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, 2000 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, 2000
----- ---------------------------------
Common (Without Par Value) 17,206,630 Shares
<PAGE>
INDIANAPOLIS POWER & LIGHT COMPANY
----------------------------------
INDEX
-----
Page No.
--------
PART I. FINANCIAL INFORMATION
------- ---------------------
Statements of Income - Three Months Ended and
Nine Months Ended September 30, 2000 and 1999 2
Balance Sheets - September 30, 2000 and
December 31, 1999 3
Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 4
Notes to Financial Statements 5-7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
PART II. OTHER INFORMATION 13-15
-------- -----------------
<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
2000 1999 2000 1999
----------- ----------- ------------ -----------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Electric $ 218,392 $ 221,844 $ 617,108 $ 607,299
Steam 6,328 6,671 23,401 25,057
----------- ----------- ------------ -----------
Total operating revenues 224,720 228,515 640,509 632,356
----------- ----------- ------------ -----------
OPERATING EXPENSES:
Operation:
Fuel 49,141 43,026 141,295 131,969
Other 38,171 33,728 108,562 97,248
Power purchased 8,672 25,427 11,694 29,455
Purchased steam 1,238 1,218 4,469 4,581
Maintenance 19,432 18,906 60,601 55,733
Depreciation and amortization 28,141 27,008 83,445 80,362
Taxes other than income taxes 9,066 8,660 27,643 26,281
Income taxes - net 25,917 22,128 67,904 65,628
----------- ----------- ------------ -----------
Total operating expenses 179,778 180,101 505,613 491,257
----------- ----------- ------------ -----------
OPERATING INCOME 44,942 48,414 134,896 141,099
----------- ----------- ------------ -----------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used during construction 293 270 1,843 940
Other - net (1,205) 380 (22,029) 322
Income taxes - net 525 (187) 7,147 (139)
----------- ----------- ------------ -----------
Total other income - net (387) 463 (13,039) 1,123
----------- ----------- ------------ -----------
INCOME BEFORE INTEREST CHARGES 44,555 48,877 121,857 142,222
----------- ----------- ------------ -----------
INTEREST CHARGES:
Interest 10,125 10,183 31,031 30,495
Allowance for borrowed funds used during construction (134) (175) (875) (592)
----------- ----------- ------------ -----------
Total interest charges 9,991 10,008 30,156 29,903
----------- ----------- ------------ -----------
NET INCOME 34,564 38,869 91,701 112,319
----------- ----------- ------------ -----------
PREFERRED DIVIDEND REQUIREMENTS 803 803 2,410 2,410
----------- ----------- ------------ -----------
INCOME APPLICABLE TO COMMON STOCK $ 33,761 $ 38,066 $ 89,291 $ 109,909
=========== =========== ============ ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Balance Sheets
(In Thousands)
(Unaudited)
<CAPTION>
September 30 December 31
2000 1999
-------------- ---------------
ASSETS
------
UTILITY PLANT:
<S> <C> <C>
Utility plant in service $ 2,969,015 $ 2,922,338
Less accumulated depreciation 1,361,958 1,299,122
-------------- ---------------
Utility plant in service - net 1,607,057 1,623,216
Construction work in progress 95,542 116,478
Property held for future use 10,718 10,718
-------------- ---------------
Utility plant - net 1,713,317 1,750,412
-------------- ---------------
OTHER PROPERTY -
At cost, less accumulated depreciation 5,673 5,753
-------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 9,311 16,234
Accounts receivable and unbilled revenue (less allowance
for doubtful accounts 2000, $1,512 and 1999, $1,091) 48,857 49,599
Fuel - at average cost 34,583 50,985
Materials and supplies - at average cost 48,978 48,106
Tax refund receivable 40 3,549
Prepayments and other current assets 1,204 8,120
-------------- ---------------
Total current assets 142,973 176,593
-------------- ---------------
DEFERRED DEBITS:
Regulatory assets 100,310 107,948
Miscellaneous 5,549 8,044
-------------- ---------------
Total deferred debits 105,859 115,992
-------------- ---------------
TOTAL $ 1,967,822 $ 2,048,750
============== ===============
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 450,516 453,331
-------------- ---------------
Total common shareholder's equity 777,695 780,510
Cumulative preferred stock 59,135 59,135
Long-term debt (less current maturities
and sinking fund requirements) 627,998 627,951
-------------- ---------------
Total capitalization 1,464,828 1,467,596
-------------- ---------------
