Overview and Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2026

Significant Accounting Policies [Text Block]

1. OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

IPALCO is a holding company incorporated under the laws of the state of Indiana. IPALCO is owned by AES U.S. Investments (82.35%) and La Caisse (17.65%). AES U.S. Investments is owned by AES U.S. Holdings, LLC (85%) and La Caisse (15%). IPALCO owns all of the outstanding common stock of IPL, which does business as AES Indiana. Substantially all of IPALCO’s business consists of generating, transmitting, distributing and selling electric energy conducted through its principal subsidiary, AES Indiana. AES Indiana was incorporated under the laws of the state of Indiana in 1926. AES Indiana has approximately 535,000 retail customers in the city of Indianapolis and neighboring cities, towns and communities, and adjacent rural areas all within the state of Indiana. AES Indiana has an exclusive right to provide electric service to those customers.

AES Indiana owns and operates four generating stations all within the state of Indiana. The first station, Petersburg, consists of two generating units and is undergoing a phased conversion of its remaining coal-fired units to natural gas throughout 2026. Petersburg Unit 3 was taken offline in February 2026 for its conversion outage which was completed in June 2026, followed by commissioning and final testing of the unit in July 2026. Petersburg Unit 4 was taken offline in June 2026 for its conversion outage with construction activities ongoing and is expected to be returned in November 2026 for commissioning and final testing. The second station, Harding Street, consists of three natural gas-fired boilers and steam turbines and uses natural gas and fuel oil to power five combustion turbines. In addition, AES Indiana operates a 20 MW battery energy storage unit at this location, which provides frequency response. The third station, Eagle Valley, is a CCGT natural gas plant. The fourth station, Georgetown, is a peaking station that uses natural gas to power combustion turbines. As of September 30, 2026, AES Indiana’s net electric generation capacity at these generating stations for winter is 3,070 MW and net summer capacity is 2,925 MW.

AES Indiana also owns four renewable energy facilities currently in operations, all within the state of Indiana. The first renewable facility is a 195 MW solar project (“Hardy Hills Solar”). The second is a 106 MW wind facility (“Hoosier Wind”). The third is a 200 MW (800 MWh) battery energy storage system facility (“Pike County BESS”). The fourth is a 250 MW solar and 45 MW (180 MWh) energy storage facility (“Petersburg Energy Center”). See Note 2, “Regulatory Matters” to IPALCO's 2025 Form 10-K for further information.

On May 16, 2025, AES Indiana, through a wholly-owned subsidiary, completed the acquisition of Crossvine Solar 1, LLC (“Crossvine”), for total consideration of $77.6 million. Crossvine includes the development of 85 MW of solar and 85 MW (340 MWh) of energy storage which is expected to be placed in service in mid-2027.

For further discussion about AES Indiana’s plans for wind, solar, and battery energy storage projects, please see Note 2, “Regulatory Matters - IRP Filings and Replacement Generation” to IPALCO’s 2025 Form 10-K.

Proposed AES Merger

On March 1, 2026, AES entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among AES, Horizon Parent, L.P., a Delaware limited partnership (“Parent”), and Horizon Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into AES (the “Merger”), with AES continuing as the surviving corporation in the Merger. Parent is controlled by investment vehicles affiliated with one or more funds, accounts or other entities managed or advised by Global Infrastructure Management, LLC and the EQT Infrastructure VI fund. Consummation of the Merger is subject to various closing conditions.

Consolidation

The accompanying Financial Statements include the accounts of IPALCO Enterprises, Inc., AES Indiana and Mid-America Capital Resources, Inc., a non-regulated wholly-owned subsidiary of IPALCO. Furthermore, VIEs in which the Company has an ownership interest and is the primary beneficiary, thus controlling the VIE, as described below, have been consolidated. All significant intercompany amounts have been eliminated in consolidation.

