**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

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**FORM 10-Q**

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**Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**For the quarterly period ended June 30, 2006**

**IPALCO ENTERPRISES, INC.**
(Exact name of Registrant as specified in its Charter)

**Commission file number 1-8644**



|**Indiana**                                                    | **35-1575582**                         
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number)

**One Monument CircleIndianapolis, IN    46204**(Address of Principal Executive Offices including Zip Code)

**(317) 261-8261**(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days.   YES [X]    NO [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated
filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer 	    
Accelerated filer	     
Non-accelerated filer X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).	Yes		      
No X

At August 4, 2006, 89,685,177 shares of IPALCO Enterprises, Inc. common stock were outstanding.
All of such shares were owned by The AES Corporation.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.







**IPALCO ENTERPRISES, INC.
                                    FORM 10-Q
                                     INDEX**



|**PART I - Financial Information**                                                                                                    | **Page No.**
|------------------------------------------------------------------------------------------------------------------------------------- | ------------
|                                                                                                                                      |             
|Item 1:   Financial Statements:                                                                                                       |             
|                                                                                                                                      |             
|Unaudited Consolidated Statements of Income for the Three-month and
        
          Six-month Periods Ended June 30, 2006 and 2005 | 3           
|                                                                                                                                      |             
|Unaudited Consolidated Balance Sheets as of June 30, 2006 
        
           and December 31, 2005                                  | 4           
|                                                                                                                                      |             
|Unaudited Consolidated Statements of Cash Flows for the
        
          Six-month Periods Ended June 30, 2006 and 2005             | 5           
|                                                                                                                                      |             
|Notes to Unaudited Consolidated Financial Statements                                                                                  | 6           
|                                                                                                                                      |             
|Item 2:   Management's Discussion and Analysis of Financial Condition 
          
and Results of Operations                           | 11          
|                                                                                                                                      |             
|Item 3:   Quantitative and Qualitative Disclosure About Market Risk                                                                   | 18          
|                                                                                                                                      |             
|Item 4:  Controls and Procedures                                                                                                      | 18          
|                                                                                                                                      |             
|**PART II - Other Information**                                                                                                       |             
|                                                                                                                                      |             
|Item 1:  Legal Proceedings                                                                                                            | 20          
|                                                                                                                                      |             
|Item 1A:  Risk Factors                                                                                                                | 20          
|                                                                                                                                      |             
|Item 6:  Exhibits                                                                                                                     | 20          
|                                                                                                                                      |             
|**Signature**                                                                                                                         | 21          

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**PART I -- FINANCIAL INFORMATION**

Item 1.  Financial Statements

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**IPALCO ENTERPRISES, INC. and SUBSIDIARIES

Unaudited Consolidated Statements of Income

(In Thousands)**

`Three Months Ended     Six Months Ended
                                                                       June 30,               June 30,
                                                             ---------------------  ---------------------
                                                                2006       2005        2006       2005
                                                             ---------- ----------  ---------- ----------
UTILITY OPERATING REVENUES                                   $ 250,907  $ 228,799   $ 506,523  $ 455,688

UTILITY OPERATING EXPENSES:
 Operation:
   Fuel                                                         73,779     46,162     140,372     92,533
   Other operating expenses                                     40,618     35,953      80,487     69,437
 Power purchased                                                 8,141      6,448      19,623     10,653
 Maintenance                                                    28,391     21,438      56,122     39,260
 Depreciation and amortization                                  33,703     33,331      67,394     67,445
 Taxes other than income taxes                                   9,671      8,870      19,782     18,214
 Income taxes-net                                               19,316     25,514      41,363     52,789
                                                             ---------- ----------  ---------- ----------
  Total utility operating expenses                             213,619    177,716     425,143    350,331
                                                             ---------- ----------  ---------- ----------
UTILITY OPERATING INCOME                                        37,288     51,083      81,380    105,357
                                                             ---------- ----------  ---------- ----------
OTHER INCOME AND (DEDUCTIONS):
 Allowance for equity funds used during construction             1,083        715       1,821      1,321
 Other - net                                                       224       (254)     (1,256)       401
 Income tax benefit-net                                          8,439      6,514      19,007     12,853
                                                             ---------- ----------  ---------- ----------
  Total other income and (deductions)-net                        9,746      6,975      19,572     14,575
                                                             ---------- ----------  ---------- ----------
INTEREST AND OTHER CHARGES:
 Interest on long-term debt                                     27,806     27,940      55,527     56,178
 Other interest                                                    798        168       1,575        308
 Allowance for borrowed funds used during construction            (733)      (354)     (1,309)      (697)
 Amortization of redemption premiums and expense on debt-net       778        716       1,581      1,364
 Preferred dividends of subsidiary                                 804        804       1,607      1,607
                                                             ---------- ----------  ---------- ----------
  Total interest and other charges-net                          29,453     29,274      58,981     58,760
                                                             ---------- ----------  ---------- ----------
NET INCOME                                                   $  17,581  $  28,784   $  41,971  $  61,172
                                                             ---------- ----------  ---------- ----------
  Other comprehensive income (loss)                                778       (752)      1,456       (842)
                                                             ---------- ----------  ---------- ----------
TOTAL COMPREHENSIVE INCOME                                   $  18,359  $  28,032   $  43,427  $  60,330
                                                             ========== ==========  ========== ==========`

See notes to consolidated financial statements.

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**IPALCO ENTERPRISES, INC. and SUBSIDIARIES

Unaudited Consolidated Balance Sheets

(In Thousands)**

`June 30,   December 31,
                                                                2006         2005
                                                           ------------- ------------
                          ASSETS
UTILITY PLANT:
 Utility plant in service                                  $  3,565,449  $ 3,496,202
 Less accumulated depreciation                                1,464,430    1,425,489
                                                           ------------- ------------
     Utility plant in service - net                           2,101,019    2,070,713
 Construction work in progress                                  113,692       94,087
 Property held for future use                                       591          591
                                                           ------------- ------------
     Utility plant - net                                      2,215,302    2,165,391
                                                           ------------- ------------
OTHER ASSETS:
 Nonutility property - at cost, less
  accumulated depreciation                                          712          714
 Other investments                                               10,066        9,460
                                                           ------------- ------------
     Other assets - net                                          10,778       10,174
                                                           ------------- ------------
CURRENT ASSETS:
 Cash and cash equivalents                                        3,768        6,008
 Short-term investments                                             975        1,581
 Accounts receivable and unbilled revenue (less allowance
  for doubtful accounts of $1,740 and $1,930, respectively)      66,943       64,025
 Fuel - at average cost                                          32,578       25,145
 Materials and supplies - at average cost                        51,247       52,331
 Net income tax refunds receivable                                4,341        6,309
 Regulatory assets                                                4,344       41,424
 Prepayments and other current assets                            15,421        8,131
                                                           ------------- ------------
     Total current assets                                       179,617      204,954
                                                           ------------- ------------
DEFERRED DEBITS:
 Regulatory assets                                              163,457      156,952
 Miscellaneous                                                   50,796       35,685
                                                           ------------- ------------
     Total deferred debits                                      214,253      192,637
                                                           ------------- ------------
             TOTAL                                         $  2,619,950  $ 2,573,156
                                                           ============= ============
              CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
 Common shareholder's deficit:
   Premium on 4% cumulative preferred stock                $        649  $       649
   Paid in capital                                                2,674        2,063
   Accumulated deficit                                          (56,281)     (54,752)
   Accumulated other comprehensive loss                         (72,906)     (74,361)
                                                           ------------- ------------
     Total common shareholder's deficit                        (125,864)    (126,401)
 Cumulative preferred stock of subsidiary                        59,135       59,135
 Long-term debt                                               1,443,359    1,443,316
                                                           ------------- ------------
     Total capitalization                                     1,376,630    1,376,050
                                                           -------------  -----------
CURRENT LIABILITIES:
  Notes payable and current portion of long-term debt           125,400      111,100
  Accounts payable and accrued expenses                          73,103       82,267
  Accrued real estate and personal property taxes                16,348       15,843
  Accrued income taxes                                            4,592            -
  Accrued interest                                               26,962       26,531
  Customer deposits                                              13,719       12,875
  Other current liabilities                                      15,127       13,052
                                                           ------------- ------------
     Total current liabilities                                  275,251      261,668
                                                           ------------- ------------
 DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES:
 Accumulated deferred income taxes - net                        358,587      339,041
 Asset retirement obligations                                   424,558      412,597
 Unamortized investment tax credit                               21,521       22,827
 Accrued pension and other postretirement benefits              156,443      149,103
 Miscellaneous                                                    6,960       11,870
                                                           ------------- ------------
     Total deferred credits and other long-term liabilities     968,069      935,438
                                                           ------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 11)

