FORM 10-Q
SECURlTlES AND EXCHANGE COMMlSSlON
WASHINGTON, D. C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended
September 30, 1999 Commission File Number 1-3132-2
INDIANAPOLIS POWER & LIGHT COMPANY
(Exact name of Registrant as specified in its charter)
Indiana 35-0413620
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Monument Circle
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 317-261-8261
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 the
filing requirements for at least the past 90 days. Yes X No
-----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding At September 30, 1999
----- ---------------------------------
Common (Without Par Value) 17,206,630 Shares
<PAGE>
INDIANAPOLIS POWER & LIGHT COMPANY
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INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
- ------- ---------------------
Statements of Income - Three Months Ended and
Nine Months Ended September 30, 1999 and 1998 2
Balance Sheets - September 30, 1999 and
December 31, 1998 3
Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 4
Notes to Financial Statements 5-6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-15
PART II. OTHER INFORMATION 16-18
- -------- -----------------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Income
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
----------- ------------ ------------ ------------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Electric $ 221,844 $ 215,246 $ 607,299 $ 592,694
Steam 6,671 6,782 25,057 26,361
----------- ------------ ------------ ------------
Total operating revenues 228,515 222,028 632,356 619,055
----------- ------------ ------------ ------------
OPERATING EXPENSES:
Operation:
Fuel 43,026 49,645 131,969 133,894
Other 33,728 38,801 97,248 112,147
Power purchased 25,427 2,899 29,455 6,748
Purchased steam 1,218 1,042 4,581 4,158
Maintenance 18,906 15,132 55,733 50,167
Depreciation and amortization 27,008 26,696 80,362 77,359
Taxes other than income taxes 8,660 9,429 26,281 26,887
Income taxes - net 22,128 26,719 65,628 66,690
----------- ------------ ------------ ------------
Total operating expenses 180,101 170,363 491,257 478,050
----------- ------------ ------------ ------------
OPERATING INCOME 48,414 51,665 141,099 141,005
----------- ------------ ------------ ------------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 270 359 940 884
Other - net 380 163 322 288
Gain on termination of agreement - 12,500 - 12,500
Income taxes - net (187) (4,576) (139) (4,567)
----------- ------------ ------------ ------------
Total other income - net 463 8,446 1,123 9,105
----------- ------------ ------------ ------------
INCOME BEFORE INTEREST CHARGES 48,877 60,111 142,222 150,110
----------- ------------ ------------ ------------
INTEREST CHARGES:
Interest 10,183 10,193 30,495 30,568
Allowance for borrowed funds used during construction (175) (229) (592) (625)
----------- ------------ ------------ ------------
Total interest charges 10,008 9,964 29,903 29,943
----------- ------------ ------------ ------------
NET INCOME 38,869 50,147 112,319 120,167
----------- ------------ ------------ ------------
PREFERRED DIVIDEND REQUIREMENTS 803 802 2,410 2,315
----------- ------------ ------------ ------------
INCOME APPLICABLE TO COMMON STOCK $ 38,066 $ 49,345 $ 109,909 $ 117,852
=========== ============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
September 30 December 31
1999 1998
-------------- ---------------
ASSETS
------
UTILITY PLANT:
<S> <C> <C>
Utility plant in service $ 2,910,611 $ 2,859,899
Less accumulated depreciation 1,274,725 1,202,356
-------------- ---------------
Utility plant in service - net 1,635,886 1,657,543
Construction work in progress 78,419 80,198
Property held for future use 10,719 10,719
-------------- ---------------
Utility plant - net 1,725,024 1,748,460
-------------- ---------------
OTHER PROPERTY -
At cost, less accumulated depreciation 5,750 5,790
-------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 4,447 4,250
Special deposit 23,500 -
Accounts receivable and unbilled revenue (less allowance
for doubtful accounts 1999, $1,242 and 1998, $996) 52,787 36,692
Fuel - at average cost 41,395 38,968
Materials and supplies - at average cost 45,553 48,163
Tax refund receivable 156 7,643
Prepayments and other current assets 7,516 3,634
-------------- ---------------
Total current assets 175,354 139,350
-------------- ---------------
DEFERRED DEBITS:
Regulatory assets 110,045 116,801
Miscellaneous 11,166 12,665
-------------- ---------------
Total deferred debits 121,211 129,466
-------------- ---------------
TOTAL $ 2,027,339 $ 2,023,066
============== ===============
CAPITALIZATION AND LIABILITIES
------------------------------
CAPITALIZATION:
Common shareholder's equity:
Common stock $ 324,537 $ 324,537
Premium and net gain on preferred stock 2,642 2,642
Retained earnings 438,080 440,747
-------------- ---------------
Total common shareholder's equity 765,259 767,926
Cumulative preferred stock 59,135 59,135
Long-term debt (less current maturities
and sinking fund requirements) 627,937 627,893
-------------- ---------------
Total capitalization 1,452,331 1,454,954
-------------- ---------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper - 19,200
Current maturities and sinking fund requirements 23,500 -
Accounts payable and accrued expenses 59,933 64,461
Dividends payable 17,667 13,158
Taxes accrued 32,232 18,283
Interest accrued 9,778 13,326
Other current liabilities 12,705 13,731
-------------- ---------------
Total current liabilities 155,815 142,159
-------------- ---------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net 331,218 328,417
Unamortized investment tax credit 39,918 41,993
Accrued postretirement benefits 5,842 10,768
Accrued pension benefits 38,153 39,953
Miscellaneous 4,062 4,822
-------------- ---------------
