Ipalco Enterprises Inc.

11/04/2025 | Press release | Distributed by Public on 11/04/2025 15:20

Quarterly Report for Quarter Ending 2025-09-30 (Form 10-Q)

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 2024 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 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 AES Indiana. Our business segments are "utility" and "other." For additional information regarding our business, see "Item 1. Business" of IPALCO's 2024 Form 10-K.
EXECUTIVE SUMMARY
Compared with the same periods in the prior year, the results for the three months ended September 30, 2025 reflect higher income before income tax of $14.0 million, or 22.4%, as well as an increase in net income of $1.9 million, or 3.6%, and the results for the nine months ended September 30, 2025 reflect higher income before income tax of $38.7 million, or 33.8%, as well as an increase in net income of $0.6 million, or 0.7%, primarily due to factors including, but not limited to:
Three Months Ended Nine Months Ended
September 30, September 30,
$ in millions
2025 vs. 2024 2025 vs. 2024
(Decrease) in retail margin, during the three months ended September 30, 2025, due to lower prices as result of the declining block rate structure. Increase in retail margin, during the nine months ended September 30, 2025, due to higher prices (primarily driven by the 2024 Base Rate Order, including the impact of certain riders now included in base rates)
$ (5.9) $ 50.0
Increase in ECCRA rider revenue due to recovery of certain renewable project investments 14.6 33.9
Increase in retail margin due to higher volumes (primarily driven by weather) 7.8 17.2
Decrease due to higher contracted services expenses and higher materials and supplies inventory consumption, primarily due to higher planned generation maintenance and outage costs (1.6) (21.5)
Decrease due to lower TDSIC rider revenue (primarily driven by certain projects now being included in base rate retail margin after the 2024 Base Rate Order) - (18.2)
Decrease due to higher depreciation expense from additional assets placed in service; partially offset by lower regulatory asset amortization following the 2024 Base Rate Order.
(3.2) (9.2)
Increase / (Decrease) due to lower / (higher) expected credit losses
4.0 (8.7)
Other (1.7) (4.8)
Net change in income before income tax 14.0 38.7
Net change in income tax expense due to higher pre-tax income, a decrease in the net tax benefit related to the reversal of excess deferred taxes of AES Indiana resulting from the 2024 Base Rate Order, and the tax effects associated with HLBV in the current period (12.1) (38.1)
Net change in net income $ 1.9 $ 0.6
See "Results of Operations" below for further discussion.
RESULTS OF OPERATIONS
The electric utility business is affected by seasonal weather patterns throughout the year and, therefore, operating revenue and associated expenses are not generated evenly by month during the year.
Statements of Operations Highlights
Three Months Ended Nine Months Ended
September 30, September 30,
$ in Thousands 2025 2024 $ Change % Change 2025 2024 $ Change % Change
REVENUE $ 529,344 $ 449,171 $ 80,173 17.8 % $ 1,445,728 $ 1,254,566 $ 191,162 15.2 %
OPERATING COSTS AND EXPENSES:
Fuel 138,017 96,103 41,914 43.6 % 344,499 276,661 67,838 24.5 %
Power purchased 38,604 31,100 7,504 24.1 % 105,373 113,836 (8,463) (7.4) %
Operation and maintenance 135,041 125,849 9,192 7.3 % 419,957 350,309 69,648 19.9 %
Depreciation and amortization 93,239 85,493 7,746 9.1 % 271,313 248,846 22,467 9.0 %
Taxes other than income taxes 6,262 6,130 132 2.2 % 19,565 20,572 (1,007) (4.9) %
Other, net
- (115) 115 (100.0) % (164) 1,422 (1,586) (111.5) %
Total operating costs and expenses 411,163 344,560 66,603 19.3 % 1,160,543 1,011,646 148,897 14.7 %
OPERATING INCOME 118,181 104,611 13,570 13.0 % 285,185 242,920 42,265 17.4 %
OTHER (EXPENSE) / INCOME, NET:
Allowance for equity funds used during construction 622 1,485 (863) (58.1) % 2,023 3,585 (1,562) (43.6) %
Interest expense (42,211) (44,198) 1,987 (4.5) % (132,794) (131,681) (1,113) 0.8 %
Other (expense) / income, net (210) 484 (694) (143.4) % (1,146) (266) (880) 330.8 %
Total other expense, net (41,799) (42,229) 430 (1.0) % (131,917) (128,362) (3,555) 2.8 %
INCOME BEFORE INCOME TAX 76,382 62,382 14,000 22.4 % 153,268 114,558 38,710 33.8 %
Income tax expense 20,368 8,314 12,054 145.0 % 62,943 24,833 38,110 153.5 %
NET INCOME 56,014 54,068 1,946 3.6 % 90,325 89,725 600 0.7 %
Net loss attributable to noncontrolling interests (7,715) (872) (6,843) 784.7 % (103,296) (24,171) (79,125) 327.4 %
NET INCOME ATTRIBUTABLE TO COMMON STOCK $ 63,729 $ 54,940 $ 8,789 16.0 % $ 193,621 $ 113,896 $ 79,725 70.0 %
Revenue
Revenue during the three and nine months ended September 30, 2025 increased $80.2 million and $191.2 million, respectively, compared to the same periods in 2024, which resulted from the following changes (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2025 2024 $ Change % Change 2025 2024 $ Change % Change
Revenue:
Retail revenue
$ 485,387 $ 434,276 $ 51,111 11.8% $ 1,349,376 $ 1,213,406 $ 135,970 11.2%
Wholesale revenue
41,039 10,183 30,856 303.0% 86,554 29,503 57,051 193.4%
Miscellaneous revenue
2,918 4,712 (1,794) (38.1)% 9,798 11,657 (1,859) (15.9)%
Total revenue
$ 529,344 $ 449,171 $ 80,173 17.8% $ 1,445,728 $ 1,254,566 $ 191,162 15.2%
Heating degree days:
Actual 18 18 - -% 3,185 2,674 511 19.1%
30-year average 46 49 3,244 3,250
Cooling degree days:
Actual 912 835 77 9.2% 1,279 1,300 (21) (1.6)%
30-year average 808 808 1,163 1,160
The following table presents additional data on kWh sold:
Three Months Ended Nine Months Ended
September 30, September 30,
2025 2024 kWh Change % Change 2025 2024 kWh Change % Change
kWh Sales (In Millions):
Residential 1,367 1,325 42 3.2 % 4,031 3,865 166 4.3 %
Small commercial and industrial 470 468 2 0.4 % 1,373 1,363 10 0.7 %
Large commercial and industrial 1,718 1,683 35 2.1 % 4,654 4,594 60 1.3 %
Public lighting 8 8 - - % 26 29 (3) (10.3) %
Sales - retail customers 3,563 3,484 79 2.3 % 10,084 9,851 233 2.4 %
Wholesale 573 174 399 229.3 % 1,343 652 691 106.0 %
Total kWh sold 4,136 3,658 478 13.1 % 11,427 10,503 924 8.8 %
The following graph shows the percentage changes in weather-normalized and actual retail electric kWh sales volumes by customer class for the three months ended September 30, 2025 as compared to the same period in the prior year:
The following graph shows the percentage changes in weather-normalized and actual retail electric kWh sales volumes by customer class for the nine months ended September 30, 2025 as compared to the same period in the prior year:
During the three months ended September 30, 2025, revenue increased $80.2 million compared to the same period of the prior year, and during the nine months ended September 30, 2025, revenue increased $191.2 million compared to the same period of the prior year. These changes were primarily due to the following:
$ in millions Three Months Ended September 30, 2025 vs. 2024 Nine Months Ended September 30, 2025 vs. 2024
Retail revenue:
Volume:
Net increase in the volume of kWh sold primarily due to weather and demand in our service territory versus the comparable period. $ 11.9 $ 28.9
Price:
Net increase in the weighted average price of retail kWh sold primarily due to the 2024 Base Rate Order and higher rider revenues
39.6 106.1
Other:
Primarily due to (decrease) / increase in miscellaneous charges to customers (including reconnection and late fee charges) (0.4) 1.0
Net change in retail revenue
51.1 136.0
Wholesale revenue:
Volume:
Net increase in the volume of wholesale kWh sold. The amount of electricity available for wholesale sales is impacted by our retail load requirements, generation capacity and unit availability.
