of discount due primarily to the April 2020 issuance of the $475.0 million 4.25% 2030 senior secured notescredit in 2021 | | $ | 474,56815,000 | |
Decrease from retirement of long-term debt, including early payment premium primarily dueHigher distributions 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 Notesshareholders | | (472,135)(3,442) | |
Increase from short-term debt borrowings due to higher draws on IPL's line of credit in 2020 | | 20,000 | |
Other | | 7,144 (270) | |
Net change in financing activities | | $ | 29,57711,288 | |
Capital Requirements
Capital Expenditures
Our capital expenditure program, including development and permitting costs, for the three-year period from 20202021 through 20222023 (including amounts already expended in the first sixthree months of 2020)2021) is currently estimated to cost approximately $1.1$1.5 billion (excluding environmental compliance), and includes estimates as follows (amounts in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | | For the three-year period | |
| | 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 | | | | | | |
Additionally, estimated capital expenditure spending on environmental compliance costs for the three-year period from 2020 through 2022 includes the following (amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Total Estimated Costs | | Total Costs Expended | | Remaining Costs | |
| | of Project | | Through June 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. | | | | | | | |
Please see “Item 1. Business - Environmental Matters" in IPALCO’s 2019 Form 10-K for additional details on each of these projects. | | | | | | | | | | | | | | | | | | | | |
| | | | | For the three-year period | |
| | 2021 | 2022 | 2023 | from 2021 through 2023 | |
Transmission and distribution related additions, improvements and extensions | | $ | 287 | | $ | 268 | | $ | 287 | | $ | 842 | | (1) |
Power plant related projects | | 55 | | 266 | | 222 | | 543 | | |
Other miscellaneous equipment | | 63 | | 53 | | 35 | | 151 | | |
Total estimated costs of capital expenditure program | | $ | 405 | | $ | 587 | | $ | 544 | | $ | 1,536 | | |
| | | | | | |
(1) Additions, improvements and extensions to transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers and street lighting facilities |
The amounts described in the capital expenditure program above include spending under IPL'sAES Indiana's TDSIC plan approved by the IURC on March 4, 2020 for eligible transmission, distribution and storage system improvements totaling $1.2 billion from 2020 through 2027.2027 (which includes estimated spending of $176.5 million in 2021, $190.0 million in 2022 and $212.6 million in 2023, respectively). Total TDSIC costs expended from project inception through March 31, 2021 were $176.8 million.
Additionally, estimated capital expenditure spending on environmental compliance costs for the three-year period from 2021 through 2023 includes the following (amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Total Estimated Costs | | Total Costs Expended | | Remaining Costs | |
| | of Project | | Through March 31, 2021 | | of Project | |
NAAQS SO2 (1) | | $ | 27 | | | $ | 26 | | | $ | 1 | | |
Cooling water intake regulations (2) | | $ | 9 | | | $ | 2 | | | $ | 7 | | |
| | | | | | | |
(1) Includes spending for projects underway related to environmental compliance for NAAQS SO2. |
(2) Includes spending for studies related to cooling water intake requirements in section 316(b) of the CWA. |
Please see “Item 1. Business - Environmental Matters" in IPALCO’s 2020 Form 10-K for additional details on each of these projects.
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’sAES Indiana’s Credit Agreement and other unsecured notes (and(as well as the amount of certain other fees in the Credit Agreement) are dependent upon the credit ratings of IPL.AES Indiana. Downgrades in the credit ratings of AES could result in IPL’sAES Indiana’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.AES Indiana.
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Debt ratings | | IPALCO | | IPLAES Indiana | | Outlook | | Effective or Affirmed |
Fitch Ratings | | BBB (a) | | A (b) | | Stable | | November 2019 |
Moody’s Investors Service | | Baa3 (a) | | A2 (b) | | Stable | | November 2018 |
S&P Global Ratings | | BBB- (a) | | A- (b) | | Stable | | November 2019 |
| | | | | | | | |
Credit ratings | | IPALCO | | IPLAES Indiana | | Outlook | | Effective or Affirmed |
Fitch Ratings | | BBB- | | BBB+ | | Stable | | November 2019 |
Moody’s Investors Service | | — | | Baa1 | | Stable | | November 2018 |
S&P Global Ratings | | BBB | | BBB | | Stable | | November 2019 |
(a)Ratings relate to IPALCO’s Senior Secured Notes
(b)Ratings relate to IPLAES Indiana’s Senior Secured Bonds.
We cannot predict whether our current debt and credit ratings or the debt and credit ratings of IPLAES Indiana 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 sixthree months of 20202021 and 2019,2020, IPALCO paid $53.2$30.1 million and $59.9$26.6 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.AES Indiana. Dividends from IPLAES Indiana are affected by IPL’sAES Indiana’s actual results of operations, financial condition, cash flows, capital requirements, regulatory considerations, and such other factors as IPL’sAES Indiana’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 20192020 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures — The Company, under the supervision and with the participation of its management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of its “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective as of June 30, 2020,March 31, 2021, to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting — There were no changes that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of business, we are subject to various lawsuits, actions, claims, and other proceedings. We are also from time to time involved in other reviews, investigations and proceedings by governmental and regulatory agencies regarding our business, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. We have accrued in our Financial Statements for litigation and claims where it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We believe the amounts provided in our Financial Statements, as prescribed by GAAP, for these matters are adequate in light of the probable and estimable contingencies. However, there can be no assurances that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims and other matters (including those matters noted below), and to comply with applicable laws and regulations will not exceed the amounts reflected in our Financial Statements. As such, costs, if any, that may be incurred in excess of those amounts provided for in our Financial Statements cannot be reasonably determined, but could be material.
OurPlease 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 Form 10-K for the fiscal year ended December 31, 20192020 and the Notes to IPALCO's Consolidated Financial Statements included therein contain descriptions of certain legal proceedings in which we are or were involved. The information in or incorporated by reference into this Item 1 to Part II is limited to certain recent developments concerning our legal proceedings and new legal proceedings, since the filing of such Form 10-K, and should be read in conjunction with such Form 10-K.
The following information is incorporated by reference into this Item: information about the legal proceedings contained in Part I, Item 2, "Management's Discussion10-K and 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
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-Q for the three months ended March 31, 2020. Except as described below, there hasThere have been no material change in ourchanges to the risk factors as previously disclosed in our 2019 Form 10-K and 2020 first quarter Form 10-Q. 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 the 2020 first quarter Form 10-Q 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. On March 19, 2020, the Governor of Indiana issued an Executive Order
prohibiting electric utilities, including us, from discontinuing electric utility service to customers, which the IURC extended through August 14, 2020.
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 and 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 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 |
| |
4.1 | |
4.2 | |
4.3 | |
31.1 | |
31.2 | |
32.1 | |
32.2 | |
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.
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| | | | IPALCO ENTERPRISES, INC. |
| | | | |
Date: | | AugustMay 5, 20202021 | | /s/ Gustavo Garavaglia |
| | | | Gustavo Garavaglia |
| | | | Chief Financial Officer |
| | | | (Principal Financial Officer) |
| | | | |
Date: | | AugustMay 5, 20202021 | | /s/ Karin M. NyhuisJon S. Byers |
| | | | Karin M. NyhuisJon S. Byers |
| | | | Controller |
| | | | (Principal Accounting Officer) |