CURRENT LIABILITIES:
Notes payable - banks and commercial paper - 49,000
Accounts payable and accrued expenses 49,428 53,437
Dividends payable 20,061 13,668
Taxes accrued 21,376 22,078
Interest accrued 9,886 12,898
Other current liabilities 12,892 13,356
-------------- ---------------
Total current liabilities 113,643 164,437
-------------- ---------------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
Accumulated deferred income taxes - net 323,074 339,986
Unamortized investment tax credit 37,150 39,226
Accrued postretirement benefits - 4,338
Accrued pension benefits 26,127 29,018
Miscellaneous 3,000 4,149
-------------- ---------------
Total deferred credits and other long-term liabilities 389,351 416,717
-------------- ---------------
COMMITMENTS AND CONTINGENCIES
TOTAL $ 1,967,822 $ 2,048,750
============== ===============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
INDIANAPOLIS POWER & LIGHT COMPANY
Statements of Cash Flows
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATIONS:
<S> <C> <C>
Net income $ 91,701 $ 112,319
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 82,880 79,403
Amortization of regulatory assets 9,931 10,768
Deferred income taxes and investment tax credit adjustments - net (20,981) (1,313)
Allowance for funds used during construction (2,718) (1,532)
Provision for impairment of assets 18,985 -
Change in certain assets and liabilities:
Accounts receivable 742 (16,094)
Fuel, materials and supplies 15,530 183
Accounts payable (4,009) (4,528)
Taxes accrued (702) 13,949
Accrued pension benefits (2,891) (1,800)
Other - net 1,724 (6,274)
-------------- --------------
Net cash provided by operating activities 190,192 185,081
-------------- --------------
CASH FLOWS FROM INVESTING:
Construction expenditures (62,346) (52,888)
Other 2,353 (2,218)
-------------- --------------
Net cash used in investing activities (59,993) (55,106)
-------------- --------------
CASH FLOWS FROM FINANCING:
Issuance of long-term debt - 23,500
Special deposit for retirement of debt - (23,500)
Short-term debt - net (49,000) (19,200)
Dividends paid (88,122) (110,475)
Other - (103)
-------------- --------------
Net cash used in financing activities (137,122) (129,778)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (6,923) 197
Cash and cash equivalents at beginning of period 16,234 4,250
-------------- --------------
Cash and cash equivalents at end of period $ 9,311 $ 4,447
============== ==============
----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest (net of amount capitalized) $ 31,855 $ 32,424
============== ==============
Income taxes $ 84,908 $ 47,888
============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
INDIANAPOLIS POWER & LIGHT COMPANY
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. GENERAL
Indianapolis Power & Light Company (IPL) is a subsidiary of IPALCO
Enterprises, Inc. (IPALCO). 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 1999 Annual Report on
Form 10-K.
2. SEGMENT REPORTING
Operating segments are components of an enterprise for which separate
financial information is available and is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance. IPL's reportable business segments are
electric and "all other." Steam operations of IPL are in the "all other"
category. The accounting policies of the identified segments are
consistent with those policies and procedures described in the summary
of significant accounting policies (see Note 1 in IPL's 1999 Annual
Report on Form 10-K). The following tables provide information about
IPL's business segments:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
All All All All
Electric Other Total Electric Other Total Electric Other Total Electric Other Total
-------- ----- ----- -------- ----- ----- -------- ----- ----- -------- ----- -----
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues $218 $ 7 $225 $222 $ 7 $229 $617 $ 24 $641 $607 $ 25 $632
Depreciation and
Amortization 27 1 28 26 1 27 81 2 83 78 2 80
Pre-tax Operating
Income (Loss) 71 - 71 70 1 71 201 2 203 203 4 207
Income Taxes 26 - 26 22 - 22 67 1 68 65 1 66
Capital Expenditures 18 - 18 20 - 20 65 - 65 53 2 55
</TABLE>
Property - net of Depreciation is $1.713 billion and $1.750 billion in
total for the periods ending September, 2000 and December, 1999,
respectively. Within Property - net of Depreciation, the Electric
segment is $1.659 billion and $1.674 billion for 2000 and 1999,
respectively. The All Other segment is $54 million and $76 million for
2000 and 1999, respectively.