Total deferred credits and other long-term liabilities 419,193 425,953
-------------- ---------------
COMMITMENTS AND CONTINGENCIES
TOTAL $ 2,027,339 $ 2,023,066
============== ===============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Cash Flows
(In Thousands)
(Unaudited)
Nine Months Ended
September 30
1999 1998
-------------- --------------
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Net income $ 112,319 $ 120,167
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 79,403 75,301
Amortization of regulatory assets 7,633 8,941
Deferred income taxes and investment tax credit adjustments - net (1,313) (3,106)
Allowance for funds used during construction (1,532) (1,509)
Change in certain assets and liabilities:
Accounts receivable (16,094) 5,217
Fuel, materials and supplies 183 4,400
Accounts payable (4,528) (8,470)
Taxes accrued 13,949 11,734
Accrued pension benefits (1,800) 1,521
Other - net (6,274) (969)
-------------- --------------
Net cash provided by operating activities 181,946 213,227
-------------- --------------
CASH FLOWS FROM INVESTING:
Construction expenditures (52,888) (55,642)
Other 917 480
-------------- --------------
Net cash used in investing activities (51,971) (55,162)
-------------- --------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt 23,500 -
Special deposit for retirement of debt (23,500) -
Short-term debt - net (19,200) (18,950)
Issuance of preferred stock - 50,000
Dividends paid (110,475) (186,193)
Other (103) (490)
-------------- --------------
Net cash used in financing activities (129,778) (155,633)
-------------- --------------
Net increase in cash and cash equivalents 197 2,432
Cash and cash equivalents at beginning of period 4,250 4,950
-------------- --------------
Cash and cash equivalents at end of period $ 4,447 $ 7,382
============== ==============
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 32,424 $ 32,638
============== ==============
Income taxes $ 47,888 $ 53,938
============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
INDIANAPOLIS POWER & LIGHT COMPANY
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. GENERAL
Indianapolis Power & Light Company is a subsidiary of IPALCO
Enterprises, Inc. The preparation of financial statements in conformity
with generally accepted accounting principles requires that management
make certain estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. The reported
amounts of revenues and expenses during the reporting period may also be
affected by the estimates and assumptions management is required to
make. Actual results may differ from those estimates.
In the opinion of management these statements reflect all adjustments,
consisting of only normal recurring accruals, which are necessary to
present a fair statement of the results for the interim periods covered
by such statements. Due to the seasonal nature of the electric utility
business, the annual results are not generated evenly by quarter during
the year. Certain amounts from prior year financial statements have been
reclassified to conform to the current year presentation. These
financial statements and notes should be read in conjunction with the
audited financial statements included in IPL's 1998 Annual Report on
Form 10-K.
2. LONG-TERM DEBT
On September 14, 1999, $23.5 million of unsecured long-term notes
payable were issued by IPL. The proceeds were placed in special deposit
to be used in October 1999 for the refunding of its $23.5 million 7.45%
Series first mortgage bonds due 2019. Interest on the new debt will
accrue at tax-exempt auction rates of which the rate was 3.75% at
September 30, 1999 and its maturity date is August 1, 2030.
3. SEGMENT REPORTING
IPL has two business segments (electric and "all other"). Pretax
operating income for the electric segment was $70.0 million and $77.9
million and for the "all other" segment was $.5 million, and $.4 million
for the third quarter ended September 30, 1999, and 1998, respectively.
Pretax operating income for the electric segment was $203.1 million for
both the nine months ended 1999 and 1998. Pretax operating income for the
"all other" segment was $3.6 million, and $4.6 million for the nine
months ended September 30, 1999, and 1998, respectively. Steam operations
of IPL are included in the caption UTILITY OPERATING INCOME. The cost of
property and plant, excluding construction in progress and property held
for future use, is as follows:
September 30 December 31
1999 1998
- --------------------------------------------------------------------------------
(In Thousands)
Electric ................... $ 2,800,300 $ 2,752,539
All other................... 112,290 109,195
------------ ------------
Subtotal............. $ 2,912,590 $ 2,861,734
=========== ===========
4. NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities," was
issued in June 1998 and was to be effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. The effective date for
this standard was delayed one year by SFAS 137. The standard is now
effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS 133 establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in
the statement of financial condition and measures those instruments at
fair value. If certain conditions are met, a derivative may be
specifically designated as a fair value hedge, a cash flow hedge, or a
hedge of a foreign currency exposure. The accounting for changes in the
fair value of a derivative (that is, gains and losses) depends on the
intended use of the derivative and the resulting designation. Management
has not yet quantified the effect of the new standard on the financial
statements.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Reform Act), IPL is hereby filing cautionary
statements identifying important factors that could cause IPL's actual results
to differ materially from those projected in forward-looking statements of IPL.