23.4 31.3
Price:
Net increase in the weighted average price of wholesale kWh sold. Our ability to be dispatched in the MISO market is primarily driven by the locational marginal price of electricity and variable generation costs. 7.5 25.8
Net change in wholesale revenue
30.9 57.1
Miscellaneous revenue
(1.8) (1.9)
Net change in revenue
$ 80.2 $ 191.2
Operating Costs and Expenses
The following table illustrates our changes in Operating costs and expenses during the three and nine months ended September 30, 2025 compared to the same periods in 2024 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2025 2024 $ Change % Change 2025 2024 $ Change % Change
Operating costs and expenses:
Fuel $ 138,017 $ 96,103 $ 41,914 43.6 % $ 344,499 $ 276,661 $ 67,838 24.5 %
Power purchased 38,604 31,100 7,504 24.1 % 105,373 113,836 (8,463) (7.4) %
Operation and maintenance 135,041 125,849 9,192 7.3 % 419,957 350,309 69,648 19.9 %
Depreciation and amortization 93,239 85,493 7,746 9.1 % 271,313 248,846 22,467 9.0 %
Taxes other than income taxes 6,262 6,130 132 2.2 % 19,565 20,572 (1,007) (4.9) %
Other, net
- (115) 115 (100.0) % (164) 1,422 (1,586) (111.5) %
Total operating costs and expenses $ 411,163 $ 344,560 $ 66,603 19.3 % $ 1,160,543 $ 1,011,646 $ 148,897 14.7 %
Fuel
The increases in fuel costs of $41.9 million and $67.8 million during the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year were primarily due to the following:
$ in millions Three Months Ended September 30, 2025 vs. 2024 Nine Months Ended September 30, 2025 vs. 2024
Volume:
Coal $ 22.3 $ 60.2
Natural gas (2.2) (18.8)
Oil (0.3) (0.8)
Net change in volume 19.8 40.6
Price:
Coal (13.4) (42.0)
Natural gas 19.1 49.2
Deferred fuel 16.4 20.0
Net change in price 22.1 27.2
Net change in fuel expense $ 41.9 $ 67.8
The increases in coal volume are mostly attributed to favorable weather conditions during 2025 that impacted our retail load requirements at our Petersburg coal-fired units, which resulted in higher consumption of coal in the current year. The changes in the price of fuel are reflective of market prices for coal and natural gas. 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. Additionally, fuel and purchased power costs incurred for wholesale energy sales are considered in the Off-System Sales Margin rider.
Power Purchased
The increase / (decrease) in power purchased of $7.5 million and $(8.5) million during the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year were primarily due to the following:
$ in millions Three Months Ended September 30, 2025 vs. 2024 Nine Months Ended September 30, 2025 vs. 2024
Volume:
Net decrease in the volume of power purchased primarily due to AES Indiana's generation units running more frequently during the respective periods.
$ (3.7) $ (10.5)
Price:
Market prices
2.4 1.8
Deferred power purchased 7.2 4.0
Net change in price 9.6 5.8
Other, net (mostly due to changes in capacity purchases)
1.6 (3.8)
Net change in power purchased costs $ 7.5 $ (8.5)
The volume of power purchased each period is primarily influenced by retail demand, generating unit capacity and outages, and the relative cost of producing power versus purchasing power in the market. The market price of
purchased power is influenced primarily by changes in the market price of delivered fuel (primarily natural gas), the supply of and demand for electricity, and the time of day during which power is purchased. We are generally permitted to recover underestimated fuel and power purchased costs to serve our retail customers in future rates through quarterly FAC proceedings.
Operation and Maintenance
The increases in Operation and maintenance of $9.2 million and $69.6 million during the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year were primarily due to the following:
$ in millions Three Months Ended September 30, 2025 vs. 2024 Nine Months Ended September 30, 2025 vs. 2024
Increase in DSM program costs (a)
$ 11.3 $ 31.0
Increase in contracted services expenses and higher materials and supplies inventory consumption, primarily due to the timing of planned generation maintenance and outage costs 1.6 21.5
(Decrease) / increase due to (lower) / higher expected credit losses
(4.0) 8.7
Other, net 0.3 8.4
Net change in operation and maintenance costs $ 9.2 $ 69.6
(a) There is corresponding offset in Revenue associated with these costs and minimal operating margin impact.
Depreciation and Amortization
The increases in Depreciation and amortization expense of $7.7 million and $22.5 million during the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year were mostly attributed to the impact of additional assets placed in service, including renewable projects, partially offset by lower regulatory asset amortization following the 2024 Base Rate Order.
Other (Expense) / Income, Net
The following table illustrates our changes in Other (expense) / income, net during the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024 (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2025 2024 $ Change % Change 2025 2024 $ Change % Change
Other (expense) / income, net
Allowance for equity funds used during construction $ 622 $ 1,485 $ (863) (58.1) % $ 2,023 $ 3,585 $ (1,562) (43.6) %
Interest expense (42,211) (44,198) 1,987 (4.5) % (132,794) (131,681) (1,113) 0.8 %
Other (expense) / income, net (210) 484 (694) (143.4) % (1,146) (266) (880) 330.8 %
Total other expense, net
$ (41,799) $ (42,229) $ 430 (1.0) % $ (131,917) $ (128,362) $ (3,555) 2.8 %
Income Tax Expense
The following table illustrates our changes in Income tax expense during the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2025 2024 $ Change % Change 2025 2024 $ Change % Change
Income tax expense $ 20,368 $ 8,314 $ 12,054 145.0 % $ 62,943 $ 24,833 $ 38,110 153.5 %
The increases in Income tax expense of $12.1 million and $38.1 million during the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year were primarily driven by (i) higher pre-tax income, (ii) a decrease in the net tax benefit related to the reversal of excess deferred taxes of AES Indiana resulting from the 2024 Base Rate Order, (iii) the tax effects associated with HLBV increases compared to the prior periods, and (iv) the reversal of certain excess deferred taxes recorded in the third quarter of 2024 which were not probable to cause a reduction in future base customer rates.