3. 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. In June
2000, SFAS 138 was issued to amend the accounting and reporting
standards of Statement 133 for certain derivative instruments and
certain hedging activities. The amendment to SFAS 133 includes expansion
of the normal purchases and sales exception to most contracts for which
physical delivery of the asset being sold or purchased is probable. This
amendment has substantially reduced the scope of SFAS 133 implementation
efforts by IPL. Based on IPL's understanding of the amended normal
purchases and sales exception, it has not expected SFAS 133 to have a
significant impact on its financial position or results of operations.
Recently, however, a number of issues have arisen in the industry with
regard to whether or not certain power contracts fall within the scope
of SFAS 133. These issues are expected to be addressed by the SFAS 133
task force of the Financial Accounting Standards Board during the fourth
quarter of 2000. IPL will continue SFAS 133 implementation efforts
during the last quarter of 2000, including monitoring developments
regarding the recent SFAS 133 scope issues discussed above.
4. SALE OF STEAM ASSETS
During March, 2000, IPL announced an agreement for the sale of certain
assets (the "Assets") to Citizens Gas & Coke Utility. The Assets include
the Perry K Steam Plant and downtown steam distribution system (Steam)
operated by IPL. The anticipated selling price of the Assets is
approximately $54.6 million. The 1999 EBITDA (earnings before interest,
taxes, depreciation and amortization) and net income of the steam system
was $8.1 million and $1.8 million, respectively. Government approvals for
the sale have been obtained and the transaction is expected to be
completed in the fourth quarter of 2000. In the second quarter of 2000,
IPL recorded an impairment provision on the carrying amounts of the steam
system assets. The pre tax asset impairment provision was $19.0 million
($13.5 million after tax).
5. AES ACQUISITION OF IPALCO
On July 15, 2000, IPALCO and The AES Corporation, a Delaware corporation
("AES"), entered into an Agreement and Plan of Share Exchange (the
"Share Exchange Agreement") whereby AES will acquire IPALCO for $25.00
per share (subject to adjustment as described at the end of the next
paragraph) in a stock-for-stock transaction valued at approximately
$2.15 billion plus the assumption of $890 million of debt and preferred
stock.
Under the terms of the agreement, the final exchange ratio will be
determined five business days prior to closing, based on the average
daily closing prices of AES common stock for the preceding twenty
trading days. Upon closing, each share of IPALCO common stock will be
exchanged for AES shares with a market value of $25.00, so long as the
average price of AES common stock (determined as described above) is not
below $31.50. If the average price of AES common stock is below $31.50
per share, IPALCO shareholders will receive a fixed ratio of .794 shares
of AES common stock per share of IPALCO common stock. If the average
price of AES common stock is below $26.45 (an effective price to IPALCO
shareholders of $21.00 per share of IPALCO common stock), IPALCO has the
right to terminate the transaction. The transaction is expected to be
tax free to IPALCO shareholders. Upon closing, IPALCO will become a
wholly-owned subsidiary of AES with its headquarters remaining in
Indianapolis. IPL will remain a subsidiary of IPALCO.
On October 20, 2000, IPALCO shareholders approved the Agreement and Plan
of Share Exchange with AES at a Special Meeting of Shareholders.
Completion of the transaction remains subject to certain other
conditions, including receipt of certain regulatory approvals including
that of the Federal Energy Regulatory Commission and the Securities and
Exchange Commission. The parties anticipate receiving regulatory
approvals and closing the transaction by early 2001. Additionally, as
part of the SEC approval process, AES expects to restructure its
ownership interests in CILCORP, another subsidiary of AES, within a
specified period of time in order to continue as an exempt holding
company under the Public Utility Holding Company Act of 1935. If the
closing of the transaction is delayed beyond March 31, 2001 for failure
to receive necessary SEC approvals, the purchase price per IPALCO share,
determined as outlined above, will be increased by $0.15 plus a daily
"ticking fee" equal to $0.375 per calendar quarter.
6. VOLUNTARY EARLY RETIREMENT PROGRAM
On November 9, 2000, IPL and AES approved a special one-time Voluntary
Early Retirement Program (VER Program).