             TOTAL                                         $  2,619,950  $ 2,573,156
                                                           ============= ============`

See notes to consolidated financial statements.

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**IPALCO ENTERPRISES, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(In Thousands)**

`Six Months Ended
                                                                 June 30,
                                                          ---------- ---------
                                                            2006       2005
                                                          ---------  ---------
Cash Flows from Operations:
 Net income                                              $  41,971  $  61,172
 Adjustments to reconcile net income to net cash
  provided by operating activities:
    Depreciation and amortization                           66,857     66,562
    Amortization of regulatory assets                        2,126      2,698
    Deferred income taxes and investment tax credit
      adjustments - net                                     19,757   (10,678)
    Gains on sales of environmental allowances              (4,690)   (1,028)
    (Gain) loss on investments                                 116       (427)
    Noncash dividend income                                   (410)      -
    Pension and other postretirement benefit expenses        8,231     5,443
    Preferred dividends of subsidiary                        1,607     1,607
    Allowance for equity funds used during construction     (1,821)    (1,321)
  Change in certain assets and liabilities:
    Accounts receivable                                     (2,918)     1,382
    Fuel, materials and supplies                            (7,527)      (192)
    Income taxes receivable or payable                       6,560        146
    Accounts payable and accrued expenses                   (5,326)    (7,410)
    Accrued real estate and personal property taxes            505        582
    Accrued interest                                           431     (1,738)
    Short-term and long-term regulatory assets
       and liabilities                                      24,614    (14,668)
    Other - net                                             (5,243)       273
                                                          ---------  ---------
Net cash provided by operating activities                  144,840    102,403
                                                          ---------  ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures - utility                           (98,691)   (58,127)
  Purchase of environmental emissions allowances           (14,299)      -
  Purchase of short-term investments                       (19,150)  (544,237)
  Proceeds from sales and maturities of
    short-term investments                                  20,075    547,387
  Proceeds from sales of environmental allowances            1,190      1,028
  Other                                                     (4,829)    (1,558)
                                                          ---------  ---------
Net cash used in investing activities                     (115,704)   (55,507)
                                                          ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term borrowings-net                                 14,300      2,000
  Long-term borrowings                                        -        71,850
  Retirement of long-term debt                                -       (71,850)
  Dividends on common stock                                (43,500)   (47,622)
  Preferred dividends of subsidiary                         (1,607)      (804)
  Other                                                       (569)      (933)
                                                          ---------  ---------
Net cash used in financing activities                      (31,376)   (47,359)
                                                          ---------  ---------
Net change in cash and cash equivalents                     (2,240)      (463)
Cash and cash equivalents at beginning of period             6,008      3,779
                                                          ---------  ---------
Cash and cash equivalents at end of period               $   3,768  $   3,316
                                                          =========  =========
Supplemental disclosures of cash flow information:
  Cash paid (received) during the period for:
    Interest (net of amount capitalized)                 $  55,411  $  57,728
                                                          =========  =========
    Income taxes                                         $  (3,962) $  49,893
                                                          =========  =========`

See notes to consolidated financial statements.

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IPALCO ENTERPRISES, INC. and SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1.  Organization

IPALCO Enterprises, Inc. ("IPALCO") is a wholly-owned subsidiary of The AES
Corporation ("AES"). IPALCO owns all of the outstanding common stock of its subsidiaries.
These include its regulated electric utility subsidiary, Indianapolis Power & Light Company
("IPL"), and its unregulated subsidiary, Mid-America Capital Resources, Inc. ("Mid-
America"). Substantially all of IPALCO's business consists of the generation, transmission,
distribution and sale of electric energy conducted through IPL. IPL has more than 465,000 retail
customers in the city of Indianapolis and neighboring cities, towns and communities, and adjacent
rural areas all within the state of Indiana, the most distant point being approximately forty miles
from Indianapolis. IPL has an exclusive right to provide electric service to those customers. IPL
owns and operates two primarily coal-fired generating plants, one combination coal and gas-fired
plant and a separately-sited combustion turbine that are all used for generating electricity. IPL's
net electric generation capability for winter is 3,370 megawatts and net summer capability is 3,252
megawatts. Mid-America conducts IPALCO's unregulated activities.

2.  BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of IPALCO, IPL and
Mid-America. All significant intercompany amounts have been eliminated. The accompanying financial
statements are unaudited; however, they have been prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP") for interim financial
information and in conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the disclosures required by GAAP for annual
fiscal reporting periods. In the opinion of management, all adjustments of a normal recurring nature
necessary for fair presentation, have been included. The electric utility business is affected by
seasonal weather patterns throughout the year and, therefore, the operating revenues and associated
operating expenses are not generated evenly by month during the year. These unaudited financial
statements have been prepared in accordance with the accounting policies described in IPALCO's
audited financial statements for the year ended December 31, 2005, included in its annual report on
Form 10-K and should be read in conjunction therewith.

The preparation of financial statements in conformity with GAAP requires that management make
certain estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements. The
reported amounts of revenues and expenses during the reporting period may also be affected by the
estimates and assumptions management is required to make. Actual results may differ from those
estimates.

3. SIGNIFICANT ACCOUNTING POLICIES

Emissions Allowances. IPL uses environmental air emissions allowances to meet
standards set forth by the Environmental Protection Agency related to emission of sulfur dioxide
("SO2") and nitrous oxide ("NOx") gasses. IPL accounts for environmental air emissions
allowances as intangible assets, included in MISCELLANEOUS DEFERRED DEBITS on the accompanying
balance sheets, and records expenses for allowances using a first in first out ("FIFO")
method. The total book value of SO2 and NOx emissions allowances as of June 30, 2006 and December 31, 2005 was $15.6
million and $1.2 million, respectively. The increase in book value is primarily due to the purchase
of $14.3 million of SO2 allowances during the first half of 2006.

Income taxes.