Net Loss Attributable to Noncontrolling Interests
The following table illustrates changes in Net loss attributable to noncontrolling interests during the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2025 2024 $ Change % Change 2025 2024 $ Change % Change
Net loss attributable to noncontrolling interests $ (7,715) $ (872) $ (6,843) 784.7 % $ (103,296) $ (24,171) $ (79,125) 327.4 %
The increases in Net loss attributable to noncontrolling interests of $6.8 million and $79.1 million for the three and nine months ended September 30, 2025, respectively, primarily relates to the allocation of losses to the tax equity investor of the Pike County BESS Project, as a result of the project being placed in service in March 2025; partially offset by the allocation of losses recognized upon the final stage of the Hardy Hills Solar Project being placed in service in May 2024. See Note 2, "Regulatory Matters - IRP Filings and Replacement Generation - Hardy Hills Solar Project "to the Financial Statements included in IPALCO's 2024 Form 10-K for further discussion.
KEY TRENDS AND UNCERTAINTIES
During the remainder of 2025 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 and operation and maintenance costs.
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 factors, or other 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 2024 Form 10-K.
Operational
Trade Restrictions and Supply Chain
In April 2022, the U.S. Department of Commerce ("Commerce") initiated an investigation into whether imports into the U.S. of solar cells and panels from Cambodia, Malaysia, Thailand and Vietnam ("Southeast Asia") were
circumventing antidumping and countervailing duty ("AD/CVD") orders on solar cells and panels from China. In August 2023, Commerce rendered final affirmative findings of circumvention with respect to all four countries, which resulted in the imposition of AD and CVD duties on certain imported cells and panels from Southeast Asia. Commerce's determination and related matters remain the subject of ongoing litigation before the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit.
In 2024, Commerce and the U.S. International Trade Commission initiated new AD/CVD investigations on solar cells and panels imported from Southeast Asia. On April 18, 2025, Commerce rendered final affirmative determinations and AD/CVD rates with respect to all four countries. On June 13, 2025, the U.S. International Trade Commission issued its determination that imports from Malaysia and Vietnam have injured the U.S. industry and that imports from Cambodia and Thailand threaten injury ("U.S. International Trade Commission Decision"). Commerce then issued orders on June 24, 2025, implementing the AD/CVD rates, which will be subject to annual review by Commerce. We do not expect these AD/CVD orders will have a negative impact on our business.
Separately, the U.S. maintains a global safeguard tariff (currently 14% ad valorem) on solar cells and modules pursuant to the Section 201 Safeguard Action on crystalline silicon photovoltaic products, which became effective in February 2018. On June 21, 2024, President Biden issued Proclamation 10779, revoking the exclusion of bifacial panels from safeguard relief previously proclaimed in Proclamation 10339, and reinstating the tariff on bifacial panels under the Section 201 Safeguard Action, subject to certain qualifications. These global tariffs are expected to expire in February 2026.
The U.S. also maintains Section 301 tariffs on certain Chinese made lithium-ion batteries and related components utilized for energy storage systems, with such tariff currently set at 7.5% and increasing to 25% effective January 1, 2026. There are also ongoing AD/CVD investigations with respect to exports by China of natural and synthetic graphite used to make lithium-ion battery anode material. Final U.S. International Trade Commission and Commerce AD/CVD determinations in these investigations are expected in the first quarter of 2026 and could result in price increases.
Additionally, the Uyghur Forced Labor Prevention Act ("UFLPA") seeks to block the import of products made with forced labor in certain areas of China, at any point in the supply chain, and may lead to certain suppliers being blocked from importing solar cells and panels into the U.S. While this has impacted the U.S. market, we have managed this issue without significant impact to our projects. Further forced labor designations of entities under the UFLPA may impact our suppliers' ability or willingness to meet their contractual agreements or to continue to supply cells or panels into the U.S. market on terms that we deem satisfactory.
The Trump Administration has threatened or imposed tariffs on a wide range of countries and products. On February 10, 2025, President Trump signed Executive Orders modifying existing Section 232 tariffs on steel and aluminum imports to expand their scope and impose 25% tariffs on both products. The President raised these rates to 50% effective June 4, 2025. At this time, we do not expect the modifications to tariffs on steel and aluminum to have a material impact on our business.
On February 1, 2025, President Trump issued an Executive Order declaring a national emergency under the International Emergency Economic Powers Act ("IEEPA") with respect to U.S importation of fentanyl. President Trump imposed a 10% additional tariff on imports from China, effective February 4, 2025. Effective March 4, 2025, this tariff was increased to 20%.
On April 2, 2025, President Trump issued an Executive Order pursuant to IEEPA imposing an indefinite, baseline reciprocal 10% tariff on almost all goods imported into the U.S., effective April 5, 2025, and individualized higher IEEPA tariffs (11% to 50%) starting April 9, 2025 on goods originating from 57 countries with trade surpluses with the U.S. On April 9, 2025, the U.S. government issued a further Executive Order increasing the IEEPA reciprocal tariff on China to 125% effective April 10, 2025. Concurrently, the U.S. government announced a temporary suspension of the country-specific reciprocal tariff measures targeting most U.S. trading partners for a 90-day period, or until July 9, 2025, which was later extended until August 1, 2025. Effective May 14, 2025, the IEEPA reciprocal tariff rate applicable to China was lowered to 10%. IEEPA reciprocal tariffs, at various levels, have now gone into effect for most U.S. trading partners.
Several trading partners (including the EU, Japan, South Korea, and the UK) have reached bilateral trade agreements with the U.S. The ultimate outcome of any reciprocal or other tariffs with countries that have not yet
reached such trade agreements with the U.S. is uncertain. Also, the Supreme Court will hold oral argument on November 5, 2025, on the legality of the IEEPA tariffs, following lower court decisions declaring the tariffs unlawful.
In July 2025, Commerce initiated an investigation to determine the effects on national security of imports of polysilicon and its derivatives, pursuant to Section 232 of the Trade Expansion Act of 1962 ("Section 232"). In August 2025, Commerce initiated a separate investigation under Section 232 to determine the effects on national security of imports of wind turbines and their parts and components. The outcomes of these investigations are uncertain.
We expect the tariffs on imports from China will increase overall costs for materials and parts that are imported to build and maintain renewable energy plants for the U.S. industry. However, we expect limited impact to projects scheduled to become operational in 2025 through 2027 due to the recently announced tariffs on China.
While we have executed agreements for AES Indiana's existing solar and battery energy storage projects that mitigate these risks, potential future disruptions may impact our suppliers' ability or willingness to meet their contractual agreements with respect to these projects on terms that we deem satisfactory and these and future disruptions may impact the availability or costs of future projects. The impact of new Commerce investigations or any adverse Commerce determinations or other tariff disputes or litigation, the impact of the UFLPA, potential future disruptions to the renewable energy supply chain and their effect on AES Indiana's solar and battery energy storage project development and construction activities remain uncertain. AES Indiana will continue to monitor developments and take prudent steps towards managing our renewable projects.