IPL announced the special one-time VER Program in a letter distributed
to its employees. This program offers enhanced retirement benefits upon
early retirement to eligible employees. The VER Program is available to
all employees, except officers, whose combined age and years of service
total at least 75 on June 30, 2001. Participation is limited to the
first 400 qualified employees who accept the VER Program and complete
required waiting and revocation periods. Participants can elect actual
retirement dates of March 1, 2001, April 1, 2001, May 1, 2001, June 1,
2001 or July 1, 2001. IPL expects the VER Program to be completed,
including the expiration of all revocation periods by December 30, 2000.
IPL will recognize the estimated $63 million pre-tax non-cash pension
and other post-retirement benefit costs of the VER Program in the fourth
quarter 2000. IPL anticipates VER Program related cash contributions
for pension and other post-retirement benefits of $9 million in 2001 and
$3 million in 2002. These estimates are based on actuarial assumptions
using an 8.0% discount rate.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
IPL hereby files 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, contains forward-looking statements. Forward-looking
statements 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. 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, the pending transaction with AES, including the
conditions thereto, fluctuations in customer growth and demand, weather, fuel
costs, generating unit availability, purchased power costs and availability,
regulatory action, environmental matters, 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 affect IPL's
financial performance. The timing of deregulation and competition, product
development and technology changes are also important potential factors.
All such factors are difficult to predict, contain uncertainties that
may materially affect actual results and are beyond the control of IPL.
LIQUIDITY AND CAPITAL RESOURCES
Overview
--------
The Board of Directors of Indianapolis Power & Light Company (IPL)
declared dividends on common stock of $39.2 million during the third quarter of
2000. 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 and for
environmental compliance. Construction expenditures (excluding allowance for
funds used during construction) totaled $17.2 million during the quarter ended
September 30, 2000, representing a $1.9 million decrease from the comparable
period in 1999. Internally generated cash provided by IPL's operations funded
construction expenditures during the third quarter of 2000. Construction
expenditures (excluding allowance for funds used during construction) totaled
$62.3 million during the nine months ended September 30, 2000, representing a
$9.5 million increase from the comparable period in 1999. Internally generated
cash provided by IPL's operations funded construction expenditures during the
first nine months of 2000.
IPL's construction program for the three-year period 2000-2002 is
estimated to cost $294.0 million including AFUDC. The estimated cost of the
program by year (in millions) is $106.5 in 2000, $103.9 in 2001 and $83.6 in
2002. It includes $152.2 million for additions, improvements and extensions to
transmission and distribution lines, substations, power factor and voltage
regulating equipment, distribution transformers and street lighting facilities.
The construction program also includes $6.6 million in 2000 for construction of
a 100-megawatt combustion turbine. The turbine was placed in service during May
2000, and less than 1% of related construction costs remain unexpended as of
September 30, 2000. These projected amounts also include $20.7 million of costs
during the period associated with new environmental standards promulgated by the
EPA which are currently expected to be appealed to the United States Supreme
Court. (See also "NOx SIP Call" below.)
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, 2000:
<TABLE>
<CAPTION>
Maturity Schedule
Period Ending September 30
Fair
(Dollars in Millions) 2001 2002 2003 2004 2005 Thereafter Total Value
---------------------------------------------------------------------------------------------------------
Long-term debt
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate - - - $80.0 - $375.3 $455.3 $446.4
Average rate - - - 6.1% - 6.9% 6.7%
Variable - - - - - $173.5 $173.5 $173.5
Average rate - - - - - 4.3% 4.3%
</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 a counterparty 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, 2000, IPL had an interest rate swap agreement with a
notional amount of $40 million, which expires in January 2023. IPL agrees to pay
interest at a fixed rate of 5.21% to a swap counter party and receive a variable
rate based on the tax-exempt weekly rate. The fair value of IPL's swap agreement
was $(0.8) million at September 30, 2000.
National Ambient Air Quality Standards
--------------------------------------
On July 16, 1997, the United States Environmental Protection Agency (EPA)
promulgated final rules tightening the National Ambient Air Quality Standards
for ozone and creating new fine particulate matter 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. The Supreme Court
has accepted EPA's petition to review the Court of Appeals' decision, and a
decision is expected by summer 2001.