Financial Transmission Rights.  Midwest Independent Transmission System Operators,
Inc. ("Midwest ISO") market participants are able to hedge their exposure to congestion
charges, which result from constraints on the transmission system, with certain Financial
Transmission Rights ("FTRs"). Participants are allocated FTRs each year and are permitted
to purchase additional FTRs.  Both the congestion and FTR amounts are generally recoverable through the fuel adjustment charge proceeding ("FAC").  In accordance with SFAS No. 71, IPALCO recognizes a regulatory
liability for the value of the FTR derivative, which is adjusted as the value of the FTR's changes.
All methods of assessing fair value result in a general approximation of value and such value may
never be realized.  IPL's FTRs are included in PREPAYMENTS AND OTHER CURRENT ASSETS on the
accompanying balance sheets at their estimated fair market value, which was $6.4 million and $2.6
million as of June 30, 2006 and December 31, 2005, respectively.  The associated regulatory
liability is included in OTHER CURRENT LIABILITIES. The net of expenses related to congestion
charges and/or FTRs have not been material to our financial statements.

4. NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN No.
48") which is effective for fiscal years beginning after December 15, 2006.  FIN 48 prescribes a recognition threshold and measurement
attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return,
and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  IPALCO will adopt
FIN No. 48 on January 1, 2007 and IPALCO will record the cumulative effect of applying the
provisions of this Interpretation as an adjustment to beginning retained earnings.  FIN No. 48
applies to all tax positions accounted for in accordance with SFAS No. 109.  IPALCO is in the
process of determining the impact at this time.

In July 2006, the FASB also issued FASB Statement of Position
FAS 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows
Relating to Income Taxes Generated by a Leveraged Lease Transaction". This FASB staff position
("FSP") amends FASB Statement No. 13, "Accounting for Leases", to require a
lessor in a leveraged-lease transaction to recalculate the leveraged lease for the effects of a
change or projected change in the timing of cash flows relating to income taxes that are generated
by the leveraged lease.  The FSP is effective for fiscal years beginning after
December 15, 2006.  The cumulative effect of applying the
provisions of this FSP will be recorded as an adjustment to the balance of retained earnings as of
the beginning of January 1, 2007.  IPALCO
is in the process of determining the impact at this time.

5.  NONCASH TRANSACTIONS

During the first quarter of 2006, IPL exchanged 2,510 SO2environmental emission
allowances with a 2007 vintage year for 2,500 SO2 environmental emission allowances with
a 2005 vintage year. IPL recorded a gain on the transaction of $3.5 million.

6.  SEGMENT INFORMATION

Operating segments are components of an enterprise for which separate financial information
is available and is evaluated regularly by the chief operating decision maker in assessing
performance and deciding how to allocate resources. Substantially all of our business consists of
the generation, transmission, distribution and sale of electric energy conducted through IPL.
Enterprises' reportable business segments are electric and "all other." The "all
other" category primarily includes the IPALCO$750 million Senior Secured Notes as of
June 30, 2006 and December 31, 2005; approximately $0.3 million and $0.6 million of nonutility cash
and cash equivalents, as of June 30, 2006 and December 31, 2005, respectively; short-term and long-
term nonutility investments of $9.9 million at June 30, 2006 and December 31, 2005;
 and income taxes and interest related to those items. There was no utility operating
income other than the activities of IPL during the periods covered by this report. Nonutility assets
represented less than 1% of IPALCO's total assets as of June 30, 2006 and December 31, 2005 and
there were no nonutility capital expenditures during the six month periods ended June 30, 2006 and
June 30, 2005.

7.  INCOME TAXES

IPALCO's effective combined state and federal income tax rates for the six month periods
ended June 30, 2006 and 2005 were 34.8% and 39.5%, respectively. The rate decrease was primarily the
result of $5.6 million of interest income related to income taxes recorded as a result of the
completion of an IRS examination of our filings for the period 1996 through March of 2001 during the
first quarter of 2006. The examination resulted in a refund due to us of $25.0 million,
which we received in the second quarter of 2006. This decrease was partially offset by an increase
in income taxes due to depreciation flow through and amortization of $4.1 million.

8..  REGULATORY ASSETS

Deferred Fuel and RSG amounts. Deferred fuel costs are a component of current
regulatory assets and are expected to be recovered through future fuel adjustment charge
proceedings. IPL records deferred fuel in accordance with standards prescribed by the Federal Energy
Regulatory Commission ("FERC"). The deferred fuel adjustment is the result of variances
between estimated fuel and purchased power costs in IPL's fuel adjustment charge and actual fuel and
purchased power costs. IPL is permitted to recover underestimated fuel and purchased power costs in
future rates through the fuel adjustment charge proceedings and therefore the costs are deferred and
amortized into fuel expense in the same period that IPL's rates are adjusted. The deferred fuel
asset decreased $36.6 million during the six months ended June 30, 2006 primarily because the amount
of fuel charged to customers increased to recover underbilled fuel costs from prior periods and
because in 2006 we reduced our deferred fuel by $5.8 million for the RSG amounts (see below) and
recorded a long term regulatory assets. These costs were previously accounted for as recoverable through the
FAC.

During the second quarter of 2006, we received an Order from the Indiana Utility Regulatory
Commission ("IURC") requiring us to return all Day Ahead Revenue Sufficiency Guarantee
Distribution Amounts and Real-Time Revenue Sufficiency Guarantee First Pass Distribution Amounts
("RSG amounts") assessed by the Midwest ISO prior to December 9, 2005 charged to
customers, or scheduled to be charged to customers, through the FAC. According to the Order, RSG
amounts beginning December 9, 2005, may be recovered in IPL's FACs, subject to a benchmark. Based on established regulatory practices and Orders received by the IURC allowing deferral,
we believe it is probable that the RSG amounts charged to us prior to December 9,
2005, will be recovered. Accordingly, we have deferred such cost as a regulatory asset. The recovery period for these costs can not
yet be determined.

Additionally, in IPL's March 2006 FAC, a consumer advocacy group representing some of IPL's
industrial customers requested that a sub-docket be established to review IPL's fuel costs.  The
hearing on this FAC was held on May 3, 2006 and we received an Order on May 24, 2006 approving the
establishment of a sub-docket to review IPL's fuel costs. The Order authorized the use of the FAC
factor on an interim basis, subject to refund, because of the establishment of the sub-docket as
                                                                                  well as the findings of the Commission's May 4 Order in Cause No. 42962.

9.  INDEBTEDNESS

In May 2006, IPL entered into a new credit agreement in the aggregate
principal amount of $120.6 million which includes an $80 million committed line
of credit and a $40.6 million liquidity facility (related to $40 million of IPL
variable rate bonds, which are remarketed weekly).  The committed line of credit
also provides a sub limit for the issuance of letters of credit.  The credit
agreement allows the committed line of credit to be increased to $109.4 million
upon IPL's request and subject to certain other conditions.  Accordingly, in
July 2006, we requested an increase in our borrowing capacity of $29.4 million
to utilize this feature.  The maturity date for the new agreement is May 16,
2011.  This agreement replaced two existing 364-day agreements with an aggregate
borrowing capacity of $115.6 million which included a $75 million committed line
of credit and a $40.6 million liquidity facility.

10.  PENSION AND OTHER POSTRETIREMENT BENEFITS

Employees' Retirement Plan: Most of IPL's employees are covered by the Employees'
Retirement Plan of Indianapolis Power & Light Company (the "Defined Benefit Pension
Plan"). The Defined Benefit Pension Plan is noncontributory and is funded through a trust.
Benefits are based on each individual employee's pension band and years of service as opposed to
their compensation. Pension bands are based primarily on job duties and responsibilities.

Supplemental Retirement Plan: Additionally, a small group of former officers and their
surviving spouses are covered under a funded supplemental pension plan. The total number of
participants in the plan is less than 35 and the plan is closed to new participants.