Customer Information and Billing System Implementation
In the fourth quarter of 2023, we implemented our new customer information and billing system, SAP IS-U, a software solution that SAP developed for businesses operating in the utility industries. In connection with this implementation, a temporary pause of customer disconnections and certain collection efforts and write-off processes was instituted. Beginning in 2024 and continuing into 2025, the current period provision and allowance for credit losses has increased due to a temporary pause of customer disconnections and certain collection efforts and write-off processes after the implementation of AES Indiana's customer billing system upgrade in the fourth quarter of 2023. This has resulted in higher past due customer receivables. AES Indiana reinstituted the customer disconnections process and write-off process in March 2025, and third-party collection efforts were reinstituted in the third quarter of 2025.
Capital Projects
Our construction projects have experienced some indications of delays and price increases due to supply chain disruptions; however, they are currently 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.
Macroeconomic and Political
U.S. Utilities Load Growth and Large Load Customers
The expansion of data centers due to generative artificial intelligence has the potential to significantly accelerate the load growth of the U.S. utilities market. AES Indiana is working with several companies to provide possible solutions for electric service needs of data centers and we see these relationships deepening as utilization of generative artificial intelligence drives the expansion of data center use within our service territory. As part of this process, AES Indiana is evaluating cost-effective options to reliably serve large load customers. One option in Indiana includes House Enrolled Act 1007, which Governor Braun signed into law effective May 6, 2025. Among other things, the legislation contains a provision providing a regulatory tool for utilities and large load customers to submit an expedited generation resource proposal to the IURC. AES Indiana is analyzing any impacts the law may have on future generation resource plans.
U.S. Tax Law Reform and Renewable Energy Tax Credits
On July 4, 2025, the U.S. enacted H.R. 1 (the "2025 Act"). The legislation included amendments to, and extensions of, various U.S. corporate income tax provisions, which may impact our effective tax rate in future periods. However, the impact to the effective tax rate is not expected to be material. Our interpretation of the 2025 Act may change as the U.S. Treasury and the IRS issue additional guidance.
The IRA includes provisions that benefit the Company's planned clean energy projects, including increases, extensions, direct transfers and/or new tax credits for wind, solar, and storage. For further discussion of our renewable projects, see Note 2, "Regulatory Matters - IRP Filings and Replacement Generation"to the Financial Statements of IPALCO's 2024 Form 10-K.
We account for renewable projects according to GAAP, which, when partnering with tax-equity investors to monetize tax benefits, utilizes the HLBV method. This method recognizes the value of the tax-credit that benefits the tax equity investors at the time of its creation, which for projects utilizing the ITC, begins in the quarter the project is placed in service. For projects utilizing the PTC, this value is recognized over 10 years as the facility produces energy.
The 2025 Act amends the phase out of wind and solar ITC and PTC tax credits. Wind and solar renewables projects that begin construction within 12 months of the enactment of the 2025 Act remain eligible for 100% of the credit without the 2027 placed-in-service deadline, provided that, under current Treasury guidance, the projects are placed in service no more than four calendar years after the calendar year when construction began. Renewables projects that begin construction after 12 months of the enactment must be placed in service no later than 2027. Renewables projects that began construction by the end of 2024 are not impacted by the 2025 Act. The 2025 Act does not impose tighter timelines for energy storage projects to qualify for the ITC and PTC, and it allows energy storage projects to receive the full ITC or PTC credit if they begin construction by 2033.
The 2025 Act also imposes a restriction precluding credits for renewables projects, including storage, claiming the ITC or PTC credit that start construction after December 31, 2025 and receive material assistance from a prohibited foreign entity, effectively limiting the percentage of total project costs that may be derived from products that are mined, produced or manufactured in China, with varying permissible percentages depending on the calendar year and applicable renewable technology for the project. This restriction also precludes credit eligibility for projects that start construction after December 31, 2024 that are classified as a prohibited foreign entity, including projects over which a specified foreign entity is deemed to exercise formal or effective control.
Further, President Trump issued an Executive Order on July 7, 2025 that directed the Secretary of the Treasury to take action to enforce the provisions of the 2025 Act related to issuing updated guidance defining the start of construction for claiming the ITC and PTC and implementing the Foreign Entity of Concern (FEOC) Restrictions (the "Treasury Action"). The Executive Order also directed the Secretary of the Interior to take action to review its regulations, guidance, policies, and practices for any preferential treatment of wind and solar projects and eliminate those preferences within 45 days (the "Interior Action").
On August 15, 2025, the Department of Treasury issued updated guidance defining the start of construction for purposes of claiming the ITC and PTC. We do not expect the modifications to the start of construction guidance to materially impact our projects. The Department of Treasury did not issue guidance implementing the FEOC restrictions, however, guidance is expected to be released within the coming months, which may be material.
In 2023, we recognized $26.1 million of earnings from tax attributes using the HLBV method upon the first stage of the Hardy Hills Solar Project being placed in service. Upon the final stage of the project being placed in service in May 2024, the Company recognized $21.4 million of earnings from tax attributes using the HLBV method. In March 2025, upon the Pike County BESS Project being placed in service, we recognized $80.7 million of earnings from tax attributes using the HLBV method. Please see Note 2, "Regulatory Matters - IRP Filings and Replacement Generation - Pike County BESS Project"to the Financial Statements included in this Form 10-Q for further discussion. As we progress in our plan of integrating additional renewable energy projects under our 2022 IRP, as discussed further below, we anticipate additional earnings associated with the tax attributes of these projects.
The enactment of the 2025 Act requires that substantial guidance be published by the U.S. Department of Treasury and other government agencies. While we have taken measures to protect against the impact of changes under the
2025 Act to the IRA, the impacts of the 2025 Act, the Treasury Action, or future actions that have the effect of modifying or repealing the IRA may be material to our results of operations.
Tax
The macroeconomic and political environments in the U.S. have changed in recent years. This could result in significant impacts to future tax law. In the U.S., the IRA included a 15% corporate alternative minimum tax (CAMT) based on adjusted financial statement income. In June 2025, the IRS released interim guidance for CAMT and announced its intention to revise regulations that were proposed in September 2024. The impact to the Company in 2025 is not expected to be material. We will continue to monitor the issuance of CAMT revised guidance.
In April 2025, the 2025 Indiana General Assembly passed Senate Enrolled Act No. 1, which includes language that could impact AES Indiana's property tax expense. We are currently evaluating the impact of this legislation; however, the impact to AES Indiana in 2025 is not expected to be material.
Inflation
In the markets in which we operate, there have been higher rates of inflation recently. If inflation continues to increase in our markets, it may increase our expenses that we may not be able to pass through to customers. It may also increase the costs of some of our construction projects. AES Indiana may have the ability to recover operations and maintenance costs through the regulatory process, however, timing impacts on recovery may vary. In addition, we expect the cost of fuel, specifically coal and natural gas, to continue to be volatile during 2025. Our exposure to fluctuations in the price of fuel is limited because of our FAC. If we are unable to timely or fully recover our fuel and power purchased costs, however, it could have a material adverse effect on our results of operations, financial condition and cash flows.