Consolidated VIEs

At September 30, 2026, AES Indiana consolidates a number of entities that have been identified as VIEs under ASC 810, Consolidation. These entities are primarily limited liability entities structured to develop and construct renewable generation and energy storage facilities and related assets. These entities were generally determined to have insufficient equity to finance their activities during development and construction without additional subordinated financial support. AES Indiana also has tax equity arrangements entered into with third parties in order to monetize certain tax credits associated with renewables facilities. These tax equity partnerships meet the definition of a VIE as the holders of the membership interests, as a group, lack the characteristics of a controlling financial interest, including substantive kickout rights. Under these arrangements, the third-party investors are allocated earnings, tax attributes, and distributable cash in accordance with the respective limited liability company agreements. The assets of these tax equity partnerships are restricted from transfer under the terms of their limited liability company agreements. The third-party investor’s ownership interest is recorded as either “Redeemable stock of subsidiaries” or “Noncontrolling interests” in the Consolidated Balance Sheets based on applicable guidance. See Note 9, “Equity - Equity Transactions with Noncontrolling Interests” for further information.

Determining whether AES Indiana is the primary beneficiary of a VIE requires judgment, including an assessment of contractual rights, operational responsibilities, and exposure to variability in returns. AES Indiana is considered the primary beneficiary of these VIEs when it has the power to direct the activities that most significantly affect their economic performance, such as construction, budgeting, operations, and maintenance, and it has the obligation to absorb expected losses and the right to receive benefits through its variable interests.

At September 30, 2026 and December 31, 2025, the assets of these VIEs were approximately $1,605.6 million and $1,488.7 million, primarily consisting of property, plant and equipment, construction work in progress and other non-current assets. At September 30, 2026 and December 31, 2025, the liabilities of these VIEs were approximately $157.0 million and $276.4 million, primarily consisting of finance leases and accounts payable.

Interim Financial Presentation

The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with GAAP, as contained in the FASB ASC, for interim financial information and Article 10 of Regulation S-X issued by the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for annual fiscal reporting periods. In the opinion of management, the interim financial information includes all adjustments of a normal recurring nature necessary for a fair presentation of the results of operations, financial position, comprehensive income, changes in equity, and cash flows. The results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of expected results for the year ending December 31, 2026. The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the 2025 audited consolidated financial statements and notes thereto, which are included in IPALCO’s 2025 Form 10-K.

Reclassifications

Certain immaterial amounts from prior periods have been reclassified to conform to the current year presentation.

Cash, Cash Equivalents and Restricted Cash

The following table provides a summary of cash, cash equivalents and restricted cash amounts reported within the Condensed Consolidated Balance Sheets that reconcile to the total of such amounts as shown on the Condensed Consolidated Statements of Cash Flows:


	September 30,		December 31,
	2026		2025
	(In Thousands)
Cash, cash equivalents and restricted cash
Cash and cash equivalents	$	65,918	$	69,834
Restricted cash (included in Prepayments and other current assets)	5		5
Total cash, cash equivalents and restricted cash	$	65,923	$	69,839

Accounts Receivable and Allowance for Credit Losses

The following table summarizes our accounts receivable balances at September 30, 2026 and December 31, 2025:


	September 30,		December 31,
	2026		2025
	(In Thousands)
Accounts receivable, net
Customer receivables	$	189,172	$	184,471
Unbilled revenue	92,169		94,875
Amounts due from related parties	8,944		8,533

Other	26,247		22,394
Allowance for credit losses	(12,389)		(14,057)
Total accounts receivable, net	$	304,143	$	296,216

The following table is a rollforward of our allowance for credit losses related to the accounts receivable balances for the periods indicated:


	Nine Months Ended September 30,
$ in Thousands	2026		2025
Allowance for credit losses:
Beginning balance	$	14,057	$	29,798
Current period provision	15,014		22,718
Write-offs charged against allowance	(17,347)		(36,395)
Recoveries	665		356
Ending Balance	$	12,389	$	16,477

The allowance for credit losses primarily relates to utility customer receivables, including unbilled amounts. Expected credit loss estimates are developed by disaggregating customers into those with similar credit risk characteristics and using historical credit loss experience. In addition, we also consider how current and future economic conditions are expected to impact the collectability, as applicable, of our receivables balance. Amounts are written off when reasonable collections efforts have been exhausted. Following the implementation of AES Indiana's customer billing system upgrade in the fourth quarter of 2023, a temporary pause in customer disconnections, certain collection efforts, and write-off processes contributed to increased provisions and allowance for credit losses throughout 2025. AES Indiana reinstituted the customer disconnections and write-off processes in March 2025, and third-party collection efforts were reinstituted in the third quarter of 2025. The resumption of these activities resulted in increased write-offs.