Pension Funding: IPL's funding policy for the Defined Benefit Pension Plan and the
supplemental retirement plan ("the Pension Plans") is to contribute annually no less than
the minimum required by applicable law, nor more than the maximum amount that can be deducted for
federal income tax purposes. IPL has not made any contributions to the Pension Plans during the
first six months of 2006. Depending on the timing of contributions, potential legislation and other
factors related to the funding strategy, we estimate potential cash contributions to the Pension
Plans of $30 to $50 million in 2006. This estimate is based on actuarial assumptions using a
discount rate of 5.78%.

The following table presents information relating to the Pension Plans combined:

`For the Three Months           For the Six Months
                                         Ended June 30,                 Ended June 30,
                                         -------------------------      ------------------------
                                             2006         2005              2006        2005
                                         -------------------------      ------------------------
Pension Benefits                                                  (IN THOUSANDS)

Components of net periodic benefit cost
Service cost                                   $1,368      $1,034            $2,737      $2,067
Interest cost                                   6,969       6,473            13,936      12,946
Expected return on plan assets                 (6,777)     (6,489)          (13,554)    (12,978)
Amortization of transition asset                   -         (318)               -         (636)
Amortization of prior service costs               565         434             1,130         869
Amortization of actuarial loss                  1,299         780             2,599       1,561
                                         -------------------------      ------------------------
Net periodic benefit cost                      $3,424      $1,914            $6,848      $3,829
                                         =========================      ========================`

Other Postretirement Benefits: IPL is providing, and has agreed to provide, postretirement health care
benefits to certain retired or active employees and the spouses of certain
retired or active employees. Approximately 500 people were receiving such
benefits or entitled to future benefits as of June 30, 2006. Other
postretirement benefit costs for the six-month periods ended June 31, 2006 and
2005, net of amounts capitalized, were $1.4 million and $1.6 million,
respectively. As of June 30, 2006 and December 31, 2005 IPL had net benefit
obligation recognized as part of accrued pension and other postretirement
benefits of $8.9 million and $8.3 million, respectively.

11.  COMMITMENTS AND CONTINGENCIES

Legal

IPALCO and certain former officers and directors of IPALCO are defendants in a class
action lawsuit under the Employment Retirement Income Security Act, filed in the U.S. District Court
for the Southern District of Indiana, regarding matters arising from the acquisition of IPALCO by
AES. The lawsuit was filed in March 2002 and alleges breach of fiduciary duties with respect to
shares held in IPL's 401(k) thrift plan. A bench trial was held in February 2006 to determine
whether there were any breaches of fiduciary duties. The court took the matter under advisement and
has not yet ruled. While we cannot predict the outcome, we do not believe that the suit will have a
material adverse effect on IPALCO's consolidated financial statements.

Many years ago, IPL obtained, through purchases from several owners, a substantial tract of land
as a potential site for a future power plant. IPL later determined it no longer intended to build a
power plant on that land and sold it in 2004. In September 2004, a former owner of a parcel included
within IPL's land sued IPL in Morgan County Superior Court in a purported class action to force IPL
to pay any profit on the sale to the various former owners, as well as profits received from ground
leases and timber sales. The plaintiffs contend, in essence, that IPL obtained the various parcels
through eminent domain or threat of eminent domain and now allege, in an amended complaint, theories
of fraudulent inducement to contract, unjust enrichment, breach of fiduciary duty, and fraudulent
concealment. IPL believes the suit is without merit. At this time discovery has just recently begun
and the court has not certified a class. While we cannot predict the outcome, we do not expect the
matter will have a material adverse effect on IPALCO's consolidated financial statements.

As of June 30, 2006 and December 31, 2005, IPL was a defendant in approximately 113 and 109
pending lawsuits, respectively, alleging personal injury or wrongful death stemming from exposure to
asbestos and asbestos containing products formerly located in IPL power plants. IPL has been named
as a "premises defendant" in that IPL did not mine, manufacture, distribute or install
asbestos or asbestos containing products. These suits have been brought on behalf of persons who
worked for contractors or subcontractors hired by IPL. IPL has insurance which may cover some
portions of these claims; currently, these cases are being defended by counsel retained by various
insurers who wrote policies applicable to the period of time during which much of the exposure has
been alleged.

It is possible that material additional loss with regard to the asbestos lawsuits could be
incurred. At this time, an estimate of additional loss cannot be made. IPL has settled a number of
asbestos related lawsuits for amounts which, individually and in the aggregate, are not material to
IPL or IPALCO's financial position, results of operations, or cash flows. Historically, settlements
paid on IPL's behalf have been comprised of proceeds from one or more insurers along with
comparatively smaller contributions by IPL. We are unable to estimate the number of, the effect of,
or losses or range of loss which are reasonably possible from the pending lawsuits or any additional
asbestos suits. Furthermore, we are unable to estimate the portion of a settlement amount, if any,
that may be paid from any insurance coverage for any known or unknown claims. Accordingly, there is
no assurance that the pending or any additional suits will not have a material adverse effect on
IPALCO's consolidated financial statements.

In addition, IPALCO and IPL are involved in litigation arising in the normal course of business.
While the results of such litigation cannot be predicted with certainty, management, based upon
advice of counsel, believes that the outcomes will not have material adverse effects on IPALCO's
consolidated financial statements.

Environmental

IPALCO and IPL are subject to various federal, state and local environmental protection
and health and safety laws and regulations governing, among other things, the generation, storage,
handling, use, disposal and transportation of hazardous materials; the emission and discharge of
hazardous and other materials into the environment; and the health and safety of our employees.
These laws and regulations often require a lengthy and complex process of obtaining and renewing
permits and other governmental authorizations from federal, state and local agencies. Violation of
these laws, regulations or permits can result in substantial fines, other sanctions, permit
revocation and/or facility shutdowns. We believe that we operate in material compliance with
environmental laws, regulations and permits and health and safety laws. We cannot assure, however,
that we have been or will be at all times in full compliance with such laws, regulations and
permits. Please see Note 11 "Commitments and Contingencies - Environmental" of IPALCO's
audited financial statements for the year ended December 31, 2005, included in its annual report on
Form 10-K, for a more comprehensive discussion of environmental matters impacting IPALCO and
IPL.

---



Item 2.	Management's Discussion And Analysis Of Financial Condition And Results Of
Operations

Cautionary Note Regarding Forward-Looking Statements

This Report on Form 10-Q includes ``forward-looking statements''
including, in particular, the statements about our plans, strategies and prospects under the heading
``Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.''
Forward-looking statements express an expectation or belief and contain a projection, plan or
assumption with regard to, among other things, our future revenues, income, expenses or capital
structure. Such statements of future events or performance are not guarantees of future performance
and involve estimates, assumptions and uncertainties. The words ``could,'' ``may,'' ``predict,''
``anticipate,'' ``would,'' ``believe,'' ``estimate,'' ``expect,'' ``forecast,'' ``project,''
``objective,'' and similar expressions are intended to identify forward-looking statements.