NOx SIP Call
------------
On October 27, 1998, 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 nitrogen oxides (NOx) from fossil-fuel fired steam
electric generators, such as those operated by IPL. This rule (the NOx SIP Call)
was based in part on the new ozone standards that were later held unlawful in
the Court of Appeals' decision discussed above. In a separate decision on May
25, 1999, the Court of Appeals stayed the compliance deadlines in the NOx SIP
Call. The Court of Appeals later issued a decision largely upholding the NOx SIP
Call. Litigants challenging the NOx SIP Call, including IPL, have petitioned for
review by the United States Supreme Court.
Because power plants emit nitrogen oxides, as well as fine particulate
matter, existing IPL sources may be required to be retrofitted with additional
air pollution controls in the future, either as a result of the EPA regulations
discussed above or future regulatory actions.
EPA's NOx SIP Call would require operators of coal-fired electric utility
boilers in the affected states to limit NOx emissions to 0.15 pounds per million
BTUs of heat input as a system-wide average. That limit calls for a reduction of
about 85% from 1990 average emissions from coal-fired electric utility boilers,
and a reduction of about 57% from IPL's current emissions.
It is not possible to predict whether EPA's NOx SIP Call will ultimately
survive judicial review. Nor is it possible at this time to predict accurately
the costs of compliance. IPL's preliminary estimates are that the NOx SIP Call
would necessitate capital expenditures of about $160 million. Only $20.7 million
of such amount has been included in IPL's 2000-2002 construction program;
consequently, such program could change substantially.
As to timing, if the requirements of the NOx SIP Call became effective,
they would likely do so during the 2000-2001 period and would probably
necessitate deployment of capital during the period between 2000 and 2004. There
can be no certainty about these estimates.
IPL expects to refine the above estimates as engineering studies progress
and when, as, and if such rules become effective.
Sale of Steam Assets
--------------------
See Note 4 in the Notes to Financial Statements.
AES Acquisition of IPALCO
-------------------------
See Note 5 in the Notes to Financial Statements.
Voluntary Early Retirement Program
----------------------------------
See Note 6 in the Notes to Financial Statements.
<PAGE>
RESULTS OF OPERATIONS
Comparison of Third Quarter and Nine Months Ended September 30, 2000
--------------------------------------------------------------------
with Third Quarter and Nine Months Ended September 30, 1999
-----------------------------------------------------------
Income applicable to common stock for the third quarter 2000 was $33.8
million, a $4.3 million decrease from the third quarter of 1999. Income
applicable to common stock during the nine months ended September 2000 was $89.3
million, a $20.6 million decrease compared to the same period last year. The
following discussion highlights the factors contributing to this result.
Operating Revenues
------------------
Operating revenues decreased $3.7 million during the third quarter
ended September 2000 compared to the similar period last year. Operating
revenues for the nine months ended September 2000 increased $8.2 million from
the comparable 1999 period. These results were due to the following:
Increase (Decrease) from Comparable 1999 Period
-----------------------------------------------
September 30, 2000
------------------
Three Months Ended Nine Months Ended
------------------ -----------------
(Millions of Dollars)
Electric:
Change in retail KWH sales mix - net of fuel 1.9 8.2
Change in estimate for unbilled revenue (8.0) (8.0)
Fuel revenue 0.8 3.8
Wholesale revenue 3.2 5.9
DSM Tracker revenue (0.3) (0.1)
Steam revenue (0.4) (1.7)
Other revenue (0.9) 0.1
--------- ---------
Total change in operating revenues $ (3.7) $ 8.2
========= =========
The third quarter and nine months ended September 30, 2000 increase in
retail revenue compared to the similar periods in 1999 resulted from economic
growth in Indianapolis offset by milder temperatures compared to last year.
Cooling degree days fell 22.0% compared to 1999 and were 6.5% below normal. The
nine months ended increase in retail revenue compared to the same period in 1999
reflects a higher realization per kilowatt-hour sold partially offset by milder
weather during the summer. Both the third quarter and nine months ended
variances from prior year reflect the change in the estimate for unbilled
revenue recorded during 1999. The changes in fuel revenues in 2000 from the
prior year reflect changes in total fuel costs billed to customers. Wholesale
revenue increased during the third quarter of 2000 due to favorable wholesale
market conditions and generating unit availability. Steam revenue decreased
during the nine months ended 2000 primarily due to a decrease in heating degree
days.
Operating Expenses
------------------
Fuel costs increased by $6.1 million and $9.3 million in the third
quarter and nine months ended September 30, 2000, respectively, compared to the
similar periods last year. These increases were primarily due to higher KWH
generation due to generating unit availability and increases in deferred fuel.