This Form 10-Q, and particularly Management's Discussion and Analysis and our
discussion of the Year 2000 issues, contains forward-looking statements. The
Reform Act defines forward-looking statements as statements that express an
expectation or belief and contain a projection, plan or assumption with regard
to, among other things, future revenues, income, earnings per share or capital
structure. Such statements of future events or performance are not guarantees of
future performance and involve estimates, assumptions, and uncertainties and are
qualified in their entirety by reference to, and are accompanied by, the
following important factors that could cause IPL's actual results to differ
materially from those contained in forward-looking statements made by or on
behalf of IPL. The words "anticipate," "believe," "estimate," "expect,"
"forecast," "project," "objective," and similar expressions are intended to
identify forward-looking statements.
Some important factors that could cause IPL's actual results or outcomes
to differ materially from those discussed in the forward-looking statements
include, but are not limited to, fluctuations in customer growth and demand,
weather, fuel and purchased power costs and availability, regulatory action,
federal and state legislation, interest rates, labor strikes, maintenance and
capital expenditures and local economic conditions. In addition, IPL's ability
to have available an appropriate amount of production capacity in a timely
manner can significantly impact IPL's financial performance. The timing of
deregulation and competition, product development and introductions of
technology changes are also important potential factors.
All such factors are difficult to predict, contain uncertainties which
may materially affect actual results and are beyond the control of IPL.
IPL's ability to predict results or effects of issues related to the Year
2000 is inherently uncertain, and is subject to factors that may cause actual
results to differ materially from those projected. Factors that could affect the
actual results include the possibility that contingency plans or remediation
efforts will not operate as intended; IPL's failure to timely or completely
identify all software, hardware or embedded chip devices requiring remediation;
unexpected costs; and the uncertainty associated with the impact of Year 2000
issues on the utility industry, including other electric utilities with which
IPL in interconnected, and on IPL's customers, vendors and others with whom it
does business. See "Year 2000" for information about IPL's efforts.
LIQUIDITY AND CAPITAL RESOURCES
Overview
- --------
The Board of Directors of Indianapolis Power & Light Company (IPL)
declared dividends on common stock of $37.9 million during the third quarter of
1999. Dividends are paid by IPL to IPALCO Enterprises Inc.
IPL's capital requirements are primarily related to construction
expenditures needed to meet customers' needs for electricity and steam, for
environmental compliance and for the implementation of an integrated information
system. Construction expenditures (excluding allowance for funds used during
construction) totaled $19.1 million during the quarter ended September 1999,
representing a $4.0 million decrease from the comparable period in 1998.
Internally generated cash provided by IPL's operations was used for construction
expenditures during the third quarter of 1999. Construction expenditures
(excluding allowance for funds used during construction) totaled $52.9 million
during the nine months ended September 1999, representing a $2.8 million
decrease from the comparable period in 1998. Internally generated cash provided
by IPL's operations was used for construction expenditures during nine months
ended September 1999.
IPL's construction program includes $28.0 million for construction of a
100-megawatt combustion turbine expected to be in service by June 2000.
Additional information regarding IPL's three-year construction program can be
found in IPL's 1998 Form 10-K report. (See "Future Performance" in Item 7 of
Management's Discussion and Analysis of Financial Condition and Results of
Operations in IPL's 1998 Form 10-K report for further discussion).
On September 14, 1999, $23.5 million of unsecured long-term notes payable
were issued by IPL. The proceeds were placed in special deposit to be used in
October 1999 for the refunding of its $23.5 million 7.45% Series first mortgage
bonds due 2019. Interest on the new debt will accrue at tax-exempt auction rates
of which the rate was 3.75% at September 30, 1999 and its maturity date is
August 1, 2030.
OTHER
Market Risk Sensitive Instruments and Positions
- -----------------------------------------------
The primary market risk to which IPL is exposed is interest rate risk.
IPL uses long-term debt as a primary source of capital in its business. A
portion of this debt has an interest component that resets on a periodic basis
to reflect current market conditions. The following table presents the principal
cash repayments and related weighted average interest rates by maturity date for
IPL's long-term fixed-rate debt and its other types of long-term debt at
September 30, 1999:
<TABLE>
<CAPTION>
Maturity Schedule
Periods Ending September 30
Fair
(Dollars in Millions) 2000 2001 2002 2003 2004 Thereafter Total Value
- ---------------------------------------------------------------------------------------------------------------
Long-term debt
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $23.5 - - - $80.0 $375.3 $478.8 $477.4
Average rate 7.5% - - - 6.1% 6.8% 6.7%
Variable rate - - - - - $173.5 $173.5 $173.5
Average rate - - - - - 3.7% 3.7%
</TABLE>
To manage IPL's exposure to fluctuations in interest rates and to lower
funding costs, IPL has entered into an interest rate swap. Under this swap, IPL
agrees with counterparties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated on an agreed
notional amount. This interest differential paid or received is recognized in
the consolidated statements of income as a component of interest expense.
At September 30, 1999, IPL had an interest rate swap agreement with a
notional amount of $40 million, which expires in January 2023. IPL pays interest
at a fixed rate of 5.21% to a swap counter party and receives a variable rate
based on the tax-exempt weekly rate.