Some important factors that could cause our actual results or outcomes to differ materially from
those discussed in the forward-looking statements include, but are not limited to:

- changes in our credit ratings or the credit ratings of AES
- performance of pension plan assets
- fluctuations in customer growth and demand
- weather and weather-related damage
- fuel costs
- generating unit availability and capacity
- transmission and distribution system reliability and capacity
- purchased power costs and availability
- regulatory action, including, but not limited to, the review of our basic rates and charges by
the Indiana Utility Regulatory Commission ("IURC")
- our ownership by AES
- federal and state legislation
- changes in financial or regulatory accounting policies
- environmental matters, including costs of compliance with current and future environmental
requirements
- interest rates and the availability and other cost of capital
- labor strikes or other workforce factors
- unanticipated generation outages, facility or equipment maintenance, repairs and capital expenditures
- local economic conditions
- acts of terrorism, natural disasters or other catastrophic events
- costs and effects of legal and administrative proceedings, settlements, investigations and
claims and the ultimate disposition of litigation
- issues related to our participation in the Midwest Independent Transmission System Operators,
Inc. ("Midwest ISO"), including recovery of costs incurred
- product development and technology changes

Most of these factors affect us through our consolidated subsidiary Indianapolis Power &
Light Company. All such factors are difficult to predict, contain uncertainties that may materially
affect actual results and many are beyond our control. We undertake no obligation to publicly update
or review any forward-looking information, future events or otherwise.

Overview

IPALCO is a holding company incorporated under the laws of the state of
Indiana. Our principal subsidiary is IPL, a regulated electric utility operating in the state of
Indiana. Substantially all of our business consists of the generation, transmission, distribution
and sale of electric energy conducted through IPL. Our other direct subsidiary, Mid-America, is the
holding company for our unregulated activities. Mid-America's only significant investment is a small
minority ownership interest in EnerTech Capital Partners II L.P., a venture capital fund valued at
$6.4 million, as of June 30, 2006. Our business segments are electric and "all other."

IPL is engaged primarily in generating, transmitting, distributing and selling electric energy to
more than 465,000 retail customers in the city of Indianapolis and neighboring areas within the
state of Indiana. IPL has an exclusive right to provide electric service to those customers. IPL
owns and operates four generating stations, all within the state of Indiana. Historically,
approximately 99% of the total electricity produced by IPL was generated from coal. Natural gas and
fuel oil combined to provide the remaining kWh generation (primarily for peaking capacity). IPL's
net electric generation capability for winter and summer is 3,370 and 3,252 megawatts, respectively.
Our corporate mission is to serve our customer's needs for electric power in ways that provide
exceptional value to our customers, shareholders, people and communities.

We are subject to federal and state of Indiana income taxes. Our income tax provision requires
significant judgment and is based on calculations and assumptions that are subject to examination by
the Internal Revenue Service and other tax authorities. In January 2006, the Internal Revenue
Service completed an examination of our filings for the period 1996 through March of 2001. The
examination resulted in a refund due to us of $25.0 million, which we received in the
second quarter of 2006.

Material changes in our consolidated financial condition and results of operations, except where
noted, are attributed to the operations of IPL. Consequently, the following discussion is centered
on IPL.

Results of Operations

The electric utility business is affected by seasonal weather patterns
throughout the year and, therefore, the operating revenues and associated operating expenses are not
generated evenly by month during the year.

Comparison of Quarters Ended June 30, 2006 and June 30, 2005

Our second quarter 2006 net income of $17.6 million decreased $11.2 million from net
income of $28.8 million in the second quarter of 2005. The following discussion highlights the
significant factors contributing to this change.

Utility Operating Revenues

Utility operating revenues increased by $22.1 million during the three months ended June 30,
2006 compared to the same period in 2005 as a result of the following (dollars in thousands):

`June 30,       June 30,      Increase   Percentage
                                 2006           2005       (Decrease)    Change
                            ------------------------------------------------------
Retail Revenues                   $235,551       $209,148     $26,403        12.6%
Wholesale Revenues                   9,606         14,439      (4,833)      -33.5%
Miscellaneous Revenues               5,750          5,212         538        10.3%
                            ------------------------------------------
Total Utility Operating
  Revenues                        $250,907       $228,799     $22,108         9.7%
                            ==========================================

Heating Degree Days                    445            487         (42)       -8.6%
Cooling Degree Days                    276            353         (77)      -21.8%`

The 12.6% increase in retail revenues was primarily due to a 15.5% increase in the weighted
average price of kWhs sold ($32.4 million) offset by a 2.5% decrease in the quantity of kWhs sold
($6.0 million). The $32.4 million increase in the weighted average price of retail kWhs sold was
primarily due to a $29.2 million increase in fuel charges and a $1.6 million increase in costs IPL
recovered from its retail customers associated with its NOx compliance construction
program. The amount of fuel charged to customers has increased primarily to recover underbilled fuel
and/or purchased power costs from prior periods (see discussion of operating expenses). The decrease
in the quantity of retail kWhs sold is primarily due to a 21.8% decrease in cooling degree days and
an 8.6% decrease in heating degree days during the comparative periods.
Changes in the FAC fuel charge revenues are generally offset by fuel and purchased power expenses and generally
do not have an affect on net income.  Excluding the increase in the fuel charges, retail revenues are down $2.8 million.
The 33.5% decrease in wholesale revenues is primarily due to a 33.1% decrease in the quantity of kWhs sold ($4.8 million).
The decrease in the quantity of kWhs sold in the wholesale market in the second quarter of 2006 over
the second quarter of 2005 was primarily due to a scheduled outage on one of our large base load
coal fired units to enhance environmental emission technology that will significantly reduce
emissions as part of IPL's multi-pollutant plan. This unit was placed back into service on June 24,
2006.

Utility Operating Expenses

`Operating Expenses for the Quarter Ended June 30, 2005        $177.7
Increase in fuel                                                27.6
Increase in maintenance expenses                                 7.0
Increase in other operating expenses                             4.7
Increase in purchased power expense                              1.7
Decrease in income taxes - net                                  (6.2)
Other miscellaneous variances                                    1.1
                                                            ---------
Operating Expenses for the Quarter Ended June 30, 2006        $213.6
                                                            =========`

The increase in fuel is the result of a $23.0 million increase in the deferred fuel adjustment
and a $4.8 million increase in current fuel costs. The deferred fuel adjustment is the result of
variances between estimated fuel and purchased power costs in our fuel adjustment charge and actual
fuel and purchased power costs. We are permitted to recover underestimated fuel and purchased power
costs in future rates through the fuel adjustment charge proceedings and therefore the costs are
deferred and amortized into expense in the same period that our rates are adjusted. The increase in
deferred fuel costs is primarily because the amount of fuel charged to customers has increased to
allow us to recover underestimated fuel costs from prior periods. Current fuel costs increased
primarily due to the increase in the average price of coal consumed.

The increase in maintenance expenses is primarily due to a scheduled outage on one of our large
base load coal fired units to enhance environmental emission technology that will significantly
reduce emissions as part of IPL's multi-pollutant plan.

The increase in other operating expenses is primarily due to increases in wages and employee
benefits ($2.3 million), Midwest ISO transmission expenses ($1.0 million) and consulting fees and
other contract labor ($1.0 million). The increase in wages and employee benefits includes a $1.4
million increase in pension and other postretirement benefits and a $1.0 million increase in
employee group insurance benefit expenses. The increase in pension and other postretirement benefits
is primarily due to increased interest and service costs ($0.8 million) and increased net loss
amortization ($0.5 million). The increase in employee group insurance benefit expenses results
primarily from escalating health insurance claims and additional employees. The increase in
consulting fees and other contract labor consists primarily of increased legal costs to defend
outstanding litigation and consulting fees related to remediation efforts with respect to deferred
income taxes and the related regulatory asset balances (seeItem 4 Controls and
Procedures.)