Other operating expenses increased $4.4 million and $11.3 million in
the third quarter and nine months ended September 30, 2000, respectively,
compared to the similar periods in 1999. The third quarter increase was
primarily due to rental costs of $2.2 million for portable diesel generators
used to supplement generation during the summer months. The nine months ended
increase was primarily due to decreased sales of emission allowances of $4.5
million, which was recorded as a credit to operating expenses in 1999, and
rental costs of $3.2 million for portable diesel generators used to supplement
generation during the summer months.
Power purchased decreased $16.8 million and $17.8 million during the
third quarter and nine months ended September 30, 2000, respectively, compared
to the similar periods last year primarily because the prior year totals reflect
an unusually high level of purchases caused by generating unit outages during
peak demand conditions and higher market prices for scheduled summer peaking
power.
Maintenance expense increased $.6 million and $4.9 million during the
third quarter and nine months ended September 30, 2000, respectively, compared
to the similar periods last year. The increase in expense was due primarily to
costs associated with the timing of generating unit overhauls and outages.
Income taxes-net increased $3.8 million and $2.3 million in the third
quarter and nine months ended periods, respectively, due to increases in pretax
operating income and a $3.2 million adjustment to the income tax accrual offset
by a decrease in deferred taxes.
Other Income and Deductions
---------------------------
Other - net decreased $1.6 million and $22.4 million during the third
quarter and nine months ended September 30, 2000, respectively. The third
quarter decrease was primarily a result of decreased insurance recoveries. The
nine months ended variance was primarily due to an asset impairment loss
recognized in conjunction with the sale of steam assets (see Note 4 in the Notes
to Financial Statements).
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 3
in the Notes to Financial Statements for further discussion).
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
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See "NOx SIP Call" under Item 2, Other.
Item 6. Exhibits and Reports on Form 8-K
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(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. (Exhibit 3.1 to the 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 for the quarter ended 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* Supplemental Indentures 32 through 42 as follows:
Thirty-Second Supplemental Indenture dated as of June 1, 1989.
Thirty-Third Supplemental Indenture dated as of August 1, 1989.
Thirty-Fourth Supplemental Indenture dated as of October 15, 1991.
Thirty-Fifth Supplemental Indenture dated as of August 1, 1992.
Thirty-Sixth Supplemental Indenture dated as of April 1, 1993.
Thirty-Seventh Supplemental Indenture dated as of October 1, 1993.
Thirty-Eighth Supplemental Indenture dated as of October 1, 1993.
Thirty-Ninth Supplemental Indenture dated as of February 1, 1994.
Fortieth Supplemental Indenture dated as of February 1, 1994.
Forty-First Supplemental Indenture dated as of January 15, 1995.
Forty-Second Supplemental Indenture dated as of October 1, 1995.
10.1* Interconnection Agreement dated December 30, 1960, between IPL and
Indiana & Michigan Electric Company (nka Indiana Michigan Power
Company) as modified through Modification 17 and Addendum V.
10.2* Interconnection Agreement dated May 1, 1992, among Indianapolis Power &
Light Company, PSI Energy, Inc. and CINERGY Services, Inc. as modified
through Amendment Number 9.
10.3* Interconnection Agreement dated December 2, 1969, between Indianapolis
Power & Light Company and Southern Indiana Gas and Electric Company as
modified through Modification No. 11.
10.4* Interconnection Agreement dated December 1, 1981, between Indianapolis
Power & Light Company and Hoosier Energy Rural Electric Cooperative,
Inc., as modified through Modification No. 6.
10.5* Interconnection Agreement dated October 7, 1987, between Indianapolis
Power & Light Company and Wabash Valley Power Association, as modified
through Modification No. 2.
10.6* Interconnection Agreement between Indianapolis Power & Light Company
and Indiana Municipal Power Agency as modified through Modification
No. 2.
21.1* Subsidiaries of the Registrant. (Exhibit 21.1 to the Form 10-K dated
12-31-99.)
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 13, 2000 /s/ John R. Brehm
---------------------- ---------------------------------------
John R. Brehm
Senior Vice President, Finance
Date: November 13, 2000 /s/ Stephen J. Plunkett
---------------------- ---------------------------------------
Stephen J. Plunkett
Controller