New Environmental Standards
- ---------------------------
On July 16, 1997, the United States Environmental Protection Agency
(EPA) promulgated final regulations which amended the National Ambient Air
Quality Standards by introducing standards for fine particulate matter and
creating new ozone standards. On October 29, 1999, after conducting a rehearing
of its initial decision of May 14, 1999, the United States Court of Appeals for
the District of Columbia Circuit determined that the new ozone standards were
not issued lawfully, but left open the question of future remedy. The Court also
determined that the standards for fine particulate matter were legally deficient
in certain respects.
Prior to the Court of Appeals' decision, on October 27, 1998, the EPA
issued a final rule calling for Indiana, along, with 22 other jurisdictions in
the eastern third of the United States, to impose more stringent limits on
emission of nitrogen oxides from fossil-fuel fired steam electric generators,
such as those operated by IPL. This final rule was based, in part, on the new
ozone standards that were the subject of the Court of Appeals' decisions on May
14, 1999 and October 29, 1999. In a separate decision on May 25, 1999, the Court
of Appeals issued a stay of a portion of EPA's 1998 final rule.
Because power plants emit nitrogen oxides, as well as certain, air
pollutants that could contribute to the formation of fine particulate matter,
there is a possibility that existing IPL sources will be required to be
retrofitted with additional air pollution controls in the future, either as a
result of EPA's 1997 and 1998 regulations or due to future regulatory actions.
Litigation concerning EPA's 1997 and 1998 final regulations is ongoing in the
United States Court of Appeals. EPA continues to seek rulings from the Court
that the 1997 and 1998 final regulations are lawfully and fully effective. Due
to these uncertainties, it is not presently possible to predict the effects of
these regulations on IPL.
Year 2000
- ---------
IPL is potentially subject to operational problems associated with the
inability of a variety computer hardware, software and devices containing
embedded chips to properly process the year change from 1999 to 2000. Such
problems could conceivably affect IPL's ability to deliver electricity or steam
to its customers, as well as IPL's internal operations such as billing or
payroll functions. Further, Year 2000 problems experienced by other entities,
over which IPL has no control, such as certain suppliers or other electric
utilities with which IPL is interconnected, could adversely affect IPL's
operations.
In 1997, IPL established a Year 2000 Committee. IPL currently manages the
Year 2000 project through three employee committees, the Compliance Testing
Committee and the Contingency Planning Committee, each headed by corporate
officers and the Tactical Support Committee. Each of those committees reports to
a Year 2000 Steering Committee composed of officers. The Year 2000 Steering
Committee reports to the Office of the Chairman.
The Indiana Utility Regulatory Commission has ordered all Indiana public
utilities, including IPL, to "use their best efforts to identify their mission
critical operations and conduct an inventory of all electronic devices that may
be affected by date processing logic, assess the status of these devices, take
steps to correct problems in the devices and test the devices to determine
compliance" in order to be "Year 2000 ready."
The Compliance Testing Committee has essentially completed its activities
of inventorying, reviewing, analyzing, correcting and testing computer-related
systems and embedded chip devices. The Contingency Planning Committee has
assessed a variety operating scenarios associated with potential Year 2000
problems and formulated plans by which to operate IPL in the event of such
problems. Both the Compliance Testing Committee and the Contingency Planning
Committee concentrated first on systems critical to the continuity of IPL's
business and then on non-critical systems.
IPL is participating in an Electric Power Research Institute program on
the Year 2000 issue, as well as the North American Electric Reliability Council
(NERC) system readiness assessments.
IPL's Year 2000 Plan includes attention to its generating facilities,
energy management systems, telecommunications systems, substation control and
protection systems, transmission and distribution systems, business information
systems, financial systems and business partners. It includes assessing Year
2000 risks to computer hardware, software and embedded systems; identifying
options and solutions; evaluating solutions; repairing, upgrading and replacing
systems; testing systems; and contingency planning.
State of Readiness
IPL has reported to NERC that it believes its mission-critical systems
used to produce and deliver electricity are ready for date changes associated
with the Year 2000. The NERC definition of "Y2K Ready" is that a system or
application has been determined to be suitable for continued use into the Year
2000.
A. Identification and Assessment
The Compliance Testing Committee reviewed the enterprise-wide use of
information technology and assessed potential Year 2000 problems. That effort
involved making an inventory of applications and systems and evaluating
exposures associated with, for example, vendor-provided software and hardware,
IPL-developed software, and various devices containing embedded chips. The
Committee has also been in contact with vendors to determine product compliance
and vendors' timeframes for compliance. Computer systems reviewed include
hardware, machine microcode and firmware, operating systems, generic
applications software, billing software, communications software and financial
software.
The Compliance Testing Committee has assessed computer systems and
embedded chip devices related to IPL's:
Electricity generating stations and plants producing steam;
Energy management systems;
Substation controls, system protection, and transmission and
distribution systems;
Telecommunications systems; and
Business information systems.
IPL has completed the identification, inventory and assessment phases for
critical systems. The Compliance Testing Committee continues to be vigilant for
issues that may come to light and is also working on non-critical systems.
B. Remediation and Testing
The Compliance Testing Committee has modified or replaced legacy systems
which may not be Year 2000 compliant. IPL has replaced most of its key financial
software applications. Although that project was not specifically initiated as a
Year 2000 effort, it coincidentally replaced non-compliant software.