Purchased power expense increased due to an increase in the volume of power purchased during the
period ($5.1 million), partially offset by a decrease in the market price of purchased power ($3.4
million). The increase in the volume of power purchased is primarily due to a scheduled outage on
one of our large base load coal fired units to enhance environmental emission technology that will
significantly reduce emissions as part of IPL's multi-pollutant plan.  The decreased price of
purchased power is influenced by changes in the market price of delivered fuel (primarily natural
gas) and the price of environmental emission allowances, as well as the supply of and demand for
electricity.

The $6.2 million decrease in income tax expense was primarily the result of a $20.0 million
decrease in pre-tax net operating income, which contributed $8.1 million to the decrease.  This
                                                                       decrease was partially offset by an increase in income taxes due to depreciation flow through and
amortization of $2.1 million.  The $2.2 million recorded for depreciation flow through in the
second quarter of 2006 is based on the estimated annual amount for 2006 of $8.8 million.

Our expense for 2006 emissions allowances was $0 for the second quarter of 2006. We are allocated
NOx and SO2 environmental air emissions allowances each year by the Environmental
Protection Agency ("EPA") at no cost.  Additionally, during 2006, we purchased 16,900
SO2 allowances at a total cost of $14.3 million. We account for emissions allowances as
intangible assets and record expenses for allowances using a first in first out, ("FIFO")
method. Therefore, our expense for 2006 emissions allowances will be $0 until we use all of the
allowances allocated to us from the EPA. We project our total expense in 2006 to be significantly
higher than in 2005, because we purchased a greater portion of our projected allowance needs in the
market. On June 24, 2006, we enhanced existing clean coal technology, which will help
reduce our SO2 emissions and therefore help to reduce future emissions
costs. In addition, we expect to place another clean coal technology project in service in late 2007 to
                                                                                                         further reduce emissions.

Other Income and Deductions

Other income and deductions increased from income of $7.0 million in the second quarter of
2005 to income of $9.7 million in the second quarter of 2006. Included in this increase is a $1.9
million increase in the income tax benefit primarily due to the changes in previously recorded tax contingencies including related interest.

Interest and Other Charges

While interest and other charges in total changed only slightly for the quarters ended June
30, 2006 and 2005, it includes an increase of $0.6 million of interest expense on short term debt
related to increased line of credit borrowings. This increase was partially offset by a $0.4 million
increase in the allowance for borrowed funds used during construction due to increased capital
expenditures related to the multi-pollutant plan.

Comparison of Six Month Periods Ended June 30, 2006 and June 30 , 2005

Net income during the six month period ended June 30, 2006 of $42.0 million decreased
$19.2 million from net income of $61.2 million in the same period in 2005. The following discussion
highlights the significant factors contributing to this change.

Utility Operating Revenues

Utility operating revenues increased by $50.8 million during the six months ended June 30,
2006 compared to the same period in 2005 as a result of the following (dollars in thousands):

`June 30,       June 30,      Increase   Percentage
                                 2006           2005       (Decrease)    Change
                            ------------------------------------------------------
Retail Revenues                   $470,745       $419,760     $50,985        12.1%
Wholesale Revenues                  21,905         27,244      (5,339)      -19.6%
Miscellaneous Revenues              13,873          8,684       5,189        59.8%
                            ------------------------------------------
Total Operating Revenues          $506,523       $455,688     $50,835        11.2%
                            ==========================================

Heating Degree Days                  2,845          3,163        (318)      -10.1%
Cooling Degree Days                    276            353         (77)      -21.8%`

The 12.1% increase in retail revenues is primarily due to a 15.1% increase in the weighted
average price of kWhs sold ($63.5 million) offset by a 2.6% decrease in the quantity of kWhs sold
($12.5 million). The $63.5 million increase in the weighted average price of retail kWhs sold was
primarily due to a $57.1 million increase in fuel charges and a $2.9 million increase in costs IPL
recovered from its retail customers associated with its NOx compliance construction
program. The amount of fuel charged to customers has increased primarily to recover underbilled fuel
and/or purchased power costs from prior periods. The decrease in the quantity of retail kWhs sold is
primarily due to a 21.8% decrease in cooling degree days and a 10.1% decrease in heating degree days
during the comparative periods.
Changes in the FAC fuel charge revenues are generally offset by fuel and purchased power expenses and generally
do not have an affect on net income.  Excluding the increase in the fuel charges, retail revenues are down $6.1 million.
The decrease in wholesale revenues was primarily due to a 20.2% decrease in the quantity of wholesale kWhs sold ($5.5 million). The decrease in the quantity of kWhs
sold in the wholesale market in the six months ending 2006 over the same period in 2005 was
primarily due to a scheduled outage on one of our large base load coal fired units to enhance
environmental emission technology that will significantly reduce emissions as part of IPL's multi-
pollutant plan. This unit was placed back into service on June 24, 2006.

The $5.2 million increase in miscellaneous revenues is primarily due to a $3.7 million gain from
exchanging 2,510 vintage 2007 SO2 air emissions allowances for 2,500 vintage 2005
SO2 air emissions allowances during the first quarter of 2006 and a $0.9 million increase
in Midwest ISO transmission revenues. The gain results from exchanging allowances that were granted
to us by the EPA at no charge and recorded at cost, which is zero, for allowances that are recorded
                                                                                                           at fair market value.

Utility Operating Expenses

`Operating Expenses for the Six Months Ended June 30, 2005     $350.3
Increase in fuel                                                47.8
Increase in maintenance expenses                                16.9
Increase in other operating expenses                            11.0
Increase in purchased power expense                              9.0
Decrease in income taxes - net                                 (11.4)
Other miscellaneous variances                                    1.5
                                                            ---------
Operating Expenses for the Six Months Ended June 30, 2006     $425.1
                                                            =========`

The increase in fuel is the result of a $37.6 million increase in the deferred fuel adjustment
and a $10.1 million increase in current fuel costs. The increase in deferred fuel costs is primarily
because the amount of fuel charged to customers has increased to allow us to recover underestimated
fuel costs in prior periods. Current fuel costs increased primarily due to the increase in the
average price of coal consumed.

The increase in maintenance expenses is primarily due to a scheduled outage on one of our large
base load coal fired units to enhance environmental emission technology that will significantly
reduce emissions as part of IPL's multi-pollutant plan. The increase in other operating expenses is
primarily due to increases in wages and employee benefits ($5.5 million), consulting fees and other
contract labor ($2.0 million), Midwest ISO transmission expenses ($1.8 million) and payroll taxes
($0.9 million). The increase in wages and employee benefits includes a $2.8 million increase in
pension and other postretirement benefits, a $0.9 million increase in payroll costs and a $1.7
million increase in employee group insurance benefit expenses. The increase in pension and other
postretirement benefits is primarily due to increased interest and service costs ($1.7 million) and
increased net loss amortization ($1.0 million). The increase in payroll costs reflects annual wage
increases and additional employees. The increase in employee group insurance benefit expenses
results primarily from escalating health insurance claims and additional employees. The increase in
consulting fees and other contract labor consists primarily of increased legal costs to defend
                                                                      outstanding litigation and consulting fees related to remediation efforts with respect to deferred
                                                                              income taxes and the related regulatory asset balances (see Item 4 Controls and
Procedures.)