Interest Rates
In the U.S. there has been a rise in interest rates since 2021, and interest rates are expected to remain volatile in the near term. Although all of our existing IPALCO and AES Indiana long-term debt is at fixed rates, an increase in interest rates can have several impacts on our business. For our existing short-term debt under floating rate structures and any future debt refinancings or future new money financings, rising interest rates will increase future financing costs. Our floating rate debt is currently limited to short-term borrowings under our AES Indiana Credit Agreement. For future IPALCO debt financings, IPALCO, at times, manages a hedging program and evaluates pre-issuance hedges to reduce uncertainty and exposure to future interest rates.
Executive Orders
On January 25, 2025, President Trump issued an Executive Order titled "Declaring a National Energy Emergency" directing Agencies to, among other tasks, identify and exercise any lawful emergency authorities available to them to facilitate the identification, leasing, siting, production, transportation, refining, and generation of domestic energy resources.
In April 2025, President Trump issued several Executive Orders with potential impacts to the energy industry and national energy policy, including: (i) "Reinvigorating America's Beautiful Clean Coal Industry and Amending Executive Order 14241", (ii) "Protecting American Energy from State Overreach", and (iii) "Strengthening the Reliability and Security of the United States Electric Grid". Indiana Governor Braun also issued Executive Orders with potential impacts to the energy industry, including: (i) "Ensuring Economic Opportunity and Indiana's Energy Future by Supporting Life Extension for Coal Energy Generation and Assessing Natural Gas Supplies" in April 2025, and (ii) "Creating a State Energy Strategy to Meet Growing Demand and Support Reliability and Affordability" in June 2025. These Executive Orders direct federal and state agencies, as applicable, to review and take actions with respect to energy and economic development matters and it is too early to determine the impact, if any, of the Executive Orders on our business, but any resulting actions by such agencies could have a material impact on our business, financial condition or results of operations.
Regulatory
Regulatory Rate Review
On June 3, 2025, AES Indiana filed a petition with the IURC for authority to increase its basic rates and charges to cover the rising operational costs and needs associated with continuing to serve its customers safely and reliably. On October 15, 2025, AES Indiana filed a partial settlement agreement with most parties as part of its ongoing regulatory rate review with the IURC. AES Indiana expects to receive an order from the IURC during the second quarter of 2026. Please see Note 2, "Regulatory Matters - Regulatory Rate Review"to the Financial Statements included in this Form 10-Q for further discussion.
2025 IRP
In January 2025, AES Indiana initiated its 2025 IRP process with external stakeholders. Public advisory meetings for the 2025 IRP took place in January, July, September and October of 2025. On October 31, 2025, AES Indiana filed its 2025 IRP with the IURC, which describes AES Indiana's Preferred Resource Portfolio for meeting generation capacity needs for serving AES Indiana's retail customers over the next several years. The Preferred Resource Portfolio is AES Indiana's reasonable least cost option and provides a reliable and flexible generation mix for customers. Please see Note 2, "Regulatory Matters - IRP Filings and Replacement Generation - 2025 IRP"to the Financial Statements included in this Form 10-Q for further discussion.
2022 IRP
AES Indiana filed its 2022 IRP with the IURC in December 2022. The 2022 IRP short-term action plan includes converting the two remaining coal units at Petersburg to natural gas. Additionally, AES Indiana plans to add up to 1,300 MW of wind, solar, and battery energy storage by 2027. Please see Note 2, "Regulatory Matters"to the Financial Statements included in this Form 10-Q and Note 2, "Regulatory Matters" to the Financial Statements included in IPALCO's 2024 Form 10-K for further discussion of these and other regulatory matters.
Environmental
We are subject to numerous environmental and climate change laws and regulations in the jurisdictions in which we operate. We face certain risks and uncertainties related to these environmental and climate change 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. The following discussion of the impact of environmental laws and regulations on the Company updates the discussion provided in "Item 1. Business - Environmental Matters"in IPALCO's 2024 Form 10-K.
Trump Administration Actions Affecting Environmental Regulations
On January 20, 2025, President Trump issued an Executive Order titled "Unleashing American Energy" directing Agencies to, among other tasks, review regulations issued under the prior Administration to determine whether they should be suspended, revised, or rescinded. The Trump Administration also issued a Memorandum titled "Regulatory Freeze Pending Review" directing Agencies to refrain from proposing or issuing any rules until the Trump Administration has reviewed and approved those rules. In accordance with these and other Trump Administration Executive Orders, on March 12, 2025, EPA released a list of environmental regulations that will be targeted for reconsideration and other deregulatory action. These and other actions, including other Executive Orders and directives from the Trump Administration, may have an impact on regulations and permitting processes that may affect our business, financial condition, or results of operations.
MATS
In April 2012, the EPA's rule to establish maximum achievable control technology standards for hazardous air pollutants regulated under the CAA emitted from coal and oil-fired electric utilities, known as "MATS", became effective. AES Indiana management developed and implemented a plan, which was approved by the IURC, to
comply with this rule and all Petersburg units subject to the rule have been and remain in material compliance with the MATS rule since applicable deadlines.
On May 7, 2024, EPA published a final rule to revise MATS for coal and oil-fired EGUs which lowers certain emissions limits and revises certain other aspects of MATS. The requirements of MATS would not apply to AES Indiana upon conversion of the remaining two coal-fired units at Petersburg to natural gas. The May 2024 rule to revise MATS is subject to legal challenges. On October 4, 2024, the U.S. Supreme Court denied emergency stay applications. On June 17, 2025, EPA published a proposed rule to repeal the majority of the May 7, 2024 final rule revising MATS.
Further rulemakings and/or proceedings are possible; however, in the meantime, MATS remains in effect. We currently cannot predict the outcome of the regulatory or judicial process, or its impact, if any, on our MATS compliance planning or ultimate costs.
Waste Management and CCR
The EPA has indicated that they will implement a phased approach to amending the CCR Rule, which is ongoing. On May 8, 2024, EPA published final revisions to the CCR Rule which expand the scope of CCR units regulated by the CCR Rule to include legacy surface impoundments, inactive surface impoundments, and CCR management units. The May 8, 2024 revisions to the CCR Rule are currently subject to legal challenges and on November 1, 2024, the D.C. Circuit Court denied a motion to stay these revisions to the CCR Rule. On November 5, 2024, an application for stay of the CCR Rule revisions was filed with the United States Supreme Court, which was denied by the Court on December 11, 2024.
On July 22, 2025, EPA published both a direct final rule and a proposed rule that, if finalized, would extend certain deadlines for coal combustion residual management units associated with its May 8, 2024 revisions to the CCR Rule. On September 4, 2025, EPA withdrew the direct final rule due to receipt of adverse comment. It is too early to determine any potential impact from the July 22, 2025 proposed revisions to the CCR Rule. The CCR Rule, current or future amendments to, or EPA interpretations of, the CCR Rule, Indiana CCR regulations, 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", Note 4, "ARO" and Note 11, "Commitments and Contingencies - Contingencies - Legal Matters - Coal Ash Insurance Litigation" to the Financial Statements of IPALCO's 2024 Form 10-K for further discussion.