The Compliance Testing Committee also established and operated
appropriate testing environments to determine, to the extent possible, the Year
2000 compliance of existing systems and/or devices and the compliance of
replacement or upgraded systems and devices. IPL employed a variety of the
following techniques: component tests, simulations, outside testing, vendor
verifications or upgrades or change-outs. Some devices or systems, such as
satellite communication links, are not susceptible to testing, in which cases
IPL must rely on the service providers' verifications.
IPL has inquired of its suppliers and vendors of software,
computer-related equipment, devices and services about Year 2000 compliance.
Some provided the requested information and/or assurances and some did not.
IPL's operations could be adversely affected by Year 2000-related
failures of other companies, such as telecommunication providers, that supply
IPL with mission-critical services. Similarly, Year 2000 failures of other
utilities with which IPL is interconnected could adversely affect IPL's ability
to deliver services to its customers.
With the exception of one accounting sub-system, testing of which IPL
expects to complete by mid-November 1999, IPL has completed the remediation and
testing phases for all critical systems. IPL is operating its major electricity
generating units with clocks set in year 2000. IPL also participated in two
national NERC drills, testing utilities' ability to operate facilities without
normal communication services and simulating some events that could occur upon
the date roll-over. No problems were encountered.
Costs to Address IPL's Year 2000 Issues
Not including the cost of replacing IPL's business software, a project
not initiated specifically for Year 2000 reasons but which provided Year 2000
benefits through replacing non-compliant software, IPL currently estimates that
its costs of the phases of identification, assessment, remediation and testing
may be approximately $4.5 million, which IPL believes is not material to its
results of operations, liquidity and financial condition. Of that figure, IPL
has currently expended approximately $3.3 million. A substantial proportion of
the costs of remediation are associated with functional areas of IPL other than
Information Services. IPL currently estimates that its costs of contingency
planning efforts may be approximately $2.1 million.
Risks of IPL's Year 2000 Issues
In light of the numerous computer-related systems and embedded chip
devices present in business and production equipment used by a utility, and the
interdependent nature of control systems, a large number of conceivable Year
2000 failure scenarios exist, potentially involving IPL's internal functions
(such as billing), as well as its steam and electricity generation and
distribution functions. Consequences could conceivably range from essentially no
operational problems to a massive disruption of steam and electric service
lasting for a significant period of time. IPL believes the probability of
outages caused by Year 2000 problems is small. Further, since IPL does not stand
alone but is electrically interconnected with other utilities across a
substantial portion of the nation, even if IPL experiences no significant Year
2000 problems associated with its own equipment, its ability to deliver
electricity could be adversely affected by Year 2000 failures experienced by
other interconnected utilities. The probability of such failures is believed to
be small. IPL currently expects to experience at least some, hopefully minor,
problems associated with Year 2000. Some conceivable, though unlikely, Year 2000
failure scenarios could be material to IPL's results of operations.
There are both external and internal risks associated with Year 2000 that
could affect IPL's steam and electricity generation, transmission and
distribution operations. Potential internal risk factors include, but are not
limited to, increased risk of generator trips, inability to start or restart
generators, increased risk of transmission facility trips, loss of energy
management systems, loss of Company-owned voice/data communications, system
protection (relay) failures resulting in cascading outages or facility damage,
failure of load-shedding controls to operate properly, failure of load
management systems to operate properly, loss of or incorrect critical operating
data, failure of environmental control systems, loss of distribution systems or
failure of voltage control devices to operate properly. Occurrences of those
internal problems, alone or in combination, could result in varying effects on
IPL's operations. Concerns over these occurrences are minimal based on testing
results that indicate no Year 2000-related problems with key generation and
transmission control systems. IPL's generating units' control systems have been
tested for critical dates and are already operating in the year 2000.
External risk factors include, but are not limited to, loss of customer
load, uncharacteristic load patterns, loss of leased communication facilities,
failure of delivery systems to maintain supplies of fuel and severe or cold
weather. Occurrences of a variety of those events, alone or in combination,
could result in varying effects on IPL.
In view of the unprecedented nature of the Year 2000 phenomenon, it is
not clear whether insurance policy language in policies insuring IPL will be
interpreted to cover or bar claims, if any, arising out of Year 2000 events.
In light of the many adverse circumstances that could conceivably happen
to IPL associated with Year 2000, along with the speculation that many of them
may not happen, it is extremely difficult to hypothesize a most reasonably
likely worst case Year 2000 scenario with any degree of certainty. With that in
mind, IPL believes the most reasonably likely worst case scenario would be an
isolated partial reduction in generating unit capacity due to minor systems
failures with no interruption of power to IPL customers. IPL does not believe
that the worst case scenario will occur and, should it occur, IPL believes that
the consequences of that scenario, with regard to either costs of repair or lost
revenues, are not likely to have a material effect on IPL's results of
operations, liquidity and financial condition.
IPL's Contingency Plans
The Contingency Planning Committee has reviewed hypothetical scenarios
involving various Year 2000 system or device failures and prepared plans by
which to operate IPL in the event those failures occur. IPL's contingency
planning involves the phases of plan development, testing, execution and
recovery after Year 2000 events. As with compliance testing, contingency
planning touches essentially every area of IPL's operations, as well as
interactions with interconnected utilities, customers, critical vendors and
emergency and other governmental authorities.