Purchased power expense increased due to an increase in the market price of purchased power and
an increase in the volume of power purchased during the period. The increased price of purchased
                                                                        power ($5.1 million) is influenced by changes in the market price of delivered fuel (primarily
natural gas) and the price of environmental emission allowances, as well as the supply of and demand
for electricity.  The increase in the volume of power purchased ($3.9 million) is primarily due to a
scheduled outage on one of our large base load coal fired units to enhance environmental emission
technology that will significantly reduce emissions as part of IPL's multi-pollutant plan.

The $11.4 million decrease in income tax expense was primarily the result of a $35.4 million
decrease in pre-tax net operating income, which contributed $14.3 million to the decrease, and a
$1.1 million decrease in operating income tax contingencies. These decreases were partially offset
by an increase in income taxes due to depreciation flow through and amortization of $4.1 million.
The $4.4 million recorded for depreciation flow through in the first half of 2006 is based on
the estimated annual amount for 2006 of $8.8 million.

Other Income and Deductions

Other income and deductions increased from income of $14.6 million in the six month period
ended June 30, 2005 to income of $19.6 million in the six month period ended June 30, 2006. Included
in this increase is a $6.2 million increase in the income tax benefit, primarily due to the changes
in previously recorded tax contingencies including related interest. This increase was offset by a decrease in interest income
from temporary cash investments ($0.7 million) and a decrease in our share of income from equity
method investments ($0.4 million). Interest income is down because less cash was available for
investment during the current period.

Interest and Other Charges

While interest and other charges in total changed only slightly for the six months ended June
30, 2006 and 2005, it includes an increase of $1.3 million of interest expense on short term debt
related to increased line of credit borrowings, partially offset by a $0.6 million decrease in
interest expense on long term debt and a $0.6 million increase in allowance for borrowed funds used
during construction. The decrease in interest on long term debt is primarily due to less interest on
$71.9 million of first mortgage bonds that were refinanced in April 2005 at a lower interest rate.
The increase in allowance for funds used during construction is primarily related to increased
capital expenditures in 2006 on equipment related to the multi-pollutant plan.

Liquidity and Capital Resources

As of June 30, 2006, IPALCO had cash and cash equivalents of $3.8 million
and highly liquid short-term investments of $1.0 million. As of June 30, 2006, IPL also had
available borrowing capacity of $12.7 million under its $80.0 million committed credit facility
after outstanding borrowings of $66.6 million and existing letters of credit. In addition, in July
2006, we requested an increase through a feature in our credit facility to make an additional $29.4
million of borrowing capacity available. We anticipate the availability of the funds in August
2006.

All long-term borrowings by IPL must first be approved by the IURC and the aggregate amount of
IPL's short-term indebtedness must be approved by FERC. IPL has approval from FERC to borrow up to
$500 million of short-term indebtedness outstanding at any time through July 27, 2008. IPL and
IPALCO 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 their existing debt obligations.
Under such restrictions, IPL is generally allowed to fully draw the amounts available on its
committed credit facility, refinance existing debt, issue an additional $60 million of long-term
debt approved by the IURC and incur certain other indebtedness. We believe that existing cash
balances, cash generated from operating activities and borrowing capacity on IPL's committed credit
facility will be adequate on a short-term and long-term basis to meet anticipated operating
expenses, interest expense on outstanding indebtedness, recurring capital expenditures and pay
dividends to AES. Sources for principal payments on outstanding indebtedness and nonrecurring
capital expenditures are expected to be obtained from: (i) existing cash balances;
(ii) cash generated from operating activities; (iii) borrowing capacity on IPL's committed
credit facility; and (iv) additional debt financing.

In December 2005, IPL filed a financing petition with the IURC requesting, among other things,
authority to issue a total of $60 million of debt in 2006 (including $30 million approved in the
previous financing petition, but not yet issued) and to refinance $80 million of debt that matures
in 2007. An Order was issued approving our Financing Petition on March 22, 2006.

In May 2006, IPL entered into a new credit agreement in the aggregate
principal amount of $120.6 million which includes an $80 million committed line
of credit and a $40.6 million liquidity facility (related to $40 million of IPL
variable rate bonds, which are remarketed weekly).  The committed line of credit
                                                                                 also provides a sub limit for the issuance of letters of credit.  The credit
                                                                                agreement allows the committed line of credit to be increased to $109.4 million
upon IPL's request and subject to certain other conditions.  Accordingly, in
July 2006, we requested an increase in our borrowing capacity of $29.4 million
to utilize this feature.  The maturity date for the new agreement is May 16,
2011.  This agreement replaced two existing 364-day agreements with an aggregate
borrowing capacity of $115.6 million which included a $75 million committed line
of credit and a $40.6 million liquidity facility.


Additionally, in May 2006, we amended our receivable sale agreement to extend the maturity date to May 29, 2007.

Capital Requirements.  Our capital requirements are primarily related to IPL's
construction expenditures needed to meet customers' needs for electricity and for environmental
compliance. IPL's capital expenditures totaled $98.7 million during the six months ended June 30,
2006. This represented an increase of $40.6 million from the comparable period in 2005, primarily
related to increased expenditures on technology designed to reduce environmental emissions related
to IPL's multi-pollutant plan. Construction expenditures during the first six months of 2006 were
financed with internally generated cash provided by operations and borrowings on our credit
facilities. IPL's construction program is composed of capital expenditures necessary for prudent
utility operations and compliance with environmental laws and regulations, along with discretionary
investments designed to improve overall performance. Our capital expenditure program for the three-
year period 2006-2008 is currently estimated to cost approximately $473 million. The estimated cost
of the overall program by year is $213 million in 2006, $120 million in 2007 and $140 million
in 2008. It includes approximately $152 million for additions, improvements and extensions to
transmission and distribution lines, substations, power factor and voltage regulating equipment,
distribution transformers and street lighting facilities. The capital expenditure program also
includes approximately $171 million for construction projects designed to reduce SO2 and
mercury emissions; $104 million for power plant related projects; $40 million for investments
associated with additional generation and $6 million for other miscellaneous equipment and
furniture. We currently estimate total capital expenditures related to environmental matters to be
approximately $115 million, $48 million and $8 million during 2006, 2007 and 2008, respectively.
The majority of such expenditures are recoverable through
jurisdictional retail rate revenue as part of IPL's multipollutant plan.
Capital expenditures are financed with a combination of internally generated funds and
short-term and long-term borrowings.

Pension Funding.  We have not made any contributions to the Pension Plans during
the first six months of 2006. Depending on the timing of contributions, potential legislation, and
other factors related to the funding strategy, we estimate potential cash contributions to the
Pension Plans of $30 to $50 million in 2006. This estimate is based on actuarial assumptions using a
discount rate of 5.78%.

Dividends.  All of our outstanding common stock is owned by AES. During the first
six months of 2006, we paid $43.5 million in dividends to AES. Future distributions will be
determined at the discretion of our board of directors and will depend primarily on dividends
received from IPL. Dividends from IPL are affected by IPL's results of operations, cash flows,
financial condition, capital requirements, financings, regulatory considerations, and such other
factors as IPL's board of directors deems relevant.

Other Regulatory Matters

Fuel Adjustment Charge Proceedings.