Regional Haze Rule
EPA's 1999 Regional Haze Rule established timelines for states to improve visibility in national parks and wilderness areas throughout the U.S. by establishing reasonable progress goals toward meeting a national goal of natural visibility conditions in Class I areas by the year 2064 through submittal of a series of state implementation plans (SIPs). Indiana's SIP for the first planning period (through 2018) did not require any additional controls to be installed or operated on AES Indiana generating facilities. For all future SIP planning periods, states must evaluate whether additional emissions reduction measures may be needed to continue making reasonable progress toward natural visibility conditions. On December 29, 2021, IDEM submitted Indiana's Regional Haze SIP for the Second Implementation Period to EPA for review and approval. The SIP does not include additional requirements for AES Indiana EGUs or for other EGUs in Indiana. On June 18, 2025, EPA proposed to approve the Indiana SIP. On September 29, 2025, EPA issued a pre-publication version of an advanced notice of proposed rulemaking requesting public input on potential future changes to the Regional Haze Rule. It is too early to predict the possible outcome or potential impacts of this matter at this time. We would seek recovery of capital expenditures; however, there is no guarantee we would be successful.
Climate Change Legislation and Regulation
In the past, the U.S. Congress has considered several different draft bills pertaining to GHG legislation, including comprehensive GHG legislation that would impact many industries and more limited legislation focusing only on the utility and electric generation industry. Although no legislation pertaining to GHG emissions has been passed to date by the U.S. Congress, similar legislation may be considered or passed by the U.S. Congress in the future. In addition, state or regional initiatives may be pursued in the future.
On May 9, 2024, EPA published the final NSPS requiring carbon capture and sequestration for new and reconstructed baseload stationary combustion turbines, among other requirements. EPA did not finalize revisions to the NSPS for newly constructed or reconstructed coal-fired electric utility steam generating units as proposed in
2018.
On July 8, 2019, the EPA published the final ACE Rule which would have established CO2emission rules for existing coal-fired power plants under CAA Section 111(d) and would have replaced the EPA's 2015 CPP, which among other things, had called on states to mandate that power companies shift electricity generation to lower or zero carbon fuel sources. However, on January 19, 2021, the D.C. Circuit vacated and remanded to EPA the ACE Rule. Subsequently, on June 30, 2022, the U.S. Supreme Court reversed the judgment of the D.C. Circuit Court and remanded for further proceedings consistent with its opinion, holding that the "generation shifting" approach in the CPP exceeded the authority granted to EPA by Congress under Section 111(d) of the CAA. As a result of the June 30, 2022 U.S. Supreme Court decision, on October 27, 2022, the D.C. Circuit issued a partial mandate holding pending challenges to the ACE Rule in abeyance while EPA developed a replacement rule. On May 23, 2023, EPA published a proposed rule that would vacate the ACE Rule, establish emissions guidelines in the form of CO2emissions limitations for certain existing EGUs and would require states to develop State Plans that establish standards of performance for such EGUs that are at least as stringent as EPA's emissions guidelines. On May 9, 2024, EPA published the final rule regulating GHGs from existing EGUs pursuant to Section 111(d) of the Clean Air Act and effective on July 8, 2024. Existing EGUs are those that were constructed prior to January 8, 2014. Depending on various EGU-specific factors, the bases of emissions guidelines for natural gas-fired units include the use of uniform fuels and routine methods of operation and maintenance and the bases of emissions guidelines for coal-fired units include 40% natural gas co-firing or carbon capture and sequestration with 90% capture of CO2 depending on the date that coal operations cease. Specific standards for performance for EGUs will be established through a State Plan (or a Federal Plan if the state of Indiana were to not submit an approvable plan). The May 2024 rule is subject to legal challenges. On October 16, 2024, the U.S. Supreme Court denied emergency stay applications.
On June 17, 2025, EPA published a proposed rule to repeal the May 9, 2024 final rules for new and existing EGUs in addition to 2015 greenhouse gas new source performance standards for certain new EGUs. In this proposed rule, the EPA also offered an alternative proposal to repeal a narrower set of greenhouse gas requirements which would include the repeal of requirements for existing EGUs and requirements based on carbon capture and sequestration for new EGUs. On August 1, 2025, EPA published a proposed rule to rescind the 2009 greenhouse gas endangerment finding which concluded that greenhouse gases endanger public health and welfare. On September 16, 2025, EPA published a proposed rule to remove certain greenhouse gas emissions reporting obligations from source categories, including electricity generation and electrical transmission and distribution equipment use.
It is too early to determine any potential impact. GHG regulations, current or future amendments to, resulting state or federal plans, or pending or future litigation associated with such regulations or plans could have a material impact on our business, financial condition and results of operations. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful in this regard.
On the international level, on December 12, 2015, 195 nations, including the U.S., finalized the text of an international climate change accord in Paris, France (the "Paris Agreement"), which agreement was signed and officially entered into on April 22, 2016. The Paris Agreement calls for countries to set their own GHG emissions targets, make these emissions targets more stringent over time and be transparent about the GHG emissions reporting and the measures each country will use to achieve its GHG emissions targets. A long-term goal of the Paris Agreement is to limit global temperature increase to well below two degrees Celsius from temperatures in the pre-industrial era. The U.S. withdrawal from the Paris Agreement became effective on November 4, 2020. On January 20, 2021, President Biden signed and submitted an instrument for the U.S. to rejoin the Paris Agreement, which became effective on February 19, 2021. On January 20, 2025, President Trump issued an Executive Order titled "Putting America First in International Environmental Agreements" directing the U.S. Ambassador to the United Nations to formally withdraw from the Paris Agreement. The international community has gathered and continues to gather annually for the Conference to the Parties on the United Nations Framework Convention on Climate Change (UNFCCC).
Based on the above, there is some uncertainty with respect to the impact of GHG rules on AES Indiana. The EPA, states and other utilities are still evaluating potential impacts of the GHG regulations in our industry. In light of these
uncertainties, we cannot predict the impact of the EPA's current and future GHG regulations, or resulting state or federal plans, on our consolidated results of operations, cash flows, and financial condition, but it could be material.
CWA - Environmental Wastewater Requirements and Regulation of Water Discharge
In November 2015, the EPA published its final Steam Electric Power Generating Effluent Limitation Guidelines (ELG) rule to reduce toxic pollutants discharged into waterways by steam-electric power plants through technology applications. In 2020, EPA issued a final rule, known as the 2020 Reconsideration Rule, revising certain aspects of the 2015 ELG rule. Wastewater treatment technologies already installed and operated at Petersburg met the requirements of these rules. Following the 2019 U.S. Court of Appeals vacatur and remand of portions of the 2015 ELG rule related to leachate and legacy water, on March 29, 2023, EPA published a proposed rule revising the 2020 Reconsideration Rule. On May 9, 2024, EPA published revisions to the ELG rule which became effective on July 8, 2024, establishing more stringent best available technology limits for flue gas desulfurization wastewater, bottom ash transport water and combustion residual leachate and establishing a new set of definitions and new limits for combustion residual leachate and legacy wastewater. The May 2024 rule is subject to legal challenges and on October 10, 2024, the Eighth Circuit Court denied stay applications. On October 2, 2025, EPA published a proposed rule that, if finalized, would extend certain ELG deadlines and allow facilities to choose between compliance alternatives. On the same date, EPA also published a direct final rule to extend the deadline for power plants to file a notice of planned participation for the permanent cessation of coal from December 31, 2025, to December 31, 2031 pending any significant adverse comments. It is too early to determine whether any outcome of the proposed revisions to the ELG rule, litigation or future revisions to the ELG rule might have a material impact on our business, financial condition and results of operations.