Inventories

The following table summarizes our inventory balances at September 30, 2026 and December 31, 2025:


	September 30,		December 31,
	2026		2025
	(In Thousands)
Inventories
Fuel	$	3,070	$	21,694
Materials and supplies, net	49,525		52,089
Total inventories	$	52,595	$	73,783

The decrease in fuel inventories primarily relates to the conversion of AES Indiana's remaining two coal-fired units at Petersburg to natural gas. Following Petersburg Units 3 and 4 being taken offline in February and June 2026, respectively, as part of their conversion outages, AES Indiana no longer carries any coal inventories.

AFUDC

AES Indiana capitalizes an allowance for the net cost of funds (interest on borrowed funds and a reasonable rate of return on equity funds) used for construction purposes during the period of construction with a corresponding credit to income. AFUDC equity and AFUDC debt were as follows for the periods indicated:


$ in thousands	Three Months Ended September 30,				Nine Months Ended September 30,
	2026		2025		2026		2025
AFUDC equity	$	2,204	$	622	$	5,648	$	2,023
AFUDC debt	$	6,543	$	8,932	$	17,691	$	25,348

Intangible Assets

Finite-lived intangible assets primarily include capitalized software and project development intangible assets amortized over their useful lives. The following table presents information related to the Company’s intangible assets, including the gross amount capitalized and related amortization:


					September 30,		December 31,
$ in thousands					2026		2025
Capitalized software					$	310,950	$	297,631
Project development intangible assets					147,617		145,370
Other					809		809
Less: Accumulated amortization					(180,868)		(157,850)
Intangible assets - net					$	278,508	$	285,960

	Three Months Ended September 30,				Nine Months Ended September 30,
	2026		2025		2026		2025
Amortization expense	$	6,496	$	7,419	$	20,929	$	21,319

Tax Credit Transferability

The IRA allows the owners of renewable energy projects to directly transfer ITCs to unrelated tax credit buyers. In many cases, ITCs are generated at partnerships which are non-tax paying entities for U.S. federal income tax purposes. These entities cannot utilize tax credits, but rather allocate credits to their partners, who report their share of the partnership credits on their individual tax returns. Once a project is placed in service, any portion of the tax credit to be transferred which is allocated to a noncontrolling interest holder is recorded as a noncash deemed contribution within “Noncontrolling interests” or “Redeemable stock of subsidiaries” on the Consolidated Balance Sheets as this represents an increase in the partners’ capital account. To the extent any of the transfer proceeds are contractually obligated to be distributed to the noncontrolling interest holder, the Company records a corresponding noncash deemed distribution within “Noncontrolling interests” or “Redeemable stock of subsidiaries.” The receipt of cash from the transfer of tax credits, inclusive of the portion allocated to noncontrolling interest holders, is treated as an operating cash inflow on the Consolidated Statements of Cash Flows.

During the nine months ended September 30, 2026, Petersburg Energy Center executed an agreement for $189.6 million to transfer ITCs directly to a third party at a discount. During the nine months ended September 30, 2025, Pike County BESS executed an agreement for $133.0 million to transfer ITCs directly to a third party at a discount. These amounts were allocated to noncontrolling interests and treated as a capital contribution from the noncontrolling interest holders. The Company received and distributed to the noncontrolling interest holders, cash proceeds from these transfers of $189.6 million and $133.0 million during the nine months ended September 30, 2026 and 2025, respectively.

New Accounting Pronouncements Adopted in 2026

The Company assessed all accounting pronouncements adopted in 2026 and determined they were either not applicable or did not have a material impact on the Company's Financial Statements.

New Accounting Pronouncements Issued But Not Yet Effective

The following table provides a brief description of recent accounting pronouncements that could have a material impact on the Company’s Financial Statements once adopted. Accounting pronouncements not listed below were assessed and determined to be either not applicable or are expected to have no material impact on the Company’s Financial Statements.