Our four most recent fuel adjustment charge proceeding ("FAC") Orders approved rates
that are interim rates, subject to refund, because of issues regarding the appropriateness of
recovery in the FAC process of Day Ahead Revenue Sufficiency Guarantee Distribution Amounts and
Real-Time Revenue Sufficiency Guarantee First Pass Distribution Amounts ("RSG amounts")
assessed by Midwest ISO. IPL was a party to a Joint Petition, docketed as Cause No. 42962, which
sought IURC approval of recovery of these charges through the FAC process.  In a May 4, 2006
Order, the IURC found that RSG amounts beginning December 9, 2005, may be recovered in IPL's FACs,
subject to a benchmark.  The Order also requires us to return RSG amounts from before December
9, 2005 charged to customers, or scheduled to be charged to customers, through the FAC, of
approximately $5.8 million. In accordance with the Order, we included the refund in our FAC filing
made in June 2006.

Additionally, in IPL's March 2006 FAC, a consumer advocacy group representing some of IPL's
industrial customers requested that a sub-docket be established to review IPL's fuel costs.  The
hearing on this FAC was held on May 3, 2006 and we received an Order on May 24, 2006 approving the
establishment of a sub-docket to review IPL's fuel costs. The Order authorized the use of the FAC
factor on an interim basis, subject to refund, because of the establishment of the sub-docket as
                                                                                  well as the findings of the Commission's May 4 Order in Cause No. 42962.

New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN No.
48") which is effective for fiscal years beginning after December 15, 2006.  We will adopt
FIN No. 48 on January 1, 2007 and record the cumulative effect of applying the
provisions of this Interpretation as an adjustment to beginning retained earnings.  FIN No. 48
applies to all tax positions accounted for in accordance with SFAS No. 109.  We are in the
process of determining the impact at this time.

In July 2006, the FASB also issued FASB Statement of Position
FAS 13-2, "Accounting for a Change or Projected Change in the Timing of Cash Flows
Relating to Income Taxes Generated by a Leveraged Lease Transaction". This FASB staff position
("FSP") amends FASB Statement No. 13, "Accounting for Leases", to require a
lessor in a leveraged-lease transaction to recalculate the leveraged lease for the effects of a
change or projected change in the timing of cash flows relating to income taxes that are generated
by the leveraged lease.  The FSP is effective for fiscal years beginning after
December 15, 2006.  The cumulative effect of applying the
provisions of this FSP will be recorded as an adjustment to the balance of retained earnings as of
the beginning of January 1, 2007.  We
are in the process of determining the impact at this time.

---

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Not applicable pursuant to General Instruction H of the Form 10-Q.

---

Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We carried out an
evaluation, under the supervision and with the participation of our management, including the chief
executive officer ("CEO") and chief financial officer ("CFO"), of the
effectiveness of our "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15-d-15 (e) as required by paragraph (b) of the Exchange
Act Rules 13a-15 or 15d-15) as of June 30, 2006. IPL's management, including the CEO and CFO, is
engaged in a comprehensive effort to review, evaluate and improve our controls; however, management
does not expect that our disclosure controls or our internal controls over financial reporting will
prevent all errors and all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the control system's objectives will be met.
Further, the design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. In addition, any evaluation
of the effectiveness of controls is subject to risks that those internal controls may become
inadequate in future periods because of changes in business conditions, or that the degree of
compliance with the policies or procedures deteriorates. We have interests in certain unconsolidated
entities. As we do not control or manage these entities, our disclosure controls and procedures with
respect to such entities is generally more limited than those we maintain with respect to our
consolidated subsidiaries.

Due to the material weakness described below, our CEO and CFO concluded that our disclosure
controls and procedures as of June 30, 2006 were not effective to ensure that information required
to be disclosed by us in reports we file or submit under the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. To address this material weakness, we performed additional
analysis and other procedures to prepare our consolidated financial statements in accordance with
generally accepted accounting principles. Accordingly, we believe that the consolidated financial
statements included in this quarterly report fairly present, in all material respects, our financial
condition, results of operations and cash flows for the periods presented.

A material weakness is a significant deficiency (within the meaning of PCAOB Auditing Standard
No. 2), or combination of significant deficiencies, that results in there being more than a remote
likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected.

As reported in Item 9A of our 2005 Form 10-K, the Company determined that a material weakness in
internal control over financial reporting existed as of December 31, 2005.  This material weakness
also existed as of June 30, 2006. Specifically, the Company lacked effective controls to monitor and
assess individual components of the deferred income tax and the related regulatory asset balances.
These control deficiencies could result in a future misstatement of certain account balances that
could result in a material misstatement to the annual or interim financial statements.

The Company's remediation efforts with respect to its deferred income tax and the related
regulatory asset balances include identification of all significant components and enhanced controls
over the analyses and reconciliation of the activity related to these components. Moreover, these
components are being incorporated into and tracked in our tax accounting system in order to
facilitate future reviews. When complete, the total deferred income taxes per the Company's
financial accounting system will be reconciled to the deferred taxes reported in the tax accounting
system on a quarterly basis.

Changes in Internal Controls. Please see above for a discussion of control enhancements
implemented relating to deferred income taxes and the related regulatory asset balances. In the
course of our evaluation of disclosure controls and procedures, management considered certain
internal control areas in which we have made and are continuing to make changes to improve and
enhance controls. Based upon that evaluation, the CEO and CFO concluded that there were no changes
in our internal controls over financial reporting identified in connection with the evaluation
required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter
ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.



Compliance with Section 404 of the Sarbanes Oxley Act of 2002.  Beginning with the year
ending December 31, 2007, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include
an internal control report of management with our annual report on Form 10-K. The internal control
report must contain (1) a statement of management's responsibility for establishing and maintaining
adequate internal controls over financial reporting for our Company, (2) a statement identifying the
framework used by management to conduct the required evaluation of the effectiveness of our internal
controls over financial reporting, (3) management's assessment of the effectiveness of our internal
controls over financial reporting as of the end of our most recent fiscal year, including a
statement as to whether or not our internal controls over financial reporting are effective, and (4)
a statement that our independent auditors have issued an attestation report on management's
assessment of our internal controls over financial reporting.

Management has developed a comprehensive plan in order to achieve compliance with Section 404
within the prescribed period and to review, evaluate and improve the design and effectiveness of our
controls and procedures on an on-going basis. The comprehensive compliance plan includes (1)
documentation and assessment of the adequacy of our internal controls over financial reporting, (2)
remediation of control weaknesses, (3) validation through testing that controls are functioning as
documented and (4) implementation of a continuous reporting and improvement process for internal
controls over financial reporting. As a result of this initiative, we have made and will continue to
make changes from time to time in our internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Please refer to our Form 10-Q for the period ended March 31, 2006 for
information related to a legal proceeding that was settled during the period covered by that
report.

Item 1A. Risk Factors

There have been no material changes to the risk factors as previously
disclosed in IPALCO's 2005 annual report on Form 10-K.

Item 6.  Exhibits





|**Exhibit No.** | **Document**
|--------------- | ------------

`31.1  Certification by Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a).

31.2  Certification by Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a).

  32  Certification required by Rule 13a-14(b) or 15d-14(b).

99.1  Fourth Amendment dated as of May 30, 2006 to Amended and Restated
      Receivables Sale Agreement Dated as of July 20, 2004`

---

**SIGNATURE**



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



| |                         
| | ------------------------
| | IPALCO ENTERPRISES, INC.

| |             
| | ------------
| |             
| | (Registrant)

Date: August 4, 2006



| |     |                    
| | --- | -------------------
| | By: | /s/ Frank P. Marino

| |                                                                          
| | -------------------------------------------------------------------------
| |                                                                          
| | Frank P. Marino                                                          
| | Vice President and Chief Financial Officer                               
| | (Principal Financial and Accounting Officer 
and Duly Authorized Officer)