The concept of WOTUS defines the geographic reach and authority of the U.S. Army Corps of Engineers and EPA (together, the "Agencies") to regulate streams, wetlands, and other water bodies under the CWA. There have been multiple Supreme Court decisions and dueling regulatory definitions over the past several years concerning the appropriate standard for how to properly determine whether a wetland or stream that is not navigable is considered a WOTUS. On May 25, 2023, the U.S. Supreme Court rendered a decision (Decision) in the case of Sackett v. Environmental Protection Agency, addressing the definition of WOTUS with regards to the CWA. The Decision provides a standard that substantially restricts the Agencies' ability to regulate certain types of wetlands and streams. Specifically, under the Decision, wetlands that do not have a continuous surface connection with traditional interstate navigable water are not considered a WOTUS and therefore are not federally jurisdictional.
On September 8, 2023, the Agencies published final amendments to the "Revised Definition of 'Waters of the United States'" rule. These final rule amendments conform the definition of WOTUS to the definition adopted in the Decision. The Agencies have amended key aspects of the regulatory text to conform the rule to the Decision.
Due to ongoing litigation, the definition of WOTUS (as amended on September 8, 2023) is not operative in certain jurisdictions. In the jurisdictions involved in the litigation, including Indiana, the amended 2023 Rule is subject to a preliminary injunction, and the Agencies interpret WOTUS consistent with the pre-2015 regulatory regime and the Supreme Court's decision in Sackett. In the remaining states the Agencies implement the definition in the January 2023 Rule, as amended in September 2023.
On March 12, 2025, the Agencies issued a joint guidance memorandum for implementing the "continuous surface connection" consistent with the Decision and related issues. The Federal Registernotice was published on March 24, 2025 outlining a process to gather recommendations for implementation of WOTUS.
It is too early to determine whether any outcome of litigation or current or future revisions to rules interpreting federal jurisdiction over WOTUS might have a material adverse effect on our results of operations, financial condition and cash flows.
CWA - NPDES Permits
NPDES permits regulate specific industrial wastewater and storm water discharges to the waters of Indiana under Section 402 of the Federal Water Pollution Control Act. A number of CWA regulations described above are implemented through NPDES permits.
In 2017, IDEM issued to Eagle Valley a NPDES permit regulating water discharges associated with operation of its CCGT. As part of the normal course of business, AES Indiana submitted a timely application for renewal for the
Eagle Valley NPDES permit, and on March 31, 2023, IDEM issued the renewed NPDES permit. On April 17, 2023, a third party filed an appeal of Eagle Valley's renewed NPDES permit. On February 18, 2025, the Indiana Office of Administrative Law Proceedings (OALP) issued a final order which determined that the third-party appellant failed to prove it has associational standing to challenge the NPDES permit and that the third-party appellant failed to prove any of the alleged deficiencies in its petition for review as a matter of law. On March 20, 2025, the third-party appellant filed a Petition for Judicial Review with the Morgan County Circuit Court (Indiana Trial court), asking the court to set aside OALP's final order. AES Indiana contends that the renewed permit was validly issued, and the permit remains in effect. AES Indiana is unable to predict the outcome of the appeal, but depending on the results, it could have an adverse effect on the Company.
In 2017, IDEM also issued to Harding Street and Petersburg NPDES permits regulating water discharges associated with operation of their power plant operations. As part of the normal course of business, AES Indiana submitted timely applications for renewal for both Harding Street and Petersburg NPDES permits in March 2022. On May 7, 2025, IDEM issued the final Petersburg NPDES permit renewal. No parties appealed the permit. On November 29, 2023, IDEM issued the final NPDES permit renewal for Harding Street with an effective date of January 1, 2024. Among other new requirements, the permit includes new thermal limitations, that could result in the need for AES Indiana to take additional actions to ensure compliance with the final permit. On December 14, 2023, AES Indiana filed a petition for appeal of certain new requirements, including the new thermal limitations, in the final Harding Street NPDES permit. A stay of the appealed requirements was initially granted on January 4, 2024, and is in effect until November 6, 2025 (as extended from August 6, 2025), which could be further extended. Final or future permits could have a material impact on our business, financial condition and results of operations. We would seek recovery of any resulting capital expenditures; however, there is no guarantee we would be successful in this regard.
CAPITAL RESOURCES AND LIQUIDITY
Overview
As of September 30, 2025, we had unrestricted cash and cash equivalents of $72.2 million and available borrowing capacity of $475 million under our unsecured revolving AES Indiana Credit Agreement. All of AES Indiana's long-term borrowings must first be approved by the IURC and the aggregate amount of AES Indiana's short-term indebtedness must be approved by the FERC. AES Indiana has approval from the FERC to borrow up to $750 million of short-term indebtedness outstanding at any time through July 29, 2026. In February 2024, AES Indiana received an order from the IURC granting authority through December 31, 2026 to, among other things, issue up to $1 billion in aggregate principal amount of long-term debt, of which $0 million remains available under the order as of September 30, 2025. This order also grants authority to have up to $750 million of amounts outstanding under long-term credit agreements and liquidity facilities, of which $725 million remains available under the order as of September 30, 2025. As an alternative to the sale of all or a portion of $65 million in principal of the long-term debt, AES Indiana has authority to issue up to $65 million of new preferred stock, all of which authority remains available under the order as of September 30, 2025. We also have restrictions on the amount of new debt that may be issued due to contractual obligations of AES and by financial covenant restrictions under our existing debt obligations. We do not believe such restrictions will be a limiting factor in our ability to issue debt in the ordinary course of prudent business operations.
Cash Flows
The following table provides a summary of our cash flows (in thousands):
Nine Months Ended September 30,
2025 2024 $ Change
Net cash provided by operating activities
$ 646,142 $ 191,244 $ 454,898
Net cash used in investing activities (650,383) (804,764) 154,381
Net cash provided by financing activities
49,774 633,249 (583,475)
Net change in cash, cash equivalents and restricted cash
45,533 19,729 25,804
Cash, cash equivalents and restricted cash at beginning of period 26,652 28,584 (1,932)
Cash, cash equivalents and restricted cash at end of period $ 72,185 $ 48,313 $ 23,872
Operating Activities
The following table summarizes the key components of our consolidated operating cash flows (in thousands):
Nine Months Ended September 30,
2025 2024 $ Change
Net income $ 90,325 $ 89,725 $ 600
Depreciation and amortization 271,313 248,846 22,467
Deferred income taxes and investment tax credit adjustments - net 51,847 8,072 43,775
Tax credit transfer proceeds allocated to noncontrolling interest
133,010 - 133,010
Other adjustments to net income 780 572 208
Net income, adjusted for non-cash items 547,275 347,215 200,060
Net change in operating assets and liabilities(1)
98,867 (155,971) 254,838
Net cash provided by operating activities
$ 646,142 $ 191,244 $ 454,898
(1) Refer to the table below for explanations of the variance in operating assets and liabilities.