The planning phase involved activities to identify and evaluate potential
impacts on business operations, life, property, and the environment; develop
emergency plans including establishing procedures for mitigation of failures and
evaluate contingency planning being done on systems that interface with IPL's
systems; identify dates of action for various contingencies; establish
responsibility and authority for various response efforts; and establish and
perform a training program with respect to responding to contingencies,
including practicing and testing the contingency plans and coordinating the
efforts with governmental functions.
Contingency planning includes consideration of potential interruptions in
the supply chain or transportation of critical fuel, water, chemicals, material
supplies etc., and acquisition of appropriate extra supplies, as well as
potential failures of or other problems associated with the interconnected
electricity grid. IPL's existing disaster recovery plans have formed bases for
some Year 2000 contingency plans.
In the testing phase, various drills have been and will be conducted to
test the plans' effectiveness. Modifications have been made where testing
indicated a need. In the execution phase, IPL will operate its contingency plans
in response to events actually occurring.
After Year 2000 events, if any, IPL will execute its post-event
contingency plans as required. It will test its system functions, review the
results, restore and restart systems, and notify appropriate authorities of the
resolution of problems.
<PAGE>
RESULTS OF OPERATIONS
Comparison of Third Quarter and Nine Months Ended September 30, 1999
--------------------------------------------------------------------
With Third Quarter and Nine Months Ended September 30, 1998
-----------------------------------------------------------
Income applicable to common stock for the third quarter of 1999 was $38.1
million, a $11.3 million decrease from the third quarter of 1998. Income
applicable to common stock during the nine months ended September 1999 was
$109.9 million, a $7.9 million decrease compared to the same period last year.
The following discussion highlights the factors contributing to these results.
Operating Revenues
- ------------------
Operating revenues increased $6.5 million during the third quarter ended
September 1999 compared to the similar period last year. Operating revenues for
the nine months ended September 1999 increased $13.3 million from the comparable
1998 period. These results were due to the following:
Increase (Decrease) from Comparable 1998 Period
-----------------------------------------------
September 30, 1999
------------------
Three Months Ended Nine Months Ended
------------------ -----------------
(Millions of Dollars)
Electric:
Change in retail KWH sales - net of fuel $ 10.3 $ 18.7
Fuel revenue 2.2 3.9
Wholesale revenue (6.5) (6.7)
DSM Tracker revenue 0.3 0.4
Steam revenue (0.1) (1.3)
Other revenue 0.3 (1.7)
------- -------
Total change in operating revenues $ 6.5 $ 13.3
======= ======
The third quarter and nine months increase in retail KWH sales compared
to the similar periods in 1998 resulted from a $9.9 million change in the
estimate for unbilled revenue as well as from economic growth in Indianapolis.
The third quarter of 1999 saw milder temperatures compared to last year. As a
result, cooling degree days decreased 4%. The nine month ended increase in
retail KWH sales compared to the same period in 1998 reflects colder weather
during the first quarter of 1999 partially offset by milder weather during the
summer. As a result, heating degree days were up 16% while cooling degree days
were down 5% during the nine months ended September 30, 1999, compared to the
same period in 1998. The changes in fuel revenues in 1999 from the prior year
reflect changes in total fuel costs billed to customers. Wholesale revenue
decreased during the third quarter and nine months ended of 1999 due to an
unusually high level of generating unit outages during peak demand conditions.
Operating Expenses
- ------------------
Fuel costs decreased by $6.6 million and $1.9 million in the third
quarter and nine months ended September 1999, respectively, compared to the
similar periods last year. The third quarter decrease was primarily due to an
unusually high level of generating unit outages during the third quarter of
1999. The nine months ended decrease was primarily due to decreased average fuel
costs partially offset by increased total KWH sales.
Other operating expenses decreased $5.1 million and $14.9 million in
the third quarter and nine months ended September 1999, respectively, compared
to the similar periods in 1998. The third quarter decrease was primarily due to
decreased administrative and general expense of $4.4 million related to
decreased benefits expense, and decreased distribution expense of $1.0 million.
The nine months ended decrease was due to decreased administrative and general
expense of $6.2 million, increased sales of emission allowances of $4.7 million
(reduces operating expenses), decreased customer service and information expense
of $2.1 million and decreased distribution expense of $1.4 million.
Power purchased increased $22.5 million and $22.7 million during the
third quarter and nine months ended September 30, 1999, compared to the similar
periods last year. These increases were due to the unusually high level of
generating unit outages during peak demand conditions ($13.4 million) and higher
market prices for scheduled summer peaking power ($9.1 million).
Maintenance expense increased $3.8 million and $5.6 million during the
third quarter and nine months ended September 30, 1999, compared to the similar
periods last year. The increase in expense was due to unplanned maintenance for
unit outages. Also contributing to the nine months ended increase was the
overhaul of unit 1 at the Petersburg plant during early 1999.
As a result of the foregoing, utility operating income decreased 6.3%
during the third quarter of 1999 from the comparable 1998 period, to $48.4
million. Utility operating income during the nine months ended September 1999
increased .1% from the comparable 1998 period, to $141.1 million.