ASU Number and Name	Description	Date of Adoption	Effect on the Financial Statements upon adoption
2024-03: Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)	The amendments in this Update require disclosure, in the notes to financial statements, of specified information about certain costs and expenses. The amendments require that at each interim and annual reporting period an entity: 1. Disclose the amounts of (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (DD&A) (or other amounts of depletion expense) included in each relevant expense caption. A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed in (a)–(e). 2. Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements. 3. Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. 4. Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.	The date for each amendment in this Update is effective for fiscal years beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted.	This ASU only affects disclosures, which will be provided when the amendment becomes effective.
2025-06: Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software	The amendments in this Update remove all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout Subtopic 350-40. Therefore, an entity is required to start capitalizing software costs when both of the following occur: 1. Management has authorized and committed to funding the software project. 2. It is probable that the project will be completed and the software will be used to perform the function intended. In evaluating the probable-to-complete recognition threshold, an entity is required to consider whether there is significant uncertainty associated with the development activities of the software. The two factors to consider in determining whether there is significant development uncertainty are whether: 1. The software being developed has technological innovations or novel, unique, or unproven functions or features, and the uncertainty related to those technological innovations, functions, or features, if identified, has not been resolved through coding and testing. 2. The entity has determined what it needs the software to do (for example, functions or features), including whether the entity has identified or continues to substantially revise the software’s significant performance requirements.	The amendments in this Update are effective for fiscal years beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period.	We are currently evaluating the impact of adopting the standard on our consolidated financial statements.


2025-09: Hedge Accounting Improvements	Issue 1: Similar Risk Assessment for Cash Flow Hedges The amendments in this Update permit grouping forecasted transactions in a cash flow hedge based on similar risk exposures, subject to initial and ongoing risk assessments. Issue 2: Hedging Forecasted Interest Payments on Choose‑Your‑Rate Debt The amendments in this Update provide a model to facilitate the application of cash flow hedge accounting for forecasted interest payments on variable‑rate debt that permits borrowers to change the interest rate index and reset frequency (“choose‑your‑rate” debt). Issue 3: Cash Flow Hedges of Nonfinancial Forecasted Transactions The amendments in this Update expand hedge accounting for forecasted purchases and sales of nonfinancial assets by allowing hedging of eligible price components and subcomponents, subject to specific criteria. Issue 4: Net Written Options as Hedging Instruments The amendments in this Update eliminate the requirement to apply the net written option test to compound derivatives consisting of a swap and a written option that are designated as hedging instruments in cash flow or fair value hedges of interest rate risk. Issue 5: Foreign‑Currency‑Denominated Debt Used in Dual Hedges The amendments in this Update eliminate recognition and presentation mismatches in dual hedge strategies by excluding fair value hedge basis adjustments from net investment hedge effectiveness assessments and requiring related foreign exchange gains and losses to be recognized in earnings.	The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods, and should be applied prospectively for all hedging relationships that exist at the date of adoption.	We evaluated the provisions of ASU 2025-09 in relation to the Company's existing derivative portfolio and hedge-accounting strategies. The Company does not currently engage in nonfinancial component hedging, net written option hedging strategies, or dual-hedge strategies affected by the Update. Accordingly, adoption will not have a material impact on our consolidated financial statements, although certain hedge documentation, accounting policies, and related controls may be updated.
2025-11: Interim Reporting (Topic 270)—Narrow-Scope Improvements	The amendments in this Update clarify interim disclosure requirements and the applicability of Topic 270 by organizing existing GAAP interim disclosure requirements into a single framework and clarifying when additional disclosures are required for material events occurring after the most recent annual reporting period.	The amendments in this Update are effective for fiscal years beginning after December 15, 2027, and interim reporting periods within those annual reporting periods.	This ASU only affects disclosures, which will be provided when the amendment becomes effective.
2025-12: Codification Improvements	The amendments in this Update include 33 issues that represent changes to the Codification that clarify, correct errors, or make minor improvements, making the Codification easier to understand and apply. The amendments in this Update are varied in nature and may affect the application of guidance in cases in which the original guidance may have been unclear.	The amendments in this Update are effective for fiscal years beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted on an issue-by-issue basis as of the beginning of an annual reporting period.	We evaluated the provisions of ASU 2025-12 in relation to the Company's existing accounting policies. The majority of the amendments represent clarifications, corrections, or minor improvements to existing guidance and are not expected to affect our accounting. Accordingly, adoption is not expected to have a material impact on our consolidated financial statements, although certain accounting policies, documentation and related controls may be updated.
2026-02: Environmental Credits and Environmental Credit Obligations (Topic 818)	The amendments in this Update improve GAAP by providing specific authoritative guidance for environmental credit obligations.	The amendments in this Update are effective for fiscal years beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted.	We are currently evaluating the impact of adopting the standard on our consolidated financial statements.