The net change in operating assets and liabilities for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 was driven by changes in the following (in thousands):
Increase from current and non-current regulatory assets and liabilities primarily due to higher collections of regulatory assets in the current year and the settlement of pre-existing purchase power agreements in the prior year
$ 151,482
Increase from accounts payable driven by the accrual of invoices and timing of payments
89,822
Increase from lower net accounts receivable driven by the timing of collections, and billing delays and a temporary pause of customer disconnections and certain collection efforts and write-off processes primarily in the prior year period following AES Indiana's customer billing system upgrade in the fourth quarter of 2023
81,287
Decrease from other tax payable driven by higher tax payments during the current year
(27,482)
Decrease from other long term liabilities driven by higher ARO settlements during the current year
(23,512)
Decrease from prepaid expenses and other current assets primarily due to the prepayment of various insurance policies during the current year
(11,358)
Other (5,401)
Net change in operating assets and liabilities $ 254,838
Investing Activities
Net cash used in investing activities decreased $154.4 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, which was primarily driven by (in thousands):
Lower cash outflows for capital expenditures related with renewable energy projects and growth related capital expenditures primarily from TDSIC investments $ 179,189
Larger payment for acquisitions made in 2025 (29,272)
Other 4,464
Net change in investing activities $ 154,381
Financing Activities
Net cash provided by financing activities decreased $583.5 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, which was primarily driven by (in thousands):
Decrease due to greater repayment of short-term borrowings
$ (400,000)
Decrease due to net long-term debt issuances at IPALCO and AES Indiana in 2024 (335,000)
Decrease due to higher distributions to noncontrolling interests (137,761)
Decrease due to higher distributions to shareholders (88,898)
Increase due to equity contributions from shareholders 260,000
Increase due to higher sales to noncontrolling interests 103,007
Decrease due to net revolver repayments on AES Indiana's revolving credit facility
30,000
Other (14,823)
Net change in financing activities $ (583,475)
Liquidity
We expect our existing cash balances, cash generated from operating activities and borrowing capacity on our existing AES Indiana Credit Agreement will be adequate to meet our anticipated operating needs, including interest expense on our debt and dividends to our equity owners. Our business is capital intensive, requiring significant resources to fund operating expenses, construction expenditures, scheduled debt maturities and carrying costs, potential margin requirements related to interest rate and commodity hedges, taxes and dividend payments. In 2025 and subsequent years, we expect to satisfy these requirements with a combination of cash from operations, funds from debt financing, funds from tax equity contributions, and parent capital contributions as our internal liquidity needs and market conditions warrant. We also expect that the borrowing capacity under our existing AES Indiana Credit Agreement will continue to be available to manage working capital requirements during those periods. The absence of adequate liquidity could adversely affect our ability to operate our business and have a material adverse effect on our results of operations, financial condition and cash flows.
Indebtedness
For further discussion of our significant debt transactions, please see Note 7, "Debt"to IPALCO's 2024 Form 10-K and Note 5, "Debt"to the Financial Statements of this Form 10-Q.
Line of Credit
AES Indiana entered into a third amendment and restatement of its $500 million revolving Credit Agreement on March 25, 2025 with a syndication of bank lenders, as discussed in Note 5, "Debt - Line of Credit" to the Financial Statements of this Quarterly Report on Form 10-Q.
We had the following amounts available under the revolving Credit Agreement:
$ in millions Type Maturity Commitment Amounts available at September 30, 2025
AES Indiana Revolving
March 2030
$ 500.0 $ 475.0
Capital Requirements
Capital Expenditures
Our capital expenditure program, including development and permitting costs, for the three-year period from 2025 through 2027 (including amounts already expended in the first nine months of 2025) is currently estimated to cost approximately $2.8 billion (excluding environmental compliance), and includes estimates as follows (amounts in millions):
For the three-year period
2025 2026 2027
from 2025 through 2027
Power generation related projects $ 584.7 $ 577.6 $ 345.2 $ 1,507.5
(1)
Transmission and distribution related additions, improvements and extensions 231.7 198.6 347.2 777.5
(2)
TDSIC Plan investments 149.2 215.7 - 364.9
(3)
Other miscellaneous equipment 36.4 39.5 28.0 103.9
Total estimated costs of capital expenditure program $ 1,002.0 $ 1,031.4 $ 720.4 $ 2,753.8
(1) Includes spending for AES Indiana's power generation and renewable energy projects.
(2) Additions, improvements and extensions to AES Indiana's transmission and distribution lines, substations, power factor and voltage regulating equipment, distribution transformers and street lighting facilities.
(3) Includes spending under AES 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 2026. Total TDSIC costs expended from project inception through September 30, 2025 were $1,034.5 million.
The amounts described in the capital expenditure program above include estimated spending under AES Indiana's 2022 IRP filed with the IURC in December 2022. See Note 2, "Regulatory Matters - IRP Filings and Replacement Generation - 2022 IRP"to the Financial Statements of IPALCO's 2024 Form 10-K for further discussion.
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 the AES Indiana Credit Agreement (as well as the amount of certain other fees in the AES Indiana Credit Agreement) are dependent upon the credit ratings of AES Indiana. Downgrades in the credit ratings of AES could result in AES 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 AES Indiana.
Debt ratings IPALCO AES Indiana Outlook
Fitch Ratings
BBB (a)
A(b)
Stable
Moody's Investors Service
Baa3(a)
A2(b)
Negative
S&P Global Ratings
BBB-(a)
A-(b)
Stable
Credit ratings IPALCO AES Indiana Outlook
Fitch Ratings BBB- BBB+ Stable
Moody's Investors Service - Baa1
Negative
S&P Global Ratings BBB BBB Stable
(a) Ratings relate to IPALCO's Senior Secured Notes.
(b) Ratings relate to AES Indiana's first mortgage bonds.
We cannot predict whether our current debt and credit ratings or the debt and credit ratings of AES 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 nine months of 2025 and 2024, IPALCO paid $199.0 million and $110.1 million, respectively, in distributions 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 AES Indiana. Dividends from AES Indiana are affected by AES Indiana's actual results of operations, financial condition, cash flows, capital requirements, regulatory and legal considerations, and such other factors as AES Indiana's Board of Directors deems relevant.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The condensed consolidated financial statements of IPALCO are prepared in conformity with GAAP, which requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented.
The Company's significant accounting policies are described in Note 1, "Overview and Summary of Significant Accounting Policies"of this report and in IPALCO's 2024 Form 10-K. The Company's other critical accounting estimates are described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in IPALCO's 2024 Form 10-K. An accounting estimate is considered critical if the estimate requires management to make an assumption about matters that were highly uncertain at the time the estimate was made, different estimates reasonably could have been used, or if changes in the estimate that would have a material impact on the Company's financial condition or results of operations are reasonably likely to occur from period to period. Management believes that the accounting estimates employed are appropriate and resulting balances are
reasonable; however, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The Company has reviewed and determined that these remain as critical accounting policies as of and for the nine months ended September 30, 2025.
Ipalco Enterprises Inc. published this content on November 04, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 04, 2025 at 21:21 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]