Other Income and Deductions
- ---------------------------
During the third quarter of 1998, a gain from the termination of an
agreement to purchase power was recognized by IPL in the amount of $12.5
million.
New Accounting Pronouncement
- ----------------------------
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities," that IPL will be required to adopt in 2001 (see Note 4
in the Notes to Financial Statements for further discussion).
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- ------- -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits. Copies of documents listed below which are
identified with an asterisk (*) are incorporated herein by
reference and made a part hereof. The management contracts or
compensatory plans are marked with a double asterisk (**)
after the description of the contract or plan.
3.1* Articles of Incorporation of Indianapolis Power & Light Company, as
amended. (Form 10-K for the year ended 12-31-97.)
3.2* Bylaws of Indianapolis Power & Light Company, as amended. (Exhibit 3.2
to the Form 10-Q dated 3-31-99.)
4.1* Mortgage and Deed of Trust, dated as of May 1, 1940, between
Indianapolis Power & Light Company and American National Bank and Trust
Company of Chicago, Trustee, as supplemented and modified by 42
Supplemental Indentures.
Exhibits D in File No. 2-4396; B-1 in File No. 2-6210; 7-C
File No. 2-7944; 7-D in File No.2-72944; 7-E in File No. 2-8106; 7-F in
File No. 2-8749; 7-G in File No. 2-8749; 4-Q in File No. 2-10052;2-I in
File No. 2-12488; 2-J in File No. 2-13903; 2-K in File No. 2-22553; 2-L
in File No. 2-24581; 2-M in File No. 2-26156; 4-D in File No. 2-26884;
2-D in File No. 2-38332; Exhibit A to Form 8-K for October 1970;Exhibit
2-F in File No. 2-47162; 2-F in File No. 2-50260; 2-G in File
No.2-50260; 2-F in File No. 2-53541; 2E in File No. 2-55154; 2E in File
No. 2-60819; 2F in File No. 2-60819; 2-G in File No. 2-60819; Exhibit A
to Form 10-Q for the quarter ended 9-30-78 File No. 1-3132; 13-4 in
File No. 2-73213; Exhibit 4 in File No.2-93092. Twenty-eighth,
Twenty-ninth and Thirtieth Supplemental Indentures. (Form 10-K dated
for the year ended December 31, 1985.)
4.2* Thirty-Second Supplemental Indenture dated as of June 1, 1989.
(Form 10-K for year ended 12-31-89.)
4.3* Thirty-Third Supplemental Indenture dated as of August 1, 1989.
(Form 10-K for year ended 12-31-89.)
4.4* Thirty-Fourth Supplemental Indenture dated as of October 15, 1991.
(Form 10-K for year ended 12-31-91.)
4.5* Thirty-Fifth Supplemental Indenture dated as of August 1, 1992.
(Form 10-K for year ended 12-31-92.)
4.6* Thirty-Sixth Supplemental Indenture dated as of April 1, 1993.
(Form 10-Q for quarter ended 9-30-93.)
4.7* Thirty-Seventh Supplemental Indenture dated as of October 1, 1993.
(Form 10-Q for quarter ended 9-30-93.)
4.8* Thirty-Eighth Supplemental Indenture dated as of October 1, 1993.
(Form 10-Q for quarter ended 9-30-93.)
4.9* Thirty-Ninth Supplemental Indenture dated as of February 1, 1994.
(Form 8-K, dated 1-25-94.)
4.10* Fortieth Supplemental Indenture dated as of February 1, 1994.
(Form 8-K, dated 1-25-94.)
4.11* Forty-First Supplemental Indenture dated as of January 15, 1995.
(Exhibit 4.12 to the Form 10-K dated 12-31-94.)
4.12* Forty-Second Supplemental Indenture dated as of October 1, 1995.
(Exhibit 4.12 to the Form 10-K dated 12-31-95.)
10.1 First amendment to the Indianapolis Power & Light Company Supplemental
Retirement Plant & Trust Agreement for a select group of management
employees. **
21.1* Subsidiaries of the Registrant. (Exhibit 21.1 to the Form 10-K dated
12-31-96.)
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None
<PAGE>
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.
INDIANAPOLIS POWER & LIGHT COMPANY
----------------------------------
(Registrant)
Date: November 12, 1999 /s/ John R. Brehm
------------------------- -------------------------------
John R. Brehm
Senior Vice President, Finance
Date: November 12, 1999 /s/ Stephen J. Plunkett
------------------------- --------------------------------
Stephen J. Plunkett
Controller
Exhibit 10.1
FIRST AMENDMENT TO THE
----------------------
INDIANAPOLIS POWER & LIGHT COMPANY
----------------------------------
SUPPLEMENTAL RETIREMENT PLAN AND TRUST AGREEMENT
------------------------------------------------
FOR A SELECT GROUP OF MANAGEMENT EMPLOYEES
------------------------------------------
(AS LAST AMENDED AND RESTATED
-----------------------------
EFFECTIVE JANUARY 1, 1999)
--------------------------
Pursuant to Section 12.01 of the Indianapolis Power & Light Company
Supplemental Retirement Plan and Trust Agreement for a Select Group of
Management Employees (the "Plan"), as last amended and restated effective
January 1, 1999, the Compensation Committee of the Board of Directors of IPALCO
Enterprises, Inc. ("Compensation Committee") hereby amends Section 4.01 of the
Plan to read in its entirety, as follows:
Section 4.01. Entitlement to Retirement Benefits . Entitlement to
Retirement Benefits . A Participant who retires or otherwise terminates his
employment with the Employer for reasons other than his death shall be entitled
to receive monthly supplemental pension benefits under this Plan only if:
(a) his employment with the Employer terminates on or after
his attainment of the Normal Retirement Age,
(b) his employment with the Employer terminates by reason of
his incurring a Total Disability, or
(c) his employment with the Employer terminates after his
completion of at least one (1) Year of Service.
The amount of the monthly supplemental pension benefits to which an eligible
Participant is entitled upon his retirement or other termination of employment
shall be equal to the Vested Portion of his Post-Tax Adjusted Benefit; provided,
however, that the amount of a Participant's Post-Tax Adjusted Benefit shall be
redetermined each January 1; provided, further, that under no circumstances may
the Post-Tax Adjusted Benefit payable to a Participant be less than the Vested
Portion of his Adjusted Accrued Benefit as determined on February 29, 1996. The
non-Vested Portion of a Participant's Post-Tax Adjusted Benefit shall be
governed by Section 4.02. The monthly payments shall begin on the first (1st)
calendar day of the month coinciding with or next following the date on which a
Participant attains his Normal Retirement Age or, if later, the date his
employment with the Employer is terminated and shall continue through the month
in which his death occurs; provided, however, that if a Participant's employment
with the Employer is terminated before his attainment of the Normal Retirement
Age, he may elect with the consent of the Company to have his benefits begin on
the first (1st) calendar day of the month following the date on which his
employment with the Employer is terminated or, if later, the first (1st) day of
the calendar month immediately following his attainment of age fifty-five (55).
If benefit payments to a Participant begin before his attainment of the Normal
Retirement Age, the amount of such Participant's monthly supplemental pension
benefits shall be reduced to the extent and in the same manner as such payments
would be reduced if made from the Company Retirement Plan; provided, however,
that notwithstanding anything contained in this Section to the contrary, a
Participant:
(a) who is:
(i) a Senior Executive Officer or
(ii) an Other Executive Officer specifically designated
by the Compensation Committee, and
(b) who at the date of his employment termination with the
Employer is at least age fifty-five (55) and has
completed at least thirty (30) years of Service
shall be eligible to elect the immediate commencement of his monthly
supplemental pension benefits without reduction; provided, further, that an
Other Executive Officer whose combined age and Service at the date of his
employment termination with the Employer is at least eighty-five (85) and who as
of his employment termination date has reached age fifty-five (55) but has not
reached age sixty-two (62) shall under no circumstances have a reduction in his
monthly supplemental pension benefit greater than twenty-five one-hundredths
(0.25) for each calendar month in which the benefit commencement date precedes
the date on which the Participant would have reached age sixty-two (62). If a
Participant is married at the date his benefit payments are to commence and
notwithstanding anything contained in this Plan to the contrary, his monthly
benefits shall be paid in the form of an actuarially equivalent joint and
survivor annuity determined in the same manner as the Joint and Survivor Annuity
Option under Section 205.50 of the Company Retirement Plan, unless such
Participant, with the written consent of his spouse witnessed by a Notary
Public, elects not to have his benefits paid in such form.
Payment of benefits under this Section 4.01 shall be made in accordance
with and consistent with the requirements set forth in Section 205 of ERISA;
provided, however, that subject to the applicable spousal consent requirements
contained in Section 205 of ERISA, a Participant may elect for his benefits to
be paid in any actuarially equivalent form of payment which is available under
the Company Retirement Plan (other than a single lump sum payment).
This First Amendment to the Plan has been executed on
this day of , 1996 and shall be effective as of
March 1, 1996.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF
IPALCO ENTERPRISES, INC.
By:
/s/ Otto N. Frenzel III
Its Chairman
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000050217
<NAME> INDIANAPOLIS POWER & LIGHT COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,725,024
<OTHER-PROPERTY-AND-INVEST> 5,750
<TOTAL-CURRENT-ASSETS> 175,354
<TOTAL-DEFERRED-CHARGES> 121,211
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,027,339
<COMMON> 324,537
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 438,080
<TOTAL-COMMON-STOCKHOLDERS-EQ> 765,259
0
59,135
<LONG-TERM-DEBT-NET> 627,937
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 23,500
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 551,508
<TOT-CAPITALIZATION-AND-LIAB> 2,027,339
<GROSS-OPERATING-REVENUE> 632,356
<INCOME-TAX-EXPENSE> 65,628
<OTHER-OPERATING-EXPENSES> 425,629
<TOTAL-OPERATING-EXPENSES> 491,257
<OPERATING-INCOME-LOSS> 141,099
<OTHER-INCOME-NET> 1,123
<INCOME-BEFORE-INTEREST-EXPEN> 142,222
<TOTAL-INTEREST-EXPENSE> 29,903
<NET-INCOME> 112,319
2,410
<EARNINGS-AVAILABLE-FOR-COMM> 109,909
<COMMON-STOCK-DIVIDENDS> 108,065
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 181,